<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934*
FUTURE PETROLEUM CORPORATION
(NAME OF ISSUER)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
390 916 100
(CUSIP NUMBER)
GARY R. PETERSEN
ENCAP INVESTMENTS L.C.
1100 LOUISIANA, SUITE 3150
HOUSTON, TEXAS 77002
(713) 659-6100
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS)
JANUARY 29, 1997
(DATE OF EVENT WHICH REQUIRES FILING
OF THIS STATEMENT)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Sections 240.13d-1(e), 240.13d-1(f) or 204.13d-1(g), check
the following box. [ ]
NOTE: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Section 240.13d-7(b) for
other parties to whom copies are to be sent.
*The remainder of the cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities,
and for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
<PAGE> 2
CUSIP NO. 390 916 100 SCHEDULE 13D
<TABLE>
<S> <C>
(1) Names of Reporting Persons I.R.S. Identification Nos. of Above Persons
ENERGY CAPITAL INVESTMENT COMPANY PLC
- -------------------------------------------------------------------------------------------------------------------------
(2) Check the Appropriate Box if a Member of a Group (See Instructions) (a) [ ]
(b) [ ]
- -------------------------------------------------------------------------------------------------------------------------
(3) SEC Use Only
- -------------------------------------------------------------------------------------------------------------------------
(4) Source of Funds (See Instructions) OO (SEE ITEM 3)
- -------------------------------------------------------------------------------------------------------------------------
(5) Check if Disclosure of Legal Proceedings is Required Pursuant to Items 2(d) or 2(e) [ ]
- -------------------------------------------------------------------------------------------------------------------------
(6) Citizenship or Place of Organization ENERGY CAPITAL INVESTMENT COMPANY
PLC IS A COMPANY FORMED UNDER THE
LAWS OF THE COUNTRY OF ENGLAND
- -------------------------------------------------------------------------------------------------------------------------
Number of (7) Sole Voting Power 0
Shares Bene- ---------------------------------------------------------------------------------------
ficially
Owned by (8) Shared Voting Power 1,004,688(1)
Each --------------------------------------------------------------------------------------
Reporting
Person With (9) Sole Dispositive Power 0
---------------------------------------------------------------------------------------
(10) Shared Dispositive Power 1,004,688(1)
- ------------------------------------------------------------------------------------------------------------------------
(11) Aggregate Amount Beneficially Owned by Each Reporting Person
1,004,688(2)
- ------------------------------------------------------------------------------------------------------------------------
(12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) [ ](2)
- -------------------------------------------------------------------------------------------------------------------------
(13) Percent of Class Represented by Amount in Row (11) 16.6%(3)
- -------------------------------------------------------------------------------------------------------------------------
(14) Type of Reporting Person (See Instructions) PN
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Voting and dispositive power is shared among Energy PLC and EnCap
Investments (defined in Item 2.)
(2) Energy PLC disclaims any beneficial ownership of EnCap LP's
(defined in Item 2) shares and only claims beneficial ownership of the
above-mentioned 1,004,688 shares. Please see Item 5.
(3) Based on 6,047,015 shares issued and outstanding as of May 20, 1998
as reported in the Form 10-QSB of the Issuer for the quarter ended March 31,
1998, and including the additional amount of shares of Common Stock which would
become outstanding upon the full exercise of the Energy PLC Warrants (defined
in Item 5).
Page 2
<PAGE> 3
CUSIP NO. 390 916 100 SCHEDULE 13D
<TABLE>
<S> <C>
(1) Names of Reporting Persons I.R.S. Identification Nos. of Above Persons
ENCAP INVESTMENTS L.C.
- -------------------------------------------------------------------------------------------------------------------------
(2) Check the Appropriate Box if a Member of a Group (See Instructions) (a) [ ]
(b) [ ]
- -------------------------------------------------------------------------------------------------------------------------
(3) SEC Use Only
- -------------------------------------------------------------------------------------------------------------------------
(4) Source of Funds (See Instructions) OO (SEE ITEM 3)
- -------------------------------------------------------------------------------------------------------------------------
(5) Check if Disclosure of Legal Proceedings is Required Pursuant to Items 2(d) or 2(e) [ ]
- -------------------------------------------------------------------------------------------------------------------------
(6) Citizenship or Place of Organization ENCAP INVESTMENTS L.C. IS A LIMITED
LIABILITY COMPANY ORGANIZED UNDER THE
LAWS OF THE STATE OF TEXAS
- -------------------------------------------------------------------------------------------------------------------------
Number of (7) Sole Voting Power 0
Shares Bene- ---------------------------------------------------------------------------------------
ficially
Owned by (8) Shared Voting Power 2,137,500(1)
Each --------------------------------------------------------------------------------------
Reporting
Person With (9) Sole Dispositive Power 0
---------------------------------------------------------------------------------------
(10) Shared Dispositive Power 2,137,500(1)
- ------------------------------------------------------------------------------------------------------------------------
(11) Aggregate Amount Beneficially Owned by Each Reporting Person 2,137,500(2)
- -------------------------------------------------------------------------------------------------------------------------
(12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) [ ](2)
- -------------------------------------------------------------------------------------------------------------------------
(13) Percent of Class Represented by Amount in Row (11) 35.3%(3)
- -------------------------------------------------------------------------------------------------------------------------
(14) Type of Reporting Person (See Instructions) OO
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Voting and dispositive power is shared among Energy PLC and EnCap
Investments, and EnCap LP and EnCap Investments respectively (defined in Item
2.)
(2) EnCap Investments disclaims any beneficial ownership of EnCap LP's
or Energy PLC's (defined in Item 2) shares.
(3) Based on 6,047,015 shares issued and outstanding as of May 20, 1998
as reported in the Form 10-QSB of the Issuer for the quarter ended March 31,
1998, and including the additional amount of shares of Common Stock which would
become outstanding upon the full exercise of the Energy PLC Warrants and the
EnCap LP Warrants (defined in Item 5).
Page 3
<PAGE> 4
CUSIP NO. 390 916 100 SCHEDULE 13D
<TABLE>
<S> <C>
(1) Names of Reporting Persons I.R.S. Identification Nos. of Above Persons
ENCAP EQUITY 1994 LIMITED PARTNERSHIP
- -------------------------------------------------------------------------------------------------------------------------
(2) Check the Appropriate Box if a Member of a Group (See Instructions) (a) [ ]
(b) [ ]
- -------------------------------------------------------------------------------------------------------------------------
(3) SEC Use Only
- -------------------------------------------------------------------------------------------------------------------------
(4) Source of Funds (See Instructions) OO (SEE ITEM 3)
- -------------------------------------------------------------------------------------------------------------------------
(5) Check if Disclosure of Legal Proceedings is Required Pursuant to Items 2(d) or 2(e) [ ]
- -------------------------------------------------------------------------------------------------------------------------
(6) Citizenship or Place of Organization ENCAP EQUITY 1994 LIMITED PARTNERSHIP IS
A LIMITED PARTNERSHIP ORGANIZED UNDER THE
LAWS OF THE STATE OF TEXAS
- -------------------------------------------------------------------------------------------------------------------------
Number of (7) Sole Voting Power 0
Shares Bene- ---------------------------------------------------------------------------------------
ficially
Owned by (8) Shared Voting Power 1,132,812(1)
Each --------------------------------------------------------------------------------------
Reporting
Person With (9) Sole Dispositive Power 0
---------------------------------------------------------------------------------------
(10) Shared Dispositive Power 1,132,812(1)
- ------------------------------------------------------------------------------------------------------------------------
(11) Aggregate Amount Beneficially Owned by Each Reporting Person
1,132,812(2)
- ------------------------------------------------------------------------------------------------------------------------
(12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) [ ](2)
- -------------------------------------------------------------------------------------------------------------------------
(13) Percent of Class Represented by Amount in Row (11)
18.7%(3)
- ------------------------------------------------------------------------------------------------------------------------
(14) Type of Reporting Person (See Instructions) PN
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Voting and dispositive power is shared among EnCap LP and EnCap
Investments (defined in Item 2.)
(2) EnCap LP disclaims any beneficial ownership of Energy PLC's
(defined in Item 2) shares and only claims beneficial ownership of the
above-mentioned 1,132,812 shares. Please see Item 5.
(3) Based on 6,047,015 shares issued and outstanding as of May 20, 1998
as reported in the Form 10-QSB of the Issuer for the quarter ended March 31,
1998, and including the additional amount of shares of Common Stock which would
become outstanding upon the full exercise of the EnCap LP Warrants (defined in
Item 5).
Page 4
<PAGE> 5
ITEM 1. SECURITY AND ISSUER.
The class of equity securities to which this statement relates is common
stock, par value $.01 per share (the "Common Stock"), of Future Petroleum
Corporation, a Utah corporation (the "Issuer"). The address of the principal
executive offices of the Issuer is 2351 West Northwest Highway, Suite 2130,
Dallas, Texas 75220.
ITEM 2. IDENTITY AND BACKGROUND.
(a) - (c)
Energy Capital Investment Company PLC ("Energy PLC"), is a company
organized and existing under the laws of England. Energy PLC's principal
business address and office is located at 1100 Louisiana, Suite 3150, Houston,
Texas 77002. The principal business of Energy PLC is engaging in oil and gas
related investments.
EnCap Equity 1994 Limited Partnership ("EnCap LP"), is a limited
partnership organized and existing under the laws of the State of Texas. EnCap
LP's principal business address and office is located at 1100 Louisiana, Suite
3150, Houston, Texas 77002. The principal business of EnCap LP is making oil
and gas related investments.
EnCap Investments L.C. ("EnCap Investments"), is a limited liability
company organized under the laws of the State of Texas. EnCap Investments is
the general partner of EnCap LP. EnCap Investments serves as an investment
advisor to Energy PLC under an Investment Advisory Agreement dated as of
February 4, 1994. EnCap Investments' principal business address and office is
located at 1100 Louisiana, Suite 3150, Houston, Texas 77002. The principal
business of EnCap Investments is to act as a financial consultant, investment
advisor and/or finder for its clients with respect to financial and investment
transactions in the oil and gas industry.
The name, business address, present principal occupation or employment
and the name, principal business address of any corporation or other
organization in which such employment is conducted, of (i) each of the
executive officers and directors of Energy PLC and (ii) the directors of EnCap
Investments (which is the general partner of EnCap LP), are set forth below:
Page 5
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<TABLE>
<CAPTION>
Name, Principal Business Address
of Organization in which Principal
Name and Capacity in Which Principal Occupation
Business Address Serves Occupation is Conducted
---------------- ------ ---------- ------------
<S> <C> <C> <C>
(i) Energy Capital Investment Company PLC.
-------------------------------------
Peter C. Tudball C.B.E. Director Non-executive Energy Capital Investment Company
Casu Investments Ltd. Energy Capital Director of various PLC
London House Investment companies 1100 Louisiana, Suite 3150
53-54 Haymarket Company PLC Houston, TX 77002
London SW1Y 4RP
Sir Peter G. Cazalet Director Non-executive Energy Capital Investment Company
15 Thames Walk Energy Capital Director of various PLC
Hestor Road Investment companies 1100 Louisiana, Suite 3150
London SW11 38G Company PLC Houston, TX 77002
Leo G. Deschuyteneer Director of Executive Director Sofina SA
38 Rue de Naples Energy Capital of Sofina SA 38 Rue de Naples
B-1050 Investment B-1050
Brussels, Belgium Company PLC Brussels
Eugene Fiedorek Director of Managing Director EnCap Investments L.C.
3811 Turtle Creek Blvd. Energy Capital EnCap Investments 3811 Turtle Creek Blvd.,
Suite 1080 Investment L.C. Suite 1080
Dallas, TX 75219 Company PLC Dallas, Texas 75219
Alan B. Henderson Director of Chairman of Ranger Ranger Oil (UK) Ltd.
Ranger House Energy Capital Oil (UK) Ltd. Ranger House
Walnut Tree Close Investment Walnut Tree Close
Guildford, Surrey Company PLC Guildford, Surrey
GU1 4US GU1 4US
James F. Ladner Director of Executive Director RP & C International
Gartenstrasse 10 Energy Capital of RP & C Gartenstrasse 10
CH-8002 Investment International CH-8002
Zurich, Switzerland Company PLC Zurich, Switzerland
Gary R. Petersen Director Managing Director EnCap Investments L.C.
1100 Louisiana Energy Capital EnCap Investments 1100 Louisiana
Suite 3150 Investment L.C. Suite 3150
Houston, TX 77002 Company PLC Houston, Texas 77002
William W. Vanderfelt Director Managing Partner of Petercam S.A.
19 Place Sainte-Gudule Energy Capital Petercam S.A. 19 Place Sainte-Gudule
B-1000 Investment B-1000
Brussels, Belguim Company PLC Brussels, Belguim
(ii) EnCap Investments L.C.
----------------------
Gary R. Petersen Managing Director See above See above
1100 Louisiana EnCap Investments
Suite 3150 L.C.
Houston, TX 77002
D. Martin Phillips Managing Director Managing Director EnCap Investments L.C.
1100 Louisiana EnCap Investments EnCap Investments 1100 Louisiana, Suite 3150
Suite 3150 L.C. L.C. Houston, TX 77002
Houston, TX 77002
Robert L. Zorich Managing Director Managing Director EnCap Investments L.C.
1100 Louisiana EnCap Investments EnCap Investments 1100 Louisiana, Suite 3150
Suite 3150 L.C. L.C. Houston, TX 77002
Houston, TX 77002
Eugene C. Fiedorek Managing Director See above See above
3811 Turtle Creek Blvd. EnCap Investments
Suite 1080 L.C.
Dallas, TX 75219
David B. Miller Managing Director Managing Director EnCap Investments L.C.
3811 Turtle Creek Blvd. EnCap Investments EnCap Investments 3811 Turtle Creek Blvd.,
Suite 1080 L.C. L.C. Suite 1080
Dallas, TX 75219 Dallas, Texas 75219
</TABLE>
Page 6
<PAGE> 7
(d) None of Energy PLC, EnCap LP, EnCap Investments or any of the
individuals identified in this Item 2 has, during the last five years, been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors).
(e) None of Energy PLC, EnCap LP, EnCap Investments or any of the
individuals identified in this Item 2 has, during the last five years, been a
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction and a result of such proceeding was or is subject to a judgment,
decree or final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws or finding
any violation with respect to such laws.
(f) Each of the individuals identified in this Item 2 is a citizen of
the United States of America, with the exception of (i) Peter C. Tudball,
C.B.E., Sir Peter G. Cazalet, Alan B. Henderson, and William W. Vanderfelt who
are all citizens of the United Kingdom, (ii) Energy PLC which was formed under
the laws of the United Kingdom, (iii) Leo G. Deschuyteneer who is a citizen of
Belguim, and (iv) James F. Ladner who is a citizen of Switzerland.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
DECEMBER 13, 1995 TRANSACTION. Future Petroleum Corporation, a Texas
corporation and a wholly-owned subsidiary of Issuer ("SUB"), EnCap LP and
Energy PLC entered into an Agreement of Limited Partnership dated as of
December 13, 1995 (the "ORIGINAL AGREEMENT"), establishing Future Acquisition
1995, Ltd., a Texas limited partnership ("FUTURE LP"). Sub is the sole general
partner of Future LP. EnCap LP and Energy PLC are limited partners of Future
LP.
Page 7
<PAGE> 8
Under the terms of the Original Agreement, (i) Sub contributed properties
to Future LP, (ii) EnCap LP contributed $785,120 to Future LP, which funds were
used by Future LP to acquire oil and gas properties and pay organizational
costs and (iii) Energy PLC contributed $471,536 to Future LP, which funds were
used by Future LP to acquire oil and gas properties and pay organizational
costs. EnCap LP and Energy PLC also agreed, subject to certain limitations
contained in the Original Agreement, to fund certain development costs with
respect to Future LP's oil and gas properties; the Original Agreement
contemplates that such amounts would not exceed $243,660 (EnCap LP) and
$146,340 (Energy PLC), respectively.
As additional consideration for the agreement of EnCap LP and Energy PLC
to enter into the Original Agreement and provide the funds contemplated
thereunder, Issuer issued the following warrants to acquire Common Stock as
follows:
Stock Purchase Warrant No. 1004 issued to EnCap LP and entitling
EnCap LP to acquire 156,192 shares of Common Stock; and
Stock Purchase Warrant No. 1003 issued to Energy PLC and entitling
Energy PLC to acquire 93,808 shares of Common Stock.
APRIL 18, 1996 TRANSACTION. Sub, EnCap LP and Energy PLC entered into a
letter amendment to the Original Agreement dated April 18, 1996 (the "LETTER
AMENDMENT"). Under the terms of the Letter Amendment, (i) EnCap LP agreed to
make additional capital contributions to Future LP in the following amounts and
for the following purposes: $42,453 to pay for organizational cost overruns,
$13,433 to provide funds for working capital and $49,783 to pay for drilling
and completion cost overruns; and (ii) Energy PLC agreed to make additional
capital contributions to Future LP in the following amounts and for the
following purposes: $25,497 to pay for organizational cost overruns, $8,067 to
provide funds for working capital and $29,899 to pay for drilling and
completion cost overruns. Issuer joined in the execution of the Letter
Amendment and, pursuant thereto and in consideration of EnCap LP's and Energy
PLC's agreement to make additional capital contributions to Future LP, agreed
to issue additional warrants to acquire Common Stock as follows:
Stock Purchase Warrant No. 1006 issued to EnCap LP and entitling
EnCap LP to acquire 23,429 shares of Common Stock; and
Stock Purchase Warrant No. 1005 issued to Energy PLC and entitling
Energy PLC to acquire 14,071 shares of Common Stock.
JANUARY 29, 1997 TRANSACTION. Sub, EnCap LP and Energy PLC further
amended the Original Agreement by entering into a First Amended and Restated
Agreement of Limited Partnership of Future LP dated as of January 29, 1997 (the
"AMENDED AND RESTATED AGREEMENT"). Under the terms of the Amended and Restated
Agreement, each of EnCap LP and Energy PLC made additional capital
contributions to Future LP in the amount of $1,171,500, which capital
contributions were used by Future LP to acquire additional oil and gas
properties.
As additional consideration for the agreement of EnCap LP and Energy PLC
to enter into the Amended and Restated Agreement and provide Future LP the
additional funds described above, Issuer issued Common Stock as follows:
100,000 shares of Common Stock issued to EnCap LP; and
100,000 shares of Common Stock issued to Energy PLC.
Page 8
<PAGE> 9
In connection therewith, Issuer, EnCap LP and Energy PLC entered into
that certain Agreement of Issuer dated as of January 29, 1997, whereunder
(among other things) (i) Issuer granted to EnCap LP and Energy PLC piggyback
registration rights with respect to the Warrant Shares (i.e., the shares
issuable upon exercise of the above referenced Stock Purchase Warrants) and the
shares of Common Stock referenced above. EnCap and Energy PLC agreed not to
sell any shares of the Common Stock referenced above for a specified period of
time preceding and after a public offering by Issuer of Common Stock.
APRIL 28, 1997 TRANSACTION. Sub, EnCap LP and Energy PLC amended the
Amended and Restated Agreement by entering into an April 1997 Amendment to
First Amended and Restated Agreement of Partnership of Future LP dated as of
April 28, 1997 (the "APRIL 1997 AMENDMENT"). Under the terms of the April 1997
Amendment, the Limited Partners agreed to make additional capital contributions
to Future LP in the aggregate amount not to exceed $493,400, of which an amount
not to exceed $350,000 could be used by Future LP to make distributions to Sub
and Issuer for the purpose of effecting a public offering of securities by
Issuer and for other general corporate purposes. The Issuer, Sub, Future LP,
Energy PLC and EnCap LP also entered into an agreement dated April 28, 1997
(the "APRIL 1997 AGREEMENT"). Under the terms of the April 1997 Agreement,
Issuer issued 12,500 shares of Common Stock to each of EnCap LP and Energy PLC
and agreed under certain circumstances to issue an additional 100,000 shares of
Common Stock to each of EnCap LP and Energy PLC. On November 25, 1997,
however, in connection with the consummation of the November 25, 1997
transaction (see below), each of Energy PLC and EnCap LP waived their rights to
receive the 100,000 shares of Common Stock of the Issuer referenced in the
April 1997 Agreement. Issuer granted to EnCap LP and Energy PLC piggyback
registration rights with respect to the shares of Common Stock issued pursuant
to the April 1997 Agreement.
NOVEMBER 25, 1997 TRANSACTION. Issuer, Energy PLC, EnCap LP and Gecko
Booty 1994 I Limited Partnership entered into that certain Purchase and Sale
Agreement dated November 25, 1997 (the "NOVEMBER 1997 PURCHASE AGREEMENT").
Pursuant to the November 1997 Purchase Agreement, Energy PLC and EnCap LP sold
limited partnership interests in BMC Development No. 1 Limited Partnership and
Future LP to the Issuer, and in return Energy PLC received, in addition to a
promissory note, 765,547 shares of Common Stock covered by this Schedule 13D
and EnCap LP received, in addition to a promissory note, 809,453 shares of
Common Stock covered by this Schedule 13D. Pursuant to a Registration Rights
Agreement dated as of November 29, 1997 (the "Registration Rights Agreement"),
by and among Issuer, EnCap LP and Energy PLC, Issuer granted to EnCap LP and
Energy PLC certain demand and piggyback registration rights with respect to the
shares of Common Stock issued pursuant to the November 1997 Purchase Agreement.
MAY 1, 1998 TRANSACTION. Issuer, EnCap LP, Energy PLC and NCI
Enterprises, Inc. entered into that certain Purchase and Sale Agreement dated
as of May 1, 1998 (the "MAY 1998 PURCHASE AGREEMENT"). Pursuant to the May
1998 Purchase Agreement, EnCap LP and Energy PLC sold limited partnership
interests in NCI-Shawnee Limited Partnership to the Issuer, and in return
Energy PLC received, in addition to a promissory note, 18,762 shares of Common
Stock covered by this Schedule 13D and EnCap LP received, in addition to a
promissory note, 31,238 shares of Common Stock covered by this Schedule 13D.
Pursuant to an Amendment No. 1 to Registration Rights Agreement dated as of
May 1, 1998, by and among Issuer, EnCap LP and Energy PLC, the parties amended
the Registration Rights Agreement to extend demand and piggyback registration
rights with respect to the shares of Common Stock issued pursuant to the May
1998 Purchase Agreement.
ITEM 4. PURPOSE OF TRANSACTION.
Energy PLC and EnCap LP acquired the securities herein reported for
investment purposes. Depending on market conditions, general economic
conditions and other factors that each may deem
Page 9
<PAGE> 10
significant to investment decisions, Energy PLC and EnCap LP may purchase
additional shares of Common Stock in the open market or in private transactions
or may dispose of all or a portion of the shares of Common Stock that either of
them may hereafter acquire.
The reporting persons have no present plans or proposals that relate to
or that would result in any of the actions specified in clauses (a) though (j)
of Item 4 of Schedule 13D.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) Energy PLC. Energy PLC is the beneficial owner of (i) 896,809
shares of Common Stock and (ii) stock purchase warrants (the "Energy PLC
Warrants") exercisable for the purchase of an additional 107,879 shares of
Common Stock. Because the Energy PLC Warrants are immediately exercisable,
Energy PLC is deemed to be the beneficial owner of the 1,004,688 shares
underlying the Energy PLC Warrants pursuant to Rule 13d-3(d) promulgated under
the Securities Exchange Act of 1934. Based on the 6,047,015 shares issued and
outstanding as of May 20, 1998 as reported in the Form 10-QSB of the Issuer for
the quarter ended March 31, 1998, and including the additional amount of shares
of Common Stock which would become outstanding upon the full exercise of the
Energy PLC Warrants by Energy PLC, Energy PLC is the beneficial owner of
approximately 16.6% of the outstanding shares of Common Stock.
EnCap LP. EnCap LP is the beneficial owner of (i) 953,191 shares
of Common Stock and (ii) stock purchase warrants (the "EnCap LP Warrants")
exercisable for the purchase of an additional 179,621 shares of Common Stock.
Because the EnCap LP Warrants are immediately exercisable, EnCap LP is deemed
to be the beneficial owner of the 1,132,812 shares underlying the EnCap LP
Warrants pursuant to Rule 13d-3(d) promulgated under the Securities Exchange
Act of 1934. Based on the 6,047,015 shares issued and outstanding as of May
20, 1998 as reported in the Form 10-QSB of the Issuer for the quarter ended
March 31, 1998, and including the additional amount of shares of Common Stock
which would become outstanding upon the full exercise of the EnCap LP Warrants
by EnCap LP, EnCap LP is the beneficial owner of approximately 18.7% of the
outstanding shares of Common Stock.
EnCap Investments. EnCap Investments, as the sole general partner
of EnCap LP and as an investment advisor of Energy PLC, is the beneficial owner
(i) of 1,850,000 shares of Common Stock and (ii) stock purchase warrants
exercisable for the purchase of an additional 287,500 shares of Common Stock.
Based on the 6,047,015 shares issued and outstanding as of May 20, 1998 as
reported in the Form 10-QSB of the Issuer for the quarter ended March 31, 1998,
and including the additional amount of shares of Common Stock which would
become outstanding upon the full exercise of the EnCap LP Warrants by EnCap LP
and the Energy PLC Warrants by Energy PLC, EnCap Investments is the beneficial
owner of approximately 35.3% of the outstanding shares of Common Stock.
Executive Officers and Directors. None of the executive officers
and directors of Energy PLC or the directors of EnCap Investments named in Item
2 is the beneficial owner of any shares of Common Stock.
(b) Energy PLC. Pursuant to the Investment Agreement (as defined in
Item 6), Energy PLC shares the power to vote or direct the vote and to dispose
or direct the disposition of 1,004,688 shares of Common Stock with EnCap
Investments.
EnCap LP. Through its general partner, EnCap LP shares the power to
vote or direct the vote and to dispose or direct the disposition of 1,132,812
shares of Common Stock with EnCap Investments, its general partner.
Page 10
<PAGE> 11
EnCap Investments. EnCap Investments shares the power to vote and
direct the vote or to dispose or direct the disposition of 2,137,500 shares of
Common Stock with each of Energy PLC by virtue of the Investment Agreement (as
defined in Item 6) and EnCap LP as its general partner. EnCap Investments
disclaims beneficial ownership of any shares of Common Stock owned by either
EnCap LP or Energy PLC.
Executive Officers and Directors. No executive officer or director
of Energy PLC or managing director of EnCap Investments has the power to vote
or direct the vote or dispose or direct the disposition of any shares of Common
Stock.
(c) Except as otherwise described herein or in any Exhibit filed
herewith, none of the persons named in response to paragraph (a) above has
effected any transaction in shares of the Common Stock during the past 60 days.
(d) No person other than Energy PLC, EnCap LP and EnCap Investments has
the right to receive or the power to direct the receipt of dividends from, or
the proceeds from the sale of, the shares of Common Stock deemed to be
beneficially owned by them.
(e) It is inapplicable for the purposes herein to state the date on
which a party ceased to be the owner of more than five percent (5%) of the
shares of Common Stock.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO THE SECURITIES OF THE ISSUER.
Except as set forth in Items 5 and 6 or in the Exhibits filed herewith,
there are no contracts, arrangements, understandings or relationships (legal or
otherwise) between any of the individuals or entities described in Item 2 or
between such persons and any other person with respect to the shares of Common
Stock deemed to be beneficially owned by Energy PLC, EnCap LP and EnCap
Investments.
EnCap Investments, as the general partner of EnCap LP, is a party to the
Agreement of Limited Partnership of EnCap LP, and is a party to that certain
Investment Advisory Agreement dated February 4, 1994 between EnCap Investments
and Energy PLC (the "Investment Agreement") whereby EnCap Investments acts as
an investment advisor to Energy PLC.
B. Carl Price, Don W. Reynolds, Energy PLC and EnCap LP have entered into
a Voting Agreement pursuant to which Messrs. Price and Reynolds have agreed to
vote all of the voting securities beneficially owned by them in favor of the
candidate selected by Energy PLC and EnCap LP to become a director of the
Issuer.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 1 - Joint Filing Agreement dated June 29, 1998 between Energy PLC,
EnCap LP and EnCap Investments.
Exhibit 4.1 - Voting Agreement dated November 25, 1997 between B. Carl
Price, Don W. Reynolds, Energy Capital Investment Company PLC
and EnCap Equity 1994 Limited Partnership.
Exhibit 4.2 - Stock Purchase Warrant No. 1003 dated December 13, 1995
granted to Energy Capital Investment Company PLC.
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Exhibit 4.3 - Stock Purchase Warrant No. 1005 dated April 18, 1996
granted to Energy Capital Investment Company PLC.
Exhibit 4.4 - Stock Purchase Warrant No. 1004 dated December 13, 1995
granted to EnCap Equity 1994 Limited Partnership.
Exhibit 4.5 - Stock Purchase Warrant No. 1006 dated April 18, 1996 granted
to EnCap Equity 1994 Limited Partnership.
Exhibit 4.6 - Investment Advisory Agreement dated February 4, 1994
Exhibit 10.1 - April 1997 Agreement dated April 28, 1997 between Future
Petroleum Corporation, Future Petroleum Corporation, a Texas
corporation, Future Acquisition 1995, Ltd, Energy Capital
Investment Company PLC and EnCap Equity 1994 Limited
Partnership.
Exhibit 10.2 - Purchase and Sale Agreement dated November 25, 1997 by and
among Future Petroleum Corporation, Energy Capital Investment
Company PLC, EnCap Equity 1994 Limited Partnership, and Gecko
Booty 1994 I Limited Partnership.
Exhibit 10.3 - First Amended and Restated Agreement of Limited Partnership of
Future Acquisition 1995, Ltd. dated January 29, 1997 by and
among Future Petroleum Corporation, a Texas corporation, EnCap
Equity 1994 Limited Partnership and Energy Capital Investment
Company PLC, as amended by the Letter Amendment dated April
18, 1996 and the First Amended and Restated Agreement of
Limited Partnership dated as of April 28, 1997.
Exhibit 10.4 - Agreement of Parent dated January 29, 1997 by and among Future
Petroleum Corporation, Future Acquisition 1995, Ltd., Energy
Capital Investment Company PLC and EnCap Equity 1994 Limited
Partnership.
Page 12
<PAGE> 13
SIGNATURES
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Date: June 29, 1998 ENERGY CAPITAL INVESTMENT COMPANY PLC
By: /s/ Gary R. Petersen
----------------------------------------
Gary R. Petersen
Director
Date: June 29, 1998 ENCAP EQUITY 1994 LIMITED PARTNERSHIP
By: EnCap Investments L.C., General Partner
/s/ Gary R. Petersen
---------------------------------------------
Gary R. Petersen
Managing Director
Date: June 29, 1998 ENCAP INVESTMENTS L.C.
/s/ Gary R. Petersen
---------------------------------------------
Gary R. Petersen
Managing Director
Page 13
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
Exhibit 1 - Joint Filing Agreement dated June 29, 1998 between Energy PLC,
EnCap LP and EnCap Investments.
Exhibit 4.1 - Voting Agreement dated November 25, 1997 between B. Carl
Price, Don W. Reynolds, Energy Capital Investment Company PLC
and EnCap Equity 1994 Limited Partnership.
Exhibit 4.2 - Stock Purchase Warrant No. 1003 dated December 13, 1995
granted to Energy Capital Investment Company PLC.
Exhibit 4.3 - Stock Purchase Warrant No. 1005 dated April 18, 1996
granted to Energy Capital Investment Company PLC.
Exhibit 4.4 - Stock Purchase Warrant No. 1004 dated December 13, 1995
granted to EnCap Equity 1994 Limited Partnership.
Exhibit 4.5 - Stock Purchase Warrant No. 1006 dated April 18, 1996 granted
to EnCap Equity 1994 Limited Partnership.
Exhibit 4.6 - Investment Advisory Agreement dated February 4, 1994
Exhibit 10.1 - April 1997 Agreement dated April 28, 1997 between Future
Petroleum Corporation, Future Petroleum Corporation, a Texas
corporation, Future Acquisition 1995, Ltd, Energy Capital
Investment Company PLC and EnCap Equity 1994 Limited
Partnership.
Exhibit 10.2 - Purchase and Sale Agreement dated November 25, 1997 by and
among Future Petroleum Corporation, Energy Capital Investment
Company PLC, EnCap Equity 1994 Limited Partnership, and Gecko
Booty 1994 I Limited Partnership.
Exhibit 10.3 - First Amended and Restated Agreement of Limited Partnership of
Future Acquisition 1995, Ltd. dated January 29, 1997 by and
among Future Petroleum Corporation, a Texas corporation, EnCap
Equity 1994 Limited Partnership and Energy Capital Investment
Company PLC, as amended by the Letter Amendment dated April
18, 1996 and the First Amended and Restated Agreement of
Limited Partnership dated as of April 28, 1997.
Exhibit 10.4 - Agreement of Parent dated January 29, 1997 by and among Future
Petroleum Corporation, Future Acquisition 1995, Ltd., Energy
Capital Investment Company PLC and EnCap Equity 1994 Limited
Partnership.
</TABLE>
<PAGE> 1
EXHIBIT 1
AGREEMENT
The undersigned reporting persons hereby agree that the statements
filed pursuant to this Schedule 13D dated June 29, 1998, to which this
Agreement is filed as an exhibit, are filed on behalf of each of them.
Date: June 29, 1998 ENERGY CAPITAL INVESTMENT COMPANY PLC
By: /s/ Gary R. Petersen
----------------------------------------
Gary R. Petersen
Director
Date: June 29, 1998 ENCAP EQUITY 1994 LIMITED PARTNERSHIP
/s/ Gary R. Petersen
---------------------------------------------
Gary R. Petersen
Managing Director
Date: June 29, 1998 ENCAP INVESTMENTS L.C.
/s/ Gary R. Petersen
---------------------------------------------
Gary R. Petersen
Managing Director
<PAGE> 1
EXHIBIT 4.1
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "AGREEMENT") is made and entered into this
25th day of November, 1997, by and among B. Carl Price, a Texas resident, Don
Wm Reynolds, a Texas resident, Energy Capital Investment Company PLC, an
English investment company ("ENERGY PLC"), and EnCap Equity 1994 Limited
Partnership, a Texas limited partnership ("ENCAP LP").
RECITALS:
A. Messrs. Price and Reynolds are shareholders in Future
Petroleum Corporation, a Utah corporation ("FUTURE"), and are herein sometimes
called the "EXISTING SHAREHOLDERS".
B. Future, Energy PLC, EnCap LP, and Gecko Booty 1994 I Limited
Partnership, a Texas limited partnership ("GECKO BOOTY"), are entering into
that certain Purchase and Sale Agreement of even date herewith (the "PURCHASE
AGREEMENT"), whereby (i) Energy PLC and EnCap LP will sell to Future, and
Future will purchase from Energy PLC and EnCap LP, certain limited partnership
interests more particularly described in the Purchase Agreement, in exchange
for promissory notes issued by Future and shares of common stock of Future,
$0.01 par value per share ("COMMON STOCK"), and (ii) Gecko Booty will sell to
Future, and Future will purchase from Gecko Booty, certain oil, gas and/or
mineral leases and related assets of Gecko Booty, in exchange for a promissory
note issued by Future. Energy PLC and EnCap LP are herein sometimes called the
"NEW SHAREHOLDERS" and Energy PLC and EnCap LP are herein sometime called the
"ENCAP ENTITIES".
C. Under the Purchase Agreement, Future has made certain
agreements with the New Shareholders with respect to the appointment and
election to the Board of Directors of Future of certain persons designated by
the EnCap Entities. Any person or persons so designated by the EnCap Entities
under the Purchase Agreement shall be herein called an "ENCAP DESIGNEE".
D. The parties hereto deem it in their mutual best interests to
enter into this Agreement, it being specifically acknowledged that the New
Shareholders would not be willing to enter into the Purchase Agreement and
consummate the transactions thereby without the covenants and agreements of the
Existing Shareholders.
AGREEMENT:
NOW, THEREFORE, for and in consideration of the foregoing Recitals and
the mutual agreements contained herein, the sufficiency of which is hereby
acknowledged and confirmed, the parties hereto, intending to be legally bound
hereby, agree as follows:
- 1 -
<PAGE> 2
SECTION 1. VOTING AGREEMENT REGARDING DESIGNATED NOMINEES.
(a) So long as Future is required under either Section 10.11 or
Section 12.2 of the Purchase Agreement to appoint or nominate (or cause to be
nominated) an EnCap Designee to the Future Board of Directors, each Existing
Shareholder (i) shall vote or cause to be voted all Voting Securities
beneficially owned by such Existing Shareholder in favor of the EnCap
Designee's election to Future's Board of Directors and (ii) shall use his
reasonable best efforts to cause the EnCap Designee to be elected to Future's
Board of Directors. As used herein, the term "VOTING SECURITIES" shall mean
Common Stock and any other securities of Future entitled to vote generally for
the election of directors of Future.
(b) If EnCap Designees have been appointed to Future's Board of
Directors under Section 12.2 of the Purchase Agreement (and are so serving),
such EnCap Designees agree to nominate for election nominees designated by the
Existing Shareholders.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF EXISTING
SHAREHOLDERS. Each Existing Shareholder hereby severally represents and
warrants to the EnCap Entities as follows:
(a) Such Existing Shareholder is the record and beneficial owner
of the number of shares of Common Stock set forth opposite his name in the
attached Exhibit 2(a).
(b) Such Existing Shareholder has full power and authority to
execute, deliver, and perform this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
such Existing Shareholder and constitutes a valid and legally binding
obligation of such Existing Shareholder, enforceable against such Existing
Shareholder in accordance with its terms.
(c) The execution, delivery, and performance by such Existing
Shareholder of this Agreement do not and will not (i) conflict with or result
in a violation of any provision of, or constitute (with or without the giving
of notice or the passage of time or both) a default under, or give rise (with
or without the giving of notice or the passage of time or both) to any right of
termination, cancellation, or acceleration under, any bond, debenture, note,
mortgage, indenture, lease, contract, agreement, or other instrument or
obligation to which such Existing Shareholder is a party or by which such
Existing Shareholder or any of its properties may be bound or (ii) violate any
applicable law, rule or regulation binding upon such Existing Shareholder.
(d) No consent, approval, order, or authorization of, or
declaration, filing, or registration with, any court or governmental agency or
of any third party is required to be obtained or made by such Existing
Shareholder in connection with the execution, delivery, or performance by such
Existing Shareholder of this Agreement.
-2-
<PAGE> 3
SECTION 3. SURVIVAL OF PROVISIONS. All representations,
warranties and covenants made by each party hereto in this Agreement or any
other document contemplated hereby shall be considered to have been relied upon
by the other parties hereto and shall survive the execution and delivery of
this Agreement or such other document, regardless of any investigation made by
or on behalf of any such party.
SECTION 4. ENTIRE AGREEMENT. This Agreement and the other
documents contemplated hereunder contain the entire understanding of the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements, understandings, negotiations, and discussions among the
parties with respect to such subject matter.
SECTION 5. AMENDMENTS. This Agreement may be amended, modified,
supplemented, restated or discharged only by an instrument in writing signed by
all of the parties hereto.
SECTION 6. NO WAIVER. The failure of any party hereto to insist
upon strict performance of a covenant hereunder or of any obligation hereunder,
irrespective of the length of time for which such failure continues, shall not
be a waiver of such party's right to demand strict compliance in the future.
No consent or waiver, express or implied, to or of any breach or default in the
performance of any obligation hereunder shall constitute a consent or waiver to
or of any other breach or default in the performance of the same or any other
obligation hereunder.
SECTION 7. CHOICE OF LAW. This Agreement shall be governed by
the laws of the State of Utah.
SECTION 8. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding on and inure to the benefit of the parties hereto and their respective
successors and assigns.
SECTION 9. REFERENCES AND CONSTRUCTION.
(a) All references in this Agreement to articles, sections,
subsections and other subdivisions refer to corresponding articles, sections,
subsections and other subdivisions of this Agreement unless expressly provided
otherwise.
(b) Titles appearing at the beginning of any of such subdivisions
are for convenience only and shall not constitute part of such subdivisions and
shall be disregarded in construing the language contained in such subdivisions.
(c) The words "this Agreement", "this instrument", "herein",
"hereof", "hereby", "hereunder" and words of similar import refer to this
Agreement as a whole and not to any particular subdivision unless expressly so
limited.
-3-
<PAGE> 4
(d) Words in the singular form shall be construed to include the
plural and vice versa, unless the context otherwise requires.
(e) Unless the context otherwise requires or unless otherwise
provided herein, the terms defined in this Agreement which refer to a
particular agreement, instrument or document also refer to and include all
renewals, extensions, modifications, amendments or restatements of such
agreement, instrument or document, provided that nothing contained in this
subsection shall be construed to authorize such renewal, extension,
modification, amendment or restatement.
(f) Examples shall not be construed to limit, expressly or by
implication, the matter they illustrate.
(g) The word "includes" and its derivatives means "includes, but
is not limited to" and corresponding derivative expressions.
(h) No consideration shall be given to the fact or presumption
that one party had a greater or lesser hand in drafting this Agreement.
(i) All references herein to "$" or "dollars" shall refer to U.S.
Dollars.
SECTION 10. ENDORSEMENTS. The certificate or certificates
representing the Voting Securities now owned or hereafter acquired by the
Existing Shareholders shall have conspicuously stamped, printed, or typed on
the face or back thereof a legend substantially in the following form:
"The shares represented hereby are subject to that certain
Voting Agreement dated as of November 25, 1997, by and among B. Carl
Price, Don Wm. Reynolds, Energy Capital Investment Company PLC, and
EnCap Equity 1994 Limited Partnership. A copy of the Voting Agreement
and all applicable amendments thereto will be furnished by the Company
to the holder hereof without charge upon written request to the
Company at its principal place of business or registered office."
SECTION 11. SPECIFIC PERFORMANCE. Each of the parties hereto
recognizes that any breach of the terms of this Agreement may give rise to
irreparable harm for which money damages would not be an adequate remedy, and
accordingly agree that, in addition to other remedies, any nonbreaching party
shall be entitled to enforce the terms of this Agreement by a decree of
specific performance without the necessity of proving the inadequacy as a
remedy of money damages.
SECTION 12. COUNTERPARTS. This Agreement may be executed in
multiple counterparts, with each such counterpart constituting an original and
all of such counterparts constituting but one and the same agreement.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date and year first above written.
/s/ B. CARL PRICE
------------------------------
Name: B. Carl Price
/s/ DON WM. REYNOLDS
------------------------------
Don Wm. Reynolds
ENCAP EQUITY 1994 LIMITED
PARTNERSHIP
By: EnCap Investments L.C., General
Partner
By: /s/ GARY R. PETERSEN
------------------------------
Name: Gary R. Petersen
Title: Managing Director
ENERGY CAPITAL INVESTMENT
COMPANY PLC
By: /S/ GARY R. PETERSEN
------------------------------
Name: Gary R. Petersen
Title: Director
-5-
<PAGE> 1
EXHIBIT 4.2
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES
OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD,
ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER SAID ACT AND UNDER APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR
EXEMPTIONS FROM SUCH REGISTRATION. THIS WARRANT MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT UPON THE CONDITIONS SPECIFIED IN
THIS WARRANT, AND NO SALE, ASSIGNMENT, TRANSFER, OR OTHER DISPOSITION OF THIS
WARRANT SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE
BEEN COMPLIED WITH.
No. 1003 Right to Purchase 93,808 Shares
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Energy Capital Investment
Company PLC, an English investment company, or registered assigns, is entitled
to purchase from Future Petroleum Corporation, a Utah corporation (the
"COMPANY"), at any time or from time to time during the period specified in
Paragraph 2 hereof, Ninety Three Thousand Eight Hundred Eight (93,808) fully
paid and nonassessable shares of the Company's Common Stock, par value $0.01 per
share (the "COMMON STOCK"), at an exercise price per share of $1.00 (the
"EXERCISE PRICE"). The term "WARRANT SHARES", as used herein, refers to the
shares of Common Stock purchasable hereunder. The Warrant Shares and the
Exercise Price are subject to adjustment as provided in Paragraph 4 hereof.
This Warrant is subject to the following terms, provisions, and
conditions:
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part by the surrender of this Warrant, together with a
completed Exercise Agreement in the form attached hereto, to the Company during
normal business hours on any business day at the Company's principal office in
Dallas, Texas (or such other office or agency of the Company as it may designate
by notice to the holder hereof), and upon payment to the Company in cash or by
certified or official bank check of the Exercise Price for the Warrant Shares
specified in said Exercise Agreement. The Warrant Shares so purchased shall be
deemed to be issued to the holder hereof or its designee as the record owner of
such shares as of the close of business on the date on which this Warrant shall
have been surrendered, the completed Exercise Agreement delivered, and payment
made for such shares as aforesaid. Certificates for the Warrant Shares so
purchased, representing the aggregate number of shares specified in said
Exercise Agreement, shall be delivered to the holder hereof within a reasonable
time, not exceeding seven business days, after this Warrant shall have been so
exercised. The certificates so delivered shall be in
-1-
<PAGE> 2
such denominations as may be requested by the holder hereof and shall be
registered in the name of said holder or such other name as shall be designated
by said holder. If this Warrant shall have been exercised only in part, then,
unless this Warrant has expired, the Company shall, at its expense, at the time
of delivery of said certificates, deliver to said holder a new Warrant
representing the number of shares with respect to which this Warrant shall not
then have been exercised. The Company shall pay all taxes and other expenses and
charges payable in connection with the preparation, execution, and delivery of
stock certificates (and any new Warrants) pursuant to this Paragraph 1 except
that, in case such stock certificates shall be registered in a name or names
other than the holder of this Warrant, funds sufficient to pay all stock
transfer taxes which shall be payable in connection with the execution and
delivery of such stock certificates shall be paid by the holder hereof to the
Company at the time of the delivery of such stock certificates by the Company as
mentioned above.
2. PERIOD OF EXERCISE. This Warrant is exercisable at any time or from
time to time after December 13, 1995, and before 5:00 p.m. local time on
December 13, 2000.
3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants and
agrees as follows:
(a) SHARES TO BE FULLY PAID. All Warrant Shares will, upon issuance, be
validly issued, fully paid, and nonassessable and free from all taxes, liens,
and charges with respect to the issue thereof.
(b) RESERVATION OF SHARES. During the period within which this Warrant
may be exercised, the Company will at all times have authorized, and reserved
for the purpose of issue upon exercise of this Warrant, a sufficient number of
shares of Common Stock to provide for the exercise of this Warrant.
(c) CERTAIN ACTIONS PROHIBITED. The Company will not, by amendment of
its charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. Without limiting the generality of the foregoing, (i) the Company
will not increase the par value of the shares of Common Stock receivable upon
the exercise of this Warrant above the Exercise Price then in effect, (ii)
before taking any action which would cause an adjustment reducing the Exercise
Price below the then par value of the shares of Common Stock so receivable, the
Company will take all such corporate action as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock at such adjusted Exercise Price upon the
exercise of this Warrant.
-2-
<PAGE> 3
(d) REGISTRATION. If the issuance of any Warrant Shares required to be
reserved for purposes of exercise of this Warrant requires registration with or
approval of any governmental authority under any federal or state law (other
than any registration under the Securities Act of 1933, as amended, or under
applicable state securities or blue sky laws) or listing on any national
securities exchange, before such shares may be issued upon exercise of this
Warrant, the Company will, at its expense, use its best efforts to cause such
shares to be duly registered or approved, or listed on the relevant national
securities exchange, as the case may be, at such time, so that such shares may
be issued in accordance with the terms hereof.
4. ANTIDILUTION PROVISIONS. The Exercise Price shall be subject to
adjustment from time to time as provided in this Paragraph 4. Upon each
adjustment of the Exercise Price, the holder of this Warrant shall thereafter be
entitled to purchase, at the Exercise Price resulting from such adjustment, the
largest number of Warrant Shares obtained by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Shares
purchasable hereunder immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment. For
purposes of this Paragraph 4, the term "CAPITAL STOCK", as used herein,includes
the Common Stock and any additional class of stock of the Company having no
preference as to dividends or distributions on liquidation which may be
authorized in the future, provided that the shares purchasable pursuant to this
Warrant shall include only shares of Common Stock, or shares resulting from any
subdivision or combination of the Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or sale of the
character referred to in Paragraph 4(g) hereof, the stock or other securities or
property provided for in said Paragraph, but excludes any Common Stock and any
additional class of stock of the Company having no preference as to dividends or
distributions on liquidation (x) that may be authorized in the future pursuant
to currently existing and outstanding written agreements as listed in Schedule 4
attached hereto or (y) that may be issued pursuant to the exercise of any
currently existing or future options to purchase Common Stock (or any such
additional class of stock) granted by the Company to its employees.
(a) ISSUANCE OF CAPITAL STOCK. If and whenever the Company shall issue
or sell any shares of Capital Stock without consideration or for a consideration
per share less than the Exercise Price in effect immediately prior to the time
of such issue or sale, then, forthwith upon such issue or sale, the Exercise
Price shall be reduced to a price (calculated to the nearest cent) determined by
dividing (x) an amount equal to the sum of (aa) the total number of shares of
Capital Stock outstanding immediately prior to such issue or sale multiplied by
the then existing Exercise Price, and (bb) the consideration, if any, received
by the Company upon such issue or sale, by (y) the total number of shares of
Capital Stock outstanding immediately after such issue or sale.
(b) TREATMENT OF OPTIONS AND CONVERTIBLE SECURITIES; COMPUTATION OF
CONSIDERATION. For purposes of Paragraph 4(a) hereof the following provisions
shall also be applicable:
-3-
<PAGE> 4
(i) In case the Company shall grant any rights to subscribe
for or purchase, or any options for the purchase of, Capital Stock or
securities convertible into or exchangeable for Capital Stock (such
rights and options being herein called "OPTIONS" and such convertible
or exchangeable securities being herein called "CONVERTIBLE
SECURITIES"), whether or not such Options or the rights to convert or
exchange any such Convertible Securities are immediately exercisable,
and the price per share for which Capital Stock is issuable upon the
exercise of such Options or upon the conversion or exchange of such
Convertible Securities (as determined in accordance with the following
sentence) shall be less than the Exercise Price in effect immediately
prior to the time of the granting of such Options, then the total
maximum number of shares of Capital Stock issuable upon the exercise of
such Options or upon the conversion or exchange of the total maximum
amount of such Convertible Securities issuable upon the exercise of
such Options shall (as of the date of granting of such Options) be
deemed to be outstanding and to have been issued and sold for such
price per share. The price per share for which the Capital Stock is
issuable, as provided in the preceding sentence, shall be determined by
dividing (x) the total amount, if any, received or receivable by the
Company as consideration for the granting of such Options, plus the
minimum aggregate amount of additional consideration payable to the
Company upon the exercise of such Options, plus, in the case of any
such Options which relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable to the
Company upon the conversion or exchange of such Convertible Securities,
by (y) the total maximum number of shares of Capital Stock issuable
upon the exercise of such Options or upon the conversion or exchange of
all such Convertible Securities issuable upon the exercise of such
Options. Except as provided in Paragraph 4(b)(vi) hereof, no further
adjustments of the Exercise Price shall be made upon the actual issue
of such Capital Stock or of such Convertible Securities upon the
exercise of such Options or upon the actual issue of such Capital Stock
upon the conversion or exchange of such Convertible Securities.
(ii) In case the Company shall issue or sell Convertible
Securities, whether or not the rights to convert or exchange such
Convertible Securities are immediately exercisable, and the price per
share for which Capital Stock is issuable upon the conversion or
exchange of such Convertible Securities (as determined in accordance
with the following sentence) shall be less than the Exercise Price in
effect immediately prior to the time of the issue or sale of such
Convertible Securities, then the total maximum number of shares of
Capital Stock issuable upon the conversion or exchange of all such
Convertible Securities shall (as of the date of the issue or sale of
such Convertible Securities) be deemed to be outstanding and to have
been issued and sold for such price per share, provided that (a) except
as provided in Paragraph 4(b)(vi) hereof, no further adjustments of the
Exercise Price shall be made upon the actual issue of such Capital
Stock upon the conversion or exchange of such Convertible Securities,
and (b) if any such issue or sale of such Convertible Securities is
made upon exercise of any Options for which adjustments of the Exercise
Price have been or are to be made pursuant to other provisions of this
Paragraph 4(b), no further adjustment of the Exercise Price shall be
made by reason of such issue or sale. The price per share for which the
Capital Stock is issuable, as provided in the preceding sentence,
shall be determined by
-4-
<PAGE> 5
dividing (x) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the conversion or exchange thereof, by (y)
the total maximum number of shares of Capital Stock issuable upon the
conversion or exchange of all such Convertible Securities.
(iii) In case at any time the Company shall pay a
dividend or make any other distribution upon the Capital Stock payable
in Capital Stock, Options or Convertible Securities, any Capital Stock,
Options or Convertible Securities, as the case may be, issuable in
payment of such dividend or distribution shall be deemed to have been
issued without consideration.
(iv) In case at any time any Capital Stock, Convertible
Securities, or Options shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount
received by the Company therefor, without deduction therefrom of any
expenses incurred or any underwriting commissions or concessions paid
or allowed by the Company in connection therewith. In case any Capital
Stock, Convertible Securities, or Options shall be issued or sold for a
consideration other than cash, the amount of the consideration other
than cash received by the Company therefor shall be deemed to be the
fair value of such consideration as determined in good faith by the
Board of Directors of the Company, except where such consideration
consists of securities, in which case the amount of consideration
received by the Company shall be the market price thereof (determined
as provided in Paragraph 4(e) hereof) as of the date of receipt, but in
each such case without deduction therefrom of any expenses incurred or
any underwriting commissions or concessions paid or allowed by the
Company in connection therewith. In computing the market price of a
note or other obligation that is not listed or admitted to trading on
any securities exchange or quoted in the National Association of
Securities Dealers, Inc. Automated Quotation System or reported by the
National Quotation Bureau, Inc. or a similar reporting organization,
the total consideration to be received by the Company thereunder
(including interest) shall be discounted to present value at the prime
rate of interest of NationsBank of Texas, N.A. in effect at the time
the note or obligation is deemed to have been issued. In case any
Capital Stock, Convertible Securities, or Options shall be issued in
connection with any merger of another corporation into the Company, the
amount of consideration therefor shall be deemed to be the fair value
as determined in good faith by the Board of Directors of the Company of
such portion of the assets of such merged corporation as the Board
shall determine to be attributable to such Capital Stock, Convertible
Securities, or Options.
(v) In case at any time the Company shall take a record
of the holders of Capital Stock for the purpose of entitling them (a)
to receive a dividend or other distribution payable in Capital Stock,
Options or Convertible Securities, or (b) to subscribe for or purchase
Capital Stock, Options or Convertible Securities, then such record date
shall be deemed to be the date of the issue or sale of such Capital
Stock, Options or Convertible Securities.
-5-
<PAGE> 6
(vi) If the purchase price provided for in any Option
referred to in Paragraph 4(b)(i) hereof, or the price at which any
Convertible Securities referred to in Paragraph 4(b)(i) or (ii) hereof
are convertible into or exchangeable for Capital Stock, shall change at
any time (whether by reason of provisions designed to protect against
dilution or otherwise), the Exercise Price then in effect hereunder
shall forthwith be increased or decreased to such Exercise Price as
would have obtained had the adjustments made upon the issuance of such
Options or Convertible Securities been made upon the basis of (a) the
issuance of the number of shares of Capital Stock theretofore actually
delivered upon the exercise of such Options or upon the conversion or
exchange of such Convertible Securities, and the total consideration
received therefor, and (b) the number of shares of Capital Stock to be
issued for the consideration, if any, received by the Company therefor
and to be received on the basis of such changed price.
(vii) If any adjustment has been made in the Exercise
Price because of the issuance of Options or Convertible Securities and
if any of such Options or rights to convert or exchange such
Convertible Securities expire or otherwise terminate, then the Exercise
Price shall be readjusted to eliminate the adjustments previously made
in connection with the Options or rights to convert or exchange
Convertible Securities which have expired or terminated.
(viii) The number of shares of Capital Stock outstanding
at any given time shall not include shares owned or held by or for the
account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Capital Stock.
(c) SUBDIVISIONS AND COMBINATIONS. In case at any time the Company
shall subdivide the outstanding shares of Capital Stock into a greater number of
shares, the Exercise Price in effect immediately prior to such subdivision shall
be proportionately reduced, and conversely, in case the outstanding shares of
Capital Stock shall be combined into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination shall be proportionately
increased. An adjustment made pursuant to this Paragraph 4(c) shall become
effective immediately after the effective date of such subdivision or
combination.
(d) EXTRAORDINARY DIVIDENDS AND DISTRIBUTIONS. In case at any time the
Company shall pay a dividend or make a distribution to all holders of Capital
Stock, as such, of shares of its stock, evidences of its indebtedness, assets,
or rights, options, or warrants to subscribe for or purchase such shares,
evidences of indebtedness, or assets, other than (i) a dividend or distribution
payable in Capital Stock, Options, or Convertible Securities or (ii) a dividend
or distribution payable in cash out of earnings or earned surplus, then in each
such case the Exercise Price shall be adjusted so that the same shall equal the
price determined by multiplying the Exercise Price in effect immediately prior
to the record date mentioned below by a fraction, the numerator of which shall
be the total number of shares of Capital Stock outstanding on such record date
multiplied by the market price per share of Capital Stock (determined as
provided in Paragraph 4(e) hereof) on such record date, less the fair market
value (as determined in good faith by the Board of Directors of the Company) as
of such record date of such shares of stock, evidences of indebtedness, assets,
or rights, options, or warrants so paid or distributed, and the
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denominator of which shall be the total number of shares of Capital Stock
outstanding on such record date multiplied by the market price per share of
Capital Stock (determined as provided in Paragraph 4(e) hereof) on such record
date. Such adjustment shall be made whenever such dividend is paid or such
distribution is made and shall become effective immediately after the record
date for the determination of shareholders entitled to receive such dividend or
distribution.
(e) COMPUTATION OF MARKET PRICE. For the purpose of any computation
under Paragraph 4(b) or (d) hereof, the market price of the security in question
on any day shall be deemed to be the average of the last reported sale prices
for the security for the 20 consecutive Trading Days (as defined below)
commencing 30 Trading Days before the day in question. The last reported sale
price for each day shall be (i) the last reported sale price of the security on
the National Market of the National Association of Securities Dealers, Inc.
Automated Quotation System, or any similar system of automated dissemination of
quotations of securities prices then in common use, if so quoted, or (ii) if not
quoted as described in clause (i) above, the mean between the high bid and low
asked quotations for the security as reported by the National Quotation Bureau,
Inc. if at least two securities dealers have inserted both bid and asked
quotations for such security on at least 10 of such 20 consecutive Trading Days,
or (iii) if the security is listed or admitted for trading on any national
securities exchange, the last sale price, or the closing bid price if no sale
occurred, of such class of security on the principal securities exchange on
which such class of security is listed or admitted to trading. If the security
is quoted on a national securities or central market system, in lieu of a market
or quotation system described above, the last reported sale price shall be
determined in the manner set forth in clause (ii) of the preceding sentence if
bid and asked quotations are reported but actual transactions are not, and in
the manner set forth in clause (iii) of the preceding sentence if actual
transactions are reported. If none of the conditions set forth above is met, the
last reported sale price of the security on any day or the average of such last
reported sale prices for any period shall be the fair market value of such
security as determined by a member firm of the New York Stock Exchange, Inc.
selected by the Company. The term "TRADING DAYS", as used herein, means (i) if
the security is quoted on the National Market of the National Association of
Security Dealers, Inc. Automated Quotation System, or any similar system of
automated dissemination of quotations of securities prices, days on which trades
may be made on such system or (ii) if the security is listed or admitted for
trading on any national securities exchange, days on which such national
securities exchange is open for business.
(f) RECORD DATE ADJUSTMENTS. In any case in which this Paragraph 4
requires that a downward adjustment of the Exercise Price shall become effective
immediately after a record date for an event, the Company may defer, until the
occurrence of such event, issuing to the holder of this Warrant exercised after
such record date and before the occurrence of such event the additional Warrant
Shares issuable upon such exercise by reason of the adjustment required by such
event over and above the Warrant Shares issuable upon such exercise before
giving effect to such adjustment.
(g) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER, OR SALE.
If any capital reorganization of the Company, or any reclassification of the
Capital Stock, or any
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<PAGE> 8
consolidation or merger of the Company with or into another corporation or
entity, or any sale of all or substantially all the assets of the Company to
another corporation or entity, shall be effected in such a way that the holders
of Common Stock (or any other securities of the Company then issuable upon the
exercise of this Warrant) shall be entitled to receive stock or other securities
or property (including cash) with respect to or in exchange for Common Stock (or
such other securities), then, as a condition of such reorganization,
reclassification, consolidation, merger, or sale, lawful and adequate provision
shall be made whereby the holder of this Warrant shall thereafter have the right
to purchase and receive upon the basis and upon the terms and conditions
specified in this Warrant, and in lieu of the shares of Common Stock (or such
other securities) immediately theretofore purchasable and receivable upon the
exercise hereof, such stock or other securities or property (including cash) as
may be issuable or payable with respect to or in exchange for a number of
outstanding shares of Common Stock (or such other securities) equal to the
number of shares of Common Stock (or such other securities) immediately
theretofore purchasable and receivable upon the exercise of this Warrant, had
such reorganization, reclassification, consolidation, merger, or sale not taken
place. In any such case appropriate provision shall be made with respect to the
rights and interests of the holder of this Warrant to the end that the
provisions hereof (including, without limitation, the provisions for adjustments
of the Exercise Price and of the number of Warrant Shares purchasable upon
exercise hereof) shall thereafter be applicable, as nearly as reasonably may be,
in relation to the stock or other securities or property thereafter deliverable
upon the exercise hereof (including an immediate adjustment of the Exercise
Price if by reason of or in connection with such consolidation, merger, or sale
any securities are issued or event occurs which would, under the terms hereof,
require an adjustment of the Exercise Price). In the event of a consolidation or
merger of the Company with or into another corporation or entity as a result of
which a greater or lesser number of shares of common stock of the surviving
corporation or entity are issuable to holders of Capital Stock in respect of the
number of shares of Capital Stock outstanding immediately prior to such
consolidation or merger, then the Exercise Price in effect immediately prior to
such consolidation or merger shall be adjusted in the same manner as though
there were a subdivision or combination of the outstanding shares of Capital
Stock. The Company shall not effect any such consolidation, merger, or sale
unless prior to or simultaneously with the consummation thereof the successor
corporation or entity (if other than the Company) resulting from such
consolidation or merger or the corporation or entity purchasing such assets and
any other corporation or entity the shares of stock or other securities or
property of which are receivable thereupon by the holder of this Warrant shall
expressly assume, by written instrument executed and delivered (and satisfactory
in form) to the holder of this Warrant, (i) the obligation to deliver to such
holder such stock or other securities or property as, in accordance with the
foregoing provisions, such holder may be entitled to purchase and (ii) all other
obligations of the Company hereunder.
(h) NO FRACTIONAL SHARES. No fractional shares of Common Stock are to
be issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the current market value of a share
of Common Stock, which current market value shall be the last reported sale
price (determined as provided in Paragraph 4(e) hereof) on the Trading Day
immediately preceding the date of the exercise.
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<PAGE> 9
(i) NOTICE OF ADJUSTMENT. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then and in each such case the
Company shall give notice thereof to the holder of this Warrant, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease, if any, in the number of shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
(j) OTHER NOTICES. In case at any time:
(i) the Company shall declare any dividend upon the Capital
Stock payable in shares of stock of any class or make any other
distribution (other than dividends or distributions payable in cash out
of earnings or earned surplus) to the holders of the Capital Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Capital Stock any additional shares of stock of any
class or other rights;
(iii) there shall be any capital reorganization of the Company, or
reclassification of the Capital Stock, or consolidation or merger of
the Company with or into, or sale of all or substantially all its
assets to, another corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation, or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Capital Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Capital Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Capital Stock shall be entitled to receive such
dividend, distribution, or subscription rights or to exchange their Capital
Stock for stock or other securities or property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding-up, as the case may be. Such notice shall be given at
least 20 days prior to the record date or the date on which the Company's books
are closed in respect thereto. Failure to give any such notice or any defect
therein shall not affect the validity of the proceeding referred to in clauses
(i), (ii), (iii), and (iv) above.
(k) CERTAIN EVENTS. If any event occurs as to which, in the good faith
judgment of the Board of Directors of the Company, the other provisions of this
Paragraph 4 are not strictly applicable or if strictly applicable would not
fairly protect the exercise rights of the holder of this Warrant in accordance
with the essential intent and principles of such provisions, then the
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<PAGE> 10
Board of Directors of the Company shall appoint the Company's regular
independent auditors or another firm of independent public accountants of
recognized national standing who are satisfactory to the holder of this Warrant
which shall give their opinion upon the adjustment, if any, on a basis
consistent with such essential intent and principles, necessary to preserve,
without dilution, the rights of the holder of this Warrant. Upon receipt of such
opinion, the Board of Directors of the Company shall forthwith make the
adjustments described therein; provided that no such adjustment shall have the
effect of increasing the Exercise Price as otherwise determined pursuant to this
Paragraph 4. The Company may make such reductions in the Exercise Price or
increase in the number of shares of Common Stock purchasable hereunder as it
deems advisable, including any reductions or increases, as the case may be,
necessary to ensure that any event treated for federal income tax purposes as a
distribution of stock rights not be taxable to recipients.
5. ISSUE TAX. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax in respect thereof, provided that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than the holder of this Warrant.
6. AVAILABILITY OF INFORMATION. The Company will cooperate with the
holder of this Warrant and each holder of any Warrant Shares in supplying such
information as may be necessary for such holder to complete and file any
information reporting forms presently or hereafter required by the Securities
and Exchange Commission as a condition to the availability of an exemption from
the Securities Act of 1933, as amended, for the sale of this Warrant or any
Warrant Shares. The Company will deliver to the holder of this Warrant, promptly
upon their becoming available, copies of all financial statements, reports,
notices, and proxy statements sent or made available generally by the Company to
its shareholders, and copies of all regular and periodic reports and all
registration statements and prospectuses filed by the Company with any
securities exchange or with the Securities and Exchange Commission.
7. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
8. TRANSFER, EXCHANGE, AND REPLACEMENT OF WARRANT.
(a) WARRANT TRANSFERABLE. The transfer of this Warrant and all rights
hereunder, in whole or in part, is registrable at the office or agency of the
Company referred to in Paragraph 8(e) hereof by the holder hereof in person or
by his duly authorized attorney, upon surrender of this Warrant properly
endorsed. Each taker and holder of this Warrant, by taking or holding the same,
consents and agrees that this Warrant, when endorsed in blank, shall be deemed
negotiable, and that the holder hereof, when this Warrant shall have been so
endorsed,
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<PAGE> 11
may be treated by the Company and all other persons dealing with this Warrant as
the absolute owner and holder hereof for any purpose and as the person entitled
to exercise the rights represented by this Warrant and to the registration of
transfer hereof on the books of the Company; but until due presentment for
registration of transfer on such books the Company may treat the registered
holder hereof as the owner and holder hereof for all purposes, and the Company
shall not be affected by any notice to the contrary.
(b) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This Warrant is
exchangeable, upon the surrender hereof by (and at the expense of) the holder
hereof at the office or agency of the Company referred to in Paragraph 8(e)
hereof, for new Warrants of like tenor representing in the aggregate the right
to purchase the number of shares of Common Stock which may be purchased
hereunder, each of such new Warrants to represent the right to purchase such
number of shares as shall be designated by said holder hereof at the time of
such surrender.
(c) REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at the expense of the holder hereof,
will execute and deliver, in lieu thereof, a new Warrant of like tenor.
(d) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided in
this Paragraph 8, this Warrant shall be promptly cancelled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) in connection
with the preparation, execution, and delivery of Warrants pursuant to this
Paragraph 8.
(e) REGISTER. The Company shall maintain, at its principal office in
Dallas, Texas (or such other office or agency of the Company as it may designate
by notice to the holder hereof), a register for this Warrant, in which the
Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
(f) EXERCISE OR TRANSFER WITHOUT REGISTRATION. Anything in this Warrant
to the contrary notwithstanding, if, at the time of the surrender of this
Warrant in connection with any exercise, transfer, or exchange of this Warrant,
this Warrant shall not be registered under the Securities Act of 1933, as
amended, and under applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such exercise, transfer, or exchange, that
(i) the holder or transferee of this Warrant, as the case may be, furnish to the
Company a written opinion of counsel, which opinion and counsel are acceptable
to the Company, to the effect that such exercise, transfer, or exchange may be
made without registration under said Act and under applicable state securities
or blue sky laws and (ii) the holder or transferee execute and deliver to the
Company an investment letter in form and substance acceptable to the Company.
The first holder of this Warrant, by taking and holding the same, represents to
the Company that
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<PAGE> 12
such holder is acquiring this Warrant for investment and not with a view to the
distribution thereof.
9. NOTICES. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the holder of this Warrant or to
the holder of shares acquired upon exercise of this Warrant shall be in writing,
and shall be personally delivered, or shall be sent by certified or registered
mail, postage prepaid and addressed, to such holder at the address shown for
such holder on the books of the Company, or at such other address as shall have
been furnished to the Company by notice from such holder. All notices, requests,
and other communications required or permitted to be given or delivered
hereunder to the Company shall be in writing, and shall be personally delivered,
or shall be sent by certified or registered mail, postage prepaid and addressed,
to the office of the Company at 2351 West Northwest Highway, Suite 2130, Dallas,
Texas, Attention: President, or at such other address as shall have been
furnished to the holder of this Warrant or to the holder of shares acquired upon
exercise of this Warrant by notice from the Company. Any such notice, request,
or other communication may be sent by telegram or telex, but shall in such case
be subsequently confirmed by a writing personally delivered or sent by certified
or registered mail as provided above. All notices, requests, and other
communications shall be deemed to have been given either at the time of the
delivery thereof to (or the receipt by, in the case of a telegram or telex) the
person entitled to receive such notice at the address of such person for
purposes of this Paragraph 9, or, if mailed, at the completion of the third full
day following the time of such mailing thereof to such address, as the case may
be.
10. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCEPT WITH
RESPECT TO THE VALIDITY OF THIS WARRANT AND THE RIGHTS AND DUTIES OF THE COMPANY
WITH RESPECT TO REGISTRATION OF TRANSFER WHICH SHALL BE GOVERNED BY THE LAWS OF
THE STATE OF UTAH.
11. MISCELLANEOUS.
(a) AMENDMENTS. This Warrant and any provision hereof may not be
changed, waived, discharged, or terminated orally, but only by an instrument in
writing signed by the party (or any predecessor in interest thereof) against
which enforcement of the same is sought.
(b) DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof.
(c) SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon any
entity succeeding to the Company by merger, consolidation, or acquisition of all
or substantially all the Company's assets.
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<PAGE> 13
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer under its corporate seal, attested by its duly
authorized officer, on this __ day of December, 1995.
FUTURE PETROLEUM CORPORATION
By: /s/ CARL PRICE
------------------------------------
Name: Carl Price
------------------------------
Title: President
-----------------------------
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<PAGE> 1
EXHIBIT 4.3
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES
OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD,
ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER SAID ACT AND UNDER APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR
EXEMPTIONS FROM SUCH REGISTRATION. THIS WARRANT MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT UPON THE CONDITIONS SPECIFIED IN
THIS WARRANT, AND NO SALE, ASSIGNMENT, TRANSFER, OR OTHER DISPOSITION OF THIS
WARRANT SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE
BEEN COMPLIED WITH.
No. 1005 Right to Purchase 14,071 Shares
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Energy Capital Investment
Company PLC, an English investment company, or registered assigns, is entitled
to purchase from Future Petroleum Corporation, a Utah corporation (the
"COMPANY"), at any time or from time to time during the period specified in
Paragraph 2 hereof, Fourteen Thousand Seventy One (14,071) fully paid and
nonassessable shares of the Company's Common Stock, par value $0.01 per share
(the "COMMON STOCK"), at an exercise price per share of $1.00 (the "EXERCISE
PRICE"). The term "WARRANT SHARES", as used herein, refers to the shares of
Common Stock purchasable hereunder. The Warrant Shares and the Exercise Price
are subject to adjustment as provided in Paragraph 4 hereof.
This Warrant is subject to the following terms, provisions, and
conditions:
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part by the surrender of this Warrant, together with a
completed Exercise Agreement in the form attached hereto, to the Company during
normal business hours on any business day at the Company's principal office in
Dallas, Texas (or such other office or agency of the Company as it may
designate by notice to the holder hereof), and upon payment to the Company in
cash or by certified or official bank check of the Exercise Price for the
Warrant Shares specified in said Exercise Agreement. The Warrant Shares so
purchased shall be deemed to be issued to the holder hereof or its designee as
the record owner of such shares as of the close of business on the date on
which this Warrant shall have been surrendered, the completed Exercise
Agreement delivered, and payment made for such shares as aforesaid.
Certificates for the Warrant Shares so purchased, representing the aggregate
number of shares specified in said Exercise Agreement, shall be delivered to
the holder hereof within a reasonable time, not exceeding seven business days,
after this Warrant shall have been so exercised. The certificates so delivered
shall be in
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<PAGE> 2
such denominations as may be requested by the holder hereof and shall be
registered in the name of said holder or such other name as shall be designated
by said holder. If this Warrant shall have been exercised only in part, then,
unless this Warrant has expired, the Company shall, at its expense, at the time
of delivery of said certificates, deliver to said holder a new Warrant
representing the number of shares with respect to which this Warrant shall not
then have been exercised. The Company shall pay all taxes and other expenses
and charges payable in connection with the preparation, execution, and delivery
of stock certificates (and any new Warrants) pursuant to this Paragraph 1
except that, in case such stock certificates shall be registered in a name or
names other than the holder of this Warrant, funds sufficient to pay all stock
transfer taxes which shall be payable in connection with the execution and
delivery of such stock certificates shall be paid by the holder hereof to the
Company at the time of the delivery of such stock certificates by the Company
as mentioned above.
2. PERIOD OF EXERCISE. This Warrant is exercisable at any time or
from time to time after April 18, 1996, and before 5:00 p.m. local time on
April 18, 2001.
3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants
and agrees as follows:
(a) SHARES TO BE FULLY PAID. All Warrant Shares will, upon issuance,
be validly issued, fully paid, and nonassessable and free from all taxes,
liens, and charges with respect to the issue thereof.
(b) RESERVATION OF SHARES. During the period within which this
Warrant may be exercised, the Company will at all times have authorized, and
reserved for the purpose of issue upon exercise of this Warrant, a sufficient
number of shares of Common Stock to provide for the exercise of this Warrant.
(c) CERTAIN ACTIONS PROHIBITED. The Company will not, by amendment
of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed by it hereunder, but will at all times
in good faith assist in the carrying out of all the provisions of this Warrant
and in the taking of all such action as may reasonably be requested by the
holder of this Warrant in order to protect the exercise privilege of the holder
of this Warrant against dilution or other impairment, consistent with the tenor
and purpose of this Warrant. Without limiting the generality of the foregoing,
(i) the Company will not increase the par value of the shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, (ii) before taking any action which would cause an adjustment reducing
the Exercise Price below the then par value of the shares of Common Stock so
receivable, the Company will take all such corporate action as may be necessary
or appropriate in order that the Company may validly and legally issue fully
paid and nonassessable shares of Common Stock at such adjusted Exercise Price
upon the exercise of this Warrant.
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<PAGE> 3
(d) REGISTRATION. If the issuance of any Warrant Shares required to
be reserved for purposes of exercise of this Warrant requires registration with
or approval of any governmental authority under any federal or state law (other
than any registration under the Securities Act of 1933, as amended, or under
applicable state securities or blue sky laws) or listing on any national
securities exchange, before such shares may be issued upon exercise of this
Warrant, the Company will, at its expense, use its best efforts to cause such
shares to be duly registered or approved, or listed on the relevant national
securities exchange, as the case may be, at such time, so that such shares may
be issued in accordance with the terms hereof.
4. ANTIDILUTION PROVISIONS. The Exercise Price shall be subject to
adjustment from time to time as provided in this Paragraph 4. Upon each
adjustment of the Exercise Price, the holder of this Warrant shall thereafter
be entitled to purchase, at the Exercise Price resulting from such adjustment,
the largest number of Warrant Shares obtained by multiplying the Exercise Price
in effect immediately prior to such adjustment by the number of Warrant Shares
purchasable hereunder immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment. For
purposes of this Paragraph 4, the term "CAPITAL STOCK", as used herein,includes
the Common Stock and any additional class of stock of the Company having no
preference as to dividends or distributions on liquidation which may be
authorized in the future, provided that the shares purchasable pursuant to this
Warrant shall include only shares of Common Stock, or shares resulting from any
subdivision or combination of the Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or sale of the
character referred to in Paragraph 4(g) hereof, the stock or other securities
or property provided for in said Paragraph, but excludes any Common Stock and
any additional class of stock of the Company having no preference as to
dividends or distributions on liquidation (x) that may be authorized in the
future pursuant to currently existing and outstanding written agreements as
listed in Schedule 4 attached hereto or (y) that may be issued pursuant to the
exercise of any currently existing or future options to purchase Common Stock
(or any such additional class of stock) granted by the Company to its
employees.
(a) ISSUANCE OF CAPITAL STOCK. If and whenever the Company shall
issue or sell any shares of Capital Stock without consideration or for a
consideration per share less than the Exercise Price in effect immediately
prior to the time of such issue or sale, then, forthwith upon such issue or
sale, the Exercise Price shall be reduced to a price (calculated to the nearest
cent) determined by dividing (x) an amount equal to the sum of (aa) the total
number of shares of Capital Stock outstanding immediately prior to such issue
or sale multiplied by the then existing Exercise Price, and (bb) the
consideration, if any, received by the Company upon such issue or sale, by (y)
the total number of shares of Capital Stock outstanding immediately after such
issue or sale.
(b) TREATMENT OF OPTIONS AND CONVERTIBLE SECURITIES; COMPUTATION OF
CONSIDERATION. For purposes of Paragraph 4(a) hereof the following provisions
shall also be applicable:
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(i) In case the Company shall grant any rights to subscribe
for or purchase, or any options for the purchase of, Capital Stock or
securities convertible into or exchangeable for Capital Stock (such
rights and options being herein called "OPTIONS" and such convertible or
exchangeable securities being herein called "CONVERTIBLE SECURITIES"),
whether or not such Options or the rights to convert or exchange any
such Convertible Securities are immediately exercisable, and the price
per share for which Capital Stock is issuable upon the exercise of such
Options or upon the conversion or exchange of such Convertible
Securities (as determined in accordance with the following sentence)
shall be less than the Exercise Price in effect immediately prior to the
time of the granting of such Options, then the total maximum number of
shares of Capital Stock issuable upon the exercise of such Options or
upon the conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options shall
(as of the date of granting of such Options) be deemed to be outstanding
and to have been issued and sold for such price per share. The price
per share for which the Capital Stock is issuable, as provided in the
preceding sentence, shall be determined by dividing (x) the total
amount, if any, received or receivable by the Company as consideration
for the granting of such Options, plus the minimum aggregate amount of
additional consideration payable to the Company upon the exercise of
such Options, plus, in the case of any such Options which relate to
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or
exchange of such Convertible Securities, by (y) the total maximum number
of shares of Capital Stock issuable upon the exercise of such Options or
upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options. Except as provided in
Paragraph 4(b)(vi) hereof, no further adjustments of the Exercise Price
shall be made upon the actual issue of such Capital Stock or of such
Convertible Securities upon the exercise of such Options or upon the
actual issue of such Capital Stock upon the conversion or exchange of
such Convertible Securities.
(ii) In case the Company shall issue or sell Convertible
Securities, whether or not the rights to convert or exchange such
Convertible Securities are immediately exercisable, and the price per
share for which Capital Stock is issuable upon the conversion or
exchange of such Convertible Securities (as determined in accordance
with the following sentence) shall be less than the Exercise Price in
effect immediately prior to the time of the issue or sale of such
Convertible Securities, then the total maximum number of shares of
Capital Stock issuable upon the conversion or exchange of all such
Convertible Securities shall (as of the date of the issue or sale of
such Convertible Securities) be deemed to be outstanding and to have
been issued and sold for such price per share, provided that (a) except
as provided in Paragraph 4(b)(vi) hereof, no further adjustments of the
Exercise Price shall be made upon the actual issue of such Capital Stock
upon the conversion or exchange of such Convertible Securities, and (b)
if any such issue or sale of such Convertible Securities is made upon
exercise of any Options for which adjustments of the Exercise Price have
been or are to be made pursuant to other provisions of this Paragraph
4(b), no further adjustment of the Exercise Price shall be made by
reason of such issue or sale. The price per share for which the Capital
Stock is issuable, as provided in the preceding sentence, shall be
determined by
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dividing (x) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities, plus
the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the conversion or exchange thereof, by (y)
the total maximum number of shares of Capital Stock issuable upon the
conversion or exchange of all such Convertible Securities.
(iii) In case at any time the Company shall pay a
dividend or make any other distribution upon the Capital Stock payable
in Capital Stock, Options or Convertible Securities, any Capital Stock,
Options or Convertible Securities, as the case may be, issuable in
payment of such dividend or distribution shall be deemed to have been
issued without consideration.
(iv) In case at any time any Capital Stock, Convertible
Securities, or Options shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount
received by the Company therefor, without deduction therefrom of any
expenses incurred or any underwriting commissions or concessions paid or
allowed by the Company in connection therewith. In case any Capital
Stock, Convertible Securities, or Options shall be issued or sold for a
consideration other than cash, the amount of the consideration other
than cash received by the Company therefor shall be deemed to be the
fair value of such consideration as determined in good faith by the
Board of Directors of the Company, except where such consideration
consists of securities, in which case the amount of consideration
received by the Company shall be the market price thereof (determined as
provided in Paragraph 4(e) hereof) as of the date of receipt, but in
each such case without deduction therefrom of any expenses incurred or
any underwriting commissions or concessions paid or allowed by the
Company in connection therewith. In computing the market price of a
note or other obligation that is not listed or admitted to trading on
any securities exchange or quoted in the National Association of
Securities Dealers, Inc. Automated Quotation System or reported by the
National Quotation Bureau, Inc. or a similar reporting organization, the
total consideration to be received by the Company thereunder (including
interest) shall be discounted to present value at the prime rate of
interest of NationsBank of Texas, N.A. in effect at the time the note or
obligation is deemed to have been issued. In case any Capital Stock,
Convertible Securities, or Options shall be issued in connection with
any merger of another corporation into the Company, the amount of
consideration therefor shall be deemed to be the fair value as
determined in good faith by the Board of Directors of the Company of
such portion of the assets of such merged corporation as the Board shall
determine to be attributable to such Capital Stock, Convertible
Securities, or Options.
(v) In case at any time the Company shall take a record
of the holders of Capital Stock for the purpose of entitling them (a) to
receive a dividend or other distribution payable in Capital Stock,
Options or Convertible Securities, or (b) to subscribe for or purchase
Capital Stock, Options or Convertible Securities, then such record date
shall be deemed to be the date of the issue or sale of such Capital
Stock, Options or Convertible Securities.
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<PAGE> 6
(vi) If the purchase price provided for in any Option
referred to in Paragraph 4(b)(i) hereof, or the price at which any
Convertible Securities referred to in Paragraph 4(b)(i) or (ii) hereof
are convertible into or exchangeable for Capital Stock, shall change at
any time (whether by reason of provisions designed to protect against
dilution or otherwise), the Exercise Price then in effect hereunder
shall forthwith be increased or decreased to such Exercise Price as
would have obtained had the adjustments made upon the issuance of such
Options or Convertible Securities been made upon the basis of (a) the
issuance of the number of shares of Capital Stock theretofore actually
delivered upon the exercise of such Options or upon the conversion or
exchange of such Convertible Securities, and the total consideration
received therefor, and (b) the number of shares of Capital Stock to be
issued for the consideration, if any, received by the Company therefor
and to be received on the basis of such changed price.
(vii) If any adjustment has been made in the Exercise
Price because of the issuance of Options or Convertible Securities and
if any of such Options or rights to convert or exchange such Convertible
Securities expire or otherwise terminate, then the Exercise Price shall
be readjusted to eliminate the adjustments previously made in connection
with the Options or rights to convert or exchange Convertible Securities
which have expired or terminated.
(viii) The number of shares of Capital Stock outstanding
at any given time shall not include shares owned or held by or for the
account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Capital Stock.
(c) SUBDIVISIONS AND COMBINATIONS. In case at any time the Company
shall subdivide the outstanding shares of Capital Stock into a greater number
of shares, the Exercise Price in effect immediately prior to such subdivision
shall be proportionately reduced, and conversely, in case the outstanding
shares of Capital Stock shall be combined into a smaller number of shares, the
Exercise Price in effect immediately prior to such combination shall be
proportionately increased. An adjustment made pursuant to this Paragraph 4(c)
shall become effective immediately after the effective date of such subdivision
or combination.
(d) EXTRAORDINARY DIVIDENDS AND DISTRIBUTIONS. In case at any time
the Company shall pay a dividend or make a distribution to all holders of
Capital Stock, as such, of shares of its stock, evidences of its indebtedness,
assets, or rights, options, or warrants to subscribe for or purchase such
shares, evidences of indebtedness, or assets, other than (i) a dividend or
distribution payable in Capital Stock, Options, or Convertible Securities or
(ii) a dividend or distribution payable in cash out of earnings or earned
surplus, then in each such case the Exercise Price shall be adjusted so that
the same shall equal the price determined by multiplying the Exercise Price in
effect immediately prior to the record date mentioned below by a fraction, the
numerator of which shall be the total number of shares of Capital Stock
outstanding on such record date multiplied by the market price per share of
Capital Stock (determined as provided in Paragraph 4(e) hereof) on such record
date, less the fair market value (as determined in good faith by the Board of
Directors of the Company) as of such record date of such shares of stock,
evidences of indebtedness, assets, or rights, options, or warrants so paid or
distributed, and the
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<PAGE> 7
denominator of which shall be the total number of shares of Capital Stock
outstanding on such record date multiplied by the market price per share of
Capital Stock (determined as provided in Paragraph 4(e) hereof) on such record
date. Such adjustment shall be made whenever such dividend is paid or such
distribution is made and shall become effective immediately after the record
date for the determination of shareholders entitled to receive such dividend or
distribution.
(e) COMPUTATION OF MARKET PRICE. For the purpose of any computation
under Paragraph 4(b) or (d) hereof, the market price of the security in
question on any day shall be deemed to be the average of the last reported sale
prices for the security for the 20 consecutive Trading Days (as defined below)
commencing 30 Trading Days before the day in question. The last reported sale
price for each day shall be (i) the last reported sale price of the security on
the National Market of the National Association of Securities Dealers, Inc.
Automated Quotation System, or any similar system of automated dissemination of
quotations of securities prices then in common use, if so quoted, or (ii) if
not quoted as described in clause (i) above, the mean between the high bid and
low asked quotations for the security as reported by the National Quotation
Bureau, Inc. if at least two securities dealers have inserted both bid and
asked quotations for such security on at least 10 of such 20 consecutive
Trading Days, or (iii) if the security is listed or admitted for trading on any
national securities exchange, the last sale price, or the closing bid price if
no sale occurred, of such class of security on the principal securities
exchange on which such class of security is listed or admitted to trading. If
the security is quoted on a national securities or central market system, in
lieu of a market or quotation system described above, the last reported sale
price shall be determined in the manner set forth in clause (ii) of the
preceding sentence if bid and asked quotations are reported but actual
transactions are not, and in the manner set forth in clause (iii) of the
preceding sentence if actual transactions are reported. If none of the
conditions set forth above is met, the last reported sale price of the security
on any day or the average of such last reported sale prices for any period
shall be the fair market value of such security as determined by a member firm
of the New York Stock Exchange, Inc. selected by the Company. The term
"TRADING DAYS", as used herein, means (i) if the security is quoted on the
National Market of the National Association of Security Dealers, Inc. Automated
Quotation System, or any similar system of automated dissemination of
quotations of securities prices, days on which trades may be made on such
system or (ii) if the security is listed or admitted for trading on any
national securities exchange, days on which such national securities exchange
is open for business.
(f) RECORD DATE ADJUSTMENTS. In any case in which this Paragraph 4
requires that a downward adjustment of the Exercise Price shall become
effective immediately after a record date for an event, the Company may defer,
until the occurrence of such event, issuing to the holder of this Warrant
exercised after such record date and before the occurrence of such event the
additional Warrant Shares issuable upon such exercise by reason of the
adjustment required by such event over and above the Warrant Shares issuable
upon such exercise before giving effect to such adjustment.
(g) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER, OR SALE.
If any capital reorganization of the Company, or any reclassification of the
Capital Stock, or any
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<PAGE> 8
consolidation or merger of the Company with or into another corporation or
entity, or any sale of all or substantially all the assets of the Company to
another corporation or entity, shall be effected in such a way that the holders
of Common Stock (or any other securities of the Company then issuable upon the
exercise of this Warrant) shall be entitled to receive stock or other
securities or property (including cash) with respect to or in exchange for
Common Stock (or such other securities), then, as a condition of such
reorganization, reclassification, consolidation, merger, or sale, lawful and
adequate provision shall be made whereby the holder of this Warrant shall
thereafter have the right to purchase and receive upon the basis and upon the
terms and conditions specified in this Warrant, and in lieu of the shares of
Common Stock (or such other securities) immediately theretofore purchasable and
receivable upon the exercise hereof, such stock or other securities or property
(including cash) as may be issuable or payable with respect to or in exchange
for a number of outstanding shares of Common Stock (or such other securities)
equal to the number of shares of Common Stock (or such other securities)
immediately theretofore purchasable and receivable upon the exercise of this
Warrant, had such reorganization, reclassification, consolidation, merger, or
sale not taken place. In any such case appropriate provision shall be made
with respect to the rights and interests of the holder of this Warrant to the
end that the provisions hereof (including, without limitation, the provisions
for adjustments of the Exercise Price and of the number of Warrant Shares
purchasable upon exercise hereof) shall thereafter be applicable, as nearly as
reasonably may be, in relation to the stock or other securities or property
thereafter deliverable upon the exercise hereof (including an immediate
adjustment of the Exercise Price if by reason of or in connection with such
consolidation, merger, or sale any securities are issued or event occurs which
would, under the terms hereof, require an adjustment of the Exercise Price).
In the event of a consolidation or merger of the Company with or into another
corporation or entity as a result of which a greater or lesser number of shares
of common stock of the surviving corporation or entity are issuable to holders
of Capital Stock in respect of the number of shares of Capital Stock
outstanding immediately prior to such consolidation or merger, then the
Exercise Price in effect immediately prior to such consolidation or merger
shall be adjusted in the same manner as though there were a subdivision or
combination of the outstanding shares of Capital Stock. The Company shall not
effect any such consolidation, merger, or sale unless prior to or
simultaneously with the consummation thereof the successor corporation or
entity (if other than the Company) resulting from such consolidation or merger
or the corporation or entity purchasing such assets and any other corporation
or entity the shares of stock or other securities or property of which are
receivable thereupon by the holder of this Warrant shall expressly assume, by
written instrument executed and delivered (and satisfactory in form) to the
holder of this Warrant, (i) the obligation to deliver to such holder such stock
or other securities or property as, in accordance with the foregoing
provisions, such holder may be entitled to purchase and (ii) all other
obligations of the Company hereunder.
(h) NO FRACTIONAL SHARES. No fractional shares of Common Stock are
to be issued upon the exercise of this Warrant, but the Company shall pay a
cash adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the current market value of
a share of Common Stock, which current market value shall be the last reported
sale price (determined as provided in Paragraph 4(e) hereof) on the Trading Day
immediately preceding the date of the exercise.
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<PAGE> 9
(i) NOTICE OF ADJUSTMENT. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then and in each such case the
Company shall give notice thereof to the holder of this Warrant, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease, if any, in the number of shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
(j) OTHER NOTICES. In case at any time:
(i) the Company shall declare any dividend upon the
Capital Stock payable in shares of stock of any class or make any other
distribution (other than dividends or distributions payable in cash out
of earnings or earned surplus) to the holders of the Capital Stock;
(ii) the Company shall offer for subscription pro rata
to the holders of the Capital Stock any additional shares of stock of
any class or other rights;
(iii) there shall be any capital reorganization of the
Company, or reclassification of the Capital Stock, or consolidation or
merger of the Company with or into, or sale of all or substantially all
its assets to, another corporation or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation, or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a
record shall be taken for determining the holders of Capital Stock entitled to
receive any such dividend, distribution, or subscription rights or for
determining the holders of Capital Stock entitled to vote in respect of any
such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation, or winding-up and (b) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding-up, notice of the date (or, if not then known, a
reasonable approximation thereof by the Company) when the same shall take
place. Such notice shall also specify the date on which the holders of Capital
Stock shall be entitled to receive such dividend, distribution, or subscription
rights or to exchange their Capital Stock for stock or other securities or
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, or winding-up, as the case may be.
Such notice shall be given at least 20 days prior to the record date or the
date on which the Company's books are closed in respect thereto. Failure to
give any such notice or any defect therein shall not affect the validity of the
proceeding referred to in clauses (i), (ii), (iii), and (iv) above.
(k) CERTAIN EVENTS. If any event occurs as to which, in the good
faith judgment of the Board of Directors of the Company, the other provisions
of this Paragraph 4 are not strictly applicable or if strictly applicable would
not fairly protect the exercise rights of the holder of this Warrant in
accordance with the essential intent and principles of such provisions, then
the
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Board of Directors of the Company shall appoint the Company's regular
independent auditors or another firm of independent public accountants of
recognized national standing who are satisfactory to the holder of this Warrant
which shall give their opinion upon the adjustment, if any, on a basis
consistent with such essential intent and principles, necessary to preserve,
without dilution, the rights of the holder of this Warrant. Upon receipt of
such opinion, the Board of Directors of the Company shall forthwith make the
adjustments described therein; provided that no such adjustment shall have the
effect of increasing the Exercise Price as otherwise determined pursuant to
this Paragraph 4. The Company may make such reductions in the Exercise Price
or increase in the number of shares of Common Stock purchasable hereunder as it
deems advisable, including any reductions or increases, as the case may be,
necessary to ensure that any event treated for federal income tax purposes as a
distribution of stock rights not be taxable to recipients.
5. ISSUE TAX. The issuance of certificates for Warrant Shares upon
the exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax in respect thereof, provided that
the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.
6. AVAILABILITY OF INFORMATION. The Company will cooperate with the
holder of this Warrant and each holder of any Warrant Shares in supplying such
information as may be necessary for such holder to complete and file any
information reporting forms presently or hereafter required by the Securities
and Exchange Commission as a condition to the availability of an exemption from
the Securities Act of 1933, as amended, for the sale of this Warrant or any
Warrant Shares. The Company will deliver to the holder of this Warrant,
promptly upon their becoming available, copies of all financial statements,
reports, notices, and proxy statements sent or made available generally by the
Company to its shareholders, and copies of all regular and periodic reports and
all registration statements and prospectuses filed by the Company with any
securities exchange or with the Securities and Exchange Commission.
7. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall
not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the holder hereof to purchase Warrant Shares, and no mere
enumeration herein of the rights or privileges of the holder hereof, shall give
rise to any liability of such holder for the Exercise Price or as a shareholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
8. TRANSFER, EXCHANGE, AND REPLACEMENT OF WARRANT.
(a) WARRANT TRANSFERABLE. The transfer of this Warrant and all
rights hereunder, in whole or in part, is registrable at the office or agency
of the Company referred to in Paragraph 8(e) hereof by the holder hereof in
person or by his duly authorized attorney, upon surrender of this Warrant
properly endorsed. Each taker and holder of this Warrant, by taking or holding
the same, consents and agrees that this Warrant, when endorsed in blank, shall
be deemed negotiable, and that the holder hereof, when this Warrant shall have
been so endorsed,
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<PAGE> 11
may be treated by the Company and all other persons dealing with this Warrant
as the absolute owner and holder hereof for any purpose and as the person
entitled to exercise the rights represented by this Warrant and to the
registration of transfer hereof on the books of the Company; but until due
presentment for registration of transfer on such books the Company may treat
the registered holder hereof as the owner and holder hereof for all purposes,
and the Company shall not be affected by any notice to the contrary.
(b) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This Warrant
is exchangeable, upon the surrender hereof by (and at the expense of) the
holder hereof at the office or agency of the Company referred to in Paragraph
8(e) hereof, for new Warrants of like tenor representing in the aggregate the
right to purchase the number of shares of Common Stock which may be purchased
hereunder, each of such new Warrants to represent the right to purchase such
number of shares as shall be designated by said holder hereof at the time of
such surrender.
(c) REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount
to the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at the expense of the holder hereof,
will execute and deliver, in lieu thereof, a new Warrant of like tenor.
(d) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided
in this Paragraph 8, this Warrant shall be promptly cancelled by the Company.
The Company shall pay all taxes (other than securities transfer taxes) in
connection with the preparation, execution, and delivery of Warrants pursuant
to this Paragraph 8.
(e) REGISTER. The Company shall maintain, at its principal office in
Dallas, Texas (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in
which the Company shall record the name and address of the person in whose name
this Warrant has been issued, as well as the name and address of each
transferee and each prior owner of this Warrant.
(f) EXERCISE OR TRANSFER WITHOUT REGISTRATION. Anything in this
Warrant to the contrary notwithstanding, if, at the time of the surrender of
this Warrant in connection with any exercise, transfer, or exchange of this
Warrant, this Warrant shall not be registered under the Securities Act of 1933,
as amended, and under applicable state securities or blue sky laws, the Company
may require, as a condition of allowing such exercise, transfer, or exchange,
that (i) the holder or transferee of this Warrant, as the case may be, furnish
to the Company a written opinion of counsel, which opinion and counsel are
acceptable to the Company, to the effect that such exercise, transfer, or
exchange may be made without registration under said Act and under applicable
state securities or blue sky laws and (ii) the holder or transferee execute and
deliver to the Company an investment letter in form and substance acceptable to
the Company. The first holder of this Warrant, by taking and holding the same,
represents to the Company that
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<PAGE> 12
such holder is acquiring this Warrant for investment and not with a view to the
distribution thereof.
9. NOTICES. All notices, requests, and other communications
required or permitted to be given or delivered hereunder to the holder of this
Warrant or to the holder of shares acquired upon exercise of this Warrant shall
be in writing, and shall be personally delivered, or shall be sent by certified
or registered mail, postage prepaid and addressed, to such holder at the
address shown for such holder on the books of the Company, or at such other
address as shall have been furnished to the Company by notice from such holder.
All notices, requests, and other communications required or permitted to be
given or delivered hereunder to the Company shall be in writing, and shall be
personally delivered, or shall be sent by certified or registered mail, postage
prepaid and addressed, to the office of the Company at 2351 West Northwest
Highway, Suite 2130, Dallas, Texas, Attention: President, or at such other
address as shall have been furnished to the holder of this Warrant or to the
holder of shares acquired upon exercise of this Warrant by notice from the
Company. Any such notice, request, or other communication may be sent by
telegram or telex, but shall in such case be subsequently confirmed by a
writing personally delivered or sent by certified or registered mail as
provided above. All notices, requests, and other communications shall be
deemed to have been given either at the time of the delivery thereof to (or the
receipt by, in the case of a telegram or telex) the person entitled to receive
such notice at the address of such person for purposes of this Paragraph 9, or,
if mailed, at the completion of the third full day following the time of such
mailing thereof to such address, as the case may be.
10. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCEPT WITH
RESPECT TO THE VALIDITY OF THIS WARRANT AND THE RIGHTS AND DUTIES OF THE
COMPANY WITH RESPECT TO REGISTRATION OF TRANSFER WHICH SHALL BE GOVERNED BY THE
LAWS OF THE STATE OF UTAH.
11. MISCELLANEOUS.
(a) AMENDMENTS. This Warrant and any provision hereof may not be
changed, waived, discharged, or terminated orally, but only by an instrument in
writing signed by the party (or any predecessor in interest thereof) against
which enforcement of the same is sought.
(b) DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof.
(c) SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon any
entity succeeding to the Company by merger, consolidation, or acquisition of
all or substantially all the Company's assets.
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<PAGE> 13
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer under its corporate seal, attested by its duly
authorized officer, on this 18th day of April, 1996.
FUTURE PETROLEUM CORPORATION
By: /s/ CARL PRICE
-------------------------------
Name: Carl Price
-------------------------
Title: President
-------------------------
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<PAGE> 1
EXHIBIT 4.4
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES
OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD,
ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER SAID ACT AND UNDER APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR
EXEMPTIONS FROM SUCH REGISTRATION. THIS WARRANT MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT UPON THE CONDITIONS SPECIFIED IN
THIS WARRANT, AND NO SALE, ASSIGNMENT, TRANSFER, OR OTHER DISPOSITION OF THIS
WARRANT SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE
BEEN COMPLIED WITH.
No. 1004 Right to Purchase 156,192 Shares
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, EnCap Equity 1994 Limited
Partnership, a Texas limited partnership, or registered assigns, is entitled to
purchase from Future Petroleum Corporation, a Utah corporation (the "COMPANY"),
at any time or from time to time during the period specified in Paragraph 2
hereof, One Hundred Fifty Six Thousand One Hundred Ninety Two (156,192) fully
paid and nonassessable shares of the Company's Common Stock, par value $0.01
per share (the "COMMON STOCK"), at an exercise price per share of $1.00 (the
"EXERCISE PRICE"). The term "WARRANT SHARES", as used herein, refers to the
shares of Common Stock purchasable hereunder. The Warrant Shares and the
Exercise Price are subject to adjustment as provided in Paragraph 4 hereof.
This Warrant is subject to the following terms, provisions, and
conditions:
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR
SHARES. Subject to the provisions hereof, this Warrant may be exercised by the
holder hereof, in whole or in part by the surrender of this Warrant, together
with a completed Exercise Agreement in the form attached hereto, to the Company
during normal business hours on any business day at the Company's principal
office in Dallas, Texas (or such other office or agency of the Company as it
may designate by notice to the holder hereof), and upon payment to the Company
in cash or by certified or official bank check of the Exercise Price for the
Warrant Shares specified in said Exercise Agreement. The Warrant Shares so
purchased shall be deemed to be issued to the holder hereof or its designee as
the record owner of such shares as of the close of business on the date on
which this Warrant shall have been surrendered, the completed Exercise
Agreement delivered, and payment made for such shares as aforesaid.
Certificates for the Warrant Shares so purchased, representing the aggregate
number of shares specified in said Exercise Agreement, shall be delivered to
the holder hereof within a reasonable time, not exceeding seven business days,
after this Warrant shall have been so exercised. The certificates so delivered
shall be in
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<PAGE> 2
such denominations as may be requested by the holder hereof and shall be
registered in the name of said holder or such other name as shall be designated
by said holder. If this Warrant shall have been exercised only in part, then,
unless this Warrant has expired, the Company shall, at its expense, at the time
of delivery of said certificates, deliver to said holder a new Warrant
representing the number of shares with respect to which this Warrant shall not
then have been exercised. The Company shall pay all taxes and other expenses
and charges payable in connection with the preparation, execution, and delivery
of stock certificates (and any new Warrants) pursuant to this Paragraph 1
except that, in case such stock certificates shall be registered in a name or
names other than the holder of this Warrant, funds sufficient to pay all stock
transfer taxes which shall be payable in connection with the execution and
delivery of such stock certificates shall be paid by the holder hereof to the
Company at the time of the delivery of such stock certificates by the Company
as mentioned above.
2. PERIOD OF EXERCISE. This Warrant is exercisable at any time
or from time to time after December 13, 1995, and before 5:00 p.m. local time
on December 13, 2000.
3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby
covenants and agrees as follows:
(a) SHARES TO BE FULLY PAID. All Warrant Shares will, upon
issuance, be validly issued, fully paid, and nonassessable and free from all
taxes, liens, and charges with respect to the issue thereof.
(b) RESERVATION OF SHARES. During the period within which this
Warrant may be exercised, the Company will at all times have authorized, and
reserved for the purpose of issue upon exercise of this Warrant, a sufficient
number of shares of Common Stock to provide for the exercise of this Warrant.
(c) CERTAIN ACTIONS PROHIBITED. The Company will not, by
amendment of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed by it hereunder, but will at all times
in good faith assist in the carrying out of all the provisions of this Warrant
and in the taking of all such action as may reasonably be requested by the
holder of this Warrant in order to protect the exercise privilege of the holder
of this Warrant against dilution or other impairment, consistent with the tenor
and purpose of this Warrant. Without limiting the generality of the foregoing,
(i) the Company will not increase the par value of the shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, (ii) before taking any action which would cause an adjustment reducing
the Exercise Price below the then par value of the shares of Common Stock so
receivable, the Company will take all such corporate action as may be necessary
or appropriate in order that the Company may validly and legally issue fully
paid and nonassessable shares of Common Stock at such adjusted Exercise Price
upon the exercise of this Warrant.
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(d) REGISTRATION. If the issuance of any Warrant Shares required
to be reserved for purposes of exercise of this Warrant requires registration
with or approval of any governmental authority under any federal or state law
(other than any registration under the Securities Act of 1933, as amended, or
under applicable state securities or blue sky laws) or listing on any national
securities exchange, before such shares may be issued upon exercise of this
Warrant, the Company will, at its expense, use its best efforts to cause such
shares to be duly registered or approved, or listed on the relevant national
securities exchange, as the case may be, at such time, so that such shares may
be issued in accordance with the terms hereof.
4. ANTIDILUTION PROVISIONS. The Exercise Price shall be subject
to adjustment from time to time as provided in this Paragraph 4. Upon each
adjustment of the Exercise Price, the holder of this Warrant shall thereafter
be entitled to purchase, at the Exercise Price resulting from such adjustment,
the largest number of Warrant Shares obtained by multiplying the Exercise Price
in effect immediately prior to such adjustment by the number of Warrant Shares
purchasable hereunder immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment. For
purposes of this Paragraph 4, the term "CAPITAL STOCK", as used herein,includes
the Common Stock and any additional class of stock of the Company having no
preference as to dividends or distributions on liquidation which may be
authorized in the future, provided that the shares purchasable pursuant to this
Warrant shall include only shares of Common Stock, or shares resulting from any
subdivision or combination of the Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or sale of the
character referred to in Paragraph 4(g) hereof, the stock or other securities
or property provided for in said Paragraph, but excludes any Common Stock and
any additional class of stock of the Company having no preference as to
dividends or distributions on liquidation (x) that may be authorized in the
future pursuant to currently existing and outstanding written agreements as
listed in Schedule 4 attached hereto or (y) that may be issued pursuant to the
exercise of any currently existing or future options to purchase Common Stock
(or any such additional class of stock) granted by the Company to its
employees.
(a) ISSUANCE OF CAPITAL STOCK. If and whenever the Company shall
issue or sell any shares of Capital Stock without consideration or for a
consideration per share less than the Exercise Price in effect immediately
prior to the time of such issue or sale, then, forthwith upon such issue or
sale, the Exercise Price shall be reduced to a price (calculated to the nearest
cent) determined by dividing (x) an amount equal to the sum of (aa) the total
number of shares of Capital Stock outstanding immediately prior to such issue
or sale multiplied by the then existing Exercise Price, and (bb) the
consideration, if any, received by the Company upon such issue or sale, by (y)
the total number of shares of Capital Stock outstanding immediately after such
issue or sale.
(b) TREATMENT OF OPTIONS AND CONVERTIBLE SECURITIES; COMPUTATION
OF CONSIDERATION. For purposes of Paragraph 4(a) hereof the following
provisions shall also be applicable:
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(i) In case the Company shall grant any rights to
subscribe for or purchase, or any options for the purchase of, Capital
Stock or securities convertible into or exchangeable for Capital Stock
(such rights and options being herein called "OPTIONS" and such
convertible or exchangeable securities being herein called
"CONVERTIBLE SECURITIES"), whether or not such Options or the rights
to convert or exchange any such Convertible Securities are immediately
exercisable, and the price per share for which Capital Stock is
issuable upon the exercise of such Options or upon the conversion or
exchange of such Convertible Securities (as determined in accordance
with the following sentence) shall be less than the Exercise Price in
effect immediately prior to the time of the granting of such Options,
then the total maximum number of shares of Capital Stock issuable upon
the exercise of such Options or upon the conversion or exchange of the
total maximum amount of such Convertible Securities issuable upon the
exercise of such Options shall (as of the date of granting of such
Options) be deemed to be outstanding and to have been issued and sold
for such price per share. The price per share for which the Capital
Stock is issuable, as provided in the preceding sentence, shall be
determined by dividing (x) the total amount, if any, received or
receivable by the Company as consideration for the granting of such
Options, plus the minimum aggregate amount of additional consideration
payable to the Company upon the exercise of such Options, plus, in the
case of any such Options which relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any, payable
to the Company upon the conversion or exchange of such Convertible
Securities, by (y) the total maximum number of shares of Capital Stock
issuable upon the exercise of such Options or upon the conversion or
exchange of all such Convertible Securities issuable upon the exercise
of such Options. Except as provided in Paragraph 4(b)(vi) hereof, no
further adjustments of the Exercise Price shall be made upon the
actual issue of such Capital Stock or of such Convertible Securities
upon the exercise of such Options or upon the actual issue of such
Capital Stock upon the conversion or exchange of such Convertible
Securities.
(ii) In case the Company shall issue or sell
Convertible Securities, whether or not the rights to convert or
exchange such Convertible Securities are immediately exercisable, and
the price per share for which Capital Stock is issuable upon the
conversion or exchange of such Convertible Securities (as determined
in accordance with the following sentence) shall be less than the
Exercise Price in effect immediately prior to the time of the issue or
sale of such Convertible Securities, then the total maximum number of
shares of Capital Stock issuable upon the conversion or exchange of
all such Convertible Securities shall (as of the date of the issue or
sale of such Convertible Securities) be deemed to be outstanding and
to have been issued and sold for such price per share, provided that
(a) except as provided in Paragraph 4(b)(vi) hereof, no further
adjustments of the Exercise Price shall be made upon the actual issue
of such Capital Stock upon the conversion or exchange of such
Convertible Securities, and (b) if any such issue or sale of such
Convertible Securities is made upon exercise of any Options for which
adjustments of the Exercise Price have been or are to be made pursuant
to other provisions of this Paragraph 4(b), no further adjustment of
the Exercise Price shall be made by reason of such issue or sale. The
price per share for which the Capital Stock is issuable, as provided
in the preceding sentence, shall be determined by
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<PAGE> 5
dividing (x) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the conversion or exchange thereof, by (y)
the total maximum number of shares of Capital Stock issuable upon the
conversion or exchange of all such Convertible Securities.
(iii) In case at any time the Company shall pay a
dividend or make any other distribution upon the Capital Stock payable
in Capital Stock, Options or Convertible Securities, any Capital
Stock, Options or Convertible Securities, as the case may be, issuable
in payment of such dividend or distribution shall be deemed to have
been issued without consideration.
(iv) In case at any time any Capital Stock,
Convertible Securities, or Options shall be issued or sold for cash,
the consideration received therefor shall be deemed to be the amount
received by the Company therefor, without deduction therefrom of any
expenses incurred or any underwriting commissions or concessions paid
or allowed by the Company in connection therewith. In case any
Capital Stock, Convertible Securities, or Options shall be issued or
sold for a consideration other than cash, the amount of the
consideration other than cash received by the Company therefor shall
be deemed to be the fair value of such consideration as determined in
good faith by the Board of Directors of the Company, except where such
consideration consists of securities, in which case the amount of
consideration received by the Company shall be the market price
thereof (determined as provided in Paragraph 4(e) hereof) as of the
date of receipt, but in each such case without deduction therefrom of
any expenses incurred or any underwriting commissions or concessions
paid or allowed by the Company in connection therewith. In computing
the market price of a note or other obligation that is not listed or
admitted to trading on any securities exchange or quoted in the
National Association of Securities Dealers, Inc. Automated Quotation
System or reported by the National Quotation Bureau, Inc. or a similar
reporting organization, the total consideration to be received by the
Company thereunder (including interest) shall be discounted to present
value at the prime rate of interest of NationsBank of Texas, N.A. in
effect at the time the note or obligation is deemed to have been
issued. In case any Capital Stock, Convertible Securities, or Options
shall be issued in connection with any merger of another corporation
into the Company, the amount of consideration therefor shall be deemed
to be the fair value as determined in good faith by the Board of
Directors of the Company of such portion of the assets of such merged
corporation as the Board shall determine to be attributable to such
Capital Stock, Convertible Securities, or Options.
(v) In case at any time the Company shall take a
record of the holders of Capital Stock for the purpose of entitling
them (a) to receive a dividend or other distribution payable in
Capital Stock, Options or Convertible Securities, or (b) to subscribe
for or purchase Capital Stock, Options or Convertible Securities, then
such record date shall be deemed to be the date of the issue or sale
of such Capital Stock, Options or Convertible Securities.
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<PAGE> 6
(vi) If the purchase price provided for in any
Option referred to in Paragraph 4(b)(i) hereof, or the price at which
any Convertible Securities referred to in Paragraph 4(b)(i) or (ii)
hereof are convertible into or exchangeable for Capital Stock, shall
change at any time (whether by reason of provisions designed to
protect against dilution or otherwise), the Exercise Price then in
effect hereunder shall forthwith be increased or decreased to such
Exercise Price as would have obtained had the adjustments made upon
the issuance of such Options or Convertible Securities been made upon
the basis of (a) the issuance of the number of shares of Capital Stock
theretofore actually delivered upon the exercise of such Options or
upon the conversion or exchange of such Convertible Securities, and
the total consideration received therefor, and (b) the number of
shares of Capital Stock to be issued for the consideration, if any,
received by the Company therefor and to be received on the basis of
such changed price.
(vii) If any adjustment has been made in the
Exercise Price because of the issuance of Options or Convertible
Securities and if any of such Options or rights to convert or exchange
such Convertible Securities expire or otherwise terminate, then the
Exercise Price shall be readjusted to eliminate the adjustments
previously made in connection with the Options or rights to convert or
exchange Convertible Securities which have expired or terminated.
(viii) The number of shares of Capital Stock
outstanding at any given time shall not include shares owned or held
by or for the account of the Company, and the disposition of any such
shares shall be considered an issue or sale of Capital Stock.
(c) SUBDIVISIONS AND COMBINATIONS. In case at any time the
Company shall subdivide the outstanding shares of Capital Stock into a greater
number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Capital Stock shall be combined into a smaller number of
shares, the Exercise Price in effect immediately prior to such combination
shall be proportionately increased. An adjustment made pursuant to this
Paragraph 4(c) shall become effective immediately after the effective date of
such subdivision or combination.
(d) EXTRAORDINARY DIVIDENDS AND DISTRIBUTIONS. In case at any
time the Company shall pay a dividend or make a distribution to all holders of
Capital Stock, as such, of shares of its stock, evidences of its indebtedness,
assets, or rights, options, or warrants to subscribe for or purchase such
shares, evidences of indebtedness, or assets, other than (i) a dividend or
distribution payable in Capital Stock, Options, or Convertible Securities or
(ii) a dividend or distribution payable in cash out of earnings or earned
surplus, then in each such case the Exercise Price shall be adjusted so that
the same shall equal the price determined by multiplying the Exercise Price in
effect immediately prior to the record date mentioned below by a fraction, the
numerator of which shall be the total number of shares of Capital Stock
outstanding on such record date multiplied by the market price per share of
Capital Stock (determined as provided in Paragraph 4(e) hereof) on such record
date, less the fair market value (as determined in good faith by the Board of
Directors of the Company) as of such record date of such shares of stock,
evidences of indebtedness, assets, or rights, options, or warrants so paid or
distributed, and the
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<PAGE> 7
denominator of which shall be the total number of shares of Capital Stock
outstanding on such record date multiplied by the market price per share of
Capital Stock (determined as provided in Paragraph 4(e) hereof) on such record
date. Such adjustment shall be made whenever such dividend is paid or such
distribution is made and shall become effective immediately after the record
date for the determination of shareholders entitled to receive such dividend or
distribution.
(e) COMPUTATION OF MARKET PRICE. For the purpose of any
computation under Paragraph 4(b) or (d) hereof, the market price of the
security in question on any day shall be deemed to be the average of the last
reported sale prices for the security for the 20 consecutive Trading Days (as
defined below) commencing 30 Trading Days before the day in question. The last
reported sale price for each day shall be (i) the last reported sale price of
the security on the National Market of the National Association of Securities
Dealers, Inc. Automated Quotation System, or any similar system of automated
dissemination of quotations of securities prices then in common use, if so
quoted, or (ii) if not quoted as described in clause (i) above, the mean
between the high bid and low asked quotations for the security as reported by
the National Quotation Bureau, Inc. if at least two securities dealers have
inserted both bid and asked quotations for such security on at least 10 of such
20 consecutive Trading Days, or (iii) if the security is listed or admitted for
trading on any national securities exchange, the last sale price, or the
closing bid price if no sale occurred, of such class of security on the
principal securities exchange on which such class of security is listed or
admitted to trading. If the security is quoted on a national securities or
central market system, in lieu of a market or quotation system described above,
the last reported sale price shall be determined in the manner set forth in
clause (ii) of the preceding sentence if bid and asked quotations are reported
but actual transactions are not, and in the manner set forth in clause (iii) of
the preceding sentence if actual transactions are reported. If none of the
conditions set forth above is met, the last reported sale price of the security
on any day or the average of such last reported sale prices for any period
shall be the fair market value of such security as determined by a member firm
of the New York Stock Exchange, Inc. selected by the Company. The term
"TRADING DAYS", as used herein, means (i) if the security is quoted on the
National Market of the National Association of Security Dealers, Inc. Automated
Quotation System, or any similar system of automated dissemination of
quotations of securities prices, days on which trades may be made on such
system or (ii) if the security is listed or admitted for trading on any
national securities exchange, days on which such national securities exchange
is open for business.
(f) RECORD DATE ADJUSTMENTS. In any case in which this Paragraph
4 requires that a downward adjustment of the Exercise Price shall become
effective immediately after a record date for an event, the Company may defer,
until the occurrence of such event, issuing to the holder of this Warrant
exercised after such record date and before the occurrence of such event the
additional Warrant Shares issuable upon such exercise by reason of the
adjustment required by such event over and above the Warrant Shares issuable
upon such exercise before giving effect to such adjustment.
(g) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER, OR
SALE. If any capital reorganization of the Company, or any reclassification of
the Capital Stock, or any
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<PAGE> 8
consolidation or merger of the Company with or into another corporation or
entity, or any sale of all or substantially all the assets of the Company to
another corporation or entity, shall be effected in such a way that the holders
of Common Stock (or any other securities of the Company then issuable upon the
exercise of this Warrant) shall be entitled to receive stock or other
securities or property (including cash) with respect to or in exchange for
Common Stock (or such other securities), then, as a condition of such
reorganization, reclassification, consolidation, merger, or sale, lawful and
adequate provision shall be made whereby the holder of this Warrant shall
thereafter have the right to purchase and receive upon the basis and upon the
terms and conditions specified in this Warrant, and in lieu of the shares of
Common Stock (or such other securities) immediately theretofore purchasable and
receivable upon the exercise hereof, such stock or other securities or property
(including cash) as may be issuable or payable with respect to or in exchange
for a number of outstanding shares of Common Stock (or such other securities)
equal to the number of shares of Common Stock (or such other securities)
immediately theretofore purchasable and receivable upon the exercise of this
Warrant, had such reorganization, reclassification, consolidation, merger, or
sale not taken place. In any such case appropriate provision shall be made
with respect to the rights and interests of the holder of this Warrant to the
end that the provisions hereof (including, without limitation, the provisions
for adjustments of the Exercise Price and of the number of Warrant Shares
purchasable upon exercise hereof) shall thereafter be applicable, as nearly as
reasonably may be, in relation to the stock or other securities or property
thereafter deliverable upon the exercise hereof (including an immediate
adjustment of the Exercise Price if by reason of or in connection with such
consolidation, merger, or sale any securities are issued or event occurs which
would, under the terms hereof, require an adjustment of the Exercise Price).
In the event of a consolidation or merger of the Company with or into another
corporation or entity as a result of which a greater or lesser number of shares
of common stock of the surviving corporation or entity are issuable to holders
of Capital Stock in respect of the number of shares of Capital Stock
outstanding immediately prior to such consolidation or merger, then the
Exercise Price in effect immediately prior to such consolidation or merger
shall be adjusted in the same manner as though there were a subdivision or
combination of the outstanding shares of Capital Stock. The Company shall not
effect any such consolidation, merger, or sale unless prior to or
simultaneously with the consummation thereof the successor corporation or
entity (if other than the Company) resulting from such consolidation or merger
or the corporation or entity purchasing such assets and any other corporation
or entity the shares of stock or other securities or property of which are
receivable thereupon by the holder of this Warrant shall expressly assume, by
written instrument executed and delivered (and satisfactory in form) to the
holder of this Warrant, (i) the obligation to deliver to such holder such stock
or other securities or property as, in accordance with the foregoing
provisions, such holder may be entitled to purchase and (ii) all other
obligations of the Company hereunder.
(h) NO FRACTIONAL SHARES. No fractional shares of Common Stock
are to be issued upon the exercise of this Warrant, but the Company shall pay a
cash adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the current market value of
a share of Common Stock, which current market value shall be the last reported
sale price (determined as provided in Paragraph 4(e) hereof) on the Trading Day
immediately preceding the date of the exercise.
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<PAGE> 9
(i) NOTICE OF ADJUSTMENT. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then and in each such case the
Company shall give notice thereof to the holder of this Warrant, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease, if any, in the number of shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
(j) OTHER NOTICES. In case at any time:
(i) the Company shall declare any dividend upon the
Capital Stock payable in shares of stock of any class or make any
other distribution (other than dividends or distributions payable in
cash out of earnings or earned surplus) to the holders of the Capital
Stock;
(ii) the Company shall offer for subscription pro rata to
the holders of the Capital Stock any additional shares of stock of any
class or other rights;
(iii) there shall be any capital reorganization of the
Company, or reclassification of the Capital Stock, or consolidation or
merger of the Company with or into, or sale of all or substantially
all its assets to, another corporation or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation, or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a
record shall be taken for determining the holders of Capital Stock entitled to
receive any such dividend, distribution, or subscription rights or for
determining the holders of Capital Stock entitled to vote in respect of any
such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation, or winding-up and (b) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding-up, notice of the date (or, if not then known, a
reasonable approximation thereof by the Company) when the same shall take
place. Such notice shall also specify the date on which the holders of Capital
Stock shall be entitled to receive such dividend, distribution, or subscription
rights or to exchange their Capital Stock for stock or other securities or
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, or winding-up, as the case may be.
Such notice shall be given at least 20 days prior to the record date or the
date on which the Company's books are closed in respect thereto. Failure to
give any such notice or any defect therein shall not affect the validity of the
proceeding referred to in clauses (i), (ii), (iii), and (iv) above.
(k) CERTAIN EVENTS. If any event occurs as to which, in the good
faith judgment of the Board of Directors of the Company, the other provisions
of this Paragraph 4 are not strictly applicable or if strictly applicable would
not fairly protect the exercise rights of the holder of this Warrant in
accordance with the essential intent and principles of such provisions, then
the
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<PAGE> 10
Board of Directors of the Company shall appoint the Company's regular
independent auditors or another firm of independent public accountants of
recognized national standing who are satisfactory to the holder of this Warrant
which shall give their opinion upon the adjustment, if any, on a basis
consistent with such essential intent and principles, necessary to preserve,
without dilution, the rights of the holder of this Warrant. Upon receipt of
such opinion, the Board of Directors of the Company shall forthwith make the
adjustments described therein; provided that no such adjustment shall have the
effect of increasing the Exercise Price as otherwise determined pursuant to
this Paragraph 4. The Company may make such reductions in the Exercise Price
or increase in the number of shares of Common Stock purchasable hereunder as it
deems advisable, including any reductions or increases, as the case may be,
necessary to ensure that any event treated for federal income tax purposes as a
distribution of stock rights not be taxable to recipients.
5. ISSUE TAX. The issuance of certificates for Warrant Shares
upon the exercise of this Warrant shall be made without charge to the holder of
this Warrant or such shares for any issuance tax in respect thereof, provided
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.
6. AVAILABILITY OF INFORMATION. The Company will cooperate with
the holder of this Warrant and each holder of any Warrant Shares in supplying
such information as may be necessary for such holder to complete and file any
information reporting forms presently or hereafter required by the Securities
and Exchange Commission as a condition to the availability of an exemption from
the Securities Act of 1933, as amended, for the sale of this Warrant or any
Warrant Shares. The Company will deliver to the holder of this Warrant,
promptly upon their becoming available, copies of all financial statements,
reports, notices, and proxy statements sent or made available generally by the
Company to its shareholders, and copies of all regular and periodic reports and
all registration statements and prospectuses filed by the Company with any
securities exchange or with the Securities and Exchange Commission.
7. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall
not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the holder hereof to purchase Warrant Shares, and no mere
enumeration herein of the rights or privileges of the holder hereof, shall give
rise to any liability of such holder for the Exercise Price or as a shareholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
8. TRANSFER, EXCHANGE, AND REPLACEMENT OF WARRANT.
(a) WARRANT TRANSFERABLE. The transfer of this Warrant and all
rights hereunder, in whole or in part, is registrable at the office or agency
of the Company referred to in Paragraph 8(e) hereof by the holder hereof in
person or by his duly authorized attorney, upon surrender of this Warrant
properly endorsed. Each taker and holder of this Warrant, by taking or holding
the same, consents and agrees that this Warrant, when endorsed in blank, shall
be deemed negotiable, and that the holder hereof, when this Warrant shall have
been so endorsed,
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<PAGE> 11
may be treated by the Company and all other persons dealing with this Warrant
as the absolute owner and holder hereof for any purpose and as the person
entitled to exercise the rights represented by this Warrant and to the
registration of transfer hereof on the books of the Company; but until due
presentment for registration of transfer on such books the Company may treat
the registered holder hereof as the owner and holder hereof for all purposes,
and the Company shall not be affected by any notice to the contrary.
(b) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This
Warrant is exchangeable, upon the surrender hereof by (and at the expense of)
the holder hereof at the office or agency of the Company referred to in
Paragraph 8(e) hereof, for new Warrants of like tenor representing in the
aggregate the right to purchase the number of shares of Common Stock which may
be purchased hereunder, each of such new Warrants to represent the right to
purchase such number of shares as shall be designated by said holder hereof at
the time of such surrender.
(c) REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount
to the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at the expense of the holder hereof,
will execute and deliver, in lieu thereof, a new Warrant of like tenor.
(d) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided
in this Paragraph 8, this Warrant shall be promptly cancelled by the Company.
The Company shall pay all taxes (other than securities transfer taxes) in
connection with the preparation, execution, and delivery of Warrants pursuant
to this Paragraph 8.
(e) REGISTER. The Company shall maintain, at its principal office
in Dallas, Texas (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in
which the Company shall record the name and address of the person in whose name
this Warrant has been issued, as well as the name and address of each
transferee and each prior owner of this Warrant.
(f) EXERCISE OR TRANSFER WITHOUT REGISTRATION. Anything in this
Warrant to the contrary notwithstanding, if, at the time of the surrender of
this Warrant in connection with any exercise, transfer, or exchange of this
Warrant, this Warrant shall not be registered under the Securities Act of 1933,
as amended, and under applicable state securities or blue sky laws, the Company
may require, as a condition of allowing such exercise, transfer, or exchange,
that (i) the holder or transferee of this Warrant, as the case may be, furnish
to the Company a written opinion of counsel, which opinion and counsel are
acceptable to the Company, to the effect that such exercise, transfer, or
exchange may be made without registration under said Act and under applicable
state securities or blue sky laws and (ii) the holder or transferee execute and
deliver to the Company an investment letter in form and substance acceptable to
the Company. The first holder of this Warrant, by taking and holding the same,
represents to the Company that
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such holder is acquiring this Warrant for investment and not with a view to the
distribution thereof.
9. NOTICES. All notices, requests, and other communications
required or permitted to be given or delivered hereunder to the holder of this
Warrant or to the holder of shares acquired upon exercise of this Warrant shall
be in writing, and shall be personally delivered, or shall be sent by certified
or registered mail, postage prepaid and addressed, to such holder at the
address shown for such holder on the books of the Company, or at such other
address as shall have been furnished to the Company by notice from such holder.
All notices, requests, and other communications required or permitted to be
given or delivered hereunder to the Company shall be in writing, and shall be
personally delivered, or shall be sent by certified or registered mail, postage
prepaid and addressed, to the office of the Company at 2351 West Northwest
Highway, Suite 2130, Dallas, Texas, Attention: President, or at such other
address as shall have been furnished to the holder of this Warrant or to the
holder of shares acquired upon exercise of this Warrant by notice from the
Company. Any such notice, request, or other communication may be sent by
telegram or telex, but shall in such case be subsequently confirmed by a
writing personally delivered or sent by certified or registered mail as
provided above. All notices, requests, and other communications shall be
deemed to have been given either at the time of the delivery thereof to (or the
receipt by, in the case of a telegram or telex) the person entitled to receive
such notice at the address of such person for purposes of this Paragraph 9, or,
if mailed, at the completion of the third full day following the time of such
mailing thereof to such address, as the case may be.
10. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS,
EXCEPT WITH RESPECT TO THE VALIDITY OF THIS WARRANT AND THE RIGHTS AND DUTIES
OF THE COMPANY WITH RESPECT TO REGISTRATION OF TRANSFER WHICH SHALL BE GOVERNED
BY THE LAWS OF THE STATE OF UTAH.
11. MISCELLANEOUS.
(a) AMENDMENTS. This Warrant and any provision hereof may not be
changed, waived, discharged, or terminated orally, but only by an instrument in
writing signed by the party (or any predecessor in interest thereof) against
which enforcement of the same is sought.
(b) DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof.
(c) SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon
any entity succeeding to the Company by merger, consolidation, or acquisition
of all or substantially all the Company's assets.
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<PAGE> 13
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer under its corporate seal, attested by its duly
authorized officer, on this ____ day of December, 1995.
FUTURE PETROLEUM CORPORATION
By: /s/ CARL PRICE
----------------------
Name: Carl Price
Title: President
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EXHIBIT 4.5
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES
OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD,
ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER SAID ACT AND UNDER APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR
EXEMPTIONS FROM SUCH REGISTRATION. THIS WARRANT MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT UPON THE CONDITIONS SPECIFIED IN
THIS WARRANT, AND NO SALE, ASSIGNMENT, TRANSFER, OR OTHER DISPOSITION OF THIS
WARRANT SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE
BEEN COMPLIED WITH.
No. 1006 Right to Purchase 23,429 Shares
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, EnCap Equity 1994 Limited
Partnership, a Texas limited partnership, or registered assigns, is entitled to
purchase from Future Petroleum Corporation, a Utah corporation (the "COMPANY"),
at any time or from time to time during the period specified in Paragraph 2
hereof, Twenty Three Thousand Four Hundred Twenty Nine (23,429) fully paid and
nonassessable shares of the Company's Common Stock, par value $0.01 per share
(the "COMMON STOCK"), at an exercise price per share of $1.00 (the "EXERCISE
PRICE"). The term "WARRANT SHARES", as used herein, refers to the shares of
Common Stock purchasable hereunder. The Warrant Shares and the Exercise Price
are subject to adjustment as provided in Paragraph 4 hereof.
This Warrant is subject to the following terms, provisions, and
conditions:
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part by the surrender of this Warrant, together with a
completed Exercise Agreement in the form attached hereto, to the Company during
normal business hours on any business day at the Company's principal office in
Dallas, Texas (or such other office or agency of the Company as it may
designate by notice to the holder hereof), and upon payment to the Company in
cash or by certified or official bank check of the Exercise Price for the
Warrant Shares specified in said Exercise Agreement. The Warrant Shares so
purchased shall be deemed to be issued to the holder hereof or its designee as
the record owner of such shares as of the close of business on the date on
which this Warrant shall have been surrendered, the completed Exercise
Agreement delivered, and payment made for such shares as aforesaid.
Certificates for the Warrant Shares so purchased, representing the aggregate
number of shares specified in said Exercise Agreement, shall be delivered to
the holder hereof within a reasonable time, not exceeding seven business days,
after this Warrant shall have been so exercised. The certificates so delivered
shall be in
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such denominations as may be requested by the holder hereof and shall be
registered in the name of said holder or such other name as shall be designated
by said holder. If this Warrant shall have been exercised only in part, then,
unless this Warrant has expired, the Company shall, at its expense, at the time
of delivery of said certificates, deliver to said holder a new Warrant
representing the number of shares with respect to which this Warrant shall not
then have been exercised. The Company shall pay all taxes and other expenses
and charges payable in connection with the preparation, execution, and delivery
of stock certificates (and any new Warrants) pursuant to this Paragraph 1
except that, in case such stock certificates shall be registered in a name or
names other than the holder of this Warrant, funds sufficient to pay all stock
transfer taxes which shall be payable in connection with the execution and
delivery of such stock certificates shall be paid by the holder hereof to the
Company at the time of the delivery of such stock certificates by the Company
as mentioned above.
2. PERIOD OF EXERCISE. This Warrant is exercisable at any time or
from time to time after April 18, 1996, and before 5:00 p.m. local time on
April 18, 2001.
3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants
and agrees as follows:
(a) SHARES TO BE FULLY PAID. All Warrant Shares will, upon issuance,
be validly issued, fully paid, and nonassessable and free from all taxes,
liens, and charges with respect to the issue thereof.
(b) RESERVATION OF SHARES. During the period within which this
Warrant may be exercised, the Company will at all times have authorized, and
reserved for the purpose of issue upon exercise of this Warrant, a sufficient
number of shares of Common Stock to provide for the exercise of this Warrant.
(c) CERTAIN ACTIONS PROHIBITED. The Company will not, by amendment
of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed by it hereunder, but will at all times
in good faith assist in the carrying out of all the provisions of this Warrant
and in the taking of all such action as may reasonably be requested by the
holder of this Warrant in order to protect the exercise privilege of the holder
of this Warrant against dilution or other impairment, consistent with the tenor
and purpose of this Warrant. Without limiting the generality of the foregoing,
(i) the Company will not increase the par value of the shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, (ii) before taking any action which would cause an adjustment reducing
the Exercise Price below the then par value of the shares of Common Stock so
receivable, the Company will take all such corporate action as may be necessary
or appropriate in order that the Company may validly and legally issue fully
paid and nonassessable shares of Common Stock at such adjusted Exercise Price
upon the exercise of this Warrant.
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<PAGE> 3
(d) REGISTRATION. If the issuance of any Warrant Shares required to
be reserved for purposes of exercise of this Warrant requires registration with
or approval of any governmental authority under any federal or state law (other
than any registration under the Securities Act of 1933, as amended, or under
applicable state securities or blue sky laws) or listing on any national
securities exchange, before such shares may be issued upon exercise of this
Warrant, the Company will, at its expense, use its best efforts to cause such
shares to be duly registered or approved, or listed on the relevant national
securities exchange, as the case may be, at such time, so that such shares may
be issued in accordance with the terms hereof.
4. ANTIDILUTION PROVISIONS. The Exercise Price shall be subject to
adjustment from time to time as provided in this Paragraph 4. Upon each
adjustment of the Exercise Price, the holder of this Warrant shall thereafter
be entitled to purchase, at the Exercise Price resulting from such adjustment,
the largest number of Warrant Shares obtained by multiplying the Exercise Price
in effect immediately prior to such adjustment by the number of Warrant Shares
purchasable hereunder immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment. For
purposes of this Paragraph 4, the term "CAPITAL STOCK", as used herein,includes
the Common Stock and any additional class of stock of the Company having no
preference as to dividends or distributions on liquidation which may be
authorized in the future, provided that the shares purchasable pursuant to this
Warrant shall include only shares of Common Stock, or shares resulting from any
subdivision or combination of the Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or sale of the
character referred to in Paragraph 4(g) hereof, the stock or other securities
or property provided for in said Paragraph, but excludes any Common Stock and
any additional class of stock of the Company having no preference as to
dividends or distributions on liquidation (x) that may be authorized in the
future pursuant to currently existing and outstanding written agreements as
listed in Schedule 4 attached hereto or (y) that may be issued pursuant to the
exercise of any currently existing or future options to purchase Common Stock
(or any such additional class of stock) granted by the Company to its
employees.
(a) ISSUANCE OF CAPITAL STOCK. If and whenever the Company shall
issue or sell any shares of Capital Stock without consideration or for a
consideration per share less than the Exercise Price in effect immediately
prior to the time of such issue or sale, then, forthwith upon such issue or
sale, the Exercise Price shall be reduced to a price (calculated to the nearest
cent) determined by dividing (x) an amount equal to the sum of (aa) the total
number of shares of Capital Stock outstanding immediately prior to such issue
or sale multiplied by the then existing Exercise Price, and (bb) the
consideration, if any, received by the Company upon such issue or sale, by (y)
the total number of shares of Capital Stock outstanding immediately after such
issue or sale.
(b) TREATMENT OF OPTIONS AND CONVERTIBLE SECURITIES; COMPUTATION OF
CONSIDERATION. For purposes of Paragraph 4(a) hereof the following provisions
shall also be applicable:
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<PAGE> 4
(i) In case the Company shall grant any rights to subscribe for or
purchase, or any options for the purchase of, Capital Stock or securities
convertible into or exchangeable for Capital Stock (such rights and options
being herein called "OPTIONS" and such convertible or exchangeable securities
being herein called "CONVERTIBLE SECURITIES"), whether or not such Options or
the rights to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which Capital Stock is
issuable upon the exercise of such Options or upon the conversion or exchange
of such Convertible Securities (as determined in accordance with the following
sentence) shall be less than the Exercise Price in effect immediately prior to
the time of the granting of such Options, then the total maximum number of
shares of Capital Stock issuable upon the exercise of such Options or upon the
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall (as of the date of
granting of such Options) be deemed to be outstanding and to have been issued
and sold for such price per share. The price per share for which the Capital
Stock is issuable, as provided in the preceding sentence, shall be determined
by dividing (x) the total amount, if any, received or receivable by the Company
as consideration for the granting of such Options, plus the minimum aggregate
amount of additional consideration payable to the Company upon the exercise of
such Options, plus, in the case of any such Options which relate to Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the conversion or exchange of such Convertible
Securities, by (y) the total maximum number of shares of Capital Stock issuable
upon the exercise of such Options or upon the conversion or exchange of all
such Convertible Securities issuable upon the exercise of such Options. Except
as provided in Paragraph 4(b)(vi) hereof, no further adjustments of the
Exercise Price shall be made upon the actual issue of such Capital Stock or of
such Convertible Securities upon the exercise of such Options or upon the
actual issue of such Capital Stock upon the conversion or exchange of such
Convertible Securities.
(ii) In case the Company shall issue or sell Convertible
Securities, whether or not the rights to convert or exchange such
Convertible Securities are immediately exercisable, and the price per
share for which Capital Stock is issuable upon the conversion or
exchange of such Convertible Securities (as determined in accordance
with the following sentence) shall be less than the Exercise Price in
effect immediately prior to the time of the issue or sale of such
Convertible Securities, then the total maximum number of shares of
Capital Stock issuable upon the conversion or exchange of all such
Convertible Securities shall (as of the date of the issue or sale of
such Convertible Securities) be deemed to be outstanding and to have
been issued and sold for such price per share, provided that (a) except
as provided in Paragraph 4(b)(vi) hereof, no further adjustments of the
Exercise Price shall be made upon the actual issue of such Capital Stock
upon the conversion or exchange of such Convertible Securities, and (b)
if any such issue or sale of such Convertible Securities is made upon
exercise of any Options for which adjustments of the Exercise Price have
been or are to be made pursuant to other provisions of this Paragraph
4(b), no further adjustment of the Exercise Price shall be made by
reason of such issue or sale. The price per share for which the Capital
Stock is issuable, as provided in the preceding sentence, shall be
determined by
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<PAGE> 5
dividing (x) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities, plus
the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the conversion or exchange thereof, by (y)
the total maximum number of shares of Capital Stock issuable upon the
conversion or exchange of all such Convertible Securities.
(iii) In case at any time the Company shall pay a
dividend or make any other distribution upon the Capital Stock payable
in Capital Stock, Options or Convertible Securities, any Capital Stock,
Options or Convertible Securities, as the case may be, issuable in
payment of such dividend or distribution shall be deemed to have been
issued without consideration.
(iv) In case at any time any Capital Stock, Convertible
Securities, or Options shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount
received by the Company therefor, without deduction therefrom of any
expenses incurred or any underwriting commissions or concessions paid or
allowed by the Company in connection therewith. In case any Capital
Stock, Convertible Securities, or Options shall be issued or sold for a
consideration other than cash, the amount of the consideration other
than cash received by the Company therefor shall be deemed to be the
fair value of such consideration as determined in good faith by the
Board of Directors of the Company, except where such consideration
consists of securities, in which case the amount of consideration
received by the Company shall be the market price thereof (determined as
provided in Paragraph 4(e) hereof) as of the date of receipt, but in
each such case without deduction therefrom of any expenses incurred or
any underwriting commissions or concessions paid or allowed by the
Company in connection therewith. In computing the market price of a
note or other obligation that is not listed or admitted to trading on
any securities exchange or quoted in the National Association of
Securities Dealers, Inc. Automated Quotation System or reported by the
National Quotation Bureau, Inc. or a similar reporting organization, the
total consideration to be received by the Company thereunder (including
interest) shall be discounted to present value at the prime rate of
interest of NationsBank of Texas, N.A. in effect at the time the note or
obligation is deemed to have been issued. In case any Capital Stock,
Convertible Securities, or Options shall be issued in connection with
any merger of another corporation into the Company, the amount of
consideration therefor shall be deemed to be the fair value as
determined in good faith by the Board of Directors of the Company of
such portion of the assets of such merged corporation as the Board shall
determine to be attributable to such Capital Stock, Convertible
Securities, or Options.
(v) In case at any time the Company shall take a record
of the holders of Capital Stock for the purpose of entitling them (a) to
receive a dividend or other distribution payable in Capital Stock,
Options or Convertible Securities, or (b) to subscribe for or purchase
Capital Stock, Options or Convertible Securities, then such record date
shall be deemed to be the date of the issue or sale of such Capital
Stock, Options or Convertible Securities.
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<PAGE> 6
(vi) If the purchase price provided for in any Option
referred to in Paragraph 4(b)(i) hereof, or the price at which any
Convertible Securities referred to in Paragraph 4(b)(i) or (ii) hereof
are convertible into or exchangeable for Capital Stock, shall change at
any time (whether by reason of provisions designed to protect against
dilution or otherwise), the Exercise Price then in effect hereunder
shall forthwith be increased or decreased to such Exercise Price as
would have obtained had the adjustments made upon the issuance of such
Options or Convertible Securities been made upon the basis of (a) the
issuance of the number of shares of Capital Stock theretofore actually
delivered upon the exercise of such Options or upon the conversion or
exchange of such Convertible Securities, and the total consideration
received therefor, and (b) the number of shares of Capital Stock to be
issued for the consideration, if any, received by the Company therefor
and to be received on the basis of such changed price.
(vii) If any adjustment has been made in the Exercise
Price because of the issuance of Options or Convertible Securities and
if any of such Options or rights to convert or exchange such Convertible
Securities expire or otherwise terminate, then the Exercise Price shall
be readjusted to eliminate the adjustments previously made in connection
with the Options or rights to convert or exchange Convertible Securities
which have expired or terminated.
(viii) The number of shares of Capital Stock outstanding
at any given time shall not include shares owned or held by or for the
account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Capital Stock.
(c) SUBDIVISIONS AND COMBINATIONS. In case at any time the Company
shall subdivide the outstanding shares of Capital Stock into a greater number
of shares, the Exercise Price in effect immediately prior to such subdivision
shall be proportionately reduced, and conversely, in case the outstanding
shares of Capital Stock shall be combined into a smaller number of shares, the
Exercise Price in effect immediately prior to such combination shall be
proportionately increased. An adjustment made pursuant to this Paragraph 4(c)
shall become effective immediately after the effective date of such subdivision
or combination.
(d) EXTRAORDINARY DIVIDENDS AND DISTRIBUTIONS. In case at any time
the Company shall pay a dividend or make a distribution to all holders of
Capital Stock, as such, of shares of its stock, evidences of its indebtedness,
assets, or rights, options, or warrants to subscribe for or purchase such
shares, evidences of indebtedness, or assets, other than (i) a dividend or
distribution payable in Capital Stock, Options, or Convertible Securities or
(ii) a dividend or distribution payable in cash out of earnings or earned
surplus, then in each such case the Exercise Price shall be adjusted so that
the same shall equal the price determined by multiplying the Exercise Price in
effect immediately prior to the record date mentioned below by a fraction, the
numerator of which shall be the total number of shares of Capital Stock
outstanding on such record date multiplied by the market price per share of
Capital Stock (determined as provided in Paragraph 4(e) hereof) on such record
date, less the fair market value (as determined in good faith by the Board of
Directors of the Company) as of such record date of such shares of stock,
evidences of indebtedness, assets, or rights, options, or warrants so paid or
distributed, and the
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denominator of which shall be the total number of shares of Capital Stock
outstanding on such record date multiplied by the market price per share of
Capital Stock (determined as provided in Paragraph 4(e) hereof) on such record
date. Such adjustment shall be made whenever such dividend is paid or such
distribution is made and shall become effective immediately after the record
date for the determination of shareholders entitled to receive such dividend or
distribution.
(e) COMPUTATION OF MARKET PRICE. For the purpose of any computation
under Paragraph 4(b) or (d) hereof, the market price of the security in
question on any day shall be deemed to be the average of the last reported sale
prices for the security for the 20 consecutive Trading Days (as defined below)
commencing 30 Trading Days before the day in question. The last reported sale
price for each day shall be (i) the last reported sale price of the security on
the National Market of the National Association of Securities Dealers, Inc.
Automated Quotation System, or any similar system of automated dissemination of
quotations of securities prices then in common use, if so quoted, or (ii) if
not quoted as described in clause (i) above, the mean between the high bid and
low asked quotations for the security as reported by the National Quotation
Bureau, Inc. if at least two securities dealers have inserted both bid and
asked quotations for such security on at least 10 of such 20 consecutive
Trading Days, or (iii) if the security is listed or admitted for trading on any
national securities exchange, the last sale price, or the closing bid price if
no sale occurred, of such class of security on the principal securities
exchange on which such class of security is listed or admitted to trading. If
the security is quoted on a national securities or central market system, in
lieu of a market or quotation system described above, the last reported sale
price shall be determined in the manner set forth in clause (ii) of the
preceding sentence if bid and asked quotations are reported but actual
transactions are not, and in the manner set forth in clause (iii) of the
preceding sentence if actual transactions are reported. If none of the
conditions set forth above is met, the last reported sale price of the security
on any day or the average of such last reported sale prices for any period
shall be the fair market value of such security as determined by a member firm
of the New York Stock Exchange, Inc. selected by the Company. The term
"TRADING DAYS", as used herein, means (i) if the security is quoted on the
National Market of the National Association of Security Dealers, Inc. Automated
Quotation System, or any similar system of automated dissemination of
quotations of securities prices, days on which trades may be made on such
system or (ii) if the security is listed or admitted for trading on any
national securities exchange, days on which such national securities exchange
is open for business.
(f) RECORD DATE ADJUSTMENTS. In any case in which this Paragraph 4
requires that a downward adjustment of the Exercise Price shall become
effective immediately after a record date for an event, the Company may defer,
until the occurrence of such event, issuing to the holder of this Warrant
exercised after such record date and before the occurrence of such event the
additional Warrant Shares issuable upon such exercise by reason of the
adjustment required by such event over and above the Warrant Shares issuable
upon such exercise before giving effect to such adjustment.
(g) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER, OR SALE.
If any capital reorganization of the Company, or any reclassification of the
Capital Stock, or any
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<PAGE> 8
consolidation or merger of the Company with or into another corporation or
entity, or any sale of all or substantially all the assets of the Company to
another corporation or entity, shall be effected in such a way that the holders
of Common Stock (or any other securities of the Company then issuable upon the
exercise of this Warrant) shall be entitled to receive stock or other
securities or property (including cash) with respect to or in exchange for
Common Stock (or such other securities), then, as a condition of such
reorganization, reclassification, consolidation, merger, or sale, lawful and
adequate provision shall be made whereby the holder of this Warrant shall
thereafter have the right to purchase and receive upon the basis and upon the
terms and conditions specified in this Warrant, and in lieu of the shares of
Common Stock (or such other securities) immediately theretofore purchasable and
receivable upon the exercise hereof, such stock or other securities or property
(including cash) as may be issuable or payable with respect to or in exchange
for a number of outstanding shares of Common Stock (or such other securities)
equal to the number of shares of Common Stock (or such other securities)
immediately theretofore purchasable and receivable upon the exercise of this
Warrant, had such reorganization, reclassification, consolidation, merger, or
sale not taken place. In any such case appropriate provision shall be made
with respect to the rights and interests of the holder of this Warrant to the
end that the provisions hereof (including, without limitation, the provisions
for adjustments of the Exercise Price and of the number of Warrant Shares
purchasable upon exercise hereof) shall thereafter be applicable, as nearly as
reasonably may be, in relation to the stock or other securities or property
thereafter deliverable upon the exercise hereof (including an immediate
adjustment of the Exercise Price if by reason of or in connection with such
consolidation, merger, or sale any securities are issued or event occurs which
would, under the terms hereof, require an adjustment of the Exercise Price).
In the event of a consolidation or merger of the Company with or into another
corporation or entity as a result of which a greater or lesser number of shares
of common stock of the surviving corporation or entity are issuable to holders
of Capital Stock in respect of the number of shares of Capital Stock
outstanding immediately prior to such consolidation or merger, then the
Exercise Price in effect immediately prior to such consolidation or merger
shall be adjusted in the same manner as though there were a subdivision or
combination of the outstanding shares of Capital Stock. The Company shall not
effect any such consolidation, merger, or sale unless prior to or
simultaneously with the consummation thereof the successor corporation or
entity (if other than the Company) resulting from such consolidation or merger
or the corporation or entity purchasing such assets and any other corporation
or entity the shares of stock or other securities or property of which are
receivable thereupon by the holder of this Warrant shall expressly assume, by
written instrument executed and delivered (and satisfactory in form) to the
holder of this Warrant, (i) the obligation to deliver to such holder such stock
or other securities or property as, in accordance with the foregoing
provisions, such holder may be entitled to purchase and (ii) all other
obligations of the Company hereunder.
(h) NO FRACTIONAL SHARES. No fractional shares of Common Stock are
to be issued upon the exercise of this Warrant, but the Company shall pay a
cash adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the current market value of
a share of Common Stock, which current market value shall be the last reported
sale price (determined as provided in Paragraph 4(e) hereof) on the Trading Day
immediately preceding the date of the exercise.
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(i) NOTICE OF ADJUSTMENT. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then and in each such case the
Company shall give notice thereof to the holder of this Warrant, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease, if any, in the number of shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
(j) OTHER NOTICES. In case at any time:
(i) the Company shall declare any dividend upon the
Capital Stock payable in shares of stock of any class or make any other
distribution (other than dividends or distributions payable in cash out
of earnings or earned surplus) to the holders of the Capital Stock;
(ii) the Company shall offer for subscription pro rata
to the holders of the Capital Stock any additional shares of stock of
any class or other rights;
(iii) there shall be any capital reorganization of the
Company, or reclassification of the Capital Stock, or consolidation or
merger of the Company with or into, or sale of all or substantially all
its assets to, another corporation or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation, or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a
record shall be taken for determining the holders of Capital Stock entitled to
receive any such dividend, distribution, or subscription rights or for
determining the holders of Capital Stock entitled to vote in respect of any
such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation, or winding-up and (b) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding-up, notice of the date (or, if not then known, a
reasonable approximation thereof by the Company) when the same shall take
place. Such notice shall also specify the date on which the holders of Capital
Stock shall be entitled to receive such dividend, distribution, or subscription
rights or to exchange their Capital Stock for stock or other securities or
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, or winding-up, as the case may be.
Such notice shall be given at least 20 days prior to the record date or the
date on which the Company's books are closed in respect thereto. Failure to
give any such notice or any defect therein shall not affect the validity of the
proceeding referred to in clauses (i), (ii), (iii), and (iv) above.
(k) CERTAIN EVENTS. If any event occurs as to which, in the good
faith judgment of the Board of Directors of the Company, the other provisions
of this Paragraph 4 are not strictly applicable or if strictly applicable would
not fairly protect the exercise rights of the holder of this Warrant in
accordance with the essential intent and principles of such provisions, then
the
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<PAGE> 10
Board of Directors of the Company shall appoint the Company's regular
independent auditors or another firm of independent public accountants of
recognized national standing who are satisfactory to the holder of this Warrant
which shall give their opinion upon the adjustment, if any, on a basis
consistent with such essential intent and principles, necessary to preserve,
without dilution, the rights of the holder of this Warrant. Upon receipt of
such opinion, the Board of Directors of the Company shall forthwith make the
adjustments described therein; provided that no such adjustment shall have the
effect of increasing the Exercise Price as otherwise determined pursuant to
this Paragraph 4. The Company may make such reductions in the Exercise Price
or increase in the number of shares of Common Stock purchasable hereunder as it
deems advisable, including any reductions or increases, as the case may be,
necessary to ensure that any event treated for federal income tax purposes as a
distribution of stock rights not be taxable to recipients.
5. ISSUE TAX. The issuance of certificates for Warrant Shares upon
the exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax in respect thereof, provided that
the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.
6. AVAILABILITY OF INFORMATION. The Company will cooperate with the
holder of this Warrant and each holder of any Warrant Shares in supplying such
information as may be necessary for such holder to complete and file any
information reporting forms presently or hereafter required by the Securities
and Exchange Commission as a condition to the availability of an exemption from
the Securities Act of 1933, as amended, for the sale of this Warrant or any
Warrant Shares. The Company will deliver to the holder of this Warrant,
promptly upon their becoming available, copies of all financial statements,
reports, notices, and proxy statements sent or made available generally by the
Company to its shareholders, and copies of all regular and periodic reports and
all registration statements and prospectuses filed by the Company with any
securities exchange or with the Securities and Exchange Commission.
7. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall
not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the holder hereof to purchase Warrant Shares, and no mere
enumeration herein of the rights or privileges of the holder hereof, shall give
rise to any liability of such holder for the Exercise Price or as a shareholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
8. TRANSFER, EXCHANGE, AND REPLACEMENT OF WARRANT.
(a) WARRANT TRANSFERABLE. The transfer of this Warrant and all
rights hereunder, in whole or in part, is registrable at the office or agency
of the Company referred to in Paragraph 8(e) hereof by the holder hereof in
person or by his duly authorized attorney, upon surrender of this Warrant
properly endorsed. Each taker and holder of this Warrant, by taking or holding
the same, consents and agrees that this Warrant, when endorsed in blank, shall
be deemed negotiable, and that the holder hereof, when this Warrant shall have
been so endorsed,
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<PAGE> 11
may be treated by the Company and all other persons dealing with this Warrant
as the absolute owner and holder hereof for any purpose and as the person
entitled to exercise the rights represented by this Warrant and to the
registration of transfer hereof on the books of the Company; but until due
presentment for registration of transfer on such books the Company may treat
the registered holder hereof as the owner and holder hereof for all purposes,
and the Company shall not be affected by any notice to the contrary.
(b) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This Warrant
is exchangeable, upon the surrender hereof by (and at the expense of) the
holder hereof at the office or agency of the Company referred to in Paragraph
8(e) hereof, for new Warrants of like tenor representing in the aggregate the
right to purchase the number of shares of Common Stock which may be purchased
hereunder, each of such new Warrants to represent the right to purchase such
number of shares as shall be designated by said holder hereof at the time of
such surrender.
(c) REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount
to the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at the expense of the holder hereof,
will execute and deliver, in lieu thereof, a new Warrant of like tenor.
(d) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided
in this Paragraph 8, this Warrant shall be promptly cancelled by the Company.
The Company shall pay all taxes (other than securities transfer taxes) in
connection with the preparation, execution, and delivery of Warrants pursuant
to this Paragraph 8.
(e) REGISTER. The Company shall maintain, at its principal office in
Dallas, Texas (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in
which the Company shall record the name and address of the person in whose name
this Warrant has been issued, as well as the name and address of each
transferee and each prior owner of this Warrant.
(f) EXERCISE OR TRANSFER WITHOUT REGISTRATION. Anything in this
Warrant to the contrary notwithstanding, if, at the time of the surrender of
this Warrant in connection with any exercise, transfer, or exchange of this
Warrant, this Warrant shall not be registered under the Securities Act of 1933,
as amended, and under applicable state securities or blue sky laws, the Company
may require, as a condition of allowing such exercise, transfer, or exchange,
that (i) the holder or transferee of this Warrant, as the case may be, furnish
to the Company a written opinion of counsel, which opinion and counsel are
acceptable to the Company, to the effect that such exercise, transfer, or
exchange may be made without registration under said Act and under applicable
state securities or blue sky laws and (ii) the holder or transferee execute and
deliver to the Company an investment letter in form and substance acceptable to
the Company. The first holder of this Warrant, by taking and holding the same,
represents to the Company that
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<PAGE> 12
such holder is acquiring this Warrant for investment and not with a view to the
distribution thereof.
9. NOTICES. All notices, requests, and other communications
required or permitted to be given or delivered hereunder to the holder of this
Warrant or to the holder of shares acquired upon exercise of this Warrant shall
be in writing, and shall be personally delivered, or shall be sent by certified
or registered mail, postage prepaid and addressed, to such holder at the
address shown for such holder on the books of the Company, or at such other
address as shall have been furnished to the Company by notice from such holder.
All notices, requests, and other communications required or permitted to be
given or delivered hereunder to the Company shall be in writing, and shall be
personally delivered, or shall be sent by certified or registered mail, postage
prepaid and addressed, to the office of the Company at 2351 West Northwest
Highway, Suite 2130, Dallas, Texas, Attention: President, or at such other
address as shall have been furnished to the holder of this Warrant or to the
holder of shares acquired upon exercise of this Warrant by notice from the
Company. Any such notice, request, or other communication may be sent by
telegram or telex, but shall in such case be subsequently confirmed by a
writing personally delivered or sent by certified or registered mail as
provided above. All notices, requests, and other communications shall be
deemed to have been given either at the time of the delivery thereof to (or the
receipt by, in the case of a telegram or telex) the person entitled to receive
such notice at the address of such person for purposes of this Paragraph 9, or,
if mailed, at the completion of the third full day following the time of such
mailing thereof to such address, as the case may be.
10. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCEPT WITH
RESPECT TO THE VALIDITY OF THIS WARRANT AND THE RIGHTS AND DUTIES OF THE
COMPANY WITH RESPECT TO REGISTRATION OF TRANSFER WHICH SHALL BE GOVERNED BY THE
LAWS OF THE STATE OF UTAH.
11. MISCELLANEOUS.
(a) AMENDMENTS. This Warrant and any provision hereof may not be
changed, waived, discharged, or terminated orally, but only by an instrument in
writing signed by the party (or any predecessor in interest thereof) against
which enforcement of the same is sought.
(b) DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof.
(c) SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon any
entity succeeding to the Company by merger, consolidation, or acquisition of
all or substantially all the Company's assets.
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<PAGE> 13
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer under its corporate seal, attested by its duly
authorized officer, on this 18th day of April, 1996.
FUTURE PETROLEUM CORPORATION
By: /s/ CARL PRICE
-------------------------------
Name: Carl Price
-------------------------
Title: President
-------------------------
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<PAGE> 1
EXHIBIT 4.6
DATED 4th February 1994
(1) ENERGY CAPITAL INVESTMENT COMPANY PLC
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(2) ENCAP INVESTMENTS L.C.
-------------------------------
INVESTMENT ADVISORY AGREEMENT
-------------------------------
Hobson Audley
7 Pilgrim Street
London EC4V 6DR
ARG/LJI/2487
<PAGE> 2
INVESTMENT ADVISORY AGREEMENT
AN AGREEMENT made the 4th day of February, One thousand nine hundred and
ninety four.
B E T W E E N
(1) ENERGY CAPITAL INVESTMENT COMPANY PLC (registered in England No.
2867571) whose registered office is at 99 Charterhouse Street, London
EC1M 6AB ("the Company"),
(2) ENCAP INVESTMENTS L.C., a Texas limited liability company whose
principal place of business is at 1100 Louisiana Street, Suite 3150,
Houston, Texas 77002 USA ("EnCap").
WHEREAS:
(A) The Company is desirous of appointing EnCap (subject as hereinafter
provided) to advise the Company in relation to the management and
investment and re-investment of the Company's Investments.
(B) EnCap is engaged in business offering investment management and advisory
services in the USA in relation to the oil and gas industry and has
considerable skill, knowledge and experience in that field.
NOW IT IS HEREBY AGREED as follows:
1. INTERPRETATION
1.1 In this Agreement the following words and expressions shall where
not inconsistent with the context have the following meanings
respectively:
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<PAGE> 3
"Affiliate" with regard to another person shall mean any person
directly or indirectly controlling, controlled by or under common
control with, such other person; "Control" means the possession,
directly or indirectly, of the power to direct or cause the
direction of the management and policies of a person whether
through the ownership of voting securities, by contract or
otherwise;
"Appointee(s)" means any person or persons to whom EnCap may have
delegated any of its functions hereunder;
"Articles" means the Articles of Association of the Company as
amended from time to time and any reference herein to an Article
shall be taken to refer to the Articles unless otherwise
specified;
"Directors" means the Board of Directors of the Company from time
to time including any duly appointed committee thereof;
"Independent Directors" means the Directors other than those
connected within the meaning of Section 346 of the Companies Act
1985 with EnCap;
"the Investments" means the assets and rights from time to time
of the Company acquired pursuant to this Agreement and held in
accordance with the Memorandum of Association and Articles of the
Company;
"Investment Policy" means the investment policy of the Company
(as reviewed and amended by the Directors from time to time) as
initially stated in the Particulars and repeated in Part A of
Schedule One;
"Investment Restrictions" means the investment restrictions (as
reviewed and amended by the Directors from time to time or as
amended by statute or rules or
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<PAGE> 4
regulations thereunder) as initially stated in the Particulars
and repeated in Part B of Schedule One;
"the Particulars" means the Listing Particulars of the Company
proposed to be dated 4th February 1994;
"the Partnership" means the US Limited Partnership to be
constituted between EnCap, Lincoln National Life Insurance
Company, Internationale Nederlanden (U.S.) Capital Corporation
and others to co-invest with the Company as is referred to in the
Particulars;
"the Placing" means the placing of Ordinary Shares and Warrants
described in the Particulars;
"the Placing Agreement" means the Agreement of even date herewith
made between the Company (1), Greig Middleton & Co. Limited (2)
Henderson Crosthwaite Institutional Brokers Limited (3), and
Rauscher Pierce & Clark Limited (4) described in the Particulars
in paragraph 7(b) of Part IV thereof under the heading "General
Information";
"Schedules" mean the Schedules annexed hereto which form part of
this Agreement;
"the Secretary" means Aberdeen Trust PLC or the Secretary of the
Company for the time being;
"subsidiary" has the meaning ascribed thereto in Section 144 of
the Companies Act 1989;
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<PAGE> 5
"The London Stock Exchange" means the International Stock
Exchange of the United Kingdom and Republic of Ireland Limited;
Any reference to EnCap includes a reference to its duly
authorised agents or delegates.
1.2 Words and expressions contained in this Agreement (but not
defined herein) shall bear the same meanings as in the Articles
PROVIDED THAT any alteration or amendment of the Articles shall
not be effective for the purpose of this Agreement unless any
affected party (to the extent that its rights or duties hereunder
are affected by such alteration or amendment) shall by
endorsement hereon or otherwise in writing have assented thereto.
1.3 The headings to the Clauses of this Agreement are for convenience
only and shall not affect the construction or interpretation
thereof.
2. CONDITIONAL AGREEMENT
This Agreement shall be conditional in all respects upon the Placing
Agreement becoming unconditional in all respects.
3. APPOINTMENT AND FUNCTIONS OF ENCAP
3.1 The Company HEREBY APPOINTS EnCap, subject to and in accordance
with the directions of the Directors, and in accordance with the
Investment Policy and Investment Restrictions, as advisors and
managers in respect of the investment and re-investment of the
Investments on the terms contained herein and EnCap hereby
accepts such appointment and agrees to assume the obligations set
forth herein.
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<PAGE> 6
3.2 Without prejudice to the generality of Clause 3.1 above, the
duties to be performed by EnCap on behalf of the Company in
accordance with the Investment Policy and the Investment
Restrictions shall include the following:
3.2.1 EnCap shall, as and when requested by the Board, use all
reasonable endeavours to identify Investments, conforming
with the Investment Policy, for recommendation to the
Board. EnCap shall furnish to the Directors in relation to
any proposed Investment all such information as the
Directors shall reasonably require or which is in EnCap's
possession, to enable the Directors to consider the
proposed Investment.
3.2.2 Following the identification by EnCap of a Proposed
Investment, EnCap shall conduct such further
investigations as the Directors shall reasonably request
and when reasonably requested by the Directors, EnCap
shall report and advise in relation thereto.
3.2.3 As and when so requested by the Directors, EnCap shall
commission an independent engineering firm approved by the
Directors to furnish to the Directors and EnCap a report
in relation to the proposed Investment. The terms of
reference for such report shall be as agreed between the
Directors and EnCap.
3.2.4 EnCap shall undertake all negotiations with third parties
in relation to a proposed Investment on behalf of the
Company and shall be responsible for procuring, in
accordance with all applicable legal requirements and best
practice, the preparation and execution of all deeds,
documents of title and agreements in relation to
Investments and the perfecting of the Company's title
thereto.
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<PAGE> 7
3.2.5 EnCap shall be responsible for advising and instructing
the Company's Corporate Managers for the time being and
Secretary on administrative requirements in order to
implement the making of Investments.
3.3 Subject to the terms of this Agreement, to such directions as may
from time to time be given by the Directors and to the overall
policy and supervision of the Directors, EnCap is authorised to
act for the Company or any subsidiary and on behalf of the
Company and or any subsidiary either itself or wholly or in part
through its authorised agents or delegates in the same manner and
with the same force and effect as the Company or any subsidiary
might or could do and to exercise the functions, duties, powers
and discretions exercisable by the Directors under the Articles
(including, without prejudice to the generality of the foregoing,
the functions duties powers and discretions specifically
mentioned in Clause 3.2 above) and to manage the investment and
re-investment of the Investments.
3.4 EnCap shall keep or cause to be kept on behalf of the Company such
books, records and statements to give a complete record of all
transactions carried out by EnCap on behalf of the Company (or any
subsidiary) in relation to the investment and re-investment of the
Investments and such other books, records and statements as may be
required to give a complete record of all other transactions
carried out by EnCap on behalf of the Company (or any subsidiary)
and shall permit the Company and its employees and agents and the
auditors for the time being of the Company to inspect such books,
records and statements at all reasonable times.
3.5 EnCap hereby warrants that it holds all licences, permissions,
authorisations and consents necessary to enable it to carry out
its duties as advisors and managers in the ordinary course of
business. EnCap undertakes to use its best endeavours to continue
to hold all such licences, permissions, authorisations and
consents necessary for its duties hereunder and to notify the
Company immediately should
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<PAGE> 8
any such licence, permission, authorisation or consent cease to
be in full force and effect.
3.6 EnCap shall observe and comply with the Memorandum of Association
and Articles of the Company and with any alterations thereto
notified to EnCap by the Company and with the applicable
provisions of the Particulars and the Investment Restrictions and
all obligations deriving from listing particulars of the Company
from time to time issued and all resolutions of the Directors of
which it has notice and other lawful orders and directions given
to it from time to time by the Directors and all activities
engaged in by EnCap hereunder shall at all times be subject to
the control of and review by the Directors and EnCap shall and
shall procure that any person, firm or company to whom it
delegates any of its functions hereunder shall give effect to all
such decisions.
3.7 EnCap shall procure that all Investments shall be registered in
the name of the Company or any subsidiary or the nominees of the
Company.
3.8 EnCap undertakes with the Company that it will procure that,
during the continuance of this Agreement, the Company shall be
afforded the opportunity (as is provided in the Particulars) to
invest in all investments made by, and investment arrangements
entered into, by the Partnership in all respects upon the same
terms and conditions as are afforded to the Partnership.
4. INFORMATION OBLIGATIONS OF ENCAP
4.1 EnCap shall keep the Company informed of all material matters
relating to the Investments of the Company, to such extent and in
such form and at such times as the Company shall reasonably
require.
4.2 Without limiting the generality of Clause 4.1 EnCap shall:
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<PAGE> 9
4.2.1 When reasonably requested by the Board deliver to the
Company in respect of each calendar month a summary
report, in such form as the Company shall reasonably
require, relating to the Company's Investments and any
proposed Investment then under consideration;
4.2.2 Within 30 days of the end of each calendar quarter,
deliver to the Company a report, in such form as the
Company shall reasonably require, comprising detailed
financial information in relation to each Investment of
the Company and including detailed cost and revenue
allocations;
4.2.3 Within 90 days of the end of each financial year of the
Company, deliver to the Company a report, in such form as
the Company shall reasonably require, comprising financial
and taxation statements in relation to the Company's
Investments as at the end of the financial year then ended
prepared by a firm of accountants previously approved by
the Company and reserve reports prepared in relation to
the Company's Investments as at the end of the financial
year then ended, prepared by such independent petroleum
engineer previously approved by the Company.
5. REMUNERATION
5.1 The Company shall during the continuance of this Agreement pay to
EnCap by way of remuneration for the provision of services and
advice pursuant to this Agreement an annual fee, payable by equal
quarterly instalments in arrears on 31st March, 30th June, 30th
September and 31st December in each year, calculated at the rate
of 1% of the Company's NAV as at 31st December preceding the year
in which the payments are due to be made. For the purposes of
this clause "NAV" means the amount in US dollars of the aggregate
of:
5.1.1 All cash at bank and in hand of the Company; and
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<PAGE> 10
5.1.2 All amounts owing to the Company, whether or not due for
payment or repayment at the relevant time, excluding (i)
any amount falling within sub-clause 5.1.4 and (ii) any
amount loaned by the Company and secured on any asset or
interest in respect of oil and gas to the extent that the
present worth of future revenue, discounted at a rate of
10 per cent per annum, of the proved reserves (as shown in
the relevant independent petroleum engineer's reserve
report prepared as at the relevant date or the closest
practicable date thereto) securing any such loan does not
provide a coverage ratio in respect of the amounts
advanced by the Company and all accrued interest of at
least 1:1; and
5.1.3 The present worth of the future net revenue, discounted at
15 per cent per annum, of the proved reserves attributable
to any direct equity interests owned by the Company in oil
and gas properties (as shown in the relevant engineer's
reserve report prepared as at the relevant date or the
closest practicable date thereto); and
5.1.4 In the case of any Investment comprising debt or equity
securities (including without limitation shares, options,
warrants and bonds) that are traded on a recognised
investment exchange, the aggregate of the market value to
the Company of such securities as at the relevant date (it
being agreed that in the event that an Investment falls
within this sub-clause 5.1.4 and any of sub-clause 5.1.2,
5.1.3 and 5.1.5, the provisions of this sub-clause 5.1.4
shall apply to the exclusion of the other sub-clauses for
the purposes of calculating NAV); and
5.1.5 In the case of any Investment comprising any equity
securities in any entity (whether corporate or not) not
falling within sub-clause 5.1.4, the value of such equity
securities to the Company calculated on the basis of that
proportion of such entity's NAV attributable to the
Company (the
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<PAGE> 11
NAV of such entity being calculated on the same basis,
mutatis mutandis, as is set out in this Clause);
less an amount equal to all indebtedness of the Company at the
relevant time, whether or not then due for payment or repayment;
PROVIDING that for the purposes of this clause the NAV of the
Company as at 31st December 1993 shall be deemed to be equal to
the net proceeds of the Placing having deducted all expenses
thereof.
PROVIDING further that the NAV shall be determined by the
Independent Directors using the foregoing principles and reserve
reports prepared by an independent petroleum engineering firm,
which shall use the same assumptions for future oil and gas
prices as those generally utilised by major oil and gas lending
institutions in the USA at the time the valuation is made;
5.2 The fees payable hereunder are inclusive of all applicable value
added tax and any other sales or services taxes whatsoever
payable from time to time and whether principally by the Company
or EnCap.
5.3 The fees payable pursuant to Clause 5.1 shall be deemed to accrue
on a daily basis.
5.4 By way of further remuneration for the provision of services and
advice pursuant to this Agreement, and provided that this
Agreement shall not previously have been terminated by EnCap
pursuant to Clause 13.1 or by the Company pursuant to Clause
13.2, the Company shall pay to EnCap as soon as such amount shall
have been determined following 31st December 2001 or the date a
special resolution is passed pursuant to Section 84 Insolvency
Act 1986 for the voluntary winding up of the Company, whichever
is the earlier, an amount equal to 25%. of the
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<PAGE> 12
Company's Adjusted NAV as at 31st December 2001 or the date of
the passing of the special resolution for the winding-up of the
Company, as appropriate.
5.5 Adjusted NAV means, at the relevant date:
(a) NAV;
(b) less an amount equal to the aggregate of the Company's
share capital and the amount standing to the credit of the
Company's share premium account as converted (where
appropriate) into US dollars at the actual exchange rates
at which such subscriptions were converted into US
dollars; and
(c) (i) less the amount (if any) by which an 8% annual rate
of return on the aggregate of the Company's share
capital and the amount standing to the credit of
the Company's share premium account, calculated
from the relevant dates of payment to the Company
of such share capital and share premium, exceeds
the aggregate of the dividends paid by the Company
since its incorporation, inclusive of any tax
credit in respect of such dividends; or
(ii) aggregating therewith the amount (if any) by which
the aggregate of the dividends paid by the Company
since its incorporation, inclusive of any tax
credit in respect of such dividends, exceeds an 8%
annual rate of return on the aggregate of the
amount standing to the credit of the Company's
share capital and share premium account calculated
from the relevant dates of payment of such share
capital and share premium.
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<PAGE> 13
5.6 In the event of any dispute with regard to the determination of
any fee payable pursuant to this Clause, such dispute shall be
referred for determination to the Company's auditors, or such
other firm of Chartered Accountants as the Company and EnCap
shall agree. In making a determination such accountants shall act
as experts and not as arbitrators and they shall be entitled to
call for and inspect such documents as they shall deem
appropriate. The determination of such accountants shall be final
and binding on the Company and EnCap.
6. ADDITIONAL SERVICES
If EnCap, being willing and having been called upon so to do, shall
render or perform extra or special services of any kind to the Company,
EnCap shall be entitled to receive such additional reasonable fees
therefor as the Directors in consultation with EnCap may from time to
time agree. If EnCap offers additional services to the Company, EnCap
may determine the level of fees or charges as it deems fit and proper
for the payment of such services and offer to provide such services to
the Company and the Company may accept or reject an offer of such
services as it so determines.
7. EXPENSES
7.1 Unless otherwise agreed between the Company and EnCap, the
Company shall pay or procure payment of the following expenses:-
7.1.1 All accountancy fees, petroleum consultants' fees and
legal expenses incurred by the Company or EnCap or the
secretary in connection with the identifying, negotiating
and making of Investments and all other professional and
other charges in respect of services rendered to the
Company or EnCap in connection with the matters aforesaid;
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<PAGE> 14
7.1.2 Any stamp and other duties, taxes, Governmental charges,
brokerage, transfer fees, registration fees and other
charges payable in respect of the acquisition or
realisation of any Investment, including charges for the
transfer of funds or instructions for delivery of
securities by telex, cable, telephone or otherwise;
7.1.3 All taxes and corporate fees payable by the Company to the
Government or other authority or to any agency of the
Government or authority in the United States of America or
elsewhere;
7.1.4 All charges specifically incurred by EnCap on behalf of
the Company.
EnCap will advise the Company prior to incurring any third party
fees or any third party expenses for the account of the Company
if EnCap believes that such fees or expenses will exceed
US$7,500.
7.2 EnCap shall provide at its own expense:-
7.2.1 Such staff as may be necessary for the due performance of
its duties hereunder;
7.2.2 Such office and other accommodation and office equipment
as may be necessary for the due performance of its duties
hereunder.
7.3 It is hereby expressly declared that the persons employed by
EnCap to perform its obligations under this Agreement shall be
the employees, agents or sub-contractors of EnCap and not of the
Company and accordingly shall not be regarded or treated as
employees of the Company.
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<PAGE> 15
7.4 Any arrangement or other fee (on the appropriate proportion
thereof) paid to EnCap in respect of any Investment shall be paid
or reimbursed by EnCap to the Company.
8. POWER OF DELEGATION
EnCap may with the consent of the Company delegate the whole or any part
of its powers, duties, discretions and functions hereunder to any
person, firm or company.
9. NON-EXCLUSIVITY
9.1 The services of EnCap hereunder are not to be deemed exclusive to
the Company and EnCap or any Affiliate thereof shall be free to
render similar services to others on such terms as EnCap or such
Affiliate may arrange so long as its services under this
Agreement are not thereby impaired, and to retain for its own use
and benefit fees or other moneys payable thereby, and EnCap shall
not be deemed to be affected with notice of or to be under any
duty to disclose to the Company any fact or thing which may come
to the notice of it or any servant or agent of it in the course
of EnCap rendering similar services to others or in the course of
its business in any other capacity or in any manner whatsoever
otherwise than in the course of carrying out its duties under
this Agreement.
9.2 EnCap shall procure that the Company shall have first priority
(together with the Partnership) to make Investments identified by
EnCap complying with the Investment Policy and Investment
Restrictions provided that in the absence of bad faith EnCap
shall not be liable to the Company in respect of it having
arranged any Investment made by any person (including EnCap's
affiliates) which investment the Directors may determine as
having complied with the Investment Policy and Investment
Restrictions.
- 14 -
<PAGE> 16
10. EXERCISE OF RIGHTS ATTACHED TO INVESTMENTS
Subject as otherwise provided in this Agreement, any rights conferred by
Investments of the Company shall be exercised in such manner as the
Directors may determine and EnCap shall (in so far as it is able)
procure the exercise of such rights in accordance therewith.
11. CUSTODY
EnCap shall be responsible to the Company for procuring the safe custody
of all documents of title, deeds, certificates and agreements in respect
of the Investments of the Company unless otherwise notified by the
Company in writing.
12. LIABILITY AND INDEMNITY
12.1 EnCap shall not be liable to the Company or any subsidiary for
any action taken or not taken by them or for any action taken or
not taken by any other person with respect to the Company or any
subsidiary or in respect of the Investments provided that EnCap
shall remain liable for any loss arising from the fraud,
negligence, wilful default, bad faith or misconduct of EnCap, its
employees and/or any of their agents.
12.2 The Company hereby indemnifies EnCap and each officer, employee
or agent of EnCap against any losses, claims, damages or
liabilities (including legal or other expenses reasonably
incurred) to which such person may become subject by reason of
its being an officer, employee or agent of EnCap (but only to the
extent and with respect to services performed by EnCap or
officers, employees or agents of EnCap for or on behalf of the
Company) or representing the Company or any subsidiary on the
Board of Directors of any company in which the Company or any
subsidiary has invested or otherwise in providing services under
this
- 15 -
<PAGE> 17
Agreement provided that this indemnity shall not apply in cases
of fraud, negligence, wilful default, bad faith or misconduct.
13. TERMINATION
13.1 EnCap shall be entitled to resign its appointment hereunder:
(i) by giving at any time not less than one year's notice in
writing to the Company expiring not earlier than the date
of the second anniversary hereof;
(ii) at any time by notice in writing to the Company if the
Company shall go into liquidation or if a receiver or
administrative receiver or administrator is appointed over
any of the assets of the Company;
(iii) at any time if the Company shall commit any breach of its
obligations under this Agreement and (if such breach shall
be capable of remedy) shall fail within 30 days of receipt
of notice served by EnCap requiring it so to do to make
good such breach.
13.2 The Company may terminate the appointment of EnCap hereunder:
(i) if EnCap shall go into liquidation (except a voluntary
liquidation for the purposes of reconstruction or
amalgamation upon terms previously approved in writing by
the Company) or if a receiver or administrative receiver
or administrator is appointed of any of the assets of
EnCap or if a meeting of EnCap's creditors is convened, or
if any analogous insolvency proceeding shall be taken in
respect of EnCap in any jurisdiction, or if EnCap ceases
or threatens to cease to carry on its business;
- 16 -
<PAGE> 18
(ii) if EnCap shall commit any significant breach of its
obligations under this Agreement and (if such breach be
capable of remedy) shall fail within 30 days of receipt of
notice served by the Company requiring them to make good
such breach.
13.3 The appointment of EnCap under this Agreement shall terminate
automatically upon the passing of a special resolution of the
Company pursuant to Section 84 of the Insolvency Act 1986
requiring the Company to be wound up.
13.4 On termination of the appointment of EnCap under the provisions
of this Clause, EnCap shall be entitled to receive all fees and
other moneys accrued due up to the date of such termination but
shall not be entitled to compensation in respect of such
termination and EnCap shall deliver to the Company or as it shall
direct, all books of account, records, registers, correspondence,
documents and assets relating to the affairs of or belonging to
the Company or any subsidiary in the possession of or under the
control of EnCap and take all necessary steps to vest in the
Company any assets previously held in the name of or to the order
of EnCap on behalf of the Company or any subsidiary.
14. CONFIDENTIALITY
14.1 Neither of the parties hereto shall during the continuance of
this Agreement or after its termination disclose to any person,
firm or fund whatsoever (except with the authority of the
relevant party or unless ordered to do so by a court of competent
jurisdiction) any information relating to the business,
investments, finances or other matters of a confidential nature
of the other party of which it may in the course of its duties
hereunder or otherwise become possessed and each party shall use
all reasonable endeavours to prevent any such disclosure as
aforesaid.
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<PAGE> 19
14.2 EnCap and the Company shall be permitted to refer to the
appointment hereunder in their corporate literature provided that
the text of any such reference is approved by the other, such
approval not to be unreasonably withheld or delayed.
15. RELIANCE ON DOCUMENTS
Wherever pursuant to any provision of this Agreement any notice,
instruction or other communication is to be given by, or on behalf of,
the Company (or its Directors) to EnCap, EnCap may accept as sufficient
evidence thereof:
(i) a document signed or purporting to be signed on behalf of the
issuing party or by such person or persons whose signature EnCap
is for the time being authorised by such issuing party to accept;
or
(ii) a message by tested telex, telecopier, facsimile machine, or
cable transmitted by, or on behalf of, the Company (or its
Directors) by such person or person whose messages EnCap is for
the time being authorised by the Company or its Directors to
accept, and EnCap shall not be obliged to accept any document or
message signed or transmitted or purporting to be signed or
transmitted by any other person.
16. NOTICES
Any notice given hereunder shall be in writing and shall be served by
hand or by being sent by prepaid post or telex or telecopier or
facsimile machine in the case of the Company to its registered office
for the time being marked for the attention of the Secretary and in the
case of EnCap to Messrs Hobson Audley, 7 Pilgrim Street, London EC4V 6DR
(marked for the attention of Mr. M.C. Audley) or such other address in
the United Kingdom from time to time notified to the Company for the
service of notices.
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<PAGE> 20
17. ASSIGNMENT
Neither party hereto shall be entitled to assign or otherwise part with
any interest in this Agreement unless the prior written consent of the
other has been obtained.
18. INVALIDITY
The invalidity or unenforceability of any part of this Agreement shall
not prejudice or affect the validity or enforceability of the remainder.
19. PROPER LAW
This Agreement and the rights and obligations of the parties shall be
governed by and construed in accordance with the laws of England and the
parties hereby submit to the non-exclusive jurisdiction of the Courts of
England and Wales.
IN WITNESS whereof the parties hereto have caused this Agreement to be executed
the day and year first before written.
- 19 -
<PAGE> 21
SCHEDULE ONE
PART A
INVESTMENT POLICY
Any investment will, at the time it is undertaken, be limited to 15 per cent of
the Company's assets. The Company will not take legal or management control of
underlying investments, nor will it be actively involved in the management of
the projects or entities which it invests.
Investments are expected to take the form of mezzanine-style debt instruments
together with long term equity in the form of royalty interests, net profit
interests, production payments, working interests and other interests in oil
and gas. The right is reserved also to hold other forms of debt or equity
securities including options or warrants and investments may take the form of
partnership arrangements, participations, joint ventures, limited liability
company interests, corporation shares and other forms of equity investment.
Care will be taken both on initial investment and on re-investment to ensure
that sufficient income will accrue to the Company as a return on capital
invested to cover administrative expenses and to permit a progressive dividend
policy.
No investments will be made which require mandatory funding beyond a fixed
amount. Funding of any investment may be made in instalments.
Whilst the Company has the power to borrow up to its capital and reserves,
there is currently no intention to utilise this.
The Company will invest in project equity opportunities in the upstream sector
of the oil and gas industry where risks can be quantified by engineering
analysis. EnCap will only recommend Investments to the Directors which meet the
following criteria:
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<PAGE> 22
o All investments will be supported by proved oil and gas reserves.
o The proved oil and gas reserves must have been confirmed by a qualified,
independent petroleum engineering firm chosen from a pre-approved list.
Reserves will be risk valued according to category and specific
opportunity with no value given to non-proven categories unless
geological evidence is sufficient to justify inclusion of some probable
value.
o Proposed investments must offer a pre-tax return to the Company of at
least 20% p.a. net of all fees and performance-related compensation.
Evaluations will be made on the basis of reports provided by independent
engineering firms utilising hydrocarbon price projections generally used
by major commercial banks active in energy financing.
o Neither EnCap nor the Company will act as operator for any oil and gas
properties or projects. It will propose investments only where it
believes that a proposed operator/project sponsor has experienced
management and personnel with high integrity and a proven track record
and experience in the area where the investment is to be made. The
operator must demonstrate sufficient financial strength both in terms of
net worth and cash flow, to administer and operate the project
throughout the expected term of the investment.
o No investment will be proposed where a likelihood exists of adverse
selection by the operator/project sponsor (i.e. minimal potential for
conflicts of interest).
o Each operator/project sponsor must contribute an acceptable portion of
the cost of the project on a basis that is subordinate or similar to the
investment to be made by the Company.
o No Investment will be made unless the Partnership, EnCap or other funds
managed by EnCap, or investors procured by EnCap also invest on a
substantial basis.
- 21 -
<PAGE> 23
SCHEDULE ONE
PART B
INVESTMENT RESTRICTIONS
(i) A reasonable spread of investments will normally be maintained, any new
investment being limited to not more than 15 per cent of the group's
assets (before deducting borrowed money) at the time it is made, for
which purpose any existing interest in the project must be aggregated
with the proposed new investment;
(ii) The policy statement set out in Schedule 1 Part A will be adhered to for
at least 3 years from the date hereof;
(iii) Dividends will only be paid to the extent that they are covered by
income received from underlying investments, shares of profits of
associated companies being unavailable for this purpose unless and until
distributed to the Company; and
(iv) Realisation of any investment carried at directors' valuation amounting
to 50 per cent or more of the portfolio will be conditional on
shareholders' approval.
None of the restrictions set out above will require the realisation of any
relevant asset of the Company where any of such restrictions is breached by
reason of any event outside the control of the Company and occurring after the
investment in the relevant asset is made or by reason of the receipt or
exercise of any rights, bonuses or benefits in the nature of capital, or any
scheme of arrangement for amalgamation, reconstruction, conversion or exchange,
or of any repayment or redemption.
- 22 -
<PAGE> 24
SIGNED by )
for and on behalf of )
ENERGY CAPITAL INVESTMENT )
COMPANY PLC )
in the presence of:- )
SIGNED by. )
for and on behalf of )
EnCAP INVESTMENTS L.C. )
in the presence of:- )
- 23 -
<PAGE> 1
EXHIBIT 10.1
APRIL 1997 AGREEMENT
THIS APRIL 1997 AGREEMENT (this "AGREEMENT") is made and entered into
as of this 28th day of April, 1997, by and among Future Petroleum Corporation,
a Utah corporation ("PARENT"), Future Petroleum Corporation, a Texas
corporation (the "GENERAL PARTNER"), Future Acquisition 1995, Ltd., a Texas
limited partnership (the "PARTNERSHIP"), Energy Capital Investment Company PLC,
an English investment company ("ENERGY PLC"), and EnCap Equity 1994 Limited
Partnership, a Texas limited partnership ("ENCAP LP").
RECITALS:
A. Reference is herein made to that certain First Amended and
Restated Agreement of Limited Partnership of the Partnership dated as of
January 29, 1997, by and among the General Partner, Energy PLC and EnCap LP
(the "ORIGINAL AGREEMENT"). Reference is also herein made to that certain
April 1997 Amendment to First Amended and Restated Agreement of Limited
Partnership of the Partnership dated as of even date herewith by and among the
General Partner, Energy PLC and EnCap LP (the "AMENDMENT"). The Original
Agreement, as amended by the Amendment, is herein called the "PARTNERSHIP
AGREEMENT".
B. The General Partner is the sole general partner of the
Partnership and Energy PLC and EnCap LP are the limited partners of the
Partnership. The General Partner is a wholly-owned subsidiary of Parent.
C. The General Partner, Energy PLC and EnCap LP have determined that
it is in their mutual best interests to amend the Original Agreement by
executing and delivering the Amendment. Under, and subject to the terms of,
the Amendment, the Original Agreement will be amended to provide that the
Limited Partners will agree to make additional capital contributions to the
Partnership in an aggregate amount not to exceed $493,400, of which an amount
not to exceed $350,000 may be used by the Partnership for the purpose of making
distributions to the General Partner.
D. The parties hereto deem it in their mutual best interests to
execute and deliver this Agreement for the purpose of evidencing their
agreement with respect to certain matters, including their agreement in
connection with a proposed public offering by Parent and their agreement with
respect to the usage of any cash distributions made by the Partnership to the
General Partner as referenced in Paragraph C above.
E. Parent hereby further acknowledges and agrees that (i) the
execution and delivery by the General Partner, Energy PLC and EnCap LP of the
Amendment can reasonably be expected to be of benefit to Parent, (ii) the
execution and delivery by Parent of this Agreement can reasonably be expected
to be of benefit to the Partnership, the General Partner and Parent, and (iii)
Energy PLC and EnCap LP would not be willing to execute and
<PAGE> 2
deliver the Amendment and make the additional capital contributions
contemplated thereby without the execution and delivery by Parent of this
Agreement, and Parent is executing and delivering this Agreement to induce the
Limited Partners to execute and deliver the Amendment and make such additional
capital contributions.
AGREEMENT:
NOW, THEREFORE, in view of the foregoing Recitals and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto do hereby agree as follows:
SECTION 1. AGREEMENT REGARDING OFFERING. Reference is herein made to
that certain letter of intent dated as of March 24, 1997, by and between
Paulson Investment Company Inc. and Parent, a copy of which is attached hereto
as Exhibit 1 (the "LETTER OF INTENT"). Parent agrees to use its reasonable
best efforts to effect the "OFFERING", as such term is defined in the Letter of
Intent; provided, however, that the foregoing agreement of Parent shall be
subject to a good faith determination by the members of the board of directors
of Parent, in the exercise of their fiduciary duties to Parent and its
shareholders, that it is not in the best interests of Parent to proceed with
the Offering.
SECTION 2. AGREEMENT REGARDING USAGE OF PARTNERSHIP DISTRIBUTIONS.
The General Partner and Parent hereby agree with the Partnership, Energy PLC
and EnCap LP that any cash distributions received by the General Partner from
the Partnership pursuant to clause (d) of Section 4.4 of the Partnership Agree-
ment shall be used exclusively as follows: (i) the General Partner shall
distribute or otherwise make available to Parent any such cash distribution;
and (ii) Parent shall use any such cash distribution to pay the third party
costs and expenses of effecting the Offering, including, without limitation,
the costs and expenses enumerated in paragraphs 7 and 8 of the Letter of
Intent, and for other general corporate purposes (provided, that the maximum
amount of such cash distributions that Parent can use for general corporate
purposes shall be $100,000).
SECTION 3. COMMITMENT FEE. Contemporaneously with the execution and
delivery of the Amendment by the parties thereto and of this Agreement by the
parties hereto and as a commitment fee in further consideration of the Energy
PLC's and EnCap LP's agreement in Section 3.2(f) of the Partnership Agreement,
in clause (d) of Section 4.4 of the Partnership Agreement and in Section 2
above, Parent agrees to (i) pay to Energy PLC and EnCap LP, by wire transfer of
immediately available funds to an account(s) designated by Energy PLC and
EnCap, cash in the amounts set forth opposite their respective names below and
(ii) issue and deliver to Energy PLC and EnCap LP stock certificates evidencing
the number of shares of Common Stock (as defined below) opposite their
respective names below:
2
<PAGE> 3
<TABLE>
<CAPTION>
Name Cash Shares
---- ---- ------
<S> <C> <C>
Energy PLC $5,000 12,500
EnCap LP $5,000 12,500
</TABLE>
In addition, but subject to the terms and provisions hereof, Parent agrees that
one year from the date hereof (the "SECOND INSTALLMENT DATE") it will issue and
deliver to Energy PLC and EnCap LP stock certificates evidencing the number of
shares of Common Stock opposite their respective names below:
<TABLE>
<CAPTION>
Name Shares
---- ------
<S> <C>
Energy PLC 100,000
EnCap LP 100,000;
</TABLE>
provided, however, that the agreement of Parent set forth above in this
sentence shall terminate and be of no force and effect whatsoever if the Net
Investment (as defined in the Partnership Agreement) as of the Second
Installment Date is equal to or less than an amount equal to X times Y, where
"X" is 50%, and where "Y" is the Net Investment as of the date hereof. As used
herein, the term "COMMON STOCK" shall mean the shares of common stock of
Parent, $0.01 par value per share, and any shares issued or issuable with
respect thereto by way of a stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization.
SECTION 4. AGREEMENT REGARDING USAGE OF OFFERING PROCEEDS. Parent
agrees with Energy PLC and EnCap LP that upon the consummation of the Offering,
Parent will purchase Energy PLC's and EnCap LP's limited partner interests in
the Partnership for a total purchase price consisting of the following: (i)
cash in an amount sufficient to effect Special Payout (as defined in Section
10); (ii) 16,000 Units (as such term is defined in the Letter of Intent). The
closing of the purchase and sale contemplated under this Section 4 shall be
held on the same day and at the same location as the closing of the Offering
(at a time mutually agreed upon by Parent, Energy PLC and EnCap LP) or at such
other time or location as mutually agreed upon by Parent, Energy PLC and EnCap
LP. At the closing of such purchase and sale, (A) Energy PLC and EnCap LP
shall deliver to Parent a written assignment of their limited partner interests
in the Partnership in form and content reasonably satisfactory to Energy PLC,
EnCap LP and Parent (it being agreed, however, that such assignment shall
contain no representations and warranties on the part of Energy PLC or EnCap LP
other than representations and warranties to the effect that the execution and
delivery of such assignment has been duly authorized by it, that it has the
power and authority to execute and deliver such assignment, that the execution
and delivery of such assignment by it does not contravene its charter documents
or material agreements, and that it is the record and beneficial owner of its
limited partner interest in the Partnership free and clear
3
<PAGE> 4
of all liens and other similar encumbrances), and (B) Parent shall wire
transfer the purchase price in immediately available funds to an account or
accounts designated by Energy PLC and EnCap and shall issue and deliver the
Units. Notwithstanding the foregoing or anything else herein to the contrary,
if the terms of the actual Units or securities of Parent issued in connection
with the Offering vary from the terms set forth in the Letter of Intent, the
actual amount of the Units or securities to be issued to Energy PLC and EnCap
LP shall be adjusted in a manner reasonably acceptable to Energy PLC, EnCap LP
and Parent such that Energy PLC and EnCap LP will receive Units or securities
of Parent which are equivalent in all material respects to that which they were
to receive under the terms of this Section.
SECTION 5. PIGGYBACK REGISTRATION RIGHTS. If Parent proposes to
register any of its securities under the Securities Act other than (a) under
employee compensation or benefit programs or (b) an exchange offer or an
offering of securities solely to the existing stockholders or employees of
Parent, and the registration form to be used may be used for the registration
of Registrable Securities, Parent will give prompt written notice to Holders of
Registrable Securities of its intention to effect such a registration and will
include in such registration all Registrable Securities with respect to which
Parent has received written requests for inclusion therein within 15 days after
the receipt of Parent's notice (a "PIGGYBACK REGISTRATION"). Parent shall use
its reasonable best efforts to cause the managing underwriters of a proposed
underwritten offering to permit the Registrable Securities requested to be
included in the registration statement (or registration statements) for such
offering to be included therein on the same terms and conditions as any similar
securities of Parent included therein. Notwithstanding the foregoing, if
Parent gives notice of such a proposed registration, the total number of
Registrable Securities which shall be included in such registration shall be
reduced pro rata to such number, if any, as in the reasonable opinion of the
managing underwriters of such offering would not adversely affect the
marketability or offering price of all of the securities proposed to be offered
by Parent in such offering; provided however, that (x) if such Piggyback
Registration is incident to a primary registration on behalf of Parent, and to
the extent not prohibited by any written registration rights agreements
existing on the date hereof, the securities to be included in the registration
statement (or registration statements) for any person other than the Holders
and Parent shall be first reduced prior to any such pro rata reduction, and (y)
if such Piggyback Registration is incident to a secondary registration on
behalf of holders of securities of Parent and to the extent not prohibited by
any written registration rights agreements existing on the date hereof, the
securities to be included in the registration statement (or registration
statements) for any person not exercising "demand" registration rights other
than the Holders shall be first reduced prior to any such pro rata reduction.
SECTION 6. REGISTRATION PROCEDURES.
(a) Whenever the holders of Registrable Securities have requested
that any Registrable Securities be registered pursuant to Section 5, Parent
will as expeditiously as possible:
4
<PAGE> 5
(i) effect registration under the Securities Act of the
Registrable Securities which Parent has been requested to register
hereunder, and use its reasonable best efforts to cause such
registration statement to become effective (provided, that before filing
a registration statement or prospectus or any amendments or supplements
thereto, Parent will furnish copies of all such documents proposed to be
filed to any holder of Registrable Securities covered by such
registration statement);
(ii) notify each seller of Registrable Securities requesting
registration promptly after Parent shall receive notice thereof of the
time when such registration statement has been filed;
(iii) furnish to each seller of Registrable Securities such
number of copies of such registration statement, each amendment and
supplement thereto, the prospectus included in such registration
statement (including, without limitation, each preliminary prospectus)
and such other documents as such seller may reasonably request in order
to facilitate the disposition of the Registrable Securities owned by
such seller;
(iv) use its reasonable best efforts to register or qualify
such Registrable Securities under such other securities or blue sky laws
of such jurisdictions within the United States as any seller reasonably
requests and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller to consummate
the disposition in such jurisdictions of the Registrable Securities
owned by such seller (provided that Parent will not be required to
qualify generally to do business or subject itself to any general
service of process in any jurisdiction where it is otherwise not then so
subject);
(v) notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered
under the Securities Act, of the happening of any event which requires
the making of any change in the prospectus included in such registration
statement so that such document will not contain an untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and,
at the request of any such seller, Parent will prepare a supplement or
amendment to such prospectus so that such prospectus will not contain an
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading;
(vi) use its reasonable best efforts to cause all such
Registrable Securities to be listed on each securities exchange or
exchanges, automated quotation system or over-the-counter market upon
which securities of Parent of the same class are then listed;
5
<PAGE> 6
(vii) otherwise use its reasonable best efforts to comply with
all applicable rules and regulations of the Commission;
(viii) in the event of the issuance of any stop order suspending
the effectiveness of a registration statement, or of any order
suspending or preventing the use of any related prospectus or suspending
the disqualification of any common stock included in such registration
statement for sale in any jurisdiction, Parent will use its reasonable
best efforts promptly to obtain the withdrawal of such order; and
(ix) use its reasonable best efforts to cause such Registrable
Securities covered by such registration statement to be registered with
or approved by such other governmental agencies or authorities as may be
necessary to enable the sellers thereof to consummate the disposition of
such Registrable Securities.
(b) Whenever the holders of Registrable Securities have requested
that any Registrable Securities be registered pursuant to Section 5, each
holder of Registrable Securities (including Registrable Securities in any
registration statement filed pursuant to this Agreement) will be deemed to have
agreed as follows:
(i) upon receipt of any notice from Parent of the happening of
any event of the kind described in Section 6(a)(v), the holders of
Registrable Securities will forthwith discontinue disposition of any
Registrable Securities until the holders of Registrable Securities
receive copies of the supplemented or amended prospectus contemplated by
Section 6(a)(v), or until they are advised in writing by Parent that the
use of the applicable prospectus may be resumed, and they have received
copies of any additional or supplemental filings that are incorporated
or deemed to be incorporated by reference in such prospectus (it being
the agreement of the parties hereto, however, that the obligation of
Parent with respect to maintaining the subject registration statement
current and effective shall be extended by a period of days equal to the
period the holders of Registrable Securities are required by this
Section 6(b)(i) to discontinue disposition of such Registrable
Securities); and
(ii) furnish to Parent such information regarding each holder,
the Registrable Securities held by such holder and the intended method
of disposition thereof as Parent shall reasonably request and as shall
be reasonably required in connection with the preparation of the
applicable registration statement and other actions taken by Parent
under this Agreement, and it shall be a condition precedent to the
obligation of Parent to take any action pursuant to this Agreement in
respect of the Registrable Securities that such information has been
furnished to Parent by the holders of Registrable Securities.
6
<PAGE> 7
SECTION 7. EXPENSES OF REGISTRATION. Parent shall pay all
Registration Expenses in connection with each registration effected pursuant to
Section 5 and, in any event, shall pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal and accounting duties), the expense of any annual audit and
the fees and expenses incurred in connection with the listing of the securities
to be registered on each securities exchange on which similar securities issued
by Parent are then listed. All Selling Expenses incurred in connection with a
registration effected pursuant to the terms hereof shall be borne by the seller
or sellers of Registrable Securities pro rata based upon the number of
Registrable Securities included in such registration.
SECTION 8. INDEMNIFICATION.
(a) Parent shall indemnify and hold harmless, with respect to any
registration statement filed by it, to the full extent permitted by law, each
holder of Registrable Securities covered by such registration statement, and
each other Person, if any, who controls such holder within the meaning of
Section 15 of the Securities Act (collectively, "HOLDER INDEMNIFIED PARTIES")
against all losses, claims, damages, liabilities and expenses, joint or several
to which any such Holder Indemnified Party may become subject under the
Securities Act, the Exchange Act, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of a material fact
contained in any registration statement in which such Registrable Securities
were included as contemplated hereby or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, (ii) any untrue statement or
alleged untrue statement of a material fact contained in any preliminary, final
or summary prospectus, together with the documents incorporated by reference
therein (as amended or supplemented if Parent shall have filed with the
Commission any amendment thereof or supplement thereto), or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or (iii) any
violation by Parent of any federal, state or common law rule or regulation
applicable to Parent and relating to action of or inaction by Parent in connec-
tion with any such registration; and in each such case, Parent shall reimburse
each such Holder Indemnified Party for any reasonable legal or other expenses
incurred by any of them in connection with investigating or defending any such
loss, claim, damage, liability, expense, action or proceeding; provided,
however, that Parent shall not be liable to any such Holder Indemnified Party
in any such case to the extent, that any such loss, claim, damage, liability or
expense (or action or proceeding, whether commenced or threatened, in respect
thereof) arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement
or amendment thereof or supplement thereto or in any such preliminary, final or
summary prospectus in reliance upon and in conformity with written information
furnished to Parent by or on behalf of any such Holder Indemnified Party
7
<PAGE> 8
for use in the preparation thereof. Such indemnity and reimbursement of
expenses and other obligations shall remain in full force and effect regardless
of any investigation made by or on behalf of the Holder Indemnified Parties and
shall survive the transfer of such securities by such Holder Indemnified
Parties.
(b) Each holder of Registrable Securities participating in any
registration hereunder shall severally (and not jointly or jointly and
severally) indemnify and hold harmless, to the fullest extent permitted by law,
Parent, its directors, officers, employees and agents, and each Person who
controls Parent (within the meaning of Section 15 of the Securities Act)
(collectively, "PARENT INDEMNIFIED PARTIES") against all losses, claims, damag-
es, liabilities and expenses to which any Parent Indemnified Party may become
subject under the Securities Act, the Exchange Act, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in any registration statement in which such holder's
Registrable Securities were included or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, (ii) any untrue statement or
alleged untrue statement of a material fact contained in any preliminary, final
or summary prospectus, together with the documents incorporated by reference
therein (as amended or supplemented if Parent shall have filed with the
Commission any amendment thereof or supplement thereto), or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading to the extent in the
cases described in clauses (i) and (ii), that such untrue statement or omission
was furnished in writing by such holder for use in the preparation thereof, or
(iii) any violation by such holder of any federal, state or common law rule or
regulation applicable to such holder and relating to action of or inaction by
such holder in connection with any such registration; and in each such case,
such holder shall reimburse each such Parent Indemnified Party for any
reasonable legal or other expenses incurred by any of them in connection with
investigating or defending any such loss, claim, damage, liability, expense,
action or proceeding. Such indemnity obligation shall remain in full force and
effect regardless of any investigation made by or on behalf of the Parent
Indemnified Parties (except as provided above) and shall survive the transfer
of such securities by such holder.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) of written notice of the commencement of any action, suit,
proceeding, investigation or threat thereof made in writing with respect to
which a claim for indemnification may be made pursuant to this Section 8, such
indemnified party shall, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the indemnifying party of the threat
or commencement thereof; provided, however, that the failure to so notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice. If any
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<PAGE> 9
such claim or action referred to under subsection (a) or (b) is brought against
any indemnified party and it then notifies the indemnifying party of the threat
or commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any other
indemnifying party similarly notified, to assume the defense thereof with
counsel reasonably satisfactory to such indemnified party. After notice from
the indemnifying party to such indemnified party of its election so to assume
the defense of any such claim or action, the indemnifying party shall not be
liable to such indemnified party under this Section 8 for any legal expenses of
counsel or any other expenses subsequently incurred by such indemnified party
in connection with the defense thereof other than reasonable costs of
investigation unless the indemnifying party has failed to assume the defense of
such claim or action or to employ counsel reasonably satisfactory to such
indemnified party. Under no circumstances will the indemnifying party be
obligated to pay the fees and expenses of more than one law firm for all
indemnified parties. The indemnifying party shall not be required to indemnify
the indemnified party with respect to any amounts paid in settlement of any
action, proceeding or investigation entered into without the written consent of
the indemnifying party, which consent shall not be unreasonably withheld. No
indemnifying party shall consent to the entry of any judgment or enter into any
settlement without the consent of the indemnified party unless (i) such
judgment or settlement does not impose any obligation or liability upon the
indemnified party other than the execution, delivery or approval thereof, and
(ii) such judgment or settlement includes as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a full release
and discharge from all liability in respect of such claim for all persons that
may be entitled to or obligated to provide indemnification or contribution
under this Section 8.
(d) Indemnification similar to that specified in the preceding
subsections of this Section 8 (with appropriate modifications) shall be given
by Parent and each seller of Registrable Securities with respect to any
required registration or qualification of securities under any state securities
or blue sky laws.
(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b), then each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of the losses,
claims, damages, liabilities or expenses (or actions or proceedings in respect
thereof) referred to in subsection (a) or (b) in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and the indemnified party on the other in connection with the statements,
omissions, actions or inactions which resulted in such losses, claims, damages,
liabilities or expenses as well as any other relevant equitable considerations.
The relative fault of the indemnifying party and the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the indemnifying party
or the indemnified party, any action or inaction by any such party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement,
9
<PAGE> 10
omission, action or inaction. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, liabilities or expenses (or
actions or proceedings in respect thereof) pursuant to this subsection (e)
shall be deemed to include, without limitation, any reasonable legal or other
expenses incurred by such indemnified party in connection with investigating or
defending any such action or claim (which shall be limited as provided in
subsection (c) if the indemnifying party has assumed the defense of any such
action in accordance with the provisions thereof) which is the subject of this
subsection (e). No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. Promptly after receipt by an indemnified party under this
subsection (e) of written notice of the commencement of any action, suit,
proceeding, investigation or threat thereof made in writing with respect to
which a claim for contribution may be made against an indemnifying party under
this subsection (e), such indemnified party shall, if a claim for contribution
in respect thereof is to be made against an indemnifying party, give written
notice to the indemnifying party in writing of the commencement thereof (if the
notice specified in subsection (c) has not been given with respect to such
action); provided, however, that the failure to so notify the indemnifying
party shall not relieve it from any obligation to provide contribution which it
may have to any indemnified party under this subsection (e) except to the
extent that the indemnifying party is actually prejudiced by the failure to
give notice.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this paragraph were determined by pro rata allocation
or by any other method of allocation which does not take account the equitable
considerations referred to in the immediately preceding paragraph.
If indemnification is available under this Section 8, the indemnifying
parties shall indemnify each indemnified party to the fullest extent provided
in subsections (a) and (b), without regard to the relative fault of said
indemnifying party or any other equitable consideration provided for in this
subsection. The provisions of this subsection shall be in addition to any
other rights to indemnification or contribution which any indemnified party may
have pursuant to law or contract, shall remain in full force and effect
regardless of any investigation made by or on behalf of any indemnified party,
and shall survive the transfer of securities by any such party.
(f) In connection with any underwritten offering contemplated by this
Agreement which includes Registrable Securities, Parent and all sellers of
Registrable Securities included in any registration statement shall agree to
customary provisions for indemnification and contribution (consistent with the
other provisions of this Section 8) in respect of losses, claims, damages,
liabilities and expenses of the underwriters of such offering.
SECTION 9. RULE 144. Parent covenants to each Holder that, to the
extent that Parent shall be required to do so under the Exchange Act, Parent
shall (a) timely file the reports required
10
<PAGE> 11
to be filed by it under the Exchange Act or the Securities Act (including, but
not limited to, the reports under Section 13 and 15(d) of the Exchange Act
referred to in subparagraph (c) (1) of Rule 144 adopted by the Commission under
the Securities Act) and the rules and regulations adopted by the Commission
thereunder, and (b) take such further action as any Holder may reasonably
request, all to the extent required from time to time to enable such Holder to
sell Registrable Securities without registration under the Securities Act
within the limitations of the exemption provided by Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission. Upon the request of
any Holder, Parent shall deliver to such Holder a written statement as to
whether it has complied with such requirements.
SECTION 10. DEFINITIONS, REFERENCES AND CONSTRUCTION.
(a) When used in this Agreement, the following terms shall have the
respective meanings assigned to them in this Section 10 or in the sections,
subsections or other subdivisions referred to below:
"AGREEMENT" shall mean this April 1997 Agreement, as hereafter changed,
modified or amended in accordance with the terms hereof.
"AMENDMENT" shall have the meaning assigned to it in Paragraph A of the
Recitals hereto.
"COMMISSION" shall mean the Securities and Exchange Commission (or any
successor body thereto).
"COMMON STOCK" shall have the meaning assigned to it in Section 3.
"ENCAP LP" shall have the meaning assigned to it in the introductory
paragraph hereof.
"ENERGY PLC" shall have the meaning assigned to it in the introductory
paragraph hereof.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, and all rules and regulations promulgated under such Act.
"GENERAL PARTNER" shall have the meaning assigned to it in the
introductory paragraph hereof.
"HOLDER" shall mean any Person that holds Registrable Securities.
"HOLDER INDEMNIFIED PARTIES" shall have the meaning assigned to it in
Section 9(a).
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<PAGE> 12
"LETTER OF INTENT" shall have the meaning assigned to it in Section 1.
"OFFERING" shall have the meaning assigned to it in Section 1.
"ORIGINAL AGREEMENT" shall have the meaning assigned to it in Paragraph
A of the Recitals hereto.
"PARENT" shall have the meaning assigned to it in the introductory
paragraph hereof.
"PARTNERSHIP" shall have the meaning assigned to it in the introductory
paragraph hereof.
"PARTNERSHIP AGREEMENT" shall have the meaning assigned to it in
Paragraph A of the Recitals hereto.
"PERSON" shall mean any individual, corporation, partnership, joint
venture, limited partnership, limited liability company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"PIGGYBACK REGISTRATION" shall have the meaning assigned to it in
Section 5.
"REGISTRABLE SECURITIES" shall mean (i) the shares of Common Stock
and/or other securities issued pursuant to this Agreement and (ii) any
securities issued or issuable with respect to the shares described in clause
(i) above by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization; provided, that a share of Common Stock or security described in
clauses (i) and (ii) shall cease to be a Registrable Security for purposes of
this Agreement at such time as either (A) counsel to Parent renders an opinion
to the Holder of such share or security to the effect that such share or
security can be freely transferred without registration under the Securities
Act (which counsel and opinion shall be reasonably acceptable to such Holder)
or (B) counsel to a Holder of such share or security renders an opinion to
Parent to the effect that such share or security can be freely transferred
without registration under the Securities Act (which counsel and opinion shall
be reasonably acceptable to Parent).
"REGISTRATION EXPENSES" shall mean all expenses incident to Parent's
performance of or compliance with the registration rights granted hereunder,
including (without limitation) all registration and filing fees, fees and
expenses of compliance with securities and blue sky laws, printing and
engraving expenses, messenger, telephone and delivery expenses, and fees and
disbursements of counsel for Parent, all independent certified public
accountants and underwriters (excluding discounts and commissions); provided,
that Registration Expenses shall not include any Selling Expenses.
12
<PAGE> 13
"SECOND INSTALLMENT DATE" shall have the meaning assigned to it in
Section 3.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and
all rules and regulations under such Act.
"SELLING EXPENSES" shall mean underwriting discounts or commissions, any
selling commissions and stock transfer taxes attributable to sales of
Registrable Securities and the fees and expenses of counsel for any Holder.
"SPECIAL PAYOUT" shall mean the last day of the earliest calendar month
during which (a) the aggregate cash distributions (other than any cash
distributions made pursuant to Section 10.2 of the Partnership Agreement) which
the Limited Partners (as defined in the Partnership Agreement) shall have
actually received from the Partnership, when discounted back from the
respective dates such cash distributions are made to the last day of the month
immediately preceding the month in which the Delivery Date (as defined in the
Partnership Agreement) occurs at a rate of 22% per annum compounded monthly
shall equal (b) the aggregate Capital Contributions (as defined in the
Partnership Agreement) actually paid by the Limited Partners pursuant to
Sections 3.2, 3.2A and 3.3 of the Partnership Agreement, which Capital
Contributions shall be discounted back from the respective dates such Capital
Contributions are made to the last day of the month immediately preceding the
month in which the Delivery Date occurs at a rate of 22% per annum compounded
monthly. For purposes of making such discount calculations, each cash distri-
bution and Capital Contribution shall be deemed to have been made on the last
day of the month during which it was paid or received, and all such discount
calculations shall be made on a monthly basis and by application of the
appropriate discount factors set forth in Exhibit 10--Special Payout.
(b) All references in this Agreement to sections, subsections and
other subdivisions refer to corresponding sections, subsections and other
subdivisions of this Agreement unless expressly provided otherwise. Titles
appearing at the beginning of any of such subdivisions are for convenience only
and shall not constitute part of such subdivisions and shall be disregarded in
construing the language contained herein. The words "this Agreement", "this
instrument", "herein", "hereof", "hereby", "hereunder" and words of similar
import refer to this Agreement as a whole and not to any particular subdivision
unless expressly so limited. Words in the singular form shall be construed to
include the plural and vice versa, unless the context otherwise requires.
Pronouns in masculine, feminine and neuter genders shall be construed to
include any other gender.
SECTION 11. NOTICES. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when delivered
personally or sent by reputable express courier service (charges prepaid), or
mailed to the recipient by certified or registered mail, return receipt
13
<PAGE> 14
requested and postage prepaid, or sent by telefax, to the parties at the
following address (or to such other address or to the attention of such other
person as the recipient party has specified by prior like notice to the sending
party):
If to Parent or the General Partner:
Future Petroleum Corporation
2351 West Northwest Highway
Dallas, Texas 75220
Telecopier No.: (214)350-8382
Attention: Carl Price
If to the Partnership:
Future Acquisition 1995, Ltd.
2351 West Northwest Highway
Dallas, Texas 75220
Telecopier No.: (214)350-8382
Attention: Carl Price
If to Energy PLC or EnCap LP:
c/o EnCap Investments L.C.
1100 Louisiana
Suite 3150
Houston, Texas 77002
Telecopier No.: (713)659-6130
Attention: Gary R. Petersen, Managing Director
SECTION 12. MARKET STANDOFF AGREEMENT.
(a) In order to facilitate the possibility of future public offerings
of securities of Parent, the Holders agree that the shares of Common Stock
issued pursuant to this Agreement will not be resold during a period commencing
30 days preceding the filing by the Parent of a registration statement under
the Securities Act for a public offering for cash by Parent of its Common Stock
or securities convertible into or exercisable or exchangeable for its Common
Stock and continuing until the earlier of the abandonment of the proposed
public offering or 30 days following the date of the last closing in the public
offering period, but not to exceed, in any event, 120 days, except to the
extent such shares are included
14
<PAGE> 15
in such registration. Certificates representing the shares of Common Stock
issued pursuant to this Agreement will bear a legend noting the foregoing
restriction. Holders of such securities also agree that they will cooperate
with Parent in providing reasonable written assurances respecting the foregoing
to the underwriter of any such public offering. Holders agree that during the
above restricted period they will not directly or indirectly sell, offer to
sell, contract to sell (including without limitation any short sale), grant an
option to purchase or otherwise transfer of dispose of (other than donees who
agree to be similarly bound) shares of Common Stock issued pursuant to this
Agreement at any time during such period except securities included in such
registration. In order to enforce the foregoing covenant, Parent may impose
stop-order instructions with respect to such shares of Common Stock held by
each Holder, which shall be binding upon any assignee or successor of such
Holder (and the shares or securities of every other person subject to the
foregoing restriction), until the end of the restricted period.
(b) Without limiting the foregoing, each of Energy PLC and EnCap LP
acknowledges the provisions of Section 11(b) of the Letter of Intent and agrees
with Parent that if it is the holder of 5% or more of the Common Stock
(computed as provided in such Section) and therefore subject to the terms of
such Section, it will comply with such terms.
SECTION 13. REPRESENTATIONS AND WARRANTIES.
(a) Each party hereto hereby severally represents and warrants to the
other parties hereto as follows:
(i) It is duly organized and validly existing under the laws
of its state of formation.
(ii) It has all requisite power and authority to execute and
deliver this Agreement and to perform its obligations hereunder.
(iii) The execution, delivery and performance of this Agreement
are within its powers and do not (A) contravene or violate any
provisions of its charter or other governing documents, as amended to
the date hereof, or (B) contravene or result in any breach of or
constitute a default under any applicable law, rule or regulation or any
loan, note or other agreement or instrument to which it is a party or by
which it or any of its properties are bound.
(iv) No consent, approval, authorization, or order of any court
or governmental agency or authority or of any third party which has not
been obtained is required in connection with the execution, delivery and
performance by it of this Agreement.
15
<PAGE> 16
(v) When delivered to the other parties hereto, this Agreement
will be duly and validly executed by it and will be binding upon it in
accordance with the terms hereof.
(b) Each of Energy PLC and EnCap LP hereby severally represents and
warrants to Parent with respect to the shares of Common Stock or other
securities of Parent to be issued to it (in this Section 13(b) called the
"SECURITIES") as follows:
(i) It is able to bear the economic risks of its investment in
the Securities, and consequently without limiting the generality of the
foregoing, it is able to hold the Securities acquired pursuant to the
terms hereof for an indefinite period of time and has a sufficient net
worth to sustain a loss of all or a portion of its investment in the
Securities in the event such loss should occur. It has such knowledge
and experience in financial and business matters that it is capable of
evaluating the risks and merits of an investment in the Securities.
(ii) It is acquiring the Securities for its own account for
investment and not with view to the distribution, resale, subdivision,
or fractionalization thereof, and it has no present plans to enter into
any contract, undertaking, agreement, or arrangement for any such
distribution, resale, subdivision, or fractionalization.
(iii) It is aware that it must bear the economic risk of its
investment in the Securities for an indefinite period of time because
the shares of Securities have not been registered under the Securities
Act or under the securities laws of any state of the United States, and
therefore cannot be sold unless they are subsequently registered under
the Securities Act and any applicable state securities laws or unless an
exemption from such registration is available. It also recognizes that
no U.S. federal or state agency has passed upon the shares of Securities
to be issued hereunder to date or made any finding or determination as
to the fairness of an investment in such shares.
(iv) It agrees that the Securities acquired hereunder shall not
be sold, assigned, pledged, hypothecated or otherwise transferred unless
they are registered under the Securities Act and applicable state
securities laws or unless an exemption from such registration is
available.
(v) It acknowledges that a legend in substantially the
following form will be placed on any certificate(s) evidencing the
Securities issued hereunder:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS AND ARE "RESTRICTED SECURITIES" WITHIN
THE MEANING OF RULE 144 PROMULGATED
16
<PAGE> 17
UNDER THE SECURITIES ACT. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED WITHOUT COMPLYING
WITH RULE 144 IN THE ABSENCE OF AN EFFECTIVE REGISTRATION OR
OTHER COMPLIANCE WITH THE SECURITIES ACT."
It further understands that Parent may refuse to register transfer of
the Securities issued hereunder in the absence of compliance with Rule
144 unless it furnishes Parent with a "no-action" or interpretive letter
from the SEC or an opinion of counsel reasonably acceptable to Parent
stating that the transfer may be effected without registration under the
Securities Act.
(vi) All information which it has provided to Parent or its
agents or representatives concerning its suitability to hold the
Securities following the transactions contemplated hereby is complete,
accurate and correct.
(vii) It was not any time solicited by any leaflet, public
promotional meeting, circular, newspaper or magazine article, radio or
television advertisement, or any other form of general advertising or
solicitation in connection with the offer, sale or purchase of
Securities under this Agreement.
(viii) It is an "accredited investor", as such term is defined in
Regulation D promulgated pursuant to the Securities Act.
(c) Parent hereby represents and warrants to Energy PLC and EnCap LP
that the shares of Common Stock or other securities issued or to be issued
pursuant to this Agreement have been duly authorized for issuance and, when
issued and delivered pursuant to the terms hereof, will have been validly
issued, fully paid and nonassessable.
SECTION 14. RATIFICATION OF GUARANTY. Reference is herein made to
that certain Guaranty Agreement dated as of December 13, 1995, executed by
Parent in favor of the Partnership, Energy PLC and EnCap LP, as amended by that
certain Agreement of Parent dated as of January 29, 1996, by and among Parent,
the Partnership, Energy PLC and EnCap LP (the "GUARANTY"). Parent hereby
ratifies and confirms the Guaranty in all respects.
SECTION 15. MISCELLANEOUS.
(a) From and after the date of this Agreement, Parent will not,
without the prior written consent of the holders of a majority of the number of
Registrable Securities then outstanding, enter into any agreement with respect
to its securities which is inconsistent with or violates the rights granted to
the holders of Registrable Securities in this Agreement.
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<PAGE> 18
(b) In connection with the Offering, Parent, Energy PLC and EnCap LP
agree to enter into a mutually acceptable indemnification agreement, which
agreement shall contain provisions similar in all material respects to the
indemnification provisions contained in Section 8.
(c) All questions concerning the construction, validity and
interpretation of this Agreement shall be governed by the internal law, and not
the law of conflicts, of the State of Texas.
(d) All covenants and agreements in this Agreement by or on behalf of
any of the parties hereto will bind and inure to the benefit of the respective
successors and assigns of the parties hereto whether expressed or not.
(e) This Agreement is intended by the parties as a final expression
of their agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter herein contained.
(f) If any provision of this Agreement is held to be unenforceable,
this Agreement shall be considered divisible and such provision shall be deemed
inoperative to the extent it is deemed unenforceable, and in all other respects
this Agreement shall remain in full force and effect; provided, however, that
if any such provision may be made enforceable by limitation thereof, then such
provision shall be deemed to be so limited and shall be enforceable to the
maximum extent permitted by applicable law.
(g) This Agreement may be executed by the parties hereto in any
number of counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same agreement. Each counterpart may
consist of a number of copies hereof each signed by less than all, but together
signed by all, the parties hereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 19
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
FUTURE PETROLEUM CORPORATION, a Utah
corporation
By: /s/ CARL PRICE
--------------------------------
Name: Carl Price
Title: President
FUTURE PETROLEUM CORPORATION, a Texas
corporation
By: /s/ CARL PRICE
--------------------------------
Name: Carl Price
Title: President
FUTURE ACQUISITION 1995, LTD.
By: FUTURE PETROLEUM CORPORATION, a
Texas corporation
By: /s/ CARL PRICE
--------------------------------
Name: Carl Price
Title: President
ENERGY CAPITAL INVESTMENT COMPANY
PLC
By: /s/ GARY R. PETERSEN
--------------------------------
Name: Gary R. Petersen
Title: Director
ENCAP EQUITY 1994 LIMITED
PARTNERSHIP
By: ENCAP INVESTMENTS L.C.
By: /s/ GARY R. PETERSEN
--------------------------------
Name: Gary R. Petersen
Title: Managing Director
19
<PAGE> 20
[PAULSON INVESTMENT COMPANY INC. LETTERHEAD]
March 24, 1997
Carl Price
President
Future Petroleum Corporation
2351 W. Northwest Hwy., Ste. 2130 Schedule I
Dallas, TX 75220
Re: Proposed Public Offering
Dear Mr. Price:
This letter, if executed in the space provided below, will set forth our
mutual intent to make a firmly underwritten public offering (the "Offering") of
Units, each Unit consisting of one share of convertible preferred stock
("Preferred Stock") of Future Petroleum Corporation (the "Company") and five
warrants ("Warrants"), each to purchase one share of common stock ("Common
Stock"). The Preferred Stock and the Warrants will be sold as a Unit, but will
be issued and traded separately. Each share of Preferred Stock will convert
automatically into five shares of Common Stock if the Preferred Stock closes
at, at least 150 percent of the Unit price on the Offering, as reported on
Nasdaq, for ten consecutive trading days. Each share of Preferred Stock will
pay an annual stock dividend (the "Stock Dividend") equal to .5 shares of
Common Stock, which will accrue to the Preferred Stock on a quarterly basis.
The stock dividends will not be paid out, but will be added to the number of
shares of Common Stock that the holder of the Preferred Stock receives upon
conversion. Assuming the Unit price is $25, each Warrant will be exercisable
for a period of five years at a price equal to $7.50 and will become callable
at $.10 per Warrant when the Common Stock closes at a price of at least $15.00,
as reported on Nasdaq, for at least ten consecutive trading days. You have
informed us that there are currently approximately 4,067,000 shares of Common
Stock outstanding (4,435,000 fully diluted). Prior to the Offering the Company
will complete a 1-for-5 reverse split of its Common Stock. This letter is
intended to confirm the principal elements of our mutual understanding and,
except as to provisions that are expressly stated to be legally binding, is not
intended to create a contractual relationship between us and the Company,
whether with respect to the Offering or otherwise. We understand that the
Company proposes to undertake the Offering in the manner described below.
1. The Offering. The Company proposes to offer 300,000 Units (the "Firm
Units").
2. Underwriting Commitment. We propose to form a syndicate of investment
banking firms (the "Underwriters") to purchase the Firm Units on a firm
commitment basis for resale to the public on terms and subject to conditions
set forth in an Underwriting Agreement to be prepared by our legal counsel in
our customary form for such agreements. We propose to act as managing
underwriter of the Offering.
<PAGE> 21
3. Registration; Legal and Regulatory Compliance; Listing.
Registration. The Company will cause to be carefully prepared and filed
with the Securities and Exchange Commission (the "Commission") a Registration
Statement (the "Registration Statement") relating to the Units and complying in
form and substance with the requirements of the Securities Act of 1933, as
amended (the "Act"), the rules and regulations thereunder (the "Rules") and
current interpretations thereof by the Commission and courts of competent
jurisdiction, and will use all reasonable efforts to cause the Registration
Statement to be declared effective by the Commission on a date as to which we
and the Company will agree (the "Effective Date").
Blue Sky Compliance. The Company will execute such applications and other
documents and provide such information as may be required to cause the offering
to be qualified for sale in such States as we deem appropriate, and when such
qualification is required, and will assist our counsel in making the
appropriate state filings and responding to requests by state securities
authorities for additional information. To the extent reasonably necessary to
consummate the Offering, the Company will make such changes in its
organizational structure or other changes as may be required by state
securities authorities as a condition for qualification of the Offering,
provided, however, that the Company will not be required to make any such
change that would have a materially adverse effect on its business or financial
condition or materially and adversely affect the rights of its shareholders.
NASD Review. The Company will provide such information as may be required
in connection with the review of the Offering by the National Association of
Securities Dealers, Inc. ("NASD") under the Corporate Financing Rule.
NASDAQ. The Company will cause the Preferred Stock and Warrants comprising
the Units to be accepted for trading when issued on the NASDAQ Small Cap Market.
4. Overallotment Option. In the Underwriting Agreement the Company will
grant to the Underwriters an option (the "Overallotment Option") to purchase,
for a period of up to 45 days from the Effective Date, up to 45,000 additional
Units, solely to cover overallotments in the sale of the Firm Units to the
public.
5. Due Diligence. The Company will fully cooperate with us, our legal
counsel and others that we may retain for the purpose of conducting a due
diligence investigation of the Company and its business. Without limiting the
generality of the foregoing, the Company will permit us to contact, and will
assist us in contacting, to the extent we deem necessary, principal or
representative customers and suppliers and others with whom the Company has
material relationships and will cause its auditors to
2
<PAGE> 22
be available to meet with us and our legal counsel and to provide the
Underwriters with "cold comfort" letters in customary form.
6. Underwriting Discount. The Underwriters will purchase any Firm Units
or Units subject to the Overallotment Option at a discount of 10 percent (10%)
from the initial public offering price of the Firm Units as set forth on the
cover page of the final prospectus related to the Offering.
7. Offering Expenses. The Company will pay for the following expenses,
whether or not the Offering is consummated and without regard for the reason,
if any, for the termination of the Offering:
(a) Registration and other fees and expenses related to compliance with
the Act and the Rules, State blue sky laws and the securities laws of any
foreign jurisdiction in which we agree the Units will be offered.
(b) The fee charged by the NASD under the Corporate Financing Rule.
(c) The fees and expenses of legal counsel to the Underwriters incurred in
connection with Blue Sky compliance and compliance with the securities laws of
jurisdictions other than the United States.
(d) Its own, out of pocket expenses including, without limitation, the
fees and expenses of its legal counsel, auditors and other outside advisors,
the expenses related to "road show" meetings and its travel and other, similar
expenses.
(e) Expenses relating to the preparation and filing of the Registration
Statement, the final prospectus and all amendments thereto, including expenses
required in connection with the Commission's EDGAR filing requirements.
(f) The expenses of preparing, printing and distributing preliminary and
final prospectuses.
8. Our Expenses. Within two weeks after its execution of this letter, the
Company will pay us $35,000 as an advance against our expense reimbursement
described below. If the Offering is consummated, we will be entitled to
withhold at each closing with respect to the sale of Units from the amount
otherwise due to the Company a non-accountable expense allowance equal to three
(3) percent of the aggregate initial public offering price of the Units
purchased at such closing provided that the first amount so withheld will be
reduced by the $35,000 paid to us as provided above. If the Offering is not
consummated for any reason, we will be entitled, upon presentation of a written
accounting therefor in reasonable detail (but without the need to include the
underlying statements or evidence of payment), to prompt reimbursement of up to
$75,000 (including the $35,000 already paid) of our actual, out-of-pocket
expenses related to the Offering, including but not limited to fees and
expenses of our
3
<PAGE> 23
legal counsel, travel expenses, expenses for background reports on Company
management, and the fees and expenses of outside experts, if any, retained to
assist us with due diligence.
9. Representative's Warrants. If the Offering is consummated, the Company
will issue to us or to such other Underwriters or officers or partners of an
Underwriter as we may direct, warrants (the "Representative's Warrants") to
purchase, in the aggregate, ten percent of the Firm Units sold to the public.
The Representative's Warrants will become exercisable on the first anniversary
of the Effective Date and will expire on the fifth anniversary of the Effective
Date. The exercise price of the Representative's Warrants will be 120% of the
initial public offering price of the Units, subject to adjustment in certain
events. The Representative's Warrants will have registration rights and will
have terms and be subject to conditions as set forth in our customary form of
Representative's Warrants, subject to such changes, if any, as may be required
by the NASD.
10. Pricing. Numerous factors affect the price at which securities may be
successfully offered to the public. Although we will use reasonable efforts to
offer and sell the Units to the public at a price meeting the Company's
expectations, and will inform the Company from time to time of our best
judgment (and the best judgment of the Underwriters) as to the price at which
the Units may be sold, the Company understands that many factors beyond our
control, including both the Company's performance and market factors unrelated
to the Company, will affect the price at which the Units may be sold and the
number of Units that may be sold at that price or at all. Our current
expectation is that the Units will be initially offered at a price (to be
reflected on the cover of the preliminary prospectus) of $25. You are advised,
however, that market conditions may cause us to advise a price either above or
below the stated range.
11. Company Undertakings. The Company undertakes and agrees to cause the
following to occur:
(a) If the Offering is consummated, the Company will cause a Transfer
Agent to be appointed and retained with respect to the Common Stock, Preferred
Stock and a Warrant Agent to be appointed and retained with respect to the
Warrants, which Transfer Agent and Warrant Agent will be reasonably acceptable
to us.
(b) As a condition of the Underwriters' purchase of the Units, the Company
will, and will cause its officers, directors and the holders of 5% or more of
its Common Stock (including holders of securities convertible into or
exercisable for Common Stock) to execute an agreement, in our customary form,
to the effect that, (i) except as permitted in the agreement, without our prior
written consent, they will not sell or otherwise dispose of equity securities
of the Company for a period of one year following the Effective Date and (ii)
for a period of two years from the Effective Date,
4
<PAGE> 24
they will provide us with prior notice of any sales of equity securities of
the Company pursuant to Rule 144 or other similar rule.
(c) If the Offering is consummated, for a period of two years from the
Effective Date, the Company will give us notice of all meetings of its Board of
Directors and any Executive or similar Committee thereof.
12. News Releases and Publicity. Between the date hereof and a date 25
days after the Effective Date or the earlier termination of the Offering, the
Company will provide to us and our legal counsel prior to their release copies
of all press releases, proposed communications with shareholders or other
interested constituencies and other public announcements and will permit us
and our legal counsel to comment thereon prior to their release, provided,
however, that ordinary and routine communications not related to the Offering
or the financial condition of the Company may be provided concurrently with
their release.
13. Advisors and Others. The Company represents that it has retained, or
will retain, legal counsel and auditors having substantial experience with
public offerings of securities and that it will retain a financial printer of
national reputation in connection with the Offering that will be reasonably
acceptable to us.
14. Nature of this Agreement. Except for the provisions of Sections 7, 8,
12 and 14, which are intended to be binding agreements between us, this letter
is an agreement in principle and is not to be interpreted to constitute an
obligation of either us or the Company to consummate the Offering or any other
transaction in securities.
Please indicate your agreement with the foregoing by executing a copy of
this letter and returning it to us.
Very truly yours,
PAULSON INVESTMENT COMPANY, INC.
By:
--------------------------------
Title:
The undersigned agrees to the foregoing.
FUTURE PETROLEUM CORPORATION
Date:
-----------------
By:
---------------------------
Title
5
<PAGE> 25
Exhibit 10 -- Special Payout
Delivery Date: December 13, 1995
22.00% Discount Factors
<TABLE>
<CAPTION>
Number of Number of
Monthly Discount Monthly Discount
Periods Month Factor Periods Month Factor
--------- ----- --------- --------- ----- --------
<S> <C> <C> <C> <C> <C>
0 Dec-95 1.0000000
1 Jan-96 0.9819967 41 May-99 0.4748010
2 Feb-96 0.9643176 42 Jun-99 0.4662531
3 Mar-96 0.9469567 43 Jul-99 0.4578590
4 Apr-96 0.9299084 44 Aug-99 0.4496160
5 May-96 0.9131670 45 Sep-99 0.4415214
6 Jun-96 0.8967270 46 Oct-99 0.4335726
7 Jul-96 0.8805830 47 Nov-99 0.4257669
8 Aug-96 0.8647296 48 Dec-99 0.4181017
9 Sep-96 0.8491616 49 Jan-2000 0.4105745
10 Oct-96 0.8338739 50 Feb-2000 0.4031828
11 Nov-96 0.8188615 51 Mar-2000 0.3959242
12 Dec-96 0.8041193 52 Apr-2000 0.3887963
13 Jan-97 0.7896425 53 May-2000 0.3817967
14 Feb-97 0.7754264 54 Jun-2000 0.3749231
15 Mar-97 0.7614662 55 Jul-2000 0.3681732
16 Apr-97 0.7477573 56 Aug-2000 0.3615449
17 May-97 0.7342952 57 Sep-2000 0.3550359
18 Jun-97 0.7210755 58 Oct-2000 0.3486441
19 Jul-97 0.7080938 59 Nov-2000 0.3423674
20 Aug-97 0.6953457 60 Dec-2000 0.3362036
21 Sep-97 0.6828272 61 Jan-2001 0.3301509
22 Oct-97 0.6705341 62 Feb-2001 0.3242071
23 Nov-97 0.6584623 63 Mar-2001 0.3183703
24 Dec-97 0.6466078 64 Apr-2001 0.3126386
25 Jan-98 0.6349668 65 May-2001 0.3070101
26 Feb-98 0.6235353 66 Jun-2001 0.3014829
27 Mar-98 0.6123096 67 Jul-2001 0.2960552
28 Apr-98 0.6012860 68 Aug-2001 0.2907252
29 May-98 0.5904609 69 Sep-2001 0.2854912
30 Jun-98 0.5798307 70 Oct-2001 0.2803515
31 Jul-98 0.5693918 71 Nov-2001 0.2753042
32 Aug-98 0.5591409 72 Dec-2001 0.2703478
33 Sep-98 0.5490746 73 Jan-2002 0.2654807
34 Oct-98 0.5391894 74 Feb-2002 0.2607012
35 Nov-98 0.5294822 75 Mar-2002 0.2560077
36 Dec-98 0.5199498 76 Apr-2002 0.2513987
37 Jan-99 0.5105890 77 May-2002 0.2468727
38 Feb-99 0.5013968 78 Jun-2002 0.2424282
39 Mar-99 0.4923700 79 Jul-2002 0.2380637
40 Apr-99 0.4835057 80 Aug-2002 0.2337778
</TABLE>
Page 1
<PAGE> 1
EXHIBIT 10.2
=================================================================
PURCHASE AND SALE AGREEMENT
DATED NOVEMBER 25, 1997
BY AND AMONG
FUTURE PETROLEUM CORPORATION, A UTAH CORPORATION;
ENERGY CAPITAL INVESTMENT COMPANY PLC,
AN ENGLISH INVESTMENT COMPANY;
ENCAP EQUITY 1994 LIMITED PARTNERSHIP,
A TEXAS LIMITED PARTNERSHIP; AND
GECKO BOOTY 1994 I LIMITED PARTNERSHIP,
A TEXAS LIMITED PARTNERSHIP
=================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
RECITALS: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I DEFINITIONS, REFERENCES AND CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1. Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2. References and Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE II AGREEMENT TO PURCHASE AND SELL INTERESTS AND PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.1. Conveyance of Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.2. Purchase Price and Payment for Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.3. Conveyance of Gecko Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.4. Purchase Price and Payment for Gecko Properties . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.5. Purchase Price Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.1. Organization and Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.2. Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.3. Valid and Binding Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.4. Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.5. Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.6. Pending Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.7. Title to Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.8. BMC LP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.9. Investment Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.10. Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.11. Restricted Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.12. Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.13. Accuracy of Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.14. No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.15. Accredited Investor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.16. Disclaimer of Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.1. Organization and Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.2. Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.3. Valid and Binding Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.4. Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.5. Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.6. Pending Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.7. Knowledgeable Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.8. Closing Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.9. SEC Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE V CERTAIN COVENANTS REGARDING INFORMATION AND CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . 16
Section 5.1. Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 5.2. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VI CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARTIES;
TERMINATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6.1. Conditions Precedent to the Obligations of Buyer . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6.2. Conditions Precedent to the Obligations of Sellers . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VII CLOSING OF TRANSACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 7.1. The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 7.2. Sellers' Closing Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 7.3. Buyer's Closing Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 7.4. Delivery of Files . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 7.5. Agreement Regarding Execution and Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE VIII CERTAIN AGREEMENTS REGARDING PARTNERSHIP COSTS AND EXPENSES AND OTHER MATTERS . . . . . . . . . . . . . 22
Section 8.1. Partnership Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 8.2. Production Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE IX AGREEMENT REGARDING SPECIFIED BREACH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE X CERTAIN POST-CLOSING AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 10.1. Payment and Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 10.2. Books, Financial Statements and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 10.3. Notice of Material Events and Change of Address . . . . . . . . . . . . . . . . . . . . . . . 26
Section 10.4. Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 10.5. Maintenance of Existence and Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 10.6. Payment of Trade Liabilities, Taxes, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 10.7. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 10.8. Compliance with Agreements and Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 10.9. Agreement to Deliver Security Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 10.10. Perfection and Protection of Security Interests and Liens . . . . . . . . . . . . . . . . . . 27
Section 10.11. Election of LP Sellers' Nominee to Board of Directors . . . . . . . . . . . . . . . . . . . . 28
ARTICLE XI CERTAIN POST-CLOSING NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 11.1. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 11.2. Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 11.3. Limitation on Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 11.4. Limitation on Sales of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 11.5. Limitation on Investments and New Businesses . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 11.6. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 11.7. Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE XII POST-CLOSING EVENTS OF DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 12.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 12.2. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE XIII NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE XIV COMMISSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE XV MISCELLANEOUS MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 15.1. Survival of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 15.2. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 15.3. Binding Effect; Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 15.4. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 15.5. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 15.6. Public Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 15.7. Injunctive Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 15.8. Deceptive Trade Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 15.9. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 15.10. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 15.11. No Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 15.12. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 15.13. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
<PAGE> 5
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT dated November 25, 1997, is made by
and among Future Petroleum Corporation, a Utah corporation ("BUYER"), Energy
Capital Investment Company PLC, an English investment company ("ENERGY PLC"),
EnCap Equity 1994 Limited Partnership, a Texas limited partnership ("ENCAP
LP"), and Gecko Booty 1994 I Limited Partnership, a Texas limited partnership
("GECKO BOOTY LP").
RECITALS:
A. Reference is herein made to the following Texas limited
partnerships: BMC Development No. 1 Limited Partnership ("BMC LP") and Future
Acquisition 1995, Ltd. ("FUTURE LP"). BMC LP and Future LP are herein sometimes
called the "PARTNERSHIPS".
B. Benson-McCown & Company, a Texas corporation ("BMC INC."), is
the sole general partner of BMC LP. Future Petroleum Corporation, a Texas
corporation and a wholly-owned subsidiary of Buyer ("FUTURE TEXAS"), is the
sole general partner of Future LP.
C. Energy PLC and EnCap LP are the limited partners of each of
the Partnerships and are herein sometimes called the "LP SELLERS". The
interests of Energy PLC as a limited partner in each of the Partnerships are
herein collectively called the "ENERGY PLC INTERESTS". The interests of EnCap
LP as a limited partner in each of the Partnerships are herein collectively
called the "ENCAP LP INTERESTS". The Energy PLC Interests and the EnCap LP
Interests are herein collectively called the "INTERESTS".
D. Geoscience Exploration CKO, Inc., a Texas corporation
("GEOEX"), is the sole general partner of Gecko Booty LP. Energy PLC and EnCap
LP are the limited partners of Gecko Booty LP. Gecko Booty LP owns oil and gas
properties situated in New Mexico and is herein sometimes called the "PROPERTY
SELLER".
E. LP Sellers and Property Seller are herein sometime called
"SELLERS".
F. Each LP Seller desires to sell to Buyer, and Buyer desires to
purchase from each LP Seller, such LP Seller's respective Interests, on the
terms and conditions contained herein.
G. Property Seller desires to sell to Buyer, and Buyer desires to
purchase from Property Seller, Property Seller's interest in its oil and gas
properties, on the terms and conditions contained herein.
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<PAGE> 6
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing Recitals and the
mutual covenants and agreements contained herein, Buyer and Sellers do hereby
agree as follows:
ARTICLE I
DEFINITIONS, REFERENCES AND CONSTRUCTION
SECTION 1.1. CERTAIN DEFINED TERMS. When used in this Agreement, the
following terms shall have the respective meanings assigned to them in this
Section 1.1 or in the section, subsections or other subdivisions referred to
below:
"AGREEMENT" shall mean this Agreement, as hereafter changed, amended
or modified in accordance with the terms hereof.
"ASSIGNMENT" shall have the meaning assigned to such term in Section
7.2(b).
"BMC INC." shall have the meaning assigned to such term in Paragraph B
of the Recitals hereto.
"BMC LP" shall have the meaning assigned to such term in Paragraph A
of the Recitals hereto.
"BUYER" shall have the meaning assigned to such term in the
introductory paragraph to this Agreement.
"CHANGE OF CONTROL" shall mean the occurrence of either of the
following events: (a) any person or two or more persons acting as a group shall
acquire beneficial ownership (within the meaning of Rule 13d-3 of the
Commission under the Exchange Act, and including holding proxies to vote for
the election of directors other than proxies held by Buyer's management or
their designees to be voted in favor of persons nominated by Buyer's Board of
Directors) of 33% or more of the outstanding voting securities of Buyer,
measured by voting power (including both common stock and any preferred stock
or other equity securities entitling the holders thereof to vote with the
holders of common stock in elections for directors of Buyer) or (b) one-third
or more of the directors of Buyer shall consist of persons not nominated by
Buyer's Board of Directors (not including as Board nominees any directors which
the Board is obligated to nominate pursuant to shareholders agreements, voting
trust arrangements or similar arrangements).
"CLOSING" and "CLOSING DATE" shall have the respective meanings
assigned to such terms in Section 7.1.
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"CLOSING COSTS" shall mean the reasonable third party out-of-pocket
costs and expenses incurred by Buyer and LP Sellers in connection with the
preparation, negotiation and execution of this Agreement and all related
documents, including the fees and expenses of legal counsel to LP Sellers.
"CLOSING SHARES" shall mean the shares of Common Stock described in
Section 2.2.
"COLLATERAL" shall mean all property of any kind which is subject to a
Lien in favor of Sellers or which, under the terms of any Note Document, is
purported to be subject to such a Lien.
"COMMISSION" shall mean the Securities and Exchange Commission (or any
successor body thereto).
"COMMON STOCK" shall mean shares of common stock of Buyer, $0.01 par
value per share, and any shares issued or issuable with respect thereto by way
of a stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
"CONSOLIDATED" refers to the consolidation of any person, in
accordance with GAAP, with its properly consolidated subsidiaries. References
herein to a person's Consolidated financial statements, financial position,
financial condition, liabilities, etc. refer to the consolidated financial
statements, financial position, financial condition, liabilities, etc. of such
person and its properly consolidated subsidiaries.
"CONVEYANCE" shall have the meaning assigned to such term in Section
7.2(c).
"DEFAULT" shall mean an Event of Default and any default, event or
condition which would, with the giving of any requisite notices and the passage
of any requisite periods of time, constitute an Event of Default.
"DESIGNATED SHAREHOLDERS" shall mean Carl Price and Don Wm. Reynolds.
"EFFECTIVE DATE" shall have the meaning assigned to such term in
Section 2.1.
"ENGINEERING REPORT" shall mean the engineering report referenced in
Section 10.2(d).
"EVENT OF DEFAULT" shall have the meaning assigned to such term in
Section 12.1.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, and all rules and regulations promulgated under such Act.
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<PAGE> 8
"FISCAL QUARTER" shall mean a three-month period ending on March 31,
June 30, September 30 and December 31 of any year.
"FISCAL YEAR" shall mean the twelve-month period ending on December 31
of any year.
"FUTURE LP" shall have the meaning assigned to such term in Paragraph
A of the Recitals hereto.
"FUTURE NEVADA" shall mean Future Energy Corporation, a Nevada
corporation and a wholly-owned subsidiary of Buyer.
"FUTURE TEXAS" shall have the meaning assigned to such term in
Paragraph B of the Recitals hereto.
"FUTURE WARRANTS" shall mean Warrants No.'s 1003, 1004, 1005 and 1006
entitling Sellers to acquire 287,500 shares of Common Stock.
"GAAP" shall mean those generally accepted accounting principles and
practices which are recognized as such by the Financial Accounting Standards
Board (or any generally recognized successor) and which, in the case of Buyer
and its Consolidated subsidiaries, are applied for all periods after the date
hereof in a manner consistent with the manner in which such principles and
practices were applied to the Initial Financial Statements.
"GECKO BOOTY LP" shall have the meaning assigned to such term in the
introductory paragraph to this Agreement.
"GECKO PROPERTIES" shall mean the "Subject Properties," as such term
is used in the Conveyance.
"GEOEX" shall have the meaning assigned to such term in Paragraph D of
the Recitals hereto.
"INDEBTEDNESS" of any person means Liabilities in any of the following
categories: (a) Liabilities for borrowed money; (b) Liabilities constituting an
obligation to pay the deferred purchase price of property or services; (c)
Liabilities evidenced by a bond, debenture, note or similar instrument; (d)
Liabilities which would under GAAP be shown on such person's balance sheet as
a liability, and is payable more than one year from the date of creation
thereof (other than reserves for taxes and reserves for contingent
obligations);(e) Liabilities arising under futures contracts, forward
contracts, swap, cap or collar contracts, option contracts, hedging contracts,
other derivative contracts, or similar agreements; (f) Liabilities constituting
principal under leases capitalized in accordance with GAAP; (g) Liabilities
arising under conditional sales or other title retention agreements; (h)
Liabilities owing under direct or indirect guaranties of Liabilities of any
other person or constituting obligations to purchase or
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acquire or to otherwise protect or insure a creditor against loss in respect of
Liabilities of any other person (such as obligations under working capital
maintenance agreements, agreements to keep-well, or agreements to purchase
Liabilities, assets, goods, securities or services), but excluding endorsements
in the ordinary course of business of negotiable instruments in the course of
collection; (i) Liabilities (for example, repurchase agreements) consisting of
an obligation to purchase securities or other property, if such Liabilities
arises out of or in connection with the sale of the same or similar securities
or property; (j) Liabilities with respect to letters of credit or applications
or reimbursement agreements therefor; (k) Liabilities with respect to payments
received in consideration of oil, gas, or other minerals yet to be acquired or
produced at the time of payment (including obligations under "take-or-pay"
contracts to deliver gas in return for payments already received and the
undischarged balance of any production payment created by such person or for
the creation of which such person directly or indirectly received payment), or
(l) Liabilities with respect to other obligations to deliver goods or services
in consideration of advance payments therefor; provided, however, that the
"Indebtedness" of any person shall not include Liabilities that were incurred
by such person on ordinary trade terms to vendors, suppliers, or other persons
providing goods and services for use by such person in the ordinary course of
its business, unless and until such Liabilities are outstanding more than 90
days past the original invoice or billing date therefor.
"INITIAL FINANCIAL STATEMENTS" shall have the meaning assigned to such
term in Section 4.9.
"INTERESTS" shall have the meaning assigned to such term in Paragraph
C of the Recitals hereto.
"LIABILITIES" shall mean, as to any person, all indebtedness,
liabilities and obligations of such person, whether matured or unmatured,
liquidated or unliquidated, primary or secondary, direct or absolute, fixed or
contingent, and whether or not required to be considered pursuant to GAAP.
"LIEN" shall mean, with respect to any property or assets, any right
or interest therein of a creditor to secure Liabilities owed to him or any
other arrangement with such creditor which provides for the payment of such
Liabilities out of such property or assets or which allows him to have such
Liabilities satisfied out of such property or assets prior to the general
creditors of any owner thereof, including any lien, mortgage, security
interest, pledge, deposit, production payment, rights of a vendor under any
title retention or conditional sale agreement or lease substantially equivalent
thereto, tax lien, mechanic's or materialman's lien, or any other charge or
encumbrance for security purposes, whether arising by law or agreement or
otherwise, but excluding any right of offset which arises without agreement in
the ordinary course of business. "Lien" shall also mean any filed financing
statement, any registration of a pledge (such as with an issuer of
uncertificated securities), or any other arrangement or action which would
serve to perfect a Lien described in the preceding sentence, regardless of
whether such financing statement is filed, such registration is made, or such
arrangement or action is undertaken before or after such Lien exists.
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<PAGE> 10
"LP SELLERS" shall have the meaning assigned to such term in Paragraph
C of the Recitals hereto.
"MATERIAL ADVERSE CHANGE" means a material and adverse change, from
the state of affairs presented in the Initial Financial Statements, to (a)
Buyer's and its Subsidiaries' Consolidated financial condition, (b) the
operations or properties of Buyer and its Subsidiaries, considered as a whole,
(c) Borrower's ability to timely pay the Obligations, or (d) the enforceability
of the material terms of any Note Documents.
"NOTE DOCUMENTS" shall mean the Notes, the provisions of Articles X,
XI and XII of this Agreement, and the Security Documents.
"NOTES" shall mean the promissory notes described in Section 2.2 and
Section 2.4.
"OBLIGATIONS" shall mean all Liabilities owing Sellers under or
pursuant to the Notes or any of the Security Documents.
"PARTNERSHIP PROPERTIES" shall mean the oil, gas and/or mineral leases
and related assets owned by the Partnerships.
"PARTNERSHIPS" shall have the meaning assigned to such term in
Paragraph A of the Recitals hereto.
"PDP RESERVES" shall mean Proved Reserves which are categorized as
both "Developed" and "Producing" in the Definitions for Oil and Gas Reserves
promulgated by the Society of Petroleum Engineers (or any generally recognized
successor) as in effect at the time in question.
"PDP RESERVES TO DEBT RATIO" shall mean the ratio obtained by dividing
(a) the pre-income tax value of projected net revenues attributable to the PDP
Reserves of Buyer set forth in the most recent Engineering Report ascribed to
the properties subject to the Security Documents, by (b) the outstanding
unpaid principal amount of the Notes plus all accrued but unpaid interest
thereon.
"PERMITTED INVESTMENT" shall mean any investment, loan, advance,
guaranty or capital contribution by Buyer or any Subsidiary in any of the
following: (a) properties or assets to be used in the ordinary course of
business of Buyer and its Subsidiaries; (b) current assets arising from the
sale of goods and services in the ordinary course of business of Buyer and its
Subsidiaries; (c) investments in one or more of Buyer's Subsidiaries or in any
person that concurrently with such investment becomes a Subsidiary; (d) any
marketable obligation maturing not later than one year after the date of
acquisition therefor, issued or guaranteed by the United States of America or
by any agency of the United States of America which has the full faith and
credit of the United States of America; (e) commercial paper which is given
the highest rating by a credit rating agency of recognized national standing
and maturing not more
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<PAGE> 11
than 270 days from the date of creation thereof; and (f) any demand deposit or
time deposit (including certificates of deposit and money market or sweep
accounts) with a commercial bank or trust company organized and doing business
under the laws of the United States of America or any state thereof which has
capital, surplus and undivided profits of at least $250,000,000, provided that
such deposit must be either payable on demand or mature not more than twelve
months from the date of investment therein.
"PROPERTY SELLER" shall have the meaning assigned to such term in
Paragraph D of the Recitals hereto.
"PROVED RESERVES" shall mean "Proved Reserves" as defined in the
Definitions for Oil and Gas Reserves promulgated by the Society of Petroleum
Engineers (or any generally recognized successor) as in effect at the time in
question.
"PROVED RESERVES TO DEBT RATIO" shall mean the ratio obtained by
dividing (a) the pre-income tax value of projected net revenues attributable
to the Proved Reserves of Buyer set forth in the most recent Engineering Report
ascribed to the properties subject to the Security Documents, by (b) the
outstanding unpaid principal amount of the Notes plus all accrued but unpaid
interest thereon.
"RESTRICTED PAYMENT" shall mean any Distribution (as defined below) in
respect of Buyer or any Subsidiary thereof (other than on account of capital
stock or other equity interests of a Subsidiary owned legally or beneficially
by Buyer or another Subsidiary), including any Distribution resulting in the
acquisition by Buyer of securities that would constitute treasury stock. As
used in this definition, "DISTRIBUTION" shall mean, in respect of any
corporation, partnership or other business entity (a) dividends or other
distributions or payments on capital stock or other equity interest of such
corporation, partnership or other business entity (except distributions in such
stock or other equity interest) and (b) the redemption or acquisition of such
stock or other equity interests or of warrants, rights or other options to
purchase such stock or other equity interests (except when solely in exchange
for such stock or other equity interests).
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended,
and all rules and regulations under such Act.
"SECURITY DOCUMENTS" shall mean the instruments listed in Exhibit
2.1--Security Documents and all other security agreements, deeds of trust,
mortgages, chattel mortgages, pledges, guaranties, financing statements,
continuation statements, extension agreements and other agreements or
instruments now, heretofore, or hereafter delivered by Buyer or any Subsidiary
thereof to Sellers in connection with this Agreement or any transaction
contemplated hereby to secure or guarantee the payment of any part of the
Obligations or the performance of any of Buyer's or its Subsidiary's other
duties and obligations under the Note Documents.
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<PAGE> 12
"SELLERS" shall have the meaning assigned to such term in Paragraph E
of the Recitals hereto.
"SUBSIDIARY" shall mean, with respect to any person, any corporation,
association, partnership, joint venture, or other business or corporate entity,
enterprise or organization which is directly or indirectly (through one or more
intermediaries) controlled by or owned fifty percent or more by such person
SECTION 1.2. REFERENCES AND CONSTRUCTION.
(a) All references in this Agreement to articles, sections,
subsections and other subdivisions refer to corresponding articles, sections,
subsections and other subdivisions of this Agreement unless expressly provided
otherwise.
(b) Titles appearing at the beginning of any of such subdivisions
are for convenience only and shall not constitute part of such subdivisions and
shall be disregarded in construing the language contained in such subdivisions.
(c) The words "this Agreement", "this instrument", "herein",
"hereof", "hereby", "hereunder" and words of similar import refer to this
Agreement as a whole and not to any particular subdivision unless expressly so
limited.
(d) Words in the singular form shall be construed to include the
plural and vice versa, unless the context otherwise requires. Pronouns in
masculine, feminine and neuter genders shall be construed to include any other
gender.
(e) Unless the context otherwise requires or unless otherwise
provided herein, the terms defined in this Agreement which refer to a
particular agreement, instrument or document also refer to and include all
renewals, extensions, modifications, amendments or restatements of such
agreement, instrument or document, provided that nothing contained in this
subsection shall be construed to authorize such renewal, extension,
modification, amendment or restatement.
(f) Examples shall not be construed to limit, expressly or by
implication, the matter they illustrate.
(g) The word "includes" and its derivatives means "includes, but
is not limited to" and corresponding derivative expressions.
(h) No consideration shall be given to the fact or presumption
that one party had a greater or lesser hand in drafting this Agreement.
(i) All references herein to "$" or "dollars" shall refer to U.S.
Dollars.
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(j) Exhibits 2.1--Security Documents, 2.2, 2.4, 2.5, 6.1(d),
6.1(e), 6.2(d), 6.2(e), 7.2(b), 7.2(c), 7.2(d) and 7.2(e) are attached hereto.
Each such Exhibit is incorporated herein by reference for all purposes and
references to this Agreement shall also include such Exhibit unless the context
in which used shall otherwise require.
ARTICLE II
AGREEMENT TO PURCHASE AND SELL INTERESTS AND PROPERTIES
SECTION 2.1. CONVEYANCE OF INTERESTS. At the Closing, and on the
terms and subject to the conditions set forth in this Agreement, each LP Seller
shall sell to Buyer, and Buyer shall purchase and accept from the LP Seller,
such LP Seller's Interests effective as of 7:00 a.m. local time on November 1,
1997 (the "EFFECTIVE DATE").
SECTION 2.2. PURCHASE PRICE AND PAYMENT FOR INTERESTS. In
consideration of the transfer by each LP Seller to Buyer of such LP Seller's
Interests, Buyer shall tender to such LP Seller an aggregate purchase price
consisting of (a) a promissory note in the principal amount set forth opposite
such LP Seller's name below and (b) the number of shares of Common Stock set
forth opposite such LP Seller's name below:
<TABLE>
<CAPTION>
Seller Principal Amount No.of Shares
------ ---------------- ------------
<S> <C> <C>
Energy PLC $3,123,041 765,547
EnCap LP $3,301,959 809,453
</TABLE>
Each promissory note shall be substantially in the form set forth in the
attached Exhibit 2.2 in all material respects.
SECTION 2.3. CONVEYANCE OF GECKO PROPERTIES. At the Closing, and
on the terms and subject to the conditions set forth in this Agreement,
Property Seller shall sell to Buyer, and Buyer shall purchase and accept from
Property Seller, the Gecko Properties effective as of the Effective Date.
SECTION 2.4. PURCHASE PRICE AND PAYMENT FOR GECKO PROPERTIES. In
consideration of the transfer by Property Seller to Buyer of the Gecko
Properties, Buyer shall tender to Property Seller an aggregate purchase price
consisting of a promissory note in the principal amount of $175,000,
substantially in the form set forth in the attached Exhibit 2.4 in all material
respects
SECTION 2.5. PURCHASE PRICE ALLOCATION. Sellers and Buyer agree
that the purchase prices payable under Sections 2.2 and 2.4 shall be allocated
among LP Sellers' Interests (and the amount allocated to each such Interest
shall be allocated among the assets held by the Partnership to which such
Interest relates) and the Gecko Properties, as set forth in Exhibit 2.5
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attached hereto. Buyer shall cause each Partnership to make an election under
Section 754 of the Internal Revenue Code (in this Section 2.5, the "CODE") in
its tax return for the short period ending on the Closing Date to cause the tax
bases of the assets owned by such Partnership to be adjusted under Section 743
of the Code to reflect the amounts allocated to such assets under the preceding
sentence. In making such allocations, it is agreed that the Common Stock shall
have a value equal to the opening bid price for the Common Stock on the OTC
Bulletin Board on the date of execution of this Agreement and that such value
will be used by Buyer in calculating the basis adjustments under Section 743 of
the Code as provided above.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
Each Seller hereby severally and as to itself represents and warrants
to Buyer as follows (provided, however, that it is expressly agreed the
representations and warranties contained in Sections 3.7 through 3.15 are being
made solely by LP Sellers on a several basis as to itself and not by Property
Seller):
SECTION 3.1. ORGANIZATION AND EXISTENCE. Such Seller is duly formed
and validly existing under the laws of the jurisdiction of its formation.
SECTION 3.2. POWER AND AUTHORITY. Such Seller has all requisite
power and authority to execute, deliver, and perform this Agreement and each
other agreement, instrument, or document executed or to be executed by it in
connection with the transactions contemplated hereby to which it is a party and
to consummate the transactions contemplated hereby and thereby. The execution,
delivery, and performance by such Seller of this Agreement and each other
agreement, instrument, or document executed or to be executed by it in
connection with the transactions contemplated hereby to which it is a party,
and the consummation by it of the transactions contemplated hereby and thereby,
have been duly and validly authorized by all necessary on its part.
SECTION 3.3. VALID AND BINDING AGREEMENT. This Agreement has been
duly executed and delivered by such Seller and constitutes, and each other
agreement, instrument, or document executed or to be executed by it in
connection with the transactions contemplated hereby to which it is a party has
been, or when executed will be, duly executed and delivered by it and
constitutes, or when executed and delivered will constitute, a valid and
legally binding obligation of such Seller, enforceable against it in accordance
with their respective terms, except that such enforceability may be limited by
(a) applicable bankruptcy, insolvency, reorganization, moratorium, and similar
laws affecting creditors' rights generally and (b) equitable principles which
may limit the availability of certain equitable remedies (such as specific
performance) in certain instances.
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<PAGE> 15
SECTION 3.4. NON-CONTRAVENTION. Neither the execution, delivery, and
performance by such Seller of this Agreement and each other agreement,
instrument, or document executed or to be executed by it in connection with the
transactions contemplated hereby to which it is a party nor the consummation by
it of the transactions contemplated hereby and thereby do and will (a) conflict
with or result in a violation of any provision of the partnership agreement or
other governing instruments of such Seller, (b) conflict with or result in a
violation of any provision of, or constitute (with or without the giving of
notice or the passage of time or both) a default under, or give rise (with or
without the giving of notice or the passage of time or both) to any right of
termination, cancellation, or acceleration under, any bond, debenture, note,
mortgage, indenture, lease, contract, agreement, or other instrument or
obligation to which such Seller is a party or by which such Seller or any of
its properties may be bound, (c) result in the creation or imposition of any
lien or other encumbrance upon the properties of such Seller, or (d) violate
any applicable law, rule or regulation binding upon such Seller.
SECTION 3.5. APPROVALS. No consent, approval, order, or authorization
of, or declaration, filing, or registration with, any court or governmental
agency or of any third party is required to be obtained or made by such Seller
in connection with the execution, delivery, or performance by such Seller of
this Agreement and each other agreement, instrument, or document executed or to
be executed by such Seller in connection with the transactions contemplated
hereby to which it is a party or the consummation by it of the transactions
contemplated hereby and thereby.
SECTION 3.6. PENDING LITIGATION. There are no pending suits,
actions, or other proceedings in which such Seller is a party which affect such
Seller's Interests (in the instance of a LP Seller) or the Gecko Properties (in
the instance of the Gecko Properties) or affecting the execution and delivery
of this Agreement or the consummation of the transactions contemplated hereby.
SECTION 3.7. TITLE TO INTERESTS. Such Seller (a) owns
beneficially and of record such Seller's Interests and (b) has the absolute
right to and, upon execution and delivery of the Assignment at Closing will,
sell, assign, and transfer the interests to Buyer free and clear of all Liens.
For purposes of this Section, the term "LIEN" shall mean any mortgage, pledge,
security interest, lien, option, right, restriction on transfer or encumbrance
of any nature other than restrictions that may be imposed by any federal or
state securities laws or those that arise under the terms of the Partnership
Agreements. Except by operation of this Agreement or the Partnership
Agreements, there are no existing options, warrants, calls, subscriptions or
other rights, agreements, commitments or claims of any nature granted or
binding upon such Seller's granting or vesting in any party any claim or
potential claim to such Seller's Interests.
SECTION 3.8. BMC LP.
(a) BMC LP is duly formed and validly existing as a limited
partnership under the laws of the State of Texas.
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<PAGE> 16
(b) BMC LP has all requisite partnership power and authority to
own its respective Partnership Properties and to conduct its respective
business as currently conducted.
(c) Such Seller is in compliance in all material respects with the
terms and provisions of the Partnership Agreement governing BMC LP.
(d) To the knowledge of such Seller (without having conducted any
independent investigation), all expenses and liabilities of BMC LP have been,
and are being, paid timely by BMC LP in all material respects, except for an
invoice received by BMC LP in the amount of $11,500 from Price Waterhouse in
connection with an audit of its financial statements for Fiscal Year 1996.
(e) To the knowledge of such Seller (without having conducted any
independent investigation), there are no material liabilities of BMC LP other
than as disclosed in (i) BMC LP's audited balance sheet as of December 31,
1996, and the related audited statements of income, stockholders' equity and
cash flows for the year then ended, and the notes and schedules thereto, and
(ii) BMC LP's unaudited balance sheet as of June 30, 1997, other than
liabilities which have arisen since June 30, 1997, in the ordinary course of
business.
SECTION 3.9. INVESTMENT EXPERIENCE. Such Seller is able to bear
the economic risks of its investment in the Closing Shares, and consequently
without limiting the generality of the foregoing, it is able to hold the
Closing Shares acquired pursuant to the terms hereof for an indefinite period
of time and has a sufficient net worth to sustain a loss of all or a portion of
its investment in the Closing Shares in the event such loss should occur. Such
Seller has such knowledge and experience in financial and business matters that
it is capable of evaluating the risks and merits of an investment in the
Closing Shares.
SECTION 3.10. INVESTMENT INTENT. Such Seller is acquiring the
Closing Shares for its own account for investment and not with view to the
distribution, resale, subdivision, or fractionalization thereof, and it has no
present plans to enter into any contract, undertaking, agreement, or
arrangement for any such distribution, resale, subdivision, or
fractionalization.
SECTION 3.11. RESTRICTED SECURITIES. Such Seller is aware that it
must bear the economic risk of its investment in the Closing Shares for an
indefinite period of time because the Closing Shares have not been registered
under the Securities Act or under the securities laws of any state of the
United States, and therefore cannot be sold unless they are subsequently
registered under the Securities Act and any applicable state securities laws or
unless an exemption from such registration is available. Such Seller also
recognizes that no U.S. federal or state agency has passed upon the Closing
Shares to be issued hereunder to date or made any finding or determination as
to the fairness of an investment in such shares. Such Seller agrees that the
Closing Shares acquired by it hereunder shall not be sold, assigned, pledged,
hypothecated or otherwise transferred unless they are registered under the
Securities Act and applicable state securities laws or unless an exemption from
such registration is available.
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<PAGE> 17
SECTION 3.12. LEGEND. Such Seller acknowledges that a legend in
substantially the following form will be placed on any certificate(s)
evidencing the Closing Shares issued hereunder:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS AND ARE "RESTRICTED
SECURITIES" WITHIN THE MEANING OF RULE 144 PROMULGATED UNDER
THE SECURITIES ACT. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED WITHOUT
COMPLYING WITH RULE 144 IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION OR OTHER COMPLIANCE WITH THE SECURITIES ACT."
Such Seller further understands that Buyer may refuse to register transfer of
the Closing Shares issued hereunder in the absence of compliance with Rule 144
unless it furnishes Buyer with a "no-action" or interpretive letter from the
Commission or an opinion of counsel reasonably acceptable to Buyer stating that
the transfer may be effected without registration under the Securities Act.
SECTION 3.13. ACCURACY OF INFORMATION. All information which such
Seller has provided to Buyer or its agents or representatives concerning its
suitability to hold the Closing Shares following the transactions contemplated
hereby is complete, accurate and correct.
SECTION 3.14. NO SOLICITATION. Such Seller was not any time
solicited by any leaflet, public promotional meeting, circular, newspaper or
magazine article, radio or television advertisement, or any other form of
general advertising or solicitation in connection with the offer, sale or
purchase of the Closing Shares under this Agreement.
SECTION 3.15. ACCREDITED INVESTOR. Such Seller is an "accredited
investor," as such term is defined in Regulation D promulgated pursuant to the
Securities Act.
SECTION 3.16. DISCLAIMER OF WARRANTIES. Other than those expressly
set out in this Article III, each Seller hereby expressly disclaims any and all
representations or warranties with respect to the Interests, the Gecko
Properties or the transaction contemplated hereby, and Buyer agrees that the
Interests and the Gecko Properties are being sold by each Seller (as
applicable) "where is" and "as is". Specifically as a part of (but not in
limitation of) the foregoing, Buyer acknowledges that each Seller has not made,
and each Seller hereby expressly disclaims, any representation or warranty
(express, implied, under common law, by statute or otherwise) (a) as to the
condition of the Gecko Properties or the Partnership Properties (INCLUDING
WITHOUT LIMITATION, EACH SELLER DISCLAIMS ANY IMPLIED OR EXPRESS WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR CONFORMITY TO MODELS OR
SAMPLES OF MATERIALS), (b) as to the compliance by Gecko Booty or the
Partnerships with applicable
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environmental laws, (c) as to the status of title to Gecko Properties or the
Partnership Properties, or (d) as to the extent of oil, gas and/or other
mineral reserves, the recoverability of or the cost of recovering any of such
reserves, the value of reserves, prices (or anticipated prices) at which
production has been or will be sold and the ability to sell oil or gas
production from the Gecko Properties or the Partnership Properties.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Sellers as follows:
SECTION 4.1. ORGANIZATION AND EXISTENCE. Buyer is a corporation duly
organized, legally existing and in good standing under the laws of the State of
Utah.
SECTION 4.2. POWER AND AUTHORITY. Buyer has full corporate power and
corporate authority to execute, deliver, and perform this Agreement and each
other agreement, instrument, or document executed or to be executed by it in
connection with the transactions contemplated hereby to which it is a party and
to consummate the transactions contemplated hereby and thereby. The execution,
delivery, and performance by Buyer of this Agreement and each other agreement,
instrument, or document executed or to be executed by Buyer in connection with
the transactions contemplated hereby to which it is a party, and the
consummation by it of the transactions contemplated hereby and thereby, have
been duly authorized by all necessary corporate action of Buyer.
SECTION 4.3. VALID AND BINDING AGREEMENT. This Agreement has been
duly executed and delivered by Buyer and constitutes, and each other agreement,
instrument, or document executed or to be executed by Buyer in connection with
the transactions contemplated hereby to which it is a party has been, or when
executed will be, duly executed and delivered by Buyer and constitutes, or when
executed and delivered will constitute, a valid and legally binding obligation
of Buyer, enforceable against it in accordance with their respective terms,
except that such enforceability may be limited by (a) applicable bankruptcy,
insolvency, reorganization, moratorium, and similar laws affecting creditors'
rights generally and (b) equitable principles which may limit the availability
of certain equitable remedies (such as specific performance) in certain
instances.
SECTION 4.4. NON-CONTRAVENTION. The execution, delivery, and
performance by Buyer of this Agreement and each other agreement, instrument, or
document executed or to be executed by Buyer in connection with the
transactions contemplated hereby to which it is a party and the consummation by
it of the transactions contemplated hereby and thereby do not and will not (a)
conflict with or result in a violation of any provision of the charter or
bylaws or other governing instruments of Buyer, (b) conflict with or result in
a violation of any provision of, or constitute (with or without the giving of
notice or the passage of time or both) a default under, or give rise (with or
without the giving of notice or the passage of time or
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both) to any right of termination, cancellation, or acceleration under, any
bond, debenture, note, mortgage, indenture, lease, contract, agreement, or
other instrument or obligation to which Buyer is a party or by which Buyer or
any of its properties may be bound, (c) except as contemplated by this
Agreement, result in the creation or imposition of any lien or other
encumbrance upon the properties of Buyer, or (d) violate any applicable law,
rule or regulation binding upon Buyer.
SECTION 4.5. APPROVALS. No consent, approval, order, or
authorization of, or declaration, filing, or registration with, any court or
governmental agency or of any third party is required to be obtained or made by
Buyer in connection with the execution, delivery, or performance by Buyer of
this Agreement and each other agreement, instrument, or document executed or to
be executed by Buyer in connection with the transactions contemplated hereby to
which it is a party or the consummation by it of the transactions contemplated
hereby and thereby, other than compliance with any applicable requirements of
the Securities Act and any applicable state securities laws.
SECTION 4.6. PENDING LITIGATION. There are no pending suits, actions,
or other proceedings in which Buyer is a party which affect the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby.
SECTION 4.7. KNOWLEDGEABLE PURCHASER. Buyer is a knowledgeable
purchaser, owner and operator of oil and gas properties, has the ability to
evaluate (and in fact has evaluated) the Interests for purchase, and is
acquiring the Interests and the Gecko Properties for its own account and not
with the intent to make a distribution within the meaning of the Securities Act
of 1933 (and the rules and regulations pertaining thereto) or a distribution
thereof in violation of any other applicable securities laws.
SECTION 4.8. CLOSING SHARES. The Closing Shares have been duly
authorized for such issuance and, when issued and delivered by Buyer in
accordance with the provisions of this Agreement, will be validly issued, fully
paid, and nonassessable. The issuance of the Closing Shares under this
Agreement is not subject to any preemptive or similar rights.
SECTION 4.9. SEC FILINGS. Buyer is current in its obligations to
file all periodic report and proxy statements with the Commission required to
be filed under the Exchange Act. Parent's Annual Report on Form-10KSB for the
year ended December 31, 1996, and Buyer's Quarterly Report on Form-10QSB for
the quarter ending September 30, 1997 (in this Section called the "SEC
DOCUMENTS") do not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of circumstances then existing. The
audited Consolidated financial statements and unaudited Consolidated interim
financial statements of Buyer included in the SEC Documents (the "INITIAL
FINANCIAL STATEMENTS") present fairly in all material respects, in conformity
with GAAP applied on a consistent basis, the Consolidated financial position of
Buyer as of the dates thereof and its Consolidated results of operations and
changes in financial position for the periods then ended (subject to normal
year-end audit adjustments in
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the case of the unaudited interim financial statements). Since September 30,
1997, there have been no material developments, transactions or events
affecting Buyer (other than developments or events affecting the oil and gas
exploration and production industry generally) other than as disclosed by Buyer
in the SEC Documents or to Sellers in writing. There are no material
liabilities of Buyer (contingent or otherwise), other than as disclosed in the
SEC Documents and the financial statements included therein.
ARTICLE V
CERTAIN COVENANTS REGARDING INFORMATION AND CONFIDENTIALITY
SECTION 5.1. ACCESS TO INFORMATION. From the date hereof until
Closing, each Seller will use its reasonable best efforts to give Buyer, and
its attorneys and other representatives, access at all reasonable times to the
books and records of each Partnership and to any contract files, lease or other
title files, production files, well files and other files of Gecko Booty (in
the instance of Property Seller) and each Partnership (in the instance of LP
Sellers) pertaining to the ownership or operation of the Gecko Properties or
the Partnership Properties (as applicable), and each Seller will use its
reasonable best efforts to arrange for Buyer, and its attorneys and other
representatives, to have access to any such files in the respective office of
Property Seller and each Partnership (as applicable). No Seller shall be
obligated to provide Buyer with access to any records or data which such Seller
cannot provide to Buyer without, in its reasonable opinion, breaching
confidentiality agreements with other parties. Buyer recognizes and agrees
that all materials made available to it (whether pursuant to this Section or
otherwise) in connection with the transactions contemplated hereby are made
available to it as an accommodation and without representation or warranty of
any kind as to the accuracy and completeness of such materials. From the date
hereof until Closing, Buyer will furnish each Seller and its attorneys and
other representatives such information with respect to Buyer as such Seller
shall from time to time reasonably request. Buyer shall not be obligated to
provide Sellers with access to any records or data which Buyer cannot provide
to Sellers without, in its reasonable opinion, breaching confidentiality
agreements with other parties.
SECTION 5.2. CONFIDENTIALITY.
(a) Each Receiving Party (as defined below) agrees that all
Confidential Information (as defined below) shall be kept confidential by the
Receiving Party and shall not be disclosed by the Receiving Party in any manner
whatsoever; provided, however, that (i) any of such Confidential Information
may be disclosed to such directors, officers, employees, and authorized
representatives (including without limitation attorneys, accountants,
consultants, and financial advisors) of the Receiving Party (collectively, for
purposes of this Section, "RECEIVING PARTY REPRESENTATIVES") as need to know
such information for the purpose of evaluating the transactions contemplated
hereby (it being understood that each Receiving Party Representative shall be
informed by the Receiving Party of the confidential nature of such information
and shall be required to treat such information confidentially and that the
Receiving Party and a Receiving Party Representative shall be responsible for
any
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breach of this Section by such Receiving Party Representative), (ii) any
disclosure of Confidential Information may be made to the extent to which the
Disclosing Party (as defined below) consents in writing, (iii) Confidential
Information may be disclosed by the Receiving Party or any Receiving Party
Representative to the extent that, in the opinion of counsel for the Receiving
Party or such Receiving Party Representative, the Receiving Party or such
Receiving Party Representative is legally compelled to do so, provided that,
prior to making such disclosure, the Receiving Party or such Receiving Party
Representative, as the case may be, advises and consults with the Disclosing
Party regarding such disclosure and provided further that the Receiving Party
or such Receiving Party Representative, as the case may be, discloses only that
portion of the Confidential Information as is legally required. The Receiving
Party agrees that none of the Confidential Information will be used for any
purpose other than in connection with the transactions contemplated hereby.
The term "CONFIDENTIAL INFORMATION", as used herein, means all information
(irrespective of the form of communication) obtained by or on behalf of the
Receiving Party from the Disclosing Party or its representatives pursuant to
this Section and all similar information obtained from the Disclosing Party or
its representatives by or on behalf of the Receiving Party prior to the date of
this Agreement, other than information which (A) was or becomes generally
available to the public other than as a result of disclosure by the Receiving
Party or any Receiving Party Representative, (B) was or becomes available to
the Receiving Party on a nonconfidential basis prior to disclosure to the
Receiving Party by the Disclosing Party or its representatives, or (C) was or
becomes available to the Receiving Party from a source other than the
Disclosing Party and its representatives, provided that such source is not
known by the Receiving Party (after reasonable due inquiry) to be bound by a
legal, contractual or fiduciary obligation to the Disclosing Party. As used in
this Section, the term "RECEIVING PARTY" shall mean (x) Buyer, when the
Disclosing Party is a Seller, and (y) a Seller, when the Disclosing Party is
Buyer. As used in this Section, the term "DISCLOSING PARTY" shall mean (xx)
Buyer, when the Receiving Party is a Seller, and (yy) a Seller, when the
Receiving Party is Buyer.
(b) If this Agreement is terminated, the Receiving Party shall
promptly return at its expense, and shall cause all Receiving Party
Representatives to promptly return at the Receiving Party's or such Receiving
Party Representatives' expense, all Confidential Information to the Disclosing
Party without retaining any copies thereof, provided that such portion of the
Confidential Information as consists of notes, compilations, analyses, reports,
studies, or other documents prepared by the Receiving Party or the Receiving
Party Representatives shall be destroyed (and the Receiving Party and each
Receiving Party Representative shall certify such destruction in writing to the
Disclosing Party if requested by the Disclosing Party).
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARTIES; TERMINATION RIGHTS
SECTION 6.1. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER. The
obligations of Buyer under this Agreement are subject to each of the following
conditions being met:
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(a) Each and every representation of each Seller under this
Agreement shall be true and accurate in all material respects as of the date
when made and shall be deemed to have been made again at and as of the time of
Closing and shall at and as of such time of Closing be true and accurate in all
respects except as to changes specifically contemplated by this Agreement or
consented to by Buyer.
(b) Each Seller shall have performed and complied in all material
respects with (or compliance therewith shall have been waived by Buyer) each
and every covenant, agreement and condition required by this Agreement to be
performed or complied with by each Seller prior to or at the Closing.
(c) No suit, action or other proceedings shall, on the date of
Closing, be pending or threatened before any court or governmental agency
seeking to restrain, prohibit, or obtain damages or other relief in connection
with the consummation of the transactions contemplated by this Agreement.
(d) BMC Inc. shall have executed and delivered to Future Texas an
assignment of its interest in BMC LP substantially in the form attached hereto
as Exhibit 6.1(d) in all material respects.
(e) BMC LP shall have not sold, transferred or otherwise disposed
of any of the Partnership Properties listed in the attached Exhibit 6.1(e),
except that BMC LP shall be permitted to assign to BMC Inc. the interest of BMC
LP in the Logue-Wilson No. 1 well located in Grant County, Oklahoma, either
prior to or contemporaneously with the Closing.
If any such condition on the obligations of Buyer under this Agreement is not
met as of the Closing Date, or in the event the Closing does not occur on or
before the Closing Date, and (in either case) Buyer is not in breach of its
obligations hereunder in the absence of a Seller also being in breach of its
obligations hereunder, this Agreement may, at the option of Buyer, be
terminated, in which case the parties shall have no further obligations to one
another hereunder (other than the obligations under Sections 5.2 and Article
XIV which will survive such termination).
SECTION 6.2. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLERS.
The obligations of Sellers under this Agreement are subject to the each of the
following conditions being met:
(a) Each and every representation of Buyer under this Agreement
shall be true and accurate in all material respects as of the date when made
and shall be deemed to have been made again at and as of the time of Closing
and shall at and as of such time of Closing be true and accurate in all
respects except as to changes specifically contemplated by this Agreement or
consented to by Sellers.
(b) Buyer shall have performed and complied in all material
respects with (or compliance therewith shall have been waived by Sellers) each
and every covenant, agreement
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and condition required by this Agreement to be performed or complied with by
Buyer prior to or at the Closing.
(c) No suit, action or other proceedings shall, on the date of
Closing, be pending or threatened before any court or governmental agency
seeking to restrain, prohibit, or obtain damages or other relief in connection
with the consummation of the transactions contemplated by this Agreement.
(d) Sellers shall have received an opinion of counsel reasonably
acceptable to Sellers dated the Closing Date covering the matters described in
Exhibit 6.2(d) and in a form reasonably acceptable to Sellers.
(e) The Designated Shareholders shall have executed and delivered
that certain Voting Agreement substantially in the form attached as Exhibit
6.2(e) in all material respects.
If any such condition on the obligations of Sellers under this Agreement is not
met as of the Closing Date, or in the event the Closing does not occur on or
before the Closing Date, and (in either case) a Seller is not in breach of its
obligations hereunder in the absence of Buyer also being in breach of its
obligations hereunder, this Agreement may, at the option of a Seller, be
terminated, in which case the parties shall have no further obligations to one
another hereunder (other than the obligations under Section 5.2 and Article XIV
which will survive such termination).
ARTICLE VII
CLOSING OF TRANSACTION
SECTION 7.1. THE CLOSING. The closing (herein called the "CLOSING")
of the transaction contemplated hereby shall take place in the offices of
Thompson & Knight, P.C., at 1700 Texas Commerce Tower, 600 Travis Street,
Houston, Texas, at 10:00 a.m. Central Standard Time, on November 25, 1997, or
at such other date and time as the Buyer and Sellers may mutually agree upon
(such date and time being herein called the "CLOSING DATE").
SECTION 7.2. SELLERS' CLOSING OBLIGATIONS. At the Closing:
(a) each Seller shall deliver to Buyer a certificate
executed by an authorized representative of such Seller dated the
Closing Date, certifying to Buyer that (i) such Seller has complied in
all material respects with all covenants and agreements required by
this Agreement to be performed and complied with by it on or prior to
the Closing Date and (ii) the representations and warranties made by
such Seller herein are true and correct in all material respects as if
made on and as of the Closing Date;
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(b) each LP Seller shall execute and deliver that certain
Assignment of Limited Partner Interest (the "ASSIGNMENT"),
substantially in the form attached hereto as Exhibit 7.2(b) in all
material respects;
(c) Property Seller shall execute and deliver that
certain Conveyance (the "CONVEYANCE"), substantially in the form
attached hereto as Exhibit 7.2(c) in all material respects;
(d) each LP Seller shall execute and deliver that certain
Registration Rights Agreement, substantially in the form attached
hereto as Exhibit 7.2(d) in all material respects;
(e) LP Sellers shall execute and deliver that certain
Waiver, substantially in the form attached hereto as Exhibit 7.2(e) in
all material respects;
(f) LP Sellers shall deliver for cancellation the Future
Warrants; and
(g) LP Sellers shall execute and deliver that certain
Voting Agreement in the form attached hereto as Exhibit 6.2(e) in all
material respects.
SECTION 7.3. BUYER'S CLOSING OBLIGATIONS. At the Closing,
Buyer shall:
(a) deliver to Sellers a certificate of existence and
good standing with respect to Buyer issued by appropriate public
officials of the State of Utah and dated no earlier than three
business days prior to the Closing Date;
(b) deliver to Sellers a certificate of existence and
good standing with respect to Future Texas issued by appropriate
public officials of the State of Texas and dated no earlier than three
business days prior to the Closing Date;
(c) deliver to Sellers a certificate of existence and
good standing with respect to Future Nevada issued by appropriate
public officials of the State of Nevada and dated no earlier than
three business days prior to the Closing Date;
(d) deliver to Sellers a certificate executed by an
authorized officer of Buyer dated the Closing Date, certifying to
Sellers that (i) Buyer has complied in all material respects with all
covenants and agreements required by this Agreement to be performed
and complied with by it on or prior to the Closing Date and (ii) the
representations and warranties made by Buyer herein are true and
correct in all material respects as if made on and as of the Closing
Date;
(e) deliver to Sellers an "Omnibus Certificate" of the
Secretary and President of each of Buyer, Future Texas and Future
Nevada, which shall contain the names and signatures of the officers
of Buyer, Future Texas and Future Nevada,
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respectively, authorized to execute this Agreement, the Security
Documents and the Note Documents to which entity is a party and which
shall certify to the truth, correctness and completeness of the
following exhibits attached thereto: (i) a copy of the resolutions
duly adopted by the Board of Directors of Buyer, Future Texas and
Future Nevada (as applicable), with respect to the execution, delivery
and performance of this Agreement, the Security Documents and the Note
Documents to which such entity is a party; (ii) a copy of the charter
documents of Buyer, Future Texas and Future Nevada (as applicable);
and (iii) a copy of the bylaws of Buyer, Future Texas and Future
Nevada (as applicable);
(f) execute and deliver to Sellers the Notes;
(g) issue and deliver to LP Sellers the Closing Shares;
(h) execute and deliver (or cause to be executed and
delivered) to Sellers each Security Document listed in the attached
2.1--Security Documents and any collateral to be delivered at Closing
thereunder; and
(i) execute and deliver that certain Registration Rights
Agreement substantially in the form attached hereto as Exhibit 7.2(d)
in all material respects.
SECTION 7.4. DELIVERY OF FILES. Within 30 days after the Closing,
(i) LP Sellers shall deliver (or cause to be delivered) to Buyer the limited
partnership files, records and other materials for BMC LP and (ii) Property
Seller shall deliver to Buyer the files, records and other materials relating
to the Gecko Properties. Notwithstanding the foregoing, to the extent such
files or other materials include items which cannot be provided to Buyer
without, in the reasonable opinion of Sellers, breaching confidentiality
agreements with other parties, Sellers shall have no obligation to furnish (or
cause to be furnished) such items; provided, that if requested by Buyer,
Sellers shall identify any such agreement and use their reasonable best efforts
to obtain an amendment or waiver of such agreement to permit such materials to
be delivered to Buyer. Sellers may retain copies of all or any parts of the
files or other materials so furnished, and all costs of copying such files
shall be borne by Sellers. So long as such files or other materials so
delivered by Sellers to Buyer are maintained by Buyer, Buyer shall permit
Sellers and their representatives to have access to the same; for a period of
three years after Closing Buyer shall advise Sellers before it destroys any
such files, records or other materials (and will, if requested by Sellers,
deliver to Sellers any files or other materials it intends to destroy).
SECTION 7.5. AGREEMENT REGARDING EXECUTION AND DELIVERY. Buyer,
for itself and on behalf of the Partnerships, hereby acknowledges and agrees
that (a) the consummation of the transactions contemplated hereunder, including
without limitation the extension of credit under the Notes, the guarantee by
the Partnerships of the Notes, and the granting of liens and security interests
by Buyer and the Partnerships to secure the Notes and such guarantee, are
intended to be simultaneous for all intents and purposes, and (b) Buyer and
each Partnership
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shall be deemed to have executed and delivered each Note Document (including
each Security Document), immediately prior to or simultaneously with the
extension of credit under the Notes.
ARTICLE VIII
CERTAIN AGREEMENTS REGARDING PARTNERSHIP COSTS AND EXPENSES AND OTHER MATTERS
SECTION 8.1. PARTNERSHIP COSTS AND EXPENSES.
(a) With respect to BMC LP, it is specifically agreed by and
between Buyer and LP Sellers as follows: (i) Buyer shall be entitled to receive
all cash distributions attributable to the Interests therein made by BMC LP on
or after the Effective Date (regardless of whether such distributions are
attributable to revenues arising prior to the Effective Date); and (ii) except
as provided below in this subsection (a), Buyer shall be obligated to bear all
costs and expenses of BMC LP unpaid on or incurred after the Effective Date
and attributable to the Interests therein; provided, however, that Buyer shall
have no liability for, and LP Sellers agree to bear and pay the following costs
and expenses: (A) the reasonable costs and expenses incurred by BMC LP in
connection with the preparation and filing of a federal income tax return
covering the short tax year commencing January 1, 1997 and ending the Closing
Date; and (B) any fees and expenses of the independent public accountants of
BMC LP unpaid as of the Closing Date.
(b) With respect to Future LP, it is specifically acknowledged and
agreed by and between Buyer and LP Sellers as follows: (i) LP Sellers shall be
entitled to receive from Future LP all distributions reflected in the schedule
received in October 1997 with respect to August 1997 production save for and
except an amount equal to one-half of the Closing Costs; (ii) LP Sellers have
previously paid their allocable share of the costs and expenses of Future LP
for September 1997 and shall not be reimbursed by Future LP for such amounts;
(iii) Future LP shall be entitled to retain all net cash flow attributable to
production of Future LP commencing September 1997; and (iv) Future Texas and
Future Nevada shall be responsible for and shall bear all costs of Future LP
commencing October 1, 1997 and LP Sellers shall have no responsibility to make
capital contributions with respect thereto.
(c) Buyer and LP Sellers agree that on or before 90 days after
Closing, they shall meet at a time and place mutually agreeable and review the
status of cash amounts received or paid under subsections (a) and (b) above for
the purpose of reconciling such and other amounts with the terms and provisions
of such subsections and to make any necessary payments to each other as a
result of such reconciliation.
SECTION 8.2. PRODUCTION PROCEEDS. Notwithstanding that, by the
terms of the various Security Documents, Future Texas and the Partnerships are
and will be assigning to Sellers all of the "Production Proceeds" (as defined
therein) accruing to the property covered thereby, so long as no Default has
occurred Future Texas and the Partnerships may continue to receive
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from the purchasers of production all such Production Proceeds, subject,
however, to the Liens created under the Security Documents, which Liens are
hereby affirmed and ratified. Upon the occurrence of a Default, Sellers may
exercise all rights and remedies granted under the Security Documents,
including the right to obtain possession of all Production Proceeds then held
by Future Texas and the Partnerships or to receive directly from the purchasers
of production all other Production Proceeds. In no case shall any failure,
whether purposed or inadvertent, by Sellers to collect directly any such
Production Proceeds constitute in any way a waiver, remission or release of any
of their rights under the Security Documents, nor shall any release of any
Production Proceeds by Sellers to Future Texas or the Partnerships constitute a
waiver, remission, or release of any other Production Proceeds or of any rights
of Sellers to collect other Production Proceeds thereafter.
ARTICLE IX
AGREEMENT REGARDING SPECIFIED BREACH
(a) The representations and warranties of LP Sellers contained in
Sections 3.8(d) and (e) shall survive the Closing until the one-year
anniversary of the Closing Date (in this Article IX called the "SURVIVAL
DATE").
(b) Subject to the terms and conditions of this Article IX, each
LP Seller severally (and not jointly and severally) agrees to indemnify and
hold harmless Buyer from and against any and all claims, actions, liabilities,
damages, costs and expenses (including court costs and attorneys' fees) (in
this Article IX, "DAMAGES") incurred by Buyer by reason of or resulting from a
breach by such Seller of its representations and warranties contained in
Sections 3.8(d) and (e).
(c) No Seller shall have any indemnification obligation under this
Article IX unless before the Survival Date it shall have received from Buyer
written notice of the claim for or in respect of which indemnification is
sought (in this Article IX, the "NOTICE"). The Notice shall set forth with
reasonable specificity (i) the basis under this Article, and the facts that
otherwise form the basis, of such claim and (ii) the estimate of the amount of
the Damages and a calculation or explanation of how such amount was arrived.
(d) Any amounts due and owing Buyer by a LP Seller hereunder shall
be satisfied solely by the transfer and assignment by such LP Seller to Buyer
of the number of Closing Shares determined by the following formula: A = B/C,
where "A" is the number of Closing Shares, where "B" is such LP Seller's
several share of the Damages, and where "C" is the Average Price. Such transfer
and assignment shall be made by a LP Seller within 20 days of the date on which
it receives the Notice, unless such LP Seller in good faith disputes the claim
set forth in the Notice, in which event such transfer and assignment shall be
made within 20 days of the date on which such dispute is resolved (provided
such dispute is resolved in favor of Buyer). As used in this subsection (d),
the term "AVERAGE PRICE" shall equal the average of the last reported sales
prices for the Common Stock for the 15 consecutive Trading Days (as
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defined below) immediately preceding the date of the Notice (or the date on
which the dispute is resolved, if applicable and provided the dispute is
resolved in favor of Buyer). The last reported sales price for each day shall
be the last reported sale price of the Common Stock on such date on the
exchange where it is primarily traded, or, if the Common Stock is not traded on
an exchange, the Common Stock shall be valued at the last reported sale price
on such date on the NASDAQ National Market System, or, if the Common Stock is
not reported on the NASDAQ National Market System or any similar system of
automated dissemination of quotations of securities prices, the Common Stock
shall be valued at the closing bid price (or average of bid prices) last quoted
on such date as reported by an established quotation service for
over-the-counter securities. As used above, the term "TRADING DAYS" shall mean
(i) if the Common Stock is listed or admitted for trading on any generally
recognized U.S. securities exchange, days on which such securities exchange is
open for business and (ii) if the Common Stock is quoted on the NASDAQ National
Market System or any similar system of automated dissemination of quotations of
securities prices, days on which trades may be made on such system.
(e) Notwithstanding anything to the contrary herein, no
indemnification shall be required to be made by Sellers pursuant to this
Article IX except to the extent that the aggregate amount of the Damages
exceeds $10,000.
(f) Notwithstanding anything to the contrary herein, the maximum
aggregate number of Closing Shares Sellers shall collectively be obligated to
transfer and assign to Buyer hereunder shall be 150,000.
ARTICLE X
CERTAIN POST-CLOSING AFFIRMATIVE COVENANTS
To induce Sellers to enter into this Agreement, Buyer warrants,
covenants and agrees that until the full and final payment of the Obligations,
unless the LP Sellers have previously otherwise agreed:
SECTION 10.1. PAYMENT AND PERFORMANCE. Buyer will pay all amounts
due under the Notes in accordance with the terms thereof and will observe,
perform and comply with every covenant, term and condition expressed or implied
in this Agreement. Buyer will cause each of its Subsidiaries to observe,
perform and comply with every such term, covenant and condition.
SECTION 10.2. BOOKS, FINANCIAL STATEMENTS AND REPORTS. Buyer and
each of its Subsidiaries will at all times maintain full and accurate books of
account and records. Buyer will maintain and will cause its Subsidiaries to
maintain a standard system of accounting, will maintain its Fiscal Year, and
will furnish the following statements and reports to each LP Seller at Buyer's
expense:
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(a) As soon as available, and in any event within ninety-five (95)
days after the end of each Fiscal Year, complete Consolidated financial
statements of Buyer together with all notes thereto, prepared in reasonable
detail in accordance with GAAP, together with an unqualified opinion, based on
an audit using generally accepted auditing standards, by independent certified
public accountants selected by Buyer and acceptable to the Sellers, stating
that such Consolidated financial statements have been so prepared. These
financial statements shall contain a Consolidated balance sheet as of the end
of such Fiscal Year and Consolidated statements of earnings, of cash flows, and
of changes in owners' equity for such Fiscal Year, each setting forth in
comparative form the corresponding figures for the preceding Fiscal Year.
(b) As soon as available, and in any event within fifty (50) days
after the end of each Fiscal Quarter, Buyer's Consolidated balance sheet as of
the end of such Fiscal Quarter and Consolidated statements of Buyer's earnings
and cash flows for the period from the beginning of the then current Fiscal
Year to the end of such Fiscal Quarter, all in reasonable detail and prepared
in accordance with GAAP, subject to changes resulting from normal year-end
adjustments. In addition Buyer will, together with each such set of financial
statements and each set of financial statements furnished under subsection (a)
of this section, furnish a certificate in a form reasonably acceptable to LP
Sellers signed by the chief financial officer of Buyer stating that such
financial statements are accurate and complete (subject to normal year-end
adjustments) and stating that no Default exists at the end of such Fiscal
Quarter or at the time of such certificate or specifying the nature and period
of existence of any such Default.
(c) Promptly upon their becoming available, copies of all
financial statements, reports, notices and proxy statements sent by Buyer to
its stockholders and all registration statements, periodic reports and other
statements and schedules filed by Buyer with any securities exchange, the
Commission or any similar governmental authority.
(d) Annually within 115 days after the end of each Fiscal Year
beginning with the Fiscal Year ending December 31, 1997, a report containing
(i) an estimation of the oil and gas reserves, classified by appropriate
categories, as of the end of the preceding Fiscal Year attributable to the
interest of the Buyer therein, (ii) a projection of the rate of production of
and net income from such reserves with respect to such interest, (iii) a
calculation of the present worth of such net income discounted at a rate of
10%, and (iv) a schedule or complete description of all assumptions, estimates
and projections made or used in the preparation of such report. Each such
report shall be prepared by an independent petroleum engineer acceptable to
Sellers in accordance with customary and generally accepted standards and
practices for petroleum engineers, and shall be based on (1) prices used by
Houston Energy Banks, as reported by Madison Energy Advisors, Inc., escalated
at a rate not to exceed 3% per annum, (2) lease operating expenses and
production taxes derived from and consistent with those actually incurred by
Buyer, escalated at the same rate, if any, being applied to prices, and (3)
such other assumptions as shall be reasonably acceptable to Sellers.
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(e) Promptly, such other information with respect to the business
and operations of Buyer and its Subsidiaries, as LP Sellers may reasonably
request.
SECTION 10.3. NOTICE OF MATERIAL EVENTS AND CHANGE OF ADDRESS.
Buyer will promptly notify each LP Seller in writing, stating that such notice
is being given pursuant to this Agreement, of:
(a) the occurrence of any Material Adverse Change,
(b) the occurrence of any Default,
(c) the acceleration of the maturity of any indebtedness owed
by Buyer or any Subsidiary thereof or of any default by any Buyer or
any such Subsidiary under any indenture, mortgage, agreement, contract
or other instrument to which any of them is a party or by which any of
them or any of their properties is bound, if such acceleration or
default could cause a Material Adverse Change,
(d) any claim of $100,000 or more, any notice of potential
liability under any environmental laws which might exceed such amount,
or any other material adverse claim asserted against Buyer or any
Subsidiary thereof or with respect to Buyer or any of such
Subsidiary's properties, and
(e) the filing of any suit or proceeding against Buyer or any
Subsidiary thereof in which an adverse decision could cause a Material
Adverse Change.
Upon the occurrence of any of the foregoing Buyer and any Subsidiary thereof
will take all necessary or appropriate steps to remedy promptly any such
Material Adverse Change, Default, acceleration or default, to protect against
any such adverse claim, to defend any such suit or proceeding, and to resolve
all controversies on account of any of the foregoing. Buyer will also notify
LP Sellers in writing at least twenty business days prior to the date that
Buyer or any Subsidiary thereof changes its name or the location of its chief
executive office or principal place of business or the place where it keeps its
books and records concerning the Collateral, furnishing with such notice any
necessary financing statement amendments or requesting LP Sellers to prepare
the same.
SECTION 10.4. MAINTENANCE OF PROPERTIES. Buyer and each of its
Subsidiaries will maintain, preserve, protect, and keep all Collateral and all
other property used or useful in the conduct of its business in good condition
and in compliance with all applicable laws, and will from time to time make all
repairs, renewals and replacements needed to enable the business and operations
carried on in connection therewith to be promptly and advantageously conducted
at all times.
SECTION 10.5. MAINTENANCE OF EXISTENCE AND QUALIFICATIONS. Buyer
and each of its Subsidiaries will maintain and preserve its existence and its
rights and franchises in full force
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and effect and will qualify to do business in all states or jurisdictions where
required by applicable law, except where the failure so to qualify will not
cause a Material Adverse Change.
SECTION 10.6. PAYMENT OF TRADE LIABILITIES, TAXES, ETC. Buyer and
each of its Subsidiaries will (a) timely file all required tax returns; (b)
timely pay all taxes, assessments, and other governmental charges or levies
imposed upon it or upon its income, profits or property; (c) pay when due all
Liabilities owed by it on ordinary trade terms to vendors, suppliers and other
persons providing goods and services used by it in the ordinary course of its
business; (d) pay and discharge when due all other Liabilities now or hereafter
owed by it; and (e) maintain appropriate accruals and reserves for all of the
foregoing in accordance with GAAP. Buyer and each of its Subsidiaries may,
however, delay paying or discharging any of the foregoing so long as it is in
good faith contesting the validity thereof by appropriate proceedings and has
set aside on its books adequate reserves therefor.
SECTION 10.7. INSURANCE. Buyer and each of its Subsidiaries will
keep or cause to be kept insured by financially sound and reputable insurers
its properties in such forms and amounts and against such risks as are
customary for persons engaged in the same or similar business of owning and
operating similar properties. Upon demand by LP Sellers any insurance policies
covering Collateral shall be endorsed (a) to provide for payment of losses to
Sellers as its interests may appear and (b) to provide that such policies may
not be canceled or reduced or affected in any material manner for any reason
without fifteen days prior notice to LP Sellers
SECTION 10.8. COMPLIANCE WITH AGREEMENTS AND LAW. Buyer and each
of its Subsidiaries will perform all material obligations it is required to
perform under the terms of each indenture, mortgage, deed of trust, security
agreement, lease, franchise, agreement, contract or other instrument or
obligation to which it is a party or by which it or any of its properties is
bound. Buyer and each of its Subsidiaries will conduct its business and affairs
in compliance with all laws applicable thereto.
SECTION 10.9. AGREEMENT TO DELIVER SECURITY DOCUMENTS. Buyer
agrees to deliver and to cause each of its Subsidiaries to deliver, to further
secure the Notes whenever requested by LP Sellers in their sole and absolute
discretion, deeds of trust, mortgages, chattel mortgages, security agreements,
financing statements and other Security Documents in form and substance
satisfactory to Sellers for the purpose of granting, confirming, and perfecting
first and prior liens or security interests in any real or personal property
now owned or hereafter acquired by Buyer and any such Subsidiary.
SECTION 10.10. PERFECTION AND PROTECTION OF SECURITY INTERESTS AND
LIENS. Buyer will from time to time deliver, and will cause each of its
Subsidiaries from time to time to deliver, to LP Sellers any financing
statements, continuation statements, extension agreements and other documents,
properly completed and executed (and acknowledged when required) by Buyer or
any such Subsidiary in form and substance satisfactory to LP Sellers, which LP
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Sellers request for the purpose of perfecting, confirming, or protecting any
Liens or other rights in Collateral securing any Obligations.
SECTION 10.11. ELECTION OF LP SELLERS' NOMINEE TO BOARD OF DIRECTORS.
(a) Within 30 days from the date hereof, Buyer will cause a
vacancy to occur on its Board of Directors and will appoint to fill such
vacancy the Sellers' Nominee. As used in this Section, the "LP SELLERS'
NOMINEE" shall mean a person designated by LP Sellers, subject to the consent
of Buyer (which consent shall not be unreasonably withheld).
(b) Commencing on the date hereof and ending when LP Sellers or
its Affiliates (as defined below) either (i) during the period of time the
Notes are outstanding, no longer beneficially own at least 2% of all Voting
Securities (as defined below), or (ii) after the Notes have been paid in full,
no longer own beneficially at least 10% of all Voting Securities, Buyer (A)
will nominate or cause to be nominated for election to Buyer's Board of
Directors the LP Sellers' Nominee and (B) will use its reasonable best efforts
to cause the LP Sellers' Nominee to be elected to Buyer's Board of Directors.
(c) In the event of the death, incapacity, resignation or removal
of the LP Sellers' Nominee preventing his or her serving on Buyer's Board of
Directors, Buyer will appoint another LP Sellers' Nominee to fill the vacancy
created thereby.
(d) As used in this Section, (i) the term "AFFILIATE" shall mean,
with respect to any person, a person directly or indirectly controlling,
controlled by or under common control with, such other person, and (ii) "VOTING
SECURITIES" shall mean Common Stock and any other securities of Buyer entitled
to vote generally for the election of directors of Buyer.
ARTICLE XI
CERTAIN POST-CLOSING NEGATIVE COVENANTS
To induce Sellers to enter into this Agreement, Buyer warrants,
covenants and agrees that until the full and final payment of the Obligations,
unless LP Sellers have previously otherwise agreed:
SECTION 11.1. INDEBTEDNESS. Neither Buyer nor any Subsidiary thereof
will in any manner owe or be liable for Indebtedness except:
(a) the Obligations.
(b) obligations under operating leases entered into in the
ordinary course of Buyer's or its Subsidiaries' business in arm's length
transactions at competitive market rates under competitive terms and conditions
in all respects.
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(c) Indebtedness owed by Buyer or any Subsidiary thereof which is
subordinated to the Obligations upon terms and conditions satisfactory to LP
Sellers in their sole and absolute discretion.
(d) purchase money Indebtedness in an aggregate principal amount
not to exceed $200,000 at any time, provided that the original principal amount
of any such Indebtedness shall not be in excess of the purchase price of the
asset acquired thereby and such Indebtedness shall be secured only by the
acquired asset.
(e) Indebtedness in the principal amount of approximately $20,000
owed Bank One Texas on a workover rig.
(f) Indebtedness in the principal amount of approximately $20,000
owed Sam Henderson.
SECTION 11.2. LIMITATION ON LIENS. Neither Buyer nor any
Subsidiary thereof will create, assume or permit to exist any Lien upon any of
the properties or assets which it now owns or hereafter acquires, except, to
the extent not otherwise forbidden by the Security Documents the following:
(a) Liens which secure Obligations only.
(b) Statutory Liens for taxes, statutory mechanics' and
materialmen's Liens incurred in the ordinary course of business, and other
similar Liens incurred in the ordinary course of business, provided such Liens
do not secure Indebtedness and secure only Indebtedness which is not delinquent
or for which adequate reserves have been set aside.
(c) Liens securing Indebtedness described in Section 11.1(d).
(d) Existing Lien in favor of Sam Henderson covering properties
located in Wichita County, Texas.
(e) Existing Lien in favor of Bank One Texas on the Indebtedness
described in Section 11.1 (e).
SECTION 11.3. LIMITATION ON MERGERS. Except as expressly provided in
this Section neither Buyer nor any Subsidiary thereof will merge or consolidate
with or into any other business entity. Any Subsidiary of Buyer may, however,
be merged into or consolidated with either Buyer or another Subsidiary which is
wholly-owned by Buyer, so long as Buyer or the Subsidiary wholly-owned by Buyer
is the surviving business entity. Buyer will not issue any securities other
than shares of its common stock or any options or warrants giving the holders
thereof only the right to acquire such shares. No Subsidiary of Buyer will
issue any additional shares of its capital stock or other securities or any
options, warrants or other rights to acquire
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such additional shares or other securities except to Buyer. No Subsidiary of
Buyer which is a partnership will allow any diminution of Buyer's interest
(direct or indirect) therein.
SECTION 11.4. LIMITATION ON SALES OF PROPERTY. Neither Buyer nor
any Subsidiary thereof will sell, transfer, lease, exchange, alienate or
dispose of any Collateral except, to the extent not otherwise forbidden under
the Security Documents:
(a) equipment which is worthless or obsolete or which is replaced by
equipment of equal suitability and value.
(b) inventory (including oil and gas sold as produced and seismic
data) which is sold in the ordinary course of business on ordinary trade terms.
(c) other property which is sold for fair consideration not in the
aggregate in excess of $500,000 in any Fiscal Year (commencing with Fiscal Year
1998), provided that the net proceeds attributable to any such sales shall be
used by Buyer to prepay the Notes.
SECTION 11.5. LIMITATION ON INVESTMENTS AND NEW BUSINESSES.
Neither Buyer nor any Subsidiary thereof will make any expenditure or
commitment or incur any obligation or enter into or engage in any transaction
except in the ordinary course of business (which ordinary course of business
includes the acquisition, directly or indirectly, of oil and gas properties),
engage directly or indirectly in any business or conduct any operations except
in connection with or incidental to its present businesses and operations,
make any acquisitions of or capital contributions to or other investments in
any person, other than Permitted Investments, or make any significant
acquisitions or investments in any properties other than oil and gas
properties.
SECTION 11.6. TRANSACTIONS WITH AFFILIATES. Neither Buyer nor any
of its Subsidiaries will engage in any material transaction with any of its
Affiliates on terms which are less favorable to it than those which would have
been obtainable at the time in arm's-length dealing with persons other than
such Affiliates, provided that such restriction shall not apply to transactions
among Buyer and its wholly-owned Subsidiaries.
SECTION 11.7. RESTRICTED PAYMENTS. Buyer will not, and will not
permit any of its Subsidiaries to, declare or make, or incur any liability to
declare or make, any Restricted Payment.
ARTICLE XII
POST-CLOSING EVENTS OF DEFAULT AND REMEDIES
SECTION 12.1. EVENTS OF DEFAULT. Each of the following constitutes
an "EVENT OF DEFAULT" for purposes of the Notes and this Agreement:
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(a) a default in the payment of principal of any Note when and as
the same shall become due and payable;
(b) a default in the payment of any interest upon any Note when
such interest becomes due and payable and continuance of such default for a
period of 5 business days;
(c) a default in the performance or observation of any covenant,
agreement or condition contained in either Article X or Article XI, which
default is not remedied within 30 days after the earlier of (i) the day on
which Buyer first obtains knowledge of such default or (ii) the day on which
written notice thereof is given to Buyer by the holder of any Note;
(d) the Proved Reserves to Debt Ratio is less than 1.6 to 1, which
default is not remedied within 30 days after the day on which written notice
thereof is given to Buyer by the holder of any Note;
(e) the PDP Reserves to Debt Ratio is less than 1.1 to 1, which
default is not remedied within 30 days after the day on which written notice
thereof is given to Buyer by the holder of any Note;
(f) any "default" or "event of default" occurs under any Note
Document which defines either such term, and the same is not remedied within
the applicable period of grace (if any) provided in such Note Document;
(g) any representation or warranty previously, presently or
hereafter made in writing by or on behalf of Buyer or any Subsidiary thereof
in connection with this Agreement or any Note Document shall prove to have been
false or incorrect in any material respect on any date on or as of which made,
which default is not remedied within 30 days after the earlier of (i) the day
on which Buyer first obtains knowledge of such default or (ii) the day on which
written notice thereof is given to Buyer by the holder of any Note;
(h) Buyer or any Subsidiary thereof fails to pay any portion, when
such portion is due, of any of its Indebtedness in excess of $100,000, or
breaches or defaults in the performance of any agreement or instrument by which
any such Indebtedness is issued, evidenced, governed, or secured, and any such
failure, breach or default continues beyond any applicable period of grace
provided therefor;
(i) Buyer or any Subsidiary thereof:
(i) suffers the entry against it of a judgment, decree or
order for relief by a tribunal of competent jurisdiction in an
involuntary proceeding commenced under any applicable bankruptcy,
insolvency or other similar Law of any jurisdiction now or hereafter
in effect, including the federal Bankruptcy Code, as from time to time
amended, or has any such proceeding commenced against it which remains
undismissed for a period of thirty days; or
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(ii) commences a voluntary case under any applicable
bankruptcy, insolvency or similar Law now or hereafter in effect,
including the federal Bankruptcy Code, as from time to time amended;
or applies for or consents to the entry of an order for relief in an
involuntary case under any such Law; or makes a general assignment for
the benefit of creditors; or fails generally to pay (or admits in
writing its inability to pay) its debts as such debts become due; or
takes corporate or other action to authorize any of the foregoing; or
(iii) suffers the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of all or a substantial part of its assets or of any
part of the Collateral in a proceeding brought against or initiated by
it, and such appointment or taking possession is neither made
ineffective nor discharged within thirty days after the making
thereof, or such appointment or taking possession is at any time
consented to, requested by, or acquiesced to by it; or
(iv) suffers the entry against it of a final judgment for
the payment of money in excess of $100,000 (not covered by insurance
satisfactory to Sellers in their discretion), unless the same is
discharged within thirty days after the date of entry thereof or an
appeal or appropriate proceeding for review thereof is taken within
such period and a stay of execution pending such appeal is obtained;
or
(v) suffers a writ or warrant of attachment or any
similar process to be issued by any tribunal against all or any
substantial part of its assets or any part of the Collateral, and such
writ or warrant of attachment or any similar process is not stayed or
released within thirty days after the entry or levy thereof or after
any stay is vacated or set aside; and
(j) Any Change in Control occurs; and
(k) Any Material Adverse Change occurs.
Upon the occurrence of an Event of Default described in subsection (i)(i),
(i)(ii) or (i)(iii) of this section with respect to Buyer or a Subsidiary
thereof, all of the Obligations shall thereupon be immediately due and payable,
without demand, presentment, notice of demand or of dishonor and nonpayment,
protest, notice of protest, notice of intention to accelerate, declaration or
notice of acceleration, or any other notice or declaration of any kind, all of
which are hereby expressly waived by Buyer and each such Subsidiary. Upon the
occurrence of an Event of Default described in subsection (a) or subsection
(b), any Seller may during its continuance, by written notice to Buyer declare
the Note held by it to be due and payable, whereupon such Note shall forewith
mature and become due and payable. Upon the occurrence of any other Event of
Default, the Majority of Sellers may at any time during its continuance,
declare all of the Notes to be due and payable, whereupon all of the Notes
shall forewith mature and become due and payable. As used in the immediately
preceding sentence, the term "MAJORITY OF THE SELLERS" shall mean those
Seller(s) who hold 51% in aggregate
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principal amount of the Notes at the time outstanding, exclusive of any Notes
held by Buyer or any Subsidiary.
SECTION 12.2. REMEDIES. If any Default shall occur and be
continuing, each Seller may protect and enforce its rights under the Note
Documents by any appropriate proceedings, including proceedings for specific
performance of any covenant or agreement contained in any Note Document, and
each Seller may enforce the payment of any Obligations due it or enforce any
other legal or equitable right which it may have; provided, that if (i) an
Event of Default has occurred under Section 12.1(a) or Section 12.1(b) and (ii)
for a period of not less than three months, the outstanding aggregate amount of
principal and interest payments with respect to which Buyer is in Default
equals or exceeds $200,000, Buyer agrees that upon demand from LP Sellers it
will immediately (A) cause the size of Buyer's Board of Directors to be
increased in number such that, after such increase and the terms of this
proviso, the LP Sellers' Nominee plus the persons designated pursuant to clause
(B) below will constitute a majority in number of Buyer's Board of Directors
and (B) appoint to fill such vacancies persons designated by LP Sellers;
further, Buyer agrees that the persons so selected to serve on Buyer's Board of
Directors shall remain in office for a period of at least six months subsequent
to Buyer curing the above Event of Default and any other outstanding Defaults.
All rights, remedies and powers conferred upon Sellers under the Note Documents
shall be deemed cumulative and not exclusive of any other rights, remedies or
powers available under the Note Documents or at law or in equity.
ARTICLE XIII
NOTICES
All notices and other communications required under this Agreement
shall (unless otherwise specifically provided herein) be in writing and be
delivered personally, by recognized commercial courier or delivery service
(which provides a receipt), by telecopier (with receipt acknowledged), or by
registered or certified mail (postage prepaid), at the following addresses:
If to Sellers: Energy Capital Investment Company PLC
Encap Equity 1994 Limited Partnership
% EnCap Investments L.C.
1100 Louisiana
Suite 3150
Houston, Texas 77002
Attention: Colin Nisbeth
Fax No.: 713-659-6130
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with a copy to:
Michael K. Pierce
Thompson & Knight, P.C.
1700 Texas Commerce Tower
600 Travis
Houston, Texas 77002
Fax No.: 713-217-2828
Gecko Booty 1994 I Limited Partnership
% Benny M. Barton
5720 Templin Way
Plano, Texas 75093
If to Buyer: 2351 West Northwest Highway, Suite 2130
Dallas, Texas 75220
Attention: Carl Price
Fax No.: 214-350-8382
and shall be considered delivered on the date of receipt. Either Buyer or a
Seller may specify as its proper address any other post office address within
the continental limits of the United States by giving notice to the other
party, in the manner provided in this Article, at least ten (10) days prior to
the effective date of such change of address.
ARTICLE XIV
COMMISSIONS
Each Seller severally agrees to indemnify and hold harmless Buyer from
and against any and all claims, obligations, actions, liabilities, losses,
damages, costs or expenses (including court costs and attorneys fees) of any
kind or character arising out of or resulting from any agreement, arrangement
or understanding alleged to have been made by, or on behalf of, such Seller
with any broker or finder in connection with this Agreement or the transactions
contemplated hereby. Buyer agrees to indemnify and hold harmless Sellers from
and against any and all claims, obligations, actions, liabilities, losses,
damages, costs or expenses (including court costs and attorneys fees) of any
kind or character arising out of or resulting from any agreement, arrangement
or understanding alleged to have been made by, or on behalf of, Buyer with any
broker or finder in connection with this Agreement or the transactions
contemplated hereby.
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ARTICLE XV
MISCELLANEOUS MATTERS
SECTION 15.1. SURVIVAL OF PROVISIONS. All representations and
warranties made herein by Buyer and Sellers shall be continuing and shall be
true and correct on and as of the date of Closing with the same force and
effect as if made at that time, and (except as provided in Article IX) all of
such representations and warranties shall survive the Closing and the delivery
of the Assignments. The provisions of, and the obligations of the parties
under, Article VIII (to the extent the same are, by mutual agreement, not
performed at Closing), and Articles IX through XV inclusive shall survive the
Closing and the delivery of the Assignments.
SECTION 15.2. FURTHER ASSURANCES. From time to time after the
Closing, at the request of any party hereto and without further consideration,
each Seller, on the one hand, and Buyer, on the other hand, shall execute and
deliver to the requesting party such instruments and documents and take such
other action (but without incurring any material financial obligation) as such
requesting party may reasonably request in order to consummate more fully and
effectively the transactions contemplated hereby.
SECTION 15.3. BINDING EFFECT; SUCCESSORS AND ASSIGNS. The Agreement
shall be binding on the parties hereto and their respective successors and
permitted assigns. Buyer, on the one hand, or a Seller, on the other hand,
shall have the right to assign its rights under this Agreement, without the
prior written consent of Sellers or Buyer (as applicable) first having been
obtained.
SECTION 15.4. EXPENSES. LP Sellers, on the one hand, and Buyer, on
the other hand, shall each bear and pay one-half of all Closing Costs.
SECTION 15.5. ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties hereto with respect to subject matter hereof and
supersedes all prior agreements, understandings, negotiations, and discussions
among the parties with respect to such subject matter. Time is of the essence
in this Agreement.
SECTION 15.6. PUBLIC STATEMENTS. Sellers and Buyer shall consult
with each other with regard to all publicity and other releases at or prior to
Closing concerning this Agreement and the transactions contemplated hereby and,
except as required by applicable law or the applicable rules or regulations of
any governmental body or stock exchange, neither Buyer, on the one hand, nor a
Seller, on the other hand, shall issue any publicity or other release without
furnishing the other a copy of such publicity or release no less than one
business day prior to release.
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SECTION 15.7. INJUNCTIVE RELIEF. The parties hereto acknowledge and
agree that irreparable damage would occur in the event any of the provisions of
this Agreement (including Section 5.2) were not performed in accordance with
their specific terms or were otherwise breached. It is accordingly agreed that
the parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement, and shall be entitled to enforce
specifically the provisions of this Agreement, in any court of the United
States or any state thereof having jurisdiction, in addition to any other
remedy to which the parties may be entitled under this Agreement or at law or
in equity.
SECTION 15.8. DECEPTIVE TRADE PRACTICES. To the extent applicable to
the transaction contemplated hereby or any portion thereof, BUYER CAN AND DOES
EXPRESSLY WAIVE THE PROVISIONS OF THE TEXAS DECEPTIVE TRADE PRACTICES-CONSUMER
PROTECTION ACT, SECTION 17.41 ET SEQ., TEXAS BUSINESS & COMMERCE CODE, OTHER
THAN SECTION 17.555, WHICH IS NOT WAIVED, AND ALL OTHER CONSUMER PROTECTION
LAWS OF THE STATE OF TEXAS, OR ANY OTHER STATE, APPLICABLE TO THIS TRANSACTION
THAT MAY BE WAIVED BY THE PARTIES. IN CONNECTION WITH SUCH WAIVER, BUYER
REPRESENTS TO SELLERS THAT THEY (a) ARE IN THE BUSINESS OF SEEKING OR ACQUIRING
BY PURCHASE OR LEASE, GOODS OR SERVICES FOR COMMERCIAL OR BUSINESS USE, (b)
HAVE KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS THAT ENABLE
THEM TO EVALUATE THE MERITS AND RISKS OF THE TRANSACTIONS CONTEMPLATED HEREBY
AND (c) ARE NOT IN A SIGNIFICANTLY DISPARATE BARGAINING POSITION.
SECTION 15.9. AMENDMENTS. This Agreement may be amended, modified,
supplemented, restated or discharged (and provisions hereof may be waived) only
by an instrument in writing signed by Buyer and LP Sellers, provided that no
amendment, modification, supplement, restatement, discharge or waiver shall be
made which materially and adversely affects Property Seller without the written
consent of Property Seller.
SECTION 15.10. SEVERABILITY. If any provision of this Agreement is
held to be unenforceable, this Agreement shall be considered divisible and such
provision shall be deemed inoperative to the extent it is deemed unenforceable,
and in all other respects this Agreement shall remain in full force and effect;
provided, however, that if any such provision may be made enforceable by
limitation thereof, then such provision shall be deemed to be so limited and
shall be enforceable to the maximum extent permitted by applicable law.
SECTION 15.11. NO WAIVER. The failure of any party hereto to insist
upon strict performance of a covenant hereunder or of any obligation hereunder,
irrespective of the length of time for which such failure continues, shall not
be a waiver of such party's right to demand strict compliance in the future.
No consent or waiver, express or implied, to or of any breach or default in the
performance of any obligation hereunder shall constitute a consent or waiver to
or of any other breach or default in the performance of the same or any other
obligation hereunder.
SECTION 15.12. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Texas.
-36-
<PAGE> 41
SECTION 15.13. COUNTERPARTS. This Agreement may be executed in
counterparts, all of which are identical and all of which constitute one and
the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 42
IN WITNESS WHEREOF, this Agreement is executed by the parties hereto
on the date set forth above.
"SELLERS":
ENERGY CAPITAL INVESTMENT
COMPANY PLC
By: /s/ GARY R. PETERSEN
---------------------------------
Name: Gary R. Petersen
Title: Director
ENCAP EQUITY 1994 LIMITED
PARTNERSHIP
By: ENCAP INVESTMENTS L.C.,
General Partner
By: /s/ GARY R. PETERSEN
---------------------------------
Name: Gary R. Petersen
Title: Managing Director
GECKO BOOTY 1994 I LIMITED
PARTNERSHIP
By: GEOSCIENCE EXPLORATION CKO,
INC., General Partner
By: /s/ BENNY M. BARTON
---------------------------------
Name: Benny M. Barton
Title: Chairman of the Board
"BUYER":
FUTURE PETROLEUM CORPORATION, a
Utah Corporation
By: /s/ CARL PRICE
---------------------------------
Name: Carl Price
Title: President
<PAGE> 1
EXHIBIT 10.3
================================================================================
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
------------------------
FUTURE ACQUISITION 1995, LTD.
------------------------
DATED AS OF JANUARY 29, 1997
================================================================================
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C> <S>
ARTICLE I FORMATION OF PARTNERSHIP............................................................................. 2
Section 1.1. Formation............................................................................ 2
Section 1.2. Name................................................................................. 2
Section 1.3. Business............................................................................. 2
Section 1.4. Places of Business, Registered Agent and Addresses................................... 2
Section 1.5. Term................................................................................. 3
Section 1.6. Filings.............................................................................. 3
ARTICLE II CERTAIN DEFINITIONS AND REFERENCES.................................................................. 3
Section 2.1. Certain Defined Terms................................................................ 3
Section 2.2. References, Titles and Construction.................................................. 12
ARTICLE III CAPITALIZATION..................................................................................... 13
Section 3.1. Capital Contributions of General Partner............................................. 13
Section 3.3. Request for Additional Capital Contributions of Limited Partner...................... 16
Section 3.4. Reduced Capital Contributions of Limited Partner..................................... 21
Section 3.5. Payments of Capital Contributions.................................................... 21
Section 3.6. Non-payment of Capital Contributions................................................. 22
Section 3.7. Return of Capital Contributions...................................................... 22
ARTICLE IV ALLOCATIONS AND DISTRIBUTIONS....................................................................... 22
Section 4.1. Allocation of Costs and Expenses..................................................... 22
Section 4.2. Allocation of Revenues............................................................... 23
Section 4.3. Income Tax Allocations............................................................... 24
Section 4.4. Distributions........................................................................ 27
Section 4.5. Allocation Among Limited Partners. .................................................. 28
Section 4.6. Withholding.......................................................................... 28
ARTICLE V PARTNERSHIP PROPERTY................................................................................. 28
Section 5.1. Title to Partnership Property........................................................ 28
Section 5.2. Acquisition of the Third Party Properties............................................ 29
Section 5.3. Acquisitions of Additional Interests in the Properties;
Area of Mutual Interest.............................................................. 29
Section 5.4. Lease Sales.......................................................................... 30
Section 5.5. Sales of Production.................................................................. 30
Section 5.6. Operating Agreements................................................................. 31
ARTICLE VI MANAGEMENT.......................................................................................... 31
Section 6.1. Power and Authority of General Partner............................................... 31
Section 6.2. Certain Restrictions on General Partner's Power and Authority........................ 31
Section 6.3. Duties and Services of General Partner............................................... 33
Section 6.4. Liability of General Partner......................................................... 34
Section 6.5. Limitations on Indemnification....................................................... 34
Section 6.6. Costs, Expenses and Reimbursement.................................................... 34
Section 6.7. Organization Costs................................................................... 35
</TABLE>
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<TABLE>
<S> <C> <C>
Section 6.8. Contracts With Affiliates............................................................ 35
Section 6.9. Insurance............................................................................ 36
Section 6.10. Tax Elections........................................................................ 36
Section 6.11. Tax Returns.......................................................................... 37
Section 6.12. Appointment of Trustee to Receive Payments........................................... 37
ARTICLE VII RIGHTS AND OBLIGATIONS OF LIMITED PARTNER.......................................................... 38
Section 7.1. Rights of Limited Partner............................................................ 38
Section 7.2. Limitations on Limited Partner....................................................... 38
Section 7.3. Liability of Limited Partner......................................................... 39
Section 7.4. Access of Limited Partner to Data.................................................... 39
Section 7.5. Withdrawal and Return of Capital Contribution........................................ 39
ARTICLE VIII BOOKS, RECORDS, REPORTS AND BANK ACCOUNTS......................................................... 40
Section 8.1. Capital Accounts, Books and Records.................................................. 40
Section 8.2. Reports.............................................................................. 42
Section 8.3. Bank Accounts........................................................................ 44
Section 8.4. Information Relating to the Partnership.............................................. 45
Section 8.5. Certain Notices...................................................................... 45
ARTICLE IX ASSIGNMENTS OF INTERESTS AND SUBSTITUTIONS.......................................................... 45
Section 9.1. Assignments by Limited Partner....................................................... 45
Section 9.2. Assignment by General Partner........................................................ 46
Section 9.3. Merger or Consolidation.............................................................. 46
Section 9.4. Removal of General Partner........................................................... 46
Section 9.5. Right of General Partner Upon Removal................................................ 48
ARTICLE X DISSOLUTION, LIQUIDATION AND TERMINATION............................................................. 48
Section 10.1. Dissolution.......................................................................... 48
Section 10.2. Withdrawal by General Partner and Reconstitution..................................... 49
Section 10.3. Liquidation and Termination.......................................................... 50
Section 10.4. Cancellation of Certificate.......................................................... 52
ARTICLE XI REPRESENTATIONS AND WARRANTIES...................................................................... 52
Section 11.1. Representations and Warranties of General Partner.................................... 52
Section 11.2. Representations and Warranties of Limited Partner.................................... 55
ARTICLE XII MISCELLANEOUS...................................................................................... 56
Section 12.1. Notices.............................................................................. 56
Section 12.2. Amendments........................................................................... 56
Section 12.3. Partition............................................................................ 56
Section 12.4. Entire Agreement..................................................................... 56
Section 12.5. No Waiver............................................................................ 56
Section 12.6. Applicable Law....................................................................... 56
Section 12.7. Successors and Assigns............................................................... 57
Section 12.8. Exhibits............................................................................. 57
</TABLE>
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<TABLE>
<S> <C> <C>
Section 12.9. Survival of Representations and Warranties........................................... 57
Section 12.10. No Third-Party Benefit............................................................... 57
Section 12.11. Counterparts......................................................................... 57
</TABLE>
iii
<PAGE> 5
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
FUTURE ACQUISITION 1995, LTD.
THIS FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP (this "AGREEMENT") is made and entered into this 29th day of
January, 1997, by and among Future Petroleum Corporation, a Texas corporation
(herein sometimes called "FUTURE"), Energy Capital Investment Company PLC, an
English investment company (herein sometimes called "ECIC"), and EnCap Equity
1994 Limited Partnership, a Texas limited partnership (herein sometimes called
"ENCAP LP").
RECITALS:
WHEREAS, Future, ECIC and EnCap LP have heretofore formed a limited
partnership pursuant to the terms and conditions of that certain Agreement of
Limited Partnership dated as of December 13, 1995, as amended by that certain
letter agreement dated as of April 18, 1996 (collectively, the "ORIGINAL
AGREEMENT"); and
WHEREAS, Future is the sole general partner of the limited partnership
created under the Original Agreement and is sometimes referred to herein as the
"GENERAL PARTNER"; and
WHEREAS, ECIC and EnCap LP are the limited partners of the limited
partnership created under the Original Agreement and are sometimes referred to
herein as the "LIMITED PARTNERS"; and
WHEREAS, under the Original Agreement, the Partnership (as defined
herein) (i) received an assignment from the General Partner of its interests in
certain oil, gas and mineral leases located in Carson, Gray and Hutchinson
Counties, Texas, and (ii) acquired interests in certain oil, gas and mineral
leases located in Midland, Carson, Gray and Hutchinson Counties, Texas; and
WHEREAS, the parties hereto desire to amend and restate the Original
Agreement (i) to provide that immediately after the acquisition and delivery of
this Agreement, the Partnership will acquire an interest in oil, gas and mineral
leases located in Moore County, Texas, (ii) to reflect the parties' agreement
with respect to the ownership and development by the Partnership of such leases,
and (iii) to reflect the parties' agreement with respect to certain other
matters.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing Recitals and the
mutual covenants and agreements contained herein, the parties hereto do hereby
agree as follows:
1
<PAGE> 6
ARTICLE I
FORMATION OF PARTNERSHIP
SECTION 1.1. FORMATION. The parties hereto have heretofore formed a
limited partnership (the "PARTNERSHIP") pursuant to the provisions of the Texas
Revised Limited Partnership Act (Article 6132a-1, Vernon's Texas Civil Statutes)
(such Act, as amended from time to time, or any successor statute or statutes
thereto, being called the "ACT"), which limited partnership is hereby continued
subject to the terms of this Agreement.
SECTION 1.2. NAME. The name of the Partnership shall be Future
Acquisition 1995, Ltd. The business of the Partnership shall be conducted in the
name of the Partnership. The General Partner shall cause to be filed on behalf
of the Partnership such partnership or assumed or fictitious name certificate or
certificates or similar instruments as may from time to time be required by law.
SECTION 1.3. BUSINESS. Subject to the other provisions of this
Agreement, the business of the Partnership shall be: (a) to receive an
assignment of the GP Properties (as defined herein); (b) to acquire the Westar
Properties (as defined herein), the Aspen Properties (as defined herein), and
the Taylor Properties (as defined herein); (c) to acquire additional Leases (as
defined herein) in accordance with the terms hereof; (d) to hold, maintain,
renew, drill, develop and operate the Properties (as defined herein) and such
additional Leases; (e) to produce, collect, store, treat, deliver, market, sell
or otherwise dispose of oil, gas and related hydrocarbons and minerals from the
Properties and such additional Leases; (f) to farm-out, sell, abandon and
otherwise dispose of the Properties and such additional Leases; and (g) to take
all such other actions incidental to any of the foregoing as the General Partner
may determine to be necessary or desirable. Notwithstanding the foregoing and
any other provision of this Agreement, the Partnership shall not acquire (i) any
additional Leases, except as expressly provided herein, (ii) any carbon-dioxide
removal, sulfur removal or other equipment for the processing or treatment of
gas or other hydrocarbons, whether on or off the Properties (other than
equipment acquired by the Partnership in connection with the assignment or
acquisition of the Properties or which the General Partner deems necessary or
desirable for the efficient operation of the Properties or the marketing of
hydrocarbons therefrom), (iii) any refining facilities or (iv) any
transportation facilities except pipelines and gathering systems connecting the
Properties with other gathering systems or transmission pipelines or as
otherwise acquired in connection with the assignment or acquisition of the
Properties, or engage in the contract drilling business or any other business
except as expressly permitted herein.
SECTION 1.4. PLACES OF BUSINESS, REGISTERED AGENT AND ADDRESSES.
(a) The principal United States office and place of business of the
Partnership and its street address shall be 2351 West Northwest Highway, Suite
2130, Dallas, Texas 75220. The General Partner, at any time and from time to
time, may change the location of the Partnership's principal United States
office and place of business and may establish such additional place or places
of business of the Partnership as the General Partner shall determine to be
necessary or desirable, provided notice thereof is concurrently given to the
Limited Partners.
2
<PAGE> 7
(b) The registered office of the Partnership in Texas shall be 2351
West Northwest Highway, Suite 2130, Dallas, Texas 75220, and the registered
agent for service of process on the Partnership shall be the General Partner, a
corporation whose business address is the same as the Partnership's registered
office. The General Partner, at any time and from time to time, may change the
Partnership's registered office or registered agent or both by complying with
the applicable provisions of the Act and giving concurrent notice thereof to the
Limited Partners and may establish, appoint and change additional registered
offices and registered agents of the Partnership in such other states as the
General Partner shall determine to be necessary or advisable.
SECTION 1.5. TERM. The Partnership commenced as provided in Section 1.5
of the Original Agreement and shall continue until terminated in accordance with
Article X.
SECTION 1.6. FILINGS. Upon the request of the General Partner, the
Limited Partners shall promptly execute and deliver all such certificates and
other instruments conforming hereto as shall be necessary for the General
Partner to accomplish all filing, recording, publishing and other acts
appropriate to comply with all requirements for the formation and operation of
the Partnership as a limited partnership under the laws of the State of Texas
and for the qualification or reformation and operation of the Partnership as a
limited partnership (or a partnership in which the Limited Partners have limited
liability) in all other jurisdictions where the Partnership shall propose to
conduct business. Prior to the conducting of any business in any jurisdiction,
the General Partner shall: (a) to the full extent necessary to establish limited
liability for the Limited Partners under the laws of such jurisdiction and
otherwise to comply with the laws of such jurisdiction, cause the Partnership to
comply with all requirements for the registration, qualification or reformation
of the Partnership to conduct business as a limited partnership (or a
partnership in which the Limited Partners have limited liability) in such
jurisdiction and (b) at the request of the Limited Partners, obtain an opinion
of reputable counsel in such jurisdiction satisfactory in all respects to the
Limited Partners as to such registration, qualification or reformation and as to
the limited liability of the Limited Partners under the laws of such
jurisdiction. Thereafter, the General Partner shall cause the Partnership to
continue to comply with all such requirements regarding registration,
qualification or formation in each jurisdiction where the Partnership does
business.
ARTICLE II
CERTAIN DEFINITIONS AND REFERENCES
SECTION 2.1. CERTAIN DEFINED TERMS. When used in this Agreement, the
following terms shall have the respective meanings assigned to them in this
Section 2.1 or in the sections, subsections or other subdivisions referred to
below:
"ACQUISITION COST" shall mean, (a) with respect to the purchase by the
Partnership from the General Partner or its Affiliates of any Lease, the costs
as described in clause (b) immediately below incurred by the General Partner
and/or its Affiliates in acquiring such Lease and (b) with respect to the
acquisition by the Partnership of any Lease other than those purchased pursuant
3
<PAGE> 8
to clause (a) immediately above, the sum of (i) the price paid or contractually
agreed to be paid for such Lease to the lessor, assignor or grantor of such
Lease, including lease bonuses, advance rentals and other acquisition costs and
(ii) title insurance or examination costs, broker's commissions, attorneys'
fees, due diligence fees, third party geological and geophysical fees and
expenses, filing fees, recording costs, and transfer and sales taxes, if any,
and other similar costs incurred with respect to such Lease in connection with
its acquisition, but excluding (without limitation) any actual, allocated or
imputed interest expense.
"ACT" shall have the meaning assigned to such term in Section 1.1.
"ADJUSTED CAPITAL ACCOUNT" shall mean the capital account maintained
for each Partner pursuant to Section 8.1(b) of this Agreement as of the end of
each fiscal year (a) increased by (i) the amount of any unpaid Capital
Contributions unconditionally agreed to be contributed by such Partner under
Article III, if any, (ii) an amount equal to such Partner's allocable share of
the Partnership's Minimum Gain, as computed on the last day of such fiscal year
in accordance with applicable Treasury Regulations, and (iii) the amount of
Partnership liabilities allocable to such Partner under Section 752 of the
Internal Revenue Code with respect to which such Partner bears the economic risk
of loss to the extent such liability does not constitute a Partner Nonrecourse
Debt, and (b) reduced by (i) the amount of all depletion deductions reasonably
expected to be allocated to such Partner in subsequent years and charged to such
Partner's capital account, (ii) the amount of all losses and deductions
reasonably expected to be allocated to such Partner in subsequent years under
Sections 704(e)(2) and 706(d) of the Internal Revenue Code and Treasury
Regulation ss. 1.751-1(b)(2)(ii), and (iii) the amount of all distributions
reasonably expected to be made to such Partner to the extent they exceed
offsetting increases to such Partner's capital account that are reasonably
expected to occur during (or prior to) the year in which such distributions are
reasonably expected to be made.
"AFFILIATE" shall mean (a) any person directly or indirectly owning,
controlling or holding with power to vote 10% or more of the outstanding voting
securities of the General Partner, (b) any person 10% or more of whose
outstanding voting securities are directly or indirectly owned, controlled or
held with power to vote by the General Partner, (c) any person directly or
indirectly controlling, controlled by or under common control with the General
Partner, (d) any officer, director, member, manager, or partner of the General
Partner or any person described in clause (a), (b) or (c) of this paragraph and
(e) any person related by blood, adoption or marriage to any person referred to
in clauses (c) or (d) of this paragraph. As used in this definition and
elsewhere in this Agreement, the term "PERSON" shall include an individual, an
estate, a corporation, a partnership, a limited liability company, an
association or other entity, a joint stock company and a trust.
"AREA OF MUTUAL INTEREST" shall mean the 48 contiguous states of the
United States of America plus Alaska.
"ASPEN PROPERTIES" shall mean the "Assets", as such term is defined in
the Aspen Purchase Agreement.
4
<PAGE> 9
"ASPEN PURCHASE AGREEMENT" shall mean that certain Purchase and Sale
Agreement dated November 9, 1995, by and between Future and Aspen Energy
Corporation.
"ASPEN PURCHASE PRICE" shall mean the "Acquisition Price", as such term
is used in the Aspen Purchase Agreement.
"CAPITAL CONTRIBUTIONS" shall mean for any Partner at the particular
time in question the aggregate of the dollar amounts of any cash or the fair
market value (as agreed upon by the Partners) of any properties contributed to
the capital of the Partnership (net of any liabilities secured by such
properties that the Partnership is considered to assume or take subject to), or,
if the context in which such term is used so indicates, the dollar amounts of
cash or the fair market value (as agreed upon by the Partners) of properties
agreed to be contributed, or requested to be contributed, by such Partner to the
capital of the Partnership.
"CAPITAL COSTS" shall mean (a) all geological and geophysical costs
incurred by the Partnership to the extent any of such costs are incurred in
connection with Partnership wells drilled or proposed to be drilled on the
Properties and any additional Leases acquired pursuant to the terms hereof, (b)
all costs incurred by the Partnership in locating, drilling, completing,
equipping, deepening or sidetracking a well located on the Properties or any
additional Lease acquired pursuant to the terms hereof, including without
limitation (i) the costs of surveying and staking such well, the costs of any
surface damages and the costs of clearing, coring, testing, logging and
evaluating such well, (ii) the costs of casing, cement and cement services for
such well, (iii) the cost of plugging and abandoning such well if it is
determined that such well would not produce in commercial quantities and should
be abandoned and (iv) all direct charges and overhead (subject to Section 5.6)
chargeable to the Partnership with respect to such well under any applicable
operating agreement until such time as all operations are carried out as
required by applicable regulations and sound engineering practices to make such
well ready for production, including the installation and testing of wellhead
equipment, or to plug and abandon a dry hole; (c) all costs incurred by the
Partnership in recompleting or plugging back any Partnership well; (d) all costs
incurred by the Partnership in reworking any Partnership well when the
Partnership's share of such costs as set forth in the applicable authority for
expenditure presented to the Partnership with respect thereto is greater than
$5,000; (e) all costs incurred by the Partnership in locating, drilling,
completing, equipping, deepening or sidetracking any enhanced recovery producer
or injector well (including the costs of all necessary surface equipment such as
steam generators, compressors, water treating facilities, injection pumps, flow
lines and steam lines) or otherwise conducting Enhanced Recovery Operations and
(f) all costs incurred by the Partnership in constructing production facilities,
pipelines and other facilities necessary to develop the Properties and any
additional Leases acquired pursuant to the terms hereof and produce, collect,
store, treat, deliver, market, sell or otherwise dispose of oil, gas and other
hydrocarbons and minerals therefrom; but such term shall not include (without
limitation) (A) any Lease Operating and Production Costs, (B) any Catastrophe
Costs or (C) any Unexpected Well Costs.
"CAPITAL OVERRUN COSTS" shall mean (a) with respect to a Scheduled
Operation, Capital Costs incurred by the Partnership with respect to such
Scheduled Operation that are in excess of the Estimated Costs for such Scheduled
Operation and (b) with respect to any other Partnership operation or project
other than a Scheduled Operation, the Capital Costs incurred by the
5
<PAGE> 10
Partnership with respect to such operation or project that are in excess of the
Capital Contributions agreed to be made by the Partners with respect thereto.
"CATASTROPHE COSTS" shall mean all costs, expenses and damages incurred
by the Partnership as a result of the failure of the General Partner to cause
the Partnership to obtain or carry the types or amounts of insurance coverage
agreed upon from time to time by the Partners in accordance with Section 6.9,
but such term shall not include (a) the deductible amounts under any insurance
coverage arranged by or on behalf of the Partnership or with respect to its
property or operations to the extent such deductible amounts have been approved
or agreed to by the Limited Partners in accordance with Section 6.9 or (b) any
costs, expenses and damages which are in excess of the agreed upon insurance
coverage maintained (or which should have been maintained) in accordance with
the terms hereof.
"DEFICIT PARTNER" shall have the meaning assigned to such term in
Section 4.3(h).
"DELIVERY DATE" shall mean December 13, 1995.
"DEPLETABLE PROPERTY" shall have the meaning assigned to it in Section
4.3(b).
"DESIGNATED CAPITAL COSTS" shall mean the Capital Costs attributable to
the operations described in Section 3.2A and which are funded by Capital
Contributions from the Limited Partners under Section 3.2A.
"ENGINEERING REPORT" shall have the meaning assigned to such term in
Section 8.2(f).
"ENHANCED RECOVERY OPERATIONS" shall mean any operations or project
intended to increase the recovery of oil and/or gas from a pool by artificial
means or by the application of energy extrinsic to the pool, which artificial
means or application shall include (without limitation) pressuring, cycling,
pressure maintenance, injection to the pool of a substance or form of energy, or
other operations or projects that would be commonly considered secondary or
tertiary operations or projects, but such term shall not include the injection
in a well of a substance or form of energy for the sole purpose of (a) aiding in
the lifting of fluids in the well, or (b) stimulation of the pool at or near the
well by mechanical, chemical, thermal or explosive means.
"ESTIMATED COSTS" shall have the meaning assigned to such term in
Section 3.2A.
"EXCESS CAPITAL OVERRUN COSTS" shall mean (a) with respect to a given
Scheduled Operation or other well, project or operation, all Capital Overrun
Costs in excess of the sum of X plus Y, where "X" is equal to the Capital
Contributions the Partners have agreed to make to the Partnership with respect
to such Scheduled Operation, well, project or operation, and where "Y" is
$25,000 or (b) all Capital Overrun Costs in excess of an aggregate of $200,000.
"EXPLORATORY WELL" shall mean a well drilled for the purpose of
ascertaining the presence underground of an oil or gas deposit capable of
producing in commercial quantities which has not been previously discovered. For
purposes of the foregoing, an outpost well (i.e., a well
6
<PAGE> 11
drilled in the hope of making a long extension of a partly developed or
identified oil or gas deposit) and a step-out well (i.e., a well drilled as a
step-out from proven territory in an effort to ascertain the extent and
boundaries of a known oil or gas deposit) will be deemed to be an Exploratory
Well.
"GENERAL PARTNER" shall mean Future Petroleum Corporation, a Texas
corporation, in its capacity as general partner of the Partnership and any
person who becomes a substituted general partner of the Partnership pursuant to
the terms hereof.
"GP ASSIGNMENT" shall have the meaning assigned to it in Section
3.1(a).
"GP PROPERTIES" shall mean the "Properties", as such term is defined in
the GP Assignment.
"HEDGING TRANSACTION" shall mean any commodity hedging transaction
pertaining to oil, gas and related hydrocarbons and minerals, whether in the
form of a swap agreement, option to acquire or dispose of a futures contract,
whether on an organized commodities exchange or otherwise, or similar type of
financial transaction classified as "notional principal contracts" pursuant to
Treasury Regulation ss.1.512(b)-1(a)(1). Any Hedging Transaction shall be
identified in the books and records of the Partnership as a "hedging
transaction" in the manner and at the times prescribed by Treasury Regulation
ss.1.1221-2(e).
"INITIAL PROPERTIES" shall mean the GP Properties, the Westar
Properties and the Aspen Properties.
"INTERNAL REVENUE CODE" shall mean the Internal Revenue Code of 1986,
as amended from time to time, and any successor statute or statutes.
"LEASE" shall mean a lease, mineral interest, royalty or overriding
royalty, fee right, mineral servitude, license, concession or other right
covering oil, gas and related hydrocarbons (or a contractual right to acquire
such an interest) or an undivided interest therein or portion thereof, together
with all appurtenances, easements, permits, licenses, servitudes and
rights-of-way situated upon or used or held for future use in connection with
such an interest or the exploration, development or operation thereof. A "Lease"
shall also mean and include all rights and interests in all lands and interests
unitized or pooled therewith pursuant to any law, rule, regulation or agreement.
"LEASE OPERATING AND PRODUCTION COSTS" shall mean all costs incurred by
the Partnership in connection with the maintenance of the Properties and any
additional Leases acquired pursuant to the terms hereof (except drilling and
similar obligations the costs of which are classified as Capital Costs
hereunder) and the production and marketing of oil, gas and related hydrocarbons
from completed wells (including wells which have been involved in Enhanced
Recovery Operations) in which the Partnership has an interest pursuant to this
Agreement, including (without limitation) costs incurred for all delay rentals,
shut-in royalties and similar payments, royalties on lost or flared gas or gas
used for which payment is required, labor, fuel, repairs (except to the extent
provided in the definition of Capital Costs), transportation, supplies, utility
7
<PAGE> 12
charges, ad valorem, severance, excise and similar taxes, the cost of reworking
any Partnership well (except to the extent provided in the definition of Capital
Costs), the costs of plugging and abandoning any Partnership well (except to the
extent provided in the definition of Capital Costs), and compensation to well
operators, consultants and others and insurance in connection with the
foregoing; but such term shall not include (without limitation) (a) any Capital
Costs, (b) any Catastrophe Costs or (c) any Unexpected Well Costs.
"LIMITED PARTNER" shall mean Energy Capital Investment Company PLC, an
English investment company, EnCap Equity 1994 Limited Partnership, a Texas
limited partnership, and any person who becomes a substituted limited partner of
the Partnership pursuant to the terms hereof.
"LOPC OVERRUN COSTS" shall mean, with respect to (i) the six-month
period commencing October 1, 1995 and ending March 31, 1996 and each six-month
period thereafter commencing October 1 and ending March 31, or (ii) the
six-month period commencing April 1, 1996 and ending September 30, 1996 and each
six-month period thereafter commencing April 1 and ending September 30, Lease
Operating and Production Costs attributable to the Initial Properties which are
in excess of 110% of the estimated Lease Operating and Production Costs
attributable to the Initial Properties for such six-month period (computed as
described below) set forth in that certain reserve report prepared by Netherland
Sewell & Associates, Inc. dated as of October 19, 1995 (with respect to the
Westar Properties) and October 20, 1995 (with respect to the GP Properties and
the Aspen Properties), and separately identified by the parties hereto. The
estimated Lease Operating and Production Costs attributable to the Initial
Properties for a particular six-month period shall be determined by multiplying
the estimated Lease Operating and Production Costs for the October 1-September
30 period of which such six-month period is a part by .50, except for the
six-month period commencing October 1, 1995 and ending March 31, 1996, in which
event the multiplier shall be .40.
"MINIMUM GAIN" shall mean (a) with respect to Partnership Nonrecourse
Liabilities, the amount of gain that would be realized by the Partnership if it
disposed of (in a taxable transaction) all Partnership properties which are
subject to Partnership Nonrecourse Liabilities in full satisfaction of such
liabilities, computed in accordance with applicable Treasury Regulations and (b)
with respect to each Partner Nonrecourse Debt, the amount of gain that would be
realized by the Partnership if it disposed of (in a taxable transaction) the
Partnership property that is subject to such liability in full satisfaction of
such liability, computed in accordance with applicable Treasury Regulations.
"MINIMUM RATIO" shall mean, when used with respect to the Proved
Producing Investment Coverage, a ratio of 1.35 to 1.
"NET INVESTMENT" shall mean, as of the date in question, an amount
equal to X/Y, where "X" is equal to the difference between (a) the aggregate
Capital Contributions actually paid by the Limited Partners pursuant to Sections
3.2, 3.2A and 3.3, which Capital Contributions shall be discounted back from the
respective dates such Capital Contributions are made to the last day of the
month immediately preceding the month in which the Delivery Date occurs at a
rate of 20% per annum compounded monthly, and (b) the aggregate cash
distributions (other than any
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<PAGE> 13
cash distributions made pursuant to Section 10.2) which the Limited Partners
shall have actually received from the Partnership, when discounted back from the
respective dates such cash distributions are made to the last day of the month
immediately preceding the month in which the Delivery Date occurs at a rate of
20% per annum compounded monthly, and where "Y" is the applicable discount
factor set forth in Exhibit 2.1--Payout with respect to the month in which the
date in question falls. For purposes of making such discount calculations, each
cash distribution and Capital Contribution shall be deemed to have been made on
the last day of the month during which it was paid or received, and all such
discount calculations shall be made on a monthly basis and by application of the
appropriate discount factors set forth in Exhibit 2.1--Payout.
"ORIGINAL AGREEMENT" shall have the meaning assigned to such term in
the Recitals hereto.
"ORGANIZATION COSTS" shall have the meaning assigned to such term in
Section 6.7(a).
"PARENT" shall mean Future Petroleum Corporation, a Utah corporation.
"PARENT COMMON STOCK" shall mean shares of the Parent's common stock,
$0.01 par value per share.
"PARTNER NONRECOURSE DEBT" shall mean any nonrecourse debt of the
Partnership (or portions thereof) for which any Partner bears the economic risk
of loss.
"PARTNER NONRECOURSE DEDUCTIONS" shall mean the amount of deductions,
losses and expenses equal to the net increase during the year in Minimum Gain
attributable to a Partner Nonrecourse Debt, reduced (but not below zero) by
proceeds of such Partner Nonrecourse Debt distributed during the year to the
Partners who bear the economic risk of loss for such debt, as determined in
accordance with applicable Treasury Regulations.
"PARTNERS" shall mean the General Partner and the Limited Partners.
"PARTNERSHIP" shall have the meaning assigned to it in Section 1.1.
"PARTNERSHIP NONRECOURSE LIABILITIES" shall mean any nonrecourse
liabilities (or portions thereof) of the Partnership for which no Partner bears
the economic risk of loss.
"PAYOUT" shall mean the last day of the earliest calendar month during
which (a) the aggregate cash distributions (other than any cash distributions
made pursuant to Section 10.2) which the Limited Partners shall have actually
received from the Partnership, when discounted back from the respective dates
such cash distributions are made to the last day of the month immediately
preceding the month in which the Delivery Date occurs at a rate of 20% per annum
compounded monthly shall equal (b) the aggregate Capital Contributions actually
paid by the Limited Partners pursuant to Sections 3.2, 3.2A and 3.3, which
Capital Contributions shall be discounted back from the respective dates such
Capital Contributions are made to the last day of the month immediately
preceding the month in which the Delivery Date occurs at a rate of
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<PAGE> 14
20% per annum compounded monthly. For purposes of making such discount
calculations, each cash distribution and Capital Contribution shall be deemed to
have been made on the last day of the month during which it was paid or
received, and all such discount calculations shall be made on a monthly basis
and by application of the appropriate discount factors set forth in Exhibit
2.1--Payout.
"PAYOUT NO. 2" shall mean the last day of the earliest calendar month
during which (a) the aggregate cash distributions (other than any cash
distributions made pursuant to Section 10.2) which the Limited Partners shall
have actually received from the Partnership, when discounted back from the
respective dates such cash distributions are made to the last day of the month
immediately preceding the month in which the Delivery Date occurs at a rate of
25% per annum compounded monthly shall equal (b) the aggregate Capital
Contributions actually paid by the Limited Partners pursuant to Sections 3.2,
3.2A and 3.3, which Capital Contributions shall be discounted back from the
respective dates such Capital Contributions are made to the last day of the
month immediately preceding the month in which the Delivery Date occurs at a
rate of 25% per annum compounded monthly. For purposes of making such discount
calculations, each cash distribution and Capital Contribution shall be deemed to
have been made on the last day of the month during which it was paid or
received, and all such discount calculations shall be made on a monthly basis
and by application of the appropriate discount factors set forth in Exhibit
2.1-- Payout No. 2.
"PLACEMENT FEE" shall have the meaning assigned to such term in Section
6.7.
"POSITIVE PARTNER" shall have the meaning assigned to such term in
Section 4.3(h).
"PROPERTIES" shall mean the GP Properties and the Third Party
Properties.
"PROPOSED OPERATION" shall have the meaning assigned to such term in
Section 3.2A.
"PURCHASE AGREEMENT" shall mean the Westar Purchase Agreement, the
Aspen Purchase Agreement, or the Taylor Purchase Agreement.
"PROVED PRODUCING INVESTMENT COVERAGE" shall mean, at the point in time
in question, a ratio equal to (x) divided by (y), where "(x)" is the pre-income
tax value of projected net revenues (i.e., revenues less direct operating
expenses) attributable to the proved developed producing reserves attributable
to the Partnership's interest therein as set forth in the then most recently
prepared Engineering Report discounted at a rate of 10% per annum, and where
"(y)" is the Limited Partners' Net Investment.
"REVENUE ALLOCATION ADJUSTMENT" shall have the meaning assigned to such
term in Section 4.2(e).
"SCHEDULED OPERATION" shall have the meaning assigned to such term in
Section 3.2A.
"SIMULATED BASIS", "SIMULATED GAIN", "SIMULATED DEPLETION" and
"SIMULATED LOSS" shall have the respective meanings assigned to such terms in
Section 8.1(b).
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<PAGE> 15
"TAYLOR" shall mean Taylor Oil Company, a Texas limited partnership.
"TAYLOR AMENDMENT COSTS" shall have the meaning assigned to such term
in Section 6.7(b).
"TAYLOR AMENDMENT DATE" shall mean the date on which this Agreement has
been fully and unconditionally executed and delivered by each of the parties
hereto.
"TAYLOR LOPC OVERRUN COSTS" shall mean, with respect to each calendar
quarter, X minus Y, where "X" is equal to the actual Lease Operating and
Production Costs (exclusive, however, of ad valorem, severance, excise and
similar taxes) incurred by the Partnership with respect to the wells acquired by
the Partnership pursuant to the Taylor Purchase Agreement which are active and
not shut-in during all or a portion of such calendar quarter, and where "Y" is
equal to the product of a times b, where "a" is the Per Well Amount (as
hereinafter defined in this definition), where "b" is the number of wells
referenced above in this definition. As used in this definition, the term "PER
WELL AMOUNT" shall mean (a) for calendar year 1997, $1,800, and (b) for each
calendar year thereafter, the Per Well Amount used for the prior calendar year
escalated by a rate consistent with that used in conjunction with Lease
Operating and Production Costs for such calendar year in the most recently
prepared Engineering Report.
"TAYLOR PLACEMENT FEE" shall have the meaning assigned to such term in
Section 6.7(b).
"TAYLOR PROPERTIES" shall mean the "Interests", as such term is defined
in the Taylor Purchase Agreement.
"TAYLOR PURCHASE AGREEMENT" shall mean that certain Purchase and Sale
Agreement dated as of December 5, 1996, by and between Taylor and the General
Partner, as amended by that certain letter agreement between such parties dated
January 9, 1997, as amended by that certain amendment dated on or about January
29, 1997.
"TAYLOR PURCHASE PRICE" shall mean the "Purchase Price", as defined in
the Taylor Purchase Agreement.
"THIRD PARTY PROPERTIES" shall mean the Westar Properties, the Aspen
Properties and the Taylor Properties.
"THIRD PARTY PROPERTY ASSIGNMENTS" shall have the meaning assigned to
such term in Section 5.2.
"UNEXPECTED WELL COSTS" shall mean all costs incurred by the
Partnership in connection with certain unpredictable and unexpected procedures
relating to the maintenance of the Properties and any additional Leases acquired
pursuant to the terms hereof which costs are not reflected in that certain
reserve report prepared by Netherland Sewell & Associates, Inc., dated as of
October 19, 1995 (with respect to the Westar Properties) and October 20, 1995
(with respect to the GP Properties and the Aspen Properties), or any subsequent
Engineering Report, but only to the extent that (a) such costs are for workovers
related to paraffin removal on any well,
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<PAGE> 16
heater/treater repairs, replacement of pumping units, repairs to or replacement
of compressors, conversion of a well to a saltwater disposal well (including the
installation of all tubing and flowlines related thereto and setting the
packer), cleaning out a well to the original total depth of such well, leasing
and maintenance of one or more rigs necessary for any of the above procedures,
employing a roustabout or other crew for any of the above procedures, and such
other expenses reasonably related to the foregoing and (b) such costs do not
exceed an aggregate of $25,000 in any calendar year.
"WESTAR" shall mean Westar Energy, Inc., a Texas corporation.
"WESTAR DESIGNATED WELLS" shall mean the two wells described in Section
2.03 of the Westar Purchase Agreement.
"WESTAR ESCROW AGENT" shall mean the "Escrow Agent", as such term is
defined in the Westar Escrow Agreement.
"WESTAR ESCROW AGREEMENT" shall mean that certain Escrow Agreement
dated on or about the 15th day of December, 1995, by and among Future, Westar,
Midland American Bank and EnCap Investments, L.C.
"WESTAR PROPERTIES" shall mean the "Properties", as such term is
defined in the Westar Purchase Agreement.
"WESTAR PURCHASE AGREEMENT" shall mean that certain Purchase and Sale
Agreement/Participation Agreement dated on or about December 15, 1995, by and
between Future and Westar.
"WESTAR PURCHASE PRICE" shall mean the "Adjusted Purchase Price", as
such term is defined in the Westar Purchase Agreement.
SECTION 2.2. REFERENCES, TITLES AND CONSTRUCTION.
(a) All references in this Agreement to articles, sections, subsections
and other subdivisions refer to corresponding articles, sections, subsections
and other subdivisions of this Agreement unless expressly provided otherwise.
(b) Titles appearing at the beginning of any of such subdivisions are
for convenience only and shall not constitute part of such subdivisions and
shall be disregarded in construing the language contained in such subdivisions.
(c) The words "this Agreement", "this instrument", "herein", "hereof",
"hereby", "hereunder" and words of similar import refer to this Agreement as a
whole and not to any particular subdivision unless expressly so limited.
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<PAGE> 17
(d) Words in the singular form shall be construed to include the plural
and vice versa, unless the context otherwise requires. Pronouns in masculine,
feminine and neuter genders shall be construed to include any other gender.
(e) Unless the context otherwise requires or unless otherwise provided
herein, the terms defined in this Agreement which refer to a particular
agreement, instrument or document also refer to and include all renewals,
extensions, modifications, amendments or restatements of such agreement,
instrument or document, provided that nothing contained in this subsection shall
be construed to authorize such renewal, extension, modification, amendment or
restatement.
(f) Examples shall not be construed to limit, expressly or by
implication, the matter they illustrate.
(g) The word "includes" and its derivatives means "includes, but is not
limited to" and corresponding derivative expressions.
(h) No consideration shall be given to the fact or presumption that one
party had a greater or lesser hand in drafting this Agreement.
(i) All references herein to "$" or "dollars" shall refer to U.S.
Dollars.
ARTICLE III
CAPITALIZATION
SECTION 3.1. CAPITAL CONTRIBUTIONS OF GENERAL PARTNER.
(a) On the Delivery Date, the General Partner shall contribute and
assign the GP Properties to the Partnership by executing and delivering that
certain "Assignment and Bill of Sale", substantially in the form of the
instrument attached as Exhibit 3.1(a) to the Original Agreement in all material
respects (the "GP ASSIGNMENT").
(b) On the Taylor Amendment Date, the General Partner shall (i)
contribute to the Partnership cash in the amount of $100,000, which cash shall
be used exclusively by the Partnership to pay the Taylor Purchase Price, and
(ii) cause the Parent to issue to Taylor 180,000 shares of Parent Common Stock,
as provided under the Taylor Purchase Agreement. For purposes hereof, the
issuance of Parent Common Stock to Taylor by the Parent as provided in the
immediately preceding sentence shall be deemed to be a Capital Contribution to
the Partnership by the General Partner hereunder, and it is agreed that the fair
market value of such deemed Capital Contribution shall be $112,500.
(c) The General Partner shall contribute in cash to the Partnership
such additional amounts as shall be necessary to pay timely the costs and
expenses allocated and charged to the General Partner in Sections 3.3 and 4.1
and elsewhere herein. Such Capital Contributions shall be paid to the
Partnership by the General Partner from time to time in the appropriate amounts
concurrently with each payment to the Partnership by the Limited Partners of
their Capital
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<PAGE> 18
Contributions to pay its allocable share of such costs or, with respect to costs
allocated solely to the General Partner, when necessary for the Partnership to
pay timely such costs.
SECTION 3.2. AGREED CAPITAL CONTRIBUTIONS OF LIMITED PARTNERS.
(a) Subject to the provisions of this Section 3.2 and Section 3.5(a)
and except as otherwise provided herein, the Limited Partners shall make Capital
Contributions to the Partnership in an aggregate amount not to exceed
$502,947.18, which Capital Contributions shall be used exclusively by the
Partnership to pay the Limited Partners' allocable share hereunder of the Westar
Purchase Price.
(b) Subject to the provisions of this Section 3.2 and Section 3.5(b)
and otherwise provided herein and provided that the Limited Partners are (i)
reasonably satisfied that all conditions precedent to Future's obligation to
consummate the acquisition of the Aspen Properties under the Aspen Purchase
Agreement have been satisfied and (ii) reasonably satisfied that Aspen has good
title to the Aspen Properties, the Limited Partners shall make Capital
Contributions to the Partnership in an aggregate amount not to exceed
$628,648.25, which Capital Contributions shall be used exclusively by the
Partnership to pay the Limited Partners' allocable share hereunder of the Aspen
Purchase Price.
(c) Subject to the provisions of this Section 3.2 and Section 3.5(d)
and except as otherwise provided herein, the Limited Partners shall make Capital
Contributions to the Partnership in an aggregate amount not to exceed
$195,916.91, which Capital Contributions shall be used exclusively by the
Partnership to pay each cost listed below and in an amount not to exceed that
set forth opposite such cost below:
<TABLE>
<S> <C>
Organization Costs $145,916.91
Placement Fee $ 50,000.00
</TABLE>
In addition, the Limited Partners shall make Capital Contributions to the
Partnership in an aggregate amount not to exceed $21,497.24, which Capital
Contributions shall be used exclusively by the Partnership for working capital
purposes.
(d) Subject to the provisions of this Section 3.2 and Section 3.5(c)
and except as otherwise provided herein, the Limited Partners shall make Capital
Contributions to the Partnership in an aggregate amount not to exceed
$2,246,000, which Capital Contributions shall be used exclusively by the
Partnership to pay (i) the Taylor Purchase Price and (ii) the broker's fee
payable under the Taylor Purchase Agreement (provided, that the amount of such
Capital Contributions that can be used to pay such fee shall not exceed
$46,000).
(e) Subject to the provisions of this Section 3.2 and Sections 3.5(c)
and (d) and except as otherwise provided herein, the Limited Partners shall make
Capital Contributions to the Partnership in an aggregate amount not to exceed
$97,000, which Capital Contributions shall be used exclusively by the
Partnership to pay the Taylor Amendment Costs.
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<PAGE> 19
(f) Notwithstanding anything to the contrary herein, the Capital
Contributions referenced in subsections (a),(b),(c),(d) and (e) above and the
last sentence of Section 3.2A shall be the maximum contributions to the
Partnership that the Limited Partners shall be required to make (unless the
Limited Partners otherwise elect as provided in Sections 3.2A and 3.3).
(g) With respect to the Capital Contributions to be made by the Limited
Partners pursuant to the foregoing provisions (and any requested additional
Capital Contributions pursuant to Sections 3.2A and 3.3), each Limited Partner's
several share of such Capital Contributions shall be as follows: with respect to
the Initial Properties, 37.5232% to ECIC and 62.4768% to EnCap LP; and, with
respect to the Taylor Properties, 50% to ECIC and 50% to EnCap LP.
SECTION 3.2A. CERTAIN OPTIONAL ADDITIONAL CAPITAL CONTRIBUTIONS OF THE
LIMITED PARTNERS. It is contemplated that the Limited Partners will make
additional Capital Contributions to the Partnership in an aggregate amount not
to exceed $390,000 to fund their allocable share hereunder of the Capital Costs
of conducting development operations on the Properties (which development
operations include the installation of a pilot waterflood program on the Westar
Property); provided, however, that except to the extent provided in the last
sentence of this Section 3.2A, the Limited Partners' obligation to make any such
additional Capital Contributions with respect to a particular development
operation shall be contingent upon (x) receipt from the General Partner of a
proposal to conduct such development operation in accordance with this Section
3.2A and (y) the agreement of the Limited Partners to make additional Capital
Contributions to the Partnership with respect to such development operations. In
connection therewith, the General Partner shall propose, from time to time,
development operations on the Properties in one well or two well increments
(each such well being called a "PROPOSED OPERATION"). At least 30 days prior to
the commencement of any Proposed Operation, the General Partner shall give the
Limited Partners a notice, which notice (a) shall specify (i) in detail
reasonably satisfactory to the Limited Partners, the Proposed Operation(s) to be
conducted, (ii) in detail reasonably satisfactory to the Limited Partners, the
estimated Capital Costs to the Partnership attributable to each Proposed
Operation (as to each Proposed Operation, the "ESTIMATED COSTS") and (iii) such
other information with respect to each Proposed Operation as the General Partner
deems material and (b) shall contain a request that the Limited Partners agree
to make additional Capital Contributions to the Partnership in an amount not to
exceed their allocable share hereunder of the Estimated Costs attributable to a
Proposed Operation. Thereafter, the General Partner shall provide to the Limited
Partners such additional information concerning the Proposed Operation(s) as the
Limited Partners may reasonably request. The Limited Partners shall give the
General Partner notice of whether or not they elect to make the requested
additional Capital Contributions to the Partnership referenced above with
respect to a Proposed Operation within 30 days after receipt of the above
referenced notice from the General Partner; without limiting the foregoing, it
is specifically understood and agreed that if a request for additional Capital
Contributions under this Section pertains to two Proposed Operations, the
Limited Partners may elect to make additional Capital Contributions with respect
to one or both of such Proposed Operations or, alternatively, the Limited
Partners may elect to not make additional Capital Contributions with respect to
either or both of such Proposed Operations. Failure of the Limited Partners to
give such notice within the aforementioned 30-day period shall be deemed to
constitute an election on the part of the Limited Partners not to make the
requested additional Capital Contributions. Any well with respect to which the
Limited Partners have
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<PAGE> 20
agreed to make an additional Capital Contribution pursuant to this Section 3.2A
shall be herein called a "SCHEDULED OPERATION". Notwithstanding the foregoing or
anything else to the contrary herein, the Limited Partners shall make Capital
Contributions to the Partnership to fund their allocable share hereunder of the
Capital Costs attributable to each of the Westar Designated Wells, provided that
the maximum amount that the Limited Partners shall be required to make with
respect to a Westar Designated Well shall not exceed the Partnership's share of
the estimated costs for such Westar Designated Well as set forth in the
applicable authority for expenditure received by the Partnership with respect to
such Westar Designated Well (a copy of which shall be promptly furnished to the
Limited Partners upon receipt thereof by the General Partner).
SECTION 3.3. REQUEST FOR ADDITIONAL CAPITAL CONTRIBUTIONS OF LIMITED
PARTNER.
(a) The General Partner may request (subject to the limitations
described below) additional Capital Contributions from each Limited Partner to
be used exclusively for the payment of its allocated share (pursuant to Section
4.1) of (i) Capital Costs of the type described in clause (a) of the definition
thereof, (ii) Capital Costs of the type described in clause (b) of the
definition thereof, (iii) Capital Costs of the type described in clause (c) of
the definition thereof, (iv) Capital Costs of the type described in clause (d)
of the definition thereof, (v) Capital Costs of the type described in clause (e)
of the definition thereof, (vi) Capital Costs of the type described in clause
(f) of the definition thereof, (vii) Acquisition Costs under the circumstances
described in Section 5.3, (viii) Capital Overrun Costs, (ix) LOPC Overrun Costs,
(x) Taylor LOPC Overrun Costs and (xi) cost overruns associated with any of the
operations or projects with respect to which a Limited Partner has previously
agreed to make additional Capital Contributions to the Partnership pursuant to
this Section 3.3. Each of the categories of expenditures described in clauses
(i), (ii), (iii), (iv), (v), (vi), (vii), (viii), (ix), (x) and (xi) of this
Section 3.3(a) may include such contingent amounts as the General Partner in
good faith shall determine to be appropriate under the circumstances.
(b) Requests for additional Capital Contributions pursuant to this
Section 3.3 shall be made by the General Partner and agreed to by each Limited
Partner (if the Limited Partner elects to agree) separately with respect to each
category of costs as specified in subsection (a) above, but such requests shall
not be made more often than quarterly each year (i) except for requests pursuant
to either clause (vii), clause (viii), clause (ix), clause (x) or clause (xi) of
subsection (a) above or (ii) unless an emergency or some other urgent need for
funds exist outside of the reasonable control of the General Partner. Payments
of any additional Capital Contributions agreed to be made by a Limited Partner
pursuant to this Section 3.3 shall be requested by the General Partner and made
by such Limited Partner in the manner provided for in Section 3.5(b).
(c) Notice of any request for additional Capital Contributions made by
the General Partner shall be in writing and sent to each Limited Partner at its
address as provided in Section 12.1. With respect to the category of costs
described in clauses (i), (ii), (iii), (iv), (v) and (vi) of Section 3.3(a),
each request shall cover all of the Capital Costs intended to be incurred during
the next three months (and with respect to any Partnership well or Enhanced
Recovery Operation or facility, the costs estimated to be incurred in connection
with such well or operation or facility). With respect to the category of costs
described in clause (vii) of Section 3.3(a), each request shall contain the
information specified in Section 5.3. With respect to the category of
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<PAGE> 21
costs described in clauses (viii), (ix), (x) and (xi) of Section 3.3(a), each
request shall cover the reasonably anticipated overruns associated with
conducting the Partnership operation. Each such request shall also set forth (i)
the date by which the Limited Partner must elect in writing to make the
requested additional Capital Contributions, which date shall not be less than 30
days from the date the General Partner mails or sends such request, unless a
shorter period is provided to the General Partner under any applicable
"authority for expenditure", in which event such shorter period shall also be
applicable to the election period of the Limited Partner (provided that in no
event shall such shorter period be less than 25 days), (ii) the purpose or
purposes for which the proceeds of the requested additional Capital
Contributions are to be used, (iii) to the extent practicable, a summary of the
pertinent geological data relating to each well or operation with respect to
which the proceeds that are requested are to be expended and financial
projections with respect to the expenditure of such additional Capital
Contributions and the revenue projected to be received therefrom and (iv) a
summary of the action that the General Partner anticipates it will take under
Section 3.3(d) and any applicable operating agreement if the Limited Partner
does not elect to make such requested additional Capital Contributions. In
connection with any request pertaining to an Enhanced Recovery Operation, the
General Partner shall endeavor to confine such operation to the extent possible
in accordance with generally accepted industry standards to those matters which
should be conducted in conjunction with each other. Thereafter, the General
Partner shall promptly furnish to each Limited Partner such additional
information concerning the use and application of the requested additional
Capital Contributions as such Limited Partner shall reasonably request. In the
event a Limited Partner does not elect to pay all of the categories of requested
additional Capital Contributions, it may elect to pay all of the Capital
Contributions requested to be used for any of the remaining categories of costs
designated in the General Partner's request as provided above. The General
Partner shall not use any Capital Contributions received from a Limited Partner
pursuant to this Section 3.3 and designated for payment of one category of costs
to pay any other category of costs.
(d) If a Limited Partner declines to make any additional Capital
Contributions requested by the General Partner or fails to give timely notice to
the General Partner pursuant to either Section 3.2A or Section 3.3(a), the
General Partner may elect to take any action specified in paragraphs (1) through
(5) below with respect to each Lease, Partnership well, Enhanced Recovery
Operation or other operation or project to which the request pertains, if
appropriate (or paragraph (6), paragraph (7) or paragraph (8), if applicable):
(1) With respect to the acquisition of Leases pursuant to
Section 5.3, the General Partner or its Affiliates may purchase or
retain for its or their own account the Leases not acquired by the
Partnership.
(2) The General Partner may cause the Partnership (to the
extent it can do so under any applicable operating agreement) to
abandon the operation or project in a prudent manner, in which event
all costs (if any) thereafter incurred in abandoning the operation or
project shall be borne by the Partnership.
(3) The General Partner may cause the Partnership to sell,
farm-out or otherwise dispose of the well or Lease (or the applicable
part thereof, as the case may
17
<PAGE> 22
be) to which such operation or project pertains to any person other
than the General Partner or any of its Affiliates (subject, however, to
Section 6.2).
(4) In the event a well or Lease to which such proposed
operation or project pertains is subject to an operating agreement to
which one or more third persons (which are not Affiliates of the
General Partner) are parties, the General Partner may cause the
Partnership to elect not to participate in the proposed operation and
to assume the status of a "non-consenting party" under such operating
agreement; provided, however, that neither the General Partner nor any
of its Affiliates shall be permitted to pay or shall pay the
Partnership's non-consenting share of costs or expenses or any part
thereof with respect to such operation or project under such operating
agreement.
(5) The General Partner may take such other actions as may be
mutually agreed upon by the Partners.
(6) In addition to the actions specified in paragraphs (1)
through (5) above, if, during any given six-month period commencing
either January 1 and ending June 30 of a calendar year or commencing
July 1 and ending December 31 of a calendar year (in this subsection
(d) called a "SUBJECT PERIOD"), (x) the Limited Partners decline to
make additional Capital Contributions with respect to a Proposed
Operation on any of the 13 sections of land (in this subsection (d)
called a "SECTION") which comprise the Price Ranch Lease and which
comprise in part the GP Properties that pertains to a Non-PUD Location
(as defined below) and (y) the General Partner has not previously
proposed to the Limited Partners during the subject period that the
Partnership participate in a Proposed Operation on the Price Ranch
Lease that pertains to a Non-PUD Location, the following shall apply
with respect to such Non-PUD Location:
(A) The General Partner shall have the option to negotiate
with third party industry participants and/or banks or other financial
institutions with respect to forming an industry standard participation
arrangement and/or financing arrangement for the completion of such
Proposed Operation. If the General Partner is successful in forming an
industry standard participation arrangement or securing financing, the
General Partner shall have the additional option, exercisable in its
sole discretion, to cause the Partnership to effect a distribution to
the General Partner of the Partnership's interest in the Section in
which the Proposed Operation was to be conducted. If the General
Partner elects to exercise the above option, it shall give notice of
the same to the Limited Partners, who shall have 30 days after receipt
of such notice to notify to General Partner that they elect to make the
requested additional Capital Contributions to the Partnership to fund
their allocable share of the Estimated Costs attributable to the
Proposed Operation. If the Limited Partners make a timely election with
respect to a Proposed Operation, the General Partner's election of its
option to effect a distribution with respect thereto shall be null and
void. If the Limited Partners fail to make a timely election (or
otherwise notify the General Partner that they do not elect to make the
requested additional Capital Contributions with respect to the Proposed
Operation), the General Partner shall thereafter have the right to
elect to cause the Partnership to effect a distribution to the General
Partner of the Partnership's interest in the Section on which the
Proposed Operation was
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<PAGE> 23
to be conducted (which election and distribution must be made within 30
days after the Limited Partners' election referenced in this sentence
not to make the requested additional Capital Contributions), whereupon
the Partnership and the Limited Partners shall thereafter have no right
or interest in or to such Section and any reserves attributable
thereto.
(B) If the General Partner is not successful in forming an
industry standard participation arrangement or securing financing in
accordance with the proceeding paragraph, the General Partner may, in
its sole discretion, arrange a sale or farmout of the Partnership's
interest in the proposed proration unit for such Proposed Operation. If
the General Partner is successful in arranging such a sale or farmout,
the General Partner and the Limited Partners shall share in any
retained interest to such properties or other consideration received by
the Partnership thereby in accordance with the terms of this Agreement.
As used above in this subsection (d), a "NON-PUD LOCATION" shall refer
to a proposed well site that is situated on a Section (xx) that the
Partnership's independent petroleum engineers have not assigned any
proved reserves and (yy) that does not directly offset Section 169 or a
well location in which the Partnership has an interest and that the
Partnership's independent petroleum engineers have assigned any proved
reserves.
(7) In addition to the actions specified in paragraphs (1)
through (5) above, if (xxx) the Limited Partners decline to make
additional Capital Contributions with respect to a Proposed Operation
on the GP Properties that pertains to a PUD Location (as defined below)
(the point at which the Limited Partners decline in this subsection (d)
being called the "INITIAL DECLINE POINT") and (yyy) no less than one
year after the initial decline point, the General Partner again
proposes to the Limited Partners such Proposed Operation and the
Limited Partners decline to make the requested additional Capital
Contributions with respect thereto, the General Partner shall
thereafter have the right to elect to cause the Partnership to effect a
distribution to the General Partner of the Partnership's interest in
the Section on which the Proposed Operation was to be conducted (which
election and distribution must be made within 30 days after the Limited
Partners' election referenced in clause (yyy) above), whereupon the
Partnership and the Limited Partners shall thereafter have no right or
interest in or to such Section and any reserves attributable thereto,
except that the Partnership shall retain its interest in the proration
units with respect to all producing wells on that Section and any other
proration unit on that Section with respect which the Partnership's
independent petroleum engineers have assigned proved reserves (other
than the proration unit for the Proposed Operation). As used in this
subsection (d), a "PUD LOCATION" shall refer to a proration unit on the
GP Properties with respect to which the Partnership's independent
petroleum engineers have assigned proved undeveloped reserves.
(8) In addition to the actions specified in paragraphs (1) and
(5) above, if (VV) the General Partner is in compliance with its
agreement in the last full paragraph below of this subsection (d), (XX)
the General Partner proposes a Proposed Operation on the GP Properties
that pertains to a Section that the Partnership's independent petroleum
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engineers have not assigned any proved reserves but which is contiguous
to a Section that the Partnership's independent petroleum engineers
have assigned proved reserves, (YY) the Limited Partners decline to
make additional Capital Contributions with respect to such Proposed
Operation and (ZZ) no less than one year thereafter the General Partner
again proposes to the Limited Partners such Proposed Operation and the
Limited Partners decline to make the requested additional Capital
Contributions with respect thereto, the General Partner shall
thereafter have the right to elect to cause the Partnership to effect a
distribution to the General Partner of the Partnership's interest in
the Section on which the Proposed Operation was to be conducted (which
election and distribution must be made within 30 days after the Limited
Partners' election referenced in clause (ZZ) above), whereupon the
Partnership and the Limited Partners shall thereafter have no right or
interest in or to such Section and any reserves attributable thereto,
except that the Partnership shall retain its interest in the proration
units with respect to all producing wells on that Section and any other
proration unit on that section with respect to which the Partnership's
independent petroleum engineers have assigned proved reserves (other
than the proration unit for the Proposed Operation).
To the extent Partnership property is distributed to the General
Partner pursuant to any of the foregoing provisions, the General Partner shall
be responsible for all costs and expenses of the Partnership and the Limited
Partners incurred in connection with effecting any distribution pursuant to this
Section 3.3, including attorney's fees and filing and recording fees and
expenses. Any distribution effected pursuant to this Section 3.3 shall be in a
form reasonably acceptable to the Limited Partners, but in any event shall (i)
be without warranty of title, and (ii) be with the agreement of the General
Partner to be responsible for (and to indemnify the Partnership against) all
costs and expenses attributable to the interest so distributed to the General
Partner after the effective date of such distribution. Adjustments to the
Partners' respective capital accounts shall be made in accordance with the terms
hereof to take into account any distribution effected pursuant to this Section
3.3.
Without limiting the obligations of the General Partner hereunder, the
General Partner agrees that prior to proposing the drilling of a well location
other than a PUD Location, the General Partner will (1) propose the drilling by
the Partnership of any PUD Location which is located on any of the Sections
which are contiguous with the Section on which the aforementioned well location
is located (and therefore request additional Capital Contributions from the
Limited Partners to fund their allocable share of the drilling of such PUD
Location) and (2) have received the Limited Partner's final election with
respect to such proposal.
(e) If a Limited Partner (for purposes of this subsection (e), a
"NON-ELECTING LP") declines to make any additional Capital Contributions
requested by the General Partner or fails to give timely notice to the General
Partner in accordance with this Section 3.3 with respect to any of the
categories of expenditures described in clauses (viii), (ix),(x) or (xi) of
Section 3.3(a), the General Partner may elect, in addition to the options
described in Section 3.3(d), to advance to the Partnership on behalf of such
non-electing LP the amount of the requested additional Capital Contribution
(which advance shall bear interest on the principal amount outstanding from time
to time at a rate of 10% per annum, shall be non-recourse to such non-electing
LP and shall be repaid to the General Partner from the Designated Percentage (as
defined below) of cash
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distributions that would otherwise be made to such non-electing LP from the
well, operation or project to which the request pertains (which cash
distributions shall be applied first to accrued interest and second to the
principal amount outstanding from time to time)). As used in the preceding
sentence, "DESIGNATED PERCENTAGE" shall mean a percentage equal to X/Y, where
"X" is the amount of the costs of the well, operation or project attributable to
the non-electing LP and funded by the General Partner, and where "Y" is the
total amount of the costs of the well, operation or project attributable to the
non-electing LP. In addition to the foregoing, the General Partner shall have
the right to make a request to a Limited Partner not a non-electing LP (for
purposes of this subsection (e), an "ELECTING LP") that such electing LP advance
to the Partnership on behalf of the non-electing LP the amount of the requested
additional Capital Contribution (which advance would be made on the same basis
as described above with respect to an advance by the General Partner or such
other basis as agreed upon by the Limited Partners).
(f) In the event a Limited Partner agrees to make any additional
Capital Contributions to the Partnership pursuant to this Section 3.3, the
General Partner will promptly file an amendment to the certificate of limited
partnership or qualification statement of the Partnership to the extent required
by the applicable laws of any state in which a certificate of limited
partnership or qualification statement has been filed for the Partnership.
SECTION 3.4. REDUCED CAPITAL CONTRIBUTIONS OF LIMITED PARTNER. In the
event the Partnership or the General Partner properly retains a portion of a
Limited Partner's share of Partnership revenues for the purpose of paying any
Capital Costs or Acquisition Costs allocated to such Limited Partner hereunder
in accordance with Section 4.4, the amount so retained and not distributed shall
reduce pro tanto the amount of Capital Contributions such Limited Partner is
required to thereafter make.
SECTION 3.5. PAYMENTS OF CAPITAL CONTRIBUTIONS.
(a) On the Delivery Date, the Limited Partners shall tender $500,000 of
the Capital Contributions referenced in Section 3.2(a), which amount shall be
deposited with the Westar Escrow Agent under the Westar Escrow Agreement.
(b) The Limited Partners shall pay its Capital Contributions referenced
in Section 3.2(b) on the date on which the transactions contemplated by the
Aspen Purchase Agreement are consummated, provided that the conditions precedent
to such payment have been satisfied and the Limited Partners receive notice of
the closing of such transactions at least one business day prior to such
closing.
(c) The Limited Partners shall pay the Capital Contribution referenced
in Section 3.2(d) on the Taylor Amendment Date. The Limited Partners shall pay
$47,000 of the Capital Contributions referenced in Section 3.2(e) on the Taylor
Amendment Date, which amount shall be immediately applied by the Partnership to
the payment of the Taylor Placement Fee.
(d) Except as otherwise provided in subsections (a),(b) and (c) above,
each Limited Partner shall pay its Capital Contributions monthly upon request by
the General Partner in such amounts as are required to pay its share of all
costs and expenses properly allocated to it
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hereunder. The General Partner may request on a monthly basis additional
payments of the Capital Contributions elected or agreed to be made by a Limited
Partner for such Limited Partner's share of all costs and expenses estimated to
have been and/or to be incurred by the Partnership during that calendar month
except those for which advances have previously been made or for which payment
will be made from another source. Each monthly request for payment shall be
adjusted to the extent a Limited Partner's cumulative share of actual
Partnership disbursements for the preceding calendar month's costs and expenses
is either greater or less than the amounts previously contributed by such
Limited Partner for such purpose. Any request for payment by a Limited Partner
of Capital Contributions shall be in writing and shall set forth (1) the type,
nature or items of Partnership costs or expenses for which such payment will be
used by the Partnership, including invoices, cancelled checks and other similar
items requested for each expense item if previously incurred, (2) the net amount
of the Capital Contributions to be paid by such Limited Partner and (3) the date
by which payment of such Capital Contributions shall be received, which shall
not be less than ten business days from the date the notice is received by such
Limited Partner.
(e) Payments by each Limited Partner of its Capital Contributions shall
be made by wire transfer of funds to the Partnership's account as designated by
the General Partner by notice to such Limited Partner pursuant to Section 12.1
or by check at the Limited Partner's option (provided, that if the amount of a
Capital Contribution to be paid by a Limited Partner is in excess of $50,000,
such payment shall be made by wire transfer).
SECTION 3.6. NON-PAYMENT OF CAPITAL CONTRIBUTIONS. The Partnership
shall have the right to pursue any remedy existing at law or in equity for the
collection of the unpaid amount of the Capital Contributions agreed to be made
in Sections 3.1 and 3.2 or hereafter elected or agreed to be made in accordance
with Section 3.3, including without limitation the prosecution of a suit against
a defaulting Partner.
SECTION 3.7. RETURN OF CAPITAL CONTRIBUTIONS. No interest shall accrue
on any contributions to the capital of the Partnership; and no Partner shall
have the right to withdraw or be repaid any capital contributed by such Partner
except as provided in Section 10.3. All interest which accrues on Partnership
funds shall be allocated and credited to the Partners in accordance with Section
4.2.
ARTICLE IV
ALLOCATIONS AND DISTRIBUTIONS
SECTION 4.1. ALLOCATION OF COSTS AND EXPENSES. Except as provided in
Section 3.3, all costs and expenses of the Partnership shall be allocated and
charged to the Partners as follows:
(a) Catastrophe Costs incurred by the Partnership shall be allocated
100% to the General Partner.
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(b) The Westar Purchase Price, the Aspen Purchase Price, and
Organization Costs shall be allocated 100% to the Limited Partners.
(c) The Taylor Purchase Price shall be allocated among the Partners in
proportion to the Capital Contributions made by them pursuant to Sections 3.1(b)
and 3.2(d) with respect thereto.
(d) Taylor Amendment Costs (i) in an aggregate amount not to exceed
$50,000 shall be allocated 100% to the Limited Partners and (ii) in excess of an
aggregate amount equal to $50,000 shall be allocated 100% to the General
Partner.
(e) Designated Capital Costs shall be allocated 100% to the Limited
Partners.
(f) Excess Capital Overrun Costs, LOPC Overrun Costs and Taylor LOPC
Overrun Costs shall be allocated 100% to the General Partner.
(g) All other costs and expenses of the Partnership not specifically
allocated above and attributable to the Initial Properties shall be allocated
(i) 15% to the General Partner and 85% to the Limited Partners prior to Payout
and (ii) 75% to the General Partner and 25% to the Limited Partners after
Payout; provided, that if, pursuant to Section 4.2(e), an adjustment is made to
the allocation of revenues between the General Partner and the Limited Partners,
a corresponding adjustment to the allocation of costs described in this
subsection (g) shall be made as between the General Partner and the Limited
Partners.
(h) All other costs and expenses of the Partnership not specifically
allocated above and attributable to the Taylor Properties shall be allocated (i)
3% to the General Partner and 97% to the Limited Partners prior to Payout, (ii)
50% to the General Partner and 50% to the Limited Partners after Payout but
prior to Payout No. 2 and (iii) 75% to the General Partner and 25% to the
Limited Partners after Payout No. 2; provided, that if, pursuant to Section
4.2(e), an adjustment is made to the allocation of revenues between the General
Partner and the Limited Partners, a corresponding adjustment to the allocation
of costs described in this subsection (h) shall be made as between the General
Partner and the Limited Partners.
SECTION 4.2. ALLOCATION OF REVENUES. Except as provided in Section 3.3,
all revenues of the Partnership (which shall not include Capital Contributions
and loans to the Partnership) shall be allocated and credited to the Partners as
follows:
(a) Insurance proceeds, to the extent not otherwise expended by the
Partnership to preserve and protect Partnership property in the event of an
accident or other occurrence or to pay Partnership liabilities or other
obligations arising from an accident or other occurrence, shall be allocated
between the Partners in the same manner as revenues from the sale of the
property to which such insurance proceeds relate would be allocated under this
Section 4.2.
(b) All revenues used to repay any principal, interest or other amounts
owing with respect to any Partnership borrowings or indebtedness shall be
allocated to the Partners in the same proportions as the costs and expenses paid
with such borrowings or indebtedness were
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allocated to the Partners (and, with respect to any indebtedness to which any
property acquired by the Partnership is subject at the time of its acquisition,
in the same proportions as costs are allocated under Section 4.1(e) at the time
such property is acquired by the Partnership).
(c) Subject to subsections (e) and (f) below, all other revenues of the
Partnership not specifically allocated above and attributable to the Initial
Properties shall be allocated (i) 15% to the General Partner and 85% to the
Limited Partners prior to Payout and (ii) 75% to the General Partner and 25% to
the Limited Partners after Payout.
(d) Subject to subsections (e) and (f) below, all other revenues of the
Partnership not specifically allocated above shall be allocated (i) 3% to the
General Partner and 97% to the Limited Partners prior to Payout, (ii) 50% to the
General Partner and 50% to the Limited Partners after Payout but prior to Payout
No. 2 and (iii) 75% to the General Partner and 25% to the Limited Partners after
Payout No. 2.
(e) Notwithstanding subsection (c) or subsection (d) above or anything
else herein to the contrary, if, at any time on or after July 1, 1997, the
Proved Producing Investment Coverage is less than the Minimum Ratio, then, from
and after the effective date of the Engineering Report upon which the
computation of the Proved Producing Investment Coverage is based, all revenues
of the type described in subsections (c) and (d) above shall be adjusted from
time to time as determined by the Limited Partners so as to increase the Limited
Partners' share thereof (and to correspondingly decrease the General Partner's
share thereof); provided, that the General Partner shall be allocated not less
than 1% of such revenues and the Limited Partners shall be allocated no more
than 99% of such revenues until the point that the Proved Producing Investment
Coverage is equal to or greater than the Minimum Ratio (which point shall be the
effective date of a subsequent Engineering Report that establishes (i) that the
Proved Producing Investment Coverage is equal to or greater than the Minimum
Ratio and (ii) that prior to Payout, the Proved Producing Investment Coverage
will not be less than the Minimum Ratio and at which point all revenues of the
type described in subsections (c) and (d) above shall be allocated as provided
in subsections (c) and (d) above); provided, further, that notwithstanding
anything herein to the contrary, in no event shall any adjustment to the
allocations of revenues made pursuant to the first sentence of this subsection
(e) (a "REVENUE ALLOCATION ADJUSTMENT") be in effect for less than a three-month
period.
(f) Notwithstanding Section 10.3 or anything else herein to the
contrary, if, (i) a Revenue Allocation Adjustment is effected and (ii) during
the time the Revenue Allocation Adjustment is in effect, all or a portion of the
properties of the Partnership are sold or otherwise disposed of, the revenues
from any such sale shall be allocated (A) 99% to the Limited Partners and 1% to
the General Partner until Payout, (B) 50% to the General Partner and 50% to the
Limited Partners after Payout but prior to Payout No. 2 and (C) 75% to the
General Partner and 25% to the Limited Partners after Payout No. 2.
SECTION 4.3. INCOME TAX ALLOCATIONS. Except as otherwise provided
herein, for purposes of any applicable federal, state or local income tax law,
rule or regulation items of income, gain, deduction, loss, credit and amount
realized shall be allocated to the Partners as follows:
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(a) Income from the sale of oil or gas production (and any credits
under Section 29 of the Internal Revenue Code with respect thereto) shall be
allocated in the same manner as revenue therefrom is allocated and credited
pursuant to Section 4.2.
(b) Cost and percentage depletion deductions and the gain or loss on
the sale or other disposition of property the production from which is subject
to depletion (herein sometimes called "DEPLETABLE PROPERTY") shall be computed
separately by the Partners rather than the Partnership. For purposes of Section
613A(c)(7)(D) of the Internal Revenue Code, the Partnership's adjusted basis in
each Depletable Property contributed to the Partnership by the General Partner
shall be allocated to the General Partner and the Partnership's adjusted basis
in any other Depletable Property shall be allocated in proportion to each
Partner's respective share of the costs and expenses which entered into the
Partnership's adjusted basis for such Depletable Property. The amount realized
on the sale or other disposition of each Depletable Property shall be allocated
to the Partners in proportion to each Partner's respective share of the revenue
from the sale or other disposition of such property provided for in Section 4.2.
For purposes of allocating amounts realized upon any such sale or disposition
which are deemed to be received for federal income tax purposes and are
attributable to Partnership indebtedness or indebtedness to which the Depletable
Property is subject at the time of such sale or disposition, such amounts shall
be allocated in the same manner as Partnership revenues used for the repayment
of such indebtedness would have been allocated under Section 4.2(b).
(c) Items of deduction, loss and credit not specifically provided for
above (other than loss from the sale or other disposition of Depletable
Property), shall be allocated to the Partners in the same manner that the costs
and expenses of the Partnership that gave rise to such items of deduction, loss
and credit were allocated pursuant to Section 4.1.
(d) Gain from the sale or other disposition of Partnership property
that is not specifically provided for above shall be allocated to the Partners
in a manner which reflects each Partner's allocable share of the revenue from
the sale of the Partnership property provided for in Section 4.2, and loss from
the sale or other disposition of Partnership property that is not specifically
provided for above shall be allocated to the Partners in a manner which reflects
each Partner's allocable share of the costs and expenses of the Partnership
property provided for in Section 4.1.
(e) All recapture of income tax deductions resulting from the sale or
other disposition of Partnership property shall, to the maximum extent possible,
be allocated to the Partner to whom the deduction that gave rise to such
recapture was allocated hereunder to the extent that such Partner is allocated
any gain from the sale or other disposition of such property.
(f) Any other items of Partnership income or gain not specifically
provided for above shall be allocated in the same manner as the revenue that
resulted in such income or gain is allocated and credited pursuant to Section
4.2.
(g) Notwithstanding any of the foregoing provisions of this Section 4.3
to the contrary:
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(i) If during any fiscal year of the Partnership there is a
net increase in Minimum Gain attributable to a Partner Nonrecourse Debt
that gives rise to Partner Nonrecourse Deductions, each Partner bearing
the economic risk of loss for such Partner Nonrecourse Debt shall be
allocated items of Partnership deductions and losses for such year
(consisting first of cost recovery or depreciation deductions with
respect to property that is subject to such Partner Nonrecourse Debt
and then, if necessary, a pro rata portion of the Partnership's other
items of deductions and losses, with any remainder being treated as an
increase in Minimum Gain attributable to Partner Nonrecourse Debt in
the subsequent year) equal to such Partner's share of Partner
Nonrecourse Deductions, as determined in accordance with applicable
Treasury Regulations.
(ii) If for any fiscal year of the Partnership there is a net
decrease in Minimum Gain attributable to Partnership Nonrecourse
Liabilities, each Partner shall be allocated items of Partnership
income and gain for such year (consisting first of gain recognized,
including Simulated Gain, from the disposition of Partnership property
subject to one or more Partnership Nonrecourse Liabilities and then, if
necessary, a pro rata portion of the Partnership's other items of
income and gain for that year, and if necessary, for subsequent years)
equal to such Partner's share of such net decrease (except to the
extent such Partner's share of such net decrease is caused by a change
in debt structure with such Partner commencing to bear the economic
risk of loss as to all or part of any Partnership Nonrecourse Liability
or by such Partner contributing capital to the Partnership that the
Partnership uses to repay a Partnership Nonrecourse Liability), as
determined in accordance with applicable Treasury Regulations.
(iii) If for any fiscal year of the Partnership there is a net
decrease in Minimum Gain attributable to a Partner Nonrecourse Debt,
each Partner bearing the economic risk of loss for such Partner
Nonrecourse Debt shall be allocated items of Partnership income and
gain for such year (consisting first of gain recognized, including
Simulated Gain, from the disposition of Partnership property subject to
Partner Nonrecourse Debt, and then, if necessary, a pro rata portion of
the Partnership's other items of income and gain, and if necessary, for
subsequent years) equal to such Partner's share of such net decrease
(except to the extent such Partner's share of such net decrease is
caused by a change in debt structure or by the Partnership's use of
capital contributed by such Partner to repay Partner Nonrecourse Debt)
as determined in accordance with applicable Treasury Regulations.
(h) The General Partner shall use all reasonable efforts to prevent any
allocation or distribution from causing a negative balance in the Limited
Partner's Adjusted Capital Account. Consistent therewith, and notwithstanding
any of the foregoing provisions of this Section 4.3 to the contrary, if for any
fiscal year of the Partnership the allocation of any loss or deduction (net of
any income or gain) to any Partner would cause or increase a negative balance in
such Partner's Adjusted Capital Account as of the end of such fiscal year (a
"DEFICIT PARTNER") after taking into account the provisions of subsection (g) of
this Section 4.3, only the amount of such loss or deduction that reduces the
balance to zero shall be allocated to such Deficit Partner and the remaining
loss or deduction shall be allocated to the Partners whose Adjusted Capital
Accounts have a positive balance remaining at such time (the "POSITIVE
PARTNERS") in proportion
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to such positive balances. After any such allocation, any Partnership income or
gain (including Simulated Gain) that would otherwise be allocated to the Deficit
Partner shall be allocated instead to the Positive Partners up to an amount
equal to the Partnership loss or deduction allocated to the Positive Partners
under the preceding sentence; provided, however, that no allocation of income,
gain or amount realized shall be made under this sentence if the effect of such
allocation would be to cause the Adjusted Capital Account of a Deficit Partner
to be less than zero. If, after taking into account the allocation in the first
sentence of this Section 4.3(h), the Adjusted Capital Account balance of a
Deficit Partner remains less than zero at the end of a fiscal year, a pro rata
portion of each item of Partnership income or gain (including Simulated Gain)
otherwise allocable to the Positive Partners for such fiscal year (or if there
is no such income or gain allocable to the Positive Partners for such fiscal
year, all such income or gain (including Simulated Gain) so allocable in the
succeeding fiscal year or years) shall be allocated to the Deficit Partner in an
amount necessary to cause its Adjusted Capital Account balance to equal zero;
provided that if there is more than one Deficit Partner, such income or gain
shall be allocated to all Deficit Partners in proportion to their negative
Adjusted Capital Accounts; and provided further that no allocation under this
sentence shall have the effect of causing any Positive Partner's Adjusted
Capital Account to be less than zero. After any such allocation, any Partnership
gain (including Simulated Gain) resulting from the sale or other disposition of
Partnership property that would otherwise be allocated to a Deficit Partner for
any fiscal year under this Section 4.3 shall be allocated instead to the
Positive Partners until the amount of gain so allocated equals the amount of
gain previously allocated to such Deficit Partner under the preceding sentence
of this Section 4.3(h); provided, however, that no allocation of gain shall be
made under this sentence if the effect of such allocation would be to cause the
Adjusted Capital Account of a Deficit Partner to be less than zero.
(i) Notwithstanding anything to the contrary herein, in accordance with
Section 704(c) of the Internal Revenue Code and the Treasury Regulations
thereunder, income, gain, loss and deductions with respect to any property
contributed to the Partnership or with respect to which a revaluation pursuant
to Treasury Regulation ss. 1.704-1(b)(2)(iv)(f) has occurred shall, solely for
federal income tax purposes, be allocated among the Partners in a manner to take
into account any variation between the adjusted tax basis of such property to
the Partnership and its fair market value. In making such allocations, the
General Partner shall use the traditional method with curative allocations as
set forth in Treasury Regulation ss. 1.704-3(c) limited to similar items of
depreciation deductions for depreciable assets and depletion deductions for
depletable assets, unless otherwise agreed by all Partners.
SECTION 4.4. DISTRIBUTIONS. At least monthly (commencing the first
month after the receipt by the Partnership of its first revenues), all cash
funds of the Partnership (exclusive of Capital Contributions, any borrowed funds
and any dry hole and bottom hole and similar contributions) which the General
Partner reasonably determines are not needed for the payment of any existing or
reasonably foreseeable Partnership obligations and expenditures shall be
distributed to the Partners; provided, however, that notwithstanding the
foregoing or any other provision contained in this Agreement, (a) unless a
Limited Partner otherwise consents in writing or defaults in the payment of any
Capital Contributions previously agreed to be made by it, the General Partner
shall not be entitled to cause the Partnership to retain any of a Limited
Partner's share of Partnership revenues for the purpose of paying (directly or
indirectly) any Capital Costs
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or Acquisition Costs, (b) the Partnership may retain such insurance proceeds and
other amounts as the General Partner shall reasonably determine are necessary to
pay Partnership liabilities and expenses, to restore, preserve and protect
Partnership property upon the occurrence of an accident (e.g., a blowout),
catastrophe or similar event or to comply with all applicable environmental
laws, ordinances, rules and regulations and (c) the General Partner shall be
entitled to cause the Partnership to retain the Limited Partners' share of
revenues for the purpose of paying their allocable share hereunder of any
Unexpected Well Costs. All such cash funds of the Partnership shall be
distributed to the Partners in the same respective percentages as the revenues
to which such cash funds are attributable were allocated to the Partners
pursuant to Sections 3.3 and 4.2 (after deducting therefrom the costs and
expenses charged to the Partnership pursuant to Sections 3.3 and 4.1 and
elsewhere herein); provided, however, that if Payout would occur as a result of
a distribution of cash funds to the Limited Partners, such distribution shall be
deemed to constitute two distributions: (i) the first distribution shall consist
of the amount of cash funds necessary to cause Payout to occur and (ii) the
second distribution shall consist of the balance of the funds then distributed;
provided, further, that if, under Section 3.2(c), any portion of the Limited
Partners' Capital Contributions referenced in Section 3.2(c) to pay the
Placement Fee is used by the Partnership to pay Lease Operating and Production
Costs for the month of December 1995, then all such cash funds shall first be
used to pay the balance of the Placement Fee due and owing. The calculation of
each monthly distribution shall be made pursuant to Section 8.2(d). Payment of
all distributions made by the Partnership to each Limited Partner shall be made
by wire transfer of immediately available funds in accordance with such written
instructions to the General Partner as may be provided by such Limited Partner
from time to time. Nothing contained in this Section 4.4 shall relieve the
General Partner from its obligation to bear 100% of Catastrophe Costs pursuant
to Section 4.1(a).
SECTION 4.5. ALLOCATION AMONG LIMITED PARTNERS. Subject to Section 3.3,
all Partnership items of costs, expenses, deductions (other than depletion),
credits, income, revenues, gain and loss (other than gain or loss from the sale
or other disposition of Depletable Property) to be allocated, charged or
credited to the Limited Partners shall be allocated, charged or credited to each
Limited Partner as follows: with respect to the Initial Properties, 37.5232% to
ECIC and 62.4768% to EnCap LP; and, with respect to the Taylor Properties, 50%
to ECIC and 50% to EnCap LP.
SECTION 4.6. WITHHOLDING. The General Partner shall be entitled to
withhold from distributions made to the Partners any taxes required to be
withheld under applicable law. Amounts so withheld shall upon payment to the
appropriate taxing authority be treated as distributions to the Partner for
whose account the funds are withheld.
ARTICLE V
PARTNERSHIP PROPERTY
SECTION 5.1. TITLE TO PARTNERSHIP PROPERTY. All property owned by the
Partnership, whether real or personal, tangible or intangible, shall be deemed
to be owned by the Partnership as an entity, and no Partner, individually, shall
have any ownership of such property. The Partnership shall hold all of its
assets in the name of the Partnership. The General Partner shall
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promptly take all such action as it shall deem necessary or appropriate, or as
may be required by law, to perfect and preserve the ownership interest of the
Partnership in all Leases, and (if requested by a Limited Partner) upon
recordation of title to a Lease shall promptly supply such Limited Partner with
a copy of such recorded title.
SECTION 5.2. ACQUISITION OF THE THIRD PARTY PROPERTIES. The respective
assignments to the Partnership of the Third Party Properties (the "THIRD PARTY
PROPERTY ASSIGNMENTS"), shall be substantially in the form of the instruments
attached to the Original Agreement as Exhibit 5.2 (with respect to the Aspen
Properties and the Westar Properties) and in the form of the instrument approved
by the Partners in all material respects (with respect to the Taylor
Properties).
SECTION 5.3. ACQUISITIONS OF ADDITIONAL INTERESTS IN THE PROPERTIES;
AREA OF MUTUAL INTEREST.
(a) If, during the term of this Agreement, the General Partner or an
Affiliate thereof acquires (or proposes to acquire) an additional interest in
the Properties, the terms and provisions of this Section 5.3(a) shall be
operative. Specifically, upon the acquisition (or proposed acquisition) under
the circumstances described above, the General Partner shall notify the Limited
Partners, which notice shall (i) specify the additional interest the General
Partner or its Affiliates have acquired (or propose to acquire) in the
Properties, (ii) specify the purchase price (or proposed purchase price), and
(iii) include such other information as the General Partner deems material.
Thereafter, the General Partner shall promptly furnish to the Limited Partners
any additional information concerning the acquisition (or proposed acquisition)
as a Limited Partner may reasonably request and which is in the possession of
the General Partner or its Affiliates or can be obtained without undue effort or
expense. Subject to the Limited Partners agreeing to make additional Capital
Contributions to the Partnership pursuant to Section 3.3, the Partnership shall
acquire the additional interest of the General Partner and Affiliates in the
Properties (or, if applicable, which the General Partner and Affiliates propose
to acquire). In connection with any acquisition of an interest by the
Partnership pursuant to this Section 5.3(a), the General Partner or an Affiliate
thereof shall not retain from or otherwise burden the interest assigned to the
Partnership with any overriding royalty, net profits interest, carried interest,
reversionary interest, production payment or other burden in favor of itself,
its officers, directors or employees.
(b) If, during the five-year period commencing on the Delivery Date,
the General Partner or an Affiliate thereof enters into a letter of intent (or
similar type of instrument) or purchase agreement with respect to the proposed
acquisition of a Lease or Leases that have proved reserves attributable thereto
and are located within the Area of Mutual Interest (exclusive of any proposed
acquisition pursuant to subsection (a) above), the terms and provisions of this
Section 5.3(b) shall be operative. Specifically, upon the occurrence of the
circumstances described above, the General Partner shall notify the Limited
Partners, which notice shall (i) specify the interest the General Partner or its
Affiliates propose to acquire in the subject Leases, (ii) specify the purchase
price (or proposed purchase price), (iii) describe the development and/or
Enhanced Recovery Operations, if any, the General Partner reasonably anticipates
will be engaged in on the subject Leases and the estimated costs associated
therewith, (iv) include a summary of the pertinent geological and geophysical
data relating to the subject Leases or
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proposed development/Enhanced Recovery Operations, (v) include financial
projections relating to the subject Leases and any internally or externally
prepared related engineering or reserve reports, (vi) describe the nature and
extent of planned title examination and property related due diligence
(including, without limitation, environmental due diligence) and (vii) such
other information as the General Partner deems material. Thereafter, the General
Partner shall promptly furnish to the Limited Partners any additional
information concerning the subject Leases or the proposed development/Enhanced
Recovery Operations as a Limited Partner may reasonably request (including,
without limitation, the reports of consultants and outside engineers). The
Limited Partners shall have 30 days from the date of receipt by them of all
material information reasonably necessary in order to make an informed decision
on whether or not to offer to finance the proposed acquisition and related
activities to tender in writing to the General Partner an offer to finance such
acquisition and related activities. If the Limited Partners decline to make such
a financing proposal or fail to tender such financing proposal within the
aforementioned 30-day period, the General Partner (or Affiliate thereof) shall
be entitled to effectuate the proposed acquisition and related activities on
such terms and in any manner it so elects. If the Limited Partners tenders a
financing proposal on a timely basis, the General Partner (or Affiliate thereof)
may finance the proposed acquisition and related activities with a third party
not the Limited Partners only on terms more favorable to the General Partner
than those contained in the Limited Partners' financing proposal (which
determination as to favorability shall be made by mutual agreement of the
Partners in good faith).
SECTION 5.4. LEASE SALES.
(a) Except as provided in this Section 5.4, in Section 6.2(d) and
elsewhere herein, the General Partner may sell, farm-out, abandon or otherwise
dispose of any Partnership Lease, on such terms as the General Partner deems
reasonable and in the best interests of the Partnership and the Limited
Partners.
(b) Except as expressly permitted in Sections 3.3 and 10.3, neither the
General Partner or any of its Affiliates nor any of their employees shall
acquire, directly or indirectly, any Lease (or any interest therein) from the
Partnership.
SECTION 5.5. SALES OF PRODUCTION. The General Partner shall have the
right to cause the Partnership to sell any oil or gas produced by or for the
account of the Partnership, including but not limited to crude oil, condensate,
natural gas liquids and natural gas (including casinghead gas) which may be
produced from or allocated to the Properties or any additional Leases acquired
pursuant to the terms hereof, to such purchaser and on such terms and conditions
as the General Partner shall determine to be in the best interest of the
Partnership; provided, however, that all such sales shall be upon terms and
conditions which are the best terms and conditions available as determined in
good faith by the General Partner taking into account all relevant
circumstances, including but not limited to, price, quality of production,
access to markets, minimum purchase guarantees, identity of purchaser, and
length of commitment. Notwithstanding anything to the contrary contained herein,
neither the General Partner nor any of its Affiliates shall purchase any oil or
gas produced by or for the account of the Partnership.
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SECTION 5.6. OPERATING AGREEMENTS. Except as otherwise noted on Exhibit
5.6, the General Partner shall act as operator in connection with operations on
the Properties and the General Partner shall receive for its account all
compensation and reimbursement provided to the operator under the Operating
Agreements pertaining thereto and identified by the parties hereto as Exhibit
5.6 under which the General Partner is the designated operator; provided,
however, that the charges to the Partnership by the General Partner or any of
its Affiliates under any such Operating Agreement shall be subject to Section
6.8, and in no event shall the terms of any such Operating Agreement vary or
affect this Agreement or the duties and obligations of the General Partner
hereunder. The General Partner shall not substitute another party or operator or
assign its obligations as operator with respect to any Partnership Lease where
it acts as operator prior to the occurrence of Payout (on the Initial
Properties) and Payout No. 2 (on the Taylor Properties) unless required to do so
pursuant to the terms of the operative Operating Agreement; provided, that the
General Partner agrees to resign as operator if the Limited Partners so request
upon the removal of the General Partner pursuant to Section 9.4 or upon the
dissolution of the Partnership pursuant to any of subsections (c), (e), (f),
(h), (i) or (j) of Section 10.1 (and the General Partner agrees to use its
reasonable best efforts to cause the person designated by the Limited Partners
to be the successor operator).
ARTICLE VI
MANAGEMENT
SECTION 6.1. POWER AND AUTHORITY OF GENERAL PARTNER. Except as provided
in Sections 6.2 and elsewhere in this Agreement and except as otherwise provided
by applicable law, the General Partner shall have full and exclusive power and
authority on behalf of the Partnership to manage, control, administer and
operate the properties, business and affairs of the Partnership in accordance
with this Agreement and to do or cause to be done any and all acts deemed by the
General Partner to be necessary or appropriate thereto, and (except as aforesaid
in this Section 6.1) the scope of such power and authority shall encompass all
matters in any way connected with such business or incident thereto.
SECTION 6.2. CERTAIN RESTRICTIONS ON GENERAL PARTNER'S POWER AND
AUTHORITY. Notwithstanding any other provisions of this Agreement to the
contrary, the General Partner shall not have the power or authority to, and
shall not, do, perform or authorize any of the following without the prior
written consent of the Limited Partners:
(a) To borrow any money in the name or on behalf of the Partnership, or
otherwise draw, make, execute and issue promissory notes and other negotiable or
non-negotiable instruments and evidences of indebtedness, except that the
General Partner may borrow money in the name and on behalf of the Partnership in
such amounts as the General Partner shall reasonably determine are necessary to
preserve and protect Partnership property upon the occurrence of an accident
(e.g., a blowout), catastrophe or similar event or to comply with all applicable
environmental laws, ordinances, rules and regulations;
(b) To mortgage, pledge, assign in trust or otherwise encumber any
Partnership property, or to assign any monies owing or to be owing to the
Partnership, except to secure the
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payment of any borrowing permitted in Section 6.2(a) and except for customary
liens contained in or arising under any operating agreements, construction
contracts and similar agreements executed by or binding on the Partnership,
provided that in no event shall the General Partner mortgage, pledge, assign in
trust or otherwise encumber the Partnership's right to receive Capital
Contributions from the Limited Partners;
(c) To guarantee in the name or on behalf of the Partnership the
payment of money or the performance of any contract or other obligation of any
person except for responsibilities customarily assumed under operating
agreements considered standard in the industry;
(d) To sell, assign, farm-out, abandon or otherwise dispose of any
Partnership Lease except such Leases or interests therein as the General Partner
shall reasonably determine to be necessary to raise funds to pay Partnership
liabilities and expenses (other than Catastrophe Costs) and to restore, preserve
and protect Partnership property upon the occurrence of an accident, catastrophe
or similar event or to comply with all applicable environmental laws,
ordinances, rules and regulations;
(e) To drill any Exploratory Well;
(f) To make any advance payments of compensation or other consideration
to the General Partner or any of its Affiliates;
(g) To bind or obligate the Partnership with respect to any matter
outside the scope of the Partnership business;
(h) To merge or consolidate the Partnership with any partnership or
other person or entity, convert the Partnership to a general partnership or
other entity or agree to an exchange of interests with any other person;
(i) To use the Partnership name, credit or property for other than
Partnership purposes;
(j) To loan any Partnership funds to the General Partner or any of its
Affiliates;
(k) To enter into any Hedging Transaction;
(l) To acquire any Lease in violation of the terms of this Agreement;
(m) To compromise or settle any lawsuit, administrative matter or other
dispute where the amount the Partnership may recover or might be obligated to
pay, as applicable, is in excess of $25,000 or to repair or replace Partnership
property damaged or destroyed as a result of an accident or other occurrence
when the Partnership's share of the costs of repair or replacement (either
individually or in the aggregate) is equal to or in excess of $100,000;
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(n) To alter, supplement, modify or amend the GP Assignment or the
Third Party Property Assignments, waive any of the Partnership's rights or any
of assignor's duties thereunder or make any material election or agreement
thereunder;
(o) To alter, supplement, modify or amend any Purchase Agreement, waive
any of the purchaser's rights or any of seller's duties thereunder or make any
material election or agreement thereunder; and
(p) Except as expressly provided herein, to take any action with
respect to the assets or property of the Partnership which would reasonably be
expected to benefit the General Partner or any of its Affiliates to the
detriment of the Limited Partners or the Partnership, including, among other
things, utilization of funds of the Partnership as compensating balances for its
own benefit.
SECTION 6.3. DUTIES AND SERVICES OF GENERAL PARTNER. The General
Partner shall comply in all respects with the terms of this Agreement and shall
use its best efforts to cause its Affiliates to comply with the terms of this
Agreement. In the conduct of the business and operations of the Partnership the
General Partner shall cause the Partnership (a) to comply with the terms and
provisions of all agreements to which the Partnership is a party or to which its
properties are subject, (b) to comply with all applicable laws, ordinances or
governmental rules and regulations to which the Partnership is subject
(including, without limitation, all applicable federal, state and local
environmental laws, ordinances, rules and regulations) and (c) to obtain and
maintain all licenses, permits, franchises and other governmental authorizations
necessary with respect to the ownership of Partnership properties and the
conduct of Partnership business and operations. With respect to the maintenance,
exploration, development and operation of the Properties and any additional
Leases acquired pursuant to the terms hereof, the General Partner shall have the
standard of care of a prudent and diligent operator. With respect to the Limited
Partners and their interests in the Partnership, the General Partner shall have
the duties set forth in Section 4.04 of the Texas Revised Partnership Act and
shall discharge such as provided in Section 4.04(d) of the Texas Revised
Partnership Act, provided that (i) the General Partner shall at all times act
with integrity and in good faith and utilize its reasonable best efforts in all
activities relating to the conduct of the business of the Partnership and in
resolving conflicts of interest; (ii) during the existence of the Partnership,
the General Partner shall devote such time and effort to the Partnership
business and operations as shall be necessary to promote fully the interests of
the Partnership and the mutual best interests of the Partners; however, it is
specifically understood and agreed that the General Partner shall not be
required to devote full time to Partnership business; and (iii) subject to the
other express provisions of this Agreement, each Limited Partner acknowledges
that the General Partner currently engages in and possesses, and agrees that the
General Partner may continue to engage in and possess, interests in other
business ventures of any and every type and description, independently or with
others, including without limitation the ownership, acquisition, exploration,
development, operation and management of oil and gas properties, oil and gas
drilling programs and partnerships similar to this Partnership, and (subject to
the other express provisions of this Agreement) neither the Partnership nor any
Limited Partner shall by virtue of this Agreement have any right, title or
interest in or to such independent ventures. With respect to the maintenance and
safekeeping of Partnership funds, the General Partner shall owe the Partnership
and the Limited Partners a
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fiduciary duty. The General Partner covenants and agrees that it will at all
times have available to it and the Partnership a professional staff and outside
consultants which together will be reasonably adequate in size, experience and
competency to discharge properly the duties and functions of the General Partner
hereunder and under any applicable operating and other agreements, including
without limitation, engineers, geologists and other technical personnel,
attorneys, accountants and secretarial and clerical personnel.
SECTION 6.4. LIABILITY OF GENERAL PARTNER. The General Partner and its
officers, employees and agents (all of such foregoing persons being herein
called an "INDEMNITEE") shall not be liable, responsible or accountable in
damages or otherwise to the Partnership or the Limited Partners for, and
(subject to Section 6.5) the Partnership shall indemnify and save harmless the
General Partner and each Indemnitee from any costs, expenses, losses or damages
(including attorneys' fees and expenses, court costs, judgments and amounts paid
in settlement) incurred by reason of its being General Partner or an Indemnitee,
provided it has acted in good faith on behalf of the Partnership and the Limited
Partners and in a manner reasonably believed by it to be within the scope of the
authority granted to it by this Agreement and in the best interests of the
Partnership, and provided further that (a) the General Partner or Indemnitee was
not guilty of a material breach of this Agreement, gross negligence, willful or
wanton misconduct or breach of fiduciary duty with respect to such acts or
omissions, and (b) the satisfaction of any indemnification and any saving
harmless shall be from and limited to Partnership assets (which shall be
converted to cash to the extent necessary in a manner appropriate to protect the
interests of all Partners) and not from any Capital Contributions to be made by
the Limited Partners hereunder, and no Limited Partner shall have any personal
liability on account thereof.
SECTION 6.5. LIMITATIONS ON INDEMNIFICATION. The rights of the General
Partner or an Indemnitee under Section 6.4 with respect to indemnification from
the Partnership shall be subject to the provisions of Article 11 of the Act. Any
indemnification under Section 6.4 shall be made by the Partnership only as
permitted herein and, unless the General Partner or Indemnitee was wholly
successful on the merits, only upon a determination by a court upon the request
of the General Partner or by independent legal counsel selected by the General
Partner and satisfactory to the Limited Partners in a written opinion that
indemnification of the General Partner or Indemnitee is permitted (a) under the
circumstances because it has met the applicable standard of conduct set forth in
Section 6.4 and (b) pursuant to Article 11 of the Act.
SECTION 6.6. COSTS, EXPENSES AND REIMBURSEMENT.
(a) Subject to the other express provisions of this Agreement, all
direct, third party out-of-pocket costs and expenses reasonably incurred in the
Partnership's business shall be paid from Partnership funds, including without
limitation costs of reports under Section 8.2, costs of obtaining audits of the
Partnership's books and records, outside legal costs, general taxes and other
direct costs and expenses of the Partnership.
(b) Except as specifically provided in Section 5.6, this Section 6.6
and Section 6.7, the General Partner and its Affiliates shall not be paid any
fee, compensation or reimbursement or be entitled to or charge the Partnership
for or on account of their services, services of their officers, employees or
consultants, fees or compensation of those geologists, geophysicists and
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engineers who are employed or retained by them, office expense, overhead or any
other general and administrative costs.
SECTION 6.7. ORGANIZATION COSTS.
(a) The Partnership from time to time shall pay directly or shall
reimburse the General Partner and the Limited Partners for any payment by them
of the following fees and expenses in connection with the acquisition of the
Properties and the organization of the Partnership ("ORGANIZATION COSTS"): (i)
all reasonable fees and expenses incurred by them (including fees for outside
legal services) in connection with the preparation and filing of all
certificates, opinions and documents required pursuant to Sections 1.2 and 1.6,
(ii) all reasonable fees and expenses of legal counsel to the General Partner
and other third parties retained by the General Partner in connection with the
negotiation, preparation and execution of this Agreement and all related
documents, (iii) all fees and expenses incurred by the Limited Partners in
obtaining reports of outside consultants and advisors relating to the
determination of appropriate insurance coverage for the Partnership, (iv) all
fees and expenses of engineers and other outside consultants retained by the
Limited Partners in connection with their decision to enter into this Agreement,
(v) all reasonable fees and expenses of legal counsel to the Limited Partners in
connection with the negotiation, preparation and execution of this Agreement and
all related documents, (vi) all reasonable fees and expenses of legal counsel to
the Limited Partners in connection with the Limited Partners' consideration of
any waiver of their rights under this Agreement or any proposed amendment or
supplement to Agreement and (vii) that certain PLACEMENT FEE (as herein called)
in the amount of $50,000 due and owing to EnCap Investments L.C. by the General
Partner.
(b) The Partnership from time to time shall pay directly or shall
reimburse the General Partner and the Limited Partners for any payment by them
of the following fees and expenses (the "TAYLOR AMENDMENT COSTS"): (i) all
reasonable fees and expenses of Netherland Sewell & Associates,Inc. in
connection with the evaluation of the Taylor Properties, (ii) all reasonable
fees and expenses of the environmental consultant retained by the General
Partner in connection with the environmental review of the Taylor Properties,
(iii) all reasonable fees and expenses of legal counsel to the General Partner
in connection with the negotiation, preparation and execution of this Agreement
and all related documents, (iv) all fees and expenses of engineers and other
outside consultants retained by the Limited Partners in connection with their
decision to enter into this Agreement, (v) all reasonable fees and expenses of
legal counsel to the Limited Partners in connection with (A) the negotiation,
preparation and execution of this Agreement and all related documents and (B)
the review of title and other due diligence with respect to, and the transfer to
the Partnership of, the Taylor Properties, and (vi) that certain TAYLOR
PLACEMENT FEE (as herein called) in the amount of $47,000 due and owing to EnCap
Investments L.C. by the General Partner.
SECTION 6.8. CONTRACTS WITH AFFILIATES. The Partnership may enter into
contracts and agreements with the General Partner and its Affiliates for the
rendering of services and the sale and lease of supplies and equipment, provided
that the amount of the compensation, price or rental that can be charged to the
Partnership therefor must be no less favorable to the Partnership than those
available from unrelated third parties in the area engaged in the business of
rendering
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comparable services or selling or leasing comparable equipment and supplies
which could reasonably be made available to the Partnership, and provided
further, that any such contract for services shall be terminable by the
Partnership without penalty at any time and for any reason upon written notice.
The Limited Partners shall, upon request, have the right to receive (a) copies
of all contracts and agreements between the Partnership and any General Partner
or its Affiliates and (b) true and full information from the General Partner
verifying compliance with this Section 6.8.
SECTION 6.9. INSURANCE. The General Partner shall cause the Partnership
to obtain (and maintain during the entire term of the Partnership), or the
General Partner shall carry for the benefit of the Partnership, insurance
coverage in such amounts, with provisions for such deductible amounts and for
such purposes as specified in Exhibit 6.9 attached hereto. Where appropriate,
the General Partner may include the Partnership or the Limited Partners as
additional insureds on any policies otherwise carried by the General Partner and
the costs thereof shall be allocated to the Partnership on a basis mutually
agreed upon in writing by the General Partner and the Limited Partners from time
to time. The General Partner shall furnish to the Limited Partners (a) within 10
days after the end of each calendar year, certified copies of all the policies
constituting the insurance coverage agreed upon pursuant to this Section 6.9 and
(b) within 10 days after their issuance or amendment, certified copies of any
new policies issued, or existing policies amended, during any calendar year. The
General Partner shall use its best efforts to cause all the policies
constituting the insurance coverage agreed upon pursuant to this Section 6.9 to
be endorsed to preclude cancellation or reduction of coverage except upon
30-days' written notice to the Limited Partners. In the event the insurance
coverage agreed upon by the General Partner and the Limited Partners pursuant to
this Section 6.9 is or becomes unavailable on the market, the General Partner
shall immediately notify the Limited Partners of such fact and shall use its
best efforts to obtain the maximum coverage of the type of insurance involved
available on the market. The cost of all such insurance coverage shall be
charged to the Partnership as a Partnership expense.
SECTION 6.10. TAX ELECTIONS. The General Partner shall make the
following elections on behalf of the Partnership:
(a) To elect, in accordance with Section 263(c) of the Internal Revenue
Code and applicable regulations and comparable state law provisions, to deduct
as an expense all intangible drilling and development costs with respect to
productive and non-productive wells and the preparation of wells for the
production of oil or gas;
(b) To elect the calendar year as the Partnership's fiscal year if
permitted by applicable law;
(c) To elect the accrual method of accounting;
(d) If requested by a Limited Partner, to elect, in accordance with
Sections 734, 743 and 754 of the Internal Revenue Code and applicable
regulations and comparable state law provisions, to adjust basis in the event
any Partnership interest is transferred in accordance with this Agreement or any
Partnership property is distributed to any Partner;
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(e) To elect to treat all organizational and start-up costs of the
Partnership as deferred expenses amortizable over 60 months under Sections 195
and 709 of the Internal Revenue Code; and
(f) To elect with respect to such other federal, state and local tax
matters as the General Partner and the Limited Partners shall agree upon from
time to time.
SECTION 6.11. TAX RETURNS. The General Partner shall prepare and timely
file all federal, state and local income and other tax returns and reports as
may be required as a result of the business of the Partnership, which returns
shall be signed by the independent certified public accountants of the
Partnership. Not less than 30 days prior to the date (as extended) on which the
Partnership intends to file its federal income tax return or any state income
tax return, the return proposed to be filed by the General Partner shall be
furnished to the Limited Partners for review and comments. In addition, not more
than 10 days after the date on which the Partnership actually files its federal
income tax return or any state income tax return, a copy of the return so filed
by the General Partner shall be furnished to the Limited Partners. The General
Partner shall be designated the tax matters partner under Section 6231 of the
Internal Revenue Code and shall promptly notify the Limited Partners if any tax
return or report of the Partnership is audited or if any adjustments are
proposed by any governmental body. In addition, the General Partner shall
promptly furnish to the Limited Partners all notices concerning administrative
or judicial proceedings relating to federal income tax matters as required under
the Internal Revenue Code. During the pendency of any such administrative or
judicial proceeding, the General Partner shall furnish to the Limited Partners
periodic reports, not less often than monthly, concerning the status of any such
proceeding. Without the consent of the Limited Partners, the General Partner
shall not extend the statute of limitations, file a request for administrative
adjustment, file suit concerning any tax refund or deficiency relating to any
Partnership administrative adjustment or enter into any settlement agreement
relating to any Partnership item of income, gain, loss, deduction or credit for
any fiscal year of the Partnership.
SECTION 6.12. APPOINTMENT OF TRUSTEE TO RECEIVE PAYMENTS. The Limited
Partners may cause the Partnership at the Partnership's expense to assign the
Partnership's right to receive revenues to a trustee named by the Limited
Partners (a) if the General Partner has committed fraud, willful or intentional
misconduct or gross negligence in the performance of its duties hereunder, (b)
if the General Partner is in default in the performance or observation of any
material agreement, covenant, term, condition or obligation hereunder, (c) if a
representation or warranty made by the General Partner herein or by the General
Partner or any of its officers in any writing furnished in connection with or
pursuant to this Agreement shall be false in a material respect on the date as
of which made, or (d) upon the occurrence of any of the events described in
either Section 4.02(a)(4) or in Section 4.02(a)(5) of the Act (except that with
respect to Section 4.02(a)(5) the operative number of days shall be 60 instead
of those set forth in such Section). Such trustee shall receive and hold
Partnership revenues for the benefit of all the Partners, but shall not have the
rights of the General Partner hereunder. The trustee's sole right and
responsibility shall be to receive Partnership funds and disburse them in
accordance with the other provisions of this Agreement. In the event a trustee
is appointed pursuant to this Section 6.13 and the default is cured or the
action or event under or with respect to the bankruptcy law is completely
dismissed or eliminated, the General Partner and the Limited Partners shall, at
the
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request of either the General Partner or the Limited Partners, cause the trustee
to be discharged at the Partnership's expense; provided that in the judgment of
the Limited Partners, their interest under this Agreement will not be adversely
affected by any such discharge.
SECTION 6.13. WESTAR ACQUISITION. Without limiting the other express
terms hereof:
(a) On or promptly after the Delivery Date, the General Partner or the
Partnership, as mutually determined by the Partners, shall enter into the Westar
Escrow Agreement, provided that the form of such agreement is reasonably
acceptable to the Limited Partners. In connection therewith, it is specifically
agreed that the General Partner shall not, without the prior written consent of
the Limited Partners, (i) agree to alter, supplement, modify or amend the Westar
Escrow Agreement, (ii) waive any of Westar's or the Westar Escrow Agent's duties
or obligations thereunder or (iii) make any material election or agreement
thereunder.
(b) The General Partner shall give notice to Westar of "Title Defects"
(as such term is defined in the Westar Purchase Agreement) pursuant to the
Westar Purchase Agreement) in form and content reasonably satisfactory to the
Limited Partners. Any determination under the Westar Purchase Agreement that a
Title Defect has been cured or removed must be reasonably satisfactory to the
Limited Partners and no Title Defect may be waived under the Westar Purchase
Agreement without the prior written consent of the Limited Partners. If a Title
Defect has not been cured or removed or otherwise waived under the Westar
Purchase Agreement, the General Partner shall terminate the Westar Purchase
Agreement, unless the Limited Partners otherwise agree.
ARTICLE VII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNER
SECTION 7.1. RIGHTS OF LIMITED PARTNER. In addition to the other rights
specifically set forth herein or by non-waivable provisions of applicable law,
each Limited Partner shall have the right to: (a) have the Partnership books and
records (including without limitation those required in Section 1.07 of the Act)
kept at the principal United States office of the Partnership and at all
reasonable times to inspect and copy any of them, (b) have on demand true and
full information of all things affecting the Partnership and a formal account of
Partnership affairs whenever circumstances render it just and reasonable, (c)
have dissolution and winding up by decree of court as provided for in the Act
and (d) exercise all rights of a limited partner under the Act (except to the
extent otherwise specifically provided for herein).
SECTION 7.2. LIMITATIONS ON LIMITED PARTNER. No Limited Partner shall
have the authority or power in its capacity as a Limited Partner to act as agent
for or on behalf of the Partnership or any other Partner, to do any act which
would be binding on the Partnership or any other Partner, or to incur any
expenditures on behalf of or with respect to the Partnership. The General
Partner shall not hold out or represent to any third party that any Limited
Partner has any such right or power or that a Limited Partner is anything other
than a "limited partner" in the Partnership.
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SECTION 7.3. LIABILITY OF LIMITED PARTNER. No Limited Partner shall be
liable for the debts, liabilities, contracts or other obligations of the
Partnership except to the extent of any unpaid Capital Contributions agreed to
be made by such Limited Partner as set forth in Section 3.2 (which shall be
subject to reduction as provided for in Section 3.4), any additional Capital
Contributions hereafter agreed to be made by such Limited Partner in accordance
with Sections 3.2A and 3.3 (which shall also be subject to reduction as provided
for in Section 3.4) and such Limited Partner's share of the assets (including
undistributed revenues) of the Partnership; and in all events, such Limited
Partner shall be liable and obligated to make payments of its Capital
Contributions only as and when such payments are due in accordance with the
terms of this Agreement, and such Limited Partner shall not be required to make
any loans to the Partnership. Except to the extent expressly provided in the
preceding sentence, the Partnership shall indemnify and hold harmless each
Limited Partner in the event it (a) becomes liable for any debt, liability,
contract or other obligation of the Partnership or (b) is directly or indirectly
required to make any payments with respect thereto.
SECTION 7.4. ACCESS OF LIMITED PARTNER TO DATA. During the term of the
Partnership, the Partnership may acquire or have access to geophysical,
geological and other similar data and information. Each Limited Partner and its
agents and representatives, at any time either during the term of or after
termination of the Partnership, shall have the right to inspect, review and copy
any such data or information (or studies, maps, evaluations or reports derived
therefrom) which relates to the Properties or other Leases which the Partnership
owns or has owned or which has been paid for with Partnership funds and to
consult with the Partnership's independent certified public accountants and
independent petroleum engineers and the General Partner's technical personnel
with respect to Partnership matters. Upon liquidation of the Partnership, copies
of all such documents shall be distributed to the General Partner and to each
Limited Partner if so requested by it. Notwithstanding the foregoing, the
Limited Partners shall not have the right to inspect, review or copy
geophysical, geological and other similar data and information if the
Partnership or the General Partner is subject to a valid, bona fide agreement
prohibiting such inspection, review or copying. If requested by a Limited
Partner, the General Partner shall attempt to obtain an amendment or waiver of
any such agreement to permit such data or other information to be provided to
such Limited Partner upon the execution by such Limited Partner of a similar
agreement and in any event shall attempt in advance of execution of any such
agreement to obtain permission for the Limited Partners to inspect, review and
copy any such data or other information.
SECTION 7.5. WITHDRAWAL AND RETURN OF CAPITAL CONTRIBUTION. No Limited
Partner shall be entitled to (a) withdraw from the Partnership except upon the
assignment by the Limited Partner of all of its interest in the Partnership and
the substitution of such Limited Partner's assignee as a Limited Partner of the
Partnership in accordance with Section 9.1, or (b) the return of its Capital
Contributions except to the extent, if any, that distributions made pursuant to
the express terms of this Agreement may be considered as such by law or by
unanimous agreement of the Partners, or upon dissolution and liquidation of the
Partnership, and then only to the extent expressly provided for in this
Agreement and as permitted by law.
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ARTICLE VIII
BOOKS, RECORDS, REPORTS AND BANK ACCOUNTS
SECTION 8.1. CAPITAL ACCOUNTS, BOOKS AND RECORDS.
(a) Except as may otherwise be required by this Agreement, the General
Partner shall keep books of account for the Partnership in accordance with
generally accepted accounting principles consistently applied in accordance with
the terms of this Agreement. Such books shall be maintained at the principal
United States office of the Partnership and shall be maintained by the General
Partner for review by the Limited Partners during the term of the Partnership
and for a period of five years thereafter. The calendar year shall be selected
as the accounting year of the Partnership and the books of account shall be
maintained on an accrual basis.
(b) An individual capital account shall be maintained by the
Partnership for each Partner as provided below:
(i) The capital account of each Partner shall, except as
otherwise provided herein, be (A) credited by such Partner's Capital
Contributions when made, (B) credited by the fair market value of any
property contributed to the Partnership by such Partner (net of
liabilities secured by such contributed property that the Partnership
is considered to assume or take subject to under Section 752 of the
Internal Revenue Code), (C) credited with the amount of any item of
taxable income or gain and the amount of any item of income or gain
exempt from tax allocated to such Partner, (D) credited with the
Partner's share of Simulated Gain as provided in paragraph (ii) of this
Section 8.1(b), (E) debited by the amount of any item of tax deduction
or loss allocated to such Partner, (F) debited with the Partner's share
of Simulated Loss and Simulated Depletion as provided in paragraph (ii)
of this Section 8.1(b), (G) debited by such Partner's allocable share
of expenditures of the Partnership not deductible in computing the
Partnership's taxable income and not properly chargeable as capital
expenditures, including any non-deductible book amortizations of
capitalized costs, and (H) debited by the amount of cash or the fair
market value of any property distributed to such Partner (net of
liabilities secured by such distributed property that such Partner is
considered to assume or take subject to under Section 752 of the
Internal Revenue Code). Immediately prior to any distribution of assets
by the Partnership that is not pursuant to a liquidation of the
Partnership or all or any portion of a Partner's interest therein, the
Partners' capital accounts shall be adjusted by (X) assuming that the
distributed assets were sold by the Partnership for cash at their
respective fair market values as of the date of distribution by the
Partnership and (Y) crediting or debiting each Partner's capital
account with its respective share of the hypothetical gains or losses,
including Simulated Gains and Simulated Losses, resulting from such
assumed sales in the same manner as each such capital account would be
debited or credited for gains or losses on actual sales of such assets.
Notwithstanding the foregoing sentence, the Partnership shall not
distribute any property in kind to any Partner except as provided in
Section 10.3.
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(ii) The allocation of basis prescribed by Section
613A(c)(7)(D) of the Internal Revenue Code and provided for in Section
4.3(b) and each Partner's separately computed depletion deductions
shall not reduce such Partner's capital account, but such Partner's
capital account shall be decreased by an amount equal to the product of
the depletion deductions that would otherwise be allocable to the
Partnership in the absence of Section 613A(c)(7)(D) of the Internal
Revenue Code (computed without regard to any limitations which
theoretically could apply to any Partner) times such Partner's
percentage share of the adjusted basis of the property (determined
under Section 4.3(b)) with respect to which such depletion is claimed
(herein called "SIMULATED DEPLETION"). The Partnership's basis in any
depletable property as adjusted from time to time for the Simulated
Depletion allocable to all Partners (and where the context requires,
each Partner's allocable share thereof, which share shall be determined
in the same manner as the allocation of basis prescribed in Section
4.3(b)) is herein called "SIMULATED BASIS". No Partner's capital
account shall be decreased, however, by Simulated Depletion deductions
attributable to any Depletable Property to the extent such deductions
exceed such Partner's allocable share of the Partnership's remaining
Simulated Basis in such property. The Partnership shall compute
simulated gain ("SIMULATED GAIN") or simulated loss ("SIMULATED LOSS")
attributable to the sale or other disposition of a Depletable Property
based on the difference between the amount realized from such sale or
other disposition and the Simulated Basis of such property, as
theretofore adjusted. Any Simulated Gain shall be allocated to the
Partners and shall increase their respective capital accounts in the
same manner as the amount realized from such sale or other disposition
in excess of Simulated Basis shall have been allocated pursuant to
Section 4.3(b). Any Simulated Loss shall be allocated to the Partners
and shall reduce their respective capital accounts in the same
percentages as the costs of the property sold were allocated up to an
amount equal to each Partner's share of the Partnership's Simulated
Basis in such property at the time of such sale.
(iii) Any adjustments of basis of Partnership property
provided for under Sections 734 and 743 of the Internal Revenue Code
and comparable provisions of state law (resulting from an election
under Section 754 of the Internal Revenue Code or comparable provisions
of state law) and any election by an individual Partner under Section
59(e)(4) of the Internal Revenue Code to amortize such Partner's share
of intangible drilling and development costs shall not affect the
capital accounts of the Partners (unless otherwise required by
applicable Treasury Regulations), and the Partners' capital accounts
shall be debited or credited pursuant to the terms of this Section 8.1
as if no such election had been made.
(iv) Capital accounts shall be adjusted, in a manner
consistent with this Section 8.1, to reflect any adjustments in items
of Partnership income, gain, loss or deduction that result from amended
returns filed by the Partnership or pursuant to an agreement by the
Partnership with the Internal Revenue Service or a final court
decision.
(v) If any property is carried on the books of the Partnership
at a value that differs from its adjusted tax basis, the Partners'
capital accounts shall be debited or credited for items of
depreciation, cost recovery, Simulated Depletion, amortization and
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gain or loss with respect to such property computed in the same manner
as such items would be computed if the adjusted tax basis of such
property were equal to such book value, in lieu of the capital account
adjustments provided above for such items, all in accordance with
Treasury Regulation ss. 1.704-1(b)(2)(iv)(g).
(vi) It is the intention of the Partners that the capital
accounts of each Partner be kept in the manner required under Treasury
Regulation ss. 1.704-1(b)(2)(iv). To the extent any additional
adjustment to the capital accounts is required by such regulation, the
General Partner is hereby authorized to make such adjustment after
notice to the Limited Partners.
SECTION 8.2. REPORTS. The General Partner shall deliver to the Limited
Partners the following financial statements and reports at the times indicated
below:
(a) Daily, via facsimile, when the Partnership has any direct drilling
operations in progress, a drilling report detailing the progress as reported by
the subject drilling superintendent.
(b) Monthly, within 20 days after the end of the month for which such
report is given, while the Partnership has any direct drilling or enhanced
recovery operations in progress, a report disclosing in reasonable detail the
progress of such drilling operations on a well-by-well basis, such enhanced
recovery operations and such other information as the General Partner may
determine or a Limited Partner shall reasonably request.
(c) Monthly, within 20 days after the end of the month for which such
report is given, (i) a general description of the Properties, except succeeding
reports need contain only material changes (if any) regarding the Properties,
(ii) a list of wells in which the Partnership has an interest, a description of
the status thereof and the interest of the Partnership therein, except
succeeding reports need contain only material changes (if any) regarding any
such well, (iii) a statement of the cost of each well completed or abandoned and
an explanation of the abandonment of any well which has been abandoned after
production from such well has commenced and (iv) a description of each sale,
farmout or other transfer or disposition by the Partnership of any Lease
occurring during such month, including the reasons therefor, parties thereto and
terms thereof.
(d) Monthly, within 50 days after the end of each month for which such
report is given, a draft schedule prepared on a cash basis setting forth (i)
total 8/8ths production of oil and gas from the Properties net to the
Partnership, including the average price net to the Partnership, (ii) total
Partnership revenues, expenses and costs allocated to the Limited Partners,
(iii) the amount of the proposed cash distribution to the General Partner and
the Limited Partners and (iv) a description of any permitted Partnership
borrowing occurring during such month, including the reasons therefor, parties
thereto and terms thereof, together with total Partnership borrowings then
outstanding. A draft schedule describing the specific requirements outlined
above is attached hereto as Exhibit 8.2(d) which will be prepared by the General
Partner to the specific requirement of the Limited Partners. The Limited
Partners may reasonably request sales reports, production reports, invoices,
cancelled checks and other information by each operating expense item,
severance, royalty, production tax item or any other cost item to be included
with such report. The Limited Partners may request such information and reports
at the property level
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in addition to at the Partnership level. A final schedule of the type described
in this Section 8.2(d) shall be submitted no more than 55 days after the end of
the month for which such report is given. Notwithstanding anything else herein
to the contrary, any distribution not received within the 25th day of any month
or, if the 25th day is not a business day, the business day immediately
preceding the 25th day of the month, will be credited as if received in the
following month for the purpose of computing Payout and Payout No. 2. The
distribution, if any, to the Limited Partners shall be submitted with the final
schedule.
(e) Quarterly within 30 days after the end of each fiscal quarter of
the Partnership and annually within 90 days after the end of each fiscal year of
the Partnership, (i) financial statements as of the end of and for such period,
including a balance sheet and the related statements of operations, of Partners'
capital and of cash flows, prepared in accordance with generally accepted
accounting principles and, with respect to the annual financial statements,
accompanied by a report of the Partnership's independent certified public
accountants stating that their examination was made in accordance with generally
accepted auditing standards and that in their opinion such financial statements
fairly present the Partnership's financial position, results of operations and
cash flow in accordance with generally accepted accounting principles
consistently applied, (ii) a schedule reflecting for such period the total costs
of the Partnership and the costs charged to the General Partner and the costs
charged to the Limited Partners, the total revenues of the Partnership and the
revenues credited to the account of the General Partner and to the account of
the Limited Partners and a reconciliation of such expenses and revenues to the
provisions of Article IV, (iii) a summary itemization by type and/or
classification of the total fees, compensation and reimbursement paid by the
Partnership (or indirectly on behalf of the Partnership) to the General Partner
and its Affiliates and a descriptive summary of each contract or agreement to
which Section 6.8 applies (which summary shall include a discussion of such
fees, compensation or reimbursement paid thereunder), which summaries shall be
accompanied by a report of the Partnership's independent certified public
accountants stating that in preparing such summaries nothing came to their
attention which caused them to believe that any transaction between the General
Partner or an Affiliate thereof and the Partnership did not comply with Section
6.6 or Section 6.8, or if they did so conclude, a statement specifying such
noncompliance, (iv) a schedule reflecting the capital account balances of each
Partner prepared pursuant to the provisions of Section 8.1(b), and (v) in the
event that an event has occurred within the preceding 90 days which has led to a
reduction of the Partnership's oil and gas reserves of more than 10% as most
recently reported, excluding reduction resulting from normal production or
changes in oil or gas prices, an updated estimate of such reserves from the
Partnership's independent petroleum engineer. With respect to the annual
financial statements, the Limited Partners may, at their election, request a
report from the independent certified public accountants stating that in the
normal course of making the examination and reporting on the financial
statements described above, nothing came to their attention which caused them to
believe that (1) the revenues and costs and expenses allocated to the Partners
hereunder were not allocated in accordance with the specific allocation
provisions of this Agreement and (2) the General Partner failed to comply in any
material respect with this Agreement, or, if they did conclude that the General
Partner so failed, a statement specifying the nature and period of existence of
such failure. The independent certified public accountants for the Partnership
shall be Price Waterhouse or such other firm of independent certified public
accountants as shall be designated by the General Partner and approved by the
Limited Partners.
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(f) Annually within 90 days after the end of each fiscal year beginning
December 31, 1996, a report containing (i) an estimation of the oil and gas
reserves, classified by appropriate categories, as of the end of the preceding
fiscal year attributable to the interest of the Partnership and of the Limited
Partners therein, (ii) a projection of the rate of production of and net income
from such reserves with respect to each such interest, (iii) a calculation of
the present worth of such net income discounted at a rate of 10% and at any
other rates designated from time to time by the Limited Partners, and (iv) a
schedule or complete description of all assumptions, estimates and projections
made or used in the preparation of such report. Each such report shall be
prepared in accordance with customary and generally accepted standards and
practices for petroleum engineers, and shall be based on (1) oil and gas prices
designated by the Limited Partners after taking into account the oil and gas
prices being utilized by commercial banks in Texas actively engaged in oil and
gas lending, reduced by any gathering, transportation and processing fees, and
escalated at a rate designated by the Limited Partners, (2) lease operating
expenses and production taxes derived from and consistent with those actually
incurred by the Partnership, escalated at the same rate, if any, being applied
to prices, and (3) such other assumptions as shall be designated by the Limited
Partners. In addition to the foregoing, the Limited Partners shall have the
right from time to time at the Partnership's expense to cause the independent
petroleum engineer referenced below to prepare an additional report of the type
described above. Each such report contemplated above by this subsection (f)
shall be prepared by Netherland, Sewell & Associates, Inc. or such other
independent petroleum engineer mutually agreed upon by the Partners and shall
herein be called an "ENGINEERING REPORT".
(g) Annually within 90 days after the end of each fiscal year of the
General Partner, audited financial statements of the General Partner similar to
those required for the Partnership in Section 8.2(e)(i).
(h) Such other reports and financial statements as the General Partner
shall determine or as any Limited Partner shall reasonably request from time to
time.
The cost of such reporting paid to third parties (except pursuant to
Section 8.2(g) shall be paid by the Partnership as a Partnership expense.
SECTION 8.3. BANK ACCOUNTS.
(a) Subject to subsection (b) below, the General Partner shall cause
one or more accounts to be maintained in the name of the Partnership in one or
more banks approved by the Limited Partners which each have capital, surplus and
undivided profits of at least $250,000,000, which accounts shall be used for the
payment of expenditures incurred by the General Partner in connection with the
business of the Partnership and in which shall be deposited any and all receipts
of the Partnership. All amounts shall be and remain the property of the
Partnership and shall be received, held and disbursed by the General Partner for
the purposes specified in this Agreement. There shall not be deposited in any of
such accounts any funds other than funds belonging to the Partnership, and no
other funds shall in any way be commingled with such funds.
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(b) The General Partner may invest the Partnership funds only in (i)
readily marketable securities issued by the United States or any agency or
instrumentality thereof and backed by the full faith and credit of the United
States maturing within 12 months or less from the date of acquisition, (ii)
readily marketable securities issued by any state or municipality within the
United States of America or any political subdivision, agency or instrumentality
thereof, maturing within 12 months or less from the date of acquisition and
rated "A" or better by Moody's and/or Standard and Poor's (or comparably rated
by such organizations or any successors thereto if the rating system is changed
or there are such successors), (iii) readily marketable commercial paper rated
"Prime-1" by Moody's and "A-1" by Standard and Poor's (or comparably rated by
such organizations or any successors thereto if the rating system is changed or
there are such successors) and maturing in not more than 12 months after the
date of acquisition, or (iv) certificates of deposit issued by any incorporated
bank organized and doing business under the laws of the United States of America
or of any state thereof which has capital, surplus and undivided profits of at
least $250,000,000, provided such investments do not exceed 3% of the combined
capital and surplus of such bank and mature within 12 months or less from the
date of acquisition.
SECTION 8.4. INFORMATION RELATING TO THE PARTNERSHIP. Upon request, the
General Partner shall supply to any Limited Partner any information requested
regarding the Partnership or its activities. During ordinary business hours,
each Limited Partner and its authorized agents and representatives shall have
reasonable access to all books, records and materials in the Partnership's
offices regarding the Partnership or its activities and, at the risk of the
Limited Partner, to the drill site of each Partnership well.
SECTION 8.5. CERTAIN NOTICES. The General Partner shall promptly notify
the Limited Partners (a) of any default by the General Partner in the
performance of any of its obligations hereunder, (b) in the event the Limited
Partners become entitled to dissolve the Partnership pursuant to Section 10.1,
immediately after the General Partner becomes aware of such event or (c) if the
Partnership is no longer treated as a partnership for tax purposes.
ARTICLE IX
ASSIGNMENTS OF INTERESTS AND SUBSTITUTIONS
SECTION 9.1. ASSIGNMENTS BY LIMITED PARTNER.
(a) The interest of each Limited Partner in the Partnership shall be
assignable in whole or in part, subject to the following: (i) no such assignment
shall be made if such assignment would result in the violation of any applicable
federal or state securities laws and (ii) the Partnership shall not be required
to recognize any such assignment until the instrument conveying such interest
has been delivered to the General Partner for recordation on the books of the
Partnership.
(b) Unless an assignee becomes a substituted Limited Partner in
accordance with the provisions set forth below, such assignee shall not be
entitled to any of the rights granted to a Limited Partner hereunder, other than
the right to receive allocations of income, gain, loss,
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deduction, credit and similar items and distributions to which the assignor
would otherwise be entitled, to the extent such items are assigned.
(c) An assignee of the interest of a Limited Partner, or any portion
thereof, shall become a substituted Limited Partner entitled to all of the
rights of the Limited Partner if, and only if (i) the assignor gives the
assignee such right, (ii) the General Partner, in its sole and absolute
discretion, consents to such substitution and (iii) the assignee executes and
delivers such instruments, in form and substance reasonably satisfactory to the
General Partner, as the General Partner may deem necessary or desirable to
effect such substitution and to confirm the agreement of the assignee to be
bound by all of the terms and provisions of this Agreement. Upon the
satisfaction of such requirements, the General Partner shall concurrently (or as
of such later date as shall be provided for in any applicable written
instruments furnished to the General Partner) admit any such assignee as a
substituted Limited Partner of the Partnership and reflect such admission and
the date thereof in the records of the Partnership.
(d) The Partnership and the General Partner shall be entitled to treat
the record owner of any Partnership interest as the absolute owner thereof in
all respects and shall incur no liability for distributions of cash or other
property made in good faith to such owner until such time as a written
assignment of such interest that complies with the terms of this Agreement has
been received by the General Partner.
SECTION 9.2. ASSIGNMENT BY GENERAL PARTNER. Prior to Payout No. 2, the
interest of the General Partner in the Partnership shall not be assigned,
mortgaged, pledged, subjected to a security interest or otherwise encumbered, in
whole or in part, without the prior written consent of the Limited Partners in
their sole and absolute discretion. After Payout No. 2, the interest of the
General Partner in the Partnership shall not be assigned without the prior
written consent of the Limited Partners in their sole and absolute discretion.
SECTION 9.3. MERGER OR CONSOLIDATION. Notwithstanding the provisions of
Sections 9.1 or 9.2, the merger or consolidation by a Partner with another
corporation or entity shall not be considered an assignment of an interest in
the Partnership, and upon the merger or consolidation of such Partner, the
resulting corporation or entity shall continue as a Partner.
SECTION 9.4. REMOVAL OF GENERAL PARTNER. Subject to the provisions
hereof, the Limited Partners may remove the General Partner with cause and
select a new General Partner to operate and carry on the business and affairs of
the Partnership. As used in this Section 9.4 and in Section 9.5, "WITH CAUSE"
shall include the occurrence of any of the following: (a) the commission by the
General Partner of fraud, willful or intentional misconduct or gross negligence
in the performance of its duties hereunder; (b) a default by the General Partner
in the performance of its obligation hereunder to make a distribution of cash or
properties due and owing to the Limited Partners, which default must have
continued for not less than five business days after the date such distribution
is required to be made to the Limited Partners hereunder; (c) a default by the
General Partner in the performance or observation of any other agreement,
covenant, term, condition or obligation hereunder, which default must have
continued for not less than 30 days after the General Partner has knowledge
thereof or after written notice thereof given by the Limited Partners has been
received by the General Partner, whichever first occurs;
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(d) a representation or warranty made by the General Partner herein or by the
General Partner or any of its officers in any writing furnished in connection
with or pursuant to this Agreement shall be false in any material respect on the
date as of which made; (e) the occurrence of any of the events described in
Section 4.02(a)(4) or Section 4.02(a)(5) of the Act (except that with respect to
Section 4.02(a)(5), the operative number of days shall be 60 instead of the
numbers set forth in such Section); (f) if, (i) a Revenue Allocation Adjustment
is effected, (ii) such Revenue Allocation Adjustment is in effect for a period
of at least six consecutive months and (iii) after the expiration of such
six-month period, the Proved Producing Investment Coverage is less than the
Minimum Ratio; (g) (i) the death, insanity, legal disability, bankruptcy or
insolvency of Carl Price or his resignation as an executive officer (or similar
position) of the General Partner, or (ii) the failure or inability for any
reason whatsoever of Carl Price to be actively involved in the business and
affairs of the General Partner other than upon the occurrence of an event
described in clause (i) above (which failure or inability shall be determined by
the Limited Partners in good faith) or (h) foreclosure on the General Partner's
interest in the Partnership; or (i) the Parent no longer owns a majority of the
voting stock in the General Partner (or any corporation with which the General
Partner merges or consolidates in accordance with Section 9.3). As used in
clause (i) (and in Section 10.1(i)), the term "MAJORITY OF THE VOTING STOCK" of
a corporation shall mean stock which has general voting power under ordinary
circumstances to elect a majority of the Board of Directors of such
corporation). Any such successor General Partner will be named in, and his
appointment as such will be effective as of a date specified in, a notice to the
General Partner from the Limited Partners exercising their right to remove the
General Partner and select the successor General Partner. The removal of the
General Partner shall be effective only if and when the following conditions
have been satisfied:
(1) A successor General Partner shall have been selected and shall have
agreed to accept the responsibilities of a General Partner and shall have made
arrangements to release the removed General Partner from personal liability on
all permitted Partnership indebtedness; and if the Partnership creditors will
not consent to such release, the new General Partner shall indemnify, in a
manner reasonably satisfactory to the removed General Partner, the removed
General Partner for such liability.
(2) This Agreement and the Certificate of Limited Partnership of the
Partnership shall have been duly amended to name the new General Partner. To the
extent required by the laws of any jurisdiction to which the Partnership or this
Agreement is subject, the Partners hereby unanimously consent to the admission
of such successor General Partner and hereby appoint such successor General
Partner as the agent and attorney in fact for each Partner (including without
limitation the retiring General Partner) for the purpose of signing, swearing to
and filing an amendment to the certificate of limited partnership of the
Partnership and all other necessary or appropriate documents in connection with
the substitution of such successor General Partner.
The provisions of this Section 9.4 shall not be the sole remedy of the
Limited Partners in the event the General Partner is removed with cause, and in
such event the Partnership and/or
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the Limited Partners shall have all other rights and remedies as shall be
available to them pursuant to this Agreement, at law or in equity to redress any
wrong or damage arising from the event or circumstances giving rise to the
General Partner's removal with cause.
SECTION 9.5. RIGHT OF GENERAL PARTNER UPON REMOVAL. In the event the
General Partner is removed in accordance with Section 9.4, the incoming General
Partner shall have the right to purchase from the removed General Partner a one
percent general partner interest in the Partnership at a price equal to the
appraised value thereof. Such appraised value shall be determined by a qualified
independent appraiser who is mutually agreed upon by both the removed General
Partner and the incoming General Partner within 30 days after the selection of
the incoming General Partner. If the removed General Partner and the incoming
General Partner cannot mutually agree upon a single independent appraiser within
such period, they shall each select their own independent appraiser and those
two appraisers shall select a third independent appraiser. The cost of such
appraisal shall be borne in equal shares by the removed General Partner and the
incoming General Partner. The incoming General Partner's option to acquire such
interests must be exercised by notice in writing to the removed General Partner
not more than 20 days after the selection of the incoming General Partner and
the purchase price for such interest shall be paid in cash not more than 30 days
after receipt by the parties of the report of the appraiser setting forth the
appraised value. In the event the incoming General Partner does not elect to
purchase the one percent general partner interest of the removed General Partner
pursuant to the provisions of this Section 9.5, such interest shall be converted
to a limited partner interest in the Partnership. Further, in any event any
remaining general partner interest of the removed General Partner in the
Partnership shall be converted to a limited partner interest in the Partnership
and the removed General Partner shall continue as a limited partner in
accordance with Section 6.02 of the Act, but without any right to vote, consent
or approve or otherwise make any determination under this Agreement; provided,
that after such conversion any amendment to this Agreement that would change (a)
the status of the removed General Partner as a limited partner hereof, (b) the
removed General Partner's participation in the income, gain, loss, credits or
distributions of the Partnership, (c) the removed General Partner's obligation
to contribute capital to the Partnership or (d) this proviso, shall require the
consent of the removed General Partner.
ARTICLE X
DISSOLUTION, LIQUIDATION AND TERMINATION
SECTION 10.1. DISSOLUTION. The Partnership shall be dissolved upon the
occurrence of any of the following:
(a) The occurrence of December 31, 2010.
(b) The consent in writing of the General Partner and the Limited
Partners.
(c) The election of the Limited Partners by written notice to the
General Partner if at the time such notice is given (i) the General Partner has
committed fraud, willful or intentional misconduct or gross negligence in the
performance of its duties hereunder, (ii) the General
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Partner has defaulted in the performance of its obligation hereunder to make a
distribution of cash or properties due and owing to the Limited Partners, which
default must have continued for not less than five business days after the date
such distribution is required to be made to the Limited Partners hereunder,
(iii) the General Partner has defaulted in the performance or observation of any
other agreement, covenant, term, condition or obligation hereunder, which
default must have continued for not less than 30 days after the General Partner
has knowledge thereof or after written notice thereof given by the Limited
Partners has been received by the General Partner, whichever first occurs, or
(iv) a representation or warranty made by the General Partner herein or by the
General Partner or any of its officers in any writing furnished in connection
with or pursuant to this Agreement shall be false in any material respect.
(d) The sale or other disposition of all or substantially all of the
assets of the Partnership.
(e) The occurrence of an event of withdrawal from the Partnership by
the General Partner as provided for in Section 4.02(a) of the Act.
(f) The election of the Limited Partners by written notice to the
General Partner if at the time such notice is given the General Partner has
breached Section 9.2 or the General Partner's interest in the Partnership has
been foreclosed upon.
(g) The election of the Limited Partners by written notice to the
General Partner at any time after expiration of December 31, 2000.
(h) The election of the Limited Partners at any time after January 1,
1998, if Proved Producing Investment Coverage is less than the Minimum Ratio.
(i) The election of the Limited Partners by written notice to the
General Partner upon the occurrence of any of the following events: (i) the
death, insanity, legal disability, bankruptcy or insolvency of Carl Price or his
resignation as an executive officer (or similar position) of the General
Partner; (ii) the failure or inability for any reason whatsoever of Carl Price
to be actively involved in the business and affairs of the General Partner other
than upon the occurrence of an event described in clause (i) above (which
failure or inability shall be determined by the Limited Partners in good faith);
or (iii) the Parent no longer owns a majority of the voting stock in the General
Partner (or any corporation with which the General Partner merges or
consolidates in accordance with Section 9.3).
(j) The occurrence of any other event which under the Act causes the
dissolution of a limited partnership.
SECTION 10.2. WITHDRAWAL BY GENERAL PARTNER AND RECONSTITUTION.
(a) Except as specifically permitted in Section 9.2, the General
Partner covenants and agrees not to (i) withdraw voluntarily from the
Partnership, either directly, by dissolution, by transfer of its Partnership
interest or by any other voluntary act (including without limitation any event
of withdrawal from the Partnership by the General Partner as provided in Section
4.02(a)
49
<PAGE> 54
of the Act), or (ii) allow seizure, attachment, garnishment, foreclosure or
other taking of its Partnership interest. Notwithstanding anything to the
contrary contained in this Section 10.2, in Section 10.1 or elsewhere in this
Agreement, the General Partner shall not merge or consolidate with, or assign or
transfer its interest in the Partnership to, any third party (including an
Affiliate or any other party related to the General Partner) if such merger,
consolidation, assignment or transfer will result in the termination of the
Partnership for tax purposes. If the General Partner breaches any provision of
this Section 10.2 or Section 9.2, if an event described in Section 10.1(e)
occurs, or if an election is made by the Limited Partners to dissolve the
Partnership pursuant to Section 10.1(c), Section 10.1(f), or clause (ii) or
clause (iii) of Section 10.1(i), all interests and amounts which the General
Partner would otherwise receive under Section 10.3 shall be reduced by the
following applicable percentages of such interest and amount: 75% if the breach,
event or election occurs prior to Payout; 65% if the breach, event or election
occurs after Payout but prior to Payout No. 2; and 10% if the breach, event or
election occurs after Payout No. 2. The distribution to the Limited Partners of
assets which would otherwise be distributable to the General Partner in
accordance with this Section 10.2 shall constitute liquidated damages to the
Limited Partners for a violation by the General Partner of the covenant and
agreement contained in the first sentence of this Section 10.2, the parties
having agreed that the amount of actual damages would be difficult or impossible
to calculate.
(b) Notwithstanding the foregoing Section 10.2(a) or any other
provision of this Agreement, (i) the Partnership may be reconstituted and its
business continued without being wound up as provided for in Section 8.03 of the
Act upon the written consent of the Limited Partners and (ii) the provisions of
Section 6.02 (including without limitation subsection (b) thereof) of the Act
shall be applicable to the Partnership except that the right to recover damages
from the withdrawing General Partner pursuant to Section 6.02(a) of the Act
shall be governed by Section 10.2(a).
SECTION 10.3. LIQUIDATION AND TERMINATION. Upon dissolution of the
Partnership (unless it is reconstituted and its business continued without being
wound up as provided for in Section 10.2(b)), the General Partner shall act as
liquidator or may appoint in writing one or more liquidators who shall have full
authority to wind up the affairs of the Partnership and make final distribution
as provided herein; provided, however, that if one of the events specified in
Section 10.1(c),(e), (f),(h) or (i) has occurred as a result of an act by the
General Partner or if the Partnership dissolves as a result of the dissolution
(or similar event) of the General Partner, the liquidator shall be a person
selected in writing by the Limited Partners. The liquidator shall continue to
operate the Partnership properties with all of the power and authority of the
General Partner. The steps to be accomplished by the liquidator are as follows:
(a) As promptly as possible after dissolution and again after final
liquidation, the liquidator shall cause a proper accounting to be made by the
Partnership's independent accountants of the Partnership's assets, liabilities
and operations through the last day of the month in which the dissolution occurs
or the final liquidation is completed, as appropriate.
(b) The liquidator shall pay all of the debts and liabilities of the
Partnership (including all expenses incurred in liquidation) or otherwise make
adequate provision therefor (including without limitation the establishment of a
cash escrow fund for contingent liabilities in such amount
50
<PAGE> 55
and for such term as the liquidator may reasonably determine). After making
payment or provision for all debts and liabilities of the Partnership, the
liquidator shall sell all properties and assets of the Partnership for cash as
promptly as is consistent with obtaining the best price therefor. All gain,
loss, and amount realized on such sales shall be allocated to the Partners as
provided in this Agreement, and the capital accounts of the Partners shall be
adjusted accordingly. The liquidator shall then distribute the proceeds of such
sales to the Partners as provided in Section 4.4. If the Limited Partners so
direct, the liquidator shall distribute all or any portion of such properties to
the Partners in kind in the same percentages as the proceeds of any sale of such
properties would be distributed under the preceding sentence. In such event the
liquidator shall first adjust the capital accounts of the Partners by the amount
of any gains or losses that would have been recognized by the Partners if such
properties had been sold for their respective fair market values and the
proceeds had been so distributed. It is intended that the foregoing
distributions to each Partner will be equal to each Partner's respective
positive capital account balance as determined after giving effect to the
foregoing adjustments and to all adjustments attributable to allocations of
items of income, gain, loss and deduction realized by the Partnership during the
taxable year in question and all adjustments attributable to contributions and
distributions of money and property effected prior to such distribution. To the
extent that any such Partner's positive capital account balance does not
correspond to such distribution, the allocations provided for in Section 4.3
shall be adjusted, to the extent possible, to produce a capital account balance
for the Partner which corresponds to the amount of such distribution. Each
Partner shall have the right to designate another person to receive any property
which otherwise would be distributed in kind to that Partner pursuant to this
Section 10.3 and Section 10.2 if that Section is applicable. Any distributions
to the Partners in liquidation of the Partnership shall be made by the later of
the end of the taxable year in which the liquidation occurs, or 90 days after
the date of such liquidation. For purposes of the preceding sentence, the term
"liquidation" shall have the same meaning as set forth in Treasury Regulation
ss. 1.704-1(b)(2)(ii)(g) as in effect at such time.
(c) Any Leases distributed to the Partners shall be subject to the
operating agreements then in effect with respect to such Leases; provided,
however, that if any of such Leases is subject to an operating agreement to
which an unaffiliated third person is not a party, such Leases shall be subject
to a standard form operating agreement and accounting procedure as shall be
agreed upon by the Partners. Upon written request made by any Partner, the
liquidator shall sell the Partnership Leases and other properties and assets
that otherwise would be distributable to such Partner under this Section 10.3 at
the best cash price available therefor and distribute such cash (after deducting
all expenses reasonably relating to such sale) to such Partner. Such sale shall
be on behalf of such Partner and shall be treated as the sale by such Partner of
its interest in such properties, and any gain or loss attributable to such sale
and any proceeds therefrom shall be for the account of such Partner.
(d) The provisions of subsections (b) and (c) of this Section 10.3
shall be subject to the effect of Section 10.2 if that Section is applicable.
(e) Except as expressly provided herein, the liquidator shall comply
with any applicable requirements of the Act and all other applicable laws
pertaining to the winding up of the affairs of the Partnership and the final
distribution of its assets.
51
<PAGE> 56
The distribution of cash and/or property to the Limited Partners in
accordance with the provisions of this Section 10.3 shall constitute a complete
return to each Limited Partner of its Capital Contributions and a complete
distribution to each Limited Partner of its interests in the Partnership and all
Partnership property. No Partner with a negative balance in its capital account
shall be liable to the Partnership or any other Partner for the amount of such
negative balance upon dissolution and liquidation.
SECTION 10.4. CANCELLATION OF CERTIFICATE. Upon the completion of the
distribution of Partnership assets as provided herein, the Partnership shall be
terminated, and the liquidator (or the Partners if necessary) shall cause the
cancellation of the certificate of limited partnership of the Partnership and
shall take such other actions as may be necessary to terminate the Partnership.
ARTICLE XI
REPRESENTATIONS AND WARRANTIES
SECTION 11.1. REPRESENTATIONS AND WARRANTIES OF GENERAL PARTNER. The
General Partner represents, warrants and covenants to the Limited Partners as
follows:
(a) The General Partner is a corporation duly formed, validly existing
and in good standing under the laws of the State of Texas.
(b) The General Partner is duly qualified or will qualify to transact
business in every jurisdiction where the character of the properties owned or
held by the Partnership or where the nature of the business transacted by the
Partnership makes qualification by it necessary or appropriate in order for the
Partnership to conduct its business.
(c) The General Partner has the requisite power and authority to
execute and deliver this Agreement and to perform its obligations hereunder
(including, without limitation, the power and authority to act as General
Partner of the Partnership).
(d) The execution, delivery and performance by the General Partner of
this Agreement has been duly and validly authorized by all requisite corporate
action, and no other corporate or shareholder action is required to be taken to
authorize such execution, delivery and performance.
(e) The execution, delivery and performance by the General Partner of
this Agreement is within its corporate powers and will not (i) be in
contravention of or violate any provisions of its charter or other governing
documents, as amended to the date hereof, or (ii) be in contravention of or
result in any breach or constitute a default under any applicable law, rule,
regulation, judgment, license, permit or order or any loan, note or other
agreement or instrument to which the General Partner is a party or by which it
or any of its properties are bound.
52
<PAGE> 57
(f) When delivered to the Limited Partners, this Agreement will have
been duly and validly executed and will be binding upon the General Partner and
enforceable in accordance with the terms hereof.
(g) Except for a change of law over which the General Partner has no
control (and the General Partner shall immediately notify the Limited Partners
when the General Partner learns of such occurrence), the foregoing
representations, warranties and covenants shall remain true and accurate during
the term of the Partnership, and the General Partner will neither take action
nor permit action to be taken which would cause any of the foregoing
representations to become untrue or inaccurate.
(h) No consent, approval, authorization or order of any court or
governmental agency or authority or of any third party which has not been
obtained is required in connection with the execution, delivery and performance
by the General Partner of this Agreement except for (i) the filing of a
certificate of limited partnership for the Partnership with the Office of the
Secretary of State of the State of Texas pursuant to the Act and (ii) the filing
of certain documents with respect to the qualification or reformation and
operation of the Partnership as a limited partnership (or a partnership in which
the Limited Partners have limited liability) under the laws of any state in
which the Partnership owns properties or conducts business so as to require such
qualification.
(i) Neither the General Partner nor any of its Affiliates has employed
or retained any broker, agent or finder in connection with this Agreement or the
transactions contemplated herein, or paid or agreed to pay any brokerage fee,
finder's fee, commission or similar payment to any person on account of this
Agreement or the transactions provided for herein, except for the Placement Fee
of $50,000 paid to EnCap Investments L.C. by the General Partner on the Delivery
Date, the Taylor Placement Fee due and owing EnCap Investments L.C. by the
General Partner on the Taylor Amendment Date, and the broker's fee to be paid
under the Taylor Purchase Agreement (provided, the Partnership's obligation with
respect to such broker's fee shall not exceed $46,000); and the General Partner
shall indemnify and hold harmless the Partnership and the Limited Partners from
any costs, including attorneys' fees, and liability arising from the claim of
any broker, agent or finder employed or retained by the General Partner in
connection with the Partnership or this Agreement.
(j) The General Partner has conducted a reasonable and prudent due
diligence investigation of the Taylor Properties consistent with generally
accepted industry practices.
(k) As of the date hereof none of the financial statements or other
written documents or information delivered herewith or heretofore by or on
behalf of the General Partner to the Limited Partners in connection with the
Parent, the General Partner or this Agreement, the Properties and the operations
to be conducted hereunder contains any untrue statement of a material fact or
omits to state any material fact (other than facts which the Limited Partners
recognize to be industry risks normally associated with the oil and gas
business) necessary to keep the statements contained herein or therein from
being misleading. There is no fact peculiar to the General Partner, its
Affiliates (including the Parent) or the Properties (other than facts which the
Limited Partners recognize to be industry risks normally associated with the oil
and gas
53
<PAGE> 58
business) which materially adversely affects or in the future may (so far as the
General Partner can now foresee) materially adversely affect (i) the business,
property or assets, or financial condition of the General Partner or its
Affiliates (including the Parent) or (ii) the Properties, and which has not been
set forth in this Agreement or in the other documents, certificates and
statements furnished to the Limited Partners by or on behalf of the General
Partners prior to the date hereof in connection with the transactions
contemplated hereby.
(l) To the best knowledge of the General Partner, the General Partner
and its Affiliates and persons acting on their behalf have not taken any action,
or failed to take any action, which has caused the organization of the
Partnership and the issuance of the interests in the Partnership to come within
the registration requirements of the Securities Act of 1933, as amended, or any
applicable state blue sky laws.
(m) There is no pending or, to the best of the General Partner's
knowledge, threatened judicial, administrative or arbitral action, suit or
proceeding against or investigation of the General Partner which is not fully
insured against (except standard deductible amounts) and which might materially
and adversely affect the financial condition of the General Partner or its
ability to perform its obligations under this Agreement.
(n) During the preceding 12-month period, the General Partner and its
Affiliates and persons acting on their behalf have not sold (except to a limited
number of persons who have represented themselves to be accredited investors, as
defined in Rule 501 promulgated by the Securities and Exchange Commission) any
interest in the Partnership or similar interests; with respect to any sales of
interests similar to the Partnership by the General Partner and its Affiliates
and persons acting on their behalf subsequent to the Delivery Date, the General
Partner shall do nothing which would require the registration of these interests
under the Securities Act of 1933, and the rules and regulations promulgated
thereunder, as well as applicable state securities laws.
(o) (i) The General Partner is acting on its own behalf as a General
Partner of the Partnership and is not acting merely as the agent of the Limited
Partners; (ii) the Partnership will be operated in accordance with the Act and
this Agreement; (iii) the Limited Partners do not own any beneficial interest or
voting rights in the General Partner; and (iv) interests in the Partnership will
not be traded on an established securities market or any secondary market (or
the substantial equivalent thereof).
(p) The General Partner has delivered to the Limited Partners a true,
accurate and complete copy of each Purchase Agreement, the Westar Escrow
Agreement and all amendments thereto.
(q) Exhibit 5.6 lists all of the operating agreements pertaining to the
Properties.
(r) The representations and warranties of the General Partner in the
Original Agreement were true and correct in all material respects as of the
Delivery Date and are true and accurate in all material respects as of the
Taylor Amendment Date. The General Partner is in compliance in all material
respects with the terms and provisions of the Original Agreement.
54
<PAGE> 59
SECTION 11.2. REPRESENTATIONS AND WARRANTIES OF LIMITED PARTNER. Each
Limited Partner severally represents, warrants and covenants to the General
Partner with respect to such Limited Partner only and not as to any other
Limited Partner, as follows:
(a) It is duly organized and validly existing under the laws of its
state of formation.
(b) It has all requisite power and authority to execute and deliver
this Agreement and to perform its obligations hereunder.
(c) The execution, delivery and performance of this Agreement are
within its powers and do not (i) contravene or violate any provisions of its
charter or other governing documents, as amended to the date hereof, or (ii)
contravene or result in any breach of or constitute a default under any
applicable law, rule or regulation or any loan, note or other agreement or
instrument to which it is a party or by which it or any of its properties are
bound.
(d) When delivered to the General Partner, this Agreement will be duly
and validly executed by such Limited Partner and will be binding upon it in
accordance with the terms hereof.
(e) Except for a change of law over which such Limited Partner has no
control (and such Limited Partner shall immediately notify the General Partner
when such Limited Partner learns of such occurrence), the foregoing
representations, warranties and covenants shall remain true and accurate during
the term of the Partnership, and such Limited Partner will neither take action
nor permit action to be taken which would cause any of the foregoing
representations to become untrue or inaccurate.
(f) Neither it nor any person acting on its behalf has employed or
retained any broker, agent or finder in connection with the transactions
provided for herein, or agreed to pay any brokerage fee, finder's fee,
commission or similar payment to any person on account of the transactions
provided for herein; and such Limited Partner shall indemnify and hold harmless
the Partnership and the General Partner from any costs, including attorneys'
fees, and liability arising from the claim of any broker, agent or finder
employed or retained by such Limited Partner in connection with the Partnership
or this Agreement.
(g) It is acquiring its interest in the Partnership as an investment
and not with a view to the resale or other distribution to the public; provided,
however, that the disposition of its interest shall at all times be and remain
within its control.
(h) No consent, approval, authorization or order of any court or
governmental agency or authority or of any third party which has not been
obtained is required in connection with the execution, delivery and performance
by such Limited Partner of this Agreement.
(i) There is no pending or, to the best of such Limited Partner's
knowledge, threatened judicial, administrative or arbitral action, suit or
proceeding against or investigation of such Limited Partner which might
materially and adversely affect its ability to perform its obligations under
this Agreement.
55
<PAGE> 60
(j) The representations and warranties of the Limited Partners in the
Original Agreement were true and correct in all material respects as of the
Delivery Date and are true and accurate in all material respects as of the
Taylor Amendment Date. The Limited Partners are in compliance in all material
respects with the terms and provisions of the Original Agreement.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1. NOTICES. All notices, elections, demands or other
communications required or permitted to be made or given pursuant to this
Agreement shall be in writing and shall be considered as properly given or made
if given by (a) personal delivery, (b) expedited delivery service with proof of
delivery, (c) first class mail postage prepaid, or (d) prepaid telegram, telex
or facsimile (provided that such telegram, telex or facsimile is confirmed by
expedited delivery service in the manner previously described). Each Partner's
address for notices and other communications hereunder shall be that set forth
below such Partner's signature hereto; provided, however, that when in this
Agreement it is provided that a time period shall commence when a notice is
received, such time period shall commence upon actual receipt by the addressee
regardless of when the notice is given or made. Any Limited Partner may change
its address by giving notice in writing to the General Partner of its new
address, and the General Partner may change its address by giving notice in
writing to the Limited Partners of its new address.
SECTION 12.2. AMENDMENTS. This Agreement may be changed, modified, or
amended only by an instrument in writing duly executed by the General Partner
and the Limited Partners.
SECTION 12.3. PARTITION. Each of the Partners hereby irrevocably waives
for the term of the Partnership any right that such Partner may have to maintain
any action for partition with respect to the Partnership property.
SECTION 12.4. ENTIRE AGREEMENT. This Agreement and the other documents
contemplated hereunder constitute the full and complete agreement of the parties
hereto with respect to the subject matter hereof.
SECTION 12.5. NO WAIVER. The failure of any Partner to insist upon
strict performance of a covenant hereunder or of any obligation hereunder,
irrespective of the length of time for which such failure continues, shall not
be a waiver of such Partner's right to demand strict compliance in the future.
No consent or waiver, express or implied, to or of any breach or default in the
performance of any obligation hereunder shall constitute a consent or waiver to
or of any other breach or default in the performance of the same or any other
obligation hereunder.
SECTION 12.6. APPLICABLE LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND INTERPRETED,
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
56
<PAGE> 61
SECTION 12.7. SUCCESSORS AND ASSIGNS. Subject to Article IX, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns.
SECTION 12.8. EXHIBITS. Exhibits 2.1--Payout, 2.1--Payout No. 2, 5.6,
6.9, and 8.2(d) to this Agreement are attached hereto. All of such Exhibits are
incorporated herein by reference and made a part hereof for all purposes and
references to this Agreement shall also include such Exhibits unless the context
in which used shall otherwise require.
SECTION 12.9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations, warranties and covenants made by the General Partner or the
Limited Partners in this Agreement or any other document contemplated thereby or
hereby shall be considered to have been relied upon by the other parties hereto
and shall survive the execution and delivery of this Agreement or such other
document, regardless of any investigation made by or on behalf of any such
party.
SECTION 12.10. NO THIRD-PARTY BENEFIT. Except as provided in Section
6.4, nothing in this Agreement, either express or implied, is intended to or
shall confer upon any person other than the parties hereto, and their respective
successors and permitted assigns, any rights, benefits, or remedies of any
nature whatsoever under or by reason of this Agreement.
SECTION 12.11. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
constitute but one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
57
<PAGE> 62
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
the day and year first above written.
GENERAL PARTNER:
FUTURE PETROLEUM CORPORATION
By: /s/ CARL PRICE
-------------------------------------
Carl Price, President
ADDRESS FOR NOTICE PURPOSES:
2351 West Northwest Highway, Suite 2130
Dallas, Texas 75220
Attention: Carl Price
Telecopy No.: 214-350-8382
SIGNATURE PAGE--FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP OF FUTURE ACQUISITION 1995, LTD.
<PAGE> 63
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
the day and year first above written.
LIMITED PARTNER:
ENERGY CAPITAL INVESTMENT
COMPANY PLC
By: /s/ GARY R. PETERSEN
-------------------------------------
Gary R. Petersen, Director
ADDRESS FOR NOTICE PURPOSES:
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Gary R. Petersen
Telecopy No.: 713-659-6130
SIGNATURE PAGE--FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP OF FUTURE ACQUISITION 1995, LTD.
<PAGE> 64
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
the day and year first above written.
LIMITED PARTNER:
ENCAP EQUITY 1994 LIMITED
PARTNERSHIP
By: ENCAP INVESTMENTS L.C.
By: /s/ GARY R. PETERSEN
-------------------------------------
Gary R. Petersen, Managing Director
ADDRESS FOR NOTICE PURPOSES:
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Gary R. Petersen
Telecopy No.: 713-659-6130
SIGNATURE PAGE--FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP OF FUTURE ACQUISITION 1995, LTD.
<PAGE> 65
Exhibit 2.1 -- Payout
Delivery Date: December 13, 1995
20.00% Discount Factors
<TABLE>
<CAPTION>
Number of Number of
Monthly Discount Monthly Discount
Periods Month Factor Periods Month Factor
--------- ----- --------- --------- ----- --------
<S> <C> <C> <C> <C> <C>
0 Dec-95 1.0000000
1 Jan-96 0.9836066 41 May-99 0.5077829
2 Feb-96 0.9674819 42 Jun-99 0.4994585
3 Mar-96 0.9516215 43 Jul-99 0.4912707
4 Apr-96 0.9360211 44 Aug-99 0.4832171
5 May-96 0.9206765 45 Sep-99 0.4752955
6 Jun-96 0.9055835 46 Oct-99 0.4675038
7 Jul-96 0.8907379 47 Nov-99 0.4598398
8 Aug-96 0.8761356 48 Dec-99 0.4523014
9 Sep-96 0.8617727 49 Jan-2000 0.4448866
10 Oct-96 0.8476453 50 Feb-2000 0.4375934
11 Nov-96 0.8337495 51 Mar-2000 0.4304197
12 Dec-96 0.8200814 52 Apr-2000 0.4233637
13 Jan-97 0.8066375 53 May-2000 0.4164233
14 Feb-97 0.7934139 54 Jun-2000 0.4095967
15 Mar-97 0.7804071 55 Jul-2000 0.4028820
16 Apr-97 0.7676136 56 Aug-2000 0.3962774
17 May-97 0.7550297 57 Sep-2000 0.3897810
18 Jun-97 0.7426522 58 Oct-2000 0.3833912
19 Jul-97 0.7304776 59 Nov-2000 0.3771061
20 Aug-97 0.7185025 60 Dec-2000 0.3709240
21 Sep-97 0.7067238 61 Jan-2001 0.3648433
22 Oct-97 0.6951382 62 Feb-2001 0.3588622
23 Nov-97 0.6837425 63 Mar-2001 0.3529792
24 Dec-97 0.6725336 64 Apr-2001 0.3471927
25 Jan-98 0.6615084 65 May-2001 0.3415010
26 Feb-98 0.6506640 66 Jun-2001 0.3359026
27 Mar-98 0.6399974 67 Jul-2001 0.3303960
28 Apr-98 0.6295056 68 Aug-2001 0.3249797
29 May-98 0.6191859 69 Sep-2001 0.3196522
30 Jun-98 0.6090353 70 Oct-2001 0.3144120
31 Jul-98 0.5990511 71 Nov-2001 0.3092577
32 Aug-98 0.5892306 72 Dec-2001 0.3041879
33 Sep-98 0.5795711 73 Jan-2002 0.2992012
34 Oct-98 0.5700699 74 Feb-2002 0.2942963
35 Nov-98 0.5607245 75 Mar-2002 0.2894717
36 Dec-98 0.5515323 76 Apr-2002 0.2847263
37 Jan-99 0.5424908 77 May-2002 0.2800586
38 Feb-99 0.5335975 78 Jun-2002 0.2754675
39 Mar-99 0.5248500 79 Jul-2002 0.2709517
40 Apr-99 0.5162459 80 Aug-2002 0.2665098
</TABLE>
Page 1
<PAGE> 66
Exhibit 2.1 -- Payout
Delivery Date: December 13, 1995
20.00% Discount Factors
<TABLE>
<CAPTION>
Number of Number of
Monthly Discount Monthly Discount
Periods Month Factor Periods Month Factor
--------- ----- --------- --------- ----- --------
<S> <C> <C> <C> <C> <C>
81 Sep-2002 0.2621408 118 Oct-2005 0.1422090
82 Oct-2002 0.2578434 119 Nov-2005 0.1398777
83 Nov-2002 0.2536165 120 Dec-2005 0.1375846
84 Dec-2002 0.2494588 121 Jan-2006 0.1353291
85 Jan-2003 0.2453693 122 Feb-2006 0.1331106
86 Feb-2003 0.2413469 123 Mar-2006 0.1309285
87 Mar-2003 0.2373904 124 Apr-2006 0.1287821
88 Apr-2003 0.2334987 125 May-2006 0.1266709
89 May-2003 0.2296709 126 Jun-2006 0.1245943
90 Jun-2003 0.2259058 127 Jul-2006 0.1225518
91 Jul-2003 0.2222024 128 Aug-2006 0.1205428
92 Aug-2003 0.2185598 129 Sep-2006 0.1185667
93 Sep-2003 0.2149768 130 Oct-2006 0.1166229
94 Oct-2003 0.2114526 131 Nov-2006 0.1147111
95 Nov-2003 0.2079862 132 Dec-2006 0.1128306
96 Dec-2003 0.2045766 133 Jan-2007 0.1109809
97 Jan-2004 0.2012228 134 Feb-2007 0.1091615
98 Feb-2004 0.1979241 135 Mar-2007 0.1073720
99 Mar-2004 0.1946795 136 Apr-2007 0.1056118
100 Apr-2004 0.1914880 137 May-2007 0.1038805
101 May-2004 0.1883488 138 Jun-2007 0.1021775
102 Jun-2004 0.1852612 139 Jul-2007 0.1005025
103 Jul-2004 0.1822241 140 Aug-2007 0.0988549
104 Aug-2004 0.1792368 141 Sep-2007 0.0972343
105 Sep-2004 0.1762985 142 Oct-2007 0.0956403
106 Oct-2004 0.1734084 143 Nov-2007 0.0940724
107 Nov-2004 0.1705656 144 Dec-2007 0.0925303
108 Dec-2004 0.1677694 145 Jan-2008 0.0910134
109 Jan-2005 0.1650191 146 Feb-2008 0.0895214
110 Feb-2005 0.1623139 147 Mar-2008 0.0880538
111 Mar-2005 0.1596530 148 Apr-2008 0.0866103
112 Apr-2005 0.1570357 149 May-2008 0.0851904
113 May-2005 0.1544614 150 Jun-2008 0.0837939
114 Jun-2005 0.1519292 151 Jul-2008 0.0824202
115 Jul-2005 0.1494386 152 Aug-2008 0.0810691
116 Aug-2005 0.1469888 153 Sep-2008 0.0797401
117 Sep-2005 0.1445791 154 Oct-2008 0.0784328
</TABLE>
To calculate additional discount factors, use the following formula:
Discount Factor = 1/[(1+20%/12) * Number of Monthly Periods]
Page 2
<PAGE> 67
Exhibit 2.1 -- Payout No. 2
Delivery Date: December 13, 1995
25.00% Discount Factors
<TABLE>
<CAPTION>
Number of Number of
Monthly Discount Monthly Discount
Periods Month Factor Periods Month Factor
--------- ----- --------- --------- ----- --------
<S> <C> <C> <C> <C> <C>
0 Dec-95 1.0000000
1 Jan-96 0.9795918 41 May-99 0.4293895
2 Feb-96 0.9596002 42 Jun-99 0.4206265
3 Mar-96 0.9400165 43 Jul-99 0.4120423
4 Apr-96 0.9208325 44 Aug-99 0.4036332
5 May-96 0.9020400 45 Sep-99 0.3953958
6 Jun-96 0.8836310 46 Oct-99 0.3873265
7 Jul-96 0.8655977 47 Nov-99 0.3794219
8 Aug-96 0.8479325 48 Dec-99 0.3716786
9 Sep-96 0.8306277 49 Jan-2000 0.3640933
10 Oct-96 0.8136761 50 Feb-2000 0.3566628
11 Nov-96 0.7970705 51 Mar-2000 0.3493840
12 Dec-96 0.7808037 52 Apr-2000 0.3422537
13 Jan-97 0.7648690 53 May-2000 0.3352690
14 Feb-97 0.7492594 54 Jun-2000 0.3284267
15 Mar-97 0.7339684 55 Jul-2000 0.3217241
16 Apr-97 0.7189894 56 Aug-2000 0.3151583
17 May-97 0.7043162 57 Sep-2000 0.3087265
18 Jun-97 0.6899424 58 Oct-2000 0.3024260
19 Jul-97 0.6758619 59 Nov-2000 0.2962540
20 Aug-97 0.6620688 60 Dec-2000 0.2902080
21 Sep-97 0.6485572 61 Jan-2001 0.2842854
22 Oct-97 0.6353214 62 Feb-2001 0.2784837
23 Nov-97 0.6223556 63 Mar-2001 0.2728003
24 Dec-97 0.6096545 64 Apr-2001 0.2672330
25 Jan-98 0.5972126 65 May-2001 0.2617793
26 Feb-98 0.5850245 66 Jun-2001 0.2564368
27 Mar-98 0.5730853 67 Jul-2001 0.2512034
28 Apr-98 0.5613897 68 Aug-2001 0.2460768
29 May-98 0.5499327 69 Sep-2001 0.2410548
30 Jun-98 0.5387096 70 Oct-2001 0.2361354
31 Jul-98 0.5277155 71 Nov-2001 0.2313163
32 Aug-98 0.5169458 72 Dec-2001 0.2265955
33 Sep-98 0.5063959 73 Jan-2002 0.2219711
34 Oct-98 0.4960613 74 Feb-2002 0.2174411
35 Nov-98 0.4859376 75 Mar-2002 0.2130035
36 Dec-98 0.4760205 76 Apr-2002 0.2086565
37 Jan-99 0.4663058 77 May-2002 0.2043982
36 Feb-99 0.4567894 78 Jun-2002 0.2002268
39 Mar-99 0.4474671 79 Jul-2002 0.1961406
40 Apr-99 0.4383351 80 Aug-2002 0.1921377
</TABLE>
Page 1
<PAGE> 68
Exhibit 2.1 -- Payout No. 2
Delivery Date: December 13, 1995
25.00% Discount Factors
<TABLE>
<CAPTION>
Number of Number of
Monthly Discount Monthly Discount
Periods Month Factor Periods Month Factor
--------- ----- --------- --------- ----- --------
<S> <C> <C> <C> <C> <C>
81 Sep-2002 0.1882165 118 Oct-2005 0.0877665
82 Oct-2002 0.1843754 119 Nov-2005 0.0859753
83 Nov-2002 0.1806126 120 Dec-2005 0.0842207
84 Dec-2002 0.1769266 121 Jan-2006 0.0825019
85 Jan-2003 0.1733159 122 Feb-2006 0.0808182
86 Feb-2003 0.1697788 123 Mar-2006 0.0791689
87 Mar-2003 0.1663140 124 Apr-2006 0.0775532
88 Apr-2003 0.1629198 125 May-2006 0.0759704
89 May-2003 0.1595949 126 Jun-2006 0.0744200
90 Jun-2003 0.1563379 127 Jul-2006 0.0729013
91 Jul-2003 0.1531473 128 Aug-2006 0.0714135
92 Aug-2003 0.1500218 129 Sep-2006 0.0699561
93 Sep-2003 0.1469602 130 Oct-2006 0.0685284
94 Oct-2003 0.1439610 131 Nov-2006 0.0671298
95 Nov-2003 0.1410230 132 Dec-2006 0.0657598
96 Dec-2003 0.1381450 133 Jan-2007 0.0644178
97 Jan-2004 0.1353257 134 Feb-2007 0.0631032
98 Feb-2004 0.1325639 135 Mar-2007 0.0618153
99 Mar-2004 0.1298586 136 Apr-2007 0.0605538
100 Apr-2004 0.1272084 137 May-2007 0.0593180
101 May-2004 0.1246123 138 Jun-2007 0.0581074
102 Jun-2004 0.1220692 139 Jul-2007 0.0569216
103 Jul-2004 0.1195780 140 Aug-2007 0.0557599
104 Aug-2004 0.1171376 141 Sep-2007 0.0546219
105 Sep-2004 0.1147470 142 Oct-2007 0.0535072
106 Oct-2004 0.1124053 143 Nov-2007 0.0524152
107 Nov-2004 0.1101113 144 Dec-2007 0.0513455
108 Dec-2004 0.1078641 145 Jan-2008 0.0502977
109 Jan-2005 0.1056628 146 Feb-2008 0.0492712
110 Feb-2005 0.1035064 147 Mar-2008 0.0482656
111 Mar-2005 0.1013940 148 Apr-2008 0.0472806
112 Apr-2005 0.0993248 149 May-2008 0.0463157
113 May-2005 0.0972977 150 Jun-2008 0.0453705
114 Jun-2005 0.0953121 151 Jul-2008 0.0444446
115 Jul-2005 0.0933669 152 Aug-2008 0.0435375
116 Aug-2005 0.0914615 153 Sep-2008 0.0426490
117 Sep-2005 0.0895949 154 Oct-2008 0.0417786
</TABLE>
To calculate additional discount factors, use the following formula:
Discount Factor = 1/[(1+20%/12) * Number of Monthly Periods]
Page 2
<PAGE> 69
EXHIBIT 5.6
ARNOLD LEASE: A.A.P.L. FORM 610-1977 MODEL FORM OPERATING AGREEMENT WITH
COPAS, DATED JULY 16, 1982
BOBBITT LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
COPAS, DATED SEPTEMBER 1, 1986
BOBBITT "A" LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
COPAS, DATED SEPTEMBER 1, 1986
BINKLEY LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
COPAS, DATED SEPTEMBER 1, 1986
COCKRELL RANCH JOINT OPERATING AGREEMENT, DATED MAY 18, 1962; AMENDED
LEASE: JUNE 20, 1968; AMENDED JANUARY 1, 1977
PEELER LEASE: A.A.P.L. FORM 610-1977 MODEL FORM OPERATING AGREEMENT WITH
COPAS, DATED FEBRUARY 3, 1992
*ASHBY LEASE: A.A.P.L. FORM 610-1977 MODEL FORM OPERATING AGREEMENT, DATED
AUGUST 1, 1983
*HENDRIX LEASE: A.A.P.L. FORM 610-1977 MODEL FORM OPERATING AGREEMENT, DATED
AUGUST 1, 1983
LINDA LEASE: A.A.P.L. FORM 610-1977 MODEL FORM OPERATING AGREEMENT, DATED
OCTOBER 15, 1985
FRANKIE LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
COPAS, DATED JANUARY 28, 1985
GINGER LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
COPAS, DATED SEPTEMBER 1, 1986
<PAGE> 70
BOONE LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
COPAS, DATED NOVEMBER 1, 1995
BROWN-WARE LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
COPAS, DATED NOVEMBER 1, 1995
FROST LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
COPAS, DATED NOVEMBER 1, 1995
HAILE LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
COPAS, DATED NOVEMBER 1, 1995
HARVEY LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
COPAS, DATED NOVEMBER 1, 1995
THOMPSON LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
COPAS, DATED NOVEMBER 1, 1995
NICHOLSON LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
COPAS, DATED NOVEMBER 1, 1995
MEAKER LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
COPAS, DATED NOVEMBER 1, 1995
KINZER LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
COPAS, DATED NOVEMBER 1, 1995
PRICE LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
COPAS, DATED NOVEMBER 1, 1995
*WESTAR: IN FORM ATTACHED TO PURCHASE AND SALE AGREEMENT/
PARTICIPATION AGREEMENT
2
<PAGE> 71
LANELL LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
COPAS, DATED NOVEMBER 1, 1996
BRANDON LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
COPAS, DATED NOVEMBER 1, 1996
JONES LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
COPAS, DATED NOVEMBER 1, 1996
SETH LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
COPAS, DATED NOVEMBER 1, 1996
BRANDON "A" LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
COPAS, DATED NOVEMBER 1, 1996
* Properties operated by party other than Future Petroleum Corporation
3
<PAGE> 72
- --------------------------------------------------------------------------------
CERTIFICATE OF INSURANCE ISSUE DATE (MM/DD/YY)
[ ] 01/28/97
- --------------------------------------------------------------------------------
PRODUCER
Alexander & Alexander
of Texas, Inc.
2711 North Haskell Ave.
Dallas, TX 75204-2999
- --------------------------------------------------------------------------------
INSURED
Future Petroleum Corporation
P.O. Box 25253
Dallas, TX 75225
- --------------------------------------------------------------------------------
THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS
UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER
THE COVERAGE AFFORDED BY THE POLICIES BELOW
- --------------------------------------------------------------------------------
COMPANIES AFFORDING COVERAGE
- --------------------------------------------------------------------------------
COMPANY LETTER A Chicago Insurance Co.
- --------------------------------------------------------------------------------
COMPANY LETTER B
- --------------------------------------------------------------------------------
COMPANY LETTER C
- --------------------------------------------------------------------------------
COMPANY LETTER D Texas WC Insurance Fund
- --------------------------------------------------------------------------------
COMPANY LETTER E
- --------------------------------------------------------------------------------
COVERAGES
- --------------------------------------------------------------------------------
THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED
TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING ANY
REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT
TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED
BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS. EXCLUSIONS AND
CONDITIONS OF SUCH POLICIES, LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POLICY EFF. POLICY EXP.
TYPE OF INSURANCE POLICY NUMBER DATE (MM/DD/YY) DATE (MM/DD/YY) LIMITS
- ------------------------------ ----------------- ----------------- ----------------- ---------------------------------
<S> <C> <C> <C> <C>
GENERAL LIABILITY EPG2000093 12/08/96 12/08/97 GENERAL AGGREGATE 1000000
[X] COMM. GENERAL LIABILITY PROD-COMP/OP AGG.
[ ]CLAIMS MADE [X] OCC. PERS. & ADV. INJURY
[ ] OWNER'S & CONTRACT'S PROT EACH OCCURRENCE 1000000
[ ] ________________________ FIRE DAMAGE (One Fire)
MED. EXP. (One Per)
- ------------------------------ ----------------- ----------------- ----------------- ---------------------------------
AUTOMOBILE LIABILITY COMBINED SINGLE
[ ] ANY AUTO LIMIT
[ ] ALL OWNED AUTOS
[ ] SCHEDULED AUTOS BODILY INJURY
[ ] HIRED AUTOS (Per person)
[ ] NON-OWNED AUTOS BODILY INJURY
[ ] GARAGE LIABILITY (Per accident)
[ ] PROPERTY DAMAGE
- ------------------------------ ----------------- ----------------- ----------------- ---------------------------------
EXCESS LIABILITY EACH OCCURRENCE
[ ] UMBRELLA FORM
[ ] OTHER THAN UMBRELLA FORM AGGREGATE
- ------------------------------ ----------------- ----------------- ----------------- ---------------------------------
SBP-159356 12/08/96 12/08/97 STATUTORY LIMITS
WORKERS' COMPENSATION EACH ACCIDENT 1000000
AND DISEASE-POLICY LIMIT 1000000
EMPLOYER'S LIABILITY DISEASE-EACH EMP. 1000000
- ------------------------------ ----------------- ----------------- ----------------- ---------------------------------
OTHER
- ------------------------------ ----------------- ----------------- ----------------- ---------------------------------
</TABLE>
DESCRIPTION OF OPERATIONS/LOCATIONS/VEHICLES/SPECIAL ITEMS
CERTIFICATE HOLDER CANCELLATION
- --------------------------------------------------------------------------------
SHOULD ANY OF THE ABOVE DESCRIBED
THOMPSON & KNIGHT-MIKE PIERCE POLICIES BE CANCELLED BEFORE THE
EXPIRATION DATE THEREOF, THE ISSUING
1700 TEXAS COMMERCE TOWER COMPANY WILL ENDEAVOR TO MAIL 10 DAYS
WRITTEN NOTICE TO THE CERTIFICATE HOLDER
600 TRAVIS STREET NAMED TO THE LEFT, BUT FAILURE TO MAIL
SUCH NOTICE SHALL IMPOSE NO OBLIGATION
HOUSTON, TX 77002 OR LIABILITY OF ANY KIND UPON THE
COMPANY, ITS AGENTS OR REPRESENTATIVES.
----------------------------------------
AUTHORIZED REPRESENTATIVE
/s/ JIM BAYNE
- --------------------------------------------------------------------------------
<PAGE> 73
Summary
<TABLE>
<CAPTION>
Production Month Jan-96 Feb-96 Mar-96 Apr-96 May-96 Jun-96 Jul-96 Aug-96 Sep-96 Oct-96 Nov-96 Dec-96
Cash/Reporting Month Mar-96 Apr-96 May-96 Jun-96 Jul-96 Aug-96 Sep-96 Oct-96 Nov-96 Dec-96 Jan-97 Feb-97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Production
Gross 8/8ths
Oil(Bbls)
Gas(Mcf)
Net Partnership-GWI
Oil(Bbls)
Gas(Mcf)
Average Price
Oil
Gas
Net Partnership-GWI
Oil-($)
Gas-($)
Cash Revenues
Gross 8/8ths
Oil
Gas
Net Partnership-GWI
Oil
Gas
Total Cash Revenues
Royalty
Other Revenues(Expense)-Sch'd
Net Cash Revenues
Operating Costs:
Lease Operating Expense
Transportation
Workover Expense
Reimbursement of Workover
Reimbursement of Transportation
Total Operating Costs
Cash Calls Applied
Net Operating Expenses
Capital Expenditures:
Leasehold
Intangible Cost
Equipment
Total Capital Expenditures
Cash Calls Applied
Net Capital Expenditures
Net Operating Cash Flow
Interest Income
G&A Expense
Organization Cost
Contribution Applied
Net Cash Flow Available for Distribution
Distribution
LP Interest
ECIC
EnCap
GP Interest
</TABLE>
<PAGE> 74
Property Level
Monthly Net Revenue Calculation
<TABLE>
<CAPTION>
Production Month Jan-96 Feb-96 Mar-96 Apr-96 May-96 Jun-96 Jul-96 Aug-96 Sep-96 Oct-96 Nov-96 Dec-96
Cash/Reporting Month Mar-96 Apr-96 May-96 Jun-96 Jul-96 Aug-96 Sep-96 Oct-96 Nov-96 Dec-96 Jan-97 Feb-97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Production
Gross 8/8ths
Oil(Bbls)
Gas(Mcf)
Net Partnership-GWI
Oil(Bbls)
Gas(Mcf)
Average Price
Oil
Gas
Net Partnership-GWI
Oil-($)
Gas-($)
Cash Revenues
Gross 8/8ths
Oil
Gas
Net Partnership-GWI
Oil
Gas
Total Cash Revenues
Royalty
Other Revenues(Expense)-Sch'd
Net Cash Revenues
Operating Costs:
Lease Operating Expense
Transportation
Workover Expense
Reimbursement of Workover
Reimbursement of Transportation
Total Operating Costs
Cash Calls Applied
Net Operating Expenses
Capital Expenditures:
Leasehold
Intangible Cost
Equipment
Total Capital Expenditures
Cash Calls Applied
Net Capital Expenditures
Net Cash Flow Available for Distribution
Distribution
LP Interest
ECIC
EnCap
GP Interest
</TABLE>
<PAGE> 75
Monthly Net Revenue Calculation
Other Income & Expense
<TABLE>
<CAPTION>
Production Month Jan-96 Feb-96 Mar-96 Apr-96 May-96 Jun-96 Jul-96 Aug-96 Sep-96 Oct-96 Nov-96 Dec-96
Cash/Reporting Month Mar-96 Apr-96 May-96 Jun-96 Jul-96 Aug-96 Sep-96 Oct-96 Nov-96 Dec-96 Jan-97 Feb-97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income
G&A Expenses
Organization Cost
Contribution Applied
Total
Distribution
LP Interest
ECIC
EnCap
GP Interest
</TABLE>
<PAGE> 76
EXHIBIT 10.3
APRIL 1997 AMENDMENT
TO
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
FUTURE ACQUISITION 1995, LTD.
THIS APRIL 1997 AMENDMENT TO FIRST AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP (this "AMENDMENT") is made and entered into as of this 28th
day of April, 1997, by and among Future Petroleum Corporation, a Texas
corporation, Energy Capital Investment Company PLC, an English investment
company, and EnCap Equity 1994 Limited Partnership, a Texas limited partnership.
RECITALS:
A. Reference is herein made to that certain First Amended and Restated
Agreement of Limited Partnership of Future Acquisition 1995, Ltd., dated as of
January 29, 1997, by and among the parties hereto (the "AGREEMENT").
B. The parties hereto deem it in their mutual best interests to amend
the Agreement in the respects set forth herein.
AGREEMENT:
NOW, THEREFORE,in consideration of the foregoing Recitals and the
mutual covenants contained herein and in the Agreement, the parties hereto do
hereby agree as follows:
1. DEFINED TERMS AND REFERENCES.
(a) All capitalized terms used herein that are not defined
herein shall have the respective meanings assigned to them in the
Agreement.
(b) All references in this Amendment to articles, sections,
subsections and other subdivisions refer to corresponding articles,
sections, subsections and other subdivisions of this Amendment unless
expressly provided otherwise.
(c) Titles appearing at the beginning of any of such
subdivisions are for convenience only and shall not constitute part of
such subdivisions and shall be disregarded in construing the language
contained in such subdivisions.
1
<PAGE> 77
(d) The words "this Amendment", "this instrument", "herein",
"hereof", "hereby", "hereunder" and words of similar import refer to
this Amendment as a whole and not to any particular subdivision unless
expressly so limited.
(e) Words in the singular form shall be construed to include
the plural and vice versa, unless the context otherwise requires.
(f) Examples shall not be construed to limit, expressly or by
implication, the matter they illustrate.
(g) The word "includes" and its derivatives means "includes,
but is not limited to" and corresponding derivative expressions.
(h) No consideration shall be given to the fact or presumption
that one party had a greater or lesser hand in drafting this Amendment.
(i) All references herein to "$" or "dollars" shall refer to
U.S. Dollars.
2. AMENDMENT TO SECTION 2.1. Section 2.1 of the Agreement shall
be amended to include the following definitions:
"'APRIL 1997 AGREEMENT' shall mean that certain April 1997
Agreement dated as of April 28, 1997, by and among the Parent, the
General Partner and the Limited Partners."
"'PARENT AGREEMENT' shall mean that certain Agreement of
Parent dated as of January 29, 1997, by and among the Parent, the
Partnership and the Limited Partners."
3. AMENDMENT TO SECTION 3.2. Section 3.2 of the Agreement shall
be amended as set forth below to provide (i) for a new Section 3.2(f) and (ii)
that the versions of Sections 3.2(f) and 3.2(g) currently in the Agreement shall
be amended and become new Sections 3.2(g) and (h), respectively:
"(f) Subject to the provisions of this Section 3.2 and Section
3.5(d), the Limited Partners shall make Capital Contributions to the
Partnership in an aggregate amount not to exceed $493,400, which
Capital Contributions shall be used exclusively by the Partnership for
the purposes described in the following clauses (i) and (ii) and in the
amounts not to exceed those set forth in such clauses for such
purposes: (i) $143,400, which Capital Contributions shall be used by
the Partnership for the purposes of conducting the enhancement projects
described more particularly in Exhibit 3.2(f); and (ii) $350,000, which
Capital Contributions shall be used by the Partnership to make
2
<PAGE> 78
distributions to the General Partner and which distributions shall be
used by the General Partner and the Parent as provided in the April
1997 Agreement.
(g) Notwithstanding anything to the contrary herein, the
Capital Contributions referenced in subsections (a),(b),(c),(d), (e)
and (f) above and the last sentence of Section 3.2A shall be the
maximum contributions to the Partnership that the Limited Partners
shall be required to make (unless the Limited Partners otherwise elect
as provided in Sections 3.2A and 3.3).
(h) With respect to the Capital Contributions to be made by
the Limited Partners pursuant to the foregoing provisions (and any
requested additional Capital Contributions pursuant to Sections 3.2A
and 3.3), each Limited Partner's several share of such Capital
Contributions shall be as follows: with respect to the Initial
Properties, 37.5232% to ECIC and 62.4768% to EnCap LP; with respect to
the Taylor Properties, 50% to ECIC and 50% to EnCap LP; and with
respect to the Capital Contributions referenced in Section 3.2(f), 50%
to ECIC and 50% to EnCap LP."
4. AMENDMENT TO SECTION 4.4. The first two sentences of Section
4.4 of the Agreement shall be amended to read as follows:
"At least monthly (commencing the first month after the receipt by the
Partnership of its first revenues), all cash funds of the Partnership
(exclusive of Capital Contributions, any borrowed funds and any dry
hole and bottom hole and similar contributions) which the General
Partner reasonably determines are not needed for the payment of any
existing or reasonably foreseeable Partnership obligations and
expenditures shall be distributed to the Partners; provided, however,
that notwithstanding the foregoing or any other provision contained in
this Agreement, (a) unless a Limited Partner otherwise consents in
writing or defaults in the payment of any Capital Contributions
previously agreed to be made by it, the General Partner shall not be
entitled to cause the Partnership to retain any of a Limited Partner's
share of Partnership revenues for the purpose of paying (directly or
indirectly) any Capital Costs or Acquisition Costs, (b) the Partnership
may retain such insurance proceeds and other amounts as the General
Partner shall reasonably determine are necessary to pay Partnership
liabilities and expenses, to restore, preserve and protect Partnership
property upon the occurrence of an accident (e.g., a blowout),
catastrophe or similar event or to comply with all applicable
environmental laws, ordinances, rules and regulations, (c) the General
Partner shall be entitled to cause the Partnership to retain the
Limited Partners' share of revenues for the purpose of paying their
allocable share hereunder of any Unexpected Well Costs and (d)
immediately upon receipt by the Partnership of the cash Capital
Contributions of the Limited Partners pursuant to clause (ii) of
Section 3.2(f), the General Partner is authorized to, and shall, make a
special distribution of such funds to the General Partner (which funds
shall be
3
<PAGE> 79
used by the General Partner and the Parent as provided in the April
1997 Agreement). All such cash funds of the Partnership shall be
distributed to the Partners in the same respective percentages as the
revenues to which such cash funds are attributable were allocated to
the Partners pursuant to Sections 3.3 and 4.2 (after deducting
therefrom the costs and expenses charged to the Partnership pursuant to
Sections 3.3 and 4.1 and elsewhere herein); provided, however, that if
Payout would occur as a result of a distribution of cash funds to the
Limited Partners, such distribution shall be deemed to constitute two
distributions: (i) the first distribution shall consist of the amount
of cash funds necessary to cause Payout to occur and (ii) the second
distribution shall consist of the balance of the funds then
distributed; provided, further, that if, under Section 3.2(c), any
portion of the Limited Partners' Capital Contributions referenced in
Section 3.2(c) to pay the Placement Fee is used by the Partnership to
pay Lease Operating and Production Costs for the month of December
1995, then all such cash funds shall first be used to pay the balance
of the Placement Fee due and owing; and, provided further, that the
General Partner shall receive 100% of the distribution referenced in
clause (d) of the immediately preceding sentence."
5. AMENDMENT TO SECTION 9.4. The first sentence of Section 9.4 of
the Agreement shall be amended to read as follows:
"Subject to the provisions hereof, the Limited Partners may remove the
General Partner with cause and select a new General Partner to operate
and carry on the business and affairs of the Partnership. As used in
this Section 9.4 and in Section 9.5, "WITH CAUSE" shall include the
occurrence of any of the following: (a) the commission by the General
Partner of fraud, willful or intentional misconduct or gross negligence
in the performance of its duties hereunder; (b) a default by the
General Partner in the performance of its obligation hereunder to make
a distribution of cash or properties due and owing to the Limited
Partners, which default must have continued for not less than five
business days after the date such distribution is required to be made
to the Limited Partners hereunder; (c) a default by the General Partner
in the performance or observation of any other agreement, covenant,
term, condition or obligation hereunder, which default must have
continued for not less than 30 days after the General Partner has
knowledge thereof or after written notice thereof given by the Limited
Partners has been received by the General Partner, whichever first
occurs; (d) a representation or warranty made by the General Partner
herein or by the General Partner or any of its officers in any writing
furnished in connection with or pursuant to this Agreement shall be
false in any material respect on the date as of which made; (e) the
occurrence of any of the events described in Section 4.02(a)(4) or
Section 4.02(a)(5) of the Act (except that with respect to Section
4.02(a)(5), the operative number of days shall be 60 instead of the
numbers set forth in such Section); (f) if, (i) a Revenue Allocation
Adjustment is effected, (ii) such Revenue Allocation Adjustment is in
effect for a period of at least six consecutive months and (iii)
4
<PAGE> 80
after the expiration of such six-month period, the Proved Producing
Investment Coverage is less than the Minimum Ratio; (g) (i) the death,
insanity, legal disability, bankruptcy or insolvency of Carl Price or
his resignation as an executive officer (or similar position) of the
General Partner, or (ii) the failure or inability for any reason
whatsoever of Carl Price to be actively involved in the business and
affairs of the General Partner other than upon the occurrence of an
event described in subclause (i) above (which failure or inability
shall be determined by the Limited Partners in good faith); (h)
foreclosure on the General Partner's interest in the Partnership; (i)
the Parent no longer owns a majority of the voting stock in the General
Partner (or any corporation with which the General Partner merges or
consolidates in accordance with Section 9.3); (j) a default by the
Parent in the performance or observation of any agreement, covenant,
term, condition or obligation under either the Parent Agreement or the
April 1997 Agreement, which default must have continued for not less
than 30 days after the Parent has knowledge thereof or after written
notice thereof given by the Limited Partners has been received by the
Parent, whichever first occurs; or (k) a representation or warranty
made by the Parent in the Parent Agreement or the April 1997 Agreement
or by the Parent or any of its officers in any writing furnished in
connection with or pursuant to the Parent Agreement or the April 1997
Agreement shall be false in any material respect on the date as of
which made."
6. AMENDMENT TO SECTION 10.1(c). Section 10.1(c) of the Agreement
shall be amended to read as follows:
"(c) The election of the Limited Partners by written notice to
the General Partner if at the time such notice is given (i) the General
Partner has committed fraud, willful or intentional misconduct or gross
negligence in the performance of its duties hereunder, (ii) the General
Partner has defaulted in the performance of its obligation hereunder to
make a distribution of cash or properties due and owing to the Limited
Partners, which default must have continued for not less than five
business days after the date such distribution is required to be made
to the Limited Partners hereunder, (iii) the General Partner has
defaulted in the performance or observation of any other agreement,
covenant, term, condition or obligation hereunder, which default must
have continued for not less than 30 days after the General Partner has
knowledge thereof or after written notice thereof given by the Limited
Partners has been received by the General Partner, whichever first
occurs, (iv) a representation or warranty made by the General Partner
herein or by the General Partner or any of its officers in any writing
furnished in connection with or pursuant to this Agreement shall be
false in any material respect, (v) the Parent has defaulted in the
performance or observation of any agreement, covenant, term, condition
or obligation under the Parent Agreement or the April 1997 Agreement,
which default must have continued for not less than 30 days after the
Parent has knowledge thereof or after written notice thereof given by
the Limited Partners has been
5
<PAGE> 81
received by the Parent, whichever first occurs, and (vi) a
representation or warranty made by the Parent in the Parent Agreement
or the April 1997 Agreement or by the Parent or any of its officers in
any writing furnished in connection with or pursuant to the Parent
Agreement or the April 1997 Agreement shall be false in any material
respect."
7. AMENDMENT TO SECTION 12.8. The first sentence of Section 12.8
of the Agreement shall be amended to read as follows:
"Exhibits 2.1--Payout, 2.1--Payout No. 2, 3.2(f), 5.6, 6.9 and 8.2(d)
to the Agreement are attached hereto."
8. REPRESENTATIONS AND WARRANTIES.
(a) The General Partner hereby represents and warrants to the
Limited Partners, and each Limited Partner hereby severally represents
and warrants to the General Partner that:
(i) Such Partner is duly formed, validly existing and
in good standing under the laws of the jurisdiction of its
formation.
(ii) Such Partner has the requisite power and
authority to execute and deliver this Amendment and to perform
its obligations hereunder.
(iii) The execution, delivery and performance by such
Partner of this Amendment has been duly and validly
authorized, and no other action is required to be taken to
authorize such execution, delivery and performance.
(iv) The execution, delivery and performance by such
Partner of this Amendment is within its powers and will not
(i) be in contravention of or violate any provisions of its
charter or other governing documents, as amended to the date
hereof, or (ii) be in contravention of or result in any breach
or constitute a default under any applicable law, rule,
regulation, judgment, license, permit or order or any loan,
note or other agreement or instrument to which such Partner is
a party or by which it or any of its properties are bound.
(v) When delivered to the other Partners, this
Amendment will have been duly and validly executed and will be
binding upon such Partner and enforceable in accordance with
the terms hereof.
(vi) No consent, approval, authorization or order of
any court or governmental agency or authority or of any third
party which has not been
6
<PAGE> 82
obtained is required in connection with the execution,
delivery and performance by such Partner of this Amendment.
(b) The General Partner hereby represents and warrants to the
Limited Partners as follows:
(i) As of the date hereof none of the financial
statements or other written documents or information delivered
herewith or heretofore by or on behalf of the General Partner
to the Limited Partners in connection with the General
Partner, any Affiliate thereof, the Partnership, the
Agreement, this Amendment, the Properties or the operations to
be conducted thereon contains any untrue statement of a
material fact or omits to state any material fact (other than
facts which the Limited Partners recognize to be industry
risks normally associated with the oil and gas business)
necessary to keep the statements contained herein or therein
from being misleading. There is no fact peculiar to the
General Partner, its Affiliates or the Properties (other than
facts which the Limited Partners recognize to be industry
risks normally associated with the oil and gas business) which
materially adversely affects or in the future may (so far as
the General Partner can now foresee) materially adversely
affect (i) the business, property or assets, or financial
condition of the General Partner, its Affiliates or the
Partnership or (ii) the Properties, and which has not been set
forth in this Amendment or in the other documents,
certificates and statements furnished to the Limited Partners
by or on behalf of the General Partner prior to the date
hereof in connection with the transactions contemplated hereby
and under the Agreement.
(ii) The representations and warranties of the
General Partner in the Agreement were true and accurate in all
material respects as of the Taylor Amendment Date and are true
and accurate in all material respects as of the date of this
Amendment. The General Partner is in compliance in all
material respects with the terms and provisions of the
Agreement.
(c) All representations, warranties and covenants of the
Partners in this Amendment or any other document contemplated hereby
shall have been considered to have been relied upon by the other
Partner(s) and shall survive the execution and delivery of this
Amendment or any such other document, regardless of any investigation
made by or on behalf of such other Partner(s).
9. EXHIBIT 3.2(F. Attached hereto is Exhibit 3.2(f) to the
Agreement.
7
<PAGE> 83
10. MISCELLANEOUS.
(a) The Agreement, as amended by this Amendment, is hereby
ratified and confirmed in all respects.
(b) This Amendment may be executed in multiple counterparts,
with each such counterpart constituting an original and all of such
counterparts constituting but one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
8
<PAGE> 84
IN WITNESS WHEREOF, the undersigned has executed this Amendment as of
the day and year first above written.
GENERAL PARTNER:
FUTURE PETROLEUM CORPORATION
By: /s/ CARL PRICE
--------------------------------
Carl Price, President
SIGNATURE PAGE--APRIL 1997 AMENDMENT TO FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF FUTURE ACQUISITION 1995, LTD.
<PAGE> 85
IN WITNESS WHEREOF, the undersigned has executed this Amendment as of
the day and year first above written.
LIMITED PARTNER:
ENERGY CAPITAL INVESTMENT
COMPANY PLC
By: /s/ GARY R. PETERSEN,
-------------------------------------
Gary R. Petersen, Director
SIGNATURE PAGE--APRIL 1997 AMENDMENT TO FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF FUTURE ACQUISITION 1995, LTD.
<PAGE> 86
IN WITNESS WHEREOF, the undersigned has executed this Amendment as of
the day and year first above written.
LIMITED PARTNER:
ENCAP EQUITY 1994 LIMITED
PARTNERSHIP
By: ENCAP INVESTMENTS L.C.
By: /s/ GARY R. PETERSEN
-----------------------------------
Gary R. Petersen, Managing Director
SIGNATURE PAGE--APRIL 1997 AMENDMENT TO FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF FUTURE ACQUISITION 1995, LTD.
<PAGE> 87
ENERGY CAPITAL INVESTMENT COMPANY PLC
ENCAP EQUITY 1994 LIMITED PARTNERSHIP
1100 LOUISIANA, SUITE 3150
HOUSTON, TEXAS 77002
April 18, 1996
Future Petroleum Corporation
2351 West Northwest Highway
Suite 2130
Dallas, Texas 75220
Attention: Mr. Carl Price, President
RE: Future Acquisition 1995, Ltd., a Texas limited partnership
(the "PARTNERSHIP")
Gentlemen:
1. DEFINED TERMS. Reference is herein made to that certain
Agreement of Limited Partnership dated as of December 13, 1995, by and between
you and the undersigned establishing the Partnership (the "PARTNERSHIP
AGREEMENT"). Except as otherwise provided, all defined terms used herein shall
have the respective meanings assigned to such terms in the Partnership
Agreement.
2. AMENDMENTS TO PARTNERSHIP AGREEMENT. You and the undersigned
hereby agree to amend the Partnership Agreement in the following respects:
(a) SECTION 3.2(c). Section 3.2(c) of the Partnership Agreement
shall be amended to read in its entirety as follows:
"(c) Subject to the provisions of this Section 3.2 and
Section 3.5(b) and except as otherwise provided herein, the Limited
Partners shall make Capital Contributions to the Partnership in an
aggregate amount not to exceed $192,951.12, which Capital
Contributions shall be used exclusively by the Partnership to pay each
cost listed below and in an amount not to exceed that set forth
opposite such cost below:
Organization Costs $142,951.12
Placement Fee $ 50,000.00
In addition, the Limited Partners shall make Capital Contributions to
the Partnership in an aggregate amount not to exceed $21,497.24, which
Capital Contributions shall be used exclusively by the Partnership for
working capital purposes."
<PAGE> 88
Future Petroleum Corporation
April 18, 1996
Page 2
(b) SECTION 3.2A. In connection with Section 3.2A of the
Partnership Agreement, the Limited Partners previously agreed pursuant to such
Section to fund their allocable share of the costs of drilling and completing
each well listed below, provided that the maximum amount to be funded with
respect to any such well would not exceed the amount set forth opposite such
well's name below:
Marty #1 $175,000.00
Westar Infill #1 $ 82,500.00
Westar Infill #2 $ 82,500.00
It is hereby agreed that the maximum amount that the Limited Partners
shall be required to fund with respect to any such well shall not exceed the
amount set forth opposite such well's name below:
Marty #1 $239,978.25
Westar Infill #1 $ 88,004.16
Westar Infill #2 $ 91,669.65
(c) SECTION 4.1(c). Section 4.1(c) shall be amended to read as
follows:
"(c) Designated Capital Costs shall be allocated 100% to
the Limited Partners."
3. ISSUANCE OF WARRANTS TO PURCHASE COMMON STOCK. In
consideration of the agreement of the Limited Partners, as reflected in this
letter amendment, to increase the amount of funds they had previously agreed to
contribute to the Partnership, Parent agrees to issue warrants to ECIC and
EnCap LP entitling them to purchase for a five-year period commencing as of
even date herewith 14,071 and 23,429 shares of the Parent's common stock, par
value $0.01 per share, at an exercise price of $1.00 per share. The warrants
shall be substantially in the same form as the Stock Purchase Warrants dated
December 13, 1995, issued to ECIC and EnCap LP, except for changes to reflect
the warrant number, the number of shares eligible for purchase, and applicable
dates. Parent joins in the execution of this letter amendment for purposes of
(i) evidencing its agreement to the terms of this paragraph 3 and making the
representations and warranties in paragraph 4 below and (ii) acknowledging that
the agreement of the Limited Partners, as reflected in this letter amendment,
to increase the amount of funds they had previously agreed to contribute to the
Partnership, is of benefit to Parent.
<PAGE> 89
Future Petroleum Corporation
April 18, 1996
Page 3
4. REPRESENTATIONS AND WARRANTIES. Each of the Limited Partners,
the General Partner and Parent hereby represent and warrant to each other as
follows:
(a) Such party has the requisite power and authority to execute
and deliver this letter amendment and to perform its obligations hereunder.
(b) The execution, delivery and performance of this letter
amendment by such party has been duly and validly authorized by all requisite
corporate or other action on the part of such party, and no other action is
required to be taken by such party to authorize such execution, delivery and
performance.
(c) The execution, delivery and performance of this letter
amendment by such party is within its powers and will not (i) be in
contravention of or violate any provision of its charter or other governing
documents, as amended to the date hereof, or (ii) be in contravention of or
result in any breach or constitute a default under any applicable law, rule,
regulation, judgment, license, permit or order or any loan, note or other
agreement or instrument to which such party is a party or by which such party
or such party's properties are bound.
(d) When delivered to the other parties hereto, this letter
amendment will have been duly and validly executed by such party and will be
binding upon such party enforceable in accordance with its terms.
5. RATIFICATION. The Partnership Agreement, as amended by this
letter amendment, is hereby ratified and confirmed.
6. COUNTERPARTS. This letter amendment may be executed in
multiple counterparts, with each such counterpart constituting an original and
all of such counterparts constituting one and the same instrument.
<PAGE> 90
Future Petroleum Corporation
April 18, 1996
Page 4
To evidence your acceptance of and agreement to the terms of this
letter amendment, please execute one or more counterparts of this letter
amendment in the designated place below.
ENERGY CAPITAL INVESTMENT COMPANY PLC
By: /s/ GARY R. PETERSEN
------------------------------------
Name: Gary R. Petersen
Title: Director
ENCAP EQUITY 1994 LIMITED PARTNERSHIP
By: ENCAP INVESTMENTS L.C.
By: /s/ GARY R. PETERSEN
------------------------------------
Name: Gary R. Petersen
Title: Managing Director
ACCEPTED AND AGREED TO AS OF THE
DAY AND YEAR FIRST ABOVE WRITTEN
FUTURE PETROLEUM CORPORATION, a Texas
corporation
By: /s/ CARL PRICE
-----------------------------------
Name: Carl Price
Title: President
FUTURE PETROLEUM CORPORATION, a Utah
corporation
By: /s/ CARL PRICE
-----------------------------------
Name: Carl Price
Title: President
<PAGE> 1
EXHIBIT 10.4
AGREEMENT OF PARENT
THIS AGREEMENT OF PARENT (this "AGREEMENT") is made and entered into
as of this 29th day of January, 1997, by and among Future Petroleum
Corporation, a Utah corporation ("PARENT"), Future Acquisition 1995, Ltd., a
Texas limited partnership (the "PARTNERSHIP"), Energy Capital Investment
Company PLC, an English investment company ("ENERGY PLC"), and EnCap Equity
1994 Limited Partnership, a Texas limited partnership ("ENCAP LP").
RECITALS:
A. Reference is herein made to that certain Agreement of Limited
Partnership of the Partnership dated as of December 13, 1995, as amended by
that certain letter agreement dated as of April 18, 1996 (collectively, the
"ORIGINAL AGREEMENT"). Future Petroleum Corporation, a Texas corporation and a
wholly-owned subsidiary of Parent ("SUBSIDIARY"), is the sole general partner
of the Partnership and Energy PLC and EnCap LP are the limited partners of the
Partnership.
B. Reference is herein made to that certain Guaranty Agreement
dated as of December 13, 1995 (the "GUARANTY"), executed by Parent in favor of
the Partnership and the Limited Partners, whereby Parent guaranteed the prompt,
complete and full payment when due of certain obligations of Subsidiary under
the Original Agreement as more particularly described therein.
C. Subsidiary, Energy PLC and EnCap LP have determined that it is
in their mutual best interests to amend and restate the Original Agreement by
executing and delivering that certain First Amended and Restated Agreement of
Limited Partnership dated as of even date herewith (the "FIRST AMENDED
AGREEMENT") to reflect, among other things, (i) the acquisition by the
Partnership of certain oil, gas and mineral leases located in Moore County,
Texas (the "ACQUISITION"), and (ii) the agreement of the parties with respect
to the ownership by the Partnership of such leases.
D. Parent hereby acknowledges and agrees that (i) the execution
and delivery by Subsidiary, Energy PLC and EnCap LP of the First Amended
Agreement and the Acquisition can reasonably be expected to be of benefit to
Parent, (ii) the execution and delivery by Parent of this Agreement can
reasonably be expected to be of benefit to Subsidiary, and (iii) Energy PLC and
EnCap LP would not be willing to execute and deliver the First Amended
Agreement and make the additional capital contributions pursuant thereto with
respect to the Acquisition without the execution and delivery by Parent of this
Agreement, and Parent is executing and delivering this Agreement to induce the
Limited Partners to execute and deliver the First Amended Agreement and make
such additional capital contributions.
AGREEMENT:
NOW, THEREFORE, in view of the foregoing Recitals and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Parent hereby agrees as follows with, and for the benefit of, the
Partnership, Energy PLC and EnCap LP:
<PAGE> 2
SECTION 1. AMENDMENT TO AND RATIFICATION OF THE GUARANTY.
(a) The parties hereto agree that:
(i) The reference in the Guaranty to the "Partnership
Agreement" shall be amended to refer to the First Amended Agreement.
(ii) The first sentence of Section 1 of the Guaranty shall
be amended to read as follows:
"The undersigned hereby irrevocably, absolutely and
unconditionally guarantees to the Partnership and the Limited
Partners the prompt, complete and full payment when due, of
all sums that become due and payable by the General Partner
under Section 3.1(c) of the Partnership Agreement with respect
to LOPC Overrun Costs and Taylor LOPC Overrun Costs."
(b) Parent hereby acknowledges the execution and delivery of the
First Amended Agreement and hereby affirms (i) that the Guaranty, as amended
pursuant to subsection (a) above, remains in full force and effect, and (ii)
that the Guaranty, as amended pursuant to subsection (a) above, is ratified and
confirmed in all respects.
SECTION 2. ISSUANCE OF PARENT COMMON STOCK. Contemporaneously
with the execution and delivery of the First Amended Agreement by Subsidiary,
Energy PLC and EnCap LP, Parent agrees to deliver to Energy PLC and EnCap LP
stock certificate(s) evidencing the number of shares of common stock of the
Parent, $0.01 par value per share ("COMMON STOCK") opposite their respective
names below:
Energy PLC 100,000
EnCap LP 100,000
SECTION 3. PIGGYBACK REGISTRATION RIGHTS. If Parent proposes to
register any of its securities under the Securities Act other than (a) under
employee compensation or benefit programs or (b) an exchange offer or an
offering of securities solely to the existing stockholders or employees of
Parent, and the registration form to be used may be used for the registration
of Registrable Securities, Parent will give prompt written notice to Holders of
Registrable Securities and Warrant Holders of its intention to effect such a
registration and will include in such registration all Registrable Securities
with respect to which Parent has received written requests for inclusion
therein within 15 days after the receipt of Parent's notice (a "PIGGYBACK
REGISTRATION"). Parent shall use its reasonable best efforts to cause the
managing underwriters of a proposed underwritten offering to permit the
Registrable Securities requested to be included
2
<PAGE> 3
in the registration statement (or registration statements) for such offering to
be included therein on the same terms and conditions as any similar securities
of Parent included therein. Notwithstanding the foregoing, if Parent gives
notice of such a proposed registration, the total number of Registrable
Securities which shall be included in such registration shall be reduced pro
rata to such number, if any, as in the reasonable opinion of the managing
underwriters of such offering would not adversely affect the marketability or
offering price of all of the securities proposed to be offered by Parent in
such offering; provided however, that (x) if such Piggyback Registration is
incident to a primary registration on behalf of Parent, and to the extent not
prohibited by any written registration rights agreements existing on the date
hereof, the securities to be included in the registration statement (or
registration statements) for any person other than the Holders and Parent shall
be first reduced prior to any such pro rata reduction, and (y) if such
Piggyback Registration is incident to a secondary registration on behalf of
holders of securities of Parent and to the extent not prohibited by any written
registration rights agreements existing on the date hereof, the securities to
be included in the registration statement (or registration statements) for any
person not exercising "demand" registration rights other than the Holders shall
be first reduced prior to any such pro rata reduction.
SECTION 4. REGISTRATION PROCEDURES.
(a) Whenever the holders of Registrable Securities have requested
that any Registrable Securities be registered pursuant to Section 3, Parent
will as expeditiously as possible:
(i) effect registration under the Securities Act of the
Registrable Securities which Parent has been requested to register
hereunder, and use its reasonable best efforts to cause such
registration statement to become effective (provided, that before
filing a registration statement or prospectus or any amendments or
supplements thereto, Parent will furnish copies of all such documents
proposed to be filed to any holder of Registrable Securities covered
by such registration statement);
(ii) notify each seller of Registrable Securities
requesting registration promptly after Parent shall receive notice
thereof of the time when such registration statement has been filed;
(iii) furnish to each seller of Registrable Securities such
number of copies of such registration statement, each amendment and
supplement thereto, the prospectus included in such registration
statement (including, without limitation, each preliminary prospectus)
and such other documents as such seller may reasonably request in
order to facilitate the disposition of the Registrable Securities
owned by such seller;
3
<PAGE> 4
(iv) use its reasonable best efforts to register or
qualify such Registrable Securities under such other securities or
blue sky laws of such jurisdictions within the United States as any
seller reasonably requests and do any and all other acts and things
which may be reasonably necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller (provided that Parent will not be
required to qualify generally to do business or subject itself to any
general service of process in any jurisdiction where it is otherwise
not then so subject);
(v) notify each seller of such Registrable Securities, at
any time when a prospectus relating thereto is required to be
delivered under the Securities Act, of the happening of any event
which requires the making of any change in the prospectus included in
such registration statement so that such document will not contain an
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and, at the request of any such seller, Parent
will prepare a supplement or amendment to such prospectus so that such
prospectus will not contain an untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading;
(vi) use its reasonable best efforts to cause all such
Registrable Securities to be listed on each securities exchange or
exchanges, automated quotation system or over-the-counter market upon
which securities of Parent of the same class are then listed;
(vii) otherwise use its reasonable best efforts to comply
with all applicable rules and regulations of the Commission;
(viii) in the event of the issuance of any stop order
suspending the effectiveness of a registration statement, or of any
order suspending or preventing the use of any related prospectus or
suspending the disqualification of any common stock included in such
registration statement for sale in any jurisdiction, Parent will use
its reasonable best efforts promptly to obtain the withdrawal of such
order; and
(ix) use its reasonable best efforts to cause such
Registrable Securities covered by such registration statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the Sellers thereof to
consummate the disposition of such Registrable Securities.
(b) Whenever the holders of Registrable Securities have requested
that any Registrable Securities be registered pursuant to Section 3, each
holder of Registrable Securities (including
4
<PAGE> 5
Registrable Securities in any registration statement filed pursuant to this
Agreement) will be deemed to have agreed as follows:
(i) upon receipt of any notice from Parent of the
happening of any event of the kind described in Section 4(a)(v), the
holders of Registrable Securities will forthwith discontinue
disposition of any Registrable Securities until the holders of
Registrable Securities receive copies of the supplemented or amended
prospectus contemplated by Section 4(a)(v), or until they are advised
in writing by Parent that the use of the applicable prospectus may be
resumed, and they have received copies of any additional or
supplemental filings that are incorporated or deemed to be
incorporated by reference in such prospectus (it being the agreement
of the parties hereto, however, that the obligation of Parent with
respect to maintaining the subject registration statement current and
effective shall be extended by a period of days equal to the period
the holders of Registrable Securities are required by this Section
4(b)(i) to discontinue disposition of such Registrable Securities);
and
(ii) furnish to Parent such information regarding each
holder, the Registrable Securities held by such holder and the
intended method of disposition thereof as Parent shall reasonably
request and as shall be reasonably required in connection with the
preparation of the applicable registration statement and other actions
taken by Parent under this Agreement, and it shall be a condition
precedent to the obligation of Parent to take any action pursuant to
this Agreement in respect of the Registrable Securities that such
information has been furnished to Parent by the holders of Registrable
Securities.
SECTION 5. EXPENSES OF REGISTRATION. Parent shall pay all
Registration Expenses in connection with each registration effected pursuant to
Section 3 and, in any event, shall pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal and accounting duties), the expense of any annual audit and
the fees and expenses incurred in connection with the listing of the securities
to be registered on each securities exchange on which similar securities issued
by Parent are then listed. All Selling Expenses incurred in connection with a
registration effected pursuant to the terms hereof shall be borne by the seller
or sellers of Registrable Securities pro rata based upon the number of
Registrable Securities included in such registration.
SECTION 6. INDEMNIFICATION.
(a) Parent shall indemnify and hold harmless, with respect to any
registration statement filed by it, to the full extent permitted by law, each
holder of Registrable Securities covered by such registration statement, and
each other Person, if any, who controls such holder within the meaning of
Section 15 of the Securities Act (collectively, "HOLDER INDEMNIFIED PARTIES")
against all losses, claims, damages, liabilities and expenses, joint or several
to which any such Holder
5
<PAGE> 6
Indemnified Party may become subject under the Securities Act, the Exchange
Act, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement in which such Registrable Securities were included as
contemplated hereby or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) any untrue statement or alleged untrue statement
of a material fact contained in any preliminary, final or summary prospectus,
together with the documents incorporated by reference therein (as amended or
supplemented if Parent shall have filed with the Commission any amendment
thereof or supplement thereto), or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, or (iii) any violation by Parent of any federal,
state or common law rule or regulation applicable to Parent and relating to
action of or inaction by Parent in connection with any such registration; and
in each such case, Parent shall reimburse each such Holder Indemnified Party
for any reasonable legal or other expenses incurred by any of them in
connection with investigating or defending any such loss, claim, damage,
liability, expense, action or proceeding; provided, however, that Parent shall
not be liable to any such Holder Indemnified Party in any such case to the
extent, that any such loss, claim, damage, liability or expense (or action or
proceeding, whether commenced or threatened, in respect thereof) arises out of
or is based upon any untrue statement or alleged untrue statement or omission
or alleged omission made in such registration statement or amendment thereof or
supplement thereto or in any such preliminary, final or summary prospectus in
reliance upon and in conformity with written information furnished to Parent by
or on behalf of any such Holder Indemnified Party for use in the preparation
thereof. Such indemnity and reimbursement of expenses and other obligations
shall remain in full force and effect regardless of any investigation made by
or on behalf of the Holder Indemnified Parties and shall survive the transfer
of such securities by such Holder Indemnified Parties.
(b) Each holder of Registrable Securities participating in any
registration hereunder shall severally (and not jointly or jointly and
severally) indemnify and hold harmless, to the fullest extent permitted by law,
Parent, its directors, officers, employees and agents, and each Person who
controls Parent (within the meaning of Section 15 of the Securities Act)
(collectively, "PARENT INDEMNIFIED PARTIES") against all losses, claims,
damages, liabilities and expenses to which any Parent Indemnified Party may
become subject under the Securities Act, the Exchange Act, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in any registration statement in which
such holder's Registrable Securities were included or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged
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untrue statement of a material fact contained in any preliminary, final or
summary prospectus, together with the documents incorporated by reference
therein (as amended or supplemented if Parent shall have filed with the
Commission any amendment thereof or supplement thereto), or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading to the extent in the
cases described in clauses (i) and (ii), that such untrue statement or omission
was furnished in writing by such holder for use in the preparation thereof, or
(iii) any violation by such holder of any federal, state or common law rule or
regulation applicable to such holder and relating to action of or inaction by
such holder in connection with any such registration; and in each such case,
such holder shall reimburse each such Parent Indemnified Party for any
reasonable legal or other expenses incurred by any of them in connection with
investigating or defending any such loss, claim, damage, liability, expense,
action or proceeding. Such indemnity obligation shall remain in full force and
effect regardless of any investigation made by or on behalf of the Parent
Indemnified Parties (except as provided above) and shall survive the transfer
of such securities by such holder.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) of written notice of the commencement of any action,
suit, proceeding, investigation or threat thereof made in writing with respect
to which a claim for indemnification may be made pursuant to this Section 6,
such indemnified party shall, if a claim in respect thereof is to be made
against an indemnifying party, give written notice to the indemnifying party of
the threat or commencement thereof; provided, however, that the failure to so
notify the indemnifying party shall not relieve it from any liability which it
may have to any indemnified party except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. If any such claim
or action referred to under subsection (a) or (b) is brought against any
indemnified party and it then notifies the indemnifying party of the threat or
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it wishes, jointly with any other indemnifying
party similarly notified, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. After notice from the indemnifying
party to such indemnified party of its election so to assume the defense of any
such claim or action, the indemnifying party shall not be liable to such
indemnified party under this Section 6 for any legal expenses of counsel or any
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation unless
the indemnifying party has failed to assume the defense of such claim or action
or to employ counsel reasonably satisfactory to such indemnified party. Under
no circumstances will the indemnifying party be obligated to pay the fees and
expenses of more than one law firm for all indemnified parties. The
indemnifying party shall not be required to indemnify the indemnified party
with respect to any amounts paid in settlement of any action, proceeding or
investigation entered into without the written consent of the indemnifying
party, which consent shall not be unreasonably withheld. No indemnifying party
shall consent to the entry of any judgment or enter into any settlement without
the consent of the indemnified party unless (i) such judgment or settlement
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does not impose any obligation or liability upon the indemnified party other
than the execution, delivery or approval thereof, and (ii) such judgment or
settlement includes as an unconditional term thereof the giving by the claimant
or plaintiff to such indemnified party of a full release and discharge from all
liability in respect of such claim for all persons that may be entitled to or
obligated to provide indemnification or contribution under this Section 6.
(d) Indemnification similar to that specified in the preceding
subsections of this Section 6 (with appropriate modifications) shall be given
by Parent and each seller of Registrable Securities with respect to any
required registration or qualification of securities under any state securities
or blue sky laws.
(e) If the indemnification provided for in this Section 6 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b), then each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of the losses,
claims, damages, liabilities or expenses (or actions or proceedings in respect
thereof) referred to in subsection (a) or (b) in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and the indemnified party on the other in connection with the statements,
omissions, actions or inactions which resulted in such losses, claims, damages,
liabilities or expenses as well as any other relevant equitable considerations.
The relative fault of the indemnifying party and the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the indemnifying party
or the indemnified party, any action or inaction by any such party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement, omission, action or inaction. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages, liabilities or expenses (or actions or proceedings in respect thereof)
pursuant to this subsection (e) shall be deemed to include, without limitation,
any reasonable legal or other expenses incurred by such indemnified party in
connection with investigating or defending any such action or claim (which
shall be limited as provided in subsection (c) if the indemnifying party has
assumed the defense of any such action in accordance with the provisions
thereof) which is the subject of this subsection (e). No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. Promptly after receipt by an
indemnified party under this subsection (e) of written notice of the
commencement of any action, suit, proceeding, investigation or threat thereof
made in writing with respect to which a claim for contribution may be made
against an indemnifying party under this subsection (e), such indemnified party
shall, if a claim for contribution in respect thereof is to be made against an
indemnifying party, give written notice to the indemnifying party in writing of
the commencement thereof (if the notice specified in subsection (c) has not
been given with respect to such action); provided, however, that the failure to
so notify the indemnifying party shall not relieve it from any obligation to
provide contribution which it may have to any
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indemnified party under this subsection (e) except to the extent that the
indemnifying party is actually prejudiced by the failure to give notice.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this paragraph were determined by pro rata allocation
or by any other method of allocation which does not take account the equitable
considerations referred to in the immediately preceding paragraph.
If indemnification is available under this Section 6, the indemnifying
parties shall indemnify each indemnified party to the fullest extent provided
in subsections (a) and (b), without regard to the relative fault of said
indemnifying party or any other equitable consideration provided for in this
subsection. The provisions of this subsection shall be in addition to any
other rights to indemnification or contribution which any indemnified party may
have pursuant to law or contract, shall remain in full force and effect
regardless of any investigation made by or on behalf of any indemnified party,
and shall survive the transfer of securities by any such party.
(f) In connection with any underwritten offering contemplated by
this Agreement which includes Registrable Securities, Parent and all sellers
of Registrable Securities included in any registration statement shall agree to
customary provisions for indemnification and contribution (consistent with the
other provisions of this Section 6) in respect of losses, claims, damages,
liabilities and expenses of the underwriters of such offering.
SECTION 7. RULE 144. Parent covenants to each Holder that, to
the extent that Parent shall be required to do so under the Exchange Act,
Parent shall (a) timely file the reports required to be filed by it under the
Exchange Act or the Securities Act (including, but not limited to, the reports
under Section 13 and 15(d) of the Exchange Act referred to in subparagraph (c)
(1) of Rule 144 adopted by the Commission under the Securities Act) and the
rules and regulations adopted by the Commission thereunder, and (b) take such
further action as any Holder may reasonably request, all to the extent required
from time to time to enable such Holder to sell Registrable Securities without
registration under the Securities Act within the limitations of the exemption
provided by Rule 144 under the Securities Act, as such Rule may be amended from
time to time, or any similar rule or regulation hereafter adopted by the
Commission. Upon the request of any Holder, Parent shall deliver to such
Holder a written statement as to whether it has complied with such
requirements.
SECTION 8. DEFINITIONS, REFERENCES AND CONSTRUCTION.
(a) When used in this Agreement, the following terms shall have
the respective meanings assigned to them in this Section 8 or in the sections,
subsections or other subdivisions referred to below:
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<PAGE> 10
"AGREEMENT" shall mean this Parent Agreement, as hereafter changed,
modified or amended in accordance with the terms hereof.
"COMMISSION" shall mean the Securities and Exchange Commission (or any
successor body thereto).
"COMMON STOCK" shall have the meaning assigned to it in Section 2.
"ENCAP LP" shall have the meaning assigned to it in the introductory
paragraph hereof.
"ENERGY PLC" shall have the meaning assigned to it in the introductory
paragraph hereof.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, and all rules and regulations promulgated under such Act.
"FIRST AMENDED AGREEMENT" shall have the meaning assigned to it in
Paragraph C of the Recitals hereto.
"GUARANTY" shall have the meaning assigned to it in Paragraph B of the
Recitals hereto.
"HOLDER" shall mean any Person that holds Registrable Securities.
"HOLDER INDEMNIFIED PARTIES" shall have the meaning assigned to it in
Section 7(a).
"ORIGINAL AGREEMENT" shall have the meaning assigned to it in
Paragraph A of the Recitals hereto.
"PARENT" shall have the meaning assigned to it in the introductory
paragraph hereof.
"PARTNERSHIP" shall have the meaning assigned to it in the
introductory paragraph hereof.
"PERSON" shall mean any individual, corporation, partnership, joint
venture, limited partnership, limited liability company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"PIGGYBACK REGISTRATION" shall have the meaning assigned to it in
Section 4.
"REGISTRABLE SECURITIES" shall mean (i) the shares of Common Stock
issued pursuant to this Agreement, (ii) the Warrant Shares and (iii) any
securities issued or issuable with respect to the shares of Common Stock or
Warrant Shares by way of a stock dividend or stock split or
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<PAGE> 11
in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization.
"REGISTRATION EXPENSES" shall mean all expenses incident to Parent's
performance of or compliance with the registration rights granted hereunder,
including (without limitation) all registration and filing fees, fees and
expenses of compliance with securities and blue sky laws, printing and
engraving expenses, messenger, telephone and delivery expenses, and fees and
disbursements of counsel for Parent, all independent certified public
accountants and underwriters (excluding discounts and commissions); provided,
that Registration Expenses shall not include any Selling Expenses.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended,
and all rules and regulations under such Act.
"SELLING EXPENSES" shall mean underwriting discounts or commissions,
any selling commissions and stock transfer taxes attributable to sales of
Registrable Securities and the fees and expenses of counsel for any Holder.
"SUBSIDIARY" shall have the meaning assigned to it in Paragraph A of
the Recitals hereto.
"WARRANTS" shall mean the following: (i) Stock Purchase Warrant dated
as of December 13, 1995, executed by Parent in favor of Energy PLC, entitling
Energy PLC to purchase 93,808 shares of Common Stock on the terms and
conditions set forth therein; (ii) Stock Purchase Warrant dated as of December
13, 1995, executed by Parent in favor of EnCap LP, entitling EnCap LP to
purchase 156,192 shares of Common Stock on the terms and conditions set forth
therein; (iii) Stock Purchase Warrant dated as of April 18, 1996, executed by
Parent in favor of Energy PLC, entitling Energy PLC to purchase 14,071 shares
of Common Stock on the terms and conditions set forth therein; and (iv) Stock
Purchase Warrant dated as of April 18, 1996, executed by Parent in favor of
EnCap LP, entitling EnCap LP to purchase 23,429 shares of Common Stock on the
terms and conditions set forth therein.
"WARRANT HOLDER" shall mean (i) an holder of a Warrant or (ii) any
holder of Warrant Shares.
"WARRANT SHARES" shall mean the shares of Common Stock issued upon
exercise of the Warrants.
(b) All references in this Agreement to sections, subsections and
other subdivisions refer to corresponding sections, subsections and other
subdivisions of this Agreement unless expressly provided otherwise. Titles
appearing at the beginning of any of such subdivisions are for convenience only
and shall not constitute part of such subdivisions and shall be disregarded
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in construing the language contained herein. The words "this Agreement", "this
instrument", "herein", "hereof", "hereby", "hereunder" and words of similar
import refer to this Agreement as a whole and not to any particular subdivision
unless expressly so limited. Words in the singular form shall be construed to
include the plural and vice versa, unless the context otherwise requires.
Pronouns in masculine, feminine and neuter genders shall be construed to
include any other gender.
SECTION 9. NOTICES. All notices, demands or other
communications to be given or delivered under or by reason of the provisions of
this Agreement shall be in writing and shall be deemed to have been given when
delivered personally or sent by reputable express courier service (charges
prepaid), or mailed to the recipient by certified or registered mail, return
receipt requested and postage prepaid, or sent by telefax, to the parties at
the following address (or to such other address or to the attention of such
other person as the recipient party has specified by prior like notice to the
sending party):
If to Parent:
Future Petroleum Corporation
2351 West Northwest Highway
Dallas, Texas 75220
Telecopier No.: (214)350-8382
Attention: Carl Price
If to the Partnership:
Future Acquisition 1995, Ltd.
2351 West Northwest Highway
Dallas, Texas 75220
Telecopier No.: (214)350-8382
Attention: Carl Price
If to Energy PLC or EnCap LP:
c/o EnCap Investments L.C.
1100 Louisiana
Suite 3150
Houston, Texas 77002
Telecopier No.: (713)659-6130
Attention: Gary R. Petersen, Managing Director
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SECTION 10. MARKET STANDOFF AGREEMENT. In order to facilitate the
possibility of future public offerings of securities of Parent, the Holders
agree that the shares of Common Stock issued pursuant to this Agreement will
not be resold during a period commencing 30 days preceding the filing by the
Parent of a registration statement under the Securities Act for a public
offering for cash by Parent of its Common Stock or securities convertible into
or exercisable or exchangeable for its Common Stock and continuing until the
earlier of the abandonment of the proposed public offering or 30 days following
the date of the last closing in the public offering period, but not to exceed,
in any event, 120 days, except to the extent such shares are included in such
registration. Certificates representing the shares of Common Stock issued
pursuant to this Agreement will bear a legend noting the foregoing restriction.
Holders of such securities also agree that they will cooperate with Parent in
providing reasonable written assurances respecting the foregoing to the
underwriter of any such public offering. Holders agree that during the above
restricted period they will not directly or indirectly sell, offer to sell,
contract to sell (including without limitation any short sale), grant an option
to purchase or otherwise transfer of dispose of (other than donees who agree to
be similarly bound) shares of Common Stock issued pursuant to this Agreement at
any time during such period except securities included in such registration.
In order to enforce the foregoing covenant, Parent may impose stop-order
instructions with respect to such shares of Common Stock held by each Holder,
which shall be binding upon any assignee or successor of such Holder (and the
shares or securities of every other person subject to the foregoing
restriction), until the end of the restricted period.
SECTION 11. REPRESENTATIONS AND WARRANTIES.
(a) Each party hereto hereby severally represents and warrants to
the other parties hereto as follows:
(i) It is duly organized and validly existing under the
laws of its state of formation.
(ii) It has all requisite power and authority to execute
and deliver this Agreement and to perform its obligations hereunder.
(iii) The execution, delivery and performance of this
Agreement are within its powers and do not (A) contravene or violate
any provisions of its charter or other governing documents, as amended
to the date hereof, or (B) contravene or result in any breach of or
constitute a default under any applicable law, rule or regulation or
any loan, note or other agreement or instrument to which it is a party
or by which it or any of its properties are bound.
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(iv) No consent, approval, authorization, or order of any
court or governmental agency or authority or of any third party which
has not been obtained is required in connection with the execution,
delivery and performance by it of this Agreement.
(v) When delivered to the other parties hereto, this
Agreement will be duly and validly executed by it and will be binding
upon it in accordance with the terms hereof.
(b) Each of Energy PLC and EnCap LP hereby severally represents
and warrants to Parent as follows:
(i) It is acquiring the shares of Common Stock being
issued to it pursuant to this Agreement as an investment and not with
a view to the resale or other distribution to the public.
(ii) It is an "accredited investor," as such term is
defined in Regulation D promulgated by the Commission pursuant to the
Securities Act.
(c) Parent hereby represents and warrants to Energy PLC and EnCap
LP that the shares of Common Stock issued pursuant to this Agreement have been
duly authorized for issuance and, when issued and delivered pursuant to the
terms hereof, will have been validly issued, fully paid and nonassessable.
SECTION 12. MISCELLANEOUS.
(a) From and after the date of this Agreement, Parent will not,
without the prior written consent of the holders of a majority of the number of
Registrable Securities then outstanding, enter into any agreement with respect
to its securities which is inconsistent with or violates the rights granted to
the holders of Registrable Securities in this Agreement.
(b) All questions concerning the construction, validity and
interpretation of this Agreement shall be governed by the internal law, and not
the law of conflicts, of the State of Texas.
(c) All covenants and agreements in this Agreement by or on behalf
of any of the parties hereto will bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether expressed or
not.
(d) This Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect
of the subject matter herein contained.
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(e) If any provision of this Agreement is held to be
unenforceable, this Agreement shall be considered divisible and such provision
shall be deemed inoperative to the extent it is deemed unenforceable, and in
all other respects this Agreement shall remain in full force and effect;
provided, however, that if any such provision may be made enforceable by
limitation thereof, then such provision shall be deemed to be so limited and
shall be enforceable to the maximum extent permitted by applicable law.
(f) This Agreement may be executed by the parties hereto in any
number of counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same agreement. Each counterpart may
consist of a number of copies hereof each signed by less than all, but together
signed by all, the parties hereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
FUTURE PETROLEUM CORPORATION
By: /s/ CARL PRICE
----------------------------------
Name: Carl Price
Title: President
FUTURE ACQUISITION 1995, LTD.
By: FUTURE PETROLEUM CORPORATION
By: /s/ CARL PRICE
----------------------------------
Name: Carl Price
Title: President
ENERGY CAPITAL INVESTMENT COMPANY
PLC
By: /s/ GARY R. PETERSEN
----------------------------------
Name: Gary R. Petersen
Title: Director
ENCAP EQUITY 1994 LIMITED
PARTNERSHIP
By: ENCAP INVESTMENTS L.C.
By: /s/ GARY R. PETERSEN
----------------------------------
Name: Gary R. Petersen
Title: Managing Director
SIGNATURE PAGE--AGREEMENT OF PARENT
