UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission file number 0-8609
Bargo Energy Company
(Exact name of small business issuer as specified in charter)
Texas 87-0239185
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 Louisiana, Suite 3700
Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
(713)236-9792
(Issuer's telephone number, including area code)
Future Petroleum Corporation
2351 West Northwest Highway, Suite 2351, Dallas, Texas 75220
(Former name, former address, and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by
section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes [x ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
The Company had approximately 92,173,596 shares of common stock, par value
$0.01 per share, issued and outstanding as of May 20, 1998.
Transitional Small Business Disclosure Format (Check One): Yes No X
Page 1 of 13 Consecutively Numbered Pages
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The condensed consolidated financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. However, in the opinion of
management, all adjustments (which consist only of normal recurring
adjustments) necessary to present fairly the financial position and results
of operations for the periods presented have been made. These condensed
consolidated financial statements should be read in conjunction with
financial statements and the notes thereto included in the Company's
Form 10-KSB filing for the year ended December 31, 1998.
<PAGE>
BARGO ENERGY COMPANY AND SUBSIDIARIES
(FORMERLY FUTURE PETROLEUM CORPORATION
AND SUBSIDIARIES)
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
(UNAUDITED)
ASSETS
<TABLE>
CURRENT ASSETS
<S> <C>
Cash and cash equivalents $ 1,263,440
Trade accounts receivable, no allowance for
doubtful accounts considered necessary:
Joint interest billings 37,763
Accrued oil and gas sales 2,198,765
Advance to related party 36,793
---------
TOTAL CURRENT ASSETS 3,536,761
---------
PROPERTY AND EQUIPMENT
Oil and gas properties, full cost method 46,541,511
Other 662,908
----------
TOTAL PROPERTY AND EQUIPMENT 47,204,419
----------
Less accumulated depletion, depreciation
and amortization (2,507,671)
----------
NET PROPERTY AND EQUIPMENT 44,696,748
OTHER ASSETS
Goodwill, net of accumulated amortization of $58,333 1,941,667
Loan costs, net of accumulated amortization of $74,944 914,956
Mining properties held for sale 39,977
Other 1,306
---------
TOTAL OTHER ASSETS 2,897,906
---------
TOTAL ASSETS $ 51,131,415
==========
</TABLE>
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 8,957,167
Trade accounts payable 1,820,208
Accrued oil and gas proceeds payable 265,980
Accrued interest payable 791,247
Advance from related party 356,073
----------
TOTAL CURRENT LIABILITIES 12,190,675
----------
LONG TERM DEBT, less current portion 31,555,262
----------
DEFERRED TAX LIABILITY 516,000
----------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 200,000 shares authorized,
100,000 shares issued and outstanding 1,000
Common stock, $.01 par value; 30,000,000 shares authorized,
22,357,786 shares issued and outstanding 223,377
Additional paid-in capital 6,421,345
Deferred stock issuance costs (159,615)
Retained earnings 383,371
---------
TOTAL STOCKHOLDERS' EQUITY 6,869,478
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 51,131,415
==========
</TABLE>
<PAGE>
BARGO ENERGY COMPANY AND SUBSIDIARIES
(FORMERLY FUTURE PETROLEUM CORPORATION
AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
Three Months Ended
March 31,
----------------------------
1999 1998
---------- -----------
<S> <C> <C>
REVENUES
Oil and gas sales $ 2,201,550 $ 494,174
--------- -------
TOTAL REVENUES 2,201,550 494,174
--------- -------
COSTS AND EXPENSES
Lease operations and production taxes 935,470 268,560
General and administrative 863,237 77,867
Depletion, depreciation and amortization 991,042 101,699
--------- -------
TOTAL EXPENSES 2,789,749 448,126
--------- -------
OTHER INCOME
Interest expense (871,263) (165,894)
Interest income 3,833 2,108
Miscellaneous income -0- 4,406
--------- --------
TOTAL OTHER INCOME AND (EXPENSE) (867,430) (159,380)
--------- --------
INCOME (LOSS) BEFORE INCOME TAXES (1,455,629) (113,332)
DEFERRED INCOME TAX BENEFIT (EXPENSE) 495,000 40,000
---------- --------
NET INCOME (LOSS) $ (960,629) $ (73,332)
========== ========
NET INCOME (LOSS) PER COMMON SHARE -
BASIC AND DILUTED (.02) (.01)
---------- --------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 48,338,926 5,679,000
---------- ---------
</TABLE>
<PAGE>
BARGO ENERGY COMPANY AND SUBSIDIARIES
(FORMERLY FUTURE PETROLEUM CORPORATION
AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
(UNAUDITED)
Three Months Ended
March 31,
--------------------------
1999 1998
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (960,629) $ (73,332)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depletion, depreciation, and
amortization 991,042 101,699
Amortization of debt issue costs 49,500 -0-
Deferred income taxes (495,000) (40,000)
Change in working capital items:
Decrease (increase) in
accounts receivable 399,472 64,761
Increase in advances to
related parties (28,793) -0-
Increase (decrease) in accounts payable
and accrued liabilities 476,435 (40,982)
Decrease in advances from
related parties (209,927) -0-
Other (7,777) 6,845
--------- --------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 214,323 18,991
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of oil and gas properties (549,511) -0-
Additions to property and equipment (14,908) (211,086)
--------- --------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (564,419) (211,086)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 655,262 -0-
Repayment of long-term debt (1,833) (3,589)
Stock issuance costs (290,964) -0-
Proceeds from exercise of stock options 10,071 -0-
--------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 372,536 (3,589)
--------- --------
NET INCREASE (DECREASE) IN CASH 22,440 (195,684)
CASH AND CASH EQUIVALENTS,
BEGINNING OF QUARTER 1,241,000 292,931
--------- --------
CASH AND CASH EQUIVALENTS, END OF QUARTER $1,263,440 $ 97,247
========= ========
SUPPLEMENTAL INFORMATION:
Cash paid during the quarter
for interest $ 460,360 $ 165,894
========= ========
</TABLE>
<PAGE>
BARGO ENERGY COMPANY AND SUBSIDIARIES
(FORMERLY FUTURE PETROLEUM CORPORATION
AND SUBSIDIARIES)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIODS INDICATED
(UNAUDITED)
<TABLE>
Preferred Stock Common Stock
Shares Amount Shares Amount
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1997 -0- $ -0- 5,678,779 $ 57,000
Shares issued for oil and gas
properties 100,000 1,000 5,163,192 52,000
Shares issued for fixed assets -0- -0- 2,414,776 24,000
Shares issued for retirement
of debt -0- -0- 8,495,683 85,000
Shares issued for options
exercised -0- -0- 110,000 1,000
Shares issued for payment
of interest -0- -0- 267,400 2,000
Shares issued for services -0- -0- 190,236 2,000
Net income -0- -0- -0- -0-
--------- ------- --------- ---------
BALANCES, DECEMBER 31, 1998 100,000 $ 1,000 22,320,066 $ 223,000
Stock issuance costs -0- -0- -0- -0-
Shares issued for options
exercised -0- -0- 37,720 377
Net income (loss) -0- -0- -0- -0-
--------- ------- ---------- ---------
BALANCES, MARCH 31, 1999 100,000 $ 1,000 22,357,786 $ 223,377
========= ======== ========== =========
</TABLE>
<PAGE>
BARGO ENERGY COMPANY AND SUBSIDIARIES
(FORMERLY FUTURE PETROLEUM CORPORATION
AND SUBSIDIARIES)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIODS INDICATED
(UNAUDITED)
<TABLE>
Deferred Total
Additional Stock Retained Stock-
Paid-In Issuance Earnings holders'
Capital Costs (Deficit) Equity
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1997 $4,413,000 $ -0- $(64,0000) $4,406,000
Shares issued for oil and gas
properties 21,000 -0- -0- 74,000
Shares issued for fixed assets 593,000 -0- -0- 617,000
Shares issued for retirement
of debt 1,312,000 -0- -0- 1,397,000
Shares issued for options
exercised 57,000 -0- -0- 58,000
Shares issued for payment
of interest 66,000 -0- -0- 68,000
Shares issued for services 81,000 -0- -0- 83,000
Net income -0- -0- 1,408,000 1,408,000
--------- ------- --------- ---------
BALANCES, DECEMBER 31, 1998 $6,543,000 $ -0- $1,344,000 $8,111,000
Stock issuance costs (131,349) (159,615) -0- (290,964)
Shares issued for options
exercised 9,694 -0- -0- 10,071
Net income (loss) -0- -0- (960,629) (960,629)
--------- ------- ---------- ---------
BALANCES, MARCH 31, 1999 $6,421,345 $(159,615) $ 383,371 $6,869,478
========== ======== ========= ==========
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
THE COMPANY
Bargo Energy Company (the "Company" or "Bargo") is engaged through its
subsidiaries and subsidiary partnerships in the development of oil and natural
gas properties located onshore primarily in the Gulf Coast Region(Texas and
Louisiana) and California. The Company's principal business strategies include
(i) maximizing the value of its existing high-quality, long-life reserves
through efficient operating and marketing practices, (ii)conducting detailed
field studies using the newest technology to identify additional reserves and
exploration potential, and (iii) seeking acquisitions of producing properties,
with exploration and development potential in areas where the Company has
operating experience and expertise. In 1998, through a change in management and
the establishment of a credit facility with Bank of America, the Company was
able to implement an aggressive acquisition program. Going forward, the Company
intends to continue to actively acquire producing oil and gas reserves along
with the exploitation of its existing properties.
As of December 31, 1998, the Company owned approximately 15,145,000 barrels of
oil equivalent proved reserves. Approximately 54% of the Company's reserves are
proved developed producing reserves. Quantities stated as equivalent barrels of
oil reserves are based on a factor of six mcf of natural gas per barrel of oil.
STRATEGIC DEVELOPMENTS
On August 14, 1998, the Company acquired from Bargo Energy Resources, Ltd.
("Resources") their interest in the South Coles Levee Unit for a purchase price
of $5.8 million, 4.7 million shares of Common Stock and a warrant to purchase an
additional 250,000 shares of Common Stock ("August Transaction").In connection
with this transaction, EnCap Equity 1994, L.P, a Texas limited partnership
("EnCap") and Energy Capital Investment Company PLC, an English investment
company ("ECIC") (together are the "EnCap Entities") agreed to modify and extend
their outstanding loans to the Company in the amount of approximately $7.3
million in exchange for 2.8 million shares of Common Stock.
Also in connection with the August Transaction, Resources, the EnCap Entities,
Mr. B. Carl Price, Mr. Don Wm. Reynolds (Mr. Price and Mr. Reynolds together are
the "Price Group") and Future entered into a Stockholders' Agreement whereby all
parties agreed to cause the Board of Directors of Future to be composed of seven
persons. Each party further agreed to vote their shares of Common Stock in
connection with the election of directors of the Company for two nominees of
Resources, two nominees of the EnCap Entities, and three nominees of the Price
Group. In addition, the parties to the Stockholders' Agreement agreed that one
of Resources nominees would be the Chairman of the Board of Directors of the
Company. Accordingly, Mr. Robert D. Price and Mr. D. William Reynolds, Jr.
agreed to resign from Future's Board of Directors. Mr. Tim J. Goff, who was also
appointed Chairman of the Board of Future, and Mr. Thomas D. Barrow were
appointed to serve as Resources nominees, and Mr. Gary R. Petersen and Mr. D.
Martin Phillips were appointed to serve as the EnCap Entities' nominees.
In connection with the August Transaction, Bargo entered into a $20 million
credit agreement with Bank of America National Trust and Savings Association
("Bank of America") with a borrowing base initially set at $10.5 million.
Pursuant to pledge agreements dated August 14, 1998 ("August Pledge
Agreements"), Resources, the EnCap Entities and the Price Group pledged their
shares of Common Stock to secure Future's borrowing sunder the credit agreement.
In December 1998, the Company amended and restated its credit agreement with
Bank of America to increase the commitment amount to $50 million subject to a
borrowing base as determined by Bank of America on an acquisition by acquisition
basis.
<PAGE>
As of December 15, 1998, the Company acquired substantially all of the assets
and liabilities of Resources, including Resources' trained staff of professional
geologists, engineers, landmen, accountants and other employees, for $2 million
cash and 100,000 shares of Preferred Stock ("December Transaction"). In
addition, the Company issued an aggregate of 8,333,333 shares of Common Stock to
Bargo Energy Company, a Texas general partnership ("Bargo Energy") and TJG
Investments, Inc. ("TJG") in exchange for the cancellation of outstanding debt
aggregating $4 million. In connection with this transaction, the Company,
Resources, Bargo, TJG, the Price Group and the EnCap Entities entered into an
Amended and Restated Stockholders' Agreement whereby Resource's board
representation was increased from two director nominees to four director
nominees and the Price Group's board representation was decreased from three
director nominees to one director nominee.
All of the shares of Common Stock and Preferred Stock issued pursuant to the
December Transaction as well as the shares of Common Stock issuable upon
conversion of the Preferred Stock are subject to pledge agreements, each of
which is dated December 15, 1998 ("December Pledge Agreements") between the
stockholders and Bank of America. The December Pledge Agreements secure Future's
borrowings under its credit agreement with Bank of America. If an event of
default occurs under the credit agreement, the bank will have the right to vote
all of the shares of Future subject to the December Pledge Agreements and,
following foreclosure on the shares, will have the right to sell the shares as
provided in the December Pledge Agreements and applicable law.
Also in connection with the December transaction, the Company agreed to file an
information statement with the Commission to change its name to Bargo Energy
Company from Future Petroleum Corporation, reincorporate the Company in Texas
and increase the number of shares of Common Stock Future is authorized to issue
On April 26, 1999 (the "Effective Date"), Bargo Energy Company, a Texas
corporation ("Bargo"), merged with Future Petroleum Corporation, a Utah
corporation ("Future"). Bargo was incorporated under the name FPT Corporation on
January 26, 1999 as a wholly owned subsidiary of Future solely for the purpose
of reincorporating Future in Texas.
The reincorporation occurred pursuant to a merger agreement dated April 6, 1999
entered into between Future and Bargo ("Merger Agreement"). In accordance with
the terms of the Merger Agreement, Future merged into Bargo, with Bargo as the
surviving corporation. On the Effective Date, each of the 22,320,066 shares of
common stock of Future outstanding were converted into one share of Bargo's
common stock and each of the 100,000 shares of preferred stock of Future
outstanding were converted into one share of Bargo preferred stock. The
company's symbol on the OTC Bulletin Board was changed from FUPT to BARG to
reflect the change in the company's name from Future Petroleum Corporation to
Bargo Energy Company. In connection with the reincorporation, all of the
Preferred stock (100,000 shares) issued pursuant to the December transaction was
converted to 26 million shares of Common stock.
<PAGE>
The reincorporation merger increased the company's authorized capital stock from
30,200,000 shares to 125 million shares. The articles of incorporation of Bargo
authorize 125 million shares of capital stock, of which 120 million shares are
common stock and 5 million shares are preferred stock. Future's articles of
incorporation authorized 30 million shares of common stock and 200,000 shares of
preferred stock.
On May 14, 1999, the Company closed a transaction pursuant to which it
issued and sold to Kayne Anderson Energy Fund, L.P. ("Kayne"),
BancAmerica Capital Investors SBIC I, L.P. ("BancAmerica"), Eos
Partners, L.P., Eos Partners SBIC, L.P., Eos Partners SBIC II, L.P.
(collectively, "Eos"), Energy Capital Investment Company PLC, EnCap
Energy Captial Fund III-B, L.P., BOCP Energy Partners, L.P., EnCap
Energy Capital Fund III, L.P. (collectively, "EnCap") and SGC Partners
II LLC ("SGC" and together with Kayne, BancAmerica, Eos, EnCap and SGC,
the "Investors") shares of a newly created class of preferred stock.
Five million shares of the company's Cumulative Redeemable Preferred
Stock, Series B ("Preferred Stock") were issued in exchange for an
aggregate purchase price of $50 million. As additional consideration,
the Company issued an aggregate of 43,815,810 shares of its common stock
to the Investors equal to 40% of the outstanding common stock (on a
fully diluted basis). If the Company redeems all of the outstanding
shares of Preferred Stock prior to May 14, 2001, the Investors must sell
back to the Company 12.5% of the shares of Common Stock originally
issued to the Investors.
Dividends on the Preferred Stock equal to 10% per annum are payable
quarterly. The dividend rate is subject to increase (but in no event to
more than 16%) or decrease (but in no event to less than 10%) based upon
the Company's ratio of assets to liabilities which is calculated on
January 1 and July 1 of each year or at such other time as requested by
the Investors. The Preferred Stock may be redeemed at any time by the
Company and must be redeemed upon the occurrence of certain events,
including upon the fifth anniversary of the issue date or upon a change
of control. A change of control is deemed to occur upon any merger,
reorganization, purchase or sale of more than 50% of the Company's
voting securities, the sale of substantially all of the assets of the
Company or at any time Tim Goff ceases to serve as the Company's Chief
Executive Officer. The Company is prohibited from taking certain
actions, including authorizing, creating or issuing any shares of
capital stock, amending the articles of incorporation of the Company and
authorizing a merger or change of control, without the consent of the
holders of a majority of the outstanding shares of Preferred Stock.
<PAGE>
In connection with the transaction, the Company, Bargo Energy Resources,
Ltd., TJG Investments, Inc., Bargo Energy Company, Tim J. Goff, Thomas
Barrow, James E. Sowell and Bargo Operating Company, Inc. (collectively,
the "Bargo Group"), B. Carl Price, Don Wm. Reynolds (Mr. Price and Mr.
Reynolds are referred to as the "Price Group"), EnCap Equity 1994
Limited Partnership and the Investors entered into a Second Amended and
Restated Shareholders' Agreement ("Shareholders' Agreement"). Under the
Shareholders' Agreement, the holders of the Preferred Stock have the
right, for so long as the Preferred Stock is outstanding and until the
occurrence of certain other events, to appoint designated nominees to
the Board of Directors. Accordingly, as part of these transactions, B.
Carl Price, Mary Elizabeth Vanderhider and Kimberly G. Seekely have
resigned from Bargo's Board of Directors. Of the three vacancies on the
Board of Directors, one will be filled by a nominee to be named by
Kayne, one was filled by a nominee of BancAmerica and one was filled by
a nominee of Eos and SGC. Brian D. Young was appointed to serve as the
Eos/SGC nominee and J. Travis Hain was appointed to serve as
BancAmerica's nominee. The EnCap entities have the right to appoint two
nominees to the Board of Directors and the members of the Bargo Group
have the right to appoint two nominee to the Board of Directors. The
Price Group no longer has the right to appoint nominees to the Board of
Directors. The continuing members of Bargo's Board are Tim J. Goff and
Thomas D. Barrow (as the Bargo Group nominees) and Gary R. Petersen and
D. Martin Phillips (as the EnCap nominees). The Shareholders' Agreement
also sets forth certain rights of first refusal and tag along rights
among the parties thereto.
The Company, the Investors and EnCap Equity 1994 Limted Partnership also
entered into a Second Amendment to Registration Rights Agreement dated
May 14, 1999 providing for registration rights for the shares of common
stock of the Company issued to the Investors.
In connection with the transaction, the Company amended its Bylaws to
provide that for so long as each of (i) EOS and SGC (jointly), (ii)
Kayne, (iii) BancAmerica, (iv) EnCap and (v) the Bargo Group (each, a
"Nominee Group") is entitled to nominate one or more persons to the
Board of Directors of the Company as provided in the Shareholders'
Agreement, no act shall be deemed to be an act of the Board of Directors
or to be authorized and approved by the Board of Directors without the
approval of at least three directors that are nominated by at least
three separate Nominee Groups. In addition, Article VIII of the Bylaws
providing certain voting rights to the nominee of the Bargo Group, was
deleted.
<PAGE>
DEVELOPMENT PROPERTIES
Oil and Gas Holdings. The Company's properties are located onshore
principally in Texas, New Mexico and Oklahoma. As of April 15, 1998,
the Company owns interests in a total of 277 gross (246 net) producing
wells, of which 231 wells are operated by the Company. As of that date,
the Company had oil and gas rights in leases comprising 21,795 gross
(18,762-net) acres.
TEXAS PANHANDLE
The Company's Texas Panhandle properties offer long lived oil and natural
gas reserves and are the core properties of the Company. There are over
30 proved Brown Dolomite, Granite Wash and Moore County Lime development
drilling locations. The gas produced is high in Natural Gas Liquids
(NGL) which enables the Company to receive premium prices for its gas sold.
In addition, the implementation of advanced hydraulic fracturing to new
development wells and refracturing existing wells have proven to recover
additional reserves.
PANHANDLE FIELD. The Company has an interest in and operates one hundred
sixty one (161) wells in the Panhandle of Texas. These wells are located
in Gray, Carson, Hutchinson, Moore and Roberts Counties, Texas. Most of the
wells are located in the Panhandle Field. This field is on the Amarillo
uplift West of the Anadarko Basin. All of the Company's wells produce from the
Wolfcamp Brown Dolomite of Permian age and the Pennsylvanian granite wash.
Production is primarily oil, natural gas liquids and gas on the uplift. The
Company's wells on the Western edge of the Anadarko Basin flanking the uplift
are located on anticlines along a structural ridge. These wells produce gas
from the same pay zones found on the uplift in the big Panhandle Field.
The Company markets its gas through plants in the Panhandle field. The
high liquid content contained in Panhandle gas enables the Company to
participate in two separate markets for its gas thereby allowing the
Company to enhance the market value of the gas stream.
<PAGE>
NORTH TEXAS
WICHITA COUNTY REGULAR FIELD. The Company owns and operates seventy (70)
wells in the Wichita Regular Field in Wichita County, Texas. The field
is on the Bend Arch north of the Fort Worth basin. The pay zones are
the Gunsight sand, the Thomas sand and an unconsolidated 600' sand.
The Gunsight sand is presently under waterflood. All of these sands
are Pennsylvanian in age. The trap is a combination of statigraphy
and structure. The Company is presently performing remedial
recompletions, stimulations and improvements to the waterflood.
PERMIAN BASIN
EDMISSION CLEARFORK. The Company operates and intends to flood its
Edmission Clearfork project in Lubbock County, Texas. Two (2)
existing floods that have produced more secondary oil from the
waterfloods than they produced under the primary phase of production
directly offset the property. The Company has a 100% working
interest in this field.
AZALEA FIELD. The Company has an interest in seventeen (17) producing
wells and one (1) commercial Salt Water Disposal well in the Azalea
Field, located approximately eight (8) miles Southeast of Midland,
Texas in Midland county. It is in the East central portion of the
Midland geological Basin. It is near the edge of the Grayburg-San
Andres shelf as it swings across the basin from the Central Basin
Platform on the west to the eastern shelf on the east. The field is
an anticlinal dome caused by drape over of a carbonate bioherm. The
leases are on or near the crest of the anticline. The potential pays
are in the Grayburg, Permian age sands and carbonates and the San
Andres, also Permian, Carbonates (dolomite and limestone). It is the
intention of the Company and its partner to drill infill wells to both
pay zones and to start a waterflood in order to increase the recovery
of oil. Potential increases in production and reserves will increase
the Company's reserve base substantially. The Company has completed
the drilling of two development wells. The results of these wells
indicate that up to 80% of the original oil in place still remains
in the reservoir and that a portion of the remaining oil in place
can be recovered by a waterflood.
CASEY & SHIPP STRAWN FIELDS. The Company owns a 33% WI and a 29% NRI in these
fields in Lea County, New Mexico which is located on a large Penn Reef Trend.
There are 4 existing wells and one proved undeveloped location identified by 3-D
seismic.
FOSTER/COWDEN FIELDS. The Foster/Cowden Fields are located in West Texas in
Ector County. Future is the operator and holds a 100% WI and 87.5% NRI in 7
producing wells. Five wells produce from the Permian age Grayburg formation, of
which one well is presently shut-in in the Grayburg awaiting a workover. Two
wells produce in the Pennsylvanian age Canyon formation. One well is an
injection well. Future also owns a 25% WI in a co-op injection well operated by
Altura Energy. Low maintenance and long life characterize Grayburg production.
SAND HILLS FIELD. This field located in Crane County, Texas is operated by Gruy
Petroleum and Burlington Resources, Inc. Future owns WI's ranging from 33.33% to
50% with NRI of 25% to 40.6%. There are presently 18 active wells that produce
from the McKnight, Judkins, Tubb, Holt and Witchita-Albany sands of Permian age.
GIN UNIT FIELD. Located in Dawson County, Texas this field is operated by
Texaco, Inc. Future holds a 5% WI and 4% NRI in 12 producing wells. The
waterflood also has 8 injector wells and produces from the Gin sand which is
part of the Permian age Strawn Formation.
<PAGE>
TEXAS GULF COAST
CROSS CREEK FIELD. The Cross Creek Field is located in northeastern Harris
County, Texas, just north of the city of Houston. It was discovered in 1993 by
Chevron and produces from the geopressured upper Wilcox sandstones at a depth of
11,000 ft. The Wilcox sands are trapped up against the northwest flank of the
prolific Humble salt dome which also produces from the shallower Yegua, Frio,
and Miocene formations. Besides many recompletion opportunities in the eight
producing wellbores, other infill drilling opportunities exist and are being
better defined at this time by interpretation of a 3-D seismic survey. Future
acts as operator and holds a 100% WI with 75-80% NRI.
SAN MIGUEL CREEK FIELD. Located in McMullen County, Texas this field is operated
by Exxon Corporation and Lakewood Operating Co. Future's WI ranges from 33% to
50% with NRI from 25% to 40%. The field was discovered in 1953 by Humble Oil and
is a deep seated salt dome with numerous faults both overlaying and adjacent to
the salt plug. The deeper gas production is from the Cretaceous age Edwards
limestone and the shallower oil production is from the Eocene age Wilcox
sandstone. There have been in excess of 70 wells drilled in the field; eleven
remain active. No well has yet penetrated salt, which is estimated at 14,000 ft.
Upside potential lies in gas compression on the mechanical side and also
undertaking a detailed field study to integrate the 3-D seismic survey.
BRIGHT FALCON FIELD. The Bright Falcon Field is located along the Texas Gulf
Coast in Jackson County. The field is operated by Cox and Perkins. Two wells are
presently producing from the Eocene age, geopressured Yegua sands, with behind
pipe reserves in one of the wells.
NORTH EAST LIMES FIELD. The Company owns a 10% WI and a 7.5% NRI in this field
in Live Oak County, Texas which is operated by Southern Resources Company. It
produces from three geopressured Wilcox sands (F-1, F-4, F-5) and there are
presently 5 producing wells and 8 additional proved, undeveloped locations. Most
wells also have proved behind pipe reserves.
CANDY B FIELD. This field produces from Oligocene age, normally pressured, Frio
sandstones. Future operates the field and owns a 67.24% WI with a 52.52% NRI. At
present there are 2 producing wells with proved behind pipe reserves and 2
proved undeveloped drilling locations. The field is located along the Texas Gulf
Coast in San Patricio County.
BUNA FIELD. This field is located in Jasper County, Texas. Two wells produce
from the Eocene age, geopressured Wilcox sandstone on 550 gross acres. Future is
the operator with a 100% WI and an 87.5% NRI.
<PAGE>
BRUCE ROY FIELD. This field produces from the Eocene age, geopressured Yegua
sandstone. Future owns both operated and non-operated interests in 4 active
wells. The other field operators are Ken Petroleum and United Oil &Minerals. The
field is located in Wharton County, Texas. There are additional proved non-
producing reserves.
TURTLE CREEK FIELD. The Turtle Creek Field produces from Oligocene age Frio
sandstones and is located along the Texas Gulf Coast in Matagorda County. The
field is operated by Aviara Energy. Production is from one well with proved
behind pipe reserves in 2 zones. Additional potential exists in other sands on
the lease block.
GIDDINGS FIELD. This field produces from the Cretaceous age Austin Chalk and is
located in Brazos County, Texas. Future is the operator and owns 100% WI and
81.5% NRI in 13 producing wells (primarily horizontal).
CALIFORNIA
SOUTH COLES LEVEE UNIT. South Coles Levee Unit is located in the southern end of
the San Joaquin Valley, Kern County, California, 15 miles southwest of the city
of Bakersfield. The field lies just southeast of the petroleum reserve at Elk
Hills and was discovered in 193 by the Ohio Oil Company (now Marathon Oil Co.)
as a result of extensive seismic work. The discovery well, the "KCL-F" 1 (now
the SCLU 74-10) was drilled to a total depth of 9365' and completed flowing 885
Bpd of 44.5(Degree) gravity oil. The initial completion was from the Miocene
Age, upper Stevens member of the Antelope formation and designated the F-1 zone.
Subsequent drilling discovered a lower member in 1939 that was called the F-2
zone. Both zones are deepwater, turbidite sandstones. The field's trap is formed
by both structural and stratigraphic components. Upside opportunities lie in
behind pipe zones, infill drilling, re-initiating the F-1 waterflood, an F-2
waterflood, and shooting a3-D seismic program. The field is presently operated
by Aera Energy L.L.C.(Mobile-Shell Joint Venture). Future owns a 63.5% WI and
48.6% NRI in 52 currently producing wells.
LOUISIANA
NORTH LEROY FIELD. North Leroy Field is located in southern Louisiana in
Vermilion Parish and is operated by Westland Oil Co. and Cajun Minerals. There
are two active wells which produce from Oligocene age Frio sandstones. There are
additional behind pipe reserves as well as one proved, undeveloped location.
CHENIERE FIELD. This field is located in northeast Louisiana in Ouachita Parish
and is operated by Brammer-Keystone. Production is from Jurassic age retrograde
condensate Cotton Valley sandstones. The field was discovered in May 1961 and
unitized in November 1966. A natural gas cycling program was initiated in July
1967 and reservoir blow down commenced in the fall of 1988.
<PAGE>
OKLAHOMA
RED FORK TREND. The Company owns 1,340 proven producing acres on the trend
containing 8 producing wells. A recent uphole recompletion in the Oread
Formation by an offset operator is producing 600 MCF per day. The Company, after
reviewing its own logs on its existing wells, believes that 2 and possibly 4
wells have uphole recompletion potential in the Oread Formation.
SHAWNEE TOWNSITE FIELD. This field is located in Pottawatomie County, Oklahoma
and is operated by Vintage Petroleum, Inc. The waterflood produces from the
Pennsylvanian age Skinner sandstones. The reservoirs are a series of fluvial-
delta channels and bars.
NEW MEXICO
BLUITT FIELD. The Bluitt field produces from the Permian age Wolfcamp formation.
It is operated by H.L. Brown Jr. and is located in Roosevelt County, New Mexico.
The Company owns interests in 5 producing wells.
MISSISSIPPI
NORTH YELLOW CREEK FIELD. This field is located in Wayne County, Mississippi and
operated by Palmer Petroleum. Production is from the Cretaceous age Tuscaloosa
Pilot sand. Nine wells are presently active.
EXPLORATION PROPERTIES
PRICE RANCH FIELD. The Price Ranch, located in the Texas Panhandle, contains
8,390 net acres. Three prospective features have been identified along a
producing anticlinal trend using well control and 2-D seismic. A 3-D seismic
survey will be utilized to further delineate the three features and to select
drilling locations. The Company operates 1 producing well on the property and
has a 98% WI and a 75% NRI.
CUMBERLAND FIELD. The Cumberland Field is located in Bryan and Marshall
Counties, Oklahoma. The field has a northwest-southeast orientation and is
located on a structural high associated with the southwest fault block(horst) of
a large northwest-southeast oriented horst and graben fault system. Cumberland
field has produced over 73 MMBBLS and over 54 MMMCFG. A substantial amount of
remaining barrels of oil should be producible using present day recovery methods
and oil prices. Proven gas reserves remaining to be produced are estimated to be
at least 30 BCFG. Cumberland field was discovered in 1940. Producing formations
range from the Arbuckle Dolomites (Ordovician in age) up through the Simpson
Sands, Viola and Hunton Limestones, Woodford Chert and Sycamore Siltstones
(Pennsylvanian age). The Simpson Sands are the oil reservoirs. They also hold a
large share of the gas as attic gas in their gas caps. The Company has obtained
oil and gas leases on the flanks of this field. Major oil companies have
conducted an extensive 3-D seismic study of this area with the idea of extending
this field and further developing the remaining reserves. This extension field
is operated by Quintin Little Oil Company and the Company has an interest in one
well.
<PAGE>
GENERAL
The Company's revenues, profitability and future growth and the carrying value
of its oil and gas properties are substantially dependent on prevailing prices
of oil and gas and its ability to find, develop and acquire additional oil and
gas reserves that are economically recoverable. The Company's ability to
maintain or increase its borrowing capacity and to obtain additional capital on
attractive terms is also influenced by oil and gas prices.
Prices for oil and gas are subject to large fluctuations in response to
relatively minor changes in the supply of and demand for oil and gas, market
uncertainty and a variety of additional factors beyond the control of the
Company. These factors include weather conditions in the United States, the
condition of the United States economy, the actions of the Organization of
Petroleum Exporting Countries, governmental regulation, political stability in
the Middle East and elsewhere, the foreign supply of crude oil and natural gas,
the price of foreign imports and the availability of alternate fuel sources. Any
substantial and extended decline in the price of crude oil or natural gas would
have an adverse effect on the Company's carrying value of its proved reserves,
borrowing capacity, revenues, profitability and cash flows from operations.
The Company uses the full cost method of accounting for the Company's investment
in oil and gas properties. Under the full cost method of accounting, all costs
of acquisition, exploration and development of oil and gas reserves are
capitalized into a "full cost pool." Oil and gas properties in the pool, plus
estimated future expenditures to develop proved reserves and future abandonment,
site remediation and dismantlement costs, are depleted and charged to operations
using the unit of production method based on the portion of current production
to total estimated proved recoverable oil and gas reserves. To the extent that
such capitalized cost (net of depreciation, depletion and amortization) exceed
the discounted future net cash flows on an after-tax basis of estimated proved
oil and gas reserves, such excess costs are charged to operations. Once
incurred, the write down of oil and gas properties is not reversible at a later
date even if oil or natural gas prices increase.
The Company does not have a specific acquisition budget because of the
unpredictability of the timing and size of forthcoming acquisition activities.
There is no assurance that the Company will be able to identify suitable
acquisition candidates in the future, or that the Company will be successful in
the acquisition of producing properties. In order to finance any possible future
acquisitions, the Company will either use borrowings available under the its
credit facility or the Company may seek to obtain additional debt or equity
financing in the public or private capital markets. Further, there can be no
assurances that any future acquisitions made by the Company will be integrated
successfully into the Company's operations or will achieve desired profitability
objectives.
<PAGE>
In June 1998 the Financial Accounting Standards Board issued SFAS 133"
Accounting for Derivative Instruments and Hedging Activities." This standard is
effective for fiscal years beginning after June 15, 1999 (January 1, 2000 for
the Company). SFAS 133 requires that all derivative instruments be recorded on
the balance sheet at their fair value. Changes in the fair value of derivatives
are recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. The Company has not yet completed
its evaluation of the impact of the adoption of this new standard.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of capital are its cash flows from operations,
borrowings and issuance of debt and equity securities.
The Company reported a consolidated net loss of $961,000 for the quarter ended
March 31, 1999 compared to a consolidated net loss of $73,000 for the quarter
ended March 31, 1998. At March 31, 1999, the Company had negative working
capital of $8,654,000, which was a $8,297,000 increase from the $357,000
working capital deficit that the Company had as of March 31, 1998. This decrease
in working capital was due primarily to the current portion of long term debt
resulting from the acquisition of proved reserves referred to above. Management
believes cash flow from those reserves along with the issuance of additional
equity will be sufficient to eliminate the working capital deficit.
Effective August 14, 1998, the Company entered into a credit agreement with Bank
of America ("Credit Agreement"). Borrowings under the Credit Agreement are
secured by mortgages covering substantially all of the Company's producing oil
and gas properties as well as by certain pledges of the Company's Common Stock.
See "Item 1. Business - Strategic Developments." The Credit Agreement initially
provided for a commitment amount of $20 million and a $10.5 million borrowing
base ("Borrowing Base"). This Credit Agreement was amended and increased to
$27.5 million on November 15, 1998. In December 1998, the Company amended and
restated the Credit Agreement to increase the commitment amount to $50 million
subject to a borrowing base as determined by Bank of America on an acquisition
by acquisition basis. The Credit Agreement is comprised of two Tranches, Tranche
A and Tranche B.
At December 31, 1998, the Tranche A loan commitment amount was $38 million, of
which $30.9 million had been borrowed. The Company has a choice of two different
interest rates under the Tranche A loan, the Base Rate or the LIBO Rate. The
debt bears interest under the Base Rate at the higher of the lender's "Reference
Rate" or the Federal Funds Rate plus .5%. The debt bears interest under the LIBO
Rate at the LIBO rate (reserve adjusted) plus 2%. The Company may convert any
portion of the outstanding debt from one interest rate type to another in
increments of $50,000 with a minimum transfer amount of $250,000. The Company
may borrow, pay, reborrow and repay under the Credit Facility until December 4,
1999, on which date, the revolving credit line converts to a four-year term loan
with quarterly principal installments.
<PAGE>
At December 31, 1998, the Tranche B loan commitment amount was $12 million, of
which $8.945 million had been borrowed. The Company has a choice of two
different interest rates under the Tranche B loan, the Base Rate or the LIBO
Rate. The debt bears interest under the Base Rate at the higher of the lender's
"Reference Rate" plus 2% (through April 4, 1999, and plus 4% thereafter until
maturity) or the Federal Funds Rate plus 2.5% (through April 4, 1999, and plus
4.5% thereafter until maturity). The debt bears interest under the LIBO Rate at
the LIBO rate (reserve adjusted) plus 4% (through April 4, 1999, and plus 6%
thereafter until maturity). The Company may convert any portion of the
outstanding debt from one interest rate type to another in increments of $50,000
with a minimum transfer amount of $250,000. On June 4,1999 the Company must
repay in full all amounts outstanding under Tranche B. In connection with the
May 14, 1999 equity transaction the Company has paid in full amounts outstanding
under Tranche B.
CASH FLOW TO OPERATING ACTIVITIES
Operating activities of the Company during the three months ended March 31,1999
provided net cash of $214,000. In the same period during 1998, operations
provided net cash of $19,000. Investing activities in the first three months
ending March 31, 1999, used net cash of $564,000, primarily due to the
acquisition of oil and gas properties. Investing activities in the first three
months of 1998 required net cash of $211,000 primarily due to additions to
property and equipment. Financing activities in the first three months ending
March 31, 1999 provided net cash of $373,000 primarily due to proceeds from the
issuance of debt. This is an increase of $376,000 versus the first three months
of 1998.
RESULTS OF OPERATIONS
Comparison of Quarter Ended March 31, 1999 and 1998
Total revenues for the three months increased to $2,202,000 from $494,000
in 1998, primarily due to the acquisition of oil and gas properties. Production
costs increased due to the purchase of proved reserves. General and
administrative expenses increased to $863,000 from $78,000 in 1998 due to the
acquisition of Resources and increased overhead associated with the Company's
increased acquisition activity. The Company had a net loss of $961,000 for the
three months ended March 31, 1999 compared to a net loss of $73,000 in 1998,
primarily due to the acquisition of proved reserves. The majority of the cash
flow generated from these additional reserves was primarily used to pay interest
costs.
<PAGE>
INFLATION
The Company's activities have not been, and in the near term are not
expected to be, materially affected by inflation or changing prices in
general. The Company's oil exploration and production activities are
generally affected by prevailing prices for oil, however.
YEAR 2000 ISSUE
Year 2000 issues result from the inability of computer programs or computerized
equipment to accurately calculate, store or use a date subsequent to December
31, 1999. The erroneous date can be interpreted in a number of different ways;
typically the Year 2000 is interpreted as the year 1900. This could result in a
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send invoices
or engage in similar normal business. Because the Company's software systems are
relatively new, the Company was aware of and considered Year 2000 issues at the
time of purchase or development of such systems. In addition, the Company has
recently completed an assessment of its core financial and operational software
systems to ensure compliance. The licensor of the Company's core financial
software system has certified that such software is Year 2000 compliant.
Additionally, other less critical software systems and various types of
equipment have been assessed and are believed to be compliant.
The Company believes that the potential impact, if any, of these less critical
systems not being Year 2000 compliant will at most require employees to manually
complete otherwise automated tasks or calculations and it should not impact the
Company's ability to continue exploration, drilling, production or sales
activities. The Company has initiated and will continue to have formal
communications with its significant suppliers, business partners and customers
to determine the extent to which the Company is vulnerable to those third
parties' failure to correct their own Year 2000 issues. There can be no
guarantee, however, that the systems of other companies on which the Company's
systems rely will be timely converted, or that a failure to convert by another
company, or a conversion that is incompatible with the Company's systems would
not have a material adverse effect on the Company.
The Company has determined it has no exposure to contingencies related to the
Year 2000 issue with respect to products sold to third parties. The Company has
and will utilize both internal and external resources to complete tasks and
perform testing necessary to address the Year 2000 issue. The Company has
substantially completed the Year 2000 project. The Company has not incurred, and
does not anticipate that it will incur, any significant costs relating to the
assessment and remediation of Year 2000 issues.
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
EXHIBIT INDEX
Exhibit
Number Title of Document Location
- -----------------------------------------------------------------------
2. Plan of acquisition, reorganization,
arrangement, liquidation or
succession (1)
3. Articles of Incorporation and By-laws
3.1 Articles of Incorporation of Bargo
Energy Company (2)
3.2 Agreement and Plan of Merger, dated
as of April 6, 1999 between Future
Petroleum Corporation and FPT
Corporation. (2)
3.3 By-laws of Bargo Energy Company (2)
3.4 Amendment to Bargo Energy Company By-laws (3)
4. Instruments defining the rights of
security holders
4.1 Certificate of Designation of
Cumulative Redeemable Preferred
Stock, Series B (3)
10. Material Contracts
10.1 Second Amended and Restated
Shareholders' Agreement, dated May
14, 1998, by and among Bargo Energy
Company, B. Carl Price, Don Wm.
Reynolds, Energy Capital Investment
Company PLC, EnCap Equity 1994
Limited Partnership, Bargo Energy
Resources, Ltd., TJG Investments,
Inc., Bargo Energy Company, Tim J.
Goff, Thomas Barrow, James E. Sowell,
Bargo Operating Company, Inc., EnCap
Energy Capital Fund III-B, L.P., BOCP
Energy Partners, L.P., EnCap Energy
Capital Fund III, L.P., Kayne
Anderson Energy Fund, L.P.,
BancAmerica Capital Investors SBIC I,
L.P., Eos Partners, L.P., Eos
Partners SBIC, L.P., Eos Partners
SBIC II, L.P., and SGC Partners II
LLC. (3)
10.2 Second Amendment to Registration
Rights Agreement dated May 14, 1999
between Energy Capital Investment
Company PLC, EnCap Equity 1994
Limited Partnership, EnCap Energy
Capital Fund III-B, L.P., BOCP Energy
Partners, L.P., EnCap Energy Capital
Fund III, L.P., Kayne Anderson Energy
Fund, L.P., BancAmerica Capital
Investors SBIC I, L.P., Eos Partners,
L.P., Eos Partners SBIC, L.P., Eos
Partners SBIC II, L.P., and SGC
Partners II LLC. (3)
10.3 Consent to Amendment to Registration
Rights Agreement by TJG Investments,
Inc., Bargo Energy Company, Bargo
Energy Resources, Ltd., Bargo
Operating Company, Inc., Tim J. Goff,
Thomas Barrow, James E. Sowell, B.
Carl Price, Don Wm. Reynolds,
Christie Price, Robert Price and
Charles D. Laudeman. (3)
10.4 Amendment No. 1 to Amended and
Restated Credit Agreement dated May
14, 1999 between Bargo Energy Company
and Bank of America National Trust
and Savings Association. (3)
10.5 Amended and Restated Secured
Promissory Note dated May 14, 1999
between Bargo Energy Company and Bank
of America National Trust and Savings
Association. (3)
10.6 Consent and Agreement dated May 14,
1999 between Bargo Energy Company and
Bank of America National Trust and
Savings Association. (3)
10.7 SBA Side Letter dated May 14, 1999
between Bargo Energy Company and
BancAmerica Capital Investors SBIC I,
L.P., Eos Partners SBIC, L.P., Eos
Partners SBIC II, L.P and SGC
Partners II LLC. (3)
10.8 SBA Side Letter dated May 14, 1999
between Bargo Energy Company, EnCap
Equity 1994 Limited Partnership, TJG
Investments, Inc., Bargo Energy
Company, Bargo Energy Resources,
Ltd., Bargo Operating Company, Inc.,
Tim J. Goff and BancAmerica Capital
Investors SBIC I, L.P., Eos Partners
SBIC, L.P., Eos Partners SBIC II,
L.P. and SGC Partners II, LLC. (3)
10.9 Stock Purchase Agreement dated May
14, 1999 between Bargo Energy Company
and Energy Capital Investment Company
PLC, EnCap Energy Capital Fund III-B,
L.P., BOCP Energy Partners, L.P.,
EnCap Energy Capital Fund III, L.P.,
Kayne Anderson Energy Fund, L.P.,
BancAmerica Capital Investors SBIC I,
L.P., Eos Partners, L.P., Eos
Partners SBIC, L.P., Eos Partners
SBIC II, L.P., and SGC Partners II
LLC. (3)
10.10 Bargo Energy Company 1999 Stock Incentive
Plan (3)
10.11 Confidentiality and Non-Compete
Agreement dated May 14, 1999 between
Bargo Energy Company and Tim J. Goff (3)
11. Statement regarding computation of
per share earnings (1)
15. Letter on unaudited interim financial
information (1)
18. Letter on change in accounting
principles (1)
19. Report furnished to security holders (1)
22. Published report regarding matters
submitted to vote (1)
23. Consents of experts and counsel (1)
24. Power of attorney (1)
27. Financial data schedule (3)
99 Additional exhibits (1)
______________________________________
(1) Inapplicable to this filing.
(2) Incorporated herein by reference from the Company's Current
report on Form 8-K filed with the Securities and Exchange
Commission on April 29, 1999. (file no. 000-08609).
(3) Filed herewith.
(b) Reports on Form 8-K.
Date Event Reported Item Reported
- ------------------- ---------------------
February 15, 1999 Item 4. Change in Registrant's
Certifying Accountant
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
BARGO ENERGY COMPANY
(Registrant)
Dated: May 20, 1999 By: /s/ B. Carl Price
B. Carl Price,
Vice President Corporate Development
<PAGE>
The following exhibits are included as part of this report:
EXHIBIT INDEX
Exhibit
Number Title of Document Location
- -----------------------------------------------------------------------
2. Plan of acquisition, reorganization,
arrangement, liquidation or
succession (1)
3. Articles of Incorporation and By-laws
3.1 Articles of Incorporation of Bargo
Energy Company (2)
3.2 Agreement and Plan of Merger, dated
as of April 6, 1999 between Future
Petroleum Corporation and FPT
Corporation. (2)
3.3 By-laws of Bargo Energy Company (2)
3.4 Amendment to Bargo Energy Company By-laws (3)
4. Instruments defining the rights of
security holders
4.1 Certificate of Designation of
Cumulative Redeemable Preferred
Stock, Series B (3)
10. Material Contracts
10.1 Second Amended and Restated
Shareholders' Agreement, dated May
14, 1998, by and among Bargo Energy
Company, B. Carl Price, Don Wm.
Reynolds, Energy Capital Investment
Company PLC, EnCap Equity 1994
Limited Partnership, Bargo Energy
Resources, Ltd., TJG Investments,
Inc., Bargo Energy Company, Tim J.
Goff, Thomas Barrow, James E. Sowell,
Bargo Operating Company, Inc., EnCap
Energy Capital Fund III-B, L.P., BOCP
Energy Partners, L.P., EnCap Energy
Capital Fund III, L.P., Kayne
Anderson Energy Fund, L.P.,
BancAmerica Capital Investors SBIC I,
L.P., Eos Partners, L.P., Eos
Partners SBIC, L.P., Eos Partners
SBIC II, L.P., and SGC Partners II
LLC. (3)
10.2 Second Amendment to Registration
Rights Agreement dated May 14, 1999
between Energy Capital Investment
Company PLC, EnCap Equity 1994
Limited Partnership, EnCap Energy
Capital Fund III-B, L.P., BOCP Energy
Partners, L.P., EnCap Energy Capital
Fund III, L.P., Kayne Anderson Energy
Fund, L.P., BancAmerica Capital
Investors SBIC I, L.P., Eos Partners,
L.P., Eos Partners SBIC, L.P., Eos
Partners SBIC II, L.P., and SGC
Partners II LLC. (3)
10.3 Consent to Amendment to Registration
Rights Agreement by TJG Investments,
Inc., Bargo Energy Company, Bargo
Energy Resources, Ltd., Bargo
Operating Company, Inc., Tim J. Goff,
Thomas Barrow, James E. Sowell, B.
Carl Price, Don Wm. Reynolds,
Christie Price, Robert Price and
Charles D. Laudeman. (3)
10.4 Amendment No. 1 to Amended and
Restated Credit Agreement dated May
14, 1999 between Bargo Energy Company
and Bank of America National Trust
and Savings Association. (3)
10.5 Amended and Restated Secured
Promissory Note dated May 14, 1999
between Bargo Energy Company and Bank
of America National Trust and Savings
Association. (3)
10.6 Consent and Agreement dated May 14,
1999 between Bargo Energy Company and
Bank of America National Trust and
Savings Association. (3)
10.7 SBA Side Letter dated May 14, 1999
between Bargo Energy Company and
BancAmerica Capital Investors SBIC I,
L.P., Eos Partners SBIC, L.P., Eos
Partners SBIC II, L.P and SGC
Partners II LLC. (3)
10.8 SBA Side Letter dated May 14, 1999
between Bargo Energy Company, EnCap
Equity 1994 Limited Partnership, TJG
Investments, Inc., Bargo Energy
Company, Bargo Energy Resources,
Ltd., Bargo Operating Company, Inc.,
Tim J. Goff and BancAmerica Capital
Investors SBIC I, L.P., Eos Partners
SBIC, L.P., Eos Partners SBIC II,
L.P. and SGC Partners II, LLC. (3)
10.9 Stock Purchase Agreement dated May
14, 1999 between Bargo Energy Company
and Energy Capital Investment Company
PLC, EnCap Energy Capital Fund III-B,
L.P., BOCP Energy Partners, L.P.,
EnCap Energy Capital Fund III, L.P.,
Kayne Anderson Energy Fund, L.P.,
BancAmerica Capital Investors SBIC I,
L.P., Eos Partners, L.P., Eos
Partners SBIC, L.P., Eos Partners
SBIC II, L.P., and SGC Partners II
LLC. (3)
10.10 Bargo Energy Company 1999 Stock Incentive
Plan (3)
10.11 Confidentiality and Non-Compete
Agreement dated May 14, 1999 between
Bargo Energy Company and Tim J. Goff (3)
11. Statement regarding computation of
per share earnings (1)
15. Letter on unaudited interim financial
information (1)
18. Letter on change in accounting
principles (1)
19. Report furnished to security holders (1)
22. Published report regarding matters
submitted to vote (1)
23. Consents of experts and counsel (1)
24. Power of attorney (1)
27. Financial data schedule (3)
99 Additional exhibits (1)
______________________________________
(1) Inapplicable to this filing.
(2) Incorporated herein by reference from the Company's Current
report on Form 8-K filed with the Securities and Exchange
Commission on April 29, 1999. (file no. 000-08609).
(3) Filed herewith.
<PAGE>
EXHIBIT 3.4
AMENDMENT TO
BARGO ENERGY COMPANY BYLAWS
AS OF
MAY 12, 1999
1. The following Section 4.14 is added to the Bylaws:
Section 4.14. Required Vote. For so long as each of (i) EOS
and SGCP (jointly), (ii) Kayne, (iii) BACI, (iv) EnCap and (v) the Bargo
Group (each, a "Nominee Group") is entitled to nominate one or more
persons to the Board of Directors of the Company as provided in the
Second Amended and Restated Shareholders' Agreement dated May 14, 1999
("Shareholders' Agreement"), no act shall be deemed to be an act of the
Board of Directors or to be authorized and approved by the Board of
Directors without the approval of at least three directors that are
nominated by at least three separate Nominee Groups (which shall be in
addition to any other corporate action required by the Articles of
Incorporation, these Bylaws or by applicable law). For so long as each
Nominee Group is entitled to nominate one or more persons to the Board
of Directors as provided above, notwithstanding anything to the contrary
contained in these Bylaws, no amendment, repeal or provision
inconsistent with the provisions of this Section 4.14 shall be adopted
unless it is approved by the vote of 75% of the shares of the Company
entitled to vote.
2. Article VIII of the Bylaws is deleted.
<PAGE>
EXHIBIT 4.1
CERTIFICATE OF DESIGNATIONS
OF
CUMULATIVE REDEEMABLE PREFERRED STOCK, SERIES B
OF
BARGO ENERGY COMPANY
Pursuant to Article 2.13 of the
Texas Business Corporation Act
Bargo Energy Company, a corporation organized and existing under the
laws of the State of Texas (the "Corporation"), DOES HEREBY CERTIFY that,
pursuant to the authority conferred on the Board of Directors of the
Corporation by the Articles of Incorporation of the Corporation and in
accordance with Article 2.13 of the Texas Business Corporation Act, on May
14, 1999, the Board of Directors of the Corporation duly adopted, by all
necessary action on the part of the Corporation, the following resolutions
establishing and designating a series of its Preferred Stock, par value $.01
per share, designated "Cumulative Redeemable Preferred Stock, Series B" and
fixing and determining the relative rights and preferences thereof:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation (the "Board of Directors") in accordance
with the provisions of its Articles of Incorporation, a series of
Preferred Stock, par value $.01 per share, of the Corporation is hereby
created, and that the designation and number of shares thereof and the
preferences, limitations and relative rights thereof are as follows:
1. Section Designation, Number of Shares and Stated Value of Cumulative
Redeemable Preferred Stock, Series B. There is hereby authorized and
established a series of Preferred Stock that shall be designated as
"Cumulative Redeemable Preferred Stock, Series B" (hereinafter referred to as
"Series B Preferred"), and the number of shares constituting such series
shall be Five Million (5,000,000). Such number of shares may be increased or
decreased, but not to a number less than the number of shares of Series B
Preferred then issued and outstanding, by resolution adopted by the full
Board of Directors. The "Stated Value" per share of the Series B Preferred
shall be equal to Ten Dollars ($10).
2. Section Definitions. In addition to the definitions set forth
elsewhere herein, the following terms shall have the meanings indicated:
3. "Adjusted Current Liabilities" shall mean, (a) the total of all items
which would appear as a current liability upon a balance sheet of the
Corporation or its consolidated subsidiaries prepared in accordance with
GAAP, less (b) the total of any such items appearing as a current liability
which would be included in the definition of Total Consolidated Indebtedness.
4. "Adjusted Net Working Capital" shall mean (a) the total of all items
which would appear as a current assets upon a balance sheet of the
Corporation or its consolidated subsidiaries prepared in accordance with GAAP
less (b) Adjusted Current Liabilities.
5. "Business Day" means any day other than a Saturday, Sunday or a day on
which banking institutions in Houston, Texas are authorized or obligated by
law or executive order to close.
6. "Calculation Date" means any date on which PV-10 Value (defined
below) is calculated, as follows: (i) PV-10 Value shall be calculated by
independent reserve engineers (designated by the Corporation and reasonably
acceptable to the holders of a majority of the Series B Preferred outstanding
at such time) as of each January 1, the final report for which shall be
provided to the Corporation and the holders of Series B Preferred no later
than the following March 16, (ii) PV-10 Value shall be calculated by the
Corporation's reserve engineers as of each July 1, the final report for which
shall be provided to the Corporation and the holders of Series B Preferred no
later than the following August 14, and (iii) PV-10 Value shall be calculated
by independent reserve engineers (designated by the holders of a majority of
the Series B Preferred outstanding and reasonably acceptable to the
Corporation) as of a date other than January 1 or July 1, as requested by the
holders of a majority of the Series B Preferred outstanding. The costs and
expenses of each such report contemplated under this definition shall be
borne by the Corporation; provided, that if a report is requested and
prepared under clause (iii) of this definition more than once during any
given calendar year, the costs and expenses of the second and any subsequent
report requested and prepared during such year shall be borne by the holders
of the Series B Preferred outstanding, pro rata based on their then
respective ownership of the shares of Series B Preferred outstanding.
<PAGE>
7. "Capitalized Lease Obligation" means any obligation to pay rent or
other amounts under a lease of (or other agreement conveying the right to
use) any property (whether real, personal or mixed) that is required to be
classified and accounted for as a capital lease obligation under GAAP
(defined below), and, for the purpose of this designation, the amount of such
obligation at any date shall be the capitalized amount thereof at such date,
determined in accordance with GAAP.
8. "Change of Control" means (i) any merger, reorganization, purchase or
sale of voting securities, or other transaction resulting in at least fifty
percent 50% of the issued and outstanding shares of voting securities of the
Corporation outstanding immediately prior to the consummation of such
transaction being "beneficially owned" by a single Person or a "group," as
such terms are defined in Rule 13d-3 and 13d-5, respectively, promulgated by
the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended, (ii) a sale, in one or more related transactions, of
substantially all the assets of the Corporation, or (iii) the time at which
Tim Goff has ceased to serve as the Chief Executive Officer of the
Corporation for a period of 30 consecutive days; provided that, the following
shall not be deemed a Change of Control: (a) the acquisition or beneficial
ownership of voting securities by the Initial Holders, their respective
affiliates, or any group of which an Initial Holder or their respective
affiliates is a member; (b) any repurchase of voting securities by the
Corporation or any subsidiary of the Corporation; (c) any transaction
pursuant to which securities are transferred by an Initial Holder or an
affiliate of an Initial Holder; (d) any transaction that causes a Person to
become the beneficial owner of voting securities of the Corporation as a
result of acquiring an interest in an Initial Holder, an affiliate of an
Initial Holder or a transferee of an Initial Holder, or (e) any distribution
or dividend to equity-holders made by any of the following entities - - Bargo
Energy Resources, Ltd., a Texas limited partnership, TJG Investments, Inc., a
Texas corporation, Bargo Energy Company, a Texas general partnership, and
Bargo Operating Company, Inc., a Texas corporation.
9. "Common Stock" means the common stock, $.01 par value per share, of
the Corporation.
10. "Excess Offering Proceeds" means, with respect to any Qualified
Public Offering (defined below), the lesser of (i) the net proceeds received
by the Corporation from such offering (less discounts, commissions and costs
directly incurred by the Corporation in connection with the offering) and
(ii) the amount of Series B Preferred that the Corporation may redeem in
compliance with all loan agreements, mortgages, indentures, guarantees, or
other evidence of indebtedness to which the Corporation is subject on the
date of the closing of such offering.
11. "GAAP" means generally accepted accounting principles, consistently
applied, that are set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession of the United
States of America.
12. "Initial Holders" means Energy Capital Investment Company PLC, an
English investment company, EnCap Energy Capital Fund III-B, L.P., a Texas
limited partnership, BOCP Energy Partners, L.P., a Texas limited partnership,
EnCap Energy Capital Fund III, L.P., a Texas limited partnership, Kayne
Anderson Energy Fund, L.P., a Delaware limited partnership, BancAmerica
Capital Investors SBIC I, L.P., a Delaware limited partnership, Eos Partners,
L.P., a Delaware limited partnership, Eos Partners SBIC, L.P., a Delaware
limited partnership, Eos Partners SBIC II, L.P., a Delaware limited
partnership, and SGC Partners II LLC, a Delaware limited liability company.
13. "Junior Securities" means the Common Stock, any preferred stock of
the Corporation issued and outstanding on the Original Issue Date (other than
the Series B Preferred), or any other series of stock issued by the
Corporation ranking junior as to the Series B Preferred with respect to
payment of dividends, or upon liquidation, dissolution or winding up of the
Corporation.
<PAGE>
14. "Original Issue Date" means the date on which shares of the Series B
Preferred are first issued.
15. "Parity Security" means any class or series of stock issued by the
Corporation ranking on a parity with the Series B Preferred with respect to
payment of dividends, and upon liquidation, dissolution or winding up of the
Corporation.
16. "Person" means any individual, corporation, association, partnership,
joint venture, limited liability company, trust, estate, or other entity or
organization, other than the Corporation, any subsidiary of the Corporation,
any employee benefit plan of the Corporation or any subsidiary of the
Corporation, or any entity holding shares of Common Stock for or pursuant to
the terms of any such plan.
17. "Qualified Public Offering" means a public offering for cash by the
Corporation of securities pursuant to a registration statement declared
effective by the Securities and Exchange Commission under the Securities Act
of 1933, as amended, other than an offering on Form S-8 or successor form
thereof.
18. "Preferred Stock Redemption Value" on any Calculation Date shall
equal (i) the number of shares of Series B Preferred outstanding on the
Calculation Date, multiplied by the Stated Value of the Preferred Stock, plus
(ii) all accrued but unpaid dividends on the Calculation Date.
19. "Proved Reserves" means "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.
20. "PV-10 Value" means the present value, discounted at 10% per annum,
of the future net cash flows attributable to the Corporation's and its
subsidiaries' estimated Proved Reserves. Future cash flows will be
calculated using (i) prices based upon the average of the pricing
assumptions then being utilized by the three largest banks in Houston, Texas,
actively involved in energy lending, (ii) costs and production taxes derived
from and consistent with those actually incurred by the Corporation,
escalated at the same rate, if any, being applied to prices, and (iii) such
other assumptions as shall be reasonably acceptable to the holders of a
majority of the Series B Preferred.
21. "Redemption Date" means the date fixed for any redemption of the
Series B Preferred as provided in Section 5 or 6.
22. "Redemption Price" means, for each share of Preferred Stock on any
Redemption Date, the Stated Value of such share plus all accrued and unpaid
dividends on such share to and including such Redemption Date.
23. "Senior Securities" means any class or series of stock issued by the
Corporation ranking senior to the Series B Preferred with respect to payment
of dividends, or upon liquidation, dissolution or winding up of the
Corporation.
24. "Total Consolidated Indebtedness" means without duplication, (a) all
liabilities of the Corporation and its consolidated subsidiaries for borrowed
money or for the deferred purchase price of property or services (excluding
any trade accounts payable and other accrued current liabilities incurred in
the ordinary course of business), and all liabilities of such persons
incurred in connection with any letters of credit, bankers' acceptances or
other similar credit transactions or any agreement to purchase, redeem,
exchange, convert or otherwise acquire for value any capital stock, or any
warrants, rights or options to acquire capital stock outstanding, if, and to
the extent, any of the foregoing would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP, (b) all obligations of
the Corporation and its consolidated subsidiaries evidenced by bonds, notes,
debentures or other similar instruments, if, and to the extent, any of the
foregoing would appear as a liability upon a balance sheet prepared in
accordance with GAAP, (c) all indebtedness of the Corporation and its
consolidated subsidiaries created or arising under any conditional sale or
other title retention agreement with respect to property acquired (even if
the rights and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such property), but
excluding trade accounts payable arising in the ordinary course of business
unless and until such accounts payable are outstanding more than 90 days, (d)
all Capitalized Lease Obligations, (e) all indebtedness referred to in the
preceding clauses of other Persons, the payment of which is secured by (or
for which the holder of such indebtedness has an existing right to be secured
by) any lien upon property (including, without limitation, accounts and
contract rights) owned by the Corporation or its subsidiaries (the amount of
such obligation being deemed to be the lesser of the value of such property
or the amount of the obligation so secured), (f) all guarantees by the
Corporation and its subsidiaries of indebtedness referred to in this
definition, and (g) to the extent not otherwise included in Adjusted Current
Liabilities or any of the foregoing clauses of this definition of Total
Consolidated Indebtedness, all amounts (including damages, fines, penalties,
and interest thereon) owed by the Corporation and its subsidiaries pursuant
to a final, non-appealable judgment rendered by a court or other governmental
body. Notwithstanding the foregoing, amounts accrued to redeem Series B
Preferred or representing dividends or other amounts payable on or with
respect to the Series B Preferred shall not be deemed Total Consolidated
Indebtedness.
<PAGE>
25. "Total Proved Coverage" means, on any Calculation Date, (i) the PV-10
Value plus the lesser of (a) Adjusted Net Working Capital (or minus such
amount if negative) or (b) the total of all items which would appear as cash
and cash equivalents upon a balance sheet of the Corporation or its
consolidated subsidiaries prepared in accordance with GAAP plus (only to the
extent not already included in cash and cash equivalents under this clause
(b)) all amounts in escrow or on deposit that are transferred by the
Corporation in connection with an impending acquisition, divided by (ii) the
sum of (x) Total Consolidated Indebtedness plus (y) the Preferred Stock
Redemption Value on such date.
26. Section Dividends and Distributions.
(a) The Series B Preferred shall rank prior to the Junior Securities with
respect to dividends. The holders of shares of the Series B Preferred shall
be entitled to receive, when, as and if declared by the Board of Directors,
as legally available, cumulative dividends. The rate of dividends per share
shall be expressed as a percentage of the Stated Value in effect at the
relevant time ("Dividend Rate") and shall initially be 10% per annum;
provided, however, that the Dividend Rate shall be reset as of each
Calculation Date as follows: (i) if the Total Proved Coverage on such
Calculation Date is 1.5 or greater, then the Dividend Rate for the period
commencing on such Calculation Date and ending on the day immediately prior
to the next succeeding Calculation Date shall be 10% per annum; but (ii) if
the Total Proved Coverage on such Calculation Date is less than 1.5, then the
Dividend Rate for the period commencing on such Calculation Date and ending
on the day immediately before the next Calculation Date shall be 13% per
annum. However, if on any Calculation Date (following the first Calculation
Date) (the "Measuring Date") it is the case that (a) the Dividend Rate was at
least 13% on the day before such Measuring Date, and (b) the Total Proved
Coverage is less than 1.5 on the Measuring Date, and (c) the Total Proved
Coverage was less than 1.5 on the most immediately preceding Calculation Date
that also is at least 180 days prior to the Measuring Date, then the Dividend
Rate for the period commencing on the Measuring Date and ending on the day
immediately before the next Calculation Date shall be 16% per annum. Such
dividends on shares of Series B Preferred shall be cumulative from the date
such shares are issued, whether or not in any period the Corporation shall
be legally permitted to make the payment of such dividends and whether or not
such dividends are declared, and shall be payable when, as and if declared by
the Board of Directors in cash on each January 1, April 1, July 1, and
October 1, in each year, except that if any such date is not a Business Day
then such dividends shall be payable on the next succeeding Business Day (as
applicable, each a "Dividend Payment Date"). Subject to the last sentence of
this subsection (a), cash dividends shall accrue and be payable at the
Dividend Rate in effect as of the immediately preceding Calculation Date.
Cumulative dividends shall at all times accrue at a compounded rate equal to
the Dividend Rate and shall accrue from and including the date of issuance of
such shares to and including a Dividend Payment Date. Such dividends shall
accrue whether or not there shall be (at the time such dividend becomes
payable or at any other time) profits, surplus or other funds of the
Corporation legally available for the payment of dividends.
(b) Dividends shall be calculated on the basis of the time elapsed from
and including the date of issuance of such shares to and including the
Dividend Payment Date or on any final distribution date relating to
conversion or redemption or to a dissolution, liquidation or winding up of
the Corporation. Dividends payable on the shares of Series B Preferred for
any period of less than a full calendar year shall be prorated for the
partial year on the basis of a 360-day year.
(c) To the extent dividends are not paid on a Dividend Payment Date, all
dividends which shall have accrued on each share of Series B Preferred
outstanding as of such Dividend Payment Date shall, for purposes of
calculating dividends thereon, be added to the Stated Value of such share of
Series B Preferred and shall remain a part thereof until paid, and dividends
shall accrue at the Dividend Rate and be paid on such share of Series B
Preferred on the basis of the Stated Value, as so adjusted. No interest, or
sum of money in lieu of interest, shall be payable in respect of any dividend
payment or payments on the Series B Preferred which are in arrears.
<PAGE>
(d) Dividends payable on each Dividend Payment Date shall be paid to
record holders of the shares of Series B Preferred as they appear on the
books of the Corporation at the close of business on the tenth Business Day
immediately preceding the respective Dividend Payment Date or on such other
record date as may be fixed by the Board of Directors of the Corporation in
advance of a Dividend Payment Date, provided that no such record date shall
be less than ten nor more than sixty calendar days preceding such Dividend
Payment Date. Dividends in arrears may be declared and paid at any time to
holders of record on a date not more than 60 days preceding the payment date
as may be fixed by the Board of Directors. Dividends paid on shares of
Series B Preferred in an amount less than the total amount of such dividends
at the time payable shall be allocated pro rata on a share by share basis
among all shares outstanding.
(e) So long as any shares of Series B Preferred are outstanding, no
dividend or other distribution, whether in liquidation or otherwise, shall be
declared or paid, or set apart for payment on or in respect of, any Junior
Securities, nor shall any Junior Securities be redeemed, purchased or
otherwise acquired for any consideration (or any money be paid to a sinking
fund or otherwise set apart for the purchase or redemption of any such Junior
Securities), without the prior consent of the holders of a majority of the
outstanding shares of Series B Preferred voting together as a separate class.
27. Section Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation (in connection with the bankruptcy or insolvency of the
Corporation or otherwise), whether voluntary or involuntary, before any
payment or distribution of the assets of the Corporation (whether capital or
surplus) shall be made to or set apart for the holders of shares of any
Junior Securities, the holders of the shares of Series B Preferred shall be
entitled to receive an amount per share equal to the Stated Value per share
held by them, plus all accrued and unpaid dividends on each share. To the
extent the available assets are insufficient to fully satisfy such amounts,
then the holders of the Series B Preferred shall share ratably in such
distribution in the proportion that each holder's shares bears to the total
number of shares of Series B Preferred outstanding. No further payment on
account of any such liquidation, dissolution or winding up of the Corporation
shall be paid to the holders of the shares of Series B Preferred or the
holders of any Parity Securities unless there shall be paid at the same time
to the holders of the shares of Series B Preferred and the holders of any
Parity Securities proportionate amounts determined ratably in proportion to
the full amounts to which the holders of all outstanding shares of Series B
Preferred and the holders of all such outstanding Parity Securities are
respectively entitled with respect to such distribution. For purposes of
this Section 4, a consolidation or merger of the Corporation with one or more
partnerships, corporations or other entities or a sale, lease, exchange or
transfer of all or any substantial part of the Corporation's assets for cash,
securities or other property shall be deemed to be a liquidation, dissolution
or winding-up of the Corporation, whether voluntary or involuntary.
(b) After the payment of the full amount to the holders of Series B
Preferred pursuant to the preceding paragraph , and subject to the rights of
holders of Junior Securities other than the Common Stock, the holders of
Common Stock shall share ratably in the distribution of the remaining
available assets of the Corporation, in the proportion that each holder's
shares of Common Stock bears to the total number of shares of Common Stock of
the Corporation outstanding.
(c) Written notice of any liquidation, dissolution or winding up of the
Corporation, stating the payment date or dates when and the place or places
where the amounts distributable in such circumstances shall be payable, shall
be given by first class mail, postage prepaid, not less than fifteen days
prior to any payment date stated therein, to the holders of record of the
shares of Series B Preferred at their respective addresses as the same shall
appear in the records of the Corporation.
28. Section Optional Redemption by the Corporation. The outstanding
shares of Series B Preferred are subject to redemption in accordance with the
following provisions:
<PAGE>
(a) Subject to the terms hereof, the Corporation may at its option elect
to redeem the outstanding shares of Series B Preferred in multiples of not
less than One Million Dollars ($1,000,000), until such time as the cumulative
amount redeemed under this Section 5(a) is Twenty-Five Million Dollars
($25,000,000); thereafter, any redemption under this Section 5 at the
election of the Corporation must be of all shares of Series B Preferred then
outstanding. The number of shares redeemed under this Section 5 shall be
allocated among the holders of Series B Preferred according to, as measured
on the date of the notice required by Section 5(c) below, the relative number
of shares owned by each holder as compared to the total number of issued and
outstanding shares of Series B Preferred.
(b) The redemption price per share for Series B Preferred redeemed on any
optional Redemption Date shall be the Redemption Price. Subject to Section
5(c) hereof, the aggregate Redemption Price on all shares shall be paid in
cash from any source of funds legally available therefor.
(c) Not less than thirty nor more than sixty days prior to the Redemption
Date fixed for any redemption of any shares of Series B Preferred under this
Section 5, a notice specifying the Redemption Date and place of such
redemption shall be given by first class mail, postage prepaid, to the
holders of record of the shares of Series B Preferred to be redeemed at their
respective addresses as the same shall appear on the books of the
Corporation, calling upon each such holder of record to surrender to the
Corporation on the Redemption Date at the place designated in such notice the
holder's certificate or certificates representing the number of shares of
Series B Preferred designated for redemption from such holder. On or after
the Redemption Date, each holder of shares of Series B Preferred called for
redemption shall surrender his certificate or certificates for such shares to
the Corporation at the place designated in the redemption notice and shall
thereupon be entitled to receive payment of the aggregate Redemption Price
for such shares. From and after the Redemption Date, unless there shall have
been a default in payment of the Redemption Price, all rights of the shares
of Series B Preferred designated for redemption (except the right to receive
the Redemption Price without interest upon surrender of the related
certificate or certificates) shall cease with respect to such shares, and
such shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose whatsoever.
29. Section Mandatory Redemption; Put Right.
(a) As soon as possible following (i) the fifth anniversary of the
Original Issue Date, or (ii) a Change of Control, the Corporation shall
redeem each Series B Preferred share for cash for the Redemption Price.
(b) Following the closing of a Qualified Public Offering, the
Corporation shall redeem for cash, in the manner provided for in subsection
(c), a number of shares of Series B Preferred calculated by dividing the
Excess Offering Proceeds by the Redemption Price at such time. If the number
of shares of Series B Preferred which the Corporation is able to purchase
with the Excess Offering Proceeds is less than the aggregate number of shares
then outstanding, the Corporation shall redeem shares from each holder of
Series B Preferred pro rata based on the number of shares of Series B
Preferred owned by such holder. In either case, the price paid for each
share redeemed under this subsection (b) shall be the Redemption Price.
(c) Not less than thirty nor more than sixty days prior to the
Redemption Date fixed for any redemption of any shares of Series B Preferred
under Section 6(a) or (b) (or, if no date can be pre-determined, then not
later than five days following the consummation of a Qualified Public
Offering or Change of Control), a notice specifying the mandatory Redemption
Date and place of such redemption shall be given by first class mail,
postage prepaid, to the holders of record of the shares of Series B Preferred
at their respective addresses as the same shall appear on the books of the
Corporation, calling upon each such holder of record to surrender to the
Corporation on the mandatory Redemption Date at the place designated in such
notice the holder's certificate or certificates representing the number of
shares of Series B Preferred owned by such holder and being redeemed on such
mandatory Redemption Date. On or after the mandatory Redemption Date, each
holder of shares of Series B Preferred shall surrender his certificate or
certificates for such shares to the Corporation at the place and amount
designated in the redemption notice and shall thereupon be entitled to
receive payment of the aggregate Redemption Price for such shares. From and
after the mandatory Redemption Date, unless there shall have been a default
in payment of the Redemption Price, all rights of the shares of Series B
Preferred being redeemed (except the right to receive the Redemption Price
without interest upon surrender of the related certificate or certificates)
shall cease, and such shares shall not thereafter be transferred on the books
of the Corporation or be deemed to be outstanding for any purpose whatsoever.
<PAGE>
(d) If, at any time after the third anniversary of the Original
Issue Date, the Company fails to fully make a then-current dividend payment
(not including amounts representing accrued and unpaid dividends up to the
third anniversary of the Original Issue Date) at the end of any calendar
quarter, then the holders of shares of Series B Preferred (as approved by the
holders of at least two-thirds of the outstanding shares of Series B
Preferred), shall have the option to require the Corporation to redeem each
outstanding share of Series B Preferred for cash at the Redemption Price. In
the event such option is exercised, all holders of Series B Preferred shall
deliver the certificates representing the shares of Series B Preferred to the
Corporation and a notice of the election of the holders to have all of such
shares redeemed. Upon receipt of such certificate and notice, the
Corporation shall, subject to any applicable restrictions of law or
regulations, promptly redeem the shares for which such holders have elected
to be redeemed and pay to or on the order of such holders in immediately
available funds the full Redemption Price for each share of Series B
Preferred then outstanding.
(e) In connection with a redemption under Section 6(a) or (d), if
the Corporation has insufficient funds (whether by legal prohibition or
otherwise) to initially redeem all shares required to be redeemed thereunder,
then the Corporation shall from time to time whenever possible use the
maximum amount of funds available (until all shares of Series B Preferred are
redeemed), and in each partial redemption the number of shares redeemed and
the redemption price therefor shall be allocated according to the relative
number of Series B Preferred shares owned by each holder as compared to the
total number of shares of Series B Preferred outstanding at such time.
30. Section Reacquired Shares. Any shares of Series B Preferred
repurchased, redeemed, converted or otherwise acquired by the Corporation
shall be retired and canceled promptly after the acquisition thereof. All
such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock, without designation as to series, and may
thereafter be reissued.
31. Section Voting Rights.
(a) Except as otherwise provided in this Section 8 or required by law or
any provision of the Articles of Incorporation of the Corporation, the shares
of Series B Preferred shall not confer any voting rights.
(b) For so long as any shares of Series B Preferred remain issued and
outstanding, the Corporation shall not, without the affirmative vote or
consent of the holders of a majority of the shares of Series B Preferred then
outstanding, voting together as a separate class: (i) authorize, create or
issue, or increase the authorized or issued amount of, any class or series of
capital stock, or any security convertible into or exchangeable for shares of
capital stock or reclassify or modify any Junior Securities so as to become
Parity Securities or Senior Securities; (ii) amend, repeal or change any of
the provisions of the Articles of Incorporation of the Corporation (including
the Certificate of Designations relating to the Series B Preferred); (iii)
authorize or take any action resulting in the merger, reorganization, change
of control, conversion, or sale of all or substantially all of the assets of
the Corporation; (iv) redeem, repurchase or otherwise reacquire any shares of
a class or series of Junior Securities or Parity Securities (other than
redemptions from employees of the Corporation in connection with their
employment termination); (v) authorize or take any action resulting in a
transaction between the Corporation and one of its affiliates (other than a
wholly-owned subsidiary), unless on terms no less favorable than would have
been available with either a less than wholly-owned subsidiary of the
Corporation or an independent third party; or (vi) increase or decrease the
size of the Board of Directors.
32. Section Record Holders. The Corporation may deem and treat the
record holder of any shares of Series B Preferred as the true and lawful
owner thereof for all purposes, and the Corporation shall not be affected by
any notice to the contrary.
33. Section Notice. Except as may otherwise be provided by law or
provided for herein, all notices referred to herein shall be in writing, and
all notices hereunder shall be deemed to have been given upon receipt upon
the earlier of receipt of such notice or three Business Days after the
mailing of such notices sent by Registered Mail (unless first-class mail
shall be specifically permitted for such notice under the terms hereof) with
postage prepaid, addressed: If to the Corporation, to its principal
executive offices (Attention: Corporate Secretary) or to any agent of the
Corporation designated as permitted hereby; or if to a holder of the Series B
Preferred, to such holder at the address of such holder of the Series B
Preferred as listed in the stock record books of the Corporation, or to such
other address as the Corporation or holder, as the case may be, shall have
designated by notice similarly given.
<PAGE>
34. Section Successors and Transferees. The provisions applicable to
shares of Series B Preferred shall bind and inure to the benefit of and be
enforceable by the Corporation, the respective successors to the Corporation,
and by any record holder of shares of Series B Preferred.
35. Section Denial of Preemptive Rights. The Series B Preferred is not
entitled to any preemptive or subscription right in respect of any securities
of the Corporation.
RESOLVED FURTHER, that the appropriate officers of the Corporation be,
and they are hereby, authorized and directed from time to time to execute
such certificates, instruments or other documents and do all such things as
may be necessary or advisable in their discretion in order to carry out the
terms hereof, including the filing with the Secretary of State for the State
of Texas of a copy of the foregoing resolution executed by an officer of the
Corporation.
Dated: May 14, 1999
BARGO ENERGY COMPANY
By: /s/ Tim J. Goff
Name: Tim J. Goff
Title: President
<PAGE>
EXHIBIT 10.01
SECOND AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT
THIS SECOND AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT (this
"Agreement") is made and entered into this 14th day of May, 1999, by and
among Bargo Energy Company, a Texas corporation ("Company"), B. Carl Price, a
Texas resident ("Price"), Don Wm. Reynolds, a Texas resident ("Reynolds"),
Energy Capital Investment Company PLC, an English investment company ("Energy
PLC"), EnCap Equity 1994 Limited Partnership, a Texas limited partnership
("EnCap LP"), Bargo Energy Resources, Ltd., a Texas limited partnership
("Resources"), TJG Investments, Inc., a Texas corporation ("TJG"), Bargo
Energy Company, a Texas general partnership ("BEC"), Tim J. Goff ("Goff"),
Thomas Barrow ("Barrow"), James E. Sowell ("Sowell"), Bargo Operating
Company, Inc., a Texas corporation ("Operating"), EnCap Energy Capital Fund
III-B, L.P., a Texas limited partnership ("EnCap III-B"), BOCP Energy
Partners, L.P., a Texas limited partnership ("BOCP"), EnCap Energy Capital
Fund III, L.P., a Texas limited partnership ("EnCap III"), Kayne Anderson
Energy Fund, L.P., a Delaware limited partnership ("Kayne"), BancAmerica
Capital Investors SBIC I, L.P., a Delaware limited partnership ("BACI"), Eos
Partners, L.P., a Delaware limited partnership ("Eos Partners"), Eos Partners
SBIC, L.P., a Delaware limited partnership ("Eos SBIC"), Eos Partners SBIC
II, L.P., a Delaware limited partnership ("Eos SBIC II" and together with Eos
Partners and Eos SBIC, collectively referred to as "EOS"), and SGC Partners
II LLC, a Delaware limited liability company ("SGCP").
RECITALS:
A. Company (as successor by merger to Future Petroleum Corporation,
a Utah corporation), Price, Reynolds, Energy PLC, EnCap LP, Resources, TJG,
BEC, Goff, Barrow, Sowell and Operating are currently parties to that certain
Amended and Restated Shareholder's Agreement dated December 15, 1998
("Original Agreement"), pursuant to which such parties agreed, among other
things, to vote their shares in favor of the election of the Designated
Nominees (as defined by and more specifically provided in the Original
Agreement) named from time to time by the parties, including the designation
by Energy PLC and EnCap LP of two of the seven directors on Company's Board.
B. EnCap III-B, Energy PLC, BOCP, EnCap III, Kayne, BACI, EOS and
SGCP (the "Investors") are parties, along with Company, to that certain Stock
Purchase Agreement dated May 14, 1999 ("Purchase Agreement"), pursuant to
which the Investors will be issued shares of Company's common stock, $0.01
par value ("Common Stock") and Company's Cumulative Redeemable Preferred
Stock, Series B (the "Preferred Shares").
C. The parties hereto deem it in their mutual best interests to make
the agreements contained herein, including providing Company Board of
Directors representation to those Investors making their initial investment
in Company.
<PAGE>
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, amend and restate the Original Agreement to read in its entirety as
follows:
Section 1. DEFINITIONS.
(a) The following defined terms shall have the respective meanings
assigned to them below:
"Affiliate" shall mean, with respect to any person, (i) any person
directly or indirectly controlling, controlled by or under common
control with, such other person, or (ii) any account over which such
person has management authority in such a manner that the person has
the power to control the voting and disposition of the securities in
such account. For purposes of this definition, the term "control,"
when used with respect to any person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction
of the management and policies of such person, whether through the
ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" shall have meanings correlative to
the foregoing.
"Bargo Group" shall mean TJG, BEC, Resources, Operating, Goff,
Barrow and Sowell and any transferee of a member of the Bargo Group
that executes or is required to execute an Addendum Agreement.
"Designated Nominee" shall mean a person designated as a nominee
for election to Company's Board of Directors pursuant to this
Agreement.
"EnCap" shall mean EnCap LP, Energy PLC, EnCap III-B, BOCP, EnCap
III and any transferee of a member of EnCap that executes or is
required to execute an Addendum Agreement.
"Exempt Transfer" shall mean any sale, disposition or transfer
effected (i) through a registration under the Securities Act of 1933,
as amended (the "Securities Act"), (ii) pursuant to and in compliance
with Rule 144 promulgated by the Securities and Exchange Commission
pursuant to the Securities Act, provided that such sale does not
involve a sale of Stock to any person who has beneficial ownership of,
or who is a member of a "group," as defined under Section 13(d) and
corresponding rules of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), which has beneficial ownership of, more than 5%
of the outstanding Common Stock, (iii) transfers by a Shareholder to
any person who is a partner or equity holder of such Shareholder, a
successor of, or an entity all of the equity interests of which are
directly or indirectly owned by, the selling Shareholder or an
Affiliate of the selling Shareholder, provided that no transfer
pursuant to this clause (iii) shall be an Exempt Transfer unless the
transferee agrees in writing to be bound by this Agreement and executes
an Addendum Agreement hereto, (iv) by any member of the Bargo Group to
any person who as of the date hereof is an employee of the Company, or
(v) any bona fide charge, pledge or mortgage by any Shareholder of any
shares of Stock or Preferred Shares owned or held by it or its rights
under this Agreement, provided that any disposition of any such shares
of Stock or Preferred Shares after foreclosure of such charge, pledge
or mortgage shall be governed by the provisions of this Agreement, and
the purchaser or purchasers of the shares shall have entered into an
Addendum Agreement with Company and the other Shareholders.
<PAGE>
"Investor Group" shall mean the Investors and any transferee of an
Investor that executes or is required to execute an Addendum Agreement.
"Investors" has the meaning provided in the Recitals hereto.
"Market Price" shall mean the average closing prices of the Common
Stock for the ten trading days preceding an Offering Notice under
Section 4(e) over the principal securities exchange in which the Common
Stock is traded or, if not traded on an exchange, the average closing
price for ten trading days preceding such Offering Notice as reported
on the Nasdaq NMS, or if not traded on an exchange or the Nasdaq NMS,
the average of the closing bid and asked prices of the Common Stock for
such ten day period.
"Original Agreement" has the meaning provided in the Recitals
hereto.
"Price Group" shall mean Price, Reynolds and any transferee of a
member of the Price Group that executes or is required to execute an
Addendum Agreement.
"Proportionate Share" shall mean the number of shares of Stock
equal to the product of: (i) the total number of Remaining Subject
Shares which a proposed transferee has offered to purchase, multiplied
by (ii) the fraction equal to the total number of shares of Stock which
a Tag Along Shareholder or Drag Along Shareholder, as the case may be,
owns, divided by the aggregate number of shares of Stock then
outstanding.
"Purchase Price" shall mean, for purposes of Section 4, an amount
stated in dollars equal to the total value of a bona fide written offer
from a person to purchase shares from a Shareholder determined as
follows: (i) cash payable at closing shall be valued at the amount
thereof, (ii) a security trading on a public market and for which
published trading prices are readily available shall be valued at its
closing sales price (or if a sales price is not available, at the
average of its closing bid and asked prices) on the last business day
preceding the date of the first Offering Notice with respect to such
offer, and (iii) a security not described in clause (ii) or other
property, including cash payable in one or more installments after
closing, shall be valued at its fair market value on the last business
day preceding the date of the first Offering Notice with respect to
such offer as determined at the option of the Selling Shareholder or
Selling Preferred Shareholder (both as defined in Section 4) either (a)
by a qualified independent third party appraiser (the expense of which
shall be paid by the Company) or (b) in good faith by the Board of
Directors of the Company (excluding any member of the Board who is a
director, officer or shareholder of the Selling Shareholder (or Selling
Preferred Shareholder, as applicable) or who has the right to purchase
a portion of such shares under this Agreement) but only if all of such
Board members agree to accept the assignment to make such
determination.
<PAGE>
"Same Group Shareholders" shall mean with respect to any Selling
Shareholder, those other members, if any, of the same Shareholder Group
of which such Selling Shareholder is a member.
"Shareholder Group" shall mean the Bargo Group, the Investor Group
or the Price Group, as applicable.
"Shareholders" shall mean the parties to this Agreement and any
person who executes or is required to execute an Addendum Agreement
(attached hereto as Exhibit "A").
"Stock" shall mean all shares of Common Stock owned or to be owned
by the Shareholders, whether issued and outstanding at the time of the
execution of this Agreement or issued subsequent thereto.
"Total Voting Power" shall mean the aggregate number of votes
which may be cast by holders of outstanding Voting Securities.
"Voting Securities" shall mean Common Stock and any other
securities of Company entitled to vote generally for the election of
directors of Company.
Section 2. Agreement Regarding Board Representation and Option Plan.
(a) For so long as any of the Preferred Shares remain outstanding:
each of (i) EOS and SGCP (jointly), (ii) Kayne and (iii) BACI (or the
successor or transferee of any such party), shall be entitled to name one (1)
Designated Nominee for Class III of Company's Board of Directors; the Bargo
Group (including successors and transferees of its members) shall be entitled
to name two (2) Designated Nominees for Class II of Company's Board of
Directors; and EnCap (including successors and transferees of its members)
shall be entitled to name two (2) Designated Nominees for Class I of
Company's Board of Directors. In the event no Preferred Shares are
outstanding, then for so long as the Investors shall beneficially own in the
aggregate at least 20% of the issued and outstanding shares of capital stock
of Company (excluding any shares held by the Bargo Group), on a fully-diluted
basis reflecting all shares issuable upon the exercise of all outstanding
rights to acquire shares of Company's capital stock, then the three members
of the Investors owning the most shares of Common Stock shall be entitled
from time to time to name (determined by any two of such three parties) the
smallest whole number of Designated Nominees necessary to constitute at least
40% of the total members of Company's Board of Directors. For purposes of
this Agreement, "beneficial ownership" or "beneficially own" shall be
determined in accordance with Rule 13d-3 under the Exchange Act).
Notwithstanding the foregoing provisions of this Section 2(a), at the
earlier of (i) two years following the final redemption of all Preferred
Shares and (ii) 6 years following the date hereof, the Shareholders shall
regain the rights regarding Designated Nominees provided by the first
sentence of this Section 2(a), unless at such time the aggregate market value
of the Common Stock, that is held by non-affiliates (excluding, without
limitation, the Shareholders) and included for listing by The Nasdaq Stock
Market or the New York Stock Exchange, is at least $100,000,000.
<PAGE>
(b) Each Shareholder agrees (i) to use its reasonable best efforts
to cause Company's Board of Directors to be composed of seven members, (ii)
to use its reasonable best efforts to cause Company to nominate or cause to
be nominated to Company's Board of Directors all Designated Nominees and
(iii) to vote or cause to be voted all Voting Securities beneficially owned
by such Shareholder in favor of the election of the Designated Nominees to
Company's Board of Directors.
(c) In the event of the death, incapacity, resignation or removal of
a Designated Nominee preventing his or her serving on Company's Board of
Directors, each Shareholder will promptly cause the election or appointment
of another Designated Nominee of such Shareholder or Shareholder Group, as
applicable, to fill the vacancy created thereby.
(d) Each Shareholder agrees to cause a designee of the Bargo Group
to be elected Chairman of the Board of Directors of Company. Tim J. Goff
shall serve as the Bargo Group's initial designee. In the event Mr. Goff no
longer serves as the Bargo Group's designee, the Bargo Group agrees that all
of its subsequent replacement designees as Chairman of the Board of Directors
shall be subject to the prior approval of a majority of the Board of
Directors of Company, which approval shall not be unreasonably withheld, and
if a replacement designee is not so approved, the Bargo Group shall designate
another designee acceptable to Company's Board of Directors.
(e) Each Shareholder agrees to vote all Voting Securities
beneficially owned by such Shareholder for approval of Company's 1999 Stock
Incentive Plan contemplated by the Purchase Agreement. In addition, for so
long as Tim Goff serves as Chief Executive Officer of Company, each
Shareholder will cause its Designated Nominee(s) to approve and authorize the
grant of stock option awards as recommended by Mr. Goff pursuant to Section
1.2(a) of Company's 1999 Stock Incentive Plan.
(f) For so long as SGCP owns any shares of Series B Preferred,
Company shall invite a representative designated by SGCP to attend all
meetings of Company's Board of Directors in a non-voting capacity and, in
this respect, shall give such representative copies of all notices, minutes,
consents and other materials that Company provides to its directors;
provided, however, that such SGCP representative shall hold in confidence and
trust, and to act in a fiduciary manner regarding, all information so
provided by Company; and provided further, that Company reserves the right to
exclude such SGCP representative from any meeting or portion thereof at which
attendance by such representative could adversely affect the attorney-client
privilege between Company and its legal counsel.
Section 3. GENERAL RESTRICTIONS ON TRANSFER.
The Shareholders agree that, other than an Exempt Transfer, they will
not in any way sell, transfer, assign or otherwise dispose of any shares of
Stock, or any right or interest therein, whether voluntarily or involuntarily
or by operation of law (each of the foregoing transactions is hereinafter
referred to as a "Disposition"), except in accordance with the terms of this
Agreement. Aside from an Exempt Transfer, any purported Disposition in
violation of any provision of this Agreement will be void and will not
operate to transfer any interest or title in such shares to the purported
transferee, and will give the other Shareholders an option and preferential
right to purchase such shares in the manner and on the terms and conditions
provided in this Agreement.
<PAGE>
Section 4. RIGHT OF FIRST REFUSAL; TAG-ALONG RIGHTS; AND DRAG-ALONG
RIGHTS.
(a) If any Shareholder desires to make a Disposition of any shares
of Stock owned or held by it pursuant to a bona fide offer (other than in an
Exempt Transfer or pursuant to Section 4(e) hereof), such Shareholder (for
purposes of this Section 4, a "Selling Shareholder") shall offer such shares
(the shares of Stock proposed to be transferred being called the "Subject
Shares") for sale at the Purchase Price to the other Shareholders, all in
accordance with the following provisions of this Section 4.
(i) The Selling Shareholder shall deliver a written notice
("Offering Notice") to the other Shareholders to sell the Subject
Shares to the Shareholders pursuant to this Agreement, indicating the
number of Subject Shares and the proposed Purchase Price. Once the
Offering Notice is delivered, the offer by the Selling Shareholder may
not be withdrawn prior to the expiration of the options of the other
Shareholders, as provided in this Section 4. Within 15 days from the
receipt of such Offering Notice, the Same Group Shareholders of the
Selling Shareholder may deliver to the Selling Shareholder written
notice accepting the offer in the Offering Notice ("Reply Notice"),
pursuant to which each such Same Group Shareholder may purchase no more
than the number of shares equal to the product of: (A) the total number
of Subject Shares, multiplied by (B) the fraction equal to the total
number of shares of Stock owned by such Same Group Shareholder, divided
by the aggregate number of shares of Stock owned by all Same Group
Shareholders. If the Selling Shareholder's Same Group Shareholders do
not timely elect to exercise their option to purchase all of the
Subject Shares, then all the other Shareholders outside of such group
may, within the subsequent 15 days, deliver a Reply Notice, pursuant to
which each such other Shareholder may purchase no more than the number
of shares equal to the product of: (A) the total number of Subject
Shares remaining available for purchase, multiplied by (B) the fraction
equal to the total number of shares of Stock owned by such other
Shareholder, divided by the aggregate number of shares of Stock owned
by all other Shareholders (who are not members of the Selling
Shareholder's Shareholder Group). Any such Reply Notice shall
constitute an agreement binding upon the Selling Shareholder and the
Shareholders delivering the Reply Notice to sell and purchase the
stated portion of the Subject Shares at the Purchase Price.
(ii) Any dispute concerning the calculation of the Purchase
Price shall be resolved by the Board of Directors of the Company,
excluding any member of the Board who is, or is a director, officer,
partner or stockholder of, the Selling Shareholder or who has a right
to purchase stock from the Selling Shareholder in the transaction for
which the Purchase Price is being determined; provided that if all
directors are excluded pursuant to the foregoing, such disputes shall
be submitted to binding arbitration as provided in Exhibit B. The
Purchase Price shall be paid in cash at the closing.
<PAGE>
(b) If the Shareholders do not elect to purchase all of the Subject
Shares (such Subject Shares not being purchased are referred to herein as the
"Remaining Subject Shares"), then the Selling Shareholder shall cause the
proposed transferee (the "Proposed Purchaser") to offer in writing (a "Sale
Notice"), not less than 30 nor more than 120 days prior to the consummation
of any proposed Disposition, to the Shareholders other than the Selling
Shareholder (the "Tag Along Shareholders") to purchase a Proportionate Share
of the shares held by each Tag Along Shareholder. The Sale Notice shall set
forth: (i) the name of the Selling Shareholder and the number of Subject
Shares proposed to be transferred, (ii) the name and address of the Proposed
Purchaser, (iii) the proposed amount and form of consideration and terms and
conditions of payment offered by such Proposed Purchaser and (iv) that the
Proposed Purchaser has been informed of the tag along right provided for in
this Section 4(b) and has agreed to purchase shares of Stock owned by any Tag
Along Shareholder in accordance with the terms hereof. The tag along right
may be exercised by any Tag Along Shareholder by delivery of a written notice
to the Proposed Purchaser and Selling Shareholder (the "Tag Along Notice")
within 30 days following its receipt of the Sale Notice. The Tag Along
Notice shall state the amount of shares of Stock (the "Tag Along Shares")
that such Tag Along Shareholder proposes to include in such transfer to the
Proposed Purchaser. To the extent that a Tag Along Shareholder accepts such
tag along offer, the number of shares of Stock to be sold to the Proposed
Purchaser by the Selling Shareholder shall be reduced to the extent necessary
to comply with this Section 4(b). In the event that the Proposed Purchaser
does not purchase all Tag Along Shares from the Tag Along Shareholders on the
same terms and conditions as specified in the Sale Notice, then the Selling
Shareholder shall not be permitted to sell any Subject Shares to the Proposed
Purchaser in the proposed transfer. The closing of any purchase from the Tag
Along Shareholders shall occur contemporaneously with the purchase and sale
of the Subject Shares (as adjusted hereunder) or at such other time as such
Tag Along Shareholders and the Proposed Purchaser shall agree.
(c) In the event that (i) any Tag Along Shareholder elects not to
exercise his/its tag-along rights described in Section 4(b) (a "Drag Along
Shareholder"), and (ii) the total shares sought to be purchased by the
Proposed Purchaser constitute at least 50% of the shares of Common Stock
outstanding on the date of the Sale Notice, and (iii) Company's Board of
Directors approves such transaction, then each Selling Shareholder shall have
the right (a "Drag Along Right"), beginning on the date that is the first day
after such tag-along right has either expired or been rejected and ending 20
days thereafter, to require each Drag Along Owner to sell a Proportionate
Share owned by such Drag Along Owner to the Proposed Purchaser. All such
sales shall be on the same terms and conditions as, and occur simultaneously
with, the sale of shares to such Proposed Purchaser by such Selling
Shareholder.
(d) If the other Shareholders do not elect to purchase all Subject
Shares, the Selling Shareholder shall, subject to Sections 4(b) and 4(c)
hereof, be freed and discharged, except as herein stated, from all
obligations under the terms of this Agreement other than to sell the
remaining Subject Shares to the purchaser and at the price and upon the terms
stated in the Offering Notice, but only if such sale shall be completed
within a period of 90 days from the date of delivery of the Offering Notice
to the other Shareholders. If the Selling Shareholder does not complete such
sale within such 90 day period, all the provisions of this Agreement,
including the provisions of this Section 4, shall apply to any future sale or
offer for sale of such shares of Stock owned by the Selling Shareholder.
<PAGE>
(e) Upon any involuntary Disposition of a Shareholder's shares of
Stock, such Shareholder or its representative shall send notice thereof,
disclosing in full to the Company and the other Shareholders the nature and
details of such involuntary Disposition and offer such shares for sale at the
Market Price to the other Shareholders, all in accordance with the following
provisions of this Section 4(e). As used in this Section 4(e), the term
"Selling Shareholder" shall mean such Shareholder or its representative, as
the case may be.
(i) The Selling Shareholder shall deliver an Offering Notice
to the other Shareholders. Each of the other Shareholders shall have
30 days from the receipt of their respective Offering Notice to deliver
a Reply Notice to the Selling Shareholder. If by their Reply Notice
the other Shareholders accept the offer of the Selling Shareholder,
such Reply Notice shall constitute an agreement binding upon the
Selling Shareholder and the other Shareholders to sell and purchase the
offered shares at the price and upon the terms stated in the Offering
Notice of the Selling Shareholder.
(ii) In connection with any purchase and sale of shares of
Stock pursuant to paragraph (i) of this Section 4(e), the purchaser or
purchasers shall pay the purchase price for the shares in cash at the
closing.
(iii) If the Shareholders do not accept the offer of the
Selling Shareholder pursuant to the foregoing provisions of this
Section 4(e), the Selling Shareholder shall be freed and discharged
from all obligations under the terms of this Agreement except to
dispose of the offered shares by involuntary Disposition but only if
the transferee under any such Disposition shall have entered into and
Addendum Agreement with the Company and the other Shareholders. If
such involuntary Disposition is not effected, all the provisions of
this Agreement, including the provisions of this Section 4, shall apply
to any future involuntary Disposition of such shares of Stock owned by
the Selling Shareholder.
(f) If any Shareholder desires to make a Disposition of any
Preferred Shares owned or held by it pursuant to a bona fide offer (other
than in an Exempt Transfer), such Shareholder (for purposes of this Section
4(f), a "Selling Preferred Shareholder") shall offer such shares (the
Preferred Shares proposed to be transferred being called the "Subject
Preferred Shares") for sale at the Purchase Price to the other Shareholders
who then own Preferred Shares ("Preferred Shareholders"), all in accordance
with the following provisions of this Section 4(f).
(i) The Selling Preferred Shareholder shall deliver a written
notice ("Preferred Stock Offering Notice") to the other Preferred
Shareholders to sell the Subject Preferred Shares to the Preferred
Shareholders pursuant to this Agreement, indicating the number of
Subject Preferred Shares and the proposed Purchase Price. Once the
Preferred Stock Offering Notice is delivered, the offer by the Selling
Preferred Shareholder may not be withdrawn prior to the expiration of
the options of the other Preferred Shareholders, as provided in this
Section 4(f). Within 15 days from the receipt of such Preferred Stock
Offering Notice, the other Preferred Shareholders may deliver to the
Selling Preferred Shareholder written notice accepting the offer in the
Preferred Stock Offering Notice, pursuant to which each such other
Preferred Shareholder may purchase no more than the number of shares
equal to the product of: (A) the total number of Subject Preferred
Shares, multiplied by (B) the fraction equal to the total number of
Preferred Shares owned by such other Preferred Shareholder, divided by
the aggregate number of Preferred Shares owned by all other Preferred
Shareholders. Any such reply to the Selling Preferred Shareholder
shall constitute an agreement binding upon the Selling Preferred
Shareholder and the Preferred Shareholders delivering such reply to
sell and purchase the stated portion of the Subject Preferred Shares at
the Purchase Price.
<PAGE>
(ii) Any dispute concerning the calculation of the Purchase
Price shall be resolved by the Board of Directors of the Company,
excluding any member of the Board who is, or is a director, officer,
partner or stockholder of, the Selling Preferred Shareholder or who has
a right to purchase Preferred Shares from the Selling Preferred
Shareholder in the transaction for which the Purchase Price is being
determined; provided that if all directors are excluded pursuant to the
foregoing, such disputes shall be submitted to binding arbitration as
provided in Exhibit B. The Purchase Price shall be paid in cash at the
closing.
If the Preferred Shareholders do not elect to purchase all of the
Subject Preferred Shares (such Subject Preferred Shares not being purchased
are referred to herein as the "Remaining Subject Preferred Shares"), then the
Selling Preferred Shareholder shall cause the proposed transferee (the
"Proposed Preferred Purchaser") to offer in writing (a "Preferred Sale
Notice"), not less than 30 nor more than 120 days prior to the consummation
of any proposed Disposition, to the Preferred Shareholders other than the
Selling Preferred Shareholder (the "Tag Along Preferred Shareholders") to
purchase from each Tag Along Preferred Shareholder a number of the Preferred
Shares held by each Tag Along Preferred Shareholder equal to the product of:
(i) the total number of Remaining Subject Preferred Shares which a proposed
transferee has offered to purchase, multiplied by (ii) the fraction equal to
the total number of Preferred Shares which a Tag Along Preferred Shareholder
owns, divided by the aggregate number of Preferred Shares then outstanding.
The Preferred Sale Notice shall set forth: (i) the name of the Selling
Preferred Shareholder and the number of Subject Preferred Shares proposed to
be transferred, (ii) the name and address of the Proposed Preferred
Purchaser, (iii) the proposed amount and form of consideration and terms and
conditions of payment offered by such Proposed Preferred Purchaser and (iv)
that the Proposed Preferred Purchaser has been informed of the tag along
right provided for in this Section 4(f) and has agreed to purchase Preferred
Shares owned by any Tag Along Preferred Shareholder in accordance with the
terms hereof. The tag along right may be exercised by any Tag Along
Preferred Shareholder by delivery of a written notice to the Proposed
Preferred Purchaser and Selling Preferred Shareholder (the "Preferred Tag
Along Notice") within 30 days following its receipt of the Preferred Sale
Notice. The Preferred Tag Along Notice shall state the amount of Preferred
Shares (the "Tag Along Preferred Shares") that such Tag Along Preferred
Shareholder proposes to include in such transfer to the Proposed Preferred
Purchaser. To the extent that a Tag Along Preferred Shareholder accepts such
tag along offer, the number of Preferred Shares to be sold to the Proposed
Preferred Purchaser by the Selling Preferred Shareholder shall be reduced to
the extent necessary to comply with this Section 4(f). In the event that the
Proposed Preferred Purchaser does not purchase all Tag Along Preferred Shares
from the Tag Along Preferred Shareholders on the same terms and conditions as
specified in the Preferred Sale Notice, then the Selling Preferred
Shareholder shall not be permitted to sell any Subject Preferred Shares to
the Proposed Preferred Purchaser in the proposed transfer. The closing of
any purchase from the Tag Along Preferred Shareholders shall occur
contemporaneously with the purchase and sale of the Subject Preferred Shares
(as adjusted hereunder) or at such other time as such Tag Along Preferred
Shareholders and the Proposed Preferred Purchaser shall agree.
<PAGE>
If the other Preferred Shareholders do not elect to purchase all Subject
Preferred Shares, the Selling Preferred Shareholder shall, subject to the
other provisions of this Section 4(f), be freed and discharged, except as
herein stated, from all obligations under the terms of this Agreement other
than to sell the remaining Subject Preferred Shares to the purchaser and at
the price and upon the terms stated in the Preferred Offering Notice, but
only if such sale shall be completed within a period of 90 days from the date
of delivery of the Preferred Offering Notice to the other Preferred
Shareholders. If the Selling Preferred Shareholder does not complete such
sale within such 90 day period, all the provisions of this Agreement,
including the provisions of this Section 4(f), shall apply to any future sale
or offer for sale of such Preferred Shares owned by the Selling Preferred
Shareholder.
Section 5. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS.
Each Shareholder hereby represents and warrants to the other
Shareholders as follows:
(a) As of the date hereof, such Shareholder is the record and
beneficial owner of the number of shares of Stock and Preferred Shares, as
set forth opposite its name in the attached Exhibit 5(a).
(b) Such Shareholder, if not a natural person, is duly formed,
validly existing and in good standing under the laws of the jurisdiction of
its formation.
(c) Such 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 Shareholder and constitutes a valid and legally binding obligation of
such Shareholder, enforceable against such Shareholder in accordance with its
terms.
(d) The execution, delivery, and performance by such Shareholder of
this Agreement do not and will not (i) if not a natural person, contravene or
violate any provision of its charter or other governing documents, as amended
to the date hereof, (ii) 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 Shareholder is a party or by which such Shareholder or any of its
properties may be bound or (iii) violate any applicable law, rule or
regulation binding upon such Shareholder.
(e) 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 Shareholder
in connection with the execution, delivery, or performance by such
Shareholder of this Agreement.
<PAGE>
Section 6. 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 7. 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 supersede all prior agreements, understandings,
negotiations, and discussions among the parties with respect to such subject
matter, including, without limitation that certain Voting Agreement dated
November 25, 1997, by and between Company, Energy PLC, EnCap LP, Carl Price
and Don Wm. Reynolds, that certain Purchase and Sale Agreement dated November
25, 1997, by and among Company, Energy PLC, EnCap LP and Gecko Booty 1994 I
Limited Partnership, and the Original Agreement. Neither Company nor any
Shareholder shall be a party to any agreement regarding the voting or
Disposition of capital stock of Company, as such, unless Company and all such
Shareholders are also parties to that agreement, except with the written
consent of Company and all such Shareholders who are not parties to such an
agreement.
Section 8. AMENDMENTS.
This Agreement may be amended, modified, supplemented, restated or
discharged only by an instrument approved in writing by the members in each
Shareholder Group owning at least two-thirds of the shares owned by such
entire group.
Section 9. 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 a member of the Bargo Group, other than Sowell:
c/o Bargo Energy Company
700 Louisiana, Suite 3700
Houston, Texas 77002
Attention: Tim J. Goff
Fax No.: 713-236-9799
If to Sowell: James E. Sowell
3131 McKinney Avenue, Suite 200
Dallas, Texas 75204
If to B. Carl Price or Don Wm. Reynolds:
c/o Bargo Energy Company
700 Louisiana, Suite 3700
Houston, Texas 77002
Attention: Carl Price
Fax No.: 713-236-9799
<PAGE>
If to EnCap:
c/o EnCap Investments, L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: D. Martin Phillips
Fax No.: 713-659-6130
If to Kayne:
Kayne Anderson Investment Management
1800 Ave. of the Stars, # 1425
Los Angeles, California 90067
Attention: Robert B. Sinnott
Fax No.: 310-284-6490
If to BACI:
Bank of America Capital Investors
100 North Tryon Street, 25th Floor
Charlotte, North Carolina 28255
Attention: J. Travis Hain
Fax No.: 704-386-6432
If to EOS:
EOS Partners, L.P.
320 Park Avenue
New York, New York 10022
Attention: Brian D. Young
Fax No.: 212-832-5815
If to SGCP:
SGC Partners II LLC
c/o SG Capital Partners LLC
1221 Avenue of the Americas, 15th Floor
New York, NY 10020
Attention: V. Frank Pottow
Fax No.: 212-278-5454
<PAGE>
and shall be considered delivered on the date of receipt. A Shareholder 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
Shareholders, in the manner provided in this Section, at least ten (10) days
prior to the effective date of such change of address.
Any party hereto may designate a different address by notice to the
other parties.
Section 10. TERMINATION.
This Agreement shall terminate upon the earlier of (i) the written
consent of each of the Shareholders, (ii) when the Shareholders collectively
hold an aggregate of less than 20% (or when, with respect to a Shareholder
Group, such Shareholder Group owns less than 5% (or when, with respect to a
Shareholder, such Shareholder owns less than 0.5%) of the issued and
outstanding shares of Common Stock (and this Agreement shall be terminated
solely with respect to such Shareholder Group or Shareholder, as applicable,
but shall remain in effect as to those Shareholder Groups owning 5% (and
those Shareholders owning 0.5%) or more of the issued and outstanding shares
of Common Stock)), or (iii) the closing of a public offering of the Common
Stock, pursuant to an effective registration statement filed with the
Securities and Exchange Commission, resulting in gross proceeds (before
deduction of fees and commissions) to the Company of at least $100,000,000.
Section 11. POWER OF ATTORNEY.
For the purpose of executing an Addendum Agreement, all the Shareholders
hereby appoint Company as their agent and attorney to execute such Addendum
Agreement on their behalf and expressly bind themselves to the Addendum
Agreement by Company's execution of that Agreement without further action on
their part.
Section 12. 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 13. CHOICE OF LAW.
This Agreement shall be governed by the internal laws of the State of
Texas, without regard to principles of conflicts of law.
Section 14. SUCCESSORS AND ASSIGNS.
This Agreement shall be binding on and inure to the benefit of the
parties hereto and their respective successors and assigns.
<PAGE>
Section 15. REFERENCES AND CONSTRUCTION.
(a) The provisions of Sections 3 and 4 hereof shall not apply to
transactions between members of the same Shareholder Group. The parties
hereto consent to the pledge of shares pursuant to those certain Pledge
Agreements (stock) by Resources, Energy PLC and EnCap LP, Price, TJG, BEC,
Goff, Barrow, Sowell and Operating, respectively, in favor of Bank of America
National Trust and Savings Association and agree that Sections 3 and 4 hereof
shall not be applicable to such pledges or any foreclosures or resales
thereunder.
(b) 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.
(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.
(d) 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.
(e) Words in the singular form shall be construed to include the
plural and vice versa, unless the context otherwise requires.
(f) 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.
(g) Examples shall not be construed to limit, expressly or by
implication, the matter they illustrate.
(h) The word "or" is not exclusive and the word "includes" and its
derivatives means "includes, but is not limited to" and corresponding
derivative expressions.
(i) No consideration shall be given to the fact or presumption that
one party had a greater or lesser hand in drafting this Agreement.
(j) All references herein to "$" or "dollars" shall refer to U.S.
Dollars.
<PAGE>
Section 16. LEGENDS.
The certificate or certificates representing the Stock now owned or
hereafter acquired by the 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 Second
Amended and Restated Shareholders' Agreement, dated as of May 14,
1999, by and among the Company, and certain stockholders of the
Company. A copy of such shareholders' 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 17. 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 18. 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.
<PAGE>
IN WITNESS WHEREOF, this Second Amended and Restated Shareholder's
Agreement has been executed as of the date above first written.
BARGO ENERGY COMPANY
By: /s/ Tim J. Goff
Name: Tim J. Goff
Title: President
ENCAP EQUITY 1994 LIMITED PARTNERSHIP
By: EnCap Investments L.C., General Partner
By: /s/ D. Martin Phillips
D. Martin Phillips
Managing Director
ENERGY CAPITAL INVESTMENT COMPANY PLC
By: Gary R. Petersen
Gary R. Petersen
Director
TJG INVESTMENTS, INC.
By: /s/ Tim J. Goff
Tim J. Goff
President
BARGO ENERGY COMPANY
By: /s/ Tim J. Goff
Tim J. Goff
Manager
BARGO ENERGY RESOURCES, LTD.
By: Bargo Operating Company, Inc., General
Partner
By: /s/ Tim J. Goff
Tim J. Goff
President
BARGO OPERATING COMPANY, INC.
By: /s/ Tim J. Goff
Tim J. Goff
President
/s/ Tim J. Goff
Tim J. Goff
/s/ Thomas Barrow
Thomas Barrow
/s/ James E. Sowell
James E. Sowell
/s/ B. Carl Price
B. Carl Price
/s/ Don. Wm. Reynolds
Don Wm. Reynolds
ENCAP ENERGY CAPITAL FUND III, L.P.
By: EnCap Investments L.C., General Partner
By: /s/ D. Martin Phillips
D. Martin Phillips
Managing Director
ENCAP ENERGY CAPITAL FUND III-B, L.P.
By: EnCap Investments L.C., General Partner
By: /s/ D. Martin Phillips
D. Martin Phillips
Managing Director
BOCP ENERGY PARTNERS, L.P.
By: EnCap Investments L.C., Manager
By: /s/ D. Martin Phillips
D. Martin Phillips
Managing Director
EOS PARTNERS, L.P.
By: /s/ EOS PARTNERS, L.P.
Name:
Title:
EOS PARTNERS SBIC, L.P.
By: Eos SBIC General, L.P., its general partner
By: Eos SBIC, Inc., its general partner
By: /s/ EOS PARTNERS SBIC, L.P.
Name:
Title:
EOS PARTNERS SBIC II, L.P.
By: Eos SBIC General II, L.P., its general
partner
By: Eos SBIC II, Inc., its general partner
By: /s/ EOS PARTNERS SBIC II, L.P.
Name:
Title:
SGC PARTNERS II LLC
By: /s/ V. Frank Pottow
V. Frank Pottow
Managing Director
BANCAMERICA CAPITAL INVESTORS SBIC I,
L.P.
By: BancAmerica Capital Management SBIC I, LLC,
its general partner
By: BancAmerica Capital Management I, L.P.,
its sole member
By: BACM I GP, LLC, its general partner
By: /s/ J. Travis Hain
J. Travis Hain
Managing Director
KAYNE ANDERSON ENERGY FUND, L.P.
By: /s/ KAYNE ANDERSON ENERGY FUND, L.P
Name:
Title:
<PAGE>
EXHIBIT 5(a)
Shareholder Number of Shares Number of
of Stock Preferred
Shares
____________________________________________________________________________
B. Carl Price ...........................1,126,869 0
Don Wm. Reynolds ........................ 753,362 0
Energy Capital Investment Company PLC ...4,241,598 0
EnCap Equity 1994 Limited Partnership ...2,424,973 0
TJG Investments, Inc. ...................1,255,000 0
Bargo Energy Company ....................7,078,333 0
Tim J. Goff .............................8,406,667 0
Thomas Barrow ...........................8,666,667 0
James E. Sowell .........................8,666,666 0
Bargo Operating Company ................. 260,000 0
Bargo Energy Resources, Ltd. ............4,694,859 0
EnCap Energy Capital Fund III-B, L.P. ...4,222,999 481,904
BOCP Energy Partners, L.P. ..............1,366,277 155,911
EnCap Energy Capital Fund III, L.P. .....5,583,755 637,185
Kayne Anderson Energy Fund, L.P. ........8,763,162 1,000,000
BancAmerica Capital Investors
SBIC I, L.P. .......................13,144,743 1,500,000
Eos Partners, L.P. ..................... 328,619 37,500
Eos Partners SBIC, L.P. .................3,417,633 390,000
Eos Partners SBIC II, L.P. .............. 635,329 72,500
SGC Partners II LLC ....................4,381,581 500,000
EXHIBIT A
ADDENDUM AGREEMENT
Addendum Agreement made this ____ day of ________, ____, by and between
____________________________________________ (the "New Shareholder") and
Bargo Energy Company, a Texas corporation (the "Company"), and the other
shareholders (the "Shareholders") of the Company, who are parties to that
certain Second Amended and Restated Shareholders' Agreement dated May ,
1999 (the "Agreement"), between the Company and the Shareholders.
W I T N E S E T H:
WHEREAS, the Company and the Shareholders entered into the Agreement to
impose certain restrictions and obligations upon themselves and the shares of
Common Stock, $0.01 par value, and Preferred Stock of the Company held by
them (the "Shares");
WHEREAS, the New Shareholder is desirous of becoming a shareholder of
the Company; and
WHEREAS, the Company and the Shareholders have required in the Agreement
that in certain circumstances certain persons being offered Shares must enter
into an Addendum Agreement binding the New Shareholder to the Agreement to
the same extent as if it was an original party thereto, so as to promote the
mutual interests of the Company, the Shareholders and the New Shareholders by
imposing the same restrictions and obligations on the New Shareholder and the
shares of Common Stock and/or Preferred Stock, as applicable, to be acquired
by it as were imposed upon the Shareholders under the Agreement;
NOW, THEREFORE, in consideration of the mutual promises of the parties,
and as a condition of the purchase of the shares of Common Stock in the
Company, the New Shareholder acknowledges that it has read the Agreement.
The New Shareholder shall be bound by, and shall have the benefit of, all the
terms and conditions set out in the Agreement to the same extent as if it was
a "Shareholder" as defined in the Agreement. This Addendum Agreement shall
be attached to and become a part of the Agreement.
New Shareholder
By____________________________
Address for notices under
Section 9 of Agreement:
EXHIBIT B
ARBITRATION
In the event that a dispute or controversy as described in Section 4(a)
or 4(f) should arise, such dispute or controversy shall be settled in
arbitration in Houston, Texas and for this purpose each of the parties hereby
expressly consents to such arbitration in such place. In the event the
parties cannot mutually agree upon an arbitrator to settle their dispute or
controversy, each party to the dispute shall select one arbitrator. In the
event that there are only two parties to the dispute, the arbitrators
selected by each party shall select a third arbitrator. The decision of said
arbitrators shall be binding upon the parties for all purposes. If any party
fails to select an arbitrator within 15 days after written demand from the
other party or parties to do so, or if, in the event that there are only two
parties to the dispute, the two arbitrators selected fail to select a third
arbitrator within 15 days after the last of such selected arbitrators is
appointed, such other arbitrator or arbitrators shall be selected pursuant to
the then existing rules and regulations of the American Arbitration
Association. Such arbitration shall be conducted in accordance with the then
existing rules and regulations of the American Arbitration Association to the
extent such rules and regulations are not inconsistent with this Agreement.
The expense of each arbitrator shall be borne by the party selecting the
arbitrator. The expense of any third arbitrator shall be borne equally by
the two parties to the dispute or controversy. For purposes hereof, in the
case of a dispute or controversy where the Offering Notice or Preferred
Offering Notice, as applicable, was submitted by, or the transaction
otherwise involves, more than one Selling Shareholder or Selling Preferred
Shareholder, all such selling Shareholders shall collectively constitute a
single party. Likewise, where the transaction involves more than one
purchasing Shareholder, all such purchasing Shareholders shall constitute a
single party.
<PAGE>
EXHIBIT 10.2
SECOND AMENDMENT TO
REGISTRATION RIGHTS AGREEMENT
This SECOND AMENDMENT TO REGISTRATION RIGHTS AGREEMENT ("Amendment") is
made and entered into this 14th day of May, 1999, by and among Bargo Energy
Company, a Texas corporation (the "Company"), Energy Capital Investment Company
PLC, an English investment company ("Energy PLC"), EnCap Equity 1994 Limited
Partnership, a Texas limited partnership ("EnCap LP"), EnCap Energy Capital
Fund III-B, L.P., a Texas limited partnership ("EnCap III-B"), BOCP Energy
Partners, L.P., a Texas limited partnership ("BOCP"), EnCap Energy Capital Fund
III, L.P., a Texas limited partnership ("EnCap III"), Kayne Anderson Energy
Fund, L.P., a Delaware limited partnership ("Kayne"), BancAmerica Capital
Investors SBIC I, L.P., a Delaware limited partnership ("BACI"), Eos Partners,
L.P., a Delaware limited partnership ("Eos Partners"), Eos Partners SBIC, L.P.,
a Delaware limited partnership ("Eos SBIC"), Eos Partners SBIC II, L.P., a
Delaware limited partnership ("Eos SBIC II" and together with Eos Partners and
Eos SBIC, collectively referred to as "EOS"), and SGC Partners II
LLC, a Delaware limited liability company ("SGCP"), and evidences the following:
RECITALS:
A. The Company (as successor by merger to Future Petroleum Corporation,
a Utah corporation), Energy PLC and EnCap LP entered into a Registration Rights
Agreement on August 14, 1998, as amended by a First Amendment to Registration
Rights Agreement dated December 15, 1998 (as amended, the "Agreement"), covering
shares of Common Stock (as defined in the Agreement) issued to Energy PLC and
EnCap LP;
B. Energy PLC, EnCap III-B, BOCP, EnCap III, Kayne, BACI, EOS and SGCP
(collectively, the "Investors") are parties, along with the Company, to that
certain Stock Purchase Agreement dated May 14, 1999 ("Purchase Agreement"),
pursuant to which the Investors will be issued 43,815,810 shares
of Common Stock (the "New Common Shares");
C. The parties to the Agreement desire to amend the Agreement to cover
the New Common Shares and to make certain other changes.
AGREEMENT:
NOW, THEREFORE, for and in consideration of the foregoing Recitals and the
mutual covenants contained herein, the sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, do hereby agree
as follows:
Section 1. Amendments to the Agreement.
(a) Section 1(a) of the Agreement is amended as follows:
Clause (i) of the first line in the definition of "Registrable
Securities" shall be replaced with:
"(i) the Fund I Shares and the New Common Shares and"
There shall be added to Section 1(a) a definition of "New Common Shares" as
follows:
<PAGE>
" `New Common Shares' shall mean all the shares of Common Stock issued by the
Company pursuant to that certain Stock Purchase Agreement dated May 14, 1999 by
and among the Company, Energy Capital Investment Company PLC, an English
investment company ("Energy PLC"), EnCap Energy Capital Fund III-B, L.P., a
Texas limited partnership ("EnCap III-B"), BOCP Energy Partners,
L.P., a Texas limited partnership ("BOCP"), EnCap Energy Capital Fund III, L.P.,
a Texas limited partnership ("EnCap III"), Kayne Anderson Energy Fund, L.P., a
Delaware limited partnership ("Kayne"), BancAmerica Capital Investors SBIC I,
L.P., a Delaware limited partnership ("BACI"), Eos Partners, L.P., a Delaware
limited partnership ("Eos Partners"), Eos Partners SBIC, L.P., a Delaware
limited partnership ("Eos SBIC"), Eos Partners SBIC II, L.P., a Delaware limited
partnership ("Eos SBIC II" and together with Eos Partners and Eos SBIC,
collectively referred to as "EOS"), and SGC Partners II LLC, a Delaware limited
liability company ("SGCP")."
(b) In Section 12(e), "If to Energy PLC or EnCap LP:" shall be replaced
with:
"If to Energy PLC, EnCap LP, EnCap III-B, BOCP or EnCap III:"
(c) There shall be added to Section 12(e) the following:
"If to Kayne:
Kayne Anderson Investment Management
1800 Ave. of the Stars, # 1425
Los Angeles, California 90067
Telecopier No.: 310-284-6490
Attention: Robert B. Sinnott
If to BACI:
Bank of America Capital Investors
100 North Tryon Street, 25th Floor
Charlotte, North Carolina 28255
Telecopier No.: 704-386-6432
Attention: J. Travis Hain
If to EOS:
EOS Partners, L.P.
320 Park Avenue
New York, New York 10022
Telecopier No.: 212-832-5815
Attention: Brian D. Young
If to SGCP:
SGC Partners II LLC
c/o SG Capital Partners, LLC
1221 Avenue of the Americas, 15th Floor
New York, NY 10020
Attention: V. Frank Pottow
Fax No.: 212-278-5454"
<PAGE>
Section 2. Binding Effect. Each of EnCap III-B, BOCP, EnCap III,
Kayne, BACI, EOS and SGCP by execution of this Amendment shall be bound by and
subject to the terms and conditions of the
Agreement, as amended by this Amendment.
Section 3. No Other Changes. Except as explicitly amended by this
Amendment, the terms, conditions, rights and obligations under the Agreement
shall remain in full force and effect.
Section 4. Consents. The Company represents and warrants that no
consent, approval, order, or authorization of, or declaration, filing, or
registration with, any party is required to be obtained or made in connection
with the execution, delivery, or performance by the Company of the
Agreement, as amended by this Amendment, or the consummation by it of the
transactions contemplated hereby or thereby, other than those consents that have
been received by the Company as of the date hereof and requisite filings and
registrations with, and orders of, the Commission.
Section 5. Counterparts. This Amendment 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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth above.
BARGO ENERGY COMPANY
By: /s/ Tim J. Goff
Name: Tim J. Goff
Title: Tim J. Goff
ENCAP EQUITY 1994 LIMITED PARTNERSHIP
By: EnCap Investments L.C., General Partner
By: /s/ D. Martin Phillips
D. Martin Phillips
Managing Director
ENERGY CAPITAL INVESTMENT COMPANY PLC
By: /s/ Gary R. Petersen
Gary R. Petersen
Director
ENCAP ENERGY CAPITAL FUND III, L.P.
By: EnCap Investments L.C., General Partner
By: /s/ D. Martin Phillips
D. Martin Phillips
Managing Director
ENCAP ENERGY CAPITAL FUND III-B, L.P.
By: EnCap Investments L.C., General Partner
By: /s/ D. Martin Phillips
D. Martin Phillips
Managing Director
BOCP ENERGY PARTNERS, L.P.
By: EnCap Investments L.C., Manager
By: /s/ D. Martin Phillips
D. Martin Phillips
Managing Director
EOS PARTNERS, L.P.
By: /s/ EOS PARTNERS, L.P.
Name:
Title:
EOS PARTNERS SBIC, L.P.
By: Eos SBIC General, L.P., its general partner
By: Eos SBIC, Inc., its general partner
By: /s/ EOS PARTNERS SBIC, L.P.
Name:
Title:
EOS PARTNERS SBIC II, L.P.
By: Eos SBIC General II, L.P., its general partner
By: Eos SBIC II, Inc., its general partner
By: /s/ EOS PARTNERS SBIC II, L.P.
Name:
Title:
SGC PARTNERS II LLC
By: /s/ V. Frank Pottow
V. Frank Pottow
Managing Director
BANCAMERICA CAPITAL INVESTORS SBIC I,
L.P.
By: BancAmerica Capital Management SBIC I, LLC,
its general partner
By: BancAmerica Capital Management I, L.P., its
its sole member
By: BACM I GP, LLC, its general partner
By: /s/ J. Travis Hain
J. Travis Hain
Managing Director
KAYNE ANDERSON ENERGY FUND, L.P.
By: /s/ KAYNE ANDERSON ENERGY FUND, L.P.
Name:
Title:
<PAGE>
EXHIBIT 10.3
Consent to Amendment to
Registration Rights Agreement
Reference is hereby made to (i) that certain Registration Rights
Agreement made and entered into as of the 14th day of August, 1998, as amended
by that certain First Amendment to Registration Rights Agreement made and
entered into as of the 15th day of December, 1998 by and among Bargo Energy
Company, a Texas corporation and successor by merger to Future Petroleum
Corporation, a Utah corporation (the "Company"), Bargo Energy Resources, Ltd.,
a Texas limited partnership, TJG Investments, Inc., a Texas corporation, Bargo
Energy Company, a Texas general partnership, Tim J. Goff, Thomas Barrow, James
E. Sowell, and Bargo Operating Company, Inc., a Texas corporation (as amended,
the "Bargo Registration Rights Agreement"), and (ii) that certain Registration
Rights Agreement made and entered into as of the 14th day of August, 1998, as
amended by that certain First Amendment to Registration Rights Agreement made
and entered into as of the 15th day of December, 1998 by and among the
Company, Carl Price, Don Wm. Reynolds, Christie Price, Robert Price and
Charles D. Laudeman (as amended, the "Price Registration Rights Agreement").
RECITALS:
A. The Company, Energy Capital Investment Company PLC, an English
investment company ("Energy PLC"), and EnCap Equity 1994 Limited Partnership,
a Texas limited partnership ("EnCap LP"), entered into a Registration Rights
Agreement on August 14, 1998, as amended by a First Amendment to Registration
Rights Agreement dated December 15, 1998 (as amended, the "EnCap Registration
Rights Agreement"), covering shares of Common Stock (as defined in the EnCap
Registration Rights Agreement) issued to Energy PLC and EnCap LP;
B. Energy PLC, EnCap Energy Capital Fund III-B, L.P., a Texas limited
partnership, BOCP Energy Partners, L.P., a Texas limited partnership, EnCap
Energy Capital Fund III, L.P., a Texas limited partnership, Kayne Anderson
Energy Fund, L.P., a Delaware limited partnership, BancAmerica Capital
Investors SBIC I, L.P., a [*Delaware?*] limited partnership, Eos Partners,
L.P., a Delaware limited partnership, Eos Partners SBIC, L.P., a Delaware
limited partnership, Eos Partners SBIC II, L.P., a Delaware limited
partnership, and SGC Partners II LLC, a Delaware limited liability company
(collectively, the "Investors") are parties, along with the Company, to that
certain Stock Purchase Agreement dated May 14, 1999, pursuant to which the
Investors will be issued shares of Common Stock (the "New Common Shares");
C. The parties to the EnCap Registration Rights Agreement desire to
amend such agreement to cover the New Common Shares and to make certain other
changes.
<PAGE>
D. The parties to this Consent desire to consent to and permit such
amendments to the EnCap Registration Rights Agreement;
NOW, THEREFORE, the undersigned consent to the above-referenced amendment
to the EnCap Registration Rights Agreement, as evidenced by that certain
Second Amendment to Registration Rights Agreement among the Company and the
other parties listed in Recital B hereof.
This Consent 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.
IN WITNESS WHEREOF, the parties hereto have executed this Consent effective
as of May 14, 1999 .
TJG INVESTMENTS, INC.
By: /s/ Tim J. Goff
Tim J. Goff
President
BARGO ENERGY COMPANY
By: /s/ Tim J. Goff
Tim J. Goff
Manager
<PAGE>
BARGO ENERGY RESOURCES,
LTD.
By: Bargo Operating Company, Inc.
General Partner
By: /s/ Tim J. Goff
Tim J. Goff
President
BARGO OPERATING COMPANY,
INC.
By: /s/ Tim J. Goff
Tim J. Goff
President
/s/ Tim J. Goff
Tim J. Goff
/s/ Thomas Barrow
Thomas Barrow
/s/ James E. Sowell
James E. Sowell
/s/ B. Carl Price
B. Carl Price
/s/ Don Wm. Reynolds
Don Wm. Reynolds
/s/ Christie Price
Christie Price
/s/ Robert Price
Robert Price
/s/ Charles D. Laudeman
Charles D. Laudeman
<PAGE>
EXHIBIT 10.4
AMENDMENT NO. 1 TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDMENT NO. 1 TO AMENDED AND RESTATED CREDIT AGREEMENT
(this "Amendment No. 1"), dated as of May 14, 1999, between BARGO
ENERGY COMPANY, a Texas corporation, successor-by-merger to FUTURE
PETROLEUM CORPORATION, a Utah corporation (the "Borrower"), and BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a national banking
association (the "Lender").
W I T N E S S E T H:
WHEREAS, the Borrower and the Lender are parties to the Amended and
Restated Credit Agreement dated as of December 4, 1998 (such agreement,
as amended from time to time, hereinafter referred to as the "Existing
Credit Agreement"); and
WHEREAS, the Borrower has requested that certain amendments be made
to the Existing Credit Agreement; and
WHEREAS, the Lender is willing to make certain amendments to the
Existing Credit Agreement on the terms and conditions hereinafter
provided;
NOW, THEREFORE, in consideration of the agreements herein
contained, the parties hereto hereby agree as follows:
<PAGE>
I. ARTICLE
DEFINITIONS
SECTION 1.1 Certain Definitions. The following terms
(whether or not underscored) when used in this Amendment No. 1 shall
have the following meanings:
"Amended Credit Agreement" means the Existing Credit Agreement as
amended by this Amendment No. 1.
"Amendment No. 1 Effective Date" has the meaning provided in
Section 4.1.
SECTION 1.2 Other Definitions. Unless otherwise defined or
the context otherwise requires, terms used herein (including in the
preamble and recitals hereto) have the meanings provided for in the
Existing Credit Agreement.
II. ARTICLE
AMENDMENTS TO
EXISTING CREDIT AGREEMENT
Effective on the Amendment No. 1 Effective Date, the Existing
Credit Agreement is amended in accordance with the terms of this Article
II; except as so amended, the Existing Credit Agreement shall continue
to remain in all respects in full force and effect.
SECTION 2.1 Amendment to Preamble, etc. The preamble of the
Existing Credit Agreement is amended by deleting the existing preamble
and inserting in its place the following:
"THIS AMENDED AND RESTATED CREDIT AGREEMENT, dated as of
December 4, 1998, between BARGO ENERGY COMPANY, a Texas
corporation and successor-by-merger to FUTURE PETROLEUM
CORPORATION, a Utah corporation (the "Borrower") and BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a national banking
association (the "Lender")," and by changing the name of the Borrower from
"Future Petroleum Corporation" to "Bargo Energy Company, a Texas corporation"
each place where it appears in the Credit Agreement.
SECTION 2.2 Amendments to Section 1.1.
1. A new definition of "Amendment No. 1 Effective Date" is
inserted in alphabetical order in Section 1.1 of the Existing Credit
Agreement as follows:
"Amendment No. 1 Effective Date" shall have the meaning
assigned to such term in Section 4.1 of the Amendment No. 1
to Amended and Restated Credit Agreement dated as of May 14,
1999, between Borrower and Lender."
2. The definition of "Change in Control" in the Existing Credit
Agreement is amended by deleting the existing definition and inserting
in its place the following:
A 'Change in Control' means (a) if Tim J. Goff, EnCap
Equity 1994 Limited Partnership, Energy Capital Investment
Company PLC, EnCap Energy Capital Fund III, L.P., EnCap
Energy Capital Fund III-B, L.P., and BOCP Energy Partners,
L.P., directly or indirectly, shall fail to collectively own
at least 30% of the outstanding capital stock of the
Borrower, on a fully diluted basis, or (b) if the Borrower
ceases to own beneficially and of record 100% of the capital
stock of each of Future Texas, Future Nevada and Future
California, or (c) if Future Texas or Future Nevada ceases
to own beneficially and of record 100% of the general
partner and limited partner interests, respectively, in the
Partnership Subsidiaries."
SECTION 2.3 Amendments to Section 8.1.8. Section 8.1.8 of
the Existing Credit Agreement is amended by deleting the text of the
existing Section and inserting in its place the following: "[Not Used.]"
SECTION 2.4 Amendments to Certain Exhibits and Schedules.
1. Schedule I to the Existing Credit Agreement is deleted
and a new Schedule I in the form shown in Schedule I hereto is inserted
in its place.
2. Exhibit A to the Existing Credit Agreement is deleted
and a new Exhibit A in the form shown in Exhibit A hereto is inserted in
its place.
III. ARTICLE
REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to make the amendments provided for
in Article II, the Borrower hereby:
1. acknowledges and agrees that, immediately prior to the
Amendment No. 1 Effective Date, the aggregate outstanding principal
amount of all Tranche A Loans is $30,900,000 and the aggregate
outstanding principal amount of all Tranche B Loans is $9,600,000;
2. represents and warrants that the Borrower has full power
and authority to execute, deliver and perform its obligations under this
Amendment No. 1 and all other Loan Documents delivered to the Lender in
connection herewith, and this Amendment No. 1 and all such Loan
Documents are the legally valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective
terms;
3. represents and warrants, that each of the
representations and warranties contained in the Existing Credit
Agreement and in the other Loan Documents is true and correct as of the
date hereof as if made on the date hereof (except, if any such
representation and warranty relates to an earlier date, such
representation and warranty shall be true and correct in all material
respects as of such earlier date) and the Borrower has performed each of
the covenants and agreements in the Existing Credit Agreement and the
other Loan Documents required to be performed by the Borrower as of the
date hereof; and
4. represents and warrants that there is no Default or
Event of Default by the Borrower or any other Obligor under the Existing
Credit Agreement or any other Loan Document and no event exists which,
with the giving of notice or the passage of time or both, would give
rise to a Default or Event of Default by the Borrower or any other
Obligor under the Existing Credit Agreement or any Loan Document.
IV. ARTICLE
CONDITIONS TO EFFECTIVENESS
SECTION 4.1 Effective Date. This Amendment No. 1 shall
become effective on May 14, 1999, or, if later, the date (herein called
the "Amendment No. 1 Effective Date") when the conditions set forth in
this Section 4.1 have been satisfied.
1. Execution of Counterparts. The Lender shall have
received counterparts of this Amendment No. 1 duly executed and
delivered on behalf of the Borrower and the Lender.
2. Delivery of Replacement Note. The Lender shall have
received an Amended and Restated Secured Promissory Note (being one of
the Notes), substantially in the form of Exhibit A hereto, duly executed
and delivered by the Borrower.
3. Fees, Expenses, etc. The Lender shall have received all
reasonable costs and expenses due and payable pursuant to Sections 3.3
and 10.3 of the Existing Credit Agreement, if then invoiced, including
fees and expenses of counsel to the Lender.
4. Legal Details, etc. All documents executed or submitted
pursuant hereto, and all legal matters incident thereto, shall be
satisfactory in form and substance to the Lender and its counsel.
SECTION 4.2 Expiration. If all of the conditions set forth
in Section 4.1 hereof shall not have been satisfied on or prior to May
31, 1999, the agreements of the parties contained in this Amendment No.
1 shall, unless otherwise agreed by the Lender, terminate effective
immediately on such date and without further action.
V. ARTICLE
COVENANTS OF THE BORROWER
SECTION 5.1 On or before July 31, 1999, the Borrower shall
deliver to the Lender amendments and modifications to the existing
Security Documents, including amendments to financing statements,
reflecting the change in the Borrower's name, as the Lender may
reasonably request, all of which shall be satisfactory in form,
substance and scope to the Lender.
VI. ARTICLE
MISCELLANEOUS
SECTION 6.1 Loan Document Pursuant to Existing Credit
Agreement. This Amendment No. 1 is a Loan Document executed pursuant to
the Existing Credit Agreement. Except as expressly amended or waived
hereby, all of the representations, warranties, terms, covenants and
conditions contained in the Existing Credit Agreement and each other
Loan Document shall remain unamended and in full force and effect. The
amendments set forth herein shall be limited precisely as provided for
herein and shall not be deemed to be a waiver of, amendment of, consent
to or modification of any other term or provision of the Existing Credit
Agreement or of any term or provision of any other Loan Document or of
any transaction or further or future action on the part of the Borrower
or which would require the consent of the Lender under the Existing
Credit Agreement or any other Loan Document.
SECTION 6.2 Counterparts, etc. This Amendment No. 1 may be
executed by the parties hereto in several counterparts, each of which
shall be deemed to be an original and all of which shall constitute
together but one and the same agreement with the same effect as if all
parties hereto had signed the same signature page. Any signature page
of this Amendment No. 1 may be detached from any identical counterpart
of this Amendment No. 1 having attached to it one or more additional
signature pages.
SECTION 6.3 GOVERNING LAW; ENTIRE AGREEMENT. THIS AMENDMENT
NO. 1 SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF ILLINOIS.
<PAGE>
SECTION 6.4 Titles and Headings. The titles and headings of
the Sections of this Amendment No. 1 are intended for convenience only
and shall not in any way affect the meaning or construction of any
provision of this Amendment No. 1.
SECTION 6.5 Changes and Modifications in Writing. No
provision of this Amendment No. 1 may be changed or modified except by
an instrument in writing signed by the party against whom enforcement of
the change or modification is sought.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
No. 1 to be executed by their respective officers hereunto duly
authorized as of the day and year first above written.
BORROWER
BARGO ENERGY COMPANY, a Texas
corporation, successor-by-merger
to FUTURE PETROLEUM CORPORATION,
a Utah corporation
By: /s/ Tim J. Goff
Title: President
LENDER
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By: /s/ BANK OF AMERICA NATIONAL
Title:
<PAGE>
EXHIBIT 10.5
AMENDED AND RESTATED
SECURED PROMISSORY NOTE
$50,000,000.00 May 14, 1999
FOR VALUE RECEIVED, the undersigned, BARGO ENERGY COMPANY, a Texas corporation,
and successor-by-merger to Future Petroleum Corporation, a Utah corporation (the
"Borrower"), promises to pay to the order of BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, a national banking association (the "Lender") on December
4, 2003, the principal sum of FIFTY MILLION DOLLARS ($50,000,000.00) or, if
less, the aggregate unpaid principal amount of all Loans shown on the schedule
attached hereto (and any continuation thereof) made by the Lender pursuant to
that certain Amended and Restated Credit Agreement, dated as of December 4,
1998, as amended by that certain Amendment No. 1 to Amended and Restated Credit
Agreement dated as of May 14, 1999 (together with all amendments and other
modifications, if any, from time to time thereafter made thereto, the "Credit
Agreement"), among the Borrower and the Lender.
The Borrower also promises to pay interest on the unpaid principal amount hereof
from time to time outstanding from the date hereof until maturity (whether by
acceleration or otherwise) and, after maturity, until paid, at the rates per
annum and on the dates specified in the Credit Agreement.
<PAGE>
Payments of both principal and interest are to be made in lawful money of the
United States of America in same day or immediately available funds to the
account designated by the Lender pursuant to the Credit Agreement.
This Note amends, restates and consolidates in their entirety those Notes
previously made and given by the Borrower to the Lender as described in the
Credit Agreement, including without limitation that certain Amended and Restated
Secured Promissory Note dated as of December 4, 1998, from Future Petroleum
Corporation.
This Note is one of the Notes referred to in, and evidences Indebtedness
incurred under, the Credit Agreement, to which reference is made for a
description of the security for this Note and for a statement of the terms and
conditions on which the Borrower is permitted and required to make
prepayments and repayments of principal of the Indebtedness evidenced by this
Note and on which such Indebtedness may be declared to be immediately due and
payable. Unless otherwise defined, terms used herein have the meanings provided
in the Credit Agreement.
Except for notices to the Borrower as required by Section 9.3 of the Credit
Agreement, all parties hereto, whether as makers, endorsers, or otherwise,
severally waive presentment for payment, demand, protest and notice of dishonor.
THIS NOTE HAS BEEN DELIVERED IN CHICAGO, ILLINOIS AND SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF ILLINOIS.
BARGO ENERGY COMPANY, a Texas corporation, successor-by-merger to
Future Petroleum Corporation, a Utah corporation
By: /s/ Tim J. Goff
Name: Tim J. Goff
Title: President
<PAGE>
EXHIBIT 10.6
CONSENT AND AGREEMENT
THIS CONSENT AND AGREEMENT (this "Consent") dated as of May 14, 1999, is
by and between BARGO ENERGY COMPANY, a Texas corporation and successor-by-
merger to Future Petroleum Corporation, a Utah corporation ("Borrower") and
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a national banking
association ("Lender"), with respect to the following recitals:
RECITALS:
A. Pursuant to that certain Amended and Restated Credit Agreement
dated as of December 4, 1998, between Borrower and Lender (the "Credit
Agreement"), Lender agreed to make loans to Borrower in an aggregate principal
amount not to exceed $50,000,000. Capitalized terms used in this Consent but
not expressly defined herein shall have the respective meanings given to them
in the Credit Agreement.
B. Borrower's obligations under the Credit Agreement are secured by,
among other things, certain real and personal property more particularly
described in the Mortgages and the other Loan Documents.
C. Each of Future Cal-Tex Corporation, a Texas corporation ("Future
California"), Future Petroleum Corporation, a Texas corporation ("Future
Texas"), Future Energy Corporation, a Nevada corporation ("Future Nevada"),
Future Acquisition 1995, Ltd., a Texas limited partnership, BMC Development
No. 1 Limited Partnership, a Texas limited partnership, NCI Shawnee Limited
Partnership, a Texas limited partnership (each, a "Guarantor" and
collectively, "Guarantors") have executed and delivered to Lender a certain
Guaranty dated as of August 14, 1998, and a certain Ratification of Guaranty
dated as of December 4, 1998 (each, together with all amendments, supplements,
modifications thereto and restatements thereof, a "Guaranty" and collectively,
"Guaranties").
D. Each of EnCap Equity 1994 Limited Partnership, a Texas limited
partnership, Energy Capital Investment Company PLC, an English investment
company, Bargo Energy Resources, Ltd., a Texas limited partnership, Carl
Price, an individual, Borrower, Future Texas and Future Nevada (each, a
"Pledgor" and collectively, "Pledgors") have executed and delivered to Lender
a certain Pledge Agreement dated as of August 14, 1998, and a certain
Ratification of Pledge Agreement dated as of December 4, 1998 (each, together
with all amendments, supplements, modifications thereto and restatements
thereof, a "Pledge Agreement" and collectively, the "Pledge Agreements").
E. Various parties (collectively, "Purchasers") and certain
shareholders of Borrower wish to enter into a transaction whereby Purchasers
would acquire certain shares of the Borrower's Cumulative Redeemable Preferred
Stock, Series B and certain shares of the Borrower's common stock (such
transactions collectively referred as the "Acquisition").
F. The consummation of the Acquisition would violate Section 9.1.8
(Change of Control) and Section 8.2.10 (amendment to Organic Documents) of the
Credit Agreement.
<PAGE>
G. Borrower has requested that Lender consent to the consummation of
the Acquisition and, subject to certain conditions, Lender is prepared to
grant such consent.
NOW, THEREFORE, in consideration of the foregoing recitals, the
agreements set forth herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
mutually agree as follows:
1. Consent to Acquisition. Lender hereby consents to the
Acquisition (on the terms and conditions set forth in that certain Stock
Purchase Agreement among Purchasers and Borrower dated May 14, 1999 (the
"Acquisition Agreement") and on which Lender has relied), and hereby waive any
violation of Section 9.1.8 and Section 8.2.10 of the Credit Agreement that
would result from the consummation of the Acquisition, such consent and waiver
to become effective upon satisfaction, in Lender's reasonable discretion, of
each of the following conditions:
1.1 Lender shall have received from Borrower an original
counterpart of a certificate, executed by Borrower, substantially in the
form of Exhibit A hereto.
1.2 Lender shall have received from Borrower a true and
correct copy of the Acquisition Agreement and each of the material
documents involved in the Acquisition, and no amendment to or
modification of such documents shall have been executed or agreed to by
Borrower.
1.3 Nothing in the terms and conditions of the Acquisition
shall conflict with, violate or be inconsistent in any way with the
terms and conditions of the Credit Agreement, as amended by this Consent
and Amendment No. 1 (defined below), or the other Loan Documents, and
Lender shall have received an original certificate, executed by each of
Borrower and Guarantors, to such effect.
1.4 There shall not have occurred any Default or Event of
Default by Borrower or any other Obligor under the Credit Agreement or
any other Loan Document and no event shall exist which, with the giving
of notice or the passage of time or both, would give rise to an Default
or Event of Default by Borrower or any other Obligor under the Credit
Agreement or any Loan Document.
2. Amendment No. 1. Contemporaneously with the execution and
delivery of this Consent, Borrower has delivered to the Lender counterparts of
Amendment No. 1 to Amended and Restated Credit Agreement, substantially in the
form of Exhibit B hereto ("Amendment No. 1"), fully executed by Borrower.
3. Reference to Credit Agreement. Whenever Borrower and/or Lender
use the defined term "Credit Agreement" in any other document, instrument,
agreement or writing, such references shall be deemed to refer to the Credit
Agreement as amended hereby and by Amendment No. 1.
4. Continuing Force and Effect. Except as amended hereby and by
Amendment No. 1, the Credit Agreement shall remain unmodified and in full
force and effect. The parties hereby ratify and confirm the Credit Agreement,
as amended concurrently herewith.
5. Borrower's Representations and Warranties. Borrower hereby
represents and warrants as follows:
<PAGE>
5.1 The execution and delivery of this Consent, and the
performance by Borrower of its obligations hereunder, are within
Borrower's corporate powers, have been duly authorized by all necessary
corporate action, have received all necessary governmental approval (if
any shall be required), and do not and will not contravene or conflict
with any provision of law or of the articles of incorporation or by-laws
of Borrower or of any agreement binding upon Borrower;
5.2 Borrower has full power and authority to execute, deliver
and perform its obligations under this Consent and all other Loan
Documents delivered to Lender in connection herewith, and this Consent
and all such Loan Documents are the legal, valid and binding obligations
of Borrower, enforceable against Borrower in accordance with their
respective terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally and by principles of equity;
5.3 The representations and warranties made and given by
Borrower in the Credit Agreement and the other Loan Documents are true
and correct as of the date hereof (except, if any such representation
and warranty relates to an earlier date, such representation and
warranty shall be true and correct in all material respects as of such
earlier date) and Borrower has performed each of the covenants and
agreements in the Credit Agreement and the other Loan Documents required
to be performed by Borrower as of the date hereof; and
5.4 There is no default or Event of Default by Borrower or any
other Obligor under the Credit Agreement or any other Loan Document and
no event exists which, with the giving of notice or the passage of time
or both, would give rise to an default or Event of Default by Borrower
or any other Obligor under the Credit Agreement or any Loan Document.
6. Counterparts. This Consent may be executed in any number of
counterparts. Each counterpart shall be deemed an original and all
counterparts shall be deemed the same instrument with the same effect as if
all parties hereto had signed the same signature page. Any signature page of
this Consent may be detached from any identical counterpart of this Consent
having attached to it one or more additional signature pages.
7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS.
8. Titles and Headings. The titles and headings of the Sections of
this Consent are intended for convenience only and shall not in any way affect
the meaning or construction of any provision of this Consent.
9. Changes and Modifications In Writing. No provision of this
Consent may be changed or modified except by an instrument in writing signed
by the party against whom enforcement of the change or modification is sought.
<PAGE>
IN WITNESS WHEREOF, the duly authorized representatives of the parties
have executed this Consent as of the date first above written.
BORROWER: BARGO ENERGY COMPANY, a Texas corporation, successor-by
merger to Future Petroleum Corporation,
a Utah corporation
By /s/ Tim J. Goff
Name: Tim J. Goff
Title: President
LENDER: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a
national savings association
By /s/ David E. Sisler
Name: David E. Sisler
Title: Vice President
The undersigned Guarantors hereby consent to the foregoing Consent, dated as
of May 14, 1999, all prior amendments to the Credit Agreement and Amendment
No. 1 to Amended and Restated Credit Agreement of even date herewith.
FUTURE CAL-TEX CORPORATION, a Texas 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 ENERGY CORPORATION, a Nevada corporation
By /s/ Carl Price
Name: Carl Price
Title: President
FUTURE ACQUISITION 1995, LTD., a Texas limited partnership
By: FUTURE PETROLEUM CORPORATION, a Texas corporation, its sole general
partner
By /s/ Carl Price
Name: Carl Price
Title: President
<PAGE>
BMC DEVELOPMENT NO. 1 LIMITED PARTNERSHIP, a Texas limited partnership
By: FUTURE PETROLEUM CORPORATION, a Texas corporation, its sole general
partner
By /s/ Carl Price
Name: Carl Price
Title: President
NCI SHAWNEE LIMITED PARTNERSHIP, a Texas limited partnership
By: FUTURE PETROLEUM CORPORATION, a Texas corporation, its sole general
partner
By /s/ Carl Price
Name: Carl Price
Title: President
The undersigned Pledgors hereby consent to the foregoing Consent, dated as of
May 14, 1999, all prior amendments to the Credit Agreement and Amendment No. 1
to Amended and Restated Credit Agreement of even date herewith.
/s/ B. Carl Price
B. Carl Price
ENERGY CAPITAL INVESTMENT COMPANY PLC, an English investment company
By /s/ D. Martin Phillips
Name: D. Martin Phillips
Title: Director
ENCAP EQUITY 1994 LIMITED PARTNERSHIP, a Texas limited partnership
By: ENCAP INVESTMENTS L.C., General Partner
By /s/ D. Martin Phillips
Name: D. Martin Phillips
Title: Managing Director
BARGO ENERGY RESOURCES, LTD., a Texas limited partnership
By: BARGO OPERATING COMPANY, INC., a Texas corporation, its sole general
partner
<PAGE>
By /s/ Tim J. Goff
Name: Tim J. Goff
Title: President
BARGO ENERGY COMPANY, a Texas corporation, successor-by-merger to Future
Petroleum Corporation, a Utah corporation
By /s/ Tim J. Goff
Name: Tim J. Goff
Title: President
FUTURE PETROLEUM CORPORATION, a Texas corporation
By /s/ Carl Price
Name: Carl Price
Title: President
FUTURE ENERGY CORPORATION, a Nevada corporation
By /s/ Carl Price
Name: Carl Price
Title: President
<PAGE>
EXHIBIT A
Form of Certificate from Borrower
EXHIBIT B
Form of Amendment No. 1
<PAGE>
EXHIBIT 10.7
May 14, 1999
Bank of America Capital Investors
100 North Tryon Street, 10th Floor
Charlotte, North Carolina 28255
Attention: J. Travis Hain
EOS Partners, L.P.
320 Park Avenue
New York, New York 10022
Attention: Brian D. Young
SG Capital Partners, LLC
1221 Avenue of the Americas, 13th Floor
New York, NY 10020
Attention: Larry Neubauer
Ladies and Gentlemen:
Reference is made to that certain Stock Purchase Agreement
(the "Purchase Agreement"), dated as of the date hereof, among Bargo
Energy Company, a Texas corporation (the "Company"), BancAmerica Capital
Investors SBIC I, L.P., a Delaware limited partnership ("BACI"), Eos
Partners SBIC, L.P., a Delaware limited partnership ("Eos SBIC"), Eos
Partners SBIC II, L.P., a Delaware limited partnership ("Eos SBIC II"),
SGC Partners II, LLC, a Delaware limited liability company ("Soc Gen",
and together with BACI, Eos SBIC and Eos SBIC II, the "Investors"), and
the other parties identified therein, pursuant to which each Investor is
purchasing shares of the Company's Cumulative Redeemable Preferred
Stock, Series B and Common Stock, $0.01 par value (together, the
"Shares").
Each Investor is a Small Business Investment Company
("SBIC") licensed by the United States Small Business Administration
("SBA"). In order for each Investor to acquire and hold the Shares, it
must obtain from the Company certain representations and rights as set
forth below. As a material inducement to each Investor to enter into
the Purchase Agreement and to purchase the Shares, the Company hereby
makes the following representations and warranties and agrees to comply
with the following covenants:
1. SMALL BUSINESS MATTERS.
(a) The Company, together with its "affiliates"
(as that term is defined in Title 13, Code of Federal Regulations,
121.103), is a "small business concern" within the meaning of the
Small Business Investment Act of 1958, as amended ("SBIA"), and the
regulations thereunder, including Title 13, Code of Federal Regulations,
121.301(c) because it either:
CHECK ONE
X (i) including its affiliates, has a tangible
net worth not in excess of $18 million, and average net income after
Federal income taxes (excluding any carry-over losses) for the preceding
2 completed fiscal years not in excess of $6 million; or
(ii) does not exceed the size standard in
number of employees or millions of dollars under the SIC (Standard
Industrial Classification) System for the industry in which it combined
with its affiliates is primarily engaged; and in which it alone is
primarily engaged.
The information set forth in the Small Business
Administration Forms 480, 652 and Parts A and B of Form 1031 regarding
the Company and its affiliates, when delivered to each Investor, will be
accurate and complete and will be in form and substance acceptable to
each Investor. Copies of such forms shall be completed and executed by
the Company and delivered to each Investor at the closing of the sale of
the Shares under the Purchase Agreement (the "Closing").
(b) The proceeds from the sale of the Shares will
be used by the Company to (1) repay debt, (2) fund working capital
requirements and (3) pay expenses related to the transactions
contemplated by the Purchase Agreement. No portion of such proceeds (i)
will be used to provide capital to a corporation licensed under the
Small Business Investment Act of 1958, as amended ("SBIA"), (ii) will be
used to acquire farm land, (iii) will be used to fund production of a
single item or defined limited number of items, generally over a defined
production period, and such production will constitute the majority of
the activities of the Company and its Subsidiaries (examples include
motion pictures and electric generating plants), or (iv) will be used
for any purpose contrary to the public interest (including, but not
limited to, activities which are in violation of law) or inconsistent
with free competitive enterprise, in each case, within the meaning of 13
C.F.R. 107.720.
(c) Neither the Company's nor any of its
Subsidiaries' primary business activity involves, directly or
indirectly, providing funds to others, the purchase or discounting of
debt obligations, factoring or long-term leasing of equipment with no
provision for maintenance or repair, and neither the Company nor any of
its Subsidiaries is classified under Major Group 65 (Real Estate) of the
SIC Manual. It is the intent of the Company to locate and develop or
acquire new oil and gas reserves at an acceptable cost to replace those
being depleted by production. As long as additional reserves can be
acquired at an acceptable cost, the assets of the business of the
Company and its Subsidiaries (the "Business") will not be reduced or
consumed, generally without replacement, as the life of the Business
progresses, and the nature of the Business does not require that a
stream of cash payments be made to the Business's financing sources, on
a basis associated with the continuing sale of assets (examples of such
businesses would include real estate development projects and oil and
gas wells). (See 13 CFR 107.720)
(d) The proceeds from the sale of the Shares will
not be used substantially for a foreign operation; and at Closing or
within one year thereafter, no more than 49 percent of the employees or
tangible assets of the Company and its Subsidiaries will be located
outside the United States (unless the Company can show, to SBA's
satisfaction, that the proceeds from the sale of the Shares will be used
for a specific domestic purpose). This subsection (d) does not prohibit
such proceeds from being used to acquire foreign materials and equipment
or foreign property rights for use or sale in the United States.
(e) To the best knowledge of the Company, each
SBIC that owns any Securities issued by the Company, together with a
description of the kinds and amounts of Securities held, are listed on
Schedule I hereto. Without unanimous consent of the Investors, the
Company will not issue Securities to any SBIC in the future if such
issuance would cause any Investor to be deemed to be a member of an
"Investor Group" in "Control" of the Company (as such terms are defined
in 13 CFR 107.865).
2. REGULATORY COMPLIANCE.
(a) Regulatory Compliance Cooperation.
(i) In the event that any Investor
reasonably determines that it has a Regulatory Problem, the Company
agrees to take all such actions as are reasonably requested by such
Investor in order (A) to effectuate and facilitate any transfer by such
Investor of any Securities of the Company then held by such Investor to
any Person designated by such Investor, (B) to permit such Investor (or
any of its affiliates) to exchange all or any portion of the voting
Securities then held by such Person on a share-for-share basis for
shares of a class of non-voting Securities of the Company, which non-
voting Securities shall be identical in all respects to such voting
Securities, except that such new Securities shall be non-voting and
shall be convertible into voting Securities on such terms as are
requested by such Investor and reasonably acceptable to the Company in
light of regulatory considerations then prevailing, and (C) to continue
and preserve the respective allocation of the voting interests with
respect to the Company arising out of such Investor's ownership of
voting Securities and/or provided for in the Stockholders Agreement
before the transfers and amendments referred to above (including
entering into such additional agreements as are requested by such
Investor to permit any Person(s) designated by such Investor to exercise
any voting power which is relinquished by such Investor upon any
exchange of voting Securities for nonvoting Securities of the Company).
If such Investor elects to transfer Securities of the Company to a
Regulated Holder in order to avoid a Regulatory Problem, the Company and
such Regulated Holder shall enter into such mutually acceptable
agreements as such Regulated Holder may reasonably request in order to
assist such Regulated Holder in complying with applicable laws and
regulations to which it is subject. Such agreements may include
restrictions on the redemption, repurchase or retirement of Securities
of the Company that would result or be reasonably expected to result in
such Regulated Holder holding more voting securities or total securities
(equity and debt) than it is permitted to hold under such laws and
regulations.
<PAGE>
(ii) In the event any Investor has the right
to acquire any of the Company's Securities under the Stockholders
Agreement (as defined in the Purchase Agreement) and such Investor
reasonably determines that it has a Regulatory Problem, at such
Investor's request the Company will offer to sell to such Investor non-
voting Securities (or, if the Company is not the proposed seller, will
arrange for the exchange of any voting securities for non-voting
securities immediately prior to or simultaneous with such sale) on the
same terms as would have existed had such Investor acquired the
Securities so offered and immediately requested their exchange for non-
voting Securities pursuant to subsection (i) above.
(b) Issuance of Securities.
(i) Each Investor understands that the
Company is a public corporation and does not have a class of common
stock without voting rights. Additionally, the Company is party to
agreements which prohibit it from issuing additional shares of common
stock and preferred stock. The Company's agreement set forth herein is
to use its reasonable efforts, if requested, to amend its articles of
incorporation or secure any consents or approvals required to comply
with reasonable requests made by the Investors under Section 2(a). Such
Investor shall pay or reimburse the Company for all costs and expenses
incurred by the Company to comply with such actions reasonably required
by such Investor (including fees and disbursements of counsel). Nothing
herein shall prohibit the Company from entering into agreements which
prohibit it from or restrict its ability to enter into agreements which
prohibit the Company from effecting the actions set forth in Section
2(a); provided that the Company shall cooperate with such Investor to
restructure its investment to solve any Regulatory Problem as a result
of the foregoing sentence.
(c) Information Rights and Related Covenants.
(i) The Company agrees to provide to each
Investor and the SBA access to its books and records during normal
business hours in a manner which does not disrupt the business
operations of the Company for the purpose of confirming (A) the use of
the proceeds of such financing and (B) the certifications made by the
Company on Small Business Administration Forms 480 and 652.
(ii) The Company agrees to provide to each
Investor and the SBA a certificate of its chief financial officer or
person with similar responsibilities (1) verifying the use of such
proceeds and accuracy of such certifications and (2) certifying
compliance by the Company with the provisions of this Agreement
(provided that such certificate may be truthfully given).
<PAGE>
(iii) Promptly after the end of each fiscal
year (but in any event prior to February 28 of each year), the Company,
at the Company's election, shall either (A) provide to each Investor a
written assessment, in form and substance reasonably satisfactory to
each Investor, or (B) provide to each Investor access to its books and
records so that such Investor may prepare a written assessment, of the
economic impact of such Investor's financing hereunder, specifying the
full-time equivalent jobs created or retained, the impact of the
financing on the consolidated revenues and profits of the Business and
on taxes paid by the Business and its employees (See 13 CFR
107.630(e)).
(iv) If the reports sent to the Company's
stockholders are insufficient to satisfy each Investor's obligations
pursuant to 13 CFR 107.620(b), the Company will provide upon the
request of such Investor or any of its affiliates, such financial
statements and other information as such Person may from time to time
reasonably request for the purpose of assessing the Company's financial
condition.
(v) For a period of one year following the
date hereof, neither the Company nor any of its Subsidiaries will change
its business activity if such change would render the Company ineligible
to receive financial assistance from an SBIC under the SBIA and the
regulations thereunder (within the meanings of 13 CFR 107.720 and
107.760(b)).
(vi) The Company will at all times comply
with the non-discrimination requirements of 13 C.F.R., Parts 112, 113
and 117.
(vii) The number of shareholders of the
Company is greater than 50.
3. DEFINITIONS.
"Control" means, with respect to any Person, the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Person" shall be construed broadly and shall include an
individual, a partnership, a corporation, a limited liability company,
an association, a joint stock company, a trust, a joint venture, an
unincorporated organization or a governmental entity (or any department,
agency or political subdivision thereof).
"Regulated Holder" means any holder of the Company's
Securities that is (or that is a subsidiary of a bank holding company
that is) subject to the various provisions of Regulation Y of the Board
of Governors of the Federal Reserve Systems, 12 C.F.R., Part 225 (or any
successor to Regulation Y).
"Regulatory Problem" means (i) any set of facts or
circumstances wherein it has been asserted by any governmental
regulatory agency (or an Investor believes that there is a significant
risk of such assertion) that such Person (or any bank holding company
that controls such Person) is not entitled to hold, or exercise any
material right with respect to, all or any portion of the Shares of the
Company which such Person holds or (ii) when such Person and its
affiliates would own, control or have power (including voting rights)
over a greater quantity of Shares of the Company than is permitted under
any law or regulation or any requirement of any governmental authority
applicable to such Person or to which such Person is subject.
<PAGE>
"Securities" means, with respect to any Person, such
Person's capital stock or any options, warrants or other Securities
which are directly or indirectly convertible into, or exercisable or
exchangeable for, such Person's capital stock (whether or not such
derivative Securities are issued by the Company). Whenever a reference
herein to Securities refers to any derivative Securities, the rights of
Investor shall apply to such derivative Securities and all underlying
Securities directly or indirectly issuable upon conversion, exchange or
exercise of such derivative Securities.
"Stockholders Agreement" means the Stockholders Agreement
to be entered into on the date of the Closing among the Company and
certain shareholders of the Company.
"Subsidiary" means, with respect to any Person, any other
Person of which the securities having a majority of the ordinary voting
power in electing the board of directors (or other governing body), at
the time as of which any determination is being made, are owned by such
first Person either directly or through one or more of its Subsidiaries.
* * * * *
<PAGE>
Please indicate your acceptance of the terms of this
letter agreement by returning a signed copy to the undersigned.
BARGO ENERGY COMPANY
By: /s/Tim J. Goff
Name: Tim J. Goff
Title: President
Agreed as of the date
first set forth above:
BANCAMERICA CAPITAL INVESTORS SBIC I, L.P.
By: BancAmerica Capital Management SBIC I, LLC
its general partner
By: BancAmerica Capital Management I, L.P.
its sole member
By: BACM I GP, LLC
its general partner
By: /s/ J Travis Hain
Name: J. Travis Hain
Title: Member
EOS PARTNERS SBIC, L.P.
By: EOS SBIC General, L.P.,
its general partner
By: EOS SBIC, Inc.,
its general partner
By: /s/ Brian D. Young
Name: Brian D. Young
Title: Chariman
EOS PARTNERS SBIC II, L.P.
By: EOS SBIC General II, L.P.
its general partner
By: EOS SBIC II, Inc.
its general partner
By: /s/ Brian D. Young
Name: Brian D. Young
Title: Chariman
SGC PARTNERS II, LLC
By: /s/ Justin Hall-Tipping
Name: Justin Hall Tipping
Title: Managing Director
<PAGE>
Schedule I
Securities
SBIC Shares of Shares of Common
Preferred Stock Stock
BancAmerica Capital Investors
SBIC I, L.P. 1,500,000 13,144,743
Eos Partners SBIC, L.P. 390,000 3,417,633
Eos Partners SBIC II, L.P. 72,500 635,329
SGC Partners II, LLC 500,000 4,381,581
<PAGE>
EXHIBIT 10.8
May 14, 1999
Bank of America Capital Investors
100 North Tryon Street, 10th Floor
Charlotte, North Carolina 28255
Attention: J. Travis Hain
EOS Partners, L.P.
320 Park Avenue
New York, New York 10022
Attention: Brian D. Young
SG Capital Partners, LLC
1221 Avenue of the Americas, 13th Floor
New York, NY 10020
Attention: Larry Neubauer
Bargo Energy Company
Dear Ladies and Gentlemen:
Reference is made to (i) that certain Stock Purchase Agreement
(the "Purchase Agreement"), dated as of the date hereof, among Bargo Energy
Company, a Texas corporation (the "Company"), BancAmerica Capital Investors
SBIC I, L.P., a Delaware limited partnership ("BACI"), Eos Partners SBIC,
L.P., a Delaware limited partnership ("Eos SBIC"), Eos Partners SBIC II, L.P.,
a Delaware limited partnership ("Eos SBIC II"), SGC Partners II, LLC, a
Delaware limited liability company ("Soc Gen", and together with BACI, Eos
SBIC and Eos SBIC II, the "Investors"), and the other parties identified
therein, and (ii) that certain Second Amended and Restated Shareholders'
Agreement (the "Shareholders' Agreement"), dated as of the date hereof among
the Company, the Investors, EnCap Equity 1994 Limited Partnership, a Texas
limited partnership ("EnCap LP"), Bargo Energy Resources, Ltd., a Texas
limited partnership ("Resources"), TJG Investments, Inc., a Texas corporation
("TJG"), Bargo Energy Company, a Texas general partnership ("BEC"), Bargo
Operating Company, Inc., a Texas corporation ("Operating"), Tim J. Goff
("Goff"; and together with EnCap LP, Resources, TJG, BEC and Operating, the
"Other Stockholders") and the other parties identified therein.
Each Other Stockholder agrees to cooperate with the Company in all
reasonable respects in complying with the terms and provisions of the letter
agreement between the Company and the Investors, a copy of which is attached
hereto as Exhibit A, regarding small business matters (the "Small Business
Sideletter"), including without limitation, voting to approve amending the
Company's Articles of Incorporation, the Company's by-laws, the Purchase
Agreement or the Shareholders Agreement in a manner reasonably acceptable to
the Other Stockholders and the Investors or any Regulated Holder (as defined
in the Small Business Sideletter) entitled to make such request pursuant to
the Small Business Sideletter in order to remedy a Regulatory Problem (as
defined in the Small Business Sideletter). Anything contained in this letter
agreement to the contrary notwithstanding, no Other Stockholder shall be
required under this letter agreement to take any action that would adversely
affect in any material respect such Other Stockholder's rights as a
stockholder of the Company.
The Company and each Other Stockholder agree not to amend or waive
the voting or other provisions of the Company's Articles of Incorporation, the
Company's by-laws, the Purchase Agreement or the Shareholders' Agreement if
such amendment or waiver would cause any Regulated Holder to have a Regulatory
Problem (as defined in the Small Business Sideletter).
<PAGE>
Please acknowledge your agreement with the foregoing by executing
this letter below, whereupon this letter will become a valid and binding
agreement.
BARGO ENERGY COMPANY
By: /s/ Tim J. Goff
Name: Tim J. Goff
Title: President
ENCAP EQUITY 1994 LIMITED PARTNERSHIP
By: EnCap Investments L.C., General
Partner
By: /s/ D. Martin Phillips
Name: D. Martin Phillips
Title: Managing Director
TJG INVESTMENTS, INC.
By: /s/ Tim J. Goff
Tim J. Goff
President
BARGO ENERGY COMPANY
By: /s/ Tim J. Goff
Tim J. Goff
Manager
BARGO ENERGY RESOURCES, LTD
By: Bargo Operating Company, Inc.,
General Partner
By: /s/ Tim J. Goff
Tim J. Goff
Manager
BARGO OPERATING COMPANY, INC.
By: /s/ Tim J. Goff
Tim J. Goff
Manager
/s/ Tim J. Goff
Tim J. Goff
Agreed as of the date
first set forth above:
BANCAMERICA CAPITAL INVESTORS SBIC I, L.P.
By: BancAmerica Capital Management SBIC I, LLC
its general partner
By: BancAmerica Capital Management I, L.P.
its sole member
By: BACM I GP, LLC
its general partner
By: /s/ J. Travis Hain
Name: J. Travis Tain
Title: Member
EOS PARTNERS SBIC, L.P.
By: EOS SBIC General, L.P.,
its general partner
By: EOS SBIC, Inc.,
its general partner
By: /s/ Brian D. Young
Name: Brian d. Young
Title: Chairman
EOS PARTNERS SBIC II, L.P.
By: EOS SBIC General II, L.P.
its general partner
By: EOS SBIC II, Inc.
its general partner
By: /s/ Brian D. Young
Name: Brian d. Young
Title: Chairman
SGC PARTNERS II, LLC
By: /s/ Justin Hall-Tipping
Name: Justin Hall-Tipping
Title: Managing Director
<PAGE>
EXHIBIT 10.9
STOCK PURCHASE AGREEMENT
by and among
Bargo Energy Company
and
Energy Capital Investment Company PLC,
EnCap Energy Capital Fund III-B, L.P.,
BOCP Energy Partners, L.P.,
EnCap Energy Capital Fund III, L.P.,
Kayne Anderson Energy Fund, L.P.,
BancAmerica Capital Investors SBIC I, L.P.,
Eos Partners, L.P.,
Eos Partners SBIC, L.P.,
Eos Partners SBIC II, L.P., and
SGC Partners II LLC
May 14, 1999
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of May 14,
1999 by and among Energy Capital Investment Company PLC, an English investment
company ("Energy PLC"), EnCap Energy Capital Fund III-B, L.P., a Texas limited
partnership ("EnCap III-B"), BOCP Energy Partners, L.P., a Texas limited
partnership ("BOCP"), EnCap Energy Capital Fund III, L.P., a Texas limited
partnership ("EnCap III"), Kayne Anderson Energy Fund, L.P., a Delaware limited
partnership ("Kayne"), BancAmerica Capital Investors SBIC I, L.P., a
limited partnership ("BACI"), Eos Partners, L.P., a Delaware limited partnership
("Eos Partners"), Eos Partners SBIC, L.P., a Delaware limited partnership ("Eos
SBIC"), Eos Partners SBIC II, L.P., a Delaware limited partnership ("Eos SBIC
II" and together with Eos Partners and Eos SBIC, collectively referred to as
"EOS"), and SGC Partners II LLC, a Delaware limited liability company ("SGCP")
(each individually, a "Buyer," and collectively, the "Buyers") and
Bargo Energy Company, a Texas corporation.
WHEREAS, the Company (defined below) desires to issue to Buyers, and Buyers
desire to purchase, certain shares of the Company's Cumulative Redeemable
Preferred Stock, Series B, par value $.01 per share (the "Preferred Stock"), and
certain shares of the Company's Common Stock, par value $.01 per share (the
"Common Stock");
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, the
Company and Buyers hereby agree as follows:
ARTICLE I
TERMS OF THE TRANSACTION
1.1 Agreement to Issue Shares. At the Closing, and on the terms and subject
to the conditions set forth in this Agreement, the Company shall sell and
deliver to each Buyer, and each Buyer (severally) shall purchase and accept from
the Company as set forth beside its name on Schedule 1.1, the number of shares
of Preferred Stock and the number of shares of Common Stock (as issued to all
Buyers, collectively, the "Shares").
1.2 Purchase Price and Payment. In consideration of the sale of the Shares,
each Buyer shall pay to the Company at the Closing the purchase price set forth
beside its name on Schedule 1.1, the aggregate of which shall be the "Purchase
Price." Each Buyer shall pay its portion of the Purchase Price to the Company
in immediately available funds by confirmed wire transfer to a bank account to
be designated by the Company (such designation to occur no later than the third
business day prior to the Closing Date) or in the form of a certified or bank
cashier's check payable to the order of the Company.
ARTICLE II
CLOSING
The closing of the transactions contemplated hereby (the "Closing") shall
take place (i) at the offices of Thompson & Knight, P.C., 1700 Chase Tower, 600
Travis, Houston, TX 77002 at 10:00 a.m., local time, on May 14, 1999, or (ii)
at such other time or place or on such other date as the parties hereto shall
agree. The date on which the Closing is required to take place is herein
referred to as the "Closing Date." All Closing transactions shall be deemed to
have occurred simultaneously.
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Buyers that:
3.1 Corporate Organization. The Company is a corporation duly organized,
validly existing, and in good standing under the laws of Texas and has all
requisite corporate power and corporate authority to own, lease, and operate its
properties and to carry on its business as now being conducted. No actions or
proceedings to dissolve the Company are pending or, to the best
knowledge of the Company, threatened.
3.2 Qualification. The Company is duly qualified or licensed to do business
as a foreign corporation and is in good standing in each of the jurisdictions
set forth on Schedule 3.2, which are all the jurisdictions in which it owns,
leases, or operates property or in which such qualification or licensing is
required for the conduct of its business.
3.3 Charter and Bylaws. The Company has made available to Buyers accurate
and complete copies of (i) the charter and bylaws of each of the Company and the
Subsidiaries as currently in effect, (ii) the stock records of each of the
Company and the Subsidiaries, and (iii) the minutes of all meetings of the
respective Boards of Directors of the Company and the Subsidiaries, any
committees of such Boards, and the shareholders of the Company and the
Subsidiaries (and all consents in lieu of such meetings). Such records,
minutes, and consents accurately reflect the stock ownership of the Company and
the Subsidiaries and all actions taken by such Boards of Directors, committees,
and shareholders. Neither the Company nor any Subsidiary is in violation
of any provision of its charter or bylaws, other than violations which,
individually or in the aggregate, do not and will not have a Material Adverse
Effect on the Company.
3.4 Capitalization of the Company. The authorized capital stock of the
Company consists of (i) 120,000,000 shares of Common Stock, of which, as of the
date hereof, 48,357,786 shares are outstanding and no shares are held in the
Company's treasury, and (ii) 5,000,000 shares of preferred stock, par value $.01
per share, of which, as of the date hereof, no shares are outstanding and no
such shares are held in the Company's treasury. All outstanding shares of
capital stock of the Company have been validly issued and are fully paid and
nonassessable, and no shares of capital stock of the Company are subject to, nor
have any been issued in violation of, preemptive or similar rights. All
issuances, sales, and repurchases by the Company of shares of its capital stock
have been effected in compliance with all Applicable Laws, including without
limitation applicable federal and state securities laws. The Preferred Stock
constitutes (and at the Closing will constitute) all the outstanding shares of
preferred stock of the Company. As of the date hereof, an aggregate of 660,000
shares of Common Stock of the Company are reserved for issuance and are issuable
upon the exercise of outstanding stock options granted under the Company's stock
option plans; furthermore, an aggregate of 275,000 shares of Common Stock of
the Company are reserved for issuance and are issuable upon the exercise of
outstanding warrants (subject to certain anti-dilution provisions applicable
thereto). Except as disclosed above in this Section and in connection with the
transactions contemplated by this Agreement, there are (and as of the Closing
Date there will be) outstanding (i) no shares of capital stock or
other voting securities of the Company, (ii) no securities of the Company
convertible into or exchangeable for shares of capital stock or other voting
securities of the Company, (iii) no options or other rights to acquire from the
Company, and no obligation of the Company to issue or sell, any shares of
capital stock or other voting securities of the Company or any securities of
the Company convertible into or exchangeable for such capital stock or voting
securities, and (iv) no equity equivalents, interests in the ownership or
earnings, or other similar rights of or with respect to the Company. Other than
regarding the Shares or as disclosed on Schedule 3.4, there are (and as of the
Closing Date there will be) no outstanding obligations of the Company or
any Subsidiary to repurchase, redeem, or otherwise acquire any of the foregoing
shares, securities, options, equity equivalents, interests, or rights.
<PAGE>
3.5 Authority Relative to This Agreement. The Company has full corporate
power and corporate authority to execute, deliver, and perform this Agreement
and the Ancillary Documents to which it is a party and to consummate the
transactions contemplated hereby and thereby. The execution, delivery, and
performance by the Company of this Agreement and the Ancillary Documents 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 the Company. This Agreement has been duly executed and
delivered by the Company and constitutes, and each Ancillary Document executed
or to be executed by the Company has been, or when executed will be, duly
executed and delivered by the Company and constitute, or when executed and
delivered will constitute, valid and legally binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
except that such enforceability may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium, and similar laws affecting creditors'
rights generally and (ii) equitable principles which may limit the availability
of certain equitable remedies (such as specific performance) in certain
instances.
3.6 Noncontravention. The execution, delivery, and performance by the
Company of this Agreement and the Ancillary Documents to which it is a party and
the consummation by it of the transactions contemplated hereby and thereby do
not and will not (i) conflict with or result in a violation of any provision of
the charter or bylaws or other governing instruments of the Company or any
Subsidiary, (ii) 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, or require any consent, approval, authorization
or waiver of, or notice to, any party to, any bond, debenture, note, mortgage,
indenture, lease, contract, agreement, or other instrument or obligation to
which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary or any of their respective properties may be bound or any Permit held
by the Company or any Subsidiary, (iii) result in the creation or
imposition of any Encumbrance upon the properties of the Company or any
Subsidiary, or (iv) assuming compliance with the matters referred to in Section
3.7, violate any Applicable Law binding upon the Company or any Subsidiary,
except, in the case of clauses (ii), (iii) and (iv) above, for any such
conflicts, violations, defaults, terminations, cancellations, accelerations, or
Encumbrances which would not, individually or in the aggregate, have a Material
Adverse Effect on the Company, and except, in the case of clause (ii) above, for
(A) such consents, approvals, authorizations, and waivers that have been
obtained and are unconditional and in full force and effect and such notices
that have been duly given and (B) such consents, approvals,
authorizations, waivers, and notices that are disclosed on Schedule 3.6 or
otherwise expressly contemplated by the Ancillary Documents.
3.7 Governmental Approvals. No consent, approval, order, or authorization
of, or declaration, filing, or registration with, any Governmental Entity is
required to be obtained or made by the Company or any Subsidiary in connection
with the execution, delivery, or performance by the Company of this Agreement
and the Ancillary Documents to which it is a party or the consummation by it of
the transactions contemplated hereby or thereby, other than as set forth on
Schedule 3.7.
<PAGE>
3.8 Subsidiaries.
(a) The Company does not own, directly or indirectly, any capital stock
of, or other equity interest in, any corporation or have any direct or indirect
equity or ownership interest in any other person, other than the Subsidiaries.
Schedule 3.8 lists each Subsidiary, the jurisdiction of incorporation of each
Subsidiary, and the authorized and outstanding capital stock of each
Subsidiary. Each Subsidiary is a corporation duly organized, validly existing,
and in good standing under the laws of the jurisdiction of its incorporation.
As detailed on Schedule 3.8, each Subsidiary is duly qualified or licensed to do
business as a foreign corporation and is in good standing in each of the
jurisdictions in which it owns, leases, or operates property or in
which such qualification or licensing is required for the conduct of its
business. Each Subsidiary has all requisite corporate power and corporate
authority to own, lease, and operate its properties and to carry on its business
as now being conducted. No actions or proceedings to dissolve any
Subsidiary are pending, or to the knowledge of the Company, threatened.
(b) Except as otherwise indicated on Schedule 3.8, all the outstanding
capital stock or other equity interests of each Subsidiary are owned directly or
indirectly by the Company, free and clear of all Encumbrances. All outstanding
shares of capital stock of each Subsidiary have been validly issued and are
fully paid and nonassessable. No shares of capital stock or other
equity interests of any Subsidiary are subject to, nor have any been issued in
violation of, preemptive or similar rights.
(c) Except as set forth on Schedule 3.8, there are (and as of the
Closing Date there will be) outstanding (i) no shares of capital stock or other
voting securities of any Subsidiary, (ii) no securities of the Company or any
Subsidiary convertible into or exchangeable for shares of capital stock or other
voting securities of any Subsidiary, (iii) no options or other rights to
acquire from the Company or any Subsidiary, and no obligation of the Company or
any Subsidiary to issue or sell, any shares of capital stock or other voting
securities of any Subsidiary or any securities convertible into or exchangeable
for such capital stock or voting securities, and (iv) no equity equivalents,
interests in the ownership or earnings, or other similar rights of or
with respect to any Subsidiary. There are (and as of the Closing Date there
will be) no outstanding obligations of the Company or any Subsidiary to
repurchase, redeem, or otherwise acquire any of the foregoing shares,
securities, options, equity equivalents, interests, or rights.
3.9 Shares. The Shares to be issued by the Company at the Closing have been
duly authorized for such issuance. When issued and delivered by the Company in
accordance with the provisions of this Agreement, the Shares will be validly
issued, fully paid, and nonassessable. The issuance of the Shares pursuant to
this Agreement is not subject to any preemptive or similar rights. When issued,
the shares of Common Stock listed on Schedule 1.1 will in the aggregate
represent 40% of the issued and outstanding shares of capital stock of the
Company, on a fully-diluted basis reflecting all shares issuable upon the
exercise of all outstanding rights to acquire shares of the Company's capital
stock (including after giving effect to the transactions
contemplated hereby).
<PAGE>
3.10 SEC Filings. Except as previously disclosed to Buyers, the Company is
current in its obligations to file all periodic reports and proxy statements
with the Securities and Exchange Commission required to be filed under the
Exchange Act. Except as previously disclosed to Buyers, the Company's Annual
Report on Form-10KSB for the fiscal year ended December 31, 1998, Report on Form
8-K filed on February 26, 1999, Information Statement on Schedule 14C
filed on March 9, 1999 and Report on Form 8-K/A filed on May 3, 1999
(collectively, the "SEC Documents") are all of the documents the Company was
required to file with the Securities and Exchange Commission since January 1,
1999. As of their respective dates, the SEC Documents complied as to form in
all material respects with the requirements of the Exchange Act and the
rules and regulations of the Securities and Exchange Commission thereunder
applicable to such SEC Documents. 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, if any, of
the Company included in the SEC Documents comply as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the Securities and Exchange Commission with respect thereto;
present fairly in all material respects, in conformity with GAAP applied on a
consistent basis, the consolidated financial position of the Company 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
adjustments in the case of any unaudited interim financial statements and the
fact that certain information and notes have been condensed
or omitted in accordance with the Exchange Act and the rules promulgated
thereunder); and are in all material respects in accordance with the books of
account and records of the Company and the Subsidiaries. There are no material
liabilities of the Company or any Subsidiary (contingent
or otherwise), other than as disclosed in the SEC Documents and the financial
statements included therein.
3.11 Absence of Certain Changes. Except as disclosed in the SEC Documents
or on Schedule 3.11, since January 1, 1999: (i) there has not been any change,
development, or effect, individually or in the aggregate, that has had, or might
reasonably be expected to have, a Material Adverse Effect on the Company or a
Subsidiary; (ii) the businesses of the Company and the Subsidiaries have been
conducted only in the ordinary course consistent with past practice;
(iii) neither the Company nor any Subsidiary has incurred any material
liability, engaged in any material transaction, or entered into any material
agreement outside the ordinary course of business consistent with past practice;
(iv) neither the Company nor any Subsidiary has suffered any material loss,
damage, destruction, or other casualty to any of its assets (whether or not
covered by insurance); and (v) neither the Company nor any Subsidiary has taken
any of the actions set forth in Section 5.2 except as permitted thereunder.
<PAGE>
3.12 Tax Matters. Except as disclosed on Schedule 3.12:
(a) except in each case as could not be reasonably expected to have a
Material Adverse Effect, all Tax Returns have been or will be timely filed by
the Company and the Subsidiaries when due in accordance with all applicable
laws; all Taxes shown on such Tax Returns have been or will be timely paid when
due; such Tax Returns have been properly completed in compliance with all
applicable laws and regulations and completely and accurately reflect the
facts regarding the income, expenses, properties, business and operations
required to be shown thereon; such Tax Returns are not subject to penalties
under Section 6662 of the Code (or any corresponding provision of state, local
or foreign tax law);
(b) the Company and the Subsidiaries have paid all Taxes required to
be paid by them in all material respects (whether or not shown on a Tax Return)
or for which they could be liable (provided that it shall not be considered a
breach of this representation if it is ultimately determined that additional Tax
payments are due but such assessment is based on an adjustment to a return or
position, if such party has a reasonable basis for the position taken with
respect to such Taxes), whether to taxing authorities or to other persons under
Tax allocation agreements or otherwise, and the charges, accruals, and reserves
for Taxes due, or accrued but not yet due, relating to their income, properties,
transactions or operations as reflected on their books (including, without
limitation, the balance sheet included in the Company's Form 10-KSB for
the fiscal year ended December 31, 1998) are adequate to cover such Taxes;
(c) there are no agreements or consents currently in effect for the
extension or waiver of the time (i) to file any Tax Return or (ii) for
assessment or collection of any Taxes relating to the income, properties or
operations of the Company or the Subsidiaries, nor has the Company or a
Subsidiary been requested to enter into any such agreement or consent; and
(d) there are no liens for Taxes (other than for current Taxes not yet
due and payable) upon the assets of the Company or the Subsidiaries.
3.13 Compliance With Laws. Except as disclosed on Schedule 3.13, the Company
and the Subsidiaries have complied in all material respects with all Applicable
Laws (including without limitation Applicable Laws relating to securities,
properties, business products and services, manufacturing processes, advertising
and sales practices, employment practices, terms and conditions of employment,
wages and hours, safety, occupational safety, health, environmental
protection, product safety, and civil rights). Neither the Company nor any
Subsidiary has received any written notice, which has not been dismissed or
otherwise disposed of, that the Company or any Subsidiary has not so complied.
Neither the Company nor any Subsidiary is charged or, to the best knowledge of
the Company, threatened with, or, to the best knowledge of the Company, under
investigation with respect to, any violation of any Applicable Law relating
to any aspect of the business of the Company or any Subsidiary.
<PAGE>
3.14 Legal Proceedings. There are no Proceedings pending or, to the best
knowledge of the Company, threatened against or involving the Company or any
Subsidiary (or any of their respective directors or officers in connection with
the business or affairs of the Company or any Subsidiary) or any properties or
rights of the Company or any Subsidiary, except (i) as disclosed on Schedule
3.14, (ii) for any Proceedings that pertain to routine claims by persons other
than Governmental Entities that are fully covered by insurance (subject to
applicable insurance deductibles), (iii) for minor product or service warranty
claims arising in the usual and ordinary course of business which in the
aggregate may be satisfied at nominal cost to the Company, and (iv) for
Proceedings which, individually or in the aggregate, if prosecuted to judgment,
would not have a Material Adverse Effect on the Company. Except as disclosed on
Schedule 3.14, any and all potential liability of the Company and the
Subsidiaries under such Proceedings is adequately covered (except for standard
deductible amounts) by the existing insurance maintained by the Company and the
Subsidiaries. Neither the Company nor any Subsidiary is subject to any
judgment, order, writ, injunction, or decree of any Governmental Entity which
has had or is reasonably likely to have a Material Adverse Effect on the
Company. There are no Proceedings pending or, to the best knowledge of the
Company, threatened seeking to restrain, prohibit, or obtain damages or other
relief in connection with this Agreement or the transactions contemplated
hereby.
3.15 Permits. The Company and the Subsidiaries hold all Permits necessary
or required for the conduct of the business of the Company and the Subsidiaries
as currently conducted, except where the failure to hold such Permits could not
reasonably be expected to have a Material Adverse Effect. Each of such Permits
is in full force and effect, the Company or such Subsidiary is in compliance
with all its obligations with respect thereto, and, to the best knowledge of the
Company, no event has occurred which permits, or with or without the giving of
notice or the passage of time or both would permit, the revocation or
termination of any thereof. Except as disclosed on Schedule 3.15, no notice has
been issued by any Governmental Entity and no Proceeding is pending or, to the
best knowledge of the Company, threatened with respect to any alleged failure by
the Company or a Subsidiary to have any Permit the absence of which would
have a Material Adverse Effect on the Company.
3.16 Agreements.
(a) Set forth on Schedule 3.16 is a list of all the following
agreements, arrangements, and understandings (written or oral, formal or
informal) (collectively, for purposes of this Section, "agreements") to which
the Company or any Subsidiary is a party or by which the Company or any
Subsidiary or any of their respective properties is otherwise bound:
(i) collective bargaining agreements and similar agreements with
employees as a group;
(ii) employee benefit agreements, trusts, plans, funds, or other
arrangements of any nature, including those referred to in Section 5.2(e)(i);
<PAGE>
(iii) agreements with any current or former shareholder, director,
officer, employee, consultant, or advisor or any affiliate of any such person;
(iv) agreements between or among the Company and any of the
Subsidiaries;
(v) indentures, mortgages, security agreements, notes, loan or
credit agreements, or other agreements relating to the borrowing of money by the
Company or any Subsidiary or to the direct or indirect guarantee or assumption
by the Company or any Subsidiary of any obligation of others, including any
agreement (other than trade payables incurred in the ordinary course of
business) that has the economic effect although not the legal form
of any of the foregoing;
(vi) agreements relating to the acquisition or disposition of
assets, other than those entered into in the ordinary course of business
consistent with past practice;
(vii) agreements relating to the acquisition or disposition of any
interest in any business enterprise;
(viii) agreements containing any covenant limiting the freedom of
the Company or any Subsidiary to engage in any line of business or compete with
any other person in any geographic area or during any period of time;
(ix) joint venture agreements;
(x) contracts and other agreements under which the Company or any
Subsidiary agrees to indemnify any party; and
(xi) other agreements, whether or not made in the ordinary course of
business, that are material to the business, assets, results of operations,
condition (financial or otherwise), or prospects of the Company and the
Subsidiaries considered as a whole.
(b) The Company has made available to Buyers accurate and complete
copies of the agreements listed on Schedule 3.16. Each of such agreements is a
valid and binding agreement of the Company and the Subsidiaries (to the extent
each is a party thereto) and (to the best knowledge of the Company) the other
party or parties thereto, enforceable against the Company and the Subsidiaries
(to the extent each is a party thereto) and (to the best knowledge of the
Company) such other party or parties in accordance with its terms. Neither the
Company nor any Subsidiary is in breach of or in default under, nor has any
event occurred which (with or without the giving of notice or the passage of
time or both) would constitute a default by the Company or any Subsidiary under,
any of such agreements, and neither the Company nor any Subsidiary has received
any notice from, or given any notice to, any other party indicating that
the Company or any Subsidiary is in breach of or in default under any of such
agreements, except in each case which could not be reasonably expected to have a
Material Adverse Effect. To the best knowledge of the Company, no other party
to any of such agreements is in breach of or in default under such agreements,
nor has any assertion been made by the Company or any Subsidiary of any such
breach or default.
<PAGE>
(c) Neither the Company nor any Subsidiary has received notice of any
plan or intention of any other party to any material agreement to exercise any
right of offset with respect to, or any right to cancel or terminate, any
material agreement. Neither the Company nor any Subsidiary currently
contemplates, or has reason to believe any other person currently contemplates,
any amendment or change to any agreement, which amendment or change could have a
Material Adverse Effect on the Company.
3.17 ERISA. Other than a group health plan and a 401(k) plan, there is no
"employee benefit plan", as defined in Section 3(3) of ERISA, (i) which is
subject to any provision of ERISA, (ii) which is, or is required to be,
maintained, administered, or contributed to by the Company or
any affiliate of the Company, and (iii) which covers any employee or former
employee of the Company or any affiliate of the Company or under which the
Company or any affiliate of the Company has any liability. For purposes of this
Section only, an "affiliate" of any person means any other person which,
together with such person, would be treated as a single employer under
Section 414 of the Code.
3.18 Environmental Matters .
(a) Except as disclosed on Schedule 3.18:
(i) the properties, operations, and activities of the Company and the
Subsidiaries comply with all Applicable Environmental Laws (as defined below),
except for noncompliance that could not reasonably be expected to have a
Material Adverse Effect;
(ii) the Company and the Subsidiaries and the properties, operations,
and activities of the Company and the Subsidiaries are not subject to any
existing, pending, or, to the best knowledge of the Company, threatened
Proceeding under, or to any remedial obligations under, any Applicable
Environmental Laws that could reasonably be expected to have a Material Adverse
Effect;
(iii) all Permits, if any, required to be obtained by the Company or
any Subsidiary under any Applicable Environmental Laws in connection with any
aspect of the business of the Company or the Subsidiaries, including without
limitation those relating to the treatment, storage, disposal, or release of a
hazardous material (as defined below), have been duly obtained and are in full
force and effect, and the Company and the Subsidiaries are in compliance with
the material terms and conditions of all such Permits;
(iv) the Company and the Subsidiaries have satisfied and are currently
in compliance with all financial responsibility requirements applicable to their
respective operations and imposed by any Governmental Entity under any
Applicable Environmental Laws, and the Company and the Subsidiaries have not
received any notice of noncompliance with any such financial responsibility
requirements;
(v) to the best knowledge of the Company, there are no physical or
environmental conditions existing on any property owned or leased by the Company
or any Subsidiary or resulting from the Company's or any Subsidiary's operations
or activities, past or present, at any location, that would give rise to any on-
site or off-site remedial obligations under any Applicable Environmental Laws,
other than normal and ordinary remedial work associated with plugging and
abandoning of oil and gas facilities;
<PAGE>
(vi) to the best knowledge of the Company, since the effective date of
the relative requirements of Applicable Environmental Laws, all hazardous
materials generated by the Company or any Subsidiary or used in connection with
their respective properties, operations, or activities have been transported
only by carriers authorized under Applicable Environmental Laws to transport
such materials, and have been disposed of only at treatment, storage, and
disposal facilities authorized under Applicable Environmental Laws to treat,
store, or dispose of such materials, and, to the best knowledge of the Company,
such carriers and facilities, at the time of such transportation
or disposal, were operating in compliance with such authorizations and were not
the subject of any existing, pending, or threatened Proceeding in connection
with any Applicable Environmental Laws;
(vii) since the effective date of the relative requirements of
Applicable Environmental Laws, there has been no exposure of any person or
property to hazardous materials, nor has there been any release of hazardous
materials into the environment in violation of any Applicable Environmental
Laws, by the Company or any Subsidiary or in connection with their respective
properties, operations, or activities that could reasonably be expected to give
rise to any claim for damages or compensation that could
reasonably be expected to have a Material Adverse Effect; and
(viii) the Company and the Subsidiaries shall make available to Buyers
all internal and external environmental audits and studies and all
correspondence on substantial environmental matters in the possession of the
Company and the Subsidiaries relating to any of the current or former
properties, operations, or activities of the Company and the
Subsidiaries, provided that the Company and the Subsidiaries shall not be
required to make available any such audits, studies, or correspondence that may
be subject to the attorney-client privilege or similar privilege.
(b) For purposes of this Agreement, "Applicable Environmental Laws"
means any and all Applicable Laws pertaining to health, safety, or the
environment in effect (currently or hereafter) in any and all jurisdictions in
which the Company or the Subsidiaries have conducted operations
or activities or owned or leased property, including, without limitation, the
Clean Air Act, as amended, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, the Rivers and Harbors Act
of 1899, as amended, the Federal Water Pollution Control Act, as amended, the
Occupational Safety and Health Act of 1970, as amended, the
Resource Conservation and Recovery Act of 1976, as amended, the Safe Drinking
Water Act, as amended, the Toxic Substances Control Act, as amended, the
Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous
Materials Transportation Act, as amended, the Texas Water Code, the Texas Solid
Waste Disposal Act, and other environmental conservation or protection laws.
For purposes of this Agreement, the term "hazardous material"
means any substance which is listed or defined as a hazardous substance,
hazardous constituent, or solid waste pursuant to any Applicable Environmental
Laws.
<PAGE>
(c) The representations and warranties contained in this Section would
continue to be true and correct following disclosure to the applicable
Governmental Entities of all relevant facts, conditions, and circumstances known
to the Company, if any, pertaining to the properties, operations, and activities
of the Company and the Subsidiaries.
3.19 Oil and Gas Properties.
(a) Each of the Company and the Subsidiaries has good and marketable
title to all of its material oil and gas properties and assets, free and clear
of all liens other than as disclosed in Schedule 3.19; provided, that no
representation or warranty is made with respect to any oil, gas
or mineral property or interest to which no proved oil or gas reserves are
properly attributed. All proceeds from the sale of each the Company's and the
Subsidiaries' share of the hydrocarbons being produced from its oil and gas
properties are currently being paid in full to such party by the
purchasers thereof on a timely basis and none of such proceeds are currently
being held in suspense by such purchaser or any other party.
(b) The Company has delivered to Buyers a copy of the reserve report
(the "Reserve Report") dated as of January 1, 1999, prepared by T.J. Smith and
Company, Inc., independent reserve engineers (the "Reserve Engineers"), relating
to the oil and gas reserves of the Company and the Subsidiaries. The factual
information underlying the estimates of the reserves of the Company and the
Subsidiaries, which was supplied by the Company to the Reserve Engineers
for the purpose of preparing the Reserve Report, including, without limitation,
production, volumes, sales prices for production, contractual pricing provisions
under oil or gas sales or marketing contracts under hedging arrangements, costs
of operations and development, and working interest and net revenue information
relating to the Company's and the Subsidiaries' ownership interests in
properties, was true and correct in all material respects on the date of such
Reserve Report; the estimates of future capital expenditures and other future
exploration and development costs supplied to the Reserve Engineers were
prepared in good faith and with a reasonable basis; the information provided to
the Reserve Engineers for purposes of preparing the Reserve Report was prepared
in accordance with customary industry practices; the Reserve Engineers were, as
of the date of the Reserve Report prepared by it, and are, as of the date
hereof, independent petroleum engineers with respect to the Company and the
Subsidiaries; other than normal production of the reserves and intervening oil
and gas price fluctuations, the Company is not as of the date hereof and as of
the Closing Date will not be, aware of any facts or circumstances that would
result in a materially adverse change in the reserves in the aggregate,
or the aggregate present value of future net cash flows therefrom, as described
in the Reserve Report; estimates of such reserves and the present value of the
future net cash flows therefrom in the Reserve Report comply in all material
respects to the applicable requirements of Regulation S-X and Industry Guide 2
under the Securities Act.
3.20 Nature of Company Assets. The assets of the Company and of the
Subsidiaries consist solely of (i) reserves of oil, rights to reserves of oil
and associated exploration and production assets with a fair market value not
exceeding $500 million and (ii) other assets with a fair market
value not exceeding $15 million. For purposes of this Section 3.20, the term
"associated exploration and production assets" shall have the meaning ascribed
thereto in Section 802.3 of the Rules promulgated pursuant to the Hart-Scott-
Rodino Antitrust Improvements Act of 1976.
<PAGE>
3.21 Marketing of Production. Except for contracts listed on Schedule 3.21
(with respect to all of which contracts the Company represents that it or its
affiliates are receiving a price for all production sold thereunder which is
computed in accordance with the terms of the relevant contract and are not
having deliveries curtailed substantially below the subject property's
delivery capacity), there exist no material agreements for the sale of
production from the leasehold and other interests in oil, gas and other mineral
properties owned, or otherwise held in the name of, the Company or its
affiliates (collectively, the "Oil and Gas Properties") (including
without limitation, calls on, or other rights to purchase, production, whether
or not the same are currently being exercised) other than (i) agreements or
arrangements pertaining to the sale of production at a price equal to or greater
than a price that is the market price from time to time existing in the areas
where the Oil and Gas Properties subject to such agreement or arrangement
are located, and (ii) agreements or arrangements that are cancelable on 90 days
notice or less without penalty or detriment.
3.22 Material Personal Property. All pipelines, wells, gas processing
plants, platforms and other material improvements, fixtures and equipment owned
in whole or in part by the Company or any of its affiliates that are necessary
to conduct normal operations are being maintained in a state adequate to conduct
normal operations, and with respect to such of the foregoing which are
operated by the Company or any of its affiliates, in a manner consistent with
the Company's or its affiliates' past practices.
3.23 Intellectual Property. The Company and its affiliates either own or
have valid licenses or other rights to use all patents, copyrights, trademarks,
software, databases, geological data, geophysical data, engineering data, maps,
interpretations and other technical information used in their businesses as
presently conducted, subject to the limitations contained in the agreements
governing the use of the same, which limitations are customary for companies
engaged in the business of the exploration and production of oil, gas,
condensate and other hydrocarbons, with such exceptions as would not result in a
Material Adverse Effect on the Company. There are no limitations contained in
the agreements of the type described in the immediately preceding sentence
which, upon consummation of the transactions contemplated by this Agreement,
will alter or impair any such rights, breach any such agreement with any third
party vendor, or require payments of additional sums thereunder, except any such
limitations that would not have a Material Adverse Effect on the Company. The
Company and its affiliates are in compliance in all material respects with such
licenses and agreements and there are no pending or, to the best
knowledge of the Company, threatened Proceedings challenging or questioning the
validity or effectiveness of any license or agreement relating to such property
or the right of the Company or any affiliate to use, copy, modify or distribute
the same.
3.24 Brokerage Fees. Neither the Company nor any of its affiliates has
retained any financial advisor, broker, agent, or finder or paid or agreed to
pay any financial advisor, broker, agent, or finder on account of this Agreement
or any transaction contemplated hereby. The Company shall indemnify and hold
harmless Buyers from and against any and all losses, claims, damages, and
liabilities (including legal and other expenses reasonably incurred in
connection with investigating or defending any claims or actions) with respect
to any finder's fee, brokerage commission, or similar payment in connection with
any transaction contemplated hereby asserted by any person on the basis of any
act or statement made or alleged to have been made by the Company or any of its
affiliates.
<PAGE>
3.25 Disclosure. No representation or warranty made by the Company in this
Agreement, and no statement of the Company contained in any document,
certificate, or other writing furnished or to be furnished by the Company
pursuant hereto or in connection herewith, contains or will contain, at the time
of delivery, any untrue statement of a material fact or omits or will
omit, at the time of delivery, to state any material fact necessary in order to
make the statements contained therein, in light of the circumstances under which
they are made, not misleading. The Company knows of no matter (other than
matters of a general economic character, including commodity prices, not
relating solely to the Company or any Subsidiary in any specific manner)
which has not been disclosed to Buyers pursuant to this Agreement which has or
is reasonably likely to have a Material Adverse Effect on the Company. The
Company has delivered or made available to Buyers accurate and complete copies
of all agreements, documents, and other writings referred to or listed in this
Article III or any Schedule hereto.
3.26 Representations and Warranties on Closing Date. The representations
and warranties made in this Article III will be true and correct in all material
respects on and as of the Closing Date with the same force and effect as if such
representations and warranties had been made on and as of the Closing Date,
except that any such representations and warranties which expressly
relate only to an earlier date shall be true and correct on the Closing Date as
of such earlier date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYERS
Each Buyer, only with respect to itself, represents and warrants to the
Company that:
4.1 Organization and Formation. Each corporate Buyer is duly organized,
validly existing, and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and corporate authority to
own, lease, and operate its properties and to carry on its business as now being
conducted. Each partnership Buyer is duly formed and is in good
standing (as applicable) under the laws of the jurisdiction of its formation.
No actions or proceedings to dissolve any Buyer are pending or, to the best
knowledge of Buyers, threatened.
4.2 Authority Relative to This Agreement. Each Buyer has full power and
authority to execute, deliver, and perform this Agreement and the Ancillary
Documents to which it is a party and to consummate the transactions contemplated
hereby and thereby. The execution, delivery, and performance by Buyers of this
Agreement and the Ancillary Documents to which they are parties, and the
consummation by them of the transactions contemplated hereby and thereby,
have been duly authorized by all necessary corporate or partnership action, as
applicable, of Buyers. This Agreement has been duly executed and delivered by
Buyers and constitutes, and each Ancillary Document executed or to be executed
by Buyers has been, or when executed will be, duly executed and delivered by
each Buyer and constitute, or when executed and delivered will constitute, valid
and legally binding obligations of each Buyer, enforceable against each
Buyer in accordance with their respective terms, except that such enforceability
may be limited by (i) applicable bankruptcy, insolvency, reorganization,
moratorium, and similar laws affecting creditors' rights generally and (ii)
equitable principles which may limit the availability of certain
equitable remedies (such as specific performance) in certain instances.
<PAGE>
4.3 Noncontravention. The execution, delivery, and performance by
Buyers of this Agreement and the Ancillary Documents to which they are parties
and the consummation by them of the transactions contemplated hereby and thereby
do not and will not (i) conflict with or result in a violation of any provision
of the charter or bylaws (or other governing documents), as
applicable, of Buyers, (ii) 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, or require any consent, approval,
authorization, or waiver of any party to, any bond, debenture, note, mortgage,
indenture, lease, contract, agreement, or other instrument or obligation to
which any Buyer is a party or by which any Buyer or any of its
properties may be bound or any Permit held by a Buyer, (iii) result in the
creation or imposition of any Encumbrance upon the properties of Buyers, or (iv)
violate any Applicable Law binding upon Buyers, except, in the case of clauses
(ii), (iii), and (iv) above, for any such conflicts, violations, defaults,
terminations, cancellations, accelerations, or Encumbrances which would
not, individually or in the aggregate, have a Material Adverse Effect on such
Buyer or on the ability of such Buyer to consummate the transactions
contemplated hereby.
4.4 Governmental Approvals. No consent, approval, order, or
authorization of, or declaration, filing, or registration with, any Governmental
Entity is required to be obtained or made by any Buyer in connection with the
execution, delivery, or performance by Buyers of this Agreement and the
Ancillary Documents to which they are parties or the consummation by them
of the transactions contemplated hereby or thereby, other than as set forth on
Schedule 4.4 or in the Small Business Sideletter (defined in Section 6.17
hereof).
4.5 Financing. Each Buyer has, and at the Closing will have, such funds
as are necessary for the consummation by it of the transactions contemplated
hereby.
4.6 Disclosure of Information. Buyers represent that they have had an
opportunity to ask questions of and receive answers from the Company regarding
the Company and its business, assets, results of operation, and financial
condition and the terms and conditions of the issuance of the Shares. Each
Buyer further represents that it has access to all filings duly made by the
Company with the Securities and Exchange Commission since January 1, 1998. The
foregoing, however, shall not limit or modify the representations and warranties
of the Company in Article III, shall not limit the rights of Buyers prior to and
in anticipation of any issuance of the Shares pursuant hereto, and shall not
limit the disclosure requirements of applicable federal and state
securities laws.
4.7 Investment Experience. Each Buyer acknowledges that it can bear
the economic risk of its investment in the Shares, and has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of an investment in the Shares.
<PAGE>
4.8 Restricted Securities. Each Buyer understands that the Shares will
not have been registered pursuant to the Securities Act or any applicable state
securities laws, that the Shares will be characterized as "restricted
securities" under federal securities laws, and that under such
laws and applicable regulations the Shares cannot be sold or otherwise disposed
of without registration under the Securities Act or an exemption therefrom. In
this connection, each Buyer represents that it is familiar with Rule 144
promulgated under the Securities Act, as currently in effect, and understands
the resale limitations imposed thereby and by the Securities Act.
Appropriate stop transfer instructions may be issued to the transfer agent for
securities of the Company (or a notation may be made in the appropriate records
of the Company) in connection with the Shares.
4.9 Legend. It is agreed and understood by Buyers that the
certificates representing the Shares shall each conspicuously set forth on the
face or back thereof, in addition to any legends required by Applicable Law or
other agreement, a legend in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS. SUCH SHARES MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED UNLESS THEY ARE FIRST REGISTERED
PURSUANT TO THAT ACT AND APPLICABLE STATE SECURITIES LAWS OR
UNLESS THE CORPORATION RECEIVES A WRITTEN OPINION OF COUNSEL,
WHICH OPINION AND COUNSEL ARE SATISFACTORY TO THE
CORPORATION, TO THE EFFECT THAT SUCH REGISTRATION IS NOT
REQUIRED.
4.10 Accredited Investor; Investment Intent. Each Buyer is an accredited
investor as defined in Regulation D under the Securities Act. Each Buyer is
acquiring its portion of the Shares for its own account for investment and not
with a view to, or for sale or other disposition in connection with, any
distribution of all or any part thereof, except in compliance with applicable
federal and state securities laws.
4.11 Legal Proceedings. There are no Proceedings pending or, to the best
knowledge of Buyers, threatened seeking to restrain, prohibit, or obtain damages
or other relief in connection with this Agreement or the transactions
contemplated hereby.
4.12 Brokerage Fees. No Buyer nor any of Buyers' affiliates has retained
any financial advisor, broker, agent, or finder or paid or agreed to pay any
financial advisor, broker, agent, or finder on account of this Agreement or any
transaction contemplated hereby. Buyers shall indemnify and hold harmless the
Company from and against any and all losses, claims, damages, and liabilities
(including legal and other expenses reasonably incurred in connection with
investigating or defending any claims or actions) with respect to any finder's
fee, brokerage commission, or similar payment in connection with any transaction
contemplated hereby asserted by any person on the basis of any act or statement
made or alleged to have been made by Buyers or any of their affiliates.
<PAGE>
4.13 Disclosure. No representation or warranty made by Buyers in this
Agreement, and no statement of Buyers contained in any document, certificate, or
other writing furnished or to be furnished by Buyers pursuant hereto or in
connection herewith, contains or will contain, at the time of delivery, any
untrue statement of a material fact or omits, or will omit, at the time of
delivery, to state any material fact necessary in order to make the statements
contained therein, in the light of the circumstances under which they are made,
not misleading.
4.14 Representations and Warranties on Closing Date. The representations
and warranties made in this Article IV will be true and correct in all material
respects on and as of the Closing Date with the same force and effect as if such
representations and warranties had been made on and as of the Closing Date,
except that any such representations and warranties which expressly
relate only to an earlier date shall be true and correct on the Closing Date as
of such earlier date.
ARTICLE V
CONDUCT OF COMPANY PENDING CLOSING
The Company hereby covenants and agrees with Buyers as follows:
5.1 Conduct and Preservation of Business. Except as expressly provided
in this Agreement, during the period from the date hereof to the Closing, the
Company and the Subsidiaries (i) shall each conduct its operations according to
its ordinary course of business consistent with past practice and in compliance
with all Applicable Laws; (ii) shall each use its reasonable best efforts to
preserve, maintain, and protect its properties; and (iii) shall each use its
reasonable best efforts to preserve intact its business organization, to keep
available the services of its officers and employees, and to maintain existing
relationships with licensors, licensees, suppliers, contractors, distributors,
customers, and others having business relationships with it.
5.2 Restrictions on Certain Actions. Without limiting the generality of
the foregoing, and except as otherwise expressly provided in this Agreement,
prior to the Closing, neither the Company nor any Subsidiary shall, without the
prior written consent of Buyer:
(a) amend its charter or bylaws;
(b) (i) issue, sell, or deliver (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to purchase,
or otherwise) any shares of its capital stock of any class or any other
securities or equity equivalents; or (ii) amend in any respect any of the terms
of any such securities outstanding as of the date hereof;
<PAGE>
(c) (i) split, combine, or reclassify any shares of its capital stock;
(ii) declare, set aside, or pay any dividend or other distribution (whether in
cash, stock, or property or any combination thereof) in respect of its capital
stock; (iii) repurchase, redeem, or otherwise acquire any of its securities or
any securities of any Subsidiary; or (iv) adopt a plan of complete or partial
liquidation or resolutions providing for or authorizing a liquidation,
dissolution, merger, consolidation, conversion, restructuring, recapitalization,
or other reorganization of the Company or any Subsidiary;
(d) (i) except in the ordinary course of business consistent with past
practice, create, incur, guarantee, or assume any indebtedness for borrowed
money or otherwise become liable or responsible for the obligations of any other
person; (ii) make any loans, advances, or capital contributions to, or
investments in, any other person (other than to wholly owned Subsidiaries);
(iii) pledge or otherwise encumber shares of capital stock of the Company or any
Subsidiary; or (iv) except in the ordinary course of business consistent with
past practice, mortgage or pledge any of its assets, tangible or intangible,
or create or suffer to exist any lien thereupon; provided, however, that in no
event shall the Company and the Subsidiaries (A) incur incremental indebtedness
in excess of $ in the aggregate or (B) incur
incremental indebtedness which is not prepayable at any time without penalty or
premium;
(e) (i) enter into, adopt, or (except as may be required by law) amend
or terminate any bonus, profit sharing, compensation, severance, termination,
stock option, stock appreciation right, restricted stock, performance unit,
stock equivalent, stock purchase, pension, retirement, deferred compensation,
employment, severance, or other employee benefit agreement, trust, plan, fund,
or other arrangement for the benefit or welfare of any director, officer, or
employee; (ii) except for normal increases in the ordinary course of
business consistent with past practice that, in the aggregate, do not result in
a material increase in benefits or compensation expense to the Company, increase
in any manner the compensation or fringe benefits of any director, officer, or
employee; or (iii) pay to any director, officer, or employee any benefit not
required by any employee benefit agreement, trust, plan, fund, or other
arrangement as in effect on the date hereof;
(f) acquire, sell, lease, transfer, or otherwise dispose of, directly
or indirectly, any assets outside the ordinary course of business consistent
with past practice or any assets that in the aggregate are material to the
Company and the Subsidiaries considered as a whole;
(g) acquire (by merger, consolidation, or acquisition of stock or
assets or otherwise) any corporation, partnership, or other business
organization or division thereof;
(h) make any capital expenditure or expenditures which, individually,
is in excess of $ or, in the aggregate, are in excess of
$______________;
<PAGE>
(i) amend any Tax Return or make any Tax election or settle or
compromise any federal, state, local, or foreign Tax liability material to the
Company and the Subsidiaries considered as a whole;
(j) pay, discharge, or satisfy any claims, liabilities, or obligations
(whether accrued, absolute, contingent, unliquidated, or otherwise, and whether
asserted or unasserted), other than the payment, discharge, or satisfaction in
the ordinary course of business consistent with past practice, or in accordance
with their terms, of liabilities reflected or reserved against in the Financial
Statements or incurred since January 1, 1999 in the ordinary course of business
consistent with past practice; provided, however, that in no event shall the
Company or any Subsidiary repay any long-term indebtedness except to
the extent required by the terms thereof;
(k) enter into any lease, contract, agreement, commitment, arrangement,
or transaction outside the ordinary course of business consistent with past
practice;
(l) amend, modify, or change in any material respect any existing
lease, contract, or agreement, other than in the ordinary course of business
consistent with past practice;
(m) waive, release, grant, or transfer any rights of value, other than
in the ordinary course of business consistent with past practice;
(n) change any of the accounting principles or practices used by it,
except for any change required by reason of a concurrent change in generally
accepted accounting principles and notice of which is given in writing by the
Company to Buyers;
(o) take any action which would or might make any of the
representations or warranties of the Company contained in this Agreement untrue
or inaccurate as of any time from the date of this Agreement to the Closing or
would or might result in any of the conditions set forth in this Agreement not
being satisfied; or
(p) authorize or propose, or agree in writing or otherwise to take, any
of the actions described in this Section.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Access to Information; Confidentiality.
(a) Between the date hereof and the Closing, the Company: (i) shall
give Buyers and their authorized representatives reasonable access to all
employees, all plants, offices, warehouses, and other facilities, and all books
and records, including work papers and other materials prepared by the Company's
independent public accountants, of the Company and the Subsidiaries, (ii) shall
permit Buyers and their authorized representatives to make inspections as
they may reasonably require, and (iii) shall cause the Company's officers and
those of the Subsidiaries to furnish Buyers and their authorized representatives
with such financial and operating data and other information with respect to the
Company and the Subsidiaries as Buyers may from time to time reasonably request;
provided, however, that no investigation pursuant to this Section shall affect
any representation or warranty of the Company contained in this Agreement or in
any agreement, instrument, or document delivered pursuant hereto or in
connection herewith; and provided further that the Company shall have the right
to have a representative present at all times of any such inspections,
interviews, and examinations conducted at or on the offices or other facilities
or properties of the Company or its affiliates or representatives.
<PAGE>
From time to time following the Closing the Company shall, after receiving
not less than two (2) business days' notice from a Buyer, allow such Buyer and
its authorized representatives (i) access to all books and records, including
work papers and other materials prepared by the Company's independent public
accountants, of the Company and the Subsidiaries, (ii) to make
inspections of the facilities and assets of the Company and the Subsidiaries,
and (iii) to receive other financial and operating data and other information
with respect to the Company and the Subsidiaries as such Buyer may from time to
time reasonably request. The Company shall have no obligations to a Buyer under
the immediately preceding sentence in the event that such Buyer
has sold at least fifty percent (50%) of the shares of Common Stock purchased by
such Buyer on the Closing Date.
(b) Buyers agree that all Confidential Information (as defined below)
shall be kept confidential by Buyers and shall not be disclosed by Buyers 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, bankers, and financial advisors) of Buyers (collectively, for
purposes of this Section, "Buyer Representatives") as need to know such
information for the purpose of evaluating the transactions contemplated hereby,
(ii) any disclosure of Confidential Information may be made to the extent to
which the Company consents in writing, and (iii) Confidential Information may be
disclosed by a Buyer or any Buyer Representative to the extent that a Buyer or
Buyer Representative is legally compelled to do so, provided that, prior to
making such disclosure, such Buyer or Buyer Representative, as the case may be,
advises and consults with the Company regarding such disclosure and provided
further that such Buyer or Buyer Representative, as the case may be, discloses
only that portion of the Confidential Information as is legally required.
Buyers agree 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 Buyers from the Company or their representatives pursuant to this
Section and all similar information obtained from the Company or their
representatives by or on behalf of Buyers prior to the date of this
Agreement, other than information which (i) was or becomes generally available
to the public other than as a result of disclosure by Buyers or any Buyer
Representative, (ii) was or becomes available to Buyers on a
nonconfidential basis from a person other than the Company or its
representatives prior to disclosure to Buyers by the Company or its
representatives, or (iii) was or becomes available to Buyers from a source other
than the Company and its representatives, provided that such source
is not known by Buyers to be bound by a confidentiality agreement with the
Company.
6.2 Mandatory Redemption. At the time, if any, that Tim Goff ceases to
serve (for a period of 30 consecutive days or more) as the Chief Executive
Officer of the Company while any shares of Preferred Stock are held by a Buyer,
there shall be a mandatory redemption of the outstanding shares of Preferred
Stock held by all Buyers, in accordance with Section 6(a) (or a successor
thereto) of the Certificate of Designations establishing the Preferred Stock.
<PAGE>
6.3 Third Party Consents. The Company shall use its reasonable best
efforts to obtain all consents, approvals, orders, authorizations, and waivers
of, and to effect all declarations, filings, and registrations with, all third
parties (including Governmental Entities) that are necessary, required, or
deemed by Buyers to be desirable to enable the Company to issue the
Shares to Buyers as contemplated by this Agreement and to otherwise consummate
the transactions contemplated hereby. All costs and expenses of obtaining or
effecting any and all of the consents, approvals, orders, authorizations,
waivers, declarations, filings, and registrations referred to in this Section
shall be borne by the Company.
6.4 Reasonable Best Efforts. Each party hereto agrees that it will not
voluntarily undertake any course of action inconsistent with the provisions or
intent of this Agreement and will use its reasonable best efforts to take, or
cause to be taken, all action and to do, or cause to be done, all
things reasonably necessary, proper, or advisable under Applicable Laws to
consummate the transactions contemplated by this Agreement, including, without
limitation, (i) cooperation in determining whether any consents, approvals,
orders, authorizations, waivers, declarations, filings, or registrations of or
with any Governmental Entity or third party are required in connection with the
consummation of the transactions contemplated hereby; (ii) reasonable best
efforts to obtain any such consents, approvals, orders, authorizations, and
waivers and to effect any such declarations, filings, and registrations; (iii)
reasonable best efforts to cause to be lifted or rescinded any injunction or
restraining order or other order adversely affecting the ability of
the parties to consummate the transactions contemplated hereby; (iv) reasonable
best efforts to defend, and cooperation in defending, all lawsuits or other
legal proceedings challenging this Agreement or the consummation of the
transactions contemplated hereby; and (v) the execution of any additional
instruments necessary to consummate the transactions contemplated hereby.
6.5 Registration Rights Agreement. The Company and Buyers shall enter
into an amended and restated registration rights agreement (the "Registration
Agreement") at (and subject to the occurrence of) the Closing pursuant to which
the Company shall agree to register under the Securities Act securities owned by
Buyers. The Registration Agreement shall be in substantially
the form set forth as Exhibit 6.5.
6.6 Shareholders' Agreement. The Company and Buyers shall enter into an
amended and restated shareholders' agreement (the "Shareholders' Agreement") at
(and subject to the occurrence of) the Closing, substantially in the form set
forth as Exhibit 6.6.
6.7 Option Plan. The Company shall adopt an option plan (the "Option
Plan") at (and subject to the occurrence of) the Closing, providing for option
grants thereunder to each individual listed on Schedule 6.7(a). The Option Plan
shall be in substantially the form set forth as Exhibit 6.7(b). The Company
shall submit the Option Plan to its shareholders for approval at its next annual
meeting of shareholders.
6.8 Public Announcements. Except as may be required by Applicable Law
or this Section 6.8, no Buyer, on the one hand, or the Company, on the other,
shall issue any press release or otherwise make any public statement with
respect to this Agreement or the transactions contemplated hereby without the
prior written consent of the other parties (which consent shall
not be unreasonably withheld). Any such press release or public statement
required by Applicable Law shall only be made after reasonable notice to the
other parties. Upon execution of this Agreement, the Company shall make a press
release in the form of Exhibit 6.8 and promptly file a report on Form 8-K with
the Securities and Exchange Commission.
<PAGE>
6.9 Notice of Litigation. Until the Closing, (i) Buyers, upon learning
of the same, shall promptly notify the Company of any Proceeding which is
commenced or threatened against a Buyer and which affects this Agreement or the
transactions contemplated hereby and (ii) the Company, upon learning of the
same, shall promptly notify Buyers of any Proceeding which is
commenced or threatened against the Company and which affects this Agreement or
the transactions contemplated hereby and any Proceeding which is commenced or
threatened against the Company or any Subsidiary and which would have been
listed on Schedule 3.14 if such Proceeding had arisen prior to the date hereof.
6.10 Notification of Certain Matters. The Company shall give prompt
notice to Buyers of: (i) the occurrence or nonoccurrence of any event the
occurrence or nonoccurrence of which would be likely to cause any representation
or warranty contained in Article III to be untrue or inaccurate at or prior to
the Closing, (ii) any failure of the Company to comply with or satisfy
any covenant, condition, or agreement to be complied with or satisfied by the
Company hereunder, and (iii) any notice or other communication from any person
alleging that the consent or approval of such person is or may be required in
connection with the transactions contemplated by this Agreement (other than
those consents and approvals indicated as required on Schedule 3.6). Buyers
shall give prompt notice to the Company of: (i) the occurrence or
nonoccurrence of any event the occurrence or nonoccurrence of which would be
likely to cause any representation or warranty contained in Article IV to be
untrue or inaccurate at or prior to the Closing, and (ii) any failure of Buyers
to comply with or satisfy any covenant, condition, or agreement to be complied
with or satisfied by such person hereunder. The delivery of any notice
pursuant to this Section shall not be deemed to: (i) modify the representations
or warranties hereunder of the party delivering such notice, (ii) modify the
conditions set forth in Articles VII and VIII, or (iii) limit or otherwise
affect the remedies available hereunder to the party receiving
such notice.
6.11 Amendment of Schedules. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Closing to
supplement or amend promptly the Schedules hereto with respect to any matter
hereafter arising or discovered which, if existing or known at
the date of this Agreement, would have been required to be set forth or
described in the Schedules. For all purposes of this Agreement, including
without limitation for purposes of determining whether the conditions set forth
in Sections 7.1 and 8.1 have been fulfilled, the Schedules hereto shall be
deemed to include only that information contained therein on the date
of this Agreement and shall be deemed to exclude all information contained in
any supplement or amendment thereto.
6.12 Fees and Expenses.
(a) The Company shall, promptly after receiving a billing statement
regarding same but no earlier than at the closing, pay all reasonable fees and
expenses (including without limitation for legal counsel and accounting fees) of
Buyers as incurred in connection with the negotiation and preparation of this
Agreement and the Ancillary Documents and in connection with the transactions
contemplated hereby and thereby.
<PAGE>
(b) The Company shall be responsible for the payment of all of the
Company's fees and expenses incurred in connection with this Agreement and the
transactions contemplated hereby.
(c) In addition to the foregoing, at (and conditioned upon) the
Closing, the Company shall pay in cash to Buyers a financing fee of One Million
Five Hundred Thousand Dollars ($1,500,000), which shall be allocated among the
Buyers pro rata in accordance with the number of shares of Preferred Stock
purchased hereunder.
6.13 Transfer Taxes. All sales, transfer, filing, recordation,
registration, stamp, and similar Taxes and fees arising from or associated with
the sale and transfer of the Shares as contemplated hereunder, whether levied on
Buyers or the Company, shall be borne by the Company and the Company shall file
all necessary documentation with respect to, and make all payments of, such
Taxes and fees on a timely basis.
6.14 Certificate of Designations. No later than the Closing, the Company
shall file with the Texas Secretary of State a Certificate of Designations in
the form of Exhibit 6.14.
6.15 Bylaw Amendment. No later than the Closing, the Company shall duly
adopt an amendment to its Bylaws regarding requisite approval of Directors, in
the form of Exhibit 6.15.
6.16 Noncompetition Agreement. The Company and Tim J. Goff shall enter
into a Confidentiality and Non-Compete Agreement (the "Non-Compete Agreement")
at (and subject to the occurrence of) the Closing, substantially in the form set
forth as Exhibit 6.16.
6.17 Certain Regulatory Matters.
(a) Each Buyer agrees to cooperate with the Company in all
reasonable respects in complying with the terms and provisions of the letter
agreement between the Company and EOS, BACI and SGCP, a copy of which is
attached hereto as Exhibit 6.17, regarding small business matters (the "Small
Business Sideletter"), including without limitation, voting to approve
amending the Company's Articles of Incorporation, the Company's by-laws or this
Agreement in a manner reasonably acceptable to the Buyers or any "Regulated
Holder" (as defined in the Small Business Sideletter) entitled to make such
request pursuant to the Small Business Sideletter in order to remedy a
"Regulatory Problem" (as defined in the Small Business Sideletter). Anything
contained in this Section 6.17 to the contrary notwithstanding, no Buyer
shall be required under this Section 6.17 to take any action that would
adversely affect in any material respect such Buyer's rights under this
Agreement, the Ancillary Documents, or otherwise as a shareholder of the
Company.
(b) The Company and each Buyer agree not to amend or waive the
voting or other provisions of the Company's Articles of Incorporation, the
Company's by-laws or this Agreement if such amendment or waiver would cause any
"Regulated Holder" to have a "Regulatory Problem" (as such terms are defined in
the Small Business Sideletter). Each of EOS, BACI and SGCP agrees to notify the
Company as to whether or not it would have any such Regulatory
Problem promptly after such party has notice of such amendment or waiver.
<PAGE>
6.18 Survival of Covenants. Except for any covenant or agreement which
by its terms expressly terminates as of a specific date or event, the covenants
and agreements of the parties hereto contained in this Agreement shall survive
the Closing without contractual limitation.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to consummate the transactions contemplated
by this Agreement shall be subject to the fulfillment on or prior to the Closing
Date of each of the following conditions:
7.1 Representations and Warranties True. All the representations and
warranties of Buyers contained in this Agreement, and in any agreement,
instrument, or document delivered pursuant hereto or in connection herewith on
or prior to the Closing Date, shall be true and correct in all material respects
as of the date made and (having been deemed to have been made again on and
as of the Closing Date in the same language) shall be true and correct in all
material respects on and as of the Closing Date, except as affected by
transactions permitted by this Agreement and except to the extent that any such
representation or warranty is made as of a specified date, in which case such
representation or warranty shall have been true and correct in all material
respects as of such specified date.
7.2 Covenants and Agreements Performed. Buyers shall have performed and
complied with in all material respects all covenants and agreements required by
this Agreement to be performed or complied with by them on or prior to the
Closing Date.
7.3 Certificate. The Company shall have received a certificate executed
by each Buyer dated the Closing Date, representing and certifying, in such
detail as the Company may reasonably request, that the conditions set forth in
Sections 7.1 and 7.2 have been fulfilled and that such Buyer is not in breach of
any provision of this Agreement.
7.4 Legal Proceedings. No Proceeding shall, on the Closing Date, be
pending or threatened seeking to restrain, prohibit, or obtain damages or other
relief in connection with this Agreement or the consummation of the transactions
contemplated hereby.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF BUYERS
The obligations of Buyers to consummate the transactions contemplated by
this Agreement shall be subject to the fulfillment on or prior to the Closing
Date of each of the following conditions:
8.1 Representations and Warranties True. All the representations and
warranties of the Company contained in this Agreement, and in any agreement,
instrument, or document delivered pursuant hereto or in connection herewith on
or prior to the Closing Date, shall be true and correct in all material respects
as of the date made and (having been deemed to have been made again on and as of
the Closing Date in the same language) shall be true and correct in all material
respects on and as of the Closing Date, except as affected by transactions
permitted by this Agreement and except to the extent that any such
representation or warranty is made as of a specified date, in which case such
representation or warranty shall have been true and correct in
all material respects as of such specified date.
<PAGE>
8.2 Covenants and Agreements Performed. The Company shall have
performed and complied with in all material respects all covenants and
agreements required by this Agreement to be performed or complied with by it on
or prior to the Closing Date.
8.3 Certificate. Buyers shall have received a certificate executed on
behalf of the Company by the chief executive officer and by the chief financial
officer of the Company, dated the Closing Date, representing and certifying, in
such detail as Buyers may reasonably request, that the conditions set forth in
Sections 8.1 and 8.2 have been fulfilled and that the Company is not in
breach of any provision of this Agreement.
8.4 Opinion of Counsel. Buyers shall have received an opinion of Butler
& Binion, L.L.P., legal counsel to the Company, dated the Closing Date,
substantially in the form of Exhibit 8.4. In rendering such opinion, such
counsel may rely as to factual matters upon certificates or other
documents furnished by directors and officers of the Company and by government
officials and upon such other documents and data as such counsel deems
appropriate as a basis for such opinion.
8.5 Legal Proceedings. No Proceeding shall, on the Closing Date, be
pending or threatened seeking to restrain, prohibit, or obtain damages or other
relief in connection with this Agreement or the consummation of the transactions
contemplated hereby.
8.9 Consents.
(a) There shall have been obtained any and all material permits, consents,
and approvals of Governmental Entities that reasonably may be deemed necessary
so that the consummation of the transactions contemplated hereby will be in
compliance with Applicable Law, the failure to comply with which would have a
Material Adverse Effect on the Company.
(b) All consents and approvals of private persons, (i) the granting of
which is necessary for the consummation of the transactions contemplated hereby
and (ii) the non-receipt of which would have a Material Adverse Effect on the
Company, shall have been obtained.
8.10 No Material Adverse Change. Since the date of this Agreement, there
shall not have been any material adverse change in the business, assets, results
of operations, condition (financial or otherwise), or prospects of the Company
and the Subsidiaries considered as a whole.
8.11 Due Diligence. The due diligence conducted by Buyers and their
representatives in connection with the proposed transactions contemplated hereby
shall not have caused Buyers or their representatives to become aware of any
facts relating to the business, assets, results of operations, condition
(financial or otherwise), or prospects of the Company or any Subsidiary
which, in the good faith judgment of Buyers, make it inadvisable for Buyers to
proceed with the consummation of the transactions contemplated hereby.
<PAGE>
8.12 Other Documents . Buyers shall have received the certificates,
instruments, and documents listed below:
(a) In accordance with the denominations designated in Schedule 1.1, stock
certificates in definitive form and duly executed on behalf of the Company,
representing the portion of the Shares registered in the name of each Buyer.
(b) A copy of the resolutions of the Board of Directors of the Company
authorizing the execution, delivery, and performance by the Company of this
Agreement, certified by the secretary or an assistant secretary of the Company.
(c) Certificates from the Secretary of State of Texas and the Comptroller
of Public Accounts of the State of Texas, each dated not more than ten days
prior to the Closing Date, as to the legal existence and good standing,
respectively, of the Company and the Subsidiaries under the laws of such state.
(d) Certificates from the Secretaries of State of the states listed on
Schedule 3.2, as to the due qualification or licensing of the Company and the
Subsidiaries, as applicable, to do business in such states, dated not more than
ten days prior to the Closing Date.
(e) An original Shareholders' Agreement, Registration Agreement and Non-
Compete Agreement, each duly signed by an authorized officer of the Company and
all other parties thereto.
(f) A file-stamped copy of the Certificate of Designations required by
Section 6.14 hereof and showing acceptance by the Texas Secretary of State.
(g) Such other certificates, instruments, and documents as may be
reasonably requested by Buyers to carry out the intent and purposes of this
Agreement.
8 Conversion of Outstanding Preferred Stock . Any and all shares of
preferred stock of the Company outstanding on the date hereof shall have been
fully converted into Common Stock in accordance with the existing terms of such
preferred stock on the date hereof.
ARTICLE IX
TERMINATION, AMENDMENT, AND WAIVER
9.1 Termination. This Agreement may be terminated and the transactions
contemplated hereby abandoned at any time prior to the Closing in the following
manner:
(a) by mutual written consent of the Company and Buyers; or
(b) by either the Company or Buyers, if:
(i) the Closing shall not have occurred on or before May 15, 1999 unless
such failure to close shall be due to a breach of this Agreement by the party
seeking to terminate this Agreement pursuant to this clause (i); or
(ii) there shall be any statute, rule, or regulation that makes
consummation of the transactions contemplated hereby illegal or otherwise
prohibited or a Governmental Entity shall have issued an order, decree, or
ruling or taken any other action permanently restraining, enjoining, or
otherwise prohibiting the consummation of the transactions contemplated hereby,
and such order, decree, ruling, or other action shall have become final and
nonappealable; or
(c) by the Company, if (i) any of the representations and warranties of
Buyers contained in this Agreement shall not be true and correct in any respect
which is material to Buyers or the ability of Buyers to consummate the
transactions contemplated hereby, or (ii) Buyers shall have failed to fulfill in
any material respect any of their obligations under this Agreement, and, in the
case of each of clauses (i) and (ii), such misrepresentation, breach of
warranty, or failure (provided it can be cured) has not been cured within ten
days after written notice thereof from the Company to Buyers; or
<PAGE>
(d) by Buyers, if (i) any of the representations and warranties of the
Company contained in this Agreement shall not be true and correct in any respect
which is material to the Company and the Subsidiaries considered as a whole or
the ability of the Company to consummate the transactions contemplated hereby,
(ii) the Company shall have failed to fulfill in any material respect any of its
obligations under this Agreement, and, in the case of each of clauses (i) and
(ii), such misrepresentation, breach of warranty, or failure (provided it can be
cured) has not been cured within ten days after written notice thereof
from Buyers to the Company, or (iii) the due diligence conducted by Buyers and
their representatives in connection with the proposed transactions contemplated
hereby shall have caused Buyers or their representatives to become aware of any
facts relating to the business, assets, results of operations, condition
(financial or otherwise), or prospects of the Company or any Subsidiary which,
in the good faith judgment of Buyers, make it inadvisable for Buyers to proceed
with the consummation of the transactions contemplated hereby.
9.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 9.1 by the Company, on the one hand, or Buyer, on
the other, written notice thereof shall forthwith be given to the other party
specifying the provision hereof pursuant to which such termination is made, and
this Agreement shall become void and have no effect, except that the
agreements contained in this Section and in Sections 6.1(b), 6.8, 6.12, 11.1,
11.5, and 11.14 and in Article XI shall survive the termination hereof. Nothing
contained in this Section shall relieve any party from liability for damages
actually incurred as a result of any breach of this Agreement.
9.3 Amendment. This Agreement may not be amended except by an
instrument in writing signed by or on behalf of all the parties hereto.
9.4 Waiver. The Company, on the one hand, or Buyers, on the other, may:
(i) waive any inaccuracies in the representations and warranties of the other
contained herein or in any document, certificate, or writing delivered pursuant
hereto, or (ii) waive compliance by the other with any of the other's agreements
or fulfillment of any conditions to its own obligations contained herein. Any
agreement on the part of a party hereto to any such waiver shall be valid
only if set forth in an instrument in writing signed by or on behalf of such
party. No failure or delay by a party hereto in exercising any right, power, or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power, or privilege.
9.5 Remedies Not Exclusive. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.
The rights and remedies of any party based upon, arising out of, or otherwise in
respect of any inaccuracy in or breach of any representation, warranty,
covenant, or agreement contained in this Agreement shall in no way be
limited by the fact that the act, omission, occurrence, or other state of facts
upon which any claim of any such inaccuracy or breach is based may also be the
subject matter of any other representation, warranty, covenant, or agreement
contained in this Agreement (or in any other agreement between the parties) as
to which there is no inaccuracy or breach.
<PAGE>
ARTICLE X
COMMON STOCK CLAW-BACK
In the event that, and only if, the Company, prior to the second
anniversary of the Closing Date, fully redeems all shares of Preferred Stock
issued to Buyers pursuant to this Agreement (the "Preferred Redemption"), then
the Company shall simultaneously purchase, and each Buyer shall sell, assign and
transfer, one-eighth (12.5%) of the total shares of Common Stock originally
issued to such Buyer pursuant to this Agreement plus any Other Securities,
subject to adjustment as provided herein, for a total purchase price of $100
(the "Redemption Price"). On the date of the Preferred Redemption, each Buyer
shall surrender a certificate or certificates for such shares to the Company and
shall thereupon be entitled to receive payment of its pro rata share of the
Redemption Price. If the Company effects a split or combination of the Common
Stock, including a dividend payable in shares of Common Stock, the number of
shares of Common Stock subject to purchase in connection with the Preferred
Redemption shall be proportionately adjusted.
ARTICLE XI
SURVIVAL OF REPRESENTATIONS;
INDEMNIFICATION
11.1 Survival. The representations and warranties of the parties hereto
contained in this Agreement or in any certificate, instrument, or document
delivered pursuant hereto shall survive the Closing without contractual
limitation, regardless of any investigation made by or on behalf
of any party.
11.2 Indemnification by Company. Subject to the terms and conditions of
this Article XI, the Company shall indemnify, defend, and hold harmless Buyers
from and against any and all claims, actions, causes of action, demands,
assessments, losses, damages, liabilities, judgments, settlements, penalties,
costs, and expenses (including reasonable attorneys' fees and expenses), of
any nature whatsoever (collectively, "Damages"), asserted against, resulting to,
imposed upon, or incurred by Buyers, directly or indirectly, by reason of or
resulting from any breach by the Company of any of its representations,
warranties, covenants, or agreements contained in this Agreement or in any
certificate, instrument, or document delivered pursuant hereto.
11.3 Indemnification by Buyers. Subject to the terms and conditions of
this Article XI, each Buyer (severally and not jointly) shall indemnify, defend,
and hold harmless the Company from and against any and all Damages asserted
against, resulting to, imposed upon, or incurred by the Company, directly or
indirectly, by reason of or resulting from any breach by such Buyer of any
of its representations, warranties, covenants, or agreements contained in this
Agreement or in any certificate, instrument, or document delivered pursuant
hereto.
<PAGE>
11.4 Procedure for Indemnification. Promptly after receipt by an
indemnified party under Section 11.2 or 11.3 of notice of the commencement of
any action, such indemnified party shall, if a claim in respect thereof is to be
made against an indemnifying party under such Section, give written notice to
the indemnifying party of the commencement thereof, but the failure so to
notify the indemnifying party shall not relieve it of any liability that it may
have to any indemnified party except to the extent the indemnifying party
demonstrates that the defense of such action is prejudiced thereby. In case any
such action shall be brought against an indemnified party and it shall give
written notice to the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the
extent that it may wish, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. If the indemnifying party elects to
assume the defense of such action, the indemnified party shall have the right to
employ separate counsel at its own expense and to participate in the defense
thereof. If the indemnifying party elects not to assume (or fails to
assume) the defense of such action, the indemnified party shall be entitled to
assume the defense of such action with counsel of its own choice, at the expense
of the indemnifying party. If the action is asserted against both the
indemnifying party and the indemnified party and there is a
conflict of interests which renders it inappropriate for the same counsel to
represent both the indemnifying party and the indemnified party, the
indemnifying party shall be responsible for paying for separate counsel for the
indemnified party; provided, however, that if there is more
than one indemnified party, the indemnifying party shall not be responsible for
paying for more than one separate firm of attorneys to represent the indemnified
parties, regardless of the number of indemnified parties. If the indemnifying
party elects to assume the defense of such action, (a) no compromise or
settlement thereof may be effected by the indemnifying party without the
indemnified party's written consent (which shall not be unreasonably withheld)
unless the sole relief provided is monetary damages that are paid in full by the
indemnifying party and (b) the indemnifying party shall have no liability with
respect to any compromise or settlement thereof effected without its written
consent (which shall not be unreasonably withheld).
11.5 Indemnification Despite Negligence. It is the express intention of
the parties hereto that each person to be indemnified pursuant to this Article
XI shall be indemnified and held harmless from and against all Damages as to
which indemnity is provided for under this Article XI notwithstanding that any
such Damages arise out of or result from the ordinary, strict, sole, or
contributory negligence of such person and regardless of whether any other
person (including the other parties to this Agreement) is or is not also
negligent.
ARTICLE XII
MISCELLANEOUS
12.1 Notices. All notices, requests, demands, and other communications
required or permitted to be given or made hereunder by any party hereto shall be
in writing and shall be deemed to have been duly given or made if (i) delivered
personally, (ii) transmitted by first class registered or certified mail,
postage prepaid, return receipt requested, (iii) sent by prepaid
overnight courier service, or (iv) sent by telecopy or facsimile transmission,
answer back requested, to the parties at the following addresses (or at such
other addresses as shall be specified by the parties by like notice):
<PAGE>
If to Energy PLC, EnCap III-B, BOCP or Fund III:
c/o EnCap Investments, L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: D. Martin Phillips
Fax No.: 713-659-6130
with a copy to:
Thompson & Knight, P.C.
1700 Chase Tower, 600 Travis
Houston, TX 77002
Attention: Michael K. Pierce, Esq.
Telefax: 713-217-2828
If to Kayne:
Kayne Anderson Investment Management
1800 Ave. of the Stars, # 1425
Los Angeles, California 90067
Attention: Robert B. Sinnott
Fax No.: 310-284-6490
If to BACI:
Bank of America Capital Investors
100 North Tryon Street, 25th Floor
Charlotte, North Carolina 28255
Attention: J. Travis Hain
Fax No.: 704-386-6432
If to EOS:
EOS Partners, L.P.
320 Park Avenue
New York, New York 10022
Attention: Brian D. Young
Fax No.: 212-832-5815
If to SGCP:
SGC Partners II LLC
c/o SG Capital Partners, LLC
1221 Avenue of the Americas, 15th Floor
New York, NY 10020
Attention: V. Frank Pottow
Fax No.: 212-278-5454
<PAGE>
If to the Company:
Bargo Energy Company
700 Louisiana, Suite 3700
Houston, Texas 77002
Attention: Tim J. Goff and Lee Seekely
Telefax: (713) 236-9799
with, a copy to:
Butler & Binion, L.L.P.
1000 Louisiana, Suite 1600
Houston, TX 77002
Attention: George G. Young, Esq.
Telefax: 713-237-3202
Such notices, requests, demands, and other communications shall be effective (i)
if delivered personally or sent by courier service, upon actual receipt by the
intended recipient, (ii) if mailed, upon the earlier of five days after deposit
in the mail or the date of delivery as shown by the return receipt therefor, or
(iii) if sent by telecopy or facsimile transmission, when the answer
back is received.
12.2 Entire Agreement. This Agreement, together with the Schedules,
Exhibits, Annexes, and other writings referred to herein or delivered pursuant
hereto, constitute the entire agreement between the parties hereto with respect
to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof.
12.3 Binding Effect; Assignment; No Third Party Benefit. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, legal representatives, successors, and permitted assigns.
Except as otherwise expressly provided in this Agreement, neither this Agreement
nor any of the rights, interests, or obligations hereunder shall be assigned
by any of the parties hereto without the prior written consent of the other
parties, except that a Buyer may assign to any affiliate of such Buyer any of
such Buyer's rights, interests, or obligations hereunder, upon notice to the
other party or parties, provided that (i) no such assignment shall relieve such
Buyer of its obligations hereunder and (ii) the transferee makes the
representations in Sections 4.6 through 4.11 hereof. Except as provided in
Article XI, nothing in this Agreement, express or implied, is intended to or
shall confer upon any person other than the parties hereto, and their respective
heirs, legal representatives, successors, and permitted assigns, any rights,
benefits, or remedies of any nature whatsoever under or by reason of this
Agreement.
12.4 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.
<PAGE>
12.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF
THE STATE OF TEXAS, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF
LAWS THEREOF.
12.6 Further Assurances. From time to time following the Closing, at
the request of any party hereto and without further consideration, the other
party or parties hereto shall execute and deliver to such 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.
12.7 Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only, do not constitute a part of this
Agreement, and shall not affect in any manner the meaning or interpretation of
this Agreement.
12.8 Gender. Pronouns in masculine, feminine, and neuter genders shall
be construed to include any other gender, and words in the singular form shall
be construed to include the plural and vice versa, unless the context otherwise
requires.
12.9 References. All references in this Agreement to Articles,
Sections, and other subdivisions refer to the Articles, Sections, and other
subdivisions of this Agreement unless expressly provided otherwise. The words
"this Agreement", "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. Whenever the words
"include", "includes", and "including" are used in this Agreement, such words
shall be deemed to be followed by the words "without limitation". Each
reference herein to a Schedule, Exhibit, or Annex refers to the
item identified separately in writing by the parties hereto as the described
Schedule, Exhibit, or Annex to this Agreement. All Schedules, Exhibits, and
Annexes are hereby incorporated in and made a part of this Agreement as if set
forth in full herein.
12.10 Counterparts. 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.
12.11 Injunctive Relief. The parties hereto acknowledge and agree that
irreparable damage would occur in the event any of the provisions of this
Agreement 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.
<PAGE>
12.12 Schedules (Disclosure). Each of the Schedules to this Agreement
shall be deemed to include and incorporate all disclosures made on the other
Schedules to this Agreement. It is understood and agreed that the specification
of any dollar amount in the representations and warranties contained in this
Agreement or the inclusion of any specific item in the Schedules is
not intended to imply that such amounts or higher or lower amounts, or the items
so included or other items, are or are not material, and no party shall use the
fact of the setting of such amounts or the fact of the inclusion of any such
item in the Schedules in any dispute or controversy between the parties as to
whether any obligation, item, or matter not described herein or included
in a Schedule is or is not material for purposes of this Agreement.
12.13 Schedules (Construction). In the event of any inconsistency
between the statements in the body of this Agreement and those in the Schedules
(other than an exception expressly set forth as such in the Schedules in
relation to a specifically identified representation or warranty),
those in this Agreement shall control.
12.14 Consent to Jurisdiction; Waiver of Jury Trial.
(a) The parties hereto hereby irrevocably submit to the
jurisdiction of the courts of the State of Texas and the federal courts of the
United States of America located in Houston, Texas, and appropriate appellate
courts therefrom, over any dispute arising out of or relating to this
Agreement or any of the transactions contemplated hereby, and each party hereby
irrevocably agrees that all claims in respect of such dispute or proceeding may
be heard and determined in such courts. The parties hereby irrevocably waive,
to the fullest extent permitted by Applicable Law, any objection which they may
now or hereafter have to the laying of venue of any dispute arising out of or
relating to this Agreement or any of the transactions contemplated hereby
brought in such court or any defense of inconvenient forum for the maintenance
of such dispute. Each of the parties hereto agrees that a judgment in any such
dispute may be enforced in other jurisdictions by suit on the judgment or in any
other manner provided by law. This consent to jurisdiction is being given
solely for purposes of this Agreement and is not intended to, and shall
not, confer consent to jurisdiction with respect to any other dispute in which a
party to this Agreement may become involved.
(b) Each of the parties hereto hereby consents to process being
served by any party to this Agreement in any suit, action, or proceeding of the
nature specified in subsection (a) above by the mailing of a copy thereof in the
manner specified by the provisions of Section 11.1.
(c) Furthermore, all parties hereto waive any and all rights to have a
jury resolve or otherwise preside, in whole or in part, over any dispute or
Proceeding involving any of the parties hereto and regarding (i) this Agreement,
(ii) the documents required hereby, or (iii) any of the transactions
contemplated hereby or thereby.
12.15 Liability of Buyers. The liability of each Buyer with respect to
the agreements, covenants, representations and warranties of Buyers contained in
this Agreement or in any certificate, instrument, or document delivered pursuant
hereto shall be to the extent such agreements, covenants, representations or
warranties applies to himself, herself, or itself and not with respect to any
other Buyer.
<PAGE>
12.16 Consent to Certain Stock Issuances. By its execution hereof, each
Buyer hereby consents to the issuance of Common Stock upon exercise of warrants
and options to purchase Common Stock outstanding as of the date hereof and upon
exercise of options to purchase Common Stock granted as set forth on Schedule
6.7(a) hereof.
ARTICLE XIII
DEFINITIONS
13.1 Certain Defined Terms. As used in this Agreement, each of the
following terms has the meaning given it below:
"affiliate" means, with respect to any person, any other person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such person. For the purposes
of this definition, "control" when used with respect to any person means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, whether through the
ownership of voting securities, by contract, or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Ancillary Documents" means each agreement, instrument, and document (other
than this Agreement) executed or to be executed in connection with the
transactions contemplated by this Agreement.
"Applicable Law" means any statute, law, rule, or regulation or any
judgment, order, writ, injunction, or decree of any Governmental Entity to which
a specified person or property is subject.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Bargo Energy Company, a Texas corporation, and, unless the
context otherwise requires, includes the Company's predecessor, Future Petroleum
Corporation, a Utah corporation.
"Encumbrances" means liens, charges, pledges, options, mortgages, deeds of
trust, security interests, claims, restrictions (whether on voting, sale,
transfer, disposition, or otherwise), easements, and other encumbrances of every
type and description, whether imposed by law, agreement, understanding, or
otherwise.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United States
of America from time to time.
<PAGE>
"Governmental Entity" means any court or tribunal in any jurisdiction
(domestic or foreign) or any federal, state, municipal, or other governmental
body, agency, authority, department, commission, board, bureau, or
instrumentality (domestic or foreign), as well as the New York Stock Exchange,
The Nasdaq Stock Market, and any exchange upon which the Common Stock is listed
from time to time.
"Material Adverse Effect" means any change, development, or effect
(individually or in the aggregate) which is, or is reasonably likely to be,
materially adverse (i) to the business, assets, results of operations or
condition (financial or otherwise) of a party, or (ii) to the ability of a party
to perform on a timely basis any material obligation under this Agreement or any
agreement, instrument, or document entered into or delivered in connection
herewith.
"Other Securities" means any stock (other than Common Stock), bond, note or
other securities issued to a holder of Common Stock (on account of Common Stock
issued pursuant to this Agreement) pursuant to any merger, consolidation,
reorganization, recapitalization, dividend or other distribution.
"Permits" means licenses, permits, franchises, consents, approvals,
variances, exemptions, and other authorizations of or from Governmental
Entities.
"person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, enterprise, unincorporated
organization, or Governmental Entity.
"Proceedings" means all proceedings, actions, claims, suits,
investigations, and inquiries by or before any arbitrator or Governmental
Entity.
"reasonable best efforts" means a party's reasonable best efforts in
accordance with reasonable commercial practice and without the incurrence of
unreasonable expense.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means any corporation more than 50% of whose outstanding
voting securities, or any general partnership, joint venture, or similar entity
more than 50% of whose total equity interests, is owned, directly or indirectly,
by the Company, or any limited partnership of which the Company or any
Subsidiary is a general partner.
"Taxes" means any income taxes or similar assessments or any sales, excise,
occupation, use, ad valorem, property, production, severance, transportation,
employment, payroll, franchise, or other tax imposed by any United States
federal, state, or local (or any foreign or provincial) taxing authority,
including any interest, penalties, or additions attributable thereto.
<PAGE>
"Tax Return" means any return or report, including any related or
supporting information, with respect to Taxes.
"to the best knowledge" of a specified person (or similar references to a
person's knowledge) means all information to be attributed to such person
actually or constructively known to (a) such person in the case of an individual
or (b) in the case of a corporation or other entity, an executive officer or
employee who devoted substantive attention to matters of such nature during the
ordinary course of his employment by such person. A person has "constructive
knowledge" of those matters which the individual involved could reasonably be
expected to have as a result of undertaking an investigation of such a scope and
extent as a reasonably prudent man would undertake concerning the particular
subject matter.
IN WITNESS WHEREOF, the parties have executed this Agreement, or caused
this Agreement to be executed by their duly authorized representatives, all as
of the day and year first above written.
THE COMPANY:
BARGO ENERGY COMPANY
By: /s/ Tim J. Goff
Name: Tim J. Goff
Title: President
BUYERS:
ENERGY CAPITAL INVESTMENT COMPANY PLC
By: /s/ Gary R. Petersen
Gary R. Petersen
Director
ENCAP ENERGY CAPITAL FUND III, L.P.
By: EnCap Investments L.C., General Partner
By: /s/ D. Martin Phillips
D. Martin Phillips
Managing Director
<PAGE>
ENCAP ENERGY CAPITAL FUND III-B, L.P.
By: EnCap Investments L.C., General Partner
By: /s/ D. Martin Phillips
D. Martin Phillips
Managing Director
BOCP ENERGY PARTNERS, L.P.
By: EnCap Investments L.C., Manager
By: /s/ D. Martin Phillips
D. Martin Phillips
Managing Director
EOS PARTNERS, L.P.
By: /s/ EOS PARTNERS, L.P.
Name:
Title:
EOS PARTNERS SBIC, L.P.
By: Eos SBIC General, L.P., its general partner
By: Eos SBIC, Inc., its general partner
By: /s/ EOS PARTNERS SBIC, L.P.
Name:
Title:
EOS PARTNERS SBIC II, L.P.
By: Eos SBIC General II, L.P., its general partner
By: Eos SBIC II, Inc., its general partner
By: /s/ EOS PARTNERS SBIC II, L.P.
Name:
Title:
SGC PARTNERS II LLC
By: /s/ V. Frank Pottow
V. Frank Pottow
Managing Director
BANCAMERICA CAPITAL INVESTORS SBIC I, L.P.
By: BancAmerica Capital Management SBIC I, LLC,
its general partner
By: BancAmerica Capital Management I, L.P., its
its sole member
By: BACM I GP, LLC, its general partner
By: /s/ J. Travis Hain
J. Travis Hain
Managing Director
KAYNE ANDERSON ENERGY FUND, L.P.
By: /s/ KAYNE ANDERSON ENERGY FUND, L.P.
Name:
Title:
<PAGE>
<TABLE>
Schedule 1.1
Investors
Shares of Shares of Purchase
Name Preferred Stock Common Stock Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
EnCap Energy Capital Fund III L. P. 637,185 5,583,755 $ 6,371,850
EnCap Energy Capital Fund III-B L. P. 481,904 4,222,999 4,819,040
BOCP Energy Partners, L. P. 155,911 1,366,277 1,559,110
Energy Capital Investment Co. PLC 225,000 1,971,712 2,250,000
Kayne Anderson Energy, L. P. 1,000,000 8,763,162 10,000,000
BancAmerica Capital Investors SBIC I,L.P. 1,500,000 13,144,743 15,000,000
Eos Partners SBIC, L. P. 390,000 3,417,633 3,900,000
Eos Partners SBIC II, L. P. 72,500 635,329 725,000
Eos Partners L. P. 37,500 328,619 375,000
SG Capital Partners II LLC 500,000 4,381,581 5,000,000
- --------------------------------------------------------------------------------
Total 5,000,000 43,815,810 $ 50,000,000
</TABLE>
<PAGE>
EXHIBIT 10.10
BARGO ENERGY COMPANY
1999 STOCK INCENTIVE PLAN
May 12, 1999
TABLE OF CONTENTS
Page
ARTICLE I. GENERAL ...................................... 1
Section 1.1. Purpose .................................... 1
Section 1.2. Administration ............................. 1
Section 1.3. Eligibility for Participation .............. 2
Section 1.4. Types of Awards Under Plan ................. 2
Section 1.5. Aggregate Limitation on Awards ............. 2
Section 1.6. Effective Date and Term of Plan ............ 3
ARTICLE II. STOCK OPTIONS ............................... 3
Section 2.1. Award of Stock Options ..................... 3
Section 2.2. Stock Option Agreements .................... 3
Section 2.3. Stock Option Price ......................... 4
Section 2.4. Term and Exercise ......................... 4
Section 2.5. Manner of Payment .......................... 4
Section 2.6. Issuance of Certificates ................... 4
Section 2.7. Death, Retirement and Termination of Employment of
Optionee ................................... 4
ARTICLE III. INCENTIVE STOCK OPTIONS .................... 5
Section 3.1. Award of Incentive Stock Options ........... 5
Section 3.2. Incentive Stock Option Agreements .......... 5
Section 3.3. Incentive Stock Option Price ............... 5
Section 3.4. Term and Exercise .......................... 6
Section 3.5. Maximum Amount of Incentive Stock Option
Grant ...................................... 6
Section 3.6. Death of Optionee .......................... 6
Section 3.7. Retirement or Disability ................... 6
Section 3.8. Termination for Other Reasons .............. 6
Section 3.9. Termination for Cause. ..................... 7
Section 3.10. Applicability of Stock Options Sections.... 7
Section 3.11. Code Requirements ......................... 7
ARTICLE IV. PERFORMANCE SHARE AWARDS .................... 7
Section 4.1. Awards Granted by Plan Administrator........ 7
Section 4.2. Amount of Award. ........................... 7
Section 4.3. Communication of Award. .................... 7
Section 4.4. Amount of Award Payable. ................... 7
Section 4.5. Adjustments. ............................... 8
Section 4.6. Payments of Awards. ........................ 8
Section 4.7. Termination of Employment. ................. 8
Section 4.8. Transfer Restriction ....................... 8
ARTICLE V. MISCELLANEOUS ................................ 8
Section 5.1. General Restriction ........................ 8
Section 5.2. Non-Assignability ......................... 8
Section 5.3. Withholding Taxes .......................... 8
Section 5.4. Right to Terminate Employment .............. 9
Section 5.5. Non-Uniform Determinations ................. 9
Section 5.6. Rights as a Stockholder .................... 9
Section 5.7. Definitions ................................ 9
Section 5.8. Leaves of Absence ..........................10
Section 5.9. Newly Eligible Employees ...................10
Section 5.10. Adjustments ................................10
Section 5.11. Changes in the Company's Capital Structure .10
Section 5.12. Amendment of the Plan ......................12
Section 5.13. Adjustments for Pooling of Interests
Accounting. ................................12
<PAGE>
BARGO ENERGY COMPANY
1999 STOCK INCENTIVE PLAN
ARTICLE I. GENERAL
Section 1.1. Purpose. The purposes of this Stock Incentive Plan (the
"Plan") are to: (1) associate the interests of the management of BARGO ENERGY
COMPANY, a Texas corporation, and its Subsidiaries and affiliates
(collectively referred to as the "Company") closely with the stockholders to
generate an increased incentive to contribute to the Company's future success
and prosperity, thus enhancing the value of the Company for the benefit of its
stockholders; (2) provide management with a proprietary ownership interest in
the Company commensurate with Company performance, as reflected in increased
stockholder value; (3) maintain competitive compensation levels thereby
attracting and retaining highly competent and talented directors, employees
and consultants; and (4) provide an incentive to management for continuous
employment with the Company. Certain capitalized terms are defined in Section
5.7.
Section 1.2. Administration.
(a) The Plan shall be administered by the Board of Directors of
the Company or any duly constituted committee of the Board of Directors
consisting of at least two members of the Board of Directors all of whom
shall be Non-Employee Directors unless otherwise designated by the Board
of Directors. Such administrating party shall be referred to herein as
the "Plan Administrator." The Plan Administrator shall have the
authority to appoint a committee consisting of two or more employees of
the Company to make recommendations to the Plan Administrator with
respect to the selection of participants in the Plan to receive Awards
and the form and terms of such Awards. Such committee and the members
thereof shall serve subject to the discretion of the Plan Administrator
and the recommendations of such committee shall not be binding on the
Plan Administrator. In addition, the Chief Executive Officer of the
Company will make recommendations to the Plan Administrator with respect
to the selection of participants to receive Awards and the form and
terms of such Awards relating to shares of Common Stock (as defined)
underlying Awards that were previously awarded but expired unexercised.
(b) The Plan Administrator shall have the authority, in its sole
discretion and from time to time to:
(i) designate the officers and key employees and consultants of
the Company and its Subsidiaries eligible to participate in the
Plan;
(ii) grant Awards provided in the Plan in such form and amount
as the Plan Administrator shall determine;
(iii) impose such limitations, restrictions and conditions, not
inconsistent with this Plan, upon any such Award as the Plan
Administrator shall deem appropriate; and
(iv) interpret the Plan and any agreement, instrument or other
document executed in connection with the Plan, adopt, amend and
rescind rules and regulations relating to the Plan, and make all
other determinations and take all other action necessary or
advisable for the implementation and administration of the Plan.
(c) Decisions and determinations of the Plan Administrator on
all matters relating to the Plan shall be in its sole discretion and
shall be final, conclusive and binding upon all persons, including the
Company, any participant, any stockholder of the Company, any employee
and any consultant. No member of any committee acting as Plan
Administrator shall be liable for any action taken or decision made
relating to the Plan or any Award thereunder.
<PAGE>
Section 1.3. Eligibility for Participation. Participants in the Plan
shall be selected by the Plan Administrator from the directors, executive
officers and other key employees and consultants of the Company and executive
officers and key employees and consultants of any Subsidiary who have the
capability of making a substantial contribution to the success of the Company.
In making this selection and in determining the form and amount of awards,
the Plan Administrator shall consider any factors deemed relevant, including
the individual's functions, responsibilities, value of services to the Company
and past and potential contributions to the Company's profitability and
growth. For the purposes of this Plan, the term "Subsidiary" means any
corporation or other entity of which at least 50% of the voting securities are
owned by the Company directly or through one or more other corporations, each
of which is also a Subsidiary. With respect to non-corporate entities,
Subsidiary shall mean an entity managed or controlled by the Company or any
Subsidiary and with respect to which the Company or any Subsidiary is
allocated more than half of the profits and losses thereof.
Section 1.4. Types of Awards Under Plan. Awards under the Plan may be
in the form of any or more of the following:
(i) Stock Options, as described in Article II;
(ii) Incentive Stock Options, as described in Article III;
and/or
(iii) Performance Shares, as described in Article IV.
Awards under the Plan shall be evidenced by an Award Agreement between the
Company and the recipient of the Award, in form and substance satisfactory to
the Plan Administrator, and not inconsistent with this Plan. Award Agreements
may provide such vesting schedules for Stock Options, Incentive Stock Options
and Performance Shares, and such other terms, conditions and provisions as are
not inconsistent with the terms of this Plan. Subject to the express
provisions of the Plan, and within the limitations of the Plan, the Plan
Administrator may modify, extend or renew outstanding Award Agreements, or
accept the surrender of outstanding Awards and authorize the granting of new
Awards in substitution therefor. However, except as provided in this Plan, no
modification of an Award shall impair the rights of the holder thereof without
his consent.
Section 1.5. Aggregate Limitation on Awards.
(a) Shares of stock which may be issued under the Plan shall be
authorized and unissued or treasury shares of Common Stock, par value
$.01 per share, of the Company ("Common Stock"). The maximum number of
shares of Common Stock which may be issued pursuant to Awards issued
under the Plan shall be 16,430,929 which may be increased by the Board
of Directors pursuant to Section 5.12.
(b) For purposes of calculating the maximum number of shares of
Common Stock which may be issued under the Plan at any time:
(i) all the shares issued (including the shares, if any,
withheld for tax withholding requirements) under the Plan shall be
counted when issued upon exercise of a Stock Option or Incentive
Stock Option; and
(ii) only the net shares issued as Performance Shares shall
be counted (shares reacquired by the Company because of failure to
achieve a performance target or failure to become fully vested for
any other reason shall again be available for issuance under the
Plan).
(c) Shares tendered by a participant as payment for shares
issued upon exercise of a Stock Option or Incentive Stock Option shall
be available for issuance under the Plan. Any shares of Common Stock
subject to a Stock Option or Incentive Stock Option which for any reason
is terminated unexercised or expires shall again be available for
issuance under the Plan.
<PAGE>
Section 1.6. Effective Date and Term of Plan.
(a) The Plan shall become effective on the date adopted by the
Board of Directors, subject to approval by the holders of a majority of
the shares of Common Stock at a meeting or by written consent.
(b) The Plan and all Awards made under the Plan shall remain
in effect until such Awards have been satisfied or terminated in
accordance with the Plan and the terms of such Awards.
ARTICLE II. STOCK OPTIONS
Section 2.1. Award of Stock Options. The Plan Administrator may from
time to time, and subject to the provisions of the Plan and such other terms
and conditions as the Plan Administrator may prescribe, grant to any
participant in the Plan one or more options to purchase for cash or shares the
number of shares of Common Stock ("Stock Options") allotted by the Plan
Administrator. The date a Stock Option is granted shall mean the date
selected by the Plan Administrator as of which the Plan Administrator allots a
specific number of shares to a participant pursuant to the Plan.
Section 2.2. Stock Option Agreements. The grant of a Stock Option shall
be evidenced by a written Award Agreement, executed by the Company and the
holder of a Stock Option (the "Optionee"), stating the number of shares of
Common Stock subject to the Stock Option evidenced thereby, and in such form
as the Plan Administrator may from time to time determine.
<PAGE>
Section 2.3. Stock Option Price. The Option Price per share of Common
Stock deliverable upon the exercise of a Stock Option shall be 100% of the
Fair Market Value of a share of Common Stock on the date the Stock Option is
granted unless otherwise determined by the Plan Administrator.
Section 2.4. Term and Exercise. A Stock Option shall not be exercisable
prior to six months from the date of its grant, unless a shorter period is
provided by the Plan Administrator or by another Section of this Plan, and may
be subject to such vesting scheduling and term ("Option Term") as the Plan
Administrator may provide in an Award Agreement. No Stock Option shall be
exercisable after the expiration of its Option Term.
Section 2.5. Manner of Payment. Each Award Agreement providing for
Stock Options shall set forth the procedure governing the exercise of the
Stock Option granted thereunder, and shall provide that, upon such exercise in
respect of any shares of Common Stock subject thereto, the Optionee shall pay
to the Company, in full, the Option Price for such shares with cash or, if
duly authorized by the Plan Administrator, Common Stock. The Plan
Administrator may permit an Optionee to elect to pay the Option Price upon the
exercise of a Stock Option through a cashless exercise procedure approved by
the Plan Administrator by irrevocably authorizing a broker to sell shares of
Common Stock (or a sufficient portion of the shares) acquired upon exercise of
the Stock Option and remit to the Company a sufficient portion of the sale
proceeds to pay the entire Option Price and any tax withholding resulting from
such exercise.
Section 2.6. Issuance of Certificates. As soon as practicable after
receipt of payment, the Company shall deliver to the Optionee a certificate or
certificates for such shares of Common Stock unless (i) such certificate or
certificates have been previously delivered to a broker pursuant to a cashless
exercise through a broker or (ii) the Award Agreement for such Stock Options
allows the Plan Administrator or the Optionee to defer delivery of such
certificates. The Optionee shall become a stockholder of the Company with
respect to Common Stock represented by share certificates so issued and as
such shall be fully entitled to receive dividends, to vote and to exercise all
other rights of a stockholder unless the Plan Administrator, in its
discretion, imposes conditions, restrictions or contingencies with respect to
such shares in the applicable Award Agreement.
Section 2.7. Death, Retirement and Termination of Employment of
Optionee. Unless otherwise provided in an Award Agreement or otherwise agreed
to by the Plan Administrator:
(a) Upon the death of the Optionee, any rights to the extent
exercisable on the date of death may be exercised by the Optionee's
estate, or by a person who acquires the right to exercise such Stock
Option by bequest or inheritance or by reason of the death of the
Optionee, provided that such exercise occurs within both (i) the
remaining Option Term of the Stock Option and (ii) one year after the
Optionee's death. The provisions of this Section shall apply
notwithstanding the fact that the Optionee's employment may have
terminated prior to death, but only to the extent of any rights
exercisable on the date of death.
(b) Upon termination of the Optionee's employment by reason of
retirement or permanent disability (as each is determined by the Plan
Administrator), the Optionee may exercise any vested Stock Options,
provided such option exercise occurs within both (i) the remaining
Option Term of the Stock Option and (ii) one year (in the case of
permanent disability) or three months (in the case of retirement).
(c) Upon termination of the Optionee's employment by reason
other than death, disability, retirement or cause (as each is determined
by the Plan Administrator), the Optionee may exercise any vested Stock
Options, provided such option exercise occurs within both (i) the
remaining Option Term of the Stock Option and (ii) 120 days of the date
of termination.
(d) Except as provided in Subsections (a), (b) and (c) of this
Section 2.7, all Stock Options shall terminate immediately upon the
termination of the Optionee's employment.
<PAGE>
ARTICLE III. INCENTIVE STOCK OPTIONS
Section 3.1. Award of Incentive Stock Options. The Plan Administrator
may, from time to time and subject to the provisions of the Plan and such
other terms and conditions as the Plan Administrator may prescribe, grant to
any officer or key employee who is a participant in the Plan one or more
"incentive stock options" (intended to qualify as such under the provisions of
Section 422 of the Internal Revenue Code of 1986, as amended ("Incentive Stock
Options")) to purchase for cash or shares the number of shares of Common Stock
allotted by the Plan Administrator. No Incentive Stock Options shall be made
under the Plan after the tenth anniversary of the effective date of the Plan.
The date an Incentive Stock Option is granted shall mean the date selected by
the Plan Administrator as of which the Plan Administrator allots a specific
number of shares to a participant pursuant to the Plan. Notwithstanding the
foregoing, Incentive Stock Options shall not be granted to any owner of 10% or
more of the total combined voting power of the Company and its subsidiaries.
Section 3.2. Incentive Stock Option Agreements. The grant of an
Incentive Stock Option shall be evidenced by a written Award Agreement,
executed by the Company and the holder of an Incentive Stock Option (the
"Optionee"), stating the number of shares of Common Stock subject to the
Incentive Stock Option evidenced thereby, and in such form as the Plan
Administrator may from time to time determine.
Section 3.3. Incentive Stock Option Price. The Option Price per share
of Common Stock deliverable upon the exercise of an Incentive Stock Option
shall be 100% of the Fair Market Value of a share of Common Stock on the date
the Incentive Stock Option is granted.
<PAGE>
Section 3.4. Term and Exercise. Each Incentive Stock Option shall not
be exercisable prior to six months from the date of its grant and, unless a
shorter period is provided by the Plan Administrator or another Section of
this Plan, may be exercised during a period of ten years from the date of
grant thereof (the "Option Term") and may be subject to such vesting
scheduling as the Plan Administrator may provide in an Award Agreement. No
Incentive Stock Option shall be exercisable after the expiration of its Option
Term.
Section 3.5. Maximum Amount of Incentive Stock Option Grant. The
aggregate Fair Market Value (determined on the date the Incentive Stock Option
is granted) of Common Stock with respect to which Incentive Stock Options
first become exercisable by an Optionee during in any calendar year (under all
plans of the Optionee's employer corporations and their parent and subsidiary
corporations) shall not exceed $100,000.
Section 3.6. Death of Optionee. Unless otherwise provided in an
Award Agreement or otherwise agreed to by the Plan Administrator:
(a) Upon the death of the Optionee, any Incentive Stock Option
exercisable on the date of death may be exercised by the Optionee's
estate or by a person who acquires the right to exercise such Incentive
Stock Option by bequest or inheritance or by reason of the death of the
Optionee, provided that such exercise occurs within both the remaining
Option Term of the Incentive Stock Option and one year after the
Optionee's death.
(b) The provisions of this Section shall apply notwithstanding
the fact that the Optionee's employment may have terminated prior to
death, but only to the extent of any Incentive Stock Options exercisable
on the date of death.
Section 3.7. Retirement or Disability. Unless otherwise provided in an
Award Agreement or otherwise agreed to by the Plan Administrator, upon the
termination of the Optionee's employment by reason of permanent disability or
retirement (as each is determined by the Plan Administrator), the Optionee may
exercise any vested Incentive Stock Options, provided such option exercise
occurs within both (i) the remaining Option Term of the Incentive Stock Option
and (ii) six months (in the case of permanent disability) or three months (in
the case of retirement). Notwithstanding the terms of an Award Agreement, the
tax treatment available pursuant to Section 422 of the Internal Revenue Code
of 1986 (the "Code") upon the exercise of an Incentive Stock Option shall not
be available to an Optionee who exercises any Incentive Stock Options more
than (i) one year after the date of termination of employment due to permanent
disability or (ii) three months after the date of termination of employment
due to retirement.
Section 3.8. Termination for Other Reasons. Unless otherwise provided
in an Award Agreement or otherwise agreed to by the Plan Administrator, except
as provided in Sections 3.6 and 3.7, upon termination of the Optionee's
employment by reason other than cause (as determined by the Plan
Administrator), the Optionee may exercise any vested Incentive Stock Options,
provided such option exercise occurs within both (i) the remaining Option Term
of the Incentive Stock Option and (ii) 30 days of the date of termination.
<PAGE>
Section 3.9. Termination for Cause. Unless otherwise provided in an
Award Agreement or otherwise agreed to by the Plan Administrator, except as
provided in Sections 3.6, 3.7 and 3.8, all Incentive Stock Options shall
terminate immediately upon the termination of the Optionee's employment.
Section 3.10. Applicability of Stock Options Sections. Sections 2.5,
Manner of Payment; and 2.6, Issuance of Certificates, applicable to Stock
Options, shall apply equally to Incentive Stock Options. Said Sections are
incorporated by reference in this Article III as though fully set forth
herein.
Section 3.11. Code Requirements. The terms of any Incentive Stock
Option granted under the Plan shall comply in all respects with the provisions
of Code Section 422. Anything in the Plan to the contrary notwithstanding, no
term of the Plan relating to Incentive Stock Options shall be interpreted,
amended or altered, nor shall any discretion or authority granted under the
Plan be exercised, so as to disqualify either the Plan or any Incentive Stock
Option under Code Section 422, unless the participant has first requested the
change that will result in such disqualification.
ARTICLE IV. PERFORMANCE SHARE AWARDS
Section 4.1. Awards Granted by Plan Administrator. Coincident with or
following designation for participation in the Plan, a participant may be
granted Performance Shares. Certificates representing Performance Shares
shall be issued to the participant effective as of the date of the Award.
Holders of Performance Shares shall have all of the voting, dividend and other
rights of stockholders of the Company, subject to the terms of any Award
Agreement.
Section 4.2. Amount of Award. The Plan Administrator shall establish a
maximum amount of a participant's Award, which amount shall be denominated in
shares of Common Stock.
Section 4.3. Communication of Award. Written notice of the maximum
amount of a participant's Award and the Performance Cycle determined by the
Plan Administrator, if any, shall be given to a participant as soon as
practicable after approval of the Award by the Plan Administrator. The grant
of Performance Shares shall be evidenced by a written Award Agreement,
executed by the Company and the recipient of Performance Shares, in such form
as the Plan Administrator may from time to time determine, providing for the
terms of such grant.
Section 4.4. Amount of Award Payable. Performance Shares may be granted
based upon past performance or future performance. In addition to any other
restrictions the Plan Administrator may place on Performance Shares, the Plan
Administrator may, in its discretion, provide that Performance Shares shall
vest upon the satisfaction of performance targets to be achieved during an
applicable "Performance Cycle." Failure to satisfy the performance targets
may result, in the Plan Administrator's discretion as set forth in an Award
Agreement, in the forfeiture of the Performance Shares by the participant and
the return of such shares to the Company, or have any other consequence as
determined by the Plan Administrator. Performance targets established by the
Plan Administrator may relate to corporate, group, unit or individual
performance and may be established in terms of market price of common stock,
cash flow or cash flow per share, reserve value or reserve value per share,
net asset value or net asset value per share, earnings, or such other measures
or standards determined by the Plan Administrator. Multiple performance
targets may be used and the components of multiple performance targets may be
given the same or different weight in determining the amount of an Award
earned, and may relate to absolute performance or relative performance
measured against other groups, units, individuals or entities. The Plan
Administrator may also establish that none, a portion or all of a
participant's Award will vest (subject to Section 4.6) for performance which
falls below the performance target applicable to such Award. Certificates
representing Performance Shares shall bear a legend restricting their transfer
and requiring the forfeiture of the shares to the Company if any performance
targets or other conditions to vesting are not met. The Plan Administrator
may also require a participant to deliver certificates representing unvested
Performance Shares to the Company in escrow until the Performance Shares vest.
<PAGE>
Section 4.5. Adjustments. At any time prior to vesting of a Performance
Share, the Plan Administrator may adjust previously established performance
targets or other terms and conditions to reflect events such as changes in
laws, regulations, or accounting practice, or mergers, acquisitions,
divestitures or any other event determined by the Plan Administrator.
Section 4.6. Payments of Awards. Following the conclusion of each
Performance Cycle, the Plan Administrator shall determine the extent to which
performance targets have been attained, and the satisfaction of any other
terms and conditions with respect to vesting an Award relating to such
Performance Cycle. Subject to the provisions of Section 5.3, to the extent
the Plan Administrator determines Performance Shares have vested, the Company
shall issue to the participant certificates representing vested shares free of
any legend regarding performance targets or forfeiture in exchange for such
participant's legended certificates.
Section 4.7. Termination of Employment. Unless the Award Agreement
provides for vesting upon death, disability, retirement or other termination
of employment, upon any such termination of employment of a participant prior
to vesting of Performance Shares, all outstanding and unvested Awards of
Performance Shares to such participant shall be cancelled, shall not vest and
shall be returned to the Company.
Section 4.8. Transfer Restriction. Unless otherwise provided in an
Award Agreement or otherwise agreed to by the Plan Administrator, any Award
Agreement providing for the issuance of Performance Shares to any person who,
at the time of grant, is subject to the restrictions of Section 16(b) of the
Securities Exchange Act of 1934, as amended, shall provide that such Common
Stock cannot be resold for a period of six months following the grant of such
Performance Shares.
ARTICLE V. MISCELLANEOUS
Section 5.1. General Restriction. Each Award under the Plan shall be
subject to the requirement that, if at any time the Plan Administrator shall
determine that (i) the listing, registration or qualification of the shares of
Common Stock subject or related thereto upon any securities exchange or under
any state or Federal law, or (ii) the consent or approval of any government
regulatory body, or (iii) an agreement by the grantee of an Award with respect
to the disposition of shares of Common Stock, is necessary or desirable as a
condition of, or in connection with, the granting of such Award or the issue
or purchase of shares of Common Stock thereunder, such Award may not be
consummated in whole or in part unless such listing, registration,
qualification, consent, approval or agreement shall have been effected or
obtained free of any conditions not acceptable to the Plan Administrator.
Section 5.2. Non-Assignability. No Award under the Plan shall be
assignable or transferable by the recipient thereof, except by will or by the
laws of descent and distribution. During the life of the recipient, such
Award shall be exercisable only by such person or by such person's guardian or
legal representative.
Section 5.3. Withholding Taxes. Whenever the Company proposes or is
required to issue or transfer shares of Common Stock under the Plan, the
Company shall have the right to require the grantee to remit to the Company an
amount sufficient to satisfy any Federal, state and/or local withholding tax
requirements prior to the delivery of any certificate or certificates for such
shares. Alternatively, the Company may issue, transfer or vest only such
number of shares of the Company net of the number of shares sufficient to
satisfy the withholding tax requirements. For withholding tax purposes, the
shares of Common Stock shall be valued on the date the withholding obligation
is incurred. Unless the Plan Administrator provides otherwise in the
applicable Award Agreement, Participants may elect to satisfy tax withholding
obligations through the surrender of shares of Common Stock which the
Participant already owns or through the surrender of shares of Common Stock to
which the participant is otherwise entitled under the Plan.
<PAGE>
Section 5.4. Right to Terminate Employment. Nothing in the Plan or in
any agreement entered into pursuant to the Plan shall confer upon any
participant the right to continue in the employment of the Company or affect
any right which the Company may have to terminate the employment of such
participant.
Section 5.5. Non-Uniform Determinations. The Plan Administrator's
determinations under the Plan (including without limitation determinations of
the persons to receive Awards, the form, amount and timing of such Awards, the
terms and provisions of such Awards and the agreements evidencing the same)
need not be uniform and may be made by it selectively among persons who
receive, or are eligible to receive, Awards under the Plan, whether or not
such persons are similarly situated.
Section 5.6. Rights as a Stockholder. The recipient of any Award under
the Plan shall have no rights as a stockholder with respect thereto unless and
until certificates for shares of Common Stock are issued to him.
Section 5.7. Definitions. In this Plan the following definitions shall
apply:
(a) "Award" shall mean a grant of Stock Options, Incentive Stock
Options or Performance Shares under the Plan.
(b) "Fair Market Value" as of any date and in respect of any
share of Common Stock means the average of the closing bid and offer
price on such date or on the next business day, if such date is not a
business day, of a share of Common Stock on the OTC Bulletin Board or
other public securities market on which the Common Stock trades. If the
Plan Administrator determines that the average of the closing bid and
offer price on the OTC Bulletin Board or other public securities market
on which the Common Stock trades does not properly reflect the Fair
market Value of a share of Common Stock, the Fair Market Value of shares
of Common Stock shall be as determined by the Plan Administrator in such
manner as it may deem appropriate. In no event shall the Fair Market
Value of any share of Common Stock be less than its par value.
(c) "Option" means a Stock Option or Incentive Stock Option.
(d) "Option Price" means the purchase price per share of Common
Stock deliverable upon the exercise of a Stock Option or Incentive Stock
Option.
(e) "Performance Cycle" means the period of time, if any, as
specified by the Plan Administrator over which Performance Shares are to
be vested.
<PAGE>
Section 5.8. Leaves of Absence. The Plan Administrator shall be
entitled to make such rules, regulations and determinations as it deems
appropriate under the Plan in respect of any leave of absence taken by the
recipient of any Award. Without limiting the generality of the foregoing, the
Plan Administrator shall be entitled to determine (i) whether or not any such
leave of absence shall constitute a termination of employment within the
meaning of the Plan and (ii) the impact, if any, of any such leave of absence
on Awards under the Plan theretofore made to any recipient who takes such
leave of absence.
Section 5.9. Newly Eligible Employees. The Plan Administrator shall be
entitled to make such rules, regulations, determinations and Awards as it
deems appropriate in respect of any employee who becomes eligible to
participate in the Plan or any portion thereof after the commencement of an
Award or incentive period.
Section 5.10. Adjustments. In the event of any change in the
outstanding Common Stock by reason of a stock dividend or distribution,
recapitalization, merger, consolidation, split-up, combination, exchange of
shares or the like, the Plan Administrator may appropriately adjust the number
of shares of Common Stock which may be issued under the Plan, the number of
shares of Common Stock subject to Options or Performance Shares theretofore
granted under the Plan, and any and all other matters deemed appropriate by
the Plan Administrator.
Section 5.11. Changes in the Company's Capital Structure.
(a) The existence of outstanding Options or Performance Shares
shall not affect in any way the right or power of the Company or its
stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's
capital structure or its business, or any merger or consolidation of the
Company, or any issue of bonds, debentures, preferred or prior
preference stock ahead of or affecting the Common Stock or the rights
thereof, or the dissolution or liquidation of the Company, or any sale
or transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or
otherwise.
(b) If, while there are outstanding Options, the Company shall
effect a subdivision or consolidation of shares or other increase or
reduction in the number of shares of the Common Stock outstanding
without receiving compensation therefor in money, services or property,
then, subject to the provisions, if any, in the Award Agreement (a) in
the event of an increase in the number of such shares outstanding, the
number of shares of Common Stock then subject to Options hereunder shall
be proportionately increased; and (b) in the event of a decrease in the
number of such shares outstanding the number of shares then available
for Option hereunder shall be proportionately decreased.
(c) After a merger of one or more corporations into the Company,
or after a consolidation of the Company and one or more corporations in
which the Company shall be the surviving corporation, (i) each holder of
an outstanding Option shall, at no additional cost, be entitled upon
exercise of such Option to receive (subject to any required action by
stockholders) in lieu of the number of shares as to which such Option
shall then be so exercisable, the number and class of shares of stock,
other securities or consideration to which such holder would have been
entitled to receive pursuant to the terms of the agreement of merger or
consolidation if, immediately prior to such merger or consolidation,
such holder had been the holder of record of a number of shares of the
Company equal to the number of shares as to which such Option had been
exercisable and (ii) unless otherwise provided by the Plan
Administrator, the number of shares of Common Stock, other securities or
consideration to be received with respect to unvested Performance Shares
shall continue to be subject to the Award Agreement, including any
vesting provisions thereof.
(d) If the Company is about to be merged into or consolidated
with another corporation or other entity under circumstances where the
Company is not the surviving corporation, or if the Company is about to
sell or otherwise dispose of substantially all of its assets to another
corporation or other entity while unvested Performance Shares or
unexercised Options remain outstanding, then the Plan Administrator may
direct that any of the following shall occur:
(i) If the successor entity is willing to assume the obligation
to deliver shares of stock or other securities after the effective
date of the merger, consolidation or sale of assets, as the case
may be, each holder of an outstanding Option shall be entitled to
receive, upon the exercise of such Option and payment of the
option price, in lieu of shares of Common Stock, such shares of
stock or other securities as the holder of such Option would have
been entitled to receive had such Option been exercised
immediately prior to the consummation of such merger,
consolidation or sale, and the terms of such Option shall apply as
nearly as practicable to the shares of stock or other securities
purchasable upon exercise of the Option following such merger,
consolidation or sale of assets;
(ii) The Plan Administrator may waive any limitations set forth
in or imposed pursuant to this Plan or any Award Agreement with
respect to such Option or Performance Share such that (A) such
Option shall become exercisable prior to the record or effective
date of such merger, consolidation or sale of assets or (B) the
vesting of such Performance Share shall occur upon such merger,
consolidation or sale of assets; and/or
(iii) The Plan Administrator may cancel all outstanding Options
as of the effective date of any such merger, consolidation or sale
of assets provided that prior notice of such cancellation shall be
given to each holder of an Option at least 30 days prior to the
effective date of such merger, consolidation or sale of assets,
and each holder of an Option shall have the right to exercise such
Option in full during a period of not less than 30 days prior to
the effective date of such merger, consolidation or sale of
assets.
(e) Except as herein provided, the issuance by the Company of
Common Stock or any other shares of capital stock or securities
convertible into shares of capital stock, for cash, property, labor done
or other consideration, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of
Common Stock then subject to outstanding Options.
<PAGE>
Section 5.12. Amendment of the Plan. The Board of Directors may,
without further approval by the stockholders and without receiving further
consideration from the participants, amend this Plan or condition or modify
Awards under this Plan, including increases to the number of shares which may
be covered by Awards under this Plan.
Notwithstanding the foregoing, however, in accordance with the Second
Amended and Restated Shareholders' Agreement ("Agreement") dated May 14, 1999,
by and among the Company, B. Carl Price, Don Wm. Reynolds, Energy Capital
Investment Company PLC, EnCap Equity 1994 Limited Partnership, Bargo Energy
Resources, Ltd., TJG Investments, Inc., Bargo Energy Company, Tim J. Goff,
Thomas Barrow, James E. Sowell, Bargo Operating Company, Inc., EnCap Energy
Capital Fund III-B, L.P., BOCP Energy Partners, L.P., EnCap Energy Capital
Fund III, L.P., Kayne Anderson Energy Fund, L.P., BancAmerica Capital
Investors SBIC I, L.P., Eos Partners, L.P., Eos Partners SBIC, L.P., Eos
Partners SBIC II, L.P., and SGC Partners II LLC (capitalized terms in this
paragraph are as defined in the Agreement), for so long as Eos and SGCP
(jointly), Kayne, BACI and Encap are entitled to appoint directors to the
Company's Board of Directors, at least one of such directors must approve any
increase in the number of shares which may be issued pursuant to Awards
granted under the Plan as set forth in Section 1.5 hereof.
Section 5.13 Adjustments for Pooling of Interests Accounting. If the
Company enters into a transaction which is intended to be accounted for using
the pooling of interests method of accounting, but it is determined by the
Board that any outstanding Option or any aspect thereof could reasonably be
expected to preclude such treatment, then the Board may modify (to the minimum
extent required) or revoke (if necessary) the Option or any of the provisions
thereof to the extent that the Board determines that such modification or
revocation is necessary to enable the transaction to be subject to pooling of
interests accounting.
<PAGE>
EXHIBIT 10.11
CONFIDENTIALITY AND NON-COMPETE AGREEMENT
This CONFIDENTIALITY AND NON-COMPETE AGREEMENT (this "Agreement"), dated
as of May 14, 1999, is made by and between Bargo Energy Company, a Texas
corporation (the "Company"), and Tim J. Goff, an individual (the "Employee").
WITNESSETH:
WHEREAS, on the date hereof, the Company has obtained financing in
connection with a transaction in which Energy Capital Investment Company PLC,
an English investment company, EnCap Energy Capital Fund III-B, L.P., a Texas
limited partnership, BOCP Energy Partners, L.P., a Texas limited partnership,
EnCap Energy Capital Fund III, L.P., a Texas limited partnership, Kayne
Anderson Energy Fund, L.P., a Delaware limited partnership, BancAmerica
Capital Investors SBIC I, L.P., a Delaware limited partnership, Eos Partners,
L.P., a Delaware limited partnership, Eos Partners SBIC, L.P., a Delaware
limited partnership, Eos Partners SBIC II, L.P., a Delaware limited
partnership, and SGC Partners II LLC, a Delaware limited liability company
(collectively, the "Investors") have agreed, on certain terms and conditions,
to purchase (the "Transaction") certain shares of the Company's Cumulative
Redeemable Preferred Stock, Series B, par value $.01 per share, and certain
shares of the Company's Common Stock, par value $.01 per share (the "Common
Stock"), and the Company will grant to Employee certain options to acquire
additional shares of the Common Stock (collectively, the "Rights");
WHEREAS, Employee acknowledges that in the course of his employment by
the Company and performance of services on behalf of the Company and its
subsidiaries (collectively, the "Related Parties"), he will become privy to
various business opportunities, economic and trade secrets and relationships
of the Related Parties;
WHEREAS, in connection with the consummation of the Transaction, the
Company plans thereafter to continue to employ the Employee on an "at-will"
basis, and the Employee desires to be employed on such basis; and
WHEREAS, it is a condition to (i) the consummation of the Transaction,
and (ii) the grant to Employee of the Rights, that Employee enter into a
confidentiality and non-compete agreement on the terms and conditions
hereinafter set forth;
<PAGE>
NOW, THEREFORE, in consideration of, and as a material inducement to,
the Investors' consummation of the Transaction (which will benefit Employee
indirectly as an employee and shareholder of the Company), and in
consideration of the Company's grant of the Rights to Employee, as well the
Company providing Employee with access to confidential information and
training, the Company and Employee intending to be legally bound, hereby
agree as follows:
1. Business Opportunities and Intellectual Property.
(a) Employee shall promptly disclose to the Company all "Business
Opportunities" and "Intellectual Property" (as defined below).
(b) Employee hereby assigns and agrees to assign to the Company,
its successors, assigns, or designees, all of the Employee's right, title,
and interest in and to all "Business Opportunities" and "Intellectual
Property" (as defined below), and further acknowledges and agrees that all
Business Opportunities and Intellectual Property constitute the exclusive
property of the Company.
(c) For purposes hereof, "Business Opportunities" shall mean all
business ideas, prospects, proposals or other opportunities pertaining to the
lease, acquisition, exploration, production, gathering or marketing of
hydrocarbons and related products and the exploration potential of
geographical areas on which hydrocarbon exploration prospects are located,
which are:
(i) (other than any of those listed on Exhibit A hereto),
developed by Employee during the period that Employee is employed by
any of the Related Parties (the "Employment Term"), or
(ii) (other than any of those listed on Exhibit A hereto),
originated by any third party and brought to the attention of Employee
during the Employment Term,
together with information relating thereto, including, without limitation,
any "Related Parties' Business Records" (as defined below).
<PAGE>
(d) For purposes hereof "Intellectual Property" shall mean all
copyrights, patents, trademarks, patent or trademark applications,
franchises, licenses, permits, rights (including without limitation, rights
to software, trade secrets, proprietary information, processes and know-how)
and other authorizations, whether or not patentable or copyrightable, which
do not fall within the definition of Business Opportunities, which are
discovered, conceived, invented, created, or developed by Employee, alone or
with others during the Employment Term, if such discovery, conception,
invention, creation, or development (A) occurs in the course of the
Employee's employment with the Related Parties, or (B) occurs with the use of
any of the Related Parties' time, materials, or facilities.
2. Obligations During Employment Term. Employee agrees that during
the Employment Term he will substantially devote his full time, skill, and
attention and his best efforts during normal business hours to the business
and affairs of the Related Parties (except for usual, ordinary, and customary
periods of vacation and absence due to illness or other disability);
moreover, without the prior written consent of the Board of Directors of the
Company (other than the investments described on Exhibit A hereto):
(i) Employee will not, other than through the Related Parties,
engage or participate in any manner, whether directly or indirectly
through any family member or as an employee, employer, consultant,
agent, principal, partner, more than two percent shareholder, officer,
director, licensor, lender, lessor or in any other individual or
representative capacity, in any business or activity which is engaged
in leasing, acquiring, exploring, producing, gathering or marketing
hydrocarbons and related products; and
(ii) Employee will not (directly or indirectly through any family
members), and will not permit any of his controlled affiliates to: (A)
invest or otherwise participate alongside the Related Parties in any
Business Opportunities, or (B) invest or otherwise participate in any
business or activity relating to a Business Opportunity, regardless of
whether any of the Related Parties ultimately participates in such
business or activity.
<PAGE>
3. Confidentiality Obligations.
(a) Employee hereby acknowledges that all trade secrets and
confidential or proprietary information of the Related Parties (collectively
referred to herein as "Confidential Information") constitute valuable,
special and unique assets of the Related Parties' business, and that access
to and knowledge of such Confidential Information is essential to the
performance of Employee's duties. Employee agrees that during the Employment
Term and at all times following the date of termination of Employee's
employment (the "Termination Date"), Employee will hold the Confidential
Information in strict confidence and will not publish, disseminate or
otherwise disclose, directly or indirectly, to any person other than the
Related Parties and their respective officers, directors and employees, any
Confidential Information or use any Confidential Information for Employee's
own personal benefit or for the benefit of anyone other than the Related
Parties. The Company agrees to provide Confidential Information to Employee
in exchange for Employee's agreement to keep such Confidential Information,
and any Confidential Information to which Employee has already become privy,
in strict confidence as provided in this Agreement.
(b) For purposes of this Section 3, it is agreed that Confidential
Information includes, without limitation, any information heretofore or
hereafter acquired, developed or used by any of the Related Parties relating
to Business Opportunities or Intellectual Property or other geological,
geophysical, economic, financial or management aspects of the business,
operations, properties or prospects of the Related Parties whether oral or in
written form in the "Related Parties' Business Records" (as defined below),
but shall exclude any information which (A) has become part of common
knowledge or understanding in the oil and gas industry or otherwise in the
public domain (other than from disclosure by Employee in violation of this
Agreement), or (B) was rightfully in the possession of Employee, as shown by
Employee's records, prior to the date of this Agreement (including Employee's
method of selecting, purchasing and reworking oil and gas properties, which
the Company and Employee may utilize subsequent to the Employment Term
(subject to the other limitations contained in this Agreement)); provided,
however, that Employee shall provide to the Company copies of all information
described in clause (B); provided further, however, that this Section 3 shall
not be applicable to the extent Employee is required to testify in a judicial
or regulatory proceeding pursuant to the order of a judge or administrative
law judge after Employee requests that such Confidential Information be
preserved.
<PAGE>
4. Obligations After Termination Date.
(a) The purpose of the provisions of Section 2 and this Section 4
are to protect the Company from unfair loss of goodwill and business
advantage and to shield Employee from pressure to use or disclose
Confidential Information or to trade on the goodwill belonging to the
Company. Accordingly, during the "Post-Termination Non-Compete Term" (as
defined below), Employee will not engage or participate in any manner,
whether directly or indirectly through any family member or as an employee,
employer, consultant, agent, principal, partner, shareholder, officer,
director, licensor, lender, lessor or in any other individual or
representative capacity, in any business or activity which is in engaged in
leasing, acquiring, exploring, producing, gathering or marketing hydrocarbons
and related products within the states of California, Colorado, Kansas,
Louisiana, Mississippi, New Mexico, Oklahoma or Texas; provided that, this
Section 4 shall not preclude Employee from making (i) investments described
on Exhibit A hereto, or (ii) personal investments in securities of oil and
gas companies which are registered on a national stock exchange, if the
aggregate amount owned by Employee and all of his family members and
affiliates does not exceed two percent of such company's outstanding
securities.
(b) For purposes hereof, the "Post Termination Non-Compete Term"
is:
(i) the 18 month period following the Termination Date, if (A)
the Employee voluntarily resigns or otherwise terminates his position
as an officer or employee of the Related Parties for other than Good
Reason (as defined below), (B) the Employee's employment or engagement
by the Related Parties is terminated for "cause" (as defined below), or
(C) the Employee breaches any of the provisions of Sections 3, 4 or 5
hereof; or
(ii) in the event that the Employee's services as an officer,
employee or consultant are terminated by (A) a Related Party (or a
successor to a Related Party) other than for "cause" (as defined below)
or (B) by Employee for Good Reason, and in either case the Employee is
not in breach of any of the provisions of Section 3, 4 or 5 hereof, the
period during which the Company makes "Severance Payments" (as defined
below) to Employee, the length of which shall be determined by the
Company at its discretion, but in no event to be longer than eighteen
(18) months. The Company shall not be obligated to make Severance
Payments for any length of time and shall be entitled to cease making
Severance Payments at any time for any reason.
<PAGE>
For purposes hereof, "Severance Payments" shall be amount of
the salary that the Employee received from the Related Parties on
a monthly basis immediately before the Termination Date and such
Severance Payments shall be payable at the same times as
Employee's regular salary immediately before termination.
For purposes hereof, a termination for "cause" means, in the
good faith determination of the Company's Board of Directors,
that any of the following has occurred: (A) Employee's conviction
of, or plea of nolo contendere to, any felony or to any crime or
offense causing substantial harm to the Related Parties or
involving acts of theft, fraud, embezzlement, moral turpitude or
similar conduct; (B) Employee's repeated intoxication by alcohol
or drugs during the performance of his duties in a manner that
materially and adversely affects Employee's performance of such
duties; (C) malfeasance in the conduct of Employee's duties,
including, but not limited to, (1) willful and intentional misuse
or diversion of funds of the Related Parties, (2) embezzlement,
or (3) fraudulent or willful and material misrepresentations or
concealments on any written reports submitted to the Related
Parties; (D) Employee's material violation of any provision of
the Second Amended and Restated Shareholders Agreement dated even
date herewith among Employee, the Company and certain of its
other shareholders; or (E) Employee's material breach of this
Agreement or otherwise material failure to perform the duties of
Employee's employment or engagement or material failure to follow
or comply with the reasonable and lawful written directives of
the Board of Directors of the Company, provided under the
preceding clause (D) or (E) that Employee shall have been
informed, in writing, of such material failure and given a period
of not more than sixty (60) days to remedy same.
A termination of employment shall be for "Good Reason" if
such termination is the result of any of the following events:
(i) Employee is assigned any responsibilities materially
inconsistent with his position, title, offices, duties,
responsibilities and status with the Company as of the date
hereof; (ii) there is a material reduction in the salary paid to
Employee, as compared to the salary in effect as of the date
hereof; (iii) any failure by the Company to continue to provide
to Employee any material benefit, bonus, profit sharing,
incentive, remuneration or compensation plan, stock ownership or
purchase plan, stock option plan, life insurance, disability
plan, pension plan or retirement plan in which Employee is
entitled to participate as of the date hereof or which, after the
date hereof, employees of the Company are generally eligible to
participate in, or the taking by the Company of any action that
materially and adversely affects Employee's participation in or
materially reduces his rights or benefits under or pursuant to
any such plan or the failure by the Company to increase or
improve such rights or benefits on a basis consistent with
practices in effect as of the date hereof or with practices
implemented subsequent to the date hereof regarding executive
employees of the Company generally; (iv) the Company requires
Employee to relocate to any city or community outside of the
Houston, Texas metropolitan area, other than travel on Company
business to an extent consistent with Employee's position, title,
offices, duties, responsibilities and status with the Company as
of the date hereof; or (v) provided the Company shall have been
informed, in writing, of such material breach and given a period
of not more than sixty (60) days to remedy same, there is any
material breach by the Company of this Agreement.
<PAGE>
(c) Employee acknowledges that the Severance Payments made to
Employee under Section 4(b)(ii) constitute adequate consideration for
Employee's agreements set forth in Section 4(a) and (b) hereof.
(d) Employee will not during the two-year period following the
Termination Date, solicit, entice, persuade or induce, directly or
indirectly, any employee (or person who within the preceding ninety (90) days
was an employee) of any of the Related Parties or any other person who is
under contract with or rendering services to any of the Related Parties, to
(i) terminate his employment by, or contractual relationship with, such
person, (ii) refrain from extending or renewing the same (upon the same or
new terms), (iii) refrain from rendering services to or for such person,
(iv) become employed by or to enter into contractual relations with any
Persons other than such person, or (v) enter into a relationship with a
competitor of any of the Related Parties.
5. Business Records.
(a) The Employee agrees to promptly deliver to the Company, upon
termination of his employment by the Related Parties, or at any other time
when the Company so requests, all documents produced by Employee or coming
into his possession and relating to the business of the Related Parties,
including, without limitation: all geological and geophysical reports and
related data such as maps, charts, logs, seismographs, seismic records and
other reports and related data, calculations, summaries, memoranda and
opinions relating to the foregoing, production records, electric logs, core
data, pressure data, lease files, well files and records, land files,
abstracts, title opinions, title or curative matters, contract files, notes,
records, drawings, manuals, correspondence, financial and accounting
information, customer lists, statistical data and compilations, patents,
copyrights, trademarks, trade names, inventions, formulae, methods,
processes, agreements, contracts, manuals or any other documents relating to
the business of the Related Parties (collectively, the "Related Parties'
Business Records"), and all copies thereof and therefrom.
<PAGE>
(b) The Employee confirms that all of the Related Parties' Business
Records (and all copies thereof and therefrom) that are required to be
delivered to the Company pursuant to this Section constitute the exclusive
property of the Company and the other Related Parties.
(c) The obligation of confidentiality set forth in Section 3 shall
continue notwithstanding the Employee's delivery of any such documents to the
Company.
(d) Notwithstanding the foregoing provisions of this Section 5 or
any other provision of this Agreement, the Employee shall be entitled to
retain any written materials which, as shown by the Employee's records, were
in Employee's possession on or prior to the date hereof, subject to the
Company's right to receive a copy of all such materials relating to the
business of the Related Parties.
(e) The provisions of this Section 5 shall continue in effect
notwithstanding termination of the Employee's employment for any reason.
6. Miscellaneous.
(a) The invalidity or non-enforceability of any provision of this
Agreement in any respect shall not affect the validity or enforceability of
this Agreement in any other respect or of any other provision of this
Agreement. In the event that any provision of this Agreement shall be held
invalid or unenforceable by a court of competent jurisdiction by reason of
the geographic or business scope or the duration thereof, such invalidity or
unenforceability shall attach only to the scope or duration of such provision
and shall not affect or render invalid or unenforceable any other provision
of this Agreement, and, to the fullest extent permitted by law, this
Agreement shall be construed as if the geographic or business scope or the
duration of such provision had been more narrowly drafted so as not to be
invalid or unenforceable.
(b) Employee acknowledges that the Company's remedy at law for any
breach of the provisions of this Agreement is and will be insufficient and
inadequate and that the Company shall be entitled to equitable relief,
including by way of temporary and permanent injunction, in addition to any
remedies the Company may have at law.
<PAGE>
(c) The representations and covenants contained in this Agreement on
the part of the Employee will be construed as ancillary to and independent of
any other agreement between the Company and the Employee, and the existence
of any claim or cause of action of the Employee against the Company or any of
the other Related Parties or any officer, director, or shareholder of the
Company or any of the other Related Parties, whether predicated on Employee's
employment or otherwise, shall not constitute a defense to the enforcement by
the Company of the covenants of the Employee contained in this Agreement. In
addition, the provisions of this Agreement shall continue to be binding upon
the Employee in accordance with their terms, notwithstanding the termination
of the Employee's employment for any reason.
(d) The parties to this Agreement agree that the limitations
contained in Section 4 with respect to time, geographical area, and scope of
activity are reasonable. However, if any court shall determine that the
time, geographical area, or scope of activity of any restriction contained in
Section 4 is unenforceable, it is the intention of the parties that such
restrictive covenant set forth herein shall not thereby be terminated but
shall be deemed amended to the extent required to render it valid and
enforceable.
(e) Any notices or other communications required or permitted to be
sent hereunder shall be in writing and shall be duly given if personally
delivered or sent postage pre-paid by certified or registered mail, return
receipt requested, at the addresses set forth on the signature page hereof.
Either party may change his or its address for the sending of notice to such
party by written notice to the other party sent in accordance with the
provisions hereof.
(f) This Agreement may not be altered or amended except by a
writing, duly executed by the party against whom such alteration or amendment
is sought to be enforced.
(g) THE PARTIES AGREE THAT THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF TEXAS (WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAWS THEREOF), AND THAT THE COURTS IN THE
STATE OF TEXAS SHALL BE THE EXCLUSIVE COURTS OF JURISDICTION AND
VENUE FOR ANY LITIGATION, SPECIAL PROCEEDING, DISPUTE OR OTHER PROCEEDING AS
BETWEEN THE PARTIES THAT MAY BE BROUGHT OR ARISE OUT OF, IN CONNECTION WITH, OR
BY REASON OF THIS AGREEMENT.
<PAGE>
(h) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, both written and oral, between the
parties with respect to the subject matter hereof.
(i) This Agreement may be executed in counterparts, each of which
shall be an original and all of which together shall constitute one and the
same instrument.
(j) This Agreement shall terminate and be of no further force and
effect at such time as the Investors own none of the initially issued shares
of Cumulative Redeemable Preferred Stock, Series B of the Company.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement in multiple counterparts as of the day and year first above
written.
COMPANY:
Addresses:
BARGO ENERGY COMPANY
By: /s/ Tim J. Goff
Name: Tim J. Goff
Title: President
EMPLOYEE:
/s/ Tim J. Goff
Tim J. Goff
<PAGE>
EXHIBIT A
to
Confidentiality and Non-Compete Agreement
between
Bargo Energy Company and Tim J. Goff
All royalty interests owned by Tim J. Goff individually as of May 14, 1999,
as well as interests owned as of May 14, 1999 by Pledger Partners, Ltd., a Texas
limited partnership, St. Martinville Partners, Ltd., a Texas limited
partnership, Paloma Partners, Ltd., a Texas limited partnership, Bargo Energy
Company, a Texas general partnership, Bargo Energy Resources, Ltd., a Texas
limited partnership, Bargo Energy Corporation, a Texas corporation, Bargo Energy
Partners, Ltd., a Texas limited partnership, Gas Solutions, Ltd., a Texas
limited partnership, TJG Investments, Inc., a Texas corporation, and Bargo
Operating Company, Inc., a Texas corporation (collectively, the "Oil and Gas
Interests"), plus future increases by Mr. Goff or any foregoing entity of his or
its share of an Oil and Gas Interest in the same property in which the original
Oil and Gas Interest is held as of May 14, 1999 by Mr. Goff or such entity, as
applicable.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 1,263,440
<SECURITIES> 0
<RECEIVABLES> 2,273,321
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,536,671
<PP&E> 47,204,419
<DEPRECIATION> 2,507,671
<TOTAL-ASSETS> 51,131,415
<CURRENT-LIABILITIES> 12,190,675
<BONDS> 0
0
1,000
<COMMON> 223,377
<OTHER-SE> 6,645,101
<TOTAL-LIABILITY-AND-EQUITY> 51,131,415
<SALES> 0
<TOTAL-REVENUES> 2,201,550
<CGS> 2,789,749
<TOTAL-COSTS> 2,789,749
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 871,263
<INCOME-PRETAX> (1,455,629)
<INCOME-TAX> 495,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (960,629)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
