<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported)
September 18, 1996
AMERICAN EXPLORATION COMPANY
(Exact Name of Registrant as Specified in Its Charter)
0-11871
(Commission File Number)
DELAWARE 74-2086890
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1331 LAMAR, SUITE 900
HOUSTON, TEXAS 77010
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 756-6000
N/A
(Former Name or Former Address, if Changed Since Last Report)
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<PAGE> 2
ITEM 2. ACQUISITION AND DISPOSITION OF ASSETS
As previously reported, in July 1996, the limited partners of the New York
Life Oil and Gas Producing Properties Programs (the "NYLOG Programs"), a series
of publicly registered limited partnerships of which a Company subsidiary is a
co-general partner, approved the liquidation of the partnerships. On September
18, 1996, the co-general partners of the NYLOG Programs received bids from third
parties and are negotiating to sell the properties owned by the NYLOG Programs
and certain additional property interests which are held by American. American
anticipates that the sales of these properties (the "1996 Sales") will be
completed during the fourth quarter of 1996, with estimated net proceeds to the
Company of $8.6 million.
On September 27, 1996, the Company acquired from Zilkha Energy Company
("Zilkha") interests in two blocks in the Gulf of Mexico, High Island Block 116
and East Cameron Block 328, for a purchase price of $45 million, before
considering certain interests which are expected to be sold to a third party for
proceeds to the Company of approximately $6 million (the "Zilkha II
Acquisition"). The acquisition was funded through borrowings under the
Company's revolving bank credit agreement (the "Credit Agreement"). The
acquired properties add estimated proved reserves as of the date of acquisition
totaling 3.6 MMBbls of oil and 16.9 Bcf of natural gas. In August 1996,
production from the acquired interests was approximately 700 Bbls of oil and
17,300 Mcf of gas per day.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Financial Statements
(a) Financial Statements of Businesses Acquired
Set forth on pages 4 through 8 are the audited statements of oil and
gas revenues and direct lease operating expenses of the oil and gas
property interests acquired in the Zilkha II Acquisition.
(b) Pro Forma Financial Information
Set forth on pages 9 through 13 are the unaudited pro forma condensed
consolidated financial statements (the "Pro Forma Statements") which give effect
to (i) that portion of the purchase of investors' interests in a series of
institutional investment programs (the "APPL Consolidation") that was completed
in the first half of 1995 for a purchase price of approximately $9 million, (ii)
the 1995 sales of interests in several other fields for aggregate proceeds of
approximately $2.5 million (the "1995 Sales"), (iii) the sale of the Sawyer
Field in July 1995 for proceeds of $64 million (the "Sawyer Sale"), (iv) the
acquisition of interests in five blocks in the Gulf of Mexico in March 1996 for
a purchase price of approximately $14 million (the "Zilkha I Acquisition"), (v)
the Zilkha II Acquisition and (vi) the 1996 Sales. The Sawyer Sale, the 1995
Sales and the APPL Consolidation are sometimes collectively referred to in the
Pro Forma Statements as the "1995 Transactions."
The pro forma statements of operations for the six months ended June 30,
1996 and for the year ended December 31, 1995 have been prepared assuming that
each of the transactions described above was consummated as of January 1, 1995.
The Pro Forma Statements do not include results from the High Island 116 well
acquired in the Zilkha II Acquisition because the well did not produce during
the applicable periods. The well commenced production in August 1996 at a net
production rate of 300 Bbls of oil per day and 17,300 Mcf of natural gas per
day. The pro forma balance sheet was prepared assuming that the Zilkha II
Acquisition and the 1996 Sales were consummated as of June 30, 1996.
The Pro Forma Statements are not necessarily indicative of the financial
results which would have occurred had the Company completed each of the
transactions described above as of January 1, 1995 or June 30, 1996, as the case
may be. Furthermore, future results may vary significantly from the results
reflected in the Pro Forma Statements due to changes in production levels,
changes in market prices for oil and gas, future expenditures for acquisitions,
development drilling and exploration and other factors. The Pro Forma Statements
should be read in conjunction with the consolidated financial statements of the
Company included in the Company's most recent annual report on Form 10-K and
quarterly report on Form 10-Q.
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(c) Exhibits
10(a) Purchase and Sale Agreement, dated September 27, 1996, between
American Exploration Company, as Seller and Zilkha Energy Company,
as Purchaser.
10(b) Sixth Amendment to Note Purchase Agreement, dated as of September
12, 1996, by and among the Company and the parties named therein.
10(c) Amendment No. 2 to Warrant Purchase Agreement, dated as of
September 12, 1996.
10(d) Amendment No. 5 to Amended and Restated Credit Agreement, dated as
of September 26, 1996, among American Exploration Company, the
banks listed therein and Morgan Guaranty Trust Company of New York,
as agent, and Bank of Montreal, as co-agent.
99 American Exploration Company News Release on the agreement to
purchase two offshore blocks in the Gulf of Mexico from a private
company.
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<PAGE> 4
INDEPENDENT AUDITORS' REPORT
The Sole Director
Zilkha Energy Company:
We have audited the accompanying statement of oil and gas revenues and
direct lease operating expenses attributable to certain oil and gas properties
(the Zilkha II Properties) to be acquired by American Exploration Company for
the year ended December 31, 1995. This statement of oil and gas revenues and
direct lease operating expenses is the responsibility of Zilkha Energy Company's
management. Our responsibility is to express an opinion on this statement of oil
and gas revenues and direct lease operating expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of oil and gas revenues and
direct lease operating expenses is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statement of oil and gas revenues and direct lease operating
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the statement of oil and gas revenues and direct lease operating
expenses. We believe that our audit of the statement of oil and gas revenues and
direct lease operating expenses provides a reasonable basis for our opinion.
The accompanying statement was prepared as described in note 1 for the
purpose of complying with certain rules and regulations of the Securities and
Exchange Commission (SEC) for inclusion in certain SEC regulatory reports and
filings and is not intended to be a complete financial presentation.
In our opinion, the accompanying statement of oil and gas revenues and
direct lease operating expenses presents fairly, in all material respects, the
oil and gas revenues and direct lease operating expenses of the Zilkha II
Properties for the year ended December 31, 1995, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Houston, Texas
September 26, 1996
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<PAGE> 5
THE ZILKHA II PROPERTIES
STATEMENTS OF OIL AND GAS REVENUES AND
DIRECT LEASE OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD
JANUARY 1, 1996 THROUGH JUNE 30, 1996 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1,
YEAR 1996
ENDED THROUGH
DECEMBER 31, JUNE 30,
1995 1996
--------- ---------
<S> <C> <C>
(UNAUDITED)
Oil and gas revenues............................................... $ 2,886 $ 1,538
Direct lease operating expenses.................................... 1,265 545
------- -------
Oil and gas revenues in excess of direct lease operating
expenses......................................................... $ 1,621 $ 993
======= =======
</TABLE>
See accompanying notes to the Statements of Oil and Gas Revenues and
Direct Lease Operating Expenses.
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<PAGE> 6
THE ZILKHA II PROPERTIES
NOTES TO STATEMENTS OF OIL AND GAS REVENUES AND
DIRECT LEASE OPERATING EXPENSES
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying statements present the oil and gas revenues and direct
lease operating expenses of East Cameron 328 and High Island 116 (the Zilkha II
Properties) to be acquired by American Exploration Company (the Company) from
Zilkha Energy Company ("Zilkha"). The Zilkha II Properties are located in the
Gulf of Mexico. High Island 116 did not begin producing until the third quarter
of 1996, thus the statement of oil and gas revenues and direct lease operating
expenses is comprised solely of the operations of East Cameron 328, which
commenced production in March 1995.
The statements of oil and gas revenues and direct lease operating expenses
include only the oil and gas revenues and direct lease operating expenses
attributable to the Zilkha II Properties to be acquired by the Company and are
not intended to be a complete set of financial statements. Oil and gas revenues
and direct lease operating expenses included herein are not necessarily
representative of future operations.
The accompanying statements of oil and gas revenues and direct lease
operating expenses were derived from the historical accounting records. Direct
lease operating expenses include payroll, lease and well repairs, maintenance
and other direct operating expenses.
In the opinion of management, the unaudited statement of oil and gas
revenues and direct lease operating expenses for the period January 1, 1996
through June 30, 1996 includes all material adjustments, which consist only of
normal recurring adjustments necessary for a fair presentation, and is not
necessarily indicative of the results for the entire year.
Omitted Historical Financial Information
Full historical financial statements, including general and administrative
expenses, interest expense and income tax expense, have not been presented
historically because the above properties were not accounted for or operated as
a separate division. Historical depletion expense has also not been included as
the basis in the properties has been adjusted in the purchase price allocation;
therefore, historical depletion will no longer be relevant.
Gas Imbalances
The sales method is used for accounting for gas imbalances. Under the sales
method, gas revenues are recorded when received; no adjustment is made for any
resulting imbalance position.
(2) CAPITAL EXPENDITURES (UNAUDITED)
Development expenditures related to the Zilkha II Properties totaled
approximately $4,478,000 and $2,367,000 for the year ended December 31, 1995 and
the period January 1, 1996 through June 30, 1996, respectively.
(3) SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED)
Oil and Gas Reserves
The following table shows estimates of proved reserves, net of royalty
interests, at December 31, 1995 to be acquired by the Company from Zilkha during
September 1996. The information was compiled from reserve reports prepared by
William M. Cobb & Associates, Inc., Independent Petroleum Engineering
Consultants, as of January 1, 1996. Reserves for January 1, 1995 have been
calculated by adjusting the January 1, 1996 amounts only for producing
activities. Consequently, no revisions of previous estimates have been
reflected. Management emphasizes that the volumes of reserves shown below are
estimates, which, by their nature, are
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THE ZILKHA II PROPERTIES
NOTES TO STATEMENTS OF OIL AND GAS REVENUES AND
DIRECT LEASE OPERATING EXPENSES -- (CONTINUED)
subject to revision. The estimates are made using all available geological and
reservoir data as well as production performance data. These estimates are
reviewed semi-annually and revised, either upward or downward, as warranted by
additional performance data. The properties are located offshore Texas and
Louisiana.
Estimated Quantities of Oil and Gas Reserves:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
--------------------------
OIL GAS
(BBL) (MCF)
--------- --------
<S> <C> <C>
Proved reserves:
Beginning of year............................... 3,696,551 741,355
Production...................................... (164,119) (194,342)
--------- --------
End of year..................................... 3,532,432 547,013
========= ========
Proved developed reserves:
Beginning of year............................... -- --
========= ========
End of year..................................... 290,272 222,798
========= ========
</TABLE>
Discounted Future Net Cash Flows
Estimates of future net cash flows from proved reserves were made in
accordance with Statement of Financial Accounting Standards No. 69, "Disclosures
about Oil and Gas Producing Activities." The amounts are shown in the following
table.
Estimated future cash inflows are computed by applying year-end prices of
oil and natural gas to year-end quantities of proved reserves. Future price
changes are considered only to the extent provided by contractual arrangements.
Estimated future development and production costs are determined by estimating
the expenditures to be incurred in developing and producing the proved oil and
gas reserves at the end of the year, based on year-end costs and assuming
continuation of existing economic conditions.
Historical supplemental oil and gas reserve information does not include
estimated future income tax expenses as such amounts are not relevant or
indicative of future taxes to be incurred by the Company.
Because of unpredictable variances in expenses and capital forecasts, crude
oil and natural gas price changes, largely influenced and controlled by U.S. and
foreign governmental actions, and the fact that the basis for such estimates
vary significantly, management believes the usefulness of these projections is
limited. Estimates of future net cash flows presented do not represent
management's assessment of future profitability or future cash flow.
Management's investment and operating decisions are based upon reserve estimates
that include proved reserves, and upon different price and cost assumptions from
those used here.
It should be recognized that applying current costs and prices and a ten
percent standard discount rate does not convey absolute value. The discounted
amounts arrived at are only one measure of the value of proved reserves.
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THE ZILKHA II PROPERTIES
NOTES TO STATEMENTS OF OIL AND GAS REVENUES AND
DIRECT LEASE OPERATING EXPENSES -- (CONTINUED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS RESERVES:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
(IN THOUSANDS)
<S> <C>
Future cash flows................................................................ $ 58,496
Future development costs......................................................... (14,550)
Future production costs.......................................................... (13,327)
--------
Future net cash inflows before income taxes...................................... 30,619
10% discount factor.............................................................. (7,357)
--------
Standardized measure of discounted future net cash inflows, before income
taxes.......................................................................... $ 23,262
========
</TABLE>
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS RESERVES:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
(IN THOUSANDS)
<S> <C>
Standardized measure, beginning of year.......................................... $ 21,092
Changes in estimated future development cost..................................... 4,478
Sales, net of production costs................................................... (1,621)
Accretion of discount............................................................ 2,109
Changes in production rates (timing) and other................................... (2,796)
--------
Standardized measure, end of year................................................ $ 23,262
========
</TABLE>
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AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
-------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments..................... $ 5,085 $ 5,085
Accounts receivable..................................... 15,965 15,965
Assets held for sale.................................... 8,635 $ (8,635)(a) --
Other current assets.................................... 1,112 1,112
-------- -------- --------
Total current assets............................ 30,797 (8,635) 22,162
Property, plant and equipment, net........................ 158,391 39,250 (b) 197,641
Other assets.............................................. 2,541 2,541
-------- -------- --------
Total assets.................................... $191,729 $ 30,615 $ 222,344
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 16,219 $ 16,219
Payable to partnerships................................. 1,394 1,394
Accrued liabilities..................................... 19,955 19,955
-------- -------- --------
Total current liabilities....................... 37,568 37,568
Long-term debt............................................ 60,000 $ 39,250 (c) 90,615
(8,635)(d)
Other long-term liabilities............................... 5,018 5,018
Stockholders' equity...................................... 89,143 89,143
-------- -------- --------
Total liabilities and stockholders' equity...... $191,729 $ 30,615 $ 222,344
======== ======== ========
</TABLE>
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<PAGE> 10
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
--------------------------------------------
ZILKHA I ZILKHA II
HISTORICAL ACQUISITION ACQUISITION 1996 SALES PRO FORMA
---------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Oil and gas sales........ $ 33,173 $ 1,964 (e) $ 1,538 (g) $ (3,683)(i) $32,992
Other revenues, net...... 683 683
------- ------- ------- ------ -------
Total revenues.... 33,856 1,964 1,538 (3,683) 33,675
------- ------- ------- ------ -------
COSTS AND EXPENSES:
Production and
operating.............. 10,196 109 (e) 545 (g) (1,343)(i) 9,507
Depreciation, depletion
and amortization....... 13,473 728 (e) 629 (g) (854)(i) 13,976
General and
administrative......... 3,183 3,183
Taxes other than
income................. 2,616 (251)(i) 2,365
Exploration.............. 7,151 7,151
------- ------- ------- ------ -------
Total costs and
expenses........ 36,619 837 1,174 (2,448) 36,182
------- ------- ------- ------ -------
INCOME (LOSS) FROM
OPERATIONS............... (2,763) 1,127 364 (1,235) (2,507)
Interest and other expense,
net...................... (1,764) (280)(f) (1,570)(h) 345 (j) (3,269)
------- ------- ------- ------ -------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM....... (4,527) 847 (1,206) (890) (5,776)
Preferred stock
dividends................ (900) (900)
------- ------- ------- ------ -------
INCOME (LOSS) TO COMMON
STOCK BEFORE
EXTRAORDINARY ITEM....... $ (5,427) $ 847 $(1,206) $ (890) $(6,676)
======= ======= ======= ====== =======
LOSS BEFORE EXTRAORDINARY
ITEM PER COMMON SHARE:
Primary and fully
diluted................ $ (0.46) $ (0.57)
======= =======
NUMBER OF COMMON AND
EQUIVALENT SHARES:
Primary and fully
diluted................ 11,812 11,812
======= =======
</TABLE>
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AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------------------------------------------
1995 ZILKHA I ZILKHA II
HISTORICAL TRANSACTIONS ACQUISITION ACQUISITION 1996 SALES PRO FORMA
---------- ------------ ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Oil and gas sales...... $ 70,768 $ (9,450)(k) $ 7,513 (e) $ 2,886 (g) $ (6,479)(i) $ 65,238
Gain (loss) on sales of
oil and gas
properties........... 10,230 (10,643)(l) (413)
Other revenues, net.... 936 249 (k) 1,185
------- ------- ------- ------- -------- --------
Total revenues... 81,934 (19,844) 7,513 2,886 (6,479) 66,010
------- ------- ------- ------- -------- --------
COSTS AND EXPENSES:
Production and
operating............ 24,515 (3,642)(k) 662 (e) 1,265 (g) (3,423)(i) 19,377
Depreciation, depletion
and amortization..... 30,726 (2,853)(k) 3,506 (e) 1,376 (g) (1,846)(i) 30,909
General and
administrative....... 7,472 56 (k) 7,528
Taxes other than
income............... 5,760 (243)(k) (561)(i) 4,956
Exploration............ 4,826 4,826
Impairment............. 1,822 1,822
------- ------- ------- ------- -------- --------
Total costs and
expenses....... 75,121 (6,682) 4,168 2,641 (5,830) 69,418
------- ------- ------- ------- -------- --------
INCOME (LOSS) FROM
OPERATIONS............. 6,813 (13,162) 3,345 245 (649) (3,408)
Interest and other
expense, net........... (5,336) 3,013 (m) (1,120)(f) (3,140)(h) 691 (j) (5,892)
------- ------- ------- ------- -------- --------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM..... 1,477 (10,149) 2,225 (2,895) 42 (9,300)
Preferred stock
dividends.............. (1,800) (1,800)
------- ------- ------- ------- -------- --------
INCOME (LOSS) TO COMMON
STOCK BEFORE
EXTRAORDINARY ITEM..... $ (323) $(10,149) $ 2,225 $(2,895) $ 42 $(11,100)
======= ======= ======= ======= ======== ========
LOSS BEFORE EXTRAORDINARY
ITEM PER COMMON SHARE:
Primary and fully
diluted.............. $ (0.03) $ (0.94)
======= ========
NUMBER OF COMMON AND
EQUIVALENT SHARES:
Primary and fully
diluted.............. 11,812 11,812
======= ========
</TABLE>
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<PAGE> 12
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The Pro Forma Condensed Consolidated Balance Sheet is presented as if the
Zilkha II Acquisition and the 1996 Sales occurred as of June 30, 1996. The Pro
Forma Condensed Consolidated Statements of Operations for the six months ended
June 30, 1996 and for the year ended December 31, 1995 are presented as if the
1995 Transactions, the Zilkha I Acquisition, the Zilkha II Acquisition, and the
1996 Sales were consummated as of January 1, 1995.
The Zilkha II Acquisition, the Zilkha I Acquisition and the portion of
the APPL Consolidation completed in 1995 have been accounted for in the Pro
Forma Statements using the purchase method of accounting. The value of the
interests acquired in the Zilkha II Acquisition and the Zilkha I Acquisition
represents the cash consideration given to the seller. The total value of the
acquired interests in the APPL Consolidation was determined based upon the
fair value of the Common Stock and cash offered to the investors.
(2) PRO FORMA ADJUSTMENTS
Balance Sheet
(a) To eliminate the assets to be sold in the 1996 Sales.
(b) To reflect the fair value of the oil and gas properties acquired by the
Company in the Zilkha II Acquisition for a purchase price of $45
million, before considering certain interests which are expected to be
sold to a third party for proceeds to the Company of approximately $6
million.
(c) To reflect the borrowing of $45 million under the Credit Agreement to
fund the Zilkha II Acquisition and the application of approximately
$6 million of proceeds from the sale of interests to a third party to
repay amounts outstanding under the Credit Agreement.
(d) To reflect the application of the estimated net proceeds of $8.6
million from the 1996 Sales to repay amounts outstanding under the
Credit Agreement.
Income Statement
(e) To reflect the results of operations for properties acquired in the
Zilkha I Acquisition.
(f) To adjust historical interest expense to reflect the $14 million
increase in outstanding bank debt to fund the Zilkha I Acquisition
assuming an annual interest rate of 8%, based on the Company's weighted
average interest rate on its bank borrowings.
(g) To reflect the results of operations for the properties acquired in the
Zilkha II Acquisition.
(h) To adjust historical interest expense to reflect the $45 million
increase in outstanding bank debt to fund the Zilkha II Acquisition
and the $6 million reduction in outstanding bank debt by the
application of proceeds from the sale of interests to a third party,
assuming an annual interest rate of 8%, based on the Company's
weighted average interest rate on its bank borrowings.
(i) To eliminate the results of operations related to the 1996 Sales.
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<PAGE> 13
(j) To adjust historical interest expense to reflect the application of the
estimated net proceeds of $8.6 million from the 1996 Sales to reduce
outstanding bank debt assuming an annual interest rate of 8%, based
on the Company's weighted average interest rate on its bank borrowings.
(k) To reflect the impact of the 1995 Transactions on the Company's results
of operations.
(l) To eliminate the nonrecurring gain on the Sawyer Sale.
(m) To adjust historical interest expense to reflect the repayment of $62.5
million of outstanding bank debt using the proceeds from the Sawyer
Sale and assuming an annual interest rate of 8%, based on the Company's
weighted average interest rate on its bank borrowings.
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<PAGE> 14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERICAN EXPLORATION COMPANY
Date: September 27, 1996 By: /s/ CINDY L. GEROW
---------------------------------
Cindy L. Gerow
Vice President and Controller
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<PAGE> 15
INDEX TO EXHIBITS
10(a) Purchase and Sale Agreement, dated September 27, 1996, between
American Exploration Company, as Seller and Zilkha Energy Company,
as Purchaser.
10(b) Sixth Amendment to Note Purchase Agreement, dated as of September
12, 1996, by and among the Company and the parties named therein.
10(c) Amendment No. 2 to Warrant Purchase Agreement, dated as of
September 12, 1996.
10(d) Amendment No. 5 to Amended and Restated Credit Agreement, dated as
of September 26, 1996, among American Exploration Company, the
banks listed therein and Morgan Guaranty Trust Company of New York,
as agent, and Bank of Montreal, as co-agent.
99 American Exploration Company News Release on the agreement to
purchase two offshore blocks in the Gulf of Mexico from a private
company.
-3-
<PAGE> 1
EXHIBIT 10(a)
PURCHASE AND SALE AGREEMENT
BETWEEN
ZILKHA ENERGY COMPANY, AS SELLER
AND
AMERICAN EXPLORATION COMPANY, AS PURCHASER
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
ARTICLE I PURCHASE AND SALE
-----------------
Section 1.1 Effective Date and Assets......................... 1
Section 1.2 Closing........................................... 4
Section 1.3 Assumption of Obligations......................... 4
Section 1.4 Transfer of Ownership of Assets................... 4
ARTICLE II PURCHASE PRICE
--------------
Section 2.1 Purchase Price.................................... 5
Section 2.2 Allocation of the Value........................... 5
Section 2.3 [Intentionally Omitted]........................... 5
Section 2.4 Adjusted Purchase Price........................... 5
Section 2.5 Payment of Purchase Price......................... 6
ARTICLE III TITLE EXAMINATION
-----------------
Section 3.1 Access to Title Information....................... 6
Section 3.2 Title Defects..................................... 7
Section 3.3 Permitted Encumbrances............................ 8
Section 3.4 Notice of Title Defects........................... 9
Section 3.5 Remedies for Title Defects........................ 9
Section 3.6 Preferential Purchase Rights......................11
Section 3.7 Consents to Assignment............................11
ARTICLE IV PHYSICAL CONDITION
------------------
Section 4.1 Physical Condition of the Assets..................12
Section 4.2 Environmental Assessment During
Examination Period...........................12
Section 4.3 Withdrawal by Purchaser...........................13
Section 4.4 Conditional Access to Assets......................13
Section 4.5 [Intentionally Omitted]...........................14
Section 4.6 Assumption and Indemnification of
Environmental Risk...........................14
ARTICLE V OPERATIONS AND CASUALTY LOSS
----------------------------
Section 5.1 Operation.........................................16
Section 5.2 Casualty Loss.....................................19
Section 5.3 [Intentionally Omitted]...........................19
Section 5.4 Successor Operator................................19
Section 5.5 Notice of Certain Events..........................19
Section 5.6 [Intentionally Omitted]...........................20
</TABLE>
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<PAGE> 3
<TABLE>
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ARTICLE VI REPRESENTATIONS AND WARRANTIES
------------------------------
Section 6.1 Existence.........................................20
Section 6.2 Authorization.....................................20
Section 6.3 Brokers...........................................20
Section 6.4 Binding Obligations...............................21
Section 6.5 No Conflict.......................................21
Section 6.6 No Breach or Default..............................21
Section 6.7 Bankruptcy........................................22
Section 6.8 Further Distribution..............................22
Section 6.9 Business Matters..................................22
Section 6.10 Leases, Wells, Production & Marketing.............23
Section 6.11 [Intentionally Omitted]...........................23
Section 6.12 Preferential Purchase Rights and Consents
to Assignment................................23
Section 6.13 Litigation........................................24
Section 6.14 Taxes.............................................24
Section 6.15 [Intentionally Omitted]...........................24
Section 6.16 Plugging and Abandonment; Status of Wells.........24
Section 6.17 Operating, etc. Agreements........................24
Section 6.18 Certain Agreements; Payouts.......................24
Section 6.19 Environmental Matters.............................25
Section 6.20 [Intentionally Omitted]...........................26
Section 6.21 Employment Liability..............................26
Section 6.22 Absence of Undisclosed Liabilities................26
Section 6.23 Ownership Matters.................................26
ARTICLE VII CONDITIONS OF CLOSING
---------------------
Section 7.1 a. Representations..........................26
b. Performance..............................26
c. Pending Matters..........................26
d. Consents and Waivers.....................26
e. Material Changes in Condition............27
Section 7.2 a. Representations..........................27
b. Performance..............................27
c. Pending Matters..........................27
d. Governmental Bonds.......................27
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ARTICLE VIII CLOSING...........................................28
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ARTICLE IX CONTINUING OBLIGATIONS
----------------------
Section 9.1 Settlement Statement; Allocation of
Certain Revenues.............................29
Section 9.2 Indemnities.......................................30
Section 9.3 Further Assurances................................31
Section 9.4 Recording.........................................32
Section 9.5 [Intentionally Omitted]...........................32
Section 9.6 Accounting for Proceeds from Sale of
Production...................................32
ARTICLE X INDEPENDENT INVESTIGATION AND DISCLAIMER..........32
----------------------------------------
ARTICLE XI TERMINATION.......................................33
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ARTICLE XII MISCELLANEOUS
-------------
Section 12.1 Governing Law.....................................33
Section 12.2 Entire Agreement..................................34
Section 12.3 Waiver............................................34
Section 12.4 Captions..........................................34
Section 12.5 Assignment........................................34
Section 12.6 Notices...........................................34
Section 12.7 UTPCPL and DTPA Waiver............................35
Section 12.8 Waiver of Jury Trial..............................35
Section 12.9 [Intentionally Omitted]...........................35
Section 12.10 Limitation of Liability...........................35
Section 12.11 No Admissions.....................................36
Section 12.12 Third Party Beneficiaries.........................36
Section 12.13 Expenses..........................................36
Section 12.14 Severability......................................36
Section 12.15 Publicity.........................................36
Section 12.16 Use of Seller's Name..............................36
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Section 12.17 Waiver of Compliance with Bulk
Transfer Laws.....................................36
Section 12.18 Survival..........................................37
Section 12.19 Listing of Exhibits and Schedules.................37
Section 12.20 Counterparts......................................37
Section 12.21 Notices After Closing.............................38
Section 12.22 Accounting for Net Profits Interests..............38
EXHIBIT A Description of Assets
EXHIBIT A-1 Description of Reserved Interests
EXHIBIT B Allocation of Value
EXHIBITS C-1 THROUGH C-6 Forms of Assignment
EXHIBIT D Form of Opinion of Seller's Counsel
SCHEDULE 1.3 Assumed Contracts and Agreements
SCHEDULE 3.3(h) Liens to be Released at Closing
SCHEDULE 3.6 Preferential Purchase Rights and Consents
SCHEDULE 6.10(a) Material Defaults, Unpaid Royalties and
Other Conditions Affecting Leases
SCHEDULE 6.10(b) Drilling and Production
SCHEDULE 6.10(c) Depth Restrictions
SCHEDULE 6.10(d) Sales Contracts, "Take-or-Pay" Clauses, Gas
Balancing, Deferred Production or Similar
Arrangements
SCHEDULE 6.13 Litigation
SCHEDULE 6.14 Taxes
SCHEDULE 6.16 Non-Producing and Shut-In Wells
SCHEDULE 6.17 AFEs, Plans and Proposals; Non-Consents
SCHEDULE 6.18 Areas of Mutual Interest; Payouts; Tax
Partnership Agreements
SCHEDULE 6.19 Environmental Matters
</TABLE>
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PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (the "Agreement") is made this 25th day
of September, 1996, between ZILKHA ENERGY COMPANY, a Delaware corporation,
whose address is 1201 Louisiana Street, Suite 3200, Houston, Texas 77002
("Seller") and AMERICAN EXPLORATION COMPANY, a Delaware corporation, whose
address is 1331 Lamar, Suite 900, Houston, Texas 77010-3088( "Purchaser").
PRELIMINARY STATEMENTS:
Seller owns interests in certain oil and gas properties and related
assets. Seller desires to sell to Purchaser and Purchaser desires to purchase
from Seller on the terms and conditions set forth in this Agreement certain oil
and gas interests, properties and related rights.
For good and valuable consideration and the covenants and agreements
contained herein, the receipt and sufficiency of which are hereby acknowledged,
Seller and Purchaser hereby agree as follows:
I.
PURCHASE AND SALE
1.1 Effective Date and Assets: Subject to the terms and conditions of this
Agreement, Seller shall sell and deliver and Purchaser shall purchase, accept
and pay for at Closing (as defined in Section 1.2), effective as of 7:00 a.m.
on September 15, 1996 (the "Effective Date"), WITHOUT ANY WARRANTY OF FITNESS
OR MERCHANTABILITY OR FREEDOM FROM HIDDEN VICES OR DEFECTS OF THE MATERIAL,
EQUIPMENT OR FACILITIES CONVEYED, AND WITHOUT WARRANTY OF ANY KIND OR NATURE
WHATSOEVER EXCEPT AS SPECIFICALLY PROVIDED IN THIS AGREEMENT, the following:
All of Seller's right, title and interest in and to:
(a) The oil and gas leasehold estates, royalties, overriding royalties
and other mineral interests as set forth in Exhibit A attached
hereto and made a part hereof (collectively, the "Leasehold
Property");
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(b) Without limitation of the foregoing, all other right, title and
interest of Seller of whatever kind or character, whether legal or
equitable, vested or contingent, in and to the oil, gas and other
minerals in and under or that may be produced from or attributable
to the Leasehold Property described in Exhibit A, including,
without limitation, interests in the oil, gas and/or mineral leases
covering all or any part of such Leasehold Property, production
payments and net profits interests in all or any part of such lands
or such leases (whether such property is described in Exhibit A or
is described by reference to another instrument set forth in
Exhibit A, even though Seller's interest in such oil, gas and other
interests may be incorrectly described in or omitted from such
Exhibit A); and all right, title and interest of Seller in and to
or otherwise derived from all presently existing and valid oil, gas
and/or mineral unitization, pooling, and/or communitization
agreements, declarations and/or orders and in and to the Leasehold
Property covered and the units created thereby, including, without
limitation, all units formed under orders, rules, regulations, or
other official acts of any federal, state, or other authority
having jurisdiction, voluntary unitization agreements, designations
and/or declarations, and so-called "working interest units" created
under operating agreements or otherwise relating to the Leasehold
Property;
(c) All wells, surface or subsurface machinery, equipment, platforms,
facilities, supplies or other property of whatsoever kind or nature
which are located on, appurtenant to, or used directly in
connection with the production, treatment, storage or
transportation of oil and gas from the Leasehold Property,
including, without limitation, all oil wells, gas wells, water
wells, salt water disposal wells, injection wells, wellhead
equipment( , casing, tubing, engines, christmas trees, separators,
compressors, dehydration units, heater-treaters, boilers, valves,
gauges, meters, pumps, generators, motors, flow lines, tanks, water
lines, gas lines, gathering lines, laterals and trunklines, gas
systems (for gathering, treating and compression), chemicals,
solutions, water systems (for treating, disposal and injection),
starters and controllers, telephone and other communication
systems, offshore platforms, equipment and facilities, and any and
all additions, accessions to, substitutions and replacements of any
of the foregoing, together with all attachments, components, parts,
equipment and accessories installed thereon or affixed thereto,
specifically excluding property owned by contract operators,
vehicles, boats, tools, pulling machines, warehouse stock,
equipment or material temporarily located on the Leasehold
Property, and any equipment, pipelines, fixtures or interests in
and owned by any purchaser and/or transporter of oil or gas. The
Assets (as hereinafter
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defined in this Section 1.1) shall not include any buildings other
than those located on platforms included in the Assets of any kind
unless the parties hereto specifically agree otherwise;
(d) Any easements, rights of way, permits, licenses, surface leases,
use agreements and servitudes to the extent assignable and to the
extent now being used in connection with the Leasehold Property,
together with all of Seller's rights and interests in and to all
pooling and unitization agreements, operating agreements, gas
balancing agreements, gas sales contracts, gathering, treatment,
compression, and transportation agreements, farm-out and farm-in
agreements, dry hole, bottom hole, acreage contribution, purchase
and acquisition agreements, area of mutual interest agreements,
salt water disposal agreements, servicing contracts, easement
and/or right-of-way agreements, unitization, communitization or
pooling agreements and other agreements and instruments to the
extent that they directly relate to the Leasehold Property except
(i) any insurance contracts or bonds held by Seller or its
subsidiary or affiliated corporations for Seller's benefit and (ii)
any employment, consulting, office lease, accounting or other
service contracts or agreements;
(e) All claims of Seller against gas purchasers for "take or pay"
obligations with respect to the Leasehold Property to the extent
such claims have not been paid to or settled by Seller as of the
Closing Date, and all obligations and benefits with respect to gas
production or processing imbalances that are to be assumed or
received by Purchaser pursuant to this Agreement; and
(f) All lease files, unit files, lease contract files, well files
relating to the Leasehold Property, and geological data (including
engineering and geophysical data (other than interpretive
information and then only to the extent permitted by applicable
licensing agreements) in printed and, to the extent possible,
machine readable form relating to the Leasehold Property) and
complete platform construction documentation and plans (including
as-built drawings) but excluding all other records, including, but
not limited to, corporate records, legal files, computer programs,
general tax records, samples, test data or any other data,
information or documents unrelated to the Leasehold Property. This
Agreement by Seller to convey the aforementioned records is granted
by Seller to the extent that Seller has authority to do so without
violating any confidentiality or license obligations to a third
party, all of which are disclosed on Schedule 1.3, and
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<PAGE> 9
is without warranty as to the accuracy or completeness of the
information delivered. Notwithstanding any other provisions of
this Agreement to the contrary, Seller shall not provide Purchaser
with any records or data which Seller considers to be interpretive,
proprietary or confidential to it or which Seller cannot legally
provide to Purchaser because of third party restrictions on Seller;
EXCLUDING, HOWEVER, the overriding royalty interests and
appurtenant rights as set forth on Exhibit A-1 attached hereto and
made a part hereof (collectively, the "Reserved Interests"), which
shall be excepted from the sale to Purchaser and reserved unto
Seller.
All of the rights, interests and properties described and referred
to in paragraphs 1.1(a) through 1.1(f) immediately above, LESS AND
EXCEPT the Reserved Interests, are hereinafter collectively
referred to as the "Assets."
1.2 Closing: "Closing", as used herein, shall mean the consummation of
the transactions contemplated hereby, including payment of the Purchase Price
(as hereinafter defined) to Seller and delivery of the Assignments (as defined
in Article VIII(a)) to Purchaser. Closing shall occur at 10:00 a.m. on
September 27, 1996 (the "Closing Date"), at Seller's office located at 1201
Louisiana Street, Suite 3200, Houston, Texas 77002, or at such other place,
date and time as may be mutually agreed upon by Seller and Purchaser.
1.3 Assumption of Obligations: From and after the Closing Date,
Purchaser shall assume, pay for, discharge, be responsible for, perform and
comply with all duties, liabilities and obligations relating to the Assets that
accrue or arise from and after the Effective Date, including, but not limited
to, those arising from or by virtue of any lease, agreement, contract or
instrument disclosed on Schedule 1.3 hereto and those arising from or by virtue
of any permit, statute, rule, regulation or order of any governmental
authority.
1.4 Transfer of Ownership of Assets: Subject to Section 9.1 hereof, on
the Closing Date, ownership of all the Assets shall pass to Purchaser as of the
Effective Date.
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II.
PURCHASE PRICE
2.1 Purchase Price: Subject to the terms and conditions of this
Agreement, Purchaser shall purchase the Assets at Closing for $45,000,000.00
(the "Purchase Price"), in cash, subject to the adjustments provided in Section
2.4 below.
2.2 Allocation of the Value: The Purchaser shall allocate the Purchase
Price to the Assets in the manner set forth on Exhibit B hereto (the
"Allocation of Value") and, if necessary, shall be adjusted separately as to
each Asset pursuant to Section 2.4.
2.3 [Intentionally omitted.]
2.4 Adjusted Purchase Price: The net price which Purchaser shall pay
for the Assets (the "Adjusted Purchase Price") shall be:
(a) The Purchase Price as set forth in Section 2.1 above;
(b) Plus the amount of all expenditures incurred by Seller
subsequent to January 9, 1995, but on or prior to the Closing Date
attributable to the completion of the East Cameron Block 328 No. 5
Subsea Well, including, without limitation, insurance, producing and
construction overhead and similar charges and expenses and all
prepaid expenses;
(c) Plus the amount of underproduced volumes of gas attributable
to Seller as of the Effective Date for each property in excess of
such volumes disclosed on Schedule 6.10(d) at the dates indicated
therein, multiplied by a price to be agreed upon by Purchaser and
Seller for such production (net of royalties and taxes) in each
case;
(d) [Intentionally omitted].
(e) Less the amount equal to all unpaid ad valorem, property,
production, windfall profit, severance and similar taxes and
assessments based upon or measured by the ownership of the Assets
that are conveyed to Purchaser at Closing or the production of oil
and gas or the receipt of proceeds
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therefrom accruing to the Leasehold Property that are conveyed to
Purchaser at Closing to the extent such taxes and assessments are,
in accordance with generally accepted accounting principles,
attributable to the period prior to the Effective Date;
(f) Less any amounts received by Seller (whether prior to or
subsequent to the Effective Date) with respect to the Assets
conveyed to Purchaser at Closing pursuant to take-or-pay, advance
payment or similar provisions of any production sales contract to
the extent any purchaser has the right to apply any such amounts to
production to be delivered after the Effective Date;
(g) Less or plus, as applicable, any amount determined to be a
Purchase Price adjustment pursuant to Article III hereof;
(h) [Intentionally Omitted]
(i) Less the amount of overproduced volumes of gas attributable
to Seller as of the Effective Date for each property in excess of
such volumes disclosed on Schedule 6.10(d) at the dates indicated
therein, multiplied by a price to be agreed upon by Purchaser and
Seller for such production (net of royalties and taxes) in each
case; and
(j) Less or plus any other amounts mutually agreed upon by the
parties hereto.
2.5 Payment of Purchase Price: At Closing, Purchaser shall pay
to Seller the difference between (i) the Purchase Price and (ii) the
Purchase Price adjustment, if any, under Section 2.4(g), by wire
transfer of cash in United States currency in a manner specified by
Seller to Purchaser at or prior to Closing. Subsequent to Closing,
Seller shall, in accordance with Section 9.1, prepare and deliver to
Purchaser a Final Settlement Statement (as such term is defined in
Section 9.1) reflecting the post-Closing adjustments to the Purchase
Price under Section 2.4 (other than under Section 2.4(g)).
III.
TITLE EXAMINATION
3.1 Access to Title Information: After the date of this Agreement and
until Closing, at Purchaser's request, Seller shall make the records described
in Section 1.1(f) available to Purchaser at Seller's offices, during normal
business hours for examination
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by Purchaser. Seller shall provide Purchaser's authorized representatives with
office space as reasonably necessary for due diligence purposes. Subject to
the consent and cooperation of operators and other third parties, Seller will
cooperate with Purchaser in Purchaser's efforts to obtain, at Purchaser's sole
expense, such additional information relating to the Assets as Purchaser may
reasonably desire, to the extent in each case that Seller may do so without
violating any confidentiality or license obligations or other contractual
commitments to a third party. Seller shall cause its personnel to assist
Purchaser in obtaining such additional information (other than interpretative
and confidential information) and shall use reasonable commercial efforts to
cause the counsel, accountants, independent petroleum consultants and
engineers, employees and other representatives of Seller to be available to
Purchaser for such purposes. During such investigation, except as prohibited by
confidentiality or license obligations or other contractual commitments to a
third party (with respect to which Seller shall use reasonable commercial
efforts to obtain a waiver thereof for the benefit of Purchaser), Purchaser
shall have the right to make copies of such records, files and other materials
as Purchaser may reasonably deem advisable. Seller shall not be obligated to
perform any additional title work, and any additional abstracts and title
opinions will not be made current by Seller. EXCEPT AS SPECIFICALLY PROVIDED
IN THIS AGREEMENT, NO WARRANTY OF ANY KIND IS MADE BY SELLER AS TO THE
INFORMATION SO SUPPLIED, AND PURCHASER AGREES THAT ANY CONCLUSIONS DRAWN
THEREFROM SHALL BE THE RESULT OF ITS OWN INDEPENDENT REVIEW AND JUDGMENT.
3.2 Title Defects: For the purpose of this Agreement, a "Title Defect"
shall mean one or more of the following:
(a) Seller's title at the Effective Date, as to one or more of the
Assets, is not of record, or is subject to an outstanding mortgage,
deed of trust, lien or encumbrance that is neither specifically
listed or referenced in this Agreement or on an exhibit attached
hereto, nor considered a Permitted Encumbrance (as such term is
defined in Section 3.3);
(b) Seller's interest in any of the Assets is more or less (but not by
way of any Permitted Encumbrances) than represented on Exhibit A
hereto;
(c) Seller's rights and interests in any of the Assets are subject to
(i) any contract or agreement not listed on Schedule 1.3 or (ii)
being reduced by virtue of the exercise by a third party of a
reversionary, back-in or similar right not specifically listed or
referenced in this Agreement or on an exhibit attached hereto nor
considered a Permitted Encumbrance;
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(d) Seller is in default under some material provision of a lease,
farmout agreement, joint operating agreement, gas balancing
agreement, gas sales contract or other material contract or
agreement affecting the Assets; or
(e) Any of Seller's representations set forth in Sections 6.10 through
6.22, insofar as it relates to any particular Asset, is untrue in
any material respect.
3.3 Permitted Encumbrances: "Permitted Encumbrances," as that term
is used in this Agreement, means:
(a) Liens for taxes not yet delinquent;
(b) Lessors' royalties, overriding royalties, reversionary interests
and other lease burdens that do not operate to reduce the net
revenue interest of Seller in any of the Assets to less than the
amount set forth therefor on Exhibit A;
(c) Contracts and agreements that (i) are disclosed on Schedule 1.3 and
(ii) do not operate to increase the working interest or decrease
the net revenue interest of Seller in any of the Assets from that
set forth on Exhibit A;
(d) Rights of way and other agreements of a similar nature relating to
or restricting use on, over or in respect of the Assets that do not
have a material adverse effect on the ownership, use, operation or
value of such Assets;
(e) Preferential rights to purchase which, prior to Closing, have
either expired or have been waived by the holders thereof to the
extent such rights affect the Assets;
(f) All necessary consents, permissions and approvals by third parties
in connection with the sales and transfer of the Assets which have
been obtained unconditionally prior to Closing and those
governmental consents customarily generated and received in the
ordinary course of business at a post-Closing date;
(g) Such Title Defects or other deficiencies or irregularities waived
by Purchaser in writing;
(h) Liens or encumbrances released at or prior to Closing as disclosed
on Schedule 3.3(h) attached hereto, provided that valid releases
are obtained and presented to Purchaser at Closing pursuant to
clause (f) of Article VIII herein; and
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(i) Rights reserved to or vested in any governmental subdivision,
political entity or public authority to control or regulate the
Assets in any manner, and all applicable laws, rules and orders of
such subdivisions, entities and authorities, provided that such
governmental rights, laws, rules and orders do not have a material
adverse effect on the ownership, use, operation or value of such
Assets.
3.4 Notice of Title Defect: Upon discovery of a Title Defect, the
discovering party shall immediately notify the other party in writing of the
nature of the Title Defect and the proposed adjustment in the Purchase Price
attributable to such Title Defect. Any Title Defect which might serve as the
basis of a reduction in the Purchase Price under Section 2.4(g) that is not
disclosed to Seller at least two (2) business days prior to Closing shall
conclusively be deemed waived by Purchaser, but only for purposes of Section
3.5 below. Purchaser's failure to give notice of Title Defects pursuant to
this Section 3.4 shall not prejudice or diminish in any respect Purchaser's
rights under Section 9.2(b) herein and the Assignments to be delivered by
Seller on the Closing Date.
3.5 Remedies for Title Defect:
(a) Upon timely delivery of notice of a Title Defect either by
Purchaser or by Seller, Purchaser and Seller shall meet and use
their best efforts to agree on the validity of the claim and the
amount of any required Purchase Price adjustment. Purchase Price
adjustments shall be determined in accordance with the following
guidelines:
(i) If it is determined that Seller owns a different interest than
that shown on Exhibit A, then the Purchase Price shall be
reduced or increased, as appropriate.
(ii) In the event a third party or parties elect to
exercise an applicable preferential right of purchase, if any,
the Purchase Price shall be reduced by the amount allocated
to the affected property as indicated on the Allocation of
Value (Exhibit B hereto), and Closing shall occur as to the
remainder of the properties, if any.
(iii) If a Title Defect is a lien, encumbrance or other charge which
is liquidated in amount, then the adjustment shall be the sum
necessary to be paid to the obligee to remove the Title Defect
from the affected property and Seller shall pay such sum to
obligee at or before Closing. Purchaser agrees to cooperate
with Seller in such efforts at no risk or expense to
Purchaser. If a Title Defect represents an obligation or
burden upon the affected property for which the
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economic detriment to Purchaser can be estimated with
reasonable certainty, the adjustment shall be the sum
necessary to compensate Purchaser at Closing for the adverse
economic effect which such Title Defect will have on the
affected property.
(iv) If the parties cannot agree on the amount of a Purchase Price
adjustment attributable to a Title Defect asserted by
Purchaser, notwithstanding the foregoing guidelines, or as to
the existence of a Title Defect asserted by Purchaser, then
either Seller or Purchaser may, upon written notice to the
other party, terminate this Agreement, and the same shall be
of no further force and effect.
(b) In the event the net amount of all adjustments to the Purchase Price
pursuant to Section 3.5(a) exceeds twenty percent (20%) of the total
Purchase Price, then either Seller or Purchaser may, upon written
notice to the other party, terminate this Agreement, and the same
shall be of no further force and effect.
(c) If Purchaser is entitled to receive an adjustment for a Title
Defect, as provided in this Agreement, Seller shall have the right,
but not the obligation, to attempt to cure the Title Defect and
cancel the reduction in the Purchase Price. If Seller chooses to
cure the Title Defect, but has not done so by Closing, Seller shall
have the right to postpone Closing with respect to the affected
property for a period not to exceed twenty (20) business days from
the original Closing Date (the "Cure Period"). During the Cure
Period, Seller shall remain the record and beneficial owner thereof
and shall continue to conduct operations of the affected property in
a good and workmanlike manner, subject to the provisions of Article
V hereof. On or before the last day of the Cure Period, Seller may
submit to Purchaser such curative materials as Seller has obtained
with respect to any uncured and unwaived Title Defect existing as of
the Closing Date, and Purchaser will have twenty (20) business days
to review and approve or reject the same. If Purchaser approves,
Purchaser will accept, pay for in accordance with the Allocation of
Value (Exhibit B hereto), as adjusted if necessary under the
guidelines stated in Section 3.5(a) hereof, and receive an
assignment of the property as to which Seller has cured a Title
Defect. If at the end of the Cure Period, Seller shall not have
removed any applicable Title Defect, Purchaser shall have the right
to elect (i) to waive such Title Defect and accept, pay for and
receive an assignment of the affected property or (ii) to terminate
this Agreement, and the same shall be of no further force and
effect.
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3.6 Preferential Purchase Rights: Except as disclosed on Schedule 3.6
attached hereto, none of the Leasehold Property is subject to preferential
purchase rights or consents to assignment in favor of third parties. With
respect to each preferential purchase right, if any, covering the Leasehold
Property, Seller shall send to the holder of such right a notice offering to
sell to such holder, in accordance with the contractual provisions applicable
to such right, those Assets covered by such right on substantially the same
terms hereof and for the portion of the Purchase Price attributable to such
Leasehold Property on the Allocation of the Value (Exhibit B attached hereto),
subject to adjustments in the same manner as the Purchase Price may be adjusted
pursuant to Section 3.5 of this Agreement.
If, prior to Closing, any holder of a preferential purchase right notifies
Seller that it intends to consummate the purchase of the Assets to which its
preferential purchase right applies, then either Seller or Purchaser may, upon
written notice to the other party, terminate this Agreement, and the same shall
be of no further force and effect; provided, however, that if the holder of
such preferential purchase right fails to consummate the purchase of the Assets
covered by such right in accordance with and within the time provided in the
applicable agreement and this Agreement has not theretofore been terminated,
then Seller shall so notify Purchaser, and at Closing, Seller shall sell to
Purchaser, and Purchaser shall purchase from Seller, the Assets to which the
preferential purchase right is applicable for a price equal to that portion on
the Allocation of Value and upon the other terms of this Agreement.
3.7 Consents to Assignment: Seller shall use reasonable commercial
efforts to obtain all consents to assignment of the Assets, if any, prior to
Closing. If a third party who has the right to consent to assignment of an
Asset or part thereof refuses such consent or refuses to grant a consent on an
unconditional basis, or if such party fails to respond to Seller's efforts to
obtain consent to assignment, Seller will promptly notify Purchaser, such
notice to be provided at least two (2) business days prior to Closing. Any
Asset or part thereof so affected on the Closing Date will be deemed to be
subject to an uncured Title Defect.
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IV.
PHYSICAL CONDITION
4.1 Physical Condition of the Assets: Purchaser acknowledges that some
oil field production equipment may contain asbestos and/or naturally-occurring
radioactive material ("NORM"). In this regard, Purchaser expressly understands
that NORM may affix or attach itself to the inside of wells, materials and
equipment as scale or in other forms, and that wells, materials and equipment
located on the Assets described herein may contain NORM and that
NORM-containing materials may be buried or have been otherwise disposed of on
or under the Assets. Purchaser also expressly understands that special
procedures may be required for the removal and disposal of asbestos and NORM
from the Assets where it may be found, and that Purchaser assumes all liability
and responsibility for such activities when and if performed but without
prejudice to Purchaser's rights under Sections 4.6, 9.2 and 12.18 hereof.
4.2 Environmental Assessment During Examination Period:
(a) Upon Purchaser's execution of this Agreement, Seller will make
available to Purchaser environmental reports or surveys, if any, in
Seller's possession pertaining to any of the Assets, and Purchaser
shall have the right to make any environmental assessment of the
Assets during the period (the "Examination Period") beginning on the
date of this Agreement and ending five (5) days prior to Closing.
Purchaser and its Agents (as such term is defined in Section 4.6)
shall have the right to enter upon the Assets and all buildings and
improvements thereon, inspect the same, conduct soil and water tests
and borings, and generally conduct such tests, examinations,
investigations and studies as may be necessary or appropriate for
the preparation of appropriate engineering and other reports, and
evaluations relating to the Assets, their condition, and the
presence of waste or contaminants. Purchaser agrees to immediately
provide to Seller a copy of the environmental assessment, including
any reports, data and conclusions upon which it is based. Except as
may be required by law, subpoena or other legal process, Purchaser
agrees to keep all data and information acquired by virtue of such
examinations, and the results of all testing and analyses thereof,
strictly confidential and not to disclose same to any person or
agency, without the prior written approval of Seller, other than (i)
Purchaser's Agents and (ii) firms or entities proposing to provide
financial accommodations to Purchaser.
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<PAGE> 18
(b) On-Site Tests and Inspections: Seller shall permit, or in case of
any third-party operated wells, use reasonable commercial efforts to
cause the operator thereof to permit, Purchaser's authorized
representatives to consult with Seller's and/or such third-party
operator's agents and employees during reasonable business hours
and to conduct on-site inspections and inventories of the
Leasehold Property and inspect and examine all well logs and
geological and geophysical data (other than interpretive and
confidential information) directly relating to such Leasehold
Property.
4.3 Withdrawal by Purchaser:
(a) If, during the Examination Period, Purchaser, in its sole discretion
determines that (i) an Environmental Defect or Defects (as such term
is defined in Section 4.3(b) hereof) exists, or (ii) that the
physical inspections contemplated by Section 4.2(b) indicate (x)
that any Asset may not be in compliance in any material respect with
any applicable laws, rules or regulations or (y) that any well
included in the Assets has suffered a material adverse change since
July 1, 1996 in its ability to produce hydrocarbons then, by so
notifying Seller within the Examination Period, Purchaser may, upon
written notice to Seller, terminate this Agreement and the same
shall be of no further force and effect.
(b) An "Environmental Defect" shall mean, with respect to any Asset:
(i) Any matter that causes a breach of Seller's
representation set forth in Section 6.19; or
(ii) With respect to an environmental assessment conducted pursuant
to Section 4.2(a) hereof, the presence or evidence of the past
presence of any Hazardous Substance on the Leasehold Property.
A "Hazardous Substance" is any substance, chemical or waste
that is listed or included as hazardous, toxic or dangerous
under any applicable Environmental Laws (as such term is
defined in Section 6.19 hereof).
4.4 Conditional Access to Assets: Purchaser is hereby granted access to
the Assets to conduct its environmental assessment and physical inspections and
tests upon the following conditions:
(a) The environmental assessment and physical inspections and
tests shall be conducted at Purchaser's sole risk and expense, and
Purchaser waives and
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<PAGE> 19
releases all claims against Seller and its Agents for injury to, or
death of, persons or damage to property arising in any way from the
exercise of rights granted to Purchaser hereby or the activities of
Purchaser or its employees, Agents or contractors on the Assets.
(b) Purchaser shall indemnify Seller, and its Agents against and hold
each and all of said indemnitees harmless from any and all loss,
cost, damage, expense or liability, including attorneys' fees,
whatsoever arising out of (i) any and all liens or other
encumbrances for labor or materials furnished in connection with
such tests, samplings, studies or surveys as Purchaser may conduct
with respect to the Assets and (ii) any injury to or death of
persons or damage to property occurring in, on or about the Assets
as a result of such exercise or activities whether or not Seller or
its Agents were negligent or otherwise at fault (except for any such
injuries or damages caused solely by the gross negligence or willful
misconduct of said indemnitees).
4.5 [Intentionally omitted.]
4.6 Assumption and Indemnification of Environmental Risk:
(a) On and after the Closing Date, Purchaser shall assume full
responsibility for, and agrees (i) to comply with and perform all
environmentally related duties and obligations of the owner of the
Assets arising from the ownership or operation thereof after the
Closing Date, and (ii) to indemnify, defend and hold harmless
Seller, its directors, officers, employees, agents, representatives
and affiliated companies (which additional parties are hereinafter
collectively referred to as "Agents"), from and against all losses,
liabilities, causes of action, damages, liens, penalties, fines,
settlements, judgments, expenses, attorneys' fees, court costs and
claims (hereinafter referred to collectively as "Claims") caused by
or arising out of Purchaser's (or Purchaser's successors or assigns)
failure to observe or comply with any rule, order, permit, statute
or regulation of a governmental authority applicable to any waste
material, contaminant or Hazardous Substance on or included with the
Assets as a result of (x) operations on or after the Closing Date or
(y) the disposal, release or threatened release on or after the
Closing Date of any waste material, contaminant or Hazardous
Substance from the Assets into the atmosphere or into or upon land
or any water course or body of water, including ground water
("Release").
(b) Subject to Section 4.1 of this Agreement, Seller shall indemnify,
defend and hold harmless Purchaser and its Agents from and against
Claims made
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<PAGE> 20
within two (2) years of the Closing Date caused by or arising out of
(i) the performance prior to the Closing Date of environmentally
related duties and obligations of the owner of the Assets, (ii)
Seller's failure to have observed or complied with any rule, order,
permit, statute, or regulation of a governmental authority
applicable to any waste material, contaminant or Hazardous Substance
on or included with the Assets as a result of operations prior to
the Closing Date or (iii) the disposal, Release or threatened
Release prior to the Closing Date of any waste material, contaminant
or Hazardous Substance from the Assets into the atmosphere or into
or upon land or any water course or body of water, including ground
water; provided, however, in no event shall Seller have any
obligation to indemnify, defend or hold harmless Purchaser against
such Claims attributable to Purchaser's negligence in remediating
any environmental condition existing prior to the Closing Date.
(c) Purchaser shall indemnify, defend and hold harmless Seller and its
Agents from and against all Claims made after two (2) years from the
Closing Date caused by or arising out of (i) the performance prior
to the Closing Date of environmentally related duties and
obligations of the owner of the Assets, (ii) the failure, prior to
the Closing Date, of the owner or operator of the Assets to have
observed or complied with any rule, order, permit, statute or
regulation of a governmental authority applicable to any waste
material, contaminant or Hazardous Substance on or included with the
Assets or (iii) the disposal, Release or threatened Release prior to
the Closing Date of any waste material, contaminant or Hazardous
Substance from the Assets into the atmosphere or into or upon land
or any water course or body of water, including ground water;
provided, however, in no event shall Purchaser have any obligation
to indemnify, defend or hold harmless Seller against (i) such Claims
attributable to matters of which Seller had actual knowledge at the
Closing Date and failed to disclose to Purchaser (including without
limitation such matters as would cause a breach of Seller's
representations set forth in Section 6.19) or (ii) such Claims
attributable to or caused by Seller's own actions or omissions
whenever they occurred.
(d) Notwithstanding Section 4.6(c), Seller shall indemnify, defend and
hold harmless Purchaser and its Agents from and against all Claims
made after two (2) years from the Closing Date caused by or arising
out of (i) the performance prior to the Closing Date of
environmentally related duties and obligations of the owner of the
Assets, (ii) the failure, prior to the Closing Date, of the owner or
the operator of the Assets to have observed or
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<PAGE> 21
complied with any rule, order, permit, statute, or regulation of a
governmental authority applicable to any waste material, contaminant
or Hazardous Substance on or included with the Assets or (iii) any
Release, or threatened Release prior to the Closing Date to the
extent but only to the extent that such Claims referenced in clauses
(i)-(iii) immediately above are attributable to matters of which
Seller had actual knowledge at the Closing Date and failed to
disclose to Purchaser on or prior to the Closing Date.
(e) The indemnifications and assumptions of responsibility set forth in
this Section 4.6 shall apply to liability for voluntary
environmental response actions undertaken pursuant to the
Comprehensive Environmental Response Compensation and Liability Act
("CERCLA") or any other federal, state or local law, regulation or
order. A Claim shall be deemed asserted against Seller or Purchaser,
as the case may be, at the time an inquiry or investigation of which
Seller or Purchaser, as the case may be, has actual knowledge is
initiated by any regulatory agency or judicial body having
jurisdiction thereover relating to environmental cleanup or
remediation activities or upon Seller's or Purchaser's receipt, as
the case may be, of written demand for environmental cleanup or
remediation activities.
V.
OPERATIONS AND CASUALTY LOSS
5.1 Operations:
(a) Seller, as to the portion of the Assets to be conveyed which it now
operates, agrees to continue to operate the same in a good and
workmanlike manner until Closing, when such operations shall be
turned over to Purchaser unless contrary to applicable unit,
pooling, communitization or operating agreements or applicable laws
and/or regulations or unless Seller and Purchaser otherwise agree.
Subject to the provisions of Section 5.2(b), Seller shall pay or
cause to be paid all costs and expenses incurred in connection
therewith until the Closing Date. Except as provided for elsewhere
in this Agreement, Seller shall not directly or indirectly convey to
a third party, or reserve or retain, any recorded or unrecorded
interest in any of the Leases, and Seller shall not convey to a
third party, or reserve or retain, any recorded or unrecorded
executory rights. During the period, if any, from and after the
Closing Date until Seller is replaced as operator, Seller as
operator of the Assets shall have no liability to Purchaser for
losses or damages sustained or liabilities incurred, except as may
result
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<PAGE> 22
directly from Seller's gross negligence or willful misconduct. In
no event shall Seller be replaced as operator of the Assets at any
time prior to Closing. In the absence of any applicable operating
agreement for any such services, if any, as operator of the Assets
(or portions thereof) performed by Seller from and after the Closing
Date, Purchaser shall pay to Seller all reasonable and customary
expenses incurred by Seller in such operation, protection or
maintenance of the Assets and, in addition, for active wells located
on the applicable portion of the Assets operated by Seller after the
Closing Date, Purchaser shall pay Seller the Council of Petroleum
Accountants Society overhead charge for each active well per month.
Any such charges and expenses shall be recovered by Seller as part
of the Final Settlement Statement.
(b) From the date hereof until the Closing Date, Seller shall (or, with
respect to non-operated wells, shall use reasonable commercial
efforts to cause the operator of such wells to): (i) not abandon
any well on any lease listed on Exhibit A hereto (the "Leases")
capable of commercial production, or release any such Lease; (ii)
not develop, maintain or operate the Assets in a manner materially
inconsistent with prior operations; (iii) not commence any operation
on any Leasehold Property anticipated to cost in excess of $25,000
per operation net to Seller's interest (except emergency operations
and operations required under presently existing contractual
obligations and the on-going commitments under the authorizations
for expenditures ("AFEs") described on Schedule 6.17 attached
hereto); (iv) not create or suffer to exist any lien, security
interest or other encumbrance with respect to any Asset (except for
Permitted Encumbrances); (v) not enter into any agreement for the
sale, disposition or encumbrance of any Asset; (vi) not dedicate,
sell, encumber or dispose of any oil and gas production attributable
to the Assets except in the ordinary course of business; (vii) not
agree to any material alterations in the Leases or other contractual
agreements governing any Leasehold Property and not enter into any
new contracts relating to the Assets (except for contracts
terminable without penalty by Seller on not more than 30 days
notice); (viii) maintain in force all insurance policies covering
the Assets that are presently in force; (ix) maintain the Leases in
full force and effect and comply with all express covenants
contained therein; (x) pay or cause to be paid all costs and
expenses incurred in connection with the Assets before they become
delinquent (unless same is not material in amount and is being
contested in good faith); (xi) maintain in all material respects the
Assets in a manner consistent with prior operations; (xii) exercise
due diligence in safeguarding and maintaining secure and
confidential all geological and geophysical
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<PAGE> 23
maps, confidential reports and data and all other confidential data
included in the Assets or relating in any way to the Leasehold
Property; (xiii) furnish Purchaser with copies of all AFEs on
material operations commenced, but not completed, prior to the
Effective Date; (xiv) not voluntarily relinquish its position as
operator with respect to any of the Leasehold Properties; and (xv)
not allow any emission, discharge, or Release into the environment
of any pollutant, contaminant or Hazardous Substance from or
attributable to any Asset.
(c) From and after the date of this Agreement until Closing, Seller
shall: (i) identify and use reasonable commercial efforts to obtain
any and all necessary consents, waivers (including waivers of
preferential purchase rights, if any), permissions and approvals of
third parties or governmental authorities in connection with the
sale and transfer of the Assets to Purchaser; (ii) afford Purchaser
the right to approve in advance all letters and other documents sent
to any third party concerning consents and preferential rights of
such third party to purchase any portion of the Assets or prohibit
the sale thereof to Purchaser; (iii) file or cause to be filed all
reports required to be filed with governmental authorities relating
to the Assets; (iv) consult with Purchaser from time to time, upon
Purchaser's request, concerning the operation and development of the
Assets and Seller's compliance with its covenants and agreements
hereunder; (v) maintain its organizational status as a corporation
and assure that as of the Closing Date it will not be under any
legal or contractual restriction that would prohibit or delay the
Closing; (vi) obtain or cause to be obtained all permits, licenses
and other authorizations required under applicable federal, state
and local laws, including Environmental Laws; (vii) remain and cause
the Assets to remain in compliance in all material respects with all
Environmental Laws and all terms and conditions of such permits,
licenses and authorizations; and (viii) immediately inform Purchaser
upon receipt of notice, or otherwise upon becoming aware, of any
past, present or future events, conditions, activities, incidents or
plans that are reasonably likely to interfere with continued
compliance in any material respect with applicable federal, state
and local laws, or that are reasonably likely to give rise to any
liability, claim, investigation or proceeding based on or related to
the processing, distribution, use, treatment, storage, disposal,
transport or handling, or the emission, discharge, Release or
threatened Release into the environment, of any pollutant,
contaminant, or Hazardous Substance from or attributable to any of
the Assets.
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<PAGE> 24
5.2 Casualty Loss:
(a) The risk of casualty loss relating to the Assets shall pass from
Seller to Purchaser as of the Closing Date, and Purchaser shall
assume all risk of any change in condition of the Assets from and
after the Closing Date.
(b) If, prior to the Closing, any of the Leasehold Property is destroyed
by fire, casing collapse, blowout or other casualty, Purchaser may
elect to treat each Leasehold Property affected by such casualty
as if it suffered from a Title Defect.
5.3 [Intentionally omitted.]
5.4 Successor Operator: While Purchaser may represent that it desires to
succeed Seller as operator of the Assets or portions thereof which Seller may
presently operate, Purchaser acknowledges and agrees that Seller cannot and does
not covenant or warrant that Purchaser shall become successor operator of same
since the Assets or portions thereof may be subject to unit, pooling,
communitization or operating agreements or other agreements or applicable laws
and/or regulations which control the appointment of a successor operator. Seller
agrees, however, that as to the Assets it operates, where it can facilitate the
appointment of a successor operator, Seller will, in a prudent manner at or
immediately prior to Closing, resign as operator.
5.5 Notice of Certain Events: It being the intention of Seller and
Purchaser that Seller shall engage in a continuous disclosure process from the
date hereof through the Closing Date, Seller shall promptly notify Purchaser if
Seller learns at any time on or before the Closing Date of the occurrence or
non-occurrence, as applicable, of: (i) any dispute or proceeding between
Seller, or any third party operator of any Leasehold Property, and a
governmental agency or any other person or entity that, if adversely determined,
could have a material adverse effect on the ownership or operation of the
Assets; (ii) any material default or noncompliance of any party to any of the
Leases or other agreements, orders and other instruments related to the
Leasehold Property with any of the terms and conditions thereof, or any notice
of termination or other material proceedings or actions that might reasonably be
expected to materially and adversely affect any of the Leases or Leasehold
Property, together with a detailed statement of the steps being taken to cure
such default, noncompliance or termination; (iii) any amendment (unless such
amendment is not material or is permitted by this Agreement or by any consent of
Purchaser to a deviation from the terms of this Agreement) of any of the Leases
or other agreements, orders and other instruments related to the Leasehold
Property, together with a copy of such amendment; iv) the intended sale,
encumbrance or other disposition of any Asset; (v) the emission, discharge,
Release or threatened Release into the environment of any pollutant, contaminant
or Hazardous Substance from or
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<PAGE> 25
attributable to any of the Assets; or (vi) any other event or condition that
would make any representation or warranty (including the information set forth
in the Schedules attached hereto) made by Seller to Purchaser not true and
correct in all material respects, or any agreement or covenant required to be
performed herein unable to be performed as provided herein.
5.6 [Intentionally omitted.]
VI.
REPRESENTATIONS AND WARRANTIES
6.1 Existence: Each of Purchaser and Seller represents as to itself that
it is duly organized, validly existing, and in good standing under the laws of
the jurisdiction of its incorporation and is duly qualified to carry on
business as a foreign corporation in every state of the United States in which
its ownership or lease of property or conduct of its business and operations
makes such qualification necessary.
6.2 Authorization: Each of Purchaser and Seller represents as to itself
that it has the requisite corporate power to enter into and perform this
Agreement and the transactions contemplated hereby and that the execution,
delivery and performance of this Agreement and the transactions contemplated
hereby have been duly and validly authorized by all requisite corporate action
on the part of each of Purchaser and Seller, including shareholder approval
where required, as the case may be. Each of Purchaser and Seller represents as
to itself that this Agreement has been duly executed and delivered on behalf of
Purchaser and Seller, respectively, and that at Closing all documents and
instruments required hereunder to be executed and delivered by Purchaser and
Seller, respectively, shall have been duly executed and delivered.
6.3 Brokers: Each of Purchaser and Seller represents as to itself that
it has not incurred any obligation or liability, contingent or otherwise, for
brokers' or finders' fees with respect to the matters provided for in this
Agreement which will be the responsibility of the other party and that any such
obligation or liability that may exist shall be the sole obligation of the
creating party. The creating party hereby agrees to defend, indemnify and hold
harmless the other parties from any claims for any such brokers' or finders'
fees.
6.4 Binding Obligation: Each of Purchaser and Seller represents as to
itself that this Agreement constitutes the valid, legal and binding obligation
of each of Purchaser and Seller and is enforceable against it in accordance
with its terms, except to the extent that such enforcement may be limited by
applicable bankruptcy, insolvency and similar
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<PAGE> 26
laws affecting creditors' rights generally, and by general equitable principles.
Each of Purchaser and Seller represents as to itself that all instruments
required hereunder to be executed and delivered by each of Purchaser and Seller
at the Closing will, when executed and delivered, constitute valid, legal and
binding obligations of Purchaser and Seller, respectively, enforceable against
each of Purchaser and Seller in accordance with their terms, except to the
extent that such enforcement may be limited by applicable bankruptcy, insolvency
and similar laws affecting creditors' rights generally, and by general equitable
principles.
6.5 No Conflict.
(a) Seller's execution, delivery and performance of this Agreement do
not and will not conflict with or violate any material agreement
governing Seller's management, administration, organization,
business or affairs, including its certificate of incorporation or
by-laws or, in any material respect, any other agreements or
instruments to which Seller may be a party or by which Seller or any
of its properties are bound, or any material law, administrative
regulation or rule or court order, judgment or decree applicable to
Seller or to the Assets, non-compliance with which could reasonably
be expected to have a material adverse effect on Purchaser or its
ownership or operation of the Assets on and after the Closing Date.
(b) Purchaser's execution, delivery and performance of this Agreement do
not and will not conflict with or violate any material agreement
governing Purchaser's management, administration, organization,
business or affairs, including its articles or certificate of
incorporation or by-laws or, in any material respect, any other
agreements or instruments to which Purchaser may be a party or by
which Purchaser or any of its properties are bound, or any material
law, administrative regulation or rule or court order, judgment or
decree applicable to Purchaser.
6.6 No Breach or Default: Each of Purchaser and Seller represents as to
itself that neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby does or will constitute a
breach of, or an event of default under, any contract or agreement to which
Purchaser or Seller is a party. Seller represents that neither the execution
and delivery of this Agreement nor the consummation of the transactions
contemplated hereby result or will result in any liability to Purchaser under
the terms of any contracts or agreements of employment or consultancy to which
Seller is a party.
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<PAGE> 27
6.7 Bankruptcy: Purchaser represents that there are no bankruptcy,
reorganization, or arrangement proceedings pending, being contemplated by or,
to the best knowledge of Purchaser, threatened against Purchaser. Seller
represents that there are no such proceedings pending, being contemplated by
or, to the best knowledge of Seller, threatened against Seller.
6.8 Further Distribution: Purchaser represents to Seller that it is
acquiring the Assets for its own account and not with the intent of making a
distribution thereof within the meaning of the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder or a distribution
thereof in violation of any applicable securities laws.
6.9 Business Matters: Purchaser represents to Seller that (i) it has
assets of $5,000,000 or more according to the most recent financial statement
of Purchaser prepared in accordance with generally accepted accounting
principles, (ii) it has knowledge and experience in financial and business
matters that enable it to evaluate the merits and risks of a transaction of
this type and (iii) it is not in a significantly disparate bargaining position.
6.10 Leases, Wells, Production and Marketing: Seller represents and
warrants to Purchaser that:
(a) Except as disclosed on Schedule 6.10(a) attached hereto, (i) all
Leases are in full force and effect, (ii) Seller is not in default
under any of the terms and provisions of any of the Leases or under
any material agreement to which the same are subject and Seller has
no actual knowledge of a default by the other party or parties to
any of such Leases or material agreements, (iii) all royalties
(except for suspense funds attributable to royalties withheld in the
ordinary course), rentals and other payments due thereunder by
Seller and, to the best of Seller's knowledge, by others, have been
timely and properly paid in full on or before the due dates thereof
and (iv) all conditions necessary to keep the Leases in full force
and effect have been fully and punctually performed by Seller and,
to the best of Seller's knowledge, by others.
(b) Except as disclosed on Schedule 6.10(b) attached hereto, (i) all of
the wells included in the Assets have been drilled, completed and
operated within the boundaries of the Leases or within the limits
otherwise permitted by contract, pooling or unit agreement, and by
law and in compliance in all material respects with all applicable
rules, regulations, permits, judgments, orders and decrees of any
court or the federal and state regulatory
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<PAGE> 28
authorities having jurisdiction thereof and (ii) the production of
oil and gas therefrom has not been in excess of the allowable
production allocated to such well.
(c) Except for depth restrictions to which Seller's interests in the
Leases presently are subject, as disclosed on Schedule 6.10(c)
attached hereto, Seller represents and warrants that, with respect
to the Leases, Purchaser will acquire from Seller at the Closing
valid and existing leasehold or operating rights in and to all
depths and horizons below the surface of the land area described in
the Leases.
(d) Except as disclosed on Schedule 6.10(d) attached hereto, no amounts
of oil or gas produced from the Leasehold Property are subject to a
sales contract (except for contracts terminable without penalty by
Seller on not more than 30 days notice), and no person has any call
upon, option to purchase, right to refund or similar rights under
any agreement with respect to the Leasehold Property or to the
production therefrom. Except as disclosed on Schedule 6.10(d),
Seller has not been nor will Seller be obligated by virtue of any
prepayment made under any production sales contract or any other
contract containing a "take or pay" clause, or under any gas
balancing, deferred production or similar arrangement to deliver
oil, gas or other minerals produced from or allocated to any of the
Leasehold Property at some future time without receiving full
payment therefor at the time of delivery. Except as disclosed on
Schedule 6.10(d), there are no material gas imbalances as between
Seller and any third party with respect to operations relating to
the Leasehold Property.
6.11 [Intentionally omitted].
6.12 Preferential Purchase Rights and Consents to Assignment: Except as
disclosed on Schedule 3.6 attached hereto, and except such agreements with
respect to which all necessary waivers of preferential purchase rights or
unconditional consents to assignment have already been obtained by Seller, the
Assets are not subject to any agreements containing preferential purchase
rights or consent to assignment provisions that must be complied with prior to
the assignment of the Assets to Purchaser.
6.13 Litigation: Except as disclosed on Schedule 6.13 attached hereto,
there is neither any claim, dispute, suit, action, investigation or other
proceeding pending before any court or governmental agency nor, to the best
knowledge of Seller, threatened against Seller or any affiliate of Seller or
any of the Assets which has resulted or might result in an impairment or loss
of Seller's title to any Asset or diminish the value thereof or impede
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<PAGE> 29
the operation of any such Asset, or which challenges or pertains to the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby.
6.14 Taxes: Except as disclosed on Schedule 6.14 attached hereto, all ad
valorem, property, transfer, production, excise, severance, windfall profit and
similar taxes and assessments payable with respect to the Assets and based on
or measured by the ownership of property or the production or removal of oil
and gas or the receipt of proceeds therefrom previously due and owing have been
timely paid in all respects.
6.15 [Intentionally omitted].
6.16 Plugging and Abandonment; Status of Wells: The Assets do not
include any wells not identified on Exhibit A . No well identified on Exhibit A
was non-producing or shut-in as of the date hereof, except as disclosed on
Schedule 6.16 attached hereto and for any such wells that were shut-in on a
temporary basis as part of normal oilfield operations.
6.17 Operating, etc. Agreements: With respect to joint, unit or other
operating agreements relating to the Assets: (i) except as disclosed on
Schedule 6.17 attached hereto, there are no AFEs presently outstanding, and, to
the best of Seller's knowledge, there are no plans or proposals to conduct
drilling or other material operations; (ii) Seller has listed on Schedule 6.17
the status of all material operations by less than all parties to the extent
that such has an effect upon Seller's interests in the Assets; and (iii) except
as disclosed on Schedule 6.17, there are no operations under the operating
agreements with respect to which Seller has become a non-consenting party.
6.18 Certain Agreements; Payouts: Except as set forth in Schedule 6.18
attached hereto, no Asset is subject to any area of mutual interest agreement,
or any farm-out or farm-in agreement pursuant to which Seller was obligated and
has not made assignments prior to the Closing Date, or pursuant to which
Purchaser may be obligated to make assignments after the Effective Date.
Except as set forth on Schedule 6.18, no Asset is subject to any tax
partnership, and none of the Assets constitutes either an interest in or a
property of an unincorporated organization that is subject to taxation under
the provisions of subchapter K of chapter 1 of Subtitle A of the Internal
Revenue Code of 1986, as amended (the "Code"). Where Schedule 6.18 shows an
Asset described therein to be subject to change at "Payout", or similar
designations, such change will occur upon the recovery from the proceeds or
production from such Asset a sum of money set forth in Schedule 6.18 as the
"Payout Amount".
6.19 Environmental Matters. Except as disclosed on Schedule 6.19: (i)
Seller has obtained or caused to have been obtained all permits, licenses and
other
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<PAGE> 30
authorizations that are required under federal, state and local laws with
respect to pollution or protection of the environment relating to the Assets,
including laws relating to actual or threatened Releases or other emissions or
discharges of pollutants, contaminants, or Hazardous Substances or other toxic
materials or wastes into ambient air, surface water, ground water or land, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling of pollutants, contaminants or
Hazardous Substances or other toxic materials or wastes, including without
limitation, the Oil Pollution Act of 1990 ("Environmental Laws"), and all such
permits, licenses, and other authorizations are currently in full force and
effect; (ii) Seller and the Assets are in compliance in all material respects
with all applicable Environmental Laws and all terms and conditions of such
permits, licenses and authorizations; and (iii) there has been no Release, and
no threat of a Release in violation of any Environmental Law arising from, based
upon, associated with, or related to Seller's use, ownership, or operation of
the Assets, except for matters that have been remedied and have had no, and have
no continuing, material adverse effect upon Seller or the Assets; and (iv) to
Seller's best knowledge, there has been no Release, and no threat of a Release
in violation of any Environmental Law arising from, based upon, associated with,
or related to the use, ownership, or operation of the Assets by Seller's
predecessors in title, except for matters that have been remedied and have had
no, and have no continuing, material adverse effect upon Seller or the Assets.
Except as disclosed on Schedule 6.19, Seller has not received a written
notice of a claim that: (i) such Seller has violated, or is about to violate,
any Environmental Law; (ii) there has been a Release, or there is a threat of a
Release, in violation of any Environmental Law on, to, or from the Assets for
which such Seller is or may be liable to any third party for injury to or death
of any person, persons, or other living things, or damage to or loss or
destruction of property; (iii) Seller may be or is liable, in whole or in part,
for the costs of cleaning up, remediating, removing, or responding to a Release
or a threat of a Release in violation of any Environmental Law; or (iv) the
Assets are subject to a lien in favor of any governmental entity for any
liability, costs, or damages under any Environmental Laws arising from, or any
costs incurred by such governmental entity in response to, a Release in
violation of any Environmental Law.
6.20 [Intentionally omitted]
6.21 Employment Liability. Purchaser will not incur any liability to any
or all of Seller's employees as a result of transactions contemplated by this
Agreement.
6.22 Absence of Undisclosed Liabilities. Except for (i) Permitted
Encumbrances, (ii) the liabilities set forth on the Schedules hereto and (iii)
liabilities specifically assumed by Purchaser pursuant to Sections 1.3, 4.6(a),
4.6(c) and 9.2(a),
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<PAGE> 31
there are no liabilities or non-executory obligations of any nature, whether
accrued, absolute, contingent or otherwise, adversely affecting the Assets or
the execution, delivery or performance of this Agreement by Seller.
6.23 Ownership Matters. Seller represents and warrants to Purchaser that
all of its ownership interest in OCS-G 10638 was acquired under the terms of
(i) that certain Farmout Agreement dated April 22, 1992, between Union Pacific
Resources Company, as Farmor, and Seller, as Farmee and (ii) that certain
Letter Agreement dated June 20, 1996, by and between Union Pacific Resources
Company and Seller, regarding the sale of interest and equity trades, offshore
Louisiana.
VII.
CONDITIONS OF CLOSING
7.1 Purchaser's obligation to consummate the transactions provided for
herein is subject to the satisfaction by Seller (or waiver by Purchaser) of the
following conditions:
(a) Representations: The representations of Seller contained in
Article VI hereof shall be true and correct in all material respects
on the date of Closing as though made on and as of that date;
(b) Performance: Seller shall have performed the obligations, covenants
and agreements hereunder required to be performed by Seller at or
prior to Closing;
(c) Pending Matters:No suit, action or other proceeding by a third party
or a governmental authority shall be pending or threatened which
seeks to restrain, enjoin or otherwise prohibit the consummation of
the transactions contemplated by this Agreement;
(d) Consents and Waivers: All necessary consents, permissions and
approvals by third parties in connection with the sale and transfer
of the Assets shall have been received by Seller prior to Closing,
except those governmental consents customarily generated and
received in the ordinary course of business at a post-closing date;
and
(e) Material Change in Condition: There shall not have occurred (i) any
circumstance or event relating to the Assets that does or reasonably
could be expected to materially and adversely affect the value of
any portion of
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<PAGE> 32
the Assets (other than changes affecting the oil and gas industry
generally, including, without limitation, fluctuations in the price
of oil and/or natural gas), or (ii) any material adverse change in
the production of any of the Leasehold Property from July 1, 1996
to the Closing Date (other than declines which are due to actual
depletion or are of a temporary nature due to mechanical problems).
No material portion of the Leasehold Property shall have been
destroyed or damaged by fire, casing collapse, blowout or other
casualty, nor shall there have been any material adverse change in
the condition of any of the Leasehold Property other than as a
result of depletion occurring at normal rates and depreciation of
equipment through normal wear and tear.
7.2 Seller's obligation to consummate the transactions provided for
herein is subject to the satisfaction by Purchaser (or waiver by Seller) of the
following conditions:
(a) Representations: The representations of Purchaser contained in
Article VI hereof shall be true and correct in all material respects
on the date of Closing as though made on and as of that date;
(b) Performance: Purchaser shall have performed the obligations,
covenants and agreements hereunder required to be performed by
Purchaser at or prior to Closing;
(c) Pending Matters:No suit, action or other proceeding by a third party
or a governmental authority shall be pending or threatened which
seeks to restrain, enjoin or otherwise prohibit the consummation of
the transactions contemplated by this Agreement; and
(d) Governmental Bonds: Purchaser shall have delivered to Seller (i)
copies of any bonds covering the Assets required under any laws,
rules or regulations of any federal, state or local governmental
agency having jurisdiction over the Assets or (ii) a commitment by a
surety company to issue such bonds upon Closing.
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<PAGE> 33
VIII.
CLOSING
At Closing, the following shall occur:
(a) Seller and Purchaser shall execute, acknowledge and deliver an
Assignment of Oil and Gas Leases for each Lease included in the
Assets warranting title against all claims by, through or under
Seller but not otherwise substantially in the form of Exhibits C-1
through C-6 attached hereto (collectively, the "Assignments"),
covering all of the Assets to be sold pursuant hereto.
(b) Purchaser shall deliver to Seller by wire transfer of cash as
specified by Seller the total Adjusted Purchase Price.
(c) Purchaser shall provide Seller with executed change of operator
forms on all Leasehold Property operated by Seller, as required by
the United States Department of the Interior, Minerals Management
Service to effect a change of operator for the properties being
sold. Seller shall execute same at Closing, and promptly
thereafter, file said forms with the applicable governmental agency.
(d) Seller shall (subject to the terms of applicable operating
agreements, laws and regulations and other provisions hereof)
deliver to Purchaser exclusive possession of the Assets, effective
as of the Effective Date.
(e) Seller shall, at or as promptly as reasonably possible after
Closing, provide Purchaser, at Purchaser's sole expense, with
originals of the Leases, contracts, amendments and correspondence
that are found in Seller's lease files (copies where Seller is not
the operator), but Seller shall not be obligated to purchase
additional abstracts or perform any title curative work. Seller
shall retain and shall have no obligation to furnish to Purchaser
any original files or any data or information which files, data or
information Seller considers proprietary or confidential to it or
which Seller cannot provide Purchaser because of third-party
restrictions on Seller. All information and data shall be furnished
as a matter of convenience only to Purchaser and Purchaser's
reliance on same shall be at Purchaser's sole risk.
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<PAGE> 34
(f) Seller shall deliver to Purchaser fully executed and acknowledged
Releases and/or termination statements (in sufficient counterparts
to facilitate recording), in form and substance reasonably
satisfactory to Purchaser and its counsel, of all production
payments, leasehold burdens, mortgages, liens and security interests
to be released at the Closing and covering any of the Assets which
are to be conveyed at Closing, including, without limitation, such
production payments, leasehold burdens, mortgages, liens and/or
security interests disclosed in Schedule 3.3(h) attached hereto.
(g) Seller shall deliver to Purchaser an officer's certificate
containing Seller's U.S. Taxpayer Identification Number, Seller's
business address and a statement that Seller is not a foreign person
within the meaning of Sections 1445 and 7701 of the Code.
(h) Seller shall cause Seller's counsel to deliver such counsel's
opinion to Purchaser, in substantially the form attached hereto as
Exhibit D.
Immediately after Closing, Purchaser and Seller shall execute, acknowledge
and deliver notification to all pertinent operators, non-operators, oil or
gas purchasers, governmental agencies and royalty owners that Purchaser has
purchased the Assets, and in particular, directing all oil and gas
purchasers, effective as of the Effective Date, to make payment to
Purchaser of proceeds attributable to production from the Leasehold
Property.
IX.
CONTINUING OBLIGATIONS
9.1 Settlement Statement; Allocation of Certain Revenues. On or before
ninety (90) days after Closing, a final accounting statement shall be prepared
by Seller, subject to verification by Purchaser, based on actual income and
expenses and adjustments contemplated in Section 2.4 hereof (the "Final
Settlement Statement"). The Final Settlement Statement shall set forth the
actual Purchase Price adjustments required by this Agreement (other than under
Section 2.4(g)). If Seller and Purchaser cannot agree upon the Final
Settlement Statement within one hundred twenty (120) days after the Closing
Date, the determination of the amount of the Final Settlement Statement shall
be submitted to Arthur Andersen, L.L.P. The determination of Arthur Andersen,
L.L.P. shall be conclusive and binding on the parties hereto and shall be
enforceable against any party hereto in any court of competent jurisdiction.
Any costs and expenses incurred by Arthur Andersen, L.L.P. pursuant to this
Section 9.1 shall be borne by Seller and
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<PAGE> 35
Purchaser equally. On or before thirty (30) days following receipt of the Final
Settlement Statement, Purchaser or Seller, as the case may be, shall pay to the
other party such sums as may be found to be due in the Final Settlement
Statement. All amounts paid pursuant to the Final Settlement Statement shall be
delivered by wire transfer of immediately available funds to the account
specified in writing by the respective party entitled to such payment, but
amounts less than $25,000 may be made by corporate check.
Seller and Purchaser agree that the difference between (i) gross revenues
attributable to the Assets for the period from September 1, 1996 through
September 30, 1996 and (ii) lease operating expenses (including applicable
royalty payments) attributable to the Assets for the period from September 1,
1996 through September 30, 1996 shall be divided equally between Seller and
Purchaser as soon as is practicable after Closing. Notwithstanding the
foregoing, Seller and Purchaser hereby agree that all revenues and expenses
attributable to the Assets for all periods prior to September 1, 1996 are and
shall remain the sole property and obligation of Seller.
9.2 Indemnities:
(a) Purchaser agrees to indemnify, defend and hold harmless Seller and
its Agents from and against any Claims in any way connected with,
attributable to, or arising or resulting from Purchaser's ownership
or operation of, or activities on the Assets, including, but not
limited to, claims for damage to property or injury or death to
persons, claims for breach of duties and obligations arising under
or by virtue of any lease, contract, agreement, permit, applicable
statute or rule. In addition, Purchaser shall, but without
prejudice to Purchaser's rights under Sections 4.6, 9.2 and 12.18,
be solely liable and responsible for the proper plugging and
abandonment of all wells now located on or hereafter drilled on the
Assets, and any environmental clean-up associated therewith, and
shall indemnify, defend and hold harmless Seller and its agents from
and against all claims relating to same.
(b) Except with respect to Claims for which Purchaser has agreed to
indemnify and hold harmless Seller pursuant to Section 4.6(a),
4.6(c) and Section 9.2(a), Seller agrees to indemnify, defend and
hold harmless Purchaser and its Agents from and against any and all
Claims in any way connected with, attributable to, or arising or
resulting from Seller's ownership or operation of, and activities
on, the Assets, including, but not limited to, claims for damage to
property or injury or death to persons, claims for breach of duties
and obligations arising under or by virtue of any lease, contract,
agreement, permit or applicable statute.
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<PAGE> 36
(c) Any claim for indemnity under any provision of this Agreement,
including Sections 4.6 and 9.2, shall be made by written notice from
the party seeking indemnification (the "Indemnified Party") to the
party required to provide such indemnification (the "Indemnifying
Party"), together with a written description of any third party
claim against the Indemnified Party. The Indemnifying Party shall
have a period of thirty (30) days after receipt of such notice
within which to respond thereto or, in the case of a third party
claim which requires a shorter time for response, then within such
shorter period as specified by the Indemnified Party in such notice
(the "Notice Period"). If the Indemnifying Party denies liability
or fails to respond to the notice within the Notice Period, the
Indemnified Party may defend or compromise the claim as it deems
appropriate without prejudice to any of the Indemnified Party's
rights hereunder, with no further obligation to inform the
Indemnifying Party of the status of the claim and no right of the
Indemnifying Party to approve or disapprove any action taken in
connection therewith by the Indemnified Party. If the Indemnifying
Party accepts the obligation to respond, it shall so notify the
Indemnified Party within the Notice Period and elect either: (i) to
undertake the defense or compromise of such third party claim with
counsel selected by the Indemnifying Party and reasonably approved
by the Indemnified Party or (ii) to instruct the Indemnified Party
to defend or compromise such claim. If the Indemnifying Party
undertakes the defense or compromise of such third party claim, the
Indemnified Party shall be entitled, at its own expense, to
participate in such defense. No compromise or settlement of any
third party claim shall be made without reasonable notice to the
Indemnified Party and, unless such compromise or settlement includes
a general release of the Indemnified Party in respect of the matter
with no admission of liability on the part of the Indemnified Party
and no constraints on the future conduct of its business, without
the prior written approval of the Indemnified Party.
9.3 Further Assurances: After Closing, Seller and Purchaser agree to
take such further actions and to execute, acknowledge and deliver all such
further documents that are reasonably necessary to carry out the purposes of
this Agreement or of any document delivered pursuant hereto.
9.4 Recording: Purchaser shall, at its own cost, immediately record the
Assignments in the appropriate offices of the counties and parishes adjacent to
that portion of the subsoil and seabed of the Outer Continental Shelf being the
subject of the Assignments that would fall within such county's or parish's
boundaries if extended seaward. Purchaser shall immediately file for all
requisite approvals of any federal governmental agencies to the Assignments.
The Assignments shall be filed in the
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<PAGE> 37
appropriate governmental offices on a form required and in compliance with the
applicable rules of such governmental agencies. Purchaser shall supply Seller
with a true and accurate photocopy of the recorded and filed Assignments,
together with evidence of approval of the Assignments by applicable governmental
authorities, within a reasonable period of time after their recording and
filing.
9.5 [Intentionally omitted]
9.6 Accounting for Proceeds from the Sale of Production. If, after the
Closing, Seller receives any proceeds from the sale of production that are
attributable to production from the Leasehold Property after September 30,
1996, Seller shall remit such proceeds to Purchaser within fifteen (15) days
after receipt of such proceeds by Seller. In the event that after the Closing
Purchaser receives any proceeds from the sale of production that are
attributable to production from the Assets prior to September 1, 1996,
Purchaser shall remit such proceeds to Seller within fifteen (15) days after
receipt of such proceeds by Purchaser.
9.7 Accounting for High Island Block 116 Capital Expenditures. Any and
all invoices attributable to capital expenditures incurred prior to the Closing
Date with respect to High Island Block 116 shall be for Seller's account and
upon receipt, if any, of such invoices by Purchaser, Purchaser shall forward
same to Seller.
X.
INDEPENDENT INVESTIGATION AND DISCLAIMER
Purchaser acknowledges that it has had access to the Assets, the officers
and employees and agents of Seller, and the books, records and files of Seller
relating to the Assets, and in consummating the transactions contemplated
hereby, Purchaser has relied solely on the basis of its own independent
investigation of the Assets and upon the representations and covenants in this
Agreement. EXCEPT AS SPECIFICALLY PROVIDED IN THIS AGREEMENT, SELLER HEREBY
EXPRESSLY DISCLAIMS AND NEGATES ANY REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, AS TO: (i) THE CONDITION OF THE ASSETS, INCLUDING, WITHOUT LIMITATION,
ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, OF FITNESS FOR A PARTICULAR
PURPOSE, OR OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS AND ANY WARRANTY
AGAINST HIDDEN VICES OR DEFECTS, (ii) ANY INFRINGEMENT BY SELLER OF ANY PATENT
OR PROPRIETARY RIGHT OF ANY THIRD PARTY AND (iii) ANY INFORMATION, DATA OR
OTHER MATERIALS
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<PAGE> 38
(WRITTEN OR ORAL) FURNISHED TO PURCHASER BY OR ON BEHALF OF SELLER, INCLUDING,
WITHOUT LIMITATION, THAT RELATE TO OR THAT MAY HAVE A BEARING ON THE EXISTENCE
OR EXTENT OF OIL, GAS OR OTHER MINERAL RESERVES OR ON THE RECOVERABILITY OF OR
THE COST OF RECOVERING ANY SUCH RESERVES OR ON THE ABILITY TO SELL OIL OR GAS
PRODUCTION AFTER CLOSING.
XI.
TERMINATION
This Agreement and the transactions contemplated hereby may be terminated
only in the following instances:
(a) By Purchaser if the conditions set forth in Section 7.1 are
not satisfied or waived as of Closing;
(b) By Seller if the conditions set forth in Section 7.2 are not
satisfied or waived as of Closing;
(c) By way of Section 3.5(b); or
(d) At any time by mutual written agreement of Seller and
Purchaser and in accordance with any other express provisions of
this Agreement.
If this Agreement is terminated pursuant to this Article XI, no party
shall have any liability to the other; provided, however, no party shall be
relieved of any liability for any willful breach of this Agreement.
XII.
MISCELLANEOUS
12.1 Governing Law: This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Texas. Assignments
executed in accordance with this Agreement shall be governed by and interpreted
in accordance with the laws of the respective state adjacent to that portion of
the subsoil and seabed of the Outer Continental Shelf being the subject of such
Assignment that would fall within such state's boundaries if extended seaward.
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<PAGE> 39
12.2 Entire Agreement: This Agreement, together with any confidentiality
agreements relating to the Assets previously executed by Purchaser, constitute
the entire agreement among the parties and supersede all prior agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties. No supplement, amendment, alteration, modification, waiver or
termination of this Agreement shall be binding unless executed in writing by the
parties hereto.
12.3 Waiver: No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar), nor shall such waiver constitute a continuing waiver
unless otherwise expressly provided.
12.4 Captions: The captions in this Agreement are for convenience only
and shall not be considered a part of or affect the construction or
interpretation of any provision of this Agreement.
12.5 Assignment: No party hereto shall assign this Agreement or any of
its rights or obligations hereunder without the prior written consent of the
other parties, and any assignment made without such consent shall be void.
Except as otherwise provided herein, this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective permitted
successors and assigns.
12.6 Notices: Any notice provided or permitted to be given under this
Agreement shall be in writing, and may be served by personal delivery or by
depositing same in the United States mail, addressed to the party to be
notified, postage prepaid, and registered or certified with a return receipt
requested, or by telecopy. Notices deposited in the mail in the manner
hereinabove described shall be deemed to have been given and received upon the
date of delivery as shown on the return receipt. Notice served in any other
manner shall be deemed to have been given and received only if and when
actually received by the addressee and, in the case of telecopies, when receipt
is confirmed. For purposes of notice, until receipt of written notice changing
same, the addresses of the parties shall be as follows:
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<PAGE> 40
Seller's Address:
Zilkha Energy Company
1201 Louisiana Street
Suite 3200
Houston, Texas 77002-5223
Attention: Joseph J. Romano
Telecopy No.: (713) 655-5963
Purchaser's Address:
American Exploration Company
1331 Lamar Street, Suite 900
Houston, Texas 77010-3088
Attention: Harry C. Harper
Telecopy No.: (713) 756-6002
12.7 UTPCPL and DTPA Waiver: TO THE EXTENT APPLICABLE TO THE ASSETS OR
ANY PORTION THEREOF, PURCHASER HEREBY WAIVES THE PROVISIONS OF THE LOUISIANA
UNFAIR TRADE PRACTICES AND CONSUMER PROTECTION LAW (LA. R. S. 51:1402, ET
SEQ.). PURCHASER EXPRESSLY WAIVES THE PROVISIONS OF CHAPTER XVII, SUBCHAPTER
E, SECTIONS 17.41 THROUGH 17.63, INCLUSIVE (OTHER THAN SECTION 17.555, WHICH IS
NOT WAIVED), VERNON'S TEXAS CODE ANNOTATED, BUSINESS AND COMMERCE CODE.
12.8 Waiver of Jury Trial: EACH OF SELLER AND PURCHASER AS TO ITSELF
DOES HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND
ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, SUIT OR OTHER LEGAL PROCEEDING
BASED UPON, ARISING OUT OF, OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEM-PLATED HEREBY.
12.9 [Intentionally omitted.]
12.10 Limitation of Liability: Notwithstanding anything herein provided
to the contrary, Seller and Purchaser do hereby covenant and agree that the
recovery by either party hereto of any damages suffered or incurred by it as a
result of any breach by the other party of any of its covenants, agreements,
representations, disclaimers, waivers or continuing obligations under this
Agreement shall be limited to the actual damages suffered or incurred by the
non-breaching party as a result of such breach, and in no event shall such
recovery include any indirect, consequential, exemplary or punitive damages.
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<PAGE> 41
12.11 No Admissions: Purchaser and Seller agree that neither this
Agreement, nor any part hereof, nor any performance under this Agreement, nor
any payment of any amount pursuant to any provision of this Agreement shall
constitute or be construed as a finding, evidence of, or an admission or
acknowledgment of any liability, fault or past or present wrongdoing, or
violation of any law, rule, regulation, or policy, by either Seller or Purchaser
or by their respective officers, directors, employees or agents.
12.12 Third Party Beneficiaries: Except as otherwise specifically
provided in this Agreement, neither this Agreement nor any performance hereunder
by Seller or Purchaser shall be deemed or interpreted to create any right,
claim, cause of action or remedy on behalf of any person not a party hereto.
12.13 Expenses: Except as otherwise provided herein, each party shall be
solely responsible for all expenses incurred by it in connection with this
transaction, including, without limitation, fees and expenses of its own legal
counsel and accountants.
12.14 Severability: If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced under any applicable rule or
law, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transaction contemplated hereby is not affected in a materially adverse
manner with respect to either party.
12.15 Publicity: Seller and Purchaser shall consult with each other
with regard to all publicity and other releases concerning this Agreement and
the transactions contemplated hereby and, except as required by applicable law
or the applicable rules or regulations of any governmental body or stock
exchange, neither party shall issue any publicity or other release concerning
the transactions contemplated by this Agreement without the prior written
consent of the other party.
12.16 Use of Seller's Name: As soon as practicable after Closing,
Purchaser shall remove or cause to be removed the names and marks, if any, used
by Seller and all variations and derivations thereof and logos, if any, relating
thereto from the Assets and shall not thereafter make any use whatsoever of
those names, marks and logos, if any.
12.17 Waiver of Compliance with Bulk Transfer Laws: Purchaser waives
compliance with any applicable bulk transfer law relating to the transactions
contemplated by this Agreement, and agrees to assume all risk and liability in
connection with the failure to so comply.
12.18 Survival: All representations, warranties, covenants and
agreements made herein by Purchaser and Seller (other than (i) the indemnities
contained in Sections
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<PAGE> 42
4.6 and 9.2 which shall survive indefinitely and (ii) the representation
contained in Section 6.23 which shall survive for a period of two (2) years from
the latest to occur of (i) disbursement of all funds on deposit unit the Escrow
Agreement, dated August 6, 1996, among Union Pacific Resources Company ("UPRC"),
Seller and Texas Commerce Bank National Association, (ii) approval by the
Department of Interior, Minerals Management Service ("MMS") of the Assignment of
Operating Rights in Oil and Gas Lease dated effective April 1, 1996, between
UPRC, as assignor and Seller, as assignee, conveying all of UPRC's operating
rights in that certain oil and gas lease (the "EC328 Lease") entered into
effective May 1, 1989, designated OCS-G 10638 executed by the United States of
America, as Lessor, and UPRC, as Lessee, covering Block 328, East Cameron Area,
South Addition, INSOFAR AND ONLY INSOFAR AS said EC328 Lease covers depths from
below 100 feet below the deepest stratigraphic equivalent of 3,515 measured
depth feet, as encountered in the Zilkha Energy Company OCS-G 10638 Well No. 1
down to the stratigraphic equivalent of the base of the HB-5 sand, the base of
which is seen at a depth of 4,195 feet (TVD) in the Mesa Petroleum Company OCS-G
2255 No. A22 well, located in East Cameron Block 323, or (iii) approval by the
MMS of the Assignment of Record Title Interest dated effective April 1, 1996,
between Seller, as assignor to UPRC, as assignee, conveying an undivided thirty
percent (30.00%) record title interest in that certain Oil and Gas Lease (the
"EI 216 Lease") entered into effective July 1, 1994, designated OCS-G 14470
executed by the United States of America, as Lessor, and Seller, as Lessee,
covering all of Block 216, Eugene Island Area; provided, however, that
notwithstanding the foregoing, the representation provided in Section 6.23 shall
terminate upon Purchaser's receipt of a written acknowledgment in a form
reasonably acceptable to Purchaser from both UPRC and Seller that all of the
terms and conditions of the June 20, 1996 Letter Agreement between Seller and
UPRC have been satisfied) shall survive Closing and the delivery of the
Assignments be delivered pursuant hereto until the date which is six (6) months
following the Closing Date, and no party shall have liability with respect to
any breach thereof unless, within such time period, notice of a claim based upon
such breach shall have been given by the party asserting the claim, with
specificity reasonable under the circumstances, including without limitation,
the amount required to satisfy such claim estimated in good faith if necessary.
Any confidentiality agreement heretofore entered into between Seller and
Purchaser will terminate at Closing.
12.19 Listing of Exhibits and Schedules: The Exhibits listed below are
attached to this Agreement and by this reference are fully incorporated herein:
<TABLE>
<S> <C> <C>
Exhibit A -- Description of Assets
Exhibit A-1 -- Description of Reserved Interests
Exhibit B -- Allocation of Value
Exhibits C-1 through C-6 -- Forms of Assignment
</TABLE>
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<PAGE> 43
<TABLE>
<S> <C> <C>
Exhibit D -- Form of Opinion of Seller's Counsel
Schedule 1.3 -- Assumed Contracts and Agreements
Schedule 3.3(h) -- Liens to be Released at Closing
Schedule 3.6 -- Preferential Purchase Rights and Consents
Schedule 6.10(a) -- Material Defaults, Unpaid Royalties and
Conditions Affecting Leases Other
Schedule 6.10(b) -- Drilling and Production
Schedule 6.10(c) -- Depth Restrictions
Schedule 6.10(d) -- Sales Contracts, "Take-or-Pay" Clauses,
Balancing, Deferred Production or
Gas Similar Arrangements
Schedule 6.13 -- Litigation
Schedule 6.14 -- Taxes
Schedule 6.16 -- Non-Producing and Shut-In Wells
Schedule 6.17 -- AFEs, Plans and Proposals; Non-Consents
Schedule 6.18 -- Areas of Mutual Interest; Payouts;
Tax Partnership Agreements
Schedule 6.19 -- Environmental Matters
</TABLE>
12.20 Counterparts: This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which,
taken together, shall constitute one and the same instrument.
12.21 Notices After Closing: Purchaser and Seller hereby agree that
each party shall notify the other of its receipt, after the Closing Date, of
any instrument, notification or other document affecting the Assets while owned
by such other party.
12.22 Accounting for Net Profits Interests: Purchaser agrees to provide
any production, revenue, expense and all such engineering and other well data
with respect to East Cameron Block 328 necessary for Seller to prepare the
allocations of net profits interests to Seller's present and former employees.
Seller agrees to provide such allocations to Purchaser as soon as practicable
following receipt of such necessary data from Purchaser. Seller agrees that in
addition to making such allocations for East Cameron Block 328, it shall also
disburse to such interest owners the proceeds attributable to the net profits
interests for East Cameron Block 328 and High Island Block 116.
- 38 -
<PAGE> 44
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first set forth above.
SELLER:
ZILKHA ENERGY COMPANY
By:
----------------------------------------
Joseph J. Romano
Vice President & Chief Financial Officer
PURCHASER:
AMERICAN EXPLORATION COMPANY
By:---------------------------------------
Harry C. Harper
Vice President - Land
- 39 -
<PAGE> 45
EXHIBIT A-1
RESERVED INTERESTS
1. Block 116. An overriding royalty interest equal to an undivided fifteen
percent (15%) of fifty-five and twenty-five one hundredths percent (55.25%) of
all Hydrocarbons that are produced or to be produced from the lands covered by
the Oil and Gas Lease bearing Serial No. OCS-G 6156, effective October 1, 1983,
by and between the United States of America, as Lessor, and Atlantic Richfield
Company, as Lessee, covering all of Block 116, High Island Area, as shown on
OCS Leasing Map, Texas Map No. 7, containing 5760 acres, more or less ("Block
116") or produced from lands or leases pooled therewith and allocable to Block
116 (other than Oil, Gas, sulphur and other minerals produced from or
attributable to the Excluded Sub-Block), commencing upon the cumulative
production, subsequent to 7:00 am Central Time on July 1, 1996, of forty-five
billion cubic feet (45,000,000,000 cf) of Gas from Block 116, and from lands or
leases pooled therewith and allocable to Block 116, such calculation to be
based on eight-eighths of such production, but expressly excluding from such
calculation Gas produced from or attributable to the Excluded Sub-Block.
2. Block 328. An overriding royalty interest equal to an undivided fifteen
percent (15%) of one hundred percent (100%) of all Hydrocarbons that are
produced or to be produced from the lands covered by the Oil and Gas Lease
bearing Serial No. OCS-G 10638, effective May 1, 1989, by and between the
United States of America, as Lessor, and Union Pacific Resources Company, as
Lessee, covering all of Block 328, East Cameron Area, South Addition, as shown
on OCS Leasing Map, Louisiana Map No. 2A, containing 5000 acres, more or less
limited, however, to depth to those intervals from the surface of the earth
down to the stratigraphic equivalent of the base of the HB-5 sand, the base of
which is seen at a depth of 4,195 feet (TVD) in the Mesa Petroleum Company
OCS-G 2255 No. A 22 well located in East Cameron Block 323 ("Block 328") or
produced from lands or leases pooled therewith and allocable to Block 328
(except for oil, gas, sulphur and other minerals produced from the East Cameron
Block 328 #5 Subsea Well), such overriding royalty interest to commence upon
the cumulative production, subsequent to 7:00 am Central Time on September 15,
1996, of one million (1,000,000) Barrels of Oil from Block 328, and from lands
or leases pooled therewith and allocable to Block 328, such calculation to be
based on eight-eighths of such production, but expressly excluding from such
calculation Barrels of Oil produced from (i) those depths lying below the base
of the HB-5 Sand, the base of which is seen at a depth of 4,195 feet (TVD) in
the Mesa Petroleum Company OCS-G G2255 No. A22 well located on East Cameron 323
and (ii) the East Cameron Block 328 #5 Subsea Well or any recompletion,
deepening or sidetracking thereof.
- 1 -
<PAGE> 46
3. General Terms. The overriding royalties described in paragraphs 1 and 2
immediately above (collectively, the "Overriding Royalty") shall be subject to
the following terms, provisions and conditions:
a. COMPUTATION OF OVERRIDING ROYALTY AND CUMULATIVE PRODUCTION LEVELS;
EXPENSES BURDENING THE OVERRIDING ROYALTY; NO OBLIGATION TO DEVELOP; AUTHORITY
TO POOL OR UNITIZE. The Overriding Royalty shall be free and clear of all
costs and expenses of development and operations but shall bear its
proportionate share of such expenses as are chargeable against the royalty
payable under the Leases to the United States of America, Department of
Interior Minerals Management Service (the "Lessor"). Subject to the
foregoing, the Overriding Royalty shall be computed and paid or delivered to
Seller by the same method, at the same time, under the same conditions and on
the same substances as the royalty provided to be paid and delivered in and
under the Leases to the Lessor therein. The Overriding Royalty and the
cumulative production levels referred to in paragraphs 1 and 2 immediately
above shall be computed by the same method as the royalty provided to be paid
to the Lessor under the applicable Lease.
No obligation, either express or implied, shall arise by reason of the
Overriding Royalty which shall obligate Purchaser to develop or produce the
lands covered by the Leases or to keep and maintain the Leases in force and
effect either by the payment of rentals, compensatory royalties or other
payments, or by the drilling of any wells upon said lands, or in any other
manner. If, pursuant to any joint operating agreement presently existing
governing the operation of Block 116, Purchaser elects not to participate or is
deemed to have elected not to participate in an operation on the lands covered
thereby such that for a period ("Penalty Period") Purchaser is thereafter
permanently or temporarily not entitled to all or any portion of Purchaser's
working interest share of Hydrocarbons produced, or gross proceeds of sale of
Hydrocarbons produced from such operations, then during such Penalty Period,
Seller shall not be entitled to receive the Overriding Royalty with respect to
such Hydrocarbons or the proceeds of the sale thereof.
Purchaser is hereby granted the right at Purchaser's election from time to
time to pool and unitize the Leases or any of the lands covered thereby with
other leases or lands. As to each such unit so created, Seller shall be
entitled to receive, in lieu of the Overriding Royalty, Seller's proportionate
share of any interest attributable to a Lease within such unit. Purchaser does
hereby covenant and agree that if Purchaser or any affiliate of Purchaser owns
an interest in a lease which is pooled or unitized with a Lease to form a unit,
Purchaser shall not agree to or accept an interest in such unit which is
attributable to a Lease which is less than the interest in such unit which
Purchaser would have agreed to or accepted if Purchaser or any affiliate of
Purchaser did not own an interest in a lease which was pooled or unitized with
such Lease. The pooling or
- 2 -
<PAGE> 47
unitization in one or more instances shall not exhaust the right of Purchaser
to subsequently pool or unitize said acreage into other units.
b. TRANSFER AND ASSIGNMENTS; OVERPAYMENTS. Any transfer, assignment or
conveyance of an interest in the Overriding Royalty and any change in the
capacity or status of Seller shall be effective only at 7:00 a.m. on the first
day of the next succeeding calendar month following the receipt by Purchaser of
a certified copy of the recorded instrument or judgment evidencing such
transfer, assignment or conveyance or such change in capacity or status.
Purchaser and its successors and assigns are relieved of any responsibility for
determining when any interest of Seller or Seller's successors or assigns in
the Overriding Royalty shall increase, diminish or be extinguished or revert to
any other person until Purchaser or its successors or assigns are furnished
evidence thereof in accordance with the foregoing provisions of this paragraph,
and Seller and Seller's successors and assigns agree to hold Purchaser and its
successors and assigns harmless from all loss or expense that may result from
any incorrect payment in the absence of compliance with the aforesaid
provisions.
In the event of any overpayment on the Overriding Royalty because of
retroactive price reduction by law or governmental order or for any other
reason, as its exclusive right and remedy hereunder, the holder of the working
interest burdened by such Overriding Royalty shall only be allowed to recoup
such overpayment out of future production attributable to such Overriding
Royalty, beginning on the first day of any month following receipt of notice of
intent to make such recoupment.
c. MORTGAGE OR ASSIGNMENT BY PURCHASER. Purchaser shall not mortgage,
pledge or hypothecate the Overriding Royalty or create or allow to remain
thereon any lien or security interest thereon, and Purchaser shall not assign,
sell, convey or otherwise transfer the Assets or any part thereof unless such
sale, transfer or assignment is made and accepted expressly subject to the
Overriding Royalty and the terms and conditions thereof. Any purported
mortgage, pledge, hypothecation, lien, security interest, assignment, sale,
conveyance or other transfer of the Overriding Royalty by Purchaser shall be
null and void.
d. EXTENSION AND RENEWAL LEASES. The Overriding Royalty shall be
applicable not only to the existing oil and gas leases covering Block 116 and
Block 328, but to any extension, modification or renewal thereof and any new
lease(s) covering all or any part of the lands covered by the existing leases
covering Block 116 and Block 328 that are acquired, contracted to be acquired,
offered for bid or bid upon by Purchaser or any successor or assign of any
interest of Purchaser in such lease(s) at any time within two (2) years from
the date of termination of such existing lease or any extension, modification
or renewal thereof.
- 3 -
<PAGE> 48
e. SUCCESSORS AND ASSIGNS. The provisions and conditions of the
Overriding Royalty shall run with the land and the respective interests of
Purchaser and Seller and shall be binding upon and inure to the benefit of
Purchaser and Seller and their respective successors and assigns. All
references herein to either Purchaser or Seller shall include their respective
successors and assigns.
f. PERPETUITIES. It is not the intent of Purchaser or Seller that any
provision herein violate any applicable law regarding the rule against
perpetuities, the suspension of the absolute power of alienation or other rules
regarding the vesting or duration of estates, and the reservation by Seller of
the Overriding Royalty shall be construed as not violating such rule to the
extent that same can be so construed consistent with the intent of the parties.
In the event, however, that any provision hereof is determined to violate such
rule, then such provision shall nevertheless be effective for the maximum
period (but not longer than the maximum period) permitted by such rule that
will result in no violation thereof. To the extent the maximum period is
permitted to be determined by reference to "lives in being," Purchaser and
Seller agree that "lives in being" shall refer to lifetime of the last to die
of the living lineal descendants of the late Joseph P. Kennedy (father of the
late President of the United States of America).
g. ASSIGNMENT. The terms and provisions set forth in this Exhibit A-1
with respect to the Overriding Royalty shall be set forth in full in the
Assignments.
h. REPORTING REQUIREMENTS. Purchaser agrees (i) to timely furnish Seller
copies of all production reports filed with the Minerals Management Service
pertaining to the Assets and (ii) within fifteen (15) days after the end of a
calendar month, to furnish Seller, at Seller's request, with a statement
setting forth the cumulative production since July 1, 1996 of Hydrocarbons from
Block 116 (other than the Excluded Sub-Block), and from lands or leases pooled
therewith and allocable to Block 116 (other than the Excluded Sub-Block),
pursuant to Paragraph 1 of this Exhibit A-1 and the cumulative production since
September 1, 1996, of Hydrocarbons from Block 328 (except for Hydrocarbons
produced from the East Cameron Block 328 #5 Subsea Well), and from lands or
leases pooled therewith and allocable to Block 328, (except for Hydrocarbons
produced from the East Cameron Block 328 #5 Subsea Well) pursuant to Paragraph
2 of this Exhibit A-1.
i. DEFINITIONS. Capitalized terms used, but not defined, in this Exhibit
A-1 shall have the meanings ascribed to them in the Purchase and Sale
Agreement, dated September 25, 1996, between Zilkha Energy Company and American
Exploration Company (the "Agreement"). The following terms used in this
Exhibit A-1 shall have the respective meanings ascribed to them below:
- 4 -
<PAGE> 49
"Barrel" means 42 United States standard gallons of 231 cubic inches per
gallon at 60 degrees Fahrenheit.
"Central Time" means Central Standard Time or Central Daylight Savings
Time in effect on the date in question.
"Excluded Sub-Block" means, with respect to Block 116, the interval from
100' above the stratigraphic equivalent of the IN Sand between the measured
depths of 9278'-9320' down through 100' below the stratigraphic equivalent of
the JB Sand between the measured depths of 9810'-9850' (as such interval is
seen in the induction log of the OCS-G 6156 A-2 Well), insofar and only insofar
as such depth interval lies within that portion of the NW/4 and the W/2 of the
NE/4 of Block 116 that is upthrown to the major regional Northeast (NE) to
Southwest (SW) trending down-to-the south expansion fault as picked up by
missing stratigraphic section in the OCS-G 6156 A-2 Well at 7,600 feet TVD
included within the NW/4 and the W/2 of the NE/4 of Block 116.
"Gas" means natural gas and other gaseous hydrocarbons.
"Hydrocarbons" means Oil and Gas.
"Oil" means crude oil, condensate and other liquid hydrocarbons.
"Overriding Royalty" shall have the meaning given such term in Paragraphs
1 and 2 of this Exhibit A-1.
"Overriding Royalty Gas" means the portion of the Overriding Royalty
Hydrocarbons which are Gas.
"Overriding Royalty Hydrocarbons" shall mean the Hydrocarbons to be
reserved by Seller pursuant to Section 1.1 of the Agreement.
"Overriding Royalty Oil" means the portion of the Overriding Royalty
Hydrocarbons which are Oil.
- 5 -
<PAGE> 1
EXHIBIT 10(b)
SIXTH AMENDMENT TO NOTE PURCHASE AGREEMENT
SIXTH AMENDMENT TO NOTE PURCHASE AGREEMENT (herein called this
"Amendment"), dated effective as of September 12, 1996 (the "Effective Date"),
is made by and between American Exploration Company, a Delaware corporation
(the "Company") and Rhode Island Hospital Trust National Bank, as Trustee for
The Textron Collective Investment Trust (the "Purchaser").
RECITALS:
WHEREAS, the Company previously entered into a Note Purchase Agreement
with the purchasers named therein, dated as of December 27, 1991, as previously
amended by letter agreements, dated March 20, 1992, September 28, 1992, and
March 22, 1993, Amendment to Note Purchase Agreement, dated as of December 31,
1992, Second Amendment to Note Purchase Agreement, dated as of September 30,
1993, Third Amendment to Note Purchase Agreement, dated as of December 31,
1993, Fourth Amendment to Note Purchase Agreement, dated as of April 1, 1994
and Fifth Amendment to Note Purchaser Agreement, dated as of July 1, 1994 (as
so amended, the "Note Purchase Agreement");
WHEREAS, the parties are concurrently entering into Amendment No. 2 to
Warrant Purchase Agreement, effective as of the Effective Date (the "Warrant
Amendment"), amending the Warrant Purchase Agreement, dated as of December 27,
1991, as previously amended by Amendment No. 1 to Warrant Purchase Agreement,
dated as of December 31, 1992 (the "Warrant Purchase Agreement"), to change,
inter alia, the exercise price of such Warrants issued thereunder and the
expiration date thereof; and
<PAGE> 2
SIXTH AMENDMENT TO NOTE PURCHASE AGREEMENT
SIXTH AMENDMENT TO NOTE PURCHASE AGREEMENT (herein called this
"Amendment"), dated effective as of September 12, 1996 (the "Effective
Date"), is made by and between American Exploration Company, a Delaware
corporation (the "Company") and Barnett & Co. (the "Purchaser").
RECITALS:
WHEREAS, the Company previously entered into a Note Purchase Agreement
with the purchasers named therein, dated as of December 27, 1991, as previously
amended by letter agreements, dated March 20, 1992, September 28, 1992, and
March 22, 1993, Amendment to Note Purchase Agreement, dated as of December 31,
1992, Second Amendment to Note Purchase Agreement, dated as of September 30,
1993, Third Amendment to Note Purchase Agreement, dated as of December 31,
1993, Fourth Amendment to Note Purchase Agreement, dated as of April 1, 1994
and Fifth Amendment to Note Purchaser Agreement, dated as of July 1, 1994 (as
so amended, the "Note Purchase Agreement");
WHEREAS, the parties are concurrently entering into Amendment No. 2 to
Warrant Purchase Agreement, effective as of the Effective Date (the "Warrant
Amendment"), amending the Warrant Purchase Agreement, dated as of December 27,
1991, as previously amended by Amendment No. 1 to Warrant Purchase Agreement,
dated as of December 31, 1992 (the "Warrant Purchase Agreement"), to change,
inter alia, the exercise price of such Warrants issued thereunder and the
expiration date thereof; and
<PAGE> 3
SIXTH AMENDMENT TO NOTE PURCHASE AGREEMENT
SIXTH AMENDMENT TO NOTE PURCHASE AGREEMENT (herein called this
"Amendment"), dated effective as of September 12, 1996 (the "Effective Date"),
is made by and between American Exploration Company, a Delaware corporation
(the "Company") and Balboa Life Insurance Company (the "Purchaser").
RECITALS:
WHEREAS, the Company previously entered into a Note Purchase Agreement
with the purchasers named therein, dated as of December 27, 1991, as previously
amended by letter agreements, dated March 20, 1992, September 28, 1992, and
March 22, 1993, Amendment to Note Purchase Agreement, dated as of December 31,
1992, Second Amendment to Note Purchase Agreement, dated as of September 30,
1993, Third Amendment to Note Purchase Agreement, dated as of December 31,
1993, Fourth Amendment to Note Purchase Agreement, dated as of April 1, 1994
and Fifth Amendment to Note Purchaser Agreement, dated as of July 1, 1994 (as
so amended, the "Note Purchase Agreement");
WHEREAS, the parties are concurrently entering into Amendment No. 2 to
Warrant Purchase Agreement, effective as of the Effective Date (the "Warrant
Amendment"), amending the Warrant Purchase Agreement, dated as of December 27,
1991, as previously amended by Amendment No. 1 to Warrant Purchase Agreement,
dated as of December 31, 1992 (the "Warrant Purchase Agreement"), to change,
inter alia, the exercise price of such Warrants issued thereunder and the
expiration date thereof; and
<PAGE> 4
SIXTH AMENDMENT TO NOTE PURCHASE AGREEMENT
SIXTH AMENDMENT TO NOTE PURCHASE AGREEMENT (herein called this
"Amendment"), dated effective as of September 12, 1996 (the "Effective Date"),
is made by and between American Exploration Company, a Delaware corporation
(the "Company") and Balboa Insurance Company (the "Purchaser").
RECITALS:
WHEREAS, the Company previously entered into a Note Purchase Agreement
with the purchasers named therein, dated as of December 27, 1991, as previously
amended by letter agreements, dated March 20, 1992, September 28, 1992, and
March 22, 1993, Amendment to Note Purchase Agreement, dated as of December 31,
1992, Second Amendment to Note Purchase Agreement, dated as of September 30,
1993, Third Amendment to Note Purchase Agreement, dated as of December 31,
1993, Fourth Amendment to Note Purchase Agreement, dated as of April 1, 1994
and Fifth Amendment to Note Purchaser Agreement, dated as of July 1, 1994 (as
so amended, the "Note Purchase Agreement");
WHEREAS, the parties are concurrently entering into Amendment No. 2 to
Warrant Purchase Agreement, effective as of the Effective Date (the "Warrant
Amendment"), amending the Warrant Purchase Agreement, dated as of December 27,
1991, as previously amended by Amendment No. 1 to Warrant Purchase Agreement,
dated as of December 31, 1992 (the "Warrant Purchase Agreement"), to change,
inter alia, the exercise price of such Warrants issued thereunder and the
expiration date thereof; and
<PAGE> 5
SIXTH AMENDMENT TO NOTE PURCHASE AGREEMENT
SIXTH AMENDMENT TO NOTE PURCHASE AGREEMENT (herein called this
"Amendment"), dated effective as of September 12, 1996 (the "Effective Date"),
is made by and between American Exploration Company, a Delaware corporation
(the "Company") and Massachusetts Mutual Life Insurance Company (the
"Purchaser").
RECITALS:
WHEREAS, the Company previously entered into a Note Purchase Agreement
with the purchasers named therein, dated as of December 27, 1991, as previously
amended by letter agreements, dated March 20, 1992, September 28, 1992, and
March 22, 1993, Amendment to Note Purchase Agreement, dated as of December 31,
1992, Second Amendment to Note Purchase Agreement, dated as of September 30,
1993, Third Amendment to Note Purchase Agreement, dated as of December 31,
1993, Fourth Amendment to Note Purchase Agreement, dated as of April 1, 1994
and Fifth Amendment to Note Purchaser Agreement, dated as of July 1, 1994 (as
so amended, the "Note Purchase Agreement");
WHEREAS, the parties are concurrently entering into Amendment No. 2 to
Warrant Purchase Agreement, effective as of the Effective Date (the "Warrant
Amendment"), amending the Warrant Purchase Agreement, dated as of December 27,
1991, as previously amended by Amendment No. 1 to Warrant Purchase Agreement,
dated as of December 31, 1992 (the "Warrant Purchase Agreement"), to change,
inter alia, the exercise price of such Warrants issued thereunder and the
expiration date thereof; and
<PAGE> 6
SIXTH AMENDMENT TO NOTE PURCHASE AGREEMENT
SIXTH AMENDMENT TO NOTE PURCHASE AGREEMENT (herein called this
"Amendment"), dated effective as of September 12, 1996 (the "Effective Date"),
is made by and between American Exploration Company, a Delaware corporation
(the "Company") and MassMutual Corporate Investors (the "Purchaser").
RECITALS:
WHEREAS, the Company previously entered into a Note Purchase Agreement
with the purchasers named therein, dated as of December 27, 1991, as previously
amended by letter agreements, dated March 20, 1992, September 28, 1992, and
March 22, 1993, Amendment to Note Purchase Agreement, dated as of December 31,
1992, Second Amendment to Note Purchase Agreement, dated as of September 30,
1993, Third Amendment to Note Purchase Agreement, dated as of December 31,
1993, Fourth Amendment to Note Purchase Agreement, dated as of April 1, 1994
and Fifth Amendment to Note Purchaser Agreement, dated as of July 1, 1994 (as
so amended, the "Note Purchase Agreement");
WHEREAS, the parties are concurrently entering into Amendment No. 2 to
Warrant Purchase Agreement, effective as of the Effective Date (the "Warrant
Amendment"), amending the Warrant Purchase Agreement, dated as of December 27,
1991, as previously amended by Amendment No. 1 to Warrant Purchase Agreement,
dated as of December 31, 1992 (the "Warrant Purchase Agreement"), to change,
inter alia, the exercise price of such Warrants issued thereunder and the
expiration date thereof; and
<PAGE> 7
SIXTH AMENDMENT TO NOTE PURCHASE AGREEMENT
SIXTH AMENDMENT TO NOTE PURCHASE AGREEMENT (herein called this
"Amendment"), dated effective as of September 12, 1996 (the "Effective Date"),
is made by and between American Exploration Company, a Delaware corporation
(the "Company") and MassMutual Participation Investors (the "Purchaser").
RECITALS:
WHEREAS, the Company previously entered into a Note Purchase Agreement
with the purchasers named therein, dated as of December 27, 1991, as previously
amended by letter agreements, dated March 20, 1992, September 28, 1992, and
March 22, 1993, Amendment to Note Purchase Agreement, dated as of December 31,
1992, Second Amendment to Note Purchase Agreement, dated as of September 30,
1993, Third Amendment to Note Purchase Agreement, dated as of December 31,
1993, Fourth Amendment to Note Purchase Agreement, dated as of April 1, 1994
and Fifth Amendment to Note Purchaser Agreement, dated as of July 1, 1994 (as
so amended, the "Note Purchase Agreement");
WHEREAS, the parties are concurrently entering into Amendment No. 2 to
Warrant Purchase Agreement, effective as of the Effective Date (the "Warrant
Amendment"), amending the Warrant Purchase Agreement, dated as of December 27,
1991, as previously amended by Amendment No. 1 to Warrant Purchase Agreement,
dated as of December 31, 1992 (the "Warrant Purchase Agreement"), to change,
inter alia, the exercise price of such Warrants issued thereunder and the
expiration date thereof; and
<PAGE> 8
SIXTH AMENDMENT TO NOTE PURCHASE AGREEMENT
SIXTH AMENDMENT TO NOTE PURCHASE AGREEMENT (herein called this
"Amendment"), dated effective as of September 12, 1996 (the "Effective Date"),
is made by and between American Exploration Company, a Delaware corporation
(the "Company") and John Hancock Mutual Life Insurance Company (the
"Purchaser").
RECITALS:
WHEREAS, the Company previously entered into a Note Purchase Agreement
with the purchasers named therein, dated as of December 27, 1991, as previously
amended by letter agreements, dated March 20, 1992, September 28, 1992, and
March 22, 1993, Amendment to Note Purchase Agreement, dated as of December 31,
1992, Second Amendment to Note Purchase Agreement, dated as of September 30,
1993, Third Amendment to Note Purchase Agreement, dated as of December 31,
1993, Fourth Amendment to Note Purchase Agreement, dated as of April 1, 1994
and Fifth Amendment to Note Purchaser Agreement, dated as of July 1, 1994 (as
so amended, the "Note Purchase Agreement");
WHEREAS, the parties are concurrently entering into Amendment No. 2 to
Warrant Purchase Agreement, effective as of the Effective Date (the "Warrant
Amendment"), amending the Warrant Purchase Agreement, dated as of December 27,
1991, as previously amended by Amendment No. 1 to Warrant Purchase Agreement,
dated as of December 31, 1992 (the "Warrant Purchase Agreement"), to change,
inter alia, the exercise price of such Warrants issued thereunder and the
expiration date thereof; and
<PAGE> 9
2
WHEREAS, the parties desire to further amend the Note Purchase
Agreement, effective as of the Effective Date;
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and agreements contained herein, the sufficiency of which is
hereby acknowledged, the parties hereto do hereby consent and agree, effective
as of the Effective Date, as follows:
I. Defined Terms.
(a) The term "Bank Credit Agreements" in Section 9.1 is hereby
amended to read as follows:
"BANK CREDIT AGREEMENTS. The term "Bank Credit Agreements" shall
mean (a) that certain Amended and Restated Credit Agreement,
dated as of December 21,1994, among the Company, Morgan Guaranty
Trust Company of New York ("Morgans"), as Agent and individually,
and the other signatory banks thereto; (b) that certain Amendment
No. 1 to Amended and Restated Credit Agreement, effective as of
February 16,1995, among the Company, Morgans, as Agent and
individually, and the other signatory banks thereto; (c) that
certain Amendment No. 2 to Amended and Restated Credit Agreement
effective as of May 2, 1995, among the Company, Morgans, as Agent
and individually, and the other signatory banks thereto; (d) that
certain Amendment No. 3 to Amended and Restated Credit Agreement,
effective as of January 1, 1996, among the Company, Morgans, as
Agent and individually, and the other banks signatory thereto;
(e) Amendment No. 4 to Amended and Restated Credit Agreement,
effective as of June 5, 1996, among the Company, Morgans, as
Agent and individually, and the other signatory banks thereto
(true and correct copies of each instrument described in clauses
(a) through (e) having been previously provided to the Purchasers
by the Company); (f) all collateral documentation contemplated
by, and
<PAGE> 10
3
executed and delivered by the Company or any of its Subsidiaries
pursuant to the terms of the foregoing instruments; (g) any
instruments in renewal or extension of, or amendments to any
of the foregoing instruments; and (h) any credit facilities
employed by the Company in lieu of, in replacement of, or in
conjunction with the Multibank Agreement, provided that all such
facilities contemplated by (a) through (h) then in effect do not
cause the Company to violate the Limitations on Indebtedness in
Section 7.11."
; the term "Borrowing Base" and the last sentence of the definition of the term
"Senior Indebtedness" are eliminated and the term "Multibank Agreement" is
amended by deletion of the phrases "(d) and clause" and "extent relating to
clauses (a) through (d)".
(b) The following new term "Barrels of Oil Equivalent" is hereby
inserted into Section 9.1 in alphabetical order:
"BARRELS OF OIL EQUIVALENTS. The term "Barrels of Oil
Equivalents" shall mean oil and gas owned, directly or
indirectly, by the Company on an energy equivalent basis with one
barrel of oil being equivalent to six thousand cubic feet of gas.
For purposes of measurement, quantities of oil and natural gas
reserves shall be computed based on the most recent reserve
report prepared pursuant to Statement of Accounting Standards No.
69 for filing by the Company pursuant to Sections 12 or 15 of the
Securities Exchange Act of 1934, as amended, updated by additions
to, and production and sale of, the Company's proven oil and
natural gas reserves."
(c) Any capitalized terms used herein and not otherwise defined
herein shall have the respective meanings assigned to them in the Note Purchase
Agreement.
<PAGE> 11
4
II. Warranties and Representations. The Company represents and
warrants as of the date of this Amendment that:
A. The Company is in full compliance with each of the
covenants contained in the Note Purchase Agreement;
B. The execution and delivery of this Amendment (A) is within
the corporate powers of the Company, (B) is legal and
will not conflict with, result in any breach in any of the
provisions of, constitute a default under, or result in
the creation of any Lien upon any Property of the Company
under the provisions of, any charter instrument, bylaw, or
any order of any court, governmental authority or
arbitration board or tribunal, or other agreement,
contract or instrument to which the Company is a party or
by which it may be bound, except for the Multibank
Agreement, with respect to which such consents, approvals,
releases or amendments thereof as are necessary and/or
appropriate to permit the execution and delivery of this
Amendment have been obtained by the Company, and (C) have
been duly authorized by all necessary corporate action on
the part of the Company (no action by the stockholders of
the Company being required by law, by the Amended and
Restated Certificate of Incorporation or Bylaws of the
Company or otherwise);
C. This Amendment has been duly and validly executed and
delivered by the Company (and the officers of the Company
are authorized to do so);
D. This Amendment constitutes the legal, valid and binding
obligation, contract and agreement of the Company,
enforceable in accordance with its terms, except as
enforcement of such terms may be limited by Bankruptcy,
insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally.
E. 1. The representations set forth in Sections 2.8,
2.12(a), 2.16, 2.17 and 2.18 of the Note Purchase
Agreement are true, accurate and correct as of the
Effective Date.
2. The representations set forth in Sections 2.6,
2.12(b) and 2.15 are true, accurate and correct as
of the Effective Date except to the extent set
forth on Exhibits A and B, respectively.
<PAGE> 12
5
F. Exhibit C correctly describes all Indebtedness for
borrowed money of the Company and its Subsidiaries
(excluding trade payables incurred in the ordinary course
of business) which was outstanding as of the Effective
Date. Except for obligations set forth on Exhibit C
hereto and for liabilities reflected in the most recent
financial statements delivered to the Purchasers, as of
the Effective Date, the Company and its Subsidiaries did
not have any outstanding Indebtedness of any kind
(including contingent obligations, tax assessments and
unusual forward or long-term commitments), other than
trade payables in the ordinary course of business, which
is in the aggregate material to the Company or material
with respect to the Company's consolidated financial
condition as of the date hereof.
G. 1. The consolidated balance sheets of the Company and
its Subsidiaries as of December 31, 1990, 1991,
1992, 1993, 1994 and 1995 and as of March 31, 1996
and June 30, 1996, the related consolidated
statements of operations, stockholders' equity and
cash flows of the Company and its Subsidiaries for
the fiscal years and quarter ended on such dates,
each such annual statement accompanied by a report
thereon containing an opinion without qualifications
except as therein noted, by Arthur Andersen & Co.,
were prepared in accordance with generally accepted
accounting principles consistently applied, except
for accounting changes noted in such reports, and
present fairly the financial position of the Company
and its Subsidiaries as of such dates and the
results of their operations for such periods. All
such financial statements, including the reports
containing same, together with all proxy materials
of the Company filed with the Securities and
Exchange Commission are hereinafter referred to as
the "SEC Reports".
<PAGE> 13
6
2. Since June 30, 1996, there has been no change in
the Properties, business, profits or condition
(financial or otherwise) of the Company and its
Subsidiaries, except changes in the ordinary course
of business and changes in economic conditions and
condition prevailing in the oil and gas industry,
which materially affects adversely, or, so far as
the Company can foresee, could materially affect
adversely, the Properties, business, prospects,
profits or conditions (financial or otherwise) of
the Company and its Subsidiaries taken as a whole
or the ability of the Company to perform its
obligations contained in the Note Purchase
Agreement (each as amended by this Amendment), the
Warrants, the Warrant Agreement (as amended to
date) or the Notes.
H. Neither the Note Purchase Agreement, nor the SEC
Reports, nor any written statement furnished by the
Company or its agents to you in connection with the
negotiation of this Amendment, contained any untrue
statement of a material fact known to the Company
or any of its Subsidiaries or omitted a material
fact known to the Company or any of its
Subsidiaries necessary to make the statements
contained therein not misleading at such time.
I. Except for minor defects with no material adverse
effect, the Company and each Subsidiary has good
and marketable title to all the Properties which it
purports to own, including all those Properties
reflected in the most recent balance sheet referred
to in paragraph G.1, above (except as sold or
otherwise disposed of in the ordinary course of
business), free from Liens not permitted by Section
7.6(a) of the Note Purchase Agreement.
J. Upon execution of this Amendment, no event shall
have occurred and condition shall exist which would
constitute a Default or an Event of Default. Upon
<PAGE> 14
7
execution of this Amendment, neither the Company
nor any of its Subsidiaries is in default in the
performance, observance or fulfillment of any of
the obligations, covenants or conditions contained
in any contract, agreement or instrument to which
it is a party where such default could have a
material adverse effect on the condition (financial
or otherwise) of the Company and its Subsidiaries
taken as a whole or on the ability of the Company
to perform its obligations contained in the Note
Purchase Agreement (as amended by this Amendment),
the Warrants, the Warrant Agreement (each as
amended to date) or the Notes.
K. Pursuant to Agreement, dated February 15, 1996, by
and among the Company, American Exploration
Production Company ("AEPCO"), NYLIFE Inc.
("NYLIFE") and NYLIFE Securities Inc., NYLIFE has
agreed to indemnify and hold harmless each of the
Company and AEPCO, their respective officers,
directors, agents, employees and controlling
persons (within the meaning of each of Section 20
of the Securities Exchange Act of 1934 and Section
15 of the Securities Act of 1933) (each of the
foregoing being hereinafter referred to as an
"American Indemnified Person") from and against any
and all judgments or settlements entered or reached
in the NYLOG Litigation, or subsequent lawsuits by
investors in the NYLOG Partnerships that name any
American Indemnified Person as a defendant, based
on claims and factual allegations substantially
similar to those contained in the original
complaints filed in the NYLOG Litigation. As used
herein the term NYLOG Litigation shall mean Billy
H. Mancil and Mary M. Mancil v. New York Life
Insurance Company, et al., Civil Action No.
CV-95-2595 GR, Circuit Court of Montgomery County,
Alabama, Ann Grimshawe v. New York Life Insurance
Company, NYLIFE, Inc., NYLIFE Equity, Inc., NYLIFE
Securities, Inc., American Exploration Company and
American Exploration Production Company, No.
96-001188, 113th District Court of Harris County,
Texas, and Evelyn Shea v. New York Life Insurance
Company, NYLIFE, Inc., NYLIFE Equity, Inc., NYLIFE
Securities, Inc., American Exploration Company and
American Exploration Production Company, No. 96-
001189, 151st District Court of Harris County,
Texas.
<PAGE> 15
8
III. Consents. The Company further represents and warrants that no
consents or approvals that have not been obtained are required to be obtained
in connection with the execution and performance of this Amendment.
IV. Description of Notes. The first paragraph of Section 1.1 of the
Note Purchase Agreement is hereby amended to read as follows:
"The Company has authorized the issue and sale of 11% Senior
Subordinated Notes due December 30, 2004 in the aggregate
principal amount of $35,000,000 (the "Notes"), to be dated the
date of issue, to bear interest at the rate of 11% per annum on
the outstanding principal thereof prior to maturity, payable
semi-annually on June 30 and December 30 in each year (commencing
June 30, 1992) until the principal amount thereof shall be due
and payable, to bear interest on overdue principal (including any
overdue required or optional prepayment of principal) and
premium, if any, and (to the extent legally enforceable) on any
overdue installment of interest at the rate of 13% per annum, to
be expressed to mature on December 30, 2004, and to be
substantially in the form attached as Exhibit D to the Sixth
Amendment to Note Purchase Agreement, dated effective as of
September 12, 1996."
V. Mandatory Prepayment. Section 5.4 of the Note Purchase Agreement
is hereby amended to read as follows:
"As provided in the first paragraph of each of the Notes and
subject to Section 10, in addition to paying the entire then
outstanding principal amount and the unpaid interest at maturity,
the Company will pay 33.33% of the original principal amount of
each Note on December 30 of each year, together with interest
accrued on all remaining unpaid principal to such date,
commencing with December 30, 2002 and ending December 30, 2004."
<PAGE> 16
9
VI. Section 7.11(d) of the Note Purchase Agreement is hereby amended
by inserting the following phrase after the phrase "and 315% thereafter":
"and (C) Total Consolidated Debt shall not exceed $3.75
multiplied by Barrels of Oil Equivalents".
VII. Subordination. (a) The introductory paragraph of Section 10.1 of
the Note Purchase Agreement is hereby amended to read as follows:
"Anything in this Agreement or the Notes to the contrary
notwithstanding, the Indebtedness evidenced by the Notes, this
Agreement and the other Note Purchase Agreements providing for
sale of the other Notes (including any payment on account of the
principal, interest and premium due on the Notes or other amounts
due under the Agreements) shall be subordinate and junior in right
of payment, to the extent and in the manner hereinafter set forth,
to all Senior Indebtedness of the Company whether outstanding at
the date of this Agreement or incurred after the date of this
Agreement except that commencing January 1, 2002, and on each of
the following two anniversaries thereof, the amount of the
original principal amount of each Note which is to become due and
payable pursuant to Section 5.4 on the following December 30,
together with interest and premium on such partial principal
amounts (collectively, the "Pari Passu Amounts"), shall, provided
the provisions of subsections (a) and (b) of this Section 10.1
would not operate to block payment of amounts under the Notes on
such January 1 by virtue of the occurrence of any of the events
set forth in said subsections (a) or (b), not be subordinate and
junior to all Senior Indebtedness of the Company whether
outstanding at the date of this Agreement or incurred after the
date of this Agreement and such Pari Passu Amounts shall rank pari
passu, and be entitled to payment concurrently, with such Senior
Indebtedness; provided the holders of the Notes shall not be
entitled to share in, or have any interest in, any collateral or
security provided to the holders of Senior Indebtedness in respect
of the Pari Passu Amounts."
<PAGE> 17
10
(b) The phrase "other than the Pari Passu Amounts" is hereby inserted
in the lettered subsections of Section 10.1 of the Note Purchase Agreement as
follows: (i) after "Agreements" in the tenth line of (a); (ii) after "Notes" in
the fourteenth line of (a); after "Agreements" in the last line of (b); after
"Note" in the eighth line of (c); after "Agreements" in the fourteenth line of
(c); after "Notes" in the eighteenth line of (c); after "Agreements" in the
fifth line of (f); after "Notes" in the seventh line of (f); after "Notes" in
the ninth line of (f); and after "Notes" in the twelfth line of (f).
(c) The phrase "and the Pari Passu Amounts" is hereby inserted in the
lettered subsections of Section 10.1 of the Note Purchase Agreement as follows:
(i) after "Indebtedness" in the seventh and eleventh lines of (b); after
"Indebtedness" in each place it appears in (d) and (f); and the word "is" in
the fifth line of (d) is changed to "are".
(d) the first two lines of subsection (g) through the phrase "Bank
Credit Agreement," are hereby deleted and the following word "the" is
capitalized.
VIII. Expenses of Amendment. The Company will pay all expenses
relating to this Amendment, and all related documentation, including without
limitation those types of expenses listed in 1.6 of the Note Purchase
Agreement.
<PAGE> 18
11
IX. Opinion of Counsel. The Purchaser shall receive, upon execution
of this Agreement an opinion from Patterson, Belknap, Webb & Tyler, LLP counsel
for the Company, satisfactory in form and scope to it in connection with this
transaction.
X. Ratification of Note Purchase Agreement. The Note Purchase
Agreement, as amended by this Amendment, is hereby ratified and confirmed in
all respects.
XI. Counterparts. This Amendment may be executed in several
counterparts, each of which shall be an original and all of which together
shall constitute but one and the same agreement.
XII. Exchange of Notes. The Purchaser agrees to promptly exchange its
Note(s) for a new Note(s) substantially in the form attached hereto as Exhibit
D.
<PAGE> 19
12
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the ___ day of ______, 1996, but effective as of the Effective
Date.
COMPANY:
AMERICAN EXPLORATION COMPANY
By: ________________________
John M. Hogan
Senior Vice President
PURCHASER:
RHODE ISLAND HOSPITAL
TRUST NATIONAL BANK, as
TRUSTEE FOR THE TEXTRON
COLLECTIVE INVESTMENT TRUST
By: ________________________
Name:___________________
Title:__________________
<PAGE> 20
12
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the ___ day of ______, 1996, but effective as of the Effective
Date.
COMPANY:
AMERICAN EXPLORATION COMPANY
By: ________________________
John M. Hogan
Senior Vice President
PURCHASER:
BALBOA LIFE INSURANCE COMPANY
By: ________________________
Name:___________________
Title:__________________
<PAGE> 21
12
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the ___ day of ______, 1996, but effective as of the Effective
Date.
COMPANY:
AMERICAN EXPLORATION COMPANY
By: ________________________
John M. Hogan
Senior Vice President
PURCHASER:
BALBOA INSURANCE COMPANY
By: ________________________
Name:___________________
Title:__________________
<PAGE> 22
12
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the ___ day of ______, 1996, but effective as of the Effective
Date.
COMPANY:
AMERICAN EXPLORATION COMPANY
By: ________________________
John M. Hogan
Senior Vice President
PURCHASER:
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By: ________________________
Name:___________________
Title:__________________
<PAGE> 23
12
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the ___ day of ______, 1996, but effective as of the Effective
Date.
COMPANY:
AMERICAN EXPLORATION COMPANY
By: ________________________
John M. Hogan
Senior Vice President
PURCHASER:
MASSMUTUAL CORPORATE INVESTORS
By: ________________________
Name:___________________
Title:__________________
<PAGE> 24
12
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the ___ day of ______, 1996, but effective as of the Effective
Date.
COMPANY:
AMERICAN EXPLORATION COMPANY
By: ________________________
John M. Hogan
Senior Vice President
PURCHASER:
MASSMUTUAL PARTICIPATION INVESTORS
By: ________________________
Name:___________________
Title:__________________
<PAGE> 25
12
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the ___ day of ______, 1996, but effective as of the Effective
Date.
COMPANY:
AMERICAN EXPLORATION COMPANY
By: ________________________
John M. Hogan
Senior Vice President
PURCHASER:
JOHN HANCOCK MUTUAL
LIFE INSURANCE COMPANY
By: ________________________
Name:___________________
Title:__________________
<PAGE> 26
12
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the ___ day of ______, 1996, but effective as of the Effective
Date.
COMPANY:
AMERICAN EXPLORATION COMPANY
By: ________________________
John M. Hogan
Senior Vice President
PURCHASER:
BARNETT & CO.
By: ________________________
Name:___________________
Title:__________________
<PAGE> 1
EXHIBIT 10(c)
AMENDMENT NO. 2 TO WARRANT PURCHASE AGREEMENT
THIS AMENDMENT NO. 2 TO WARRANT PURCHASE AGREEMENT (herein called this
"Amendment"), dated effective as of September 12, 1996 (the "Effective Date"),
is made by and among AMERICAN EXPLORATION COMPANY, a Delaware corporation (the
"Company"), and RHODE ISLAND HOSPITAL TRUST NATIONAL BANK, as Trustee for THE
TEXTRON COLLECTIVE INVESTMENT TRUST, a Rhode Island Trust ("Textron"), BALBOA
LIFE INSURANCE COMPANY, a California corporation ("BLIC"), BALBOA INSURANCE
COMPANY, a California corporation ("BIC"), MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY, a Massachusetts corporation ("Mass Mutual"), MASSMUTUAL CORPORATE
INVESTORS, a Massachusetts business trust ("MCI"), MASSMUTUAL PARTICIPATION
INVESTORS, a Massachusetts business trust ("MPI"), and JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY, a Massachusetts corporation ("Hancock") (Textron, BLIC, BIC,
Mass Mutual, MCI, MPI and Hancock, collectively referred to as the
"Purchasers").
RECITALS:
WHEREAS, the parties previously entered into a Warrant Purchase
Agreement, dated as of December 27, 1991, as amended by Amendment No. 1 to
Warrant Purchase Agreement, dated as of December 31, 1992 (the "Warrant
Agreement"); and
WHEREAS, contemporaneously herewith, the Note Purchase Agreements
between the Purchasers and the Company are being amended by the Sixth Amendment
to Note Purchase Agreement of even effective date herewith (the "Note Purchase
Amendments") to amend various terms thereof; and
WHEREAS, the parties desire to amend the Warrant Agreement and the
Warrants to reflect a change in the Exercise Price for the Warrants and a
change in the expiration date of the Warrants as a result of the changes to the
Note Agreements;
NOW, THEREFORE, in consideration of the foregoing Recitals and the
mutual covenants and agreements contained herein, the sufficiency of which is
hereby acknowledged, the parties hereto do hereby agree effective as of the
Effective Date as follows:
1. Defined Terms. Any capitalized terms used herein and not
otherwise defined shall have the respective meanings assigned to them in the
Warrant Agreement.
2. Period of Exercise. Section 2.02 of the Warrant Agreement is
hereby amended in its entirety to read as follows:
"2.02 Period of Exercise. The Warrants are exercisable at any
time or from time to time after the Closing Date applicable to such
Purchaser, and before and including 5:00
<PAGE> 2
p.m. Central Standard Time on December 30, 2004 or the next business day
if such date falls on a weekend or holiday (the "Expiration Date")."
3. Exercise Price. Section 2.04 of the Warrant Agreement is hereby
amended in its entirety to read as follows:
"2.04 Exercise Price. The Exercise Price per share shall be
$15.53 for each share of Common Stock covered by the Warrants, subject
to adjustment pursuant to Article VI only for events giving rise to
adjustment occurring after the Effective Date, as defined in Amendment
No. 2 to Warrant Purchase Agreement."
4. Call of Warrants. The first sentence of Section 10.01 of the
Warrant Agreement is hereby amended to read as follows:
"10.01 Right of Company to Call Warrants. The Company shall
have the right to redeem for cash any or all of the then outstanding
Warrants on or after December 30, 1996, in whole or in part, at $10.35
per share of Common Stock covered by the Warrants, subject to like
adjustment to the Exercise Price and number of shares as contemplated by
Article VI only for events giving rise to adjustment occurring after the
Effective Date, as defined in Amendment No. 2 to Warrant Purchase
Agreement, if the Closing Price of the Common Stock has been at least
200% of the then effective Exercise Price at least 20 of 30 successive
Trading Days in a period ending not more than 15 days prior to the Call
Date, as defined below."
5. Representations and Warranties.
(a) The Company hereby affirms that those representations and
warranties contained in Section 3.1(a) of the Warrant Agreement and in Section
2 of the Note Purchase Amendments, as modified herein and as modified by the
Note Purchase Amendments, are true and correct as of the Effective Date as if
made on such date.
(b) The Company further represents and warrants as of the date
of this Amendment that:
(i) The Company is in full compliance with each of the
covenants contained in the Warrant Agreement, other
than the covenants amended by this Amendment;
(ii) The execution and delivery of this Amendment (A) is
within the corporate powers of the Company, (B) is
legal and will not conflict with, result in any
breach in any of the provisions of, constitute a
default under, or result in the creation of any
Lien upon any Property of the Company under the
provisions of, any charter
2
<PAGE> 3
instrument, bylaw, or any order of any court,
governmental authority or arbitration board or
tribunal, or other agreement, contract or
instrument to which the Company is a party or by
which it may be bound, except for the Multibank
Agreement, with respect to which such consents,
approvals, releases or amendments thereof as are
necessary and/or appropriate to permit the
execution, delivery and performance of this
Amendment have been obtained by the Company, and
(C) has been duly authorized by all necessary
corporate action on the part of the Company (no
action by the stockholders of the Company being
required by law, by the Amended and Restated
Certificate of Incorporation or Bylaws of the
Company or otherwise).
(iii) This Amendment has been duly and validly executed
and delivered by the Company (and the officers of
the Company are authorized to do so); and
(iv) This Amendment constitutes the legal, valid and
binding obligation, contract and agreement of the
Company, enforceable in accordance with its terms,
and except as enforcement of such terms may be
limited by Bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the
enforcement of creditors' rights generally.
(v) The authorized capital stock of the Company
consists of 100,000 shares of Preferred Stock, par
value $.05 per share, 89,000 of which are
outstanding as of August 15, 1996, and 50,000,000
shares of Common Stock, of which 11,807,741 shares
were issued and outstanding as of August 15, 1996.
In addition, in each case as of August 15, 1996,
1,400,000 shares of Common Stock had been reserved
for issuance under the Company's stock compensation
plans and 1,777,777 shares of Common Stock had been
reserved for the conversion of $450 Cumulative
Convertible Preferred Stock Series C. In addition,
as of the Effective Date at least 1,205,653 shares
of Common Stock had been reserved for issuance upon
exercise of the Warrants. Further, after giving
effect to the transaction set forth in this
Amendment, 324,529 shares of Common Stock will be
issuable upon the exercise of the Stock Purchase
Warrant, dated September 3, 1992 (the "Prudential
Warrant"), issued by the Company to The Prudential
Insurance Company of America, subject to further
adjustments as provided in the Prudential Warrant
and a sufficient number of shares of Common Stock
have been reserved for such exercise. All of the
shares of Capital Stock of the Company outstanding
on August 15, 1996 were validly issued, fully paid
and nonassessable.
3
<PAGE> 4
(vi) The Exercise Price per share for each share of
Common Stock covered by the Warrants immediately
prior to the Effective Date of this Amendment was
$21.648 per share and all adjustments required to
be made prior to such date pursuant to Article VI
of the Warrant Agreement were correctly and timely
made and notice thereof given to the Purchasers.
6. Consents. All consents of any person necessary to the
consummation of the transactions contemplated by this Amendment and the Note
Purchase Amendments shall have been received and shall be in full force and
effect.
7. Antidilution Provisions. Any adjustments of the Exercise Price
occurring prior to the Effective Date pursuant to the antidilution provisions
of Article VI of the Warrant Agreement are reflected in, and superseded by the
amendment herein, to the Exercise Price and the numbers of Warrant Shares set
forth below the signature lines hereinbelow and the provisions of Article VI of
the Warrant Agreement shall have application with respect to events occurring
after the Effective Date.
8. Effectiveness. The effectiveness of this Amendment and the Note
Purchase Amendments is conditioned on receipt of the opinion of counsel
referenced in Section IX of the Note Purchase Amendments.
9. Warrant Shares. As of the Effective Date, the number of Warrants
purchased and the number of Warrant Shares purchasable by each Purchaser
pursuant to the Warrant Agreement shall be deemed to equal the number of
Warrant Shares set forth below the signature line for each such Purchaser
hereunder, and the Warrant Agreement and the Warrant Certificates shall be
deemed amended as of the Effective Date to reflect such amended number of
Warrants, and Warrant Shares purchasable pursuant thereto, and the Exercise
Price of $15.53. Each Purchaser agrees to promptly surrender after the
Effective Date each Warrant Certificate held by it for a new Warrant
Certificate in conformance with the terms of this Amendment.
The Warrant Agreement, as amended by this Amendment, is hereby ratified
and confirmed in all respects.
This Amendment may be executed in several counterparts, each of which
shall be an original and all of which together shall constitute but one and the
same agreement.
IN WITNESS WHEREOF, the undersigned has executed this Amendment the ___
day of ___________, 1996, but effective as of the Effective Date.
COMPANY:
AMERICAN EXPLORATION COMPANY
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
4
<PAGE> 5
IN WITNESS WHEREOF, the undersigned has executed this Amendment the ___
day of _________, 1996, but effective as of the Effective Date.
PURCHASERS:
RHODE ISLAND HOSPITAL TRUST NATIONAL BANK,
as Trustee for THE TEXTRON COLLECTIVE
INVESTMENT TRUST
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
Warrants Covering 499,484 Warrant Shares
5
<PAGE> 6
IN WITNESS WHEREOF, the undersigned have executed this Amendment the ___
day of ___________, 1996, but effective as of the Effective Date.
PURCHASERS:
TEXTRON INVESTMENT MANAGEMENT COMPANY INC.,
as Agent for BALBOA LIFE INSURANCE COMPANY
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
Warrants Covering 8,612 Warrant Shares
TEXTRON INVESTMENT MANAGEMENT COMPANY INC.,
as Agent for BALBOA INSURANCE COMPANY
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
Warrants Covering 8,612 Warrant Shares
6
<PAGE> 7
IN WITNESS WHEREOF, the undersigned have executed this Amendment the ___
day of ____________, 1996, but effective as of the Effective Date.
PURCHASERS:
MASSMUTUAL PARTICIPATION INVESTORS
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
Warrants Covering 51,671 Warrant Shares
MASSMUTUAL MUTUAL LIFE INSURANCE COMPANY
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
Warrants Covering 189,460 Warrant Shares
MASSMUTUAL CORPORATE INVESTORS
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
Warrants Covering 103,342 Warrant Shares
7
<PAGE> 8
IN WITNESS WHEREOF, the undersigned has executed this Amendment the ___
day of __________, 1996, but effective as of the Effective Date.
PURCHASER:
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
Warrants Covering 344,472 Warrant Shares
8
<PAGE> 1
EXHIBIT 10(d)
AMENDMENT NO. 5 TO AMENDED
AND RESTATED CREDIT AGREEMENT
AMENDMENT dated as of September 27, 1996 among AMERICAN EXPLORATION
COMPANY (the "Company"), the BANKS listed on the signature pages hereof (the
"Banks"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent"),
and BANK OF MONTREAL, as Co-Agent (the "Co-Agent").
W I T N E S S E T H :
WHEREAS, the Company, the Banks, the Agent and the Co-Agent have
heretofore entered into an Amended and Restated Credit Agreement dated as of
December 21, 1994, as amended by Amendment No. 1 dated as of February 16, 1995,
Amendment No. 2 dated as of May 2, 1995, Amendment No. 3 as of January 19, 1996
and Amendment No. 4 as of June 5, 1996 (as so amended, the "Agreement"); and
WHEREAS, the parties hereto desire to amend certain provisions of the
Agreement in the manner set forth below;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise specifically
defined herein, each term used herein which is defined in the Agreement shall
have the meaning assigned to such term in the Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Agreement shall from and after the date hereof refer to the
Agreement as amended hereby.
SECTION 2. Amendment of Section 1.01 of the Agreement. (A) The
following defined terms in Section 1.01 of the Agreement are amended to read in
their entirety as follows:
<PAGE> 2
"Availability Limit" means at any date an amount equal to the
lesser of (i) the aggregate amount of the Commitments at such date and
(ii) $90,000,000; provided that if at any time during the period from
and after September 27, 1996 until the first regularly scheduled
Borrowing Base redetermination date in 1997 pursuant to Section 2.14
the Company shall prepay any Loans using the proceeds received from or
in respect of the sale, transfer or other disposition of any Mortgaged
Properties or the Company's capital stock, the Availability Limit
shall be reduced on the date of such prepayment by an amount equal to
the principal amount of the Loans being prepaid (but in no event shall
the Availability Limit be reduced below $75,000,000 as a result of
prepayments made pursuant to this proviso). The Availability Limit
may be increased only by an amendment in accordance with Section 9.05,
which the Banks may agree to or not agree to in their sole discretion.
"Level I Status" exists at any date on which the sum of (i)
the aggregate outstanding amount of the Loans and (ii) the aggregate
Letter of Credit Liabilities is less than or equal to 50% of the
Borrowing Base then in effect.
"Level II Status" exists at any date on which the sum of (i)
the aggregate outstanding amount of the Loans and (ii) the aggregate
Letter of Credit Liabilities is greater than 50% but less than or
equal to 80% of the Borrowing Base then in effect.
(B) The following defined terms are hereby added to Section 1.01:
"Compensation Trigger Date" means any date on or after January
31, 1997 and prior to the first regularly scheduled Borrowing Base
redetermination date in 1997 pursuant to Section 2.14 (the period
commencing on January 31, 1997 and ending on such scheduled Borrowing
Base redetermination date, the "Measuring Period") on which the sum of
(i) the aggregate outstanding principal amount of the Loans and (ii)
the aggregate Letter of Credit Liabilities exceeds $75,000,000 less
the Value of any BB Properties sold or otherwise transferred by the
Company prior to the last day of the Measuring Period.
"Level III Status" exists at any date on which the sum of (i)
the aggregate outstanding amount of the Loans and (ii) the aggregate
Letter of Credit Liabilities exceeds 80% of the Borrowing Base then in
effect.
2
<PAGE> 3
SECTION 3. Amendment of Section 2.05 of the Agreement. (A)
In Section 2.05(a) of the Agreement, the first sentence is amended in
its entirety to read as follows:
(a) Each Domestic Loan shall bear interest on the outstanding
principal amount thereof, for each day from the date such Loan is made
until it becomes due, as follows:
(1) for any day on which Level I Status exists, at a
rate per annum equal to the lesser of (x) the Highest Lawful
Rate applicable to the Bank making such Loan and (y) the sum
of .50% plus the Base Rate for such day;
(2) for any day on which Level II Status exists, at a
rate per annum equal to the lesser of (x) the Highest Lawful
Rate applicable to the Bank making such Loan and (y) the sum
of .75% plus the Base Rate for such day; and
(3) for any day on which Level III Status exists, at
a rate per annum equal to the lesser of (x) the Highest Lawful
Rate applicable to the Bank making such Loan and (y) the sum
of 1% plus the Base Rate for such day;
provided that if the Compensation Trigger Date shall occur, each
Domestic Loan shall bear interest on the outstanding principal amount
thereof, for each day on or after the Compensation Trigger Date on
which such Loan is outstanding until the first regularly scheduled
Borrowing Base redetermination date in 1997 pursuant to Section 2.14),
at a rate per annum equal to the lesser of (x) the Highest Lawful Rate
applicable to the Bank making such Loan and (y) the sum of 1.50% plus
the Base Rate for such day.
(B) In Section 2.05(b) of the Agreement, the defined term "Margin" is
amended in its entirety to read as follows:
"Margin" means (i) for any day on which Level I Status exists,
1 1/2% or (ii) for any day on which Level II Status exists, 1 3/4% or
(iii) for any day on which Level III Status exists, 2%; provided that
if the Compensation Trigger Date shall occur, the Margin shall be
deemed to be 2 1/2% for any day on or after the Compensation Trigger
Date until the first regularly scheduled Borrowing Base
redetermination date in 1997 pursuant to Section 2.14.
3
<PAGE> 4
SECTION 4. Amendment of Section 2.06(b) of the Agreement. (A) The
first sentence of Section 2.06(b) of the Agreement is amended to read in its
entirety as follows:
(b) The Company shall pay to the Agent a letter of credit
fee, as follows:
(1) for any day on which Level I Status exists, at
the rate of 1 1/2% per annum on the aggregate amount available
for drawing under any Letter of Credit from time to time, such
fee to be payable for the account of the Banks ratably in
proportion to their participation therein;
(2) for any day on which Level II Status exists, at
the rate of 1 3/4% per annum on the aggregate amount available
for drawing under any Letter of Credit from time to time, such
fee to be payable for the account of the Banks ratably in
proportion to their participation therein; and
(3) for any day on which Level III Status exists, at
the rate of 2% per annum on the aggregate amount available for
drawing under any Letter of Credit from time to time, such fee
to be payable for the account of the Banks ratably in
proportion to their participation therein;
provided that if the Compensation Trigger Date shall occur, the
Company shall pay to the Agent a letter of credit fee at the rate of 2
1/2% per annum on the aggregate amount available for drawing under any
Letter of Credit from and after the Compensation Trigger Date until
the first regularly scheduled Borrowing Base redetermination date in
1997 pursuant to Section 2.14, such fee to be payable for the account
of the Banks ratably in proportion to their participation therein.
(B) Section 2.06 of the Agreement is amended by the addition of the
following clause (d) thereto:
"(d) If the Compensation Trigger Date shall occur, the Company
shall forthwith pay to the Agent for the account of the Banks in
proportion to their respective Commitments a fee in an amount equal to
.25% of the aggregate amount of the Commitments."
4
<PAGE> 5
SECTION 5. Amendment of Section 2.14 of the Agreement. (A) The first
sentence of Section 2.14 is hereby deleted and replaced with the following:
SECTION 2.14. Borrowing Base. During the period from and
after September 27, 1996 and until the next redetermination of the
Borrowing Base pursuant to this Agreement, the amount of the Borrowing
Base shall be $90,000,000.
(B) In Section 2.14 of the Agreement, clause (iii) is amended in its
entirety to read as follows:
"(iii) on and after October 27, 1996, the Banks have valid
first and prior liens pursuant to the Security Instruments on
Mortgaged Properties having an aggregate Value which equals or exceeds
80% of the aggregate Value of the BB Properties,"
SECTION 6. Amendment of Section 5.06(b) of the Agreement. Section
5.06(b) is amended to read in its entirety as follows:
(b) On October 27, 1996 and at all times thereafter, the
aggregate Value of the Properties on which the Banks have valid first
and prior mortgage liens shall be at least 80% of the aggregate Value
of the BB Properties.
SECTION 7. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 8. Counterparts; Effectiveness. This Amendment may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Amendment shall become effective upon (i) receipt by the
Agent for the account of the Banks in proportion to their respective
Commitments, up-front fees in an amount equal to .375% of the aggregate amount
of the Commitments; (ii) receipt by the Agent of a certificate of the chief
financial officer of the Company to the effect that the acquisition by the
Company of certain oil and gas interests, properties and related assets from
Zilkha Energy Company will be consummated prior to or simultaneously with the
execution hereof on terms and conditions not materially different in any
material respect from those heretofore disclosed to the Banks; and (iii)
receipt by the Agent of duly executed counterparts hereof signed by the
Company, each of the Banks and the Co-Agent (or, in the case of any party as to
which an executed counterpart shall not have been received, the Agent shall
5
<PAGE> 6
have received telegraphic, telex or other written confirmation from such party
of execution of a counterpart hereof by such party).
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the date first above written.
AMERICAN EXPLORATION COMPANY
By:=========================
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By:=========================
Title:
BANK OF MONTREAL, as a Bank and
as a Co-Agent
By:=========================
Title:
BANQUE PARIBAS
By:=========================
Title:
7
<PAGE> 8
By:=========================
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By:=========================
Title:
8
<PAGE> 1
EXHIBIT 99
[AMERICAN EXPLORATION LOGO]
AMERICAN EXPLORATION COMPANY
NEWS RELEASE
September 30, 1996
AMERICAN EXPLORATION COMPANY ACQUIRES TWO
GULF OF MEXICO OIL AND GAS FIELDS FOR $39 MILLION
AND FILES FOR A PUBLIC OFFERING OF COMMON STOCK
HOUSTON, TX - American Exploration Company (AX) today announced the
acquisition of a 100 percent working interest in the East Cameron Block 328 and
a 45 percent working interest in the High Island Block 116. The purchase price,
net of interests which American has agreed to sell to a third party, is $39
million. Both fields are located in federal Gulf of Mexico waters. The
interests were acquired from a private seller with an effective date of
September 15, 1996.
Net to American Exploration, the acquisition adds estimated proved
reserves of 17 Bcf of gas and 3.6 million barrels of crude oil and liquids, or
a total of 39 Bcf equivalent. Current net production is approximately 17,300
Mcf of gas and 700 barrels of crude oil and liquids per day. Forty percent of
the proved reserves are undeveloped and additional unproved reserve potential
has been identified. American Exploration plans to initiate a multi-well
development drilling program on East Cameron Block 328 before year-end.
Commenting, Mark Andrews, Chairman and CEO said, "This acquisition
fits well with our strategy to expand American Exploration's reserves and
production in the Gulf of Mexico. In addition to an active exploration and
development program, we seek to acquire properties where we can create value
through operating efficiencies and development activity. In March of this year,
we completed an offshore acquisition and have been able to complete two
development projects ahead of schedule and below budget, as well as achieve
higher production and price realizations than anticipated at the time of the
acquisition.
Page 1 of 2
<PAGE> 2
"As a result of the acquisition announced today and prior drilling
activity, American's current production is approximately 80 million cubic feet
of gas and 5,400 barrels of oil per day, an increase of 30% from second quarter
production levels on a BOE basis. We expect the acquisition to have a
significant positive impact on cash flow in the fourth quarter of 1996."
American has funded the acquisition through its bank credit facility.
In order to maintain a strong balance sheet and financial flexibility, American
Exploration has filed a registration statement with the Securities and Exchange
Commission relating to a public offering of three million shares of common
stock. Proceeds from the proposed offering will be used to reduce outstanding
bank indebtedness incurred with the acquisition. Prudential Securities
Incorporated will lead manage the offering with Dillon, Read & Co. Inc., and
A.G. Edwards & Sons, Inc. as co-managers.
A registration statement relating to these securities has been filed
with the Securities and Exchange Commission but has not yet become effective.
These securities may not be sold nor may offers to buy be accepted prior to the
time the registration statement becomes effective. This communication shall
not constitute an offer to sell or the solicitation of an offer to buy, nor
shall there be any sale of these securities in any state in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such state.
Prospectuses will be available at Prudential Securities Incorporated
Prospectus Department located at 111 8th Avenue, 5th floor, New York, New York
10011, phone (212) 776-8190.
American Exploration Company is an independent oil and gas company with
exploration and development activities primarily concentrated in the Gulf of
Mexico, South Texas and the Smackover Trend in southwestern Arkansas.
American's common and preferred stock are traded on the American Stock Exchange
under the symbols AX and AX.PR.C.
###
Contact: Frank Murphy
Vice President, Corporate Finance
(713) 756-6269
This press release includes certain statements that may be deemed to be
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. All statements, other than statements of historical
facts, included in this press release that address activities, events or
developments that the Company expects, believes or anticipates will or may occur
in the future, including drilling of wells, reserve estimates, future production
of oil and gas, future cash flow and other such matters are forward-looking
statements. These statements are based on certain assumptions and analyses made
by the Company in light of its experience and its perception of historical
trends, current conditions, expected future developments and other factors it
believes are appropriate in the circumstances. Such statements are subject to a
number of assumptions, risks and uncertainties, many of which are beyond the
control of the Company. Investors are cautioned that any such statements are not
guarantees of future performance and that actual results or developments may
differ materially from those projected in the forward-looking statements.
Page 2 of 2
