------------------------------------------------
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): June 24, 1997
AMERICAN EXPLORATION COMPANY
(Exact name of registrant as specified in its charter)
Delaware 0-11871 74-2086890
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification Number)
1331 Lamar, Suite 900, Houston, Texas 77010
(Address of principal executive offices including zip code)
Registrant's telephone number, including area code: (713) 756-6000
------------------------------------------------
<PAGE>
Item 5. Other Events
On June 24,1997, American Exploration Company, a Delaware corporation
("the Company"), Louis Dreyfus Natural Gas Corp., an Oklahoma corporation
("Louis Dreyfus") and LDNG Acquisition, Inc., an Oklahoma corporation and a
wholly-owned subsidiary of Louis Dreyfus ("Merger Sub"), entered into an
Agreement and Plan of Reorganization dated as of June 24, 1997 (the "Agreement")
whereby the Company will merge with and into Merger Sub and Merger Sub will be
the surviving corporation (the "Merger"). In the Merger, among other things,
each share of the Company's common stock, par value $.05 per share, shall be
converted into the right to receive (i) 0.72 shares of validly issued, fully
paid and nonassessable Louis Dreyfus common stock, par value $.01 per share; and
(ii) $3.00 cash. The Agreement is attached hereto as Exhibit 10.1, and is
incorporated herein by reference.
In connection with the Agreement, on June 24, 1997, the Company entered
into an agreement with Louis Dreyfus Natural Gas Holdings Corp., a 72%
stockholder of Louis Dreyfus (the "Stockholder Agreement"), pursuant to which,
among other things, such stockholder agreed to vote all of the shares of common
stock of Louis Dreyfus that are beneficially owned by it at the record date for
any meeting of stockholders of Louis Dreyfus called to consider and vote upon
the Merger and the Agreement in favor thereof. The Stockholder Agreement is
attached hereto as Exhibit 10.2, and is incorporated herein by reference.
In connection with the Merger Agreement, Louis Dreyfus entered into
employment or retention agreements with certain members of the management of the
Company. Such agreements are attached hereto as Exhibits 10.3-10.7 and are
incorporated herein by reference.
In connection with the Merger, the Company and Louis Dreyfus issued a
joint press release announcing the Merger. Such press release is attached hereto
as Exhibit 99.1 and is incorporated herein by reference.
Item 7(c). Exhibits
10.1 Agreement and Plan of Reorganization, dated as of June 24, 1997, by and
among Louis Dreyfus, Merger Sub and the Company.
10.2 Stockholder Agreement, dated as of June 24, 1997, between the Company and
Louis Dreyfus Natural Gas Holdings Corp.
10.3 Employment Agreement, dated as of June 24, 1997, between Louis Dreyfus and
Mark Andrews.
10.4 Retention Agreement, dated as of June 24, 1997, between Louis Dreyfus and
Elliott Pew.
2
<PAGE>
10.5 Retention Agreement, dated as of June 24, 1997, between Louis Dreyfus and
T. Frank Murphy.
10.6 Retention Agreement, dated as of June 24, 1997, between Louis Dreyfus and
Cindy L. Gerow.
10.7 Retention Agreement, dated as of June 24, 1997, between Louis Dreyfus and
John M. Hogan.
10.8 Severance Agreement, dated as of April 11, 1997, between the Company and
Elliott Pew.
99.1 Press release, dated as of June 24, 1997, announcing the signing of an
agreement to merge the Company and Louis Dreyfus.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN EXPLORATION COMPANY
Registrant
By:
---------------------------------
Name:
Title:
Date: June __, 1997
4
<PAGE>
Index to Exhibits
Exhibit No. Description
- ----------- -----------
10.1 Agreement and Plan of Reorganization, dated as of June 24, 1997, by and
among Louis Dreyfus, Merger Sub and the Company.
10.2 Stockholders Agreement, dated as of June 24, 1997, between the Company and
Louis Dreyfus Natural Gas Holdings Corp.
10.3 Employment Agreement, dated as of June 24, 1997 between Louis Dreyfus and
Mark Andrews.
10.4 Retention Agreement, dated as of June 24, 1997, between Louis Dreyfus and
Elliott Pew.
10.5 Retention Agreement, dated as of June 24, 1997, between Louis Dreyfus and
T. Frank Murphy.
10.6 Retention Agreement, dated as of June 24, 1997, between Louis Dreyfus and
Cindy L. Gerow.
10.7 Retention Agreement, dated as of June 24, 1997, between Louis Dreyfus and
John M. Hogan.
10.8 Severance Agreement, dated as of April 11, 1997, between the Company and
Elliott Pew.
99.1 Press release, dated as of June 24, 1997, announcing the signing of an
agreement to merge the Company and Louis Dreyfus.
Execution Copy
AGREEMENT AND PLAN OF REORGANIZATION
Among
LOUIS DREYFUS NATURAL GAS CORP.
and
LDNG ACQUISITION, INC.
and
AMERICAN EXPLORATION COMPANY
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS.......................................................1
1.1 Defined Terms...................................................1
1.2 References and Titles...........................................8
ARTICLE II THE MERGER.......................................................9
2.1 The Merger......................................................9
2.2 Effect of the Merger............................................9
2.3 Governing Instruments, Directors and Officers of the
Surviving Corporation ..........................................9
2.4 Effect on Securities...........................................10
2.5 Exchange of Certificates.......................................13
2.6 Closing........................................................16
2.7 Effective Time of the Merger...................................16
2.8 Taking of Necessary Action; Further Action.....................16
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ALPHA........................17
3.1 Organization...................................................17
3.2 Other Entities.................................................17
3.3 Authority and Enforceability...................................17
3.4 No Violations..................................................18
3.5 Consents and Approvals.........................................18
3.6 SEC Documents..................................................18
3.7 Financial Statements...........................................19
3.8 Capital Structure..............................................19
3.9 Absence of Certain Changes or Events...........................20
3.10 Compliance with Laws, Material Agreements and Permits..........20
3.11 Governmental Regulation........................................21
3.12 Litigation.....................................................21
3.13 No Restrictions................................................21
3.14 Taxes..........................................................22
3.15 Employee Benefit Plans.........................................22
3.16 Environmental Matters..........................................23
3.17 Brokers........................................................24
3.18 Vote Required..................................................24
3.19 Amendment to Alpha Rights Agreement............................25
3.20 Opinion of Financial Advisor...................................25
3.21 Affiliate Transactions.........................................25
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF LIMA AND MERGER SUB...........26
4.1 Organization...................................................26
4.2 Other Entities.................................................26
- i -
<PAGE>
4.3 Authority and Enforceability...................................26
4.4 No Violations..................................................27
4.5 Consents and Approvals.........................................27
4.6 SEC Documents..................................................28
4.7 Financial Statements...........................................28
4.8 Capital Structure..............................................28
4.9 Absence of Certain Changes or Events...........................29
4.10 Compliance with Laws, Material Agreements and Permits..........29
4.11 Governmental Regulation........................................30
4.12 Litigation.....................................................30
4.13 No Restrictions................................................30
4.14 Taxes..........................................................30
4.15 Employee Benefit Plans.........................................31
4.16 Environmental Matters..........................................32
4.17 Interim Operations of Merger Sub...............................33
4.18 Brokers........................................................33
4.19 Opinion of Financial Advisor...................................33
4.20 Certain Lima Gas Contracts.....................................33
4.21 Affiliate Transactions.........................................33
ARTICLE V COVENANTS........................................................34
5.1 Conduct of Business Pending Closing............................34
5.2 Access to Assets, Personnel and Information....................37
5.3 No Solicitation by Alpha.......................................38
5.4 Alpha Stockholders Meeting.....................................39
5.5 Lima Stockholders Meeting......................................40
5.6 Registration Statement and Proxy Statement/Prospectus..........40
5.7 Stock Exchange Listing.........................................42
5.8 Additional Arrangements........................................42
5.9 Agreements of Affiliates.......................................42
5.10 Public Announcements...........................................43
5.11 Notification of Certain Matters................................43
5.12 Payment of Expenses............................................43
5.13 Indemnification................................................43
5.14 Alpha Employees................................................45
5.15 Board of Directors of Lima Following Effective Time............45
5.16 Employee Agreements............................................46
5.17 Tax-Free Reorganization........................................46
5.18 Alpha Rights Plan..............................................46
5.19 Restructuring of Reorganization................................46
ARTICLE VI CONDITIONS......................................................47
6.1 Conditions to Each Party's Obligation to Effect the Merger.....47
6.2 Conditions to Obligations of Lima and Merger Sub...............48
- ii -
<PAGE>
6.3 Conditions to Obligation of Alpha..............................49
ARTICLE VII TERMINATION....................................................49
7.1 Termination Rights.............................................49
7.2 Effect of Termination..........................................51
7.3 Termination Fees and Expenses..................................51
ARTICLE VIII MISCELLANEOUS.................................................54
8.1 Nonsurvival of Representations and Warranties..................54
8.2 Amendment......................................................54
8.3 Notices........................................................54
8.4 Counterparts...................................................55
8.5 Entire Agreement; No Third Party Beneficiaries.................55
8.6 Applicable Law.................................................55
8.7 No Remedy in Certain Circumstances.............................55
8.8 Assignment.....................................................55
8.9 Waivers........................................................56
8.10 Confidentiality Agreement......................................56
- iii -
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (this "Agreement") is made and
entered into as of the _____ day of _______________, 1997, by and among LOUIS
DREYFUS NATURAL GAS CORP., an Oklahoma corporation ("Lima"), LDNG ACQUISITION,
INC., an Oklahoma corporation ("Merger Sub"), and AMERICAN EXPLORATION COMPANY,
a Delaware corporation ("Alpha").
RECITALS
A. The board of directors of each of Lima and Alpha has determined that it
is in the best interests of Lima and Alpha, and their respective stockholders,
to approve the strategic alliance of Lima and Alpha by means of the merger of
Alpha with and into Merger Sub upon the terms and subject to the conditions set
forth in this Agreement.
B. For federal income tax purposes, it is intended that such merger
qualify as a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended, and it is intended that this
Agreement constitute a plan of reorganization for purposes of Section 368(a).
C. Lima, Merger Sub, and Alpha desire to make certain representations,
warranties, covenants and agreements in connection with such merger and also to
prescribe various conditions to such merger.
D. Louis Dreyfus Natural Gas Holdings Corp. ("Shareholder") which owns and
is entitled to vote 20,000,000 shares, constituting approximately 72% of Lima's
outstanding common stock on the date of this Agreement, in order to induce Alpha
to enter this Agreement has agreed to vote such shares in favor of this
Agreement and the Merger and matters related thereto requiring approval of the
stockholders of Lima.
NOW, THEREFORE, for and in consideration of the recitals and the
mutual representations, warranties, covenants and agreements set forth in this
Agreement, the parties to this Agreement hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. As used in this Agreement, each of the following terms
has the meaning given in this Section 1.1 or in the Sections referred to below:
"Additional Termination Fee" has the meaning specified in Section 7.3(a).
<PAGE>
"Affiliate" means, with respect to any Person, each other Person that
directly or indirectly (through one or more intermediaries or otherwise)
controls, is controlled by, or is under common control with such Person.
"Agreement" means this Agreement and Plan of Reorganization, as amended,
supplemented or modified from time to time.
"Alpha" means American Exploration Company, a Delaware corporation.
"Alpha Certificate" means a certificate representing shares of Alpha
Common Stock or Alpha Preferred Stock, as the case may be.
"Alpha Common Stock" means the common stock, par value $.05 per share, of
Alpha.
"Alpha Companies" means Alpha and each of the other entities specifically
listed in the Alpha Disclosure Schedule as a subsidiary of Alpha.
"Alpha Depositary Shares" means the outstanding depositary shares of Alpha
each representing a 1/200 interest in a share of Alpha Preferred Stock.
"Alpha Disclosure Schedule" means the disclosure schedule delivered by
Alpha to Lima on or before the date of this agreement arranged in paragraphs
corresponding to the numbered and lettered paragraphs in Article III.
"Alpha 11% Senior Subordinated Notes" means those certain 11% Senior
Subordinated Notes due 2004 of Alpha.
"Alpha Employee Agreements" has the meaning specified in Section 5.16.
"Alpha Employee Benefit Plans" has the meaning specified in Section
3.15(a).
"Alpha Financial Statements" means the audited and unaudited consolidated
financial statements of Alpha and its subsidiaries (including the related notes)
included (or incorporated by reference) in Alpha's Annual Report on Form 10-K
for the year ended December 31, 1996, and Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997, in each case as filed with the SEC, and any other
financial statements of Alpha and its subsidiaries relating to subsequent
periods filed with the SEC.
"Alpha Material Agreement(s)" means any written or oral agreement,
contract, commitment or understanding to which any of the Alpha Companies is a
party, by which any of the Alpha Companies is directly or indirectly bound, or
to which any asset of any of the Alpha Companies may be subject, involving total
value or consideration in excess of $1,000,000.
- 2 -
<PAGE>
"Alpha Meeting" means the meeting of the stockholders of Alpha called for
the purpose of voting on this Agreement and the Merger.
"Alpha Permits" has the meaning specified in Section 3.10.
"Alpha Preferred Stock" means the $450 Cumulative Convertible Preferred
Stock, Series C, par value $1.00 per share, of Alpha.
"Alpha Representative" means any director, officer, employee, agent,
advisor (including legal, accounting and financial advisors), Affiliate or other
representative of any of the Alpha Companies.
"Alpha Restricted Shares" means shares of restricted stock granted
pursuant to the Alpha Stock Compensation Plans.
"Alpha Restricted Units" means a "Restricted Unit" as defined in the Alpha
Phantom Stock Plan.
"Alpha Rights" has the meaning specified in Section 3.19.
"Alpha Rights Agreement" means the Rights Agreement dated as of September
28, 1993 between Alpha and Society National Bank (as amended and supplemented)
as filed or incorporated by reference in the Alpha SEC Documents.
"Alpha SEC Documents" has the meaning specified in Section 3.6.
"Alpha Stock Compensation Plans" means the 1983 Stock Compensation Plan,
as amended, of Alpha, the 1994 Stock Compensation Plan, as amended, of Alpha,
the Alpha Amended and Restated 1983 Stock Option Plan of Hershey Oil
Corporation, and the Alpha Amended and Restated 1988 Stock Option Plan of
Hershey Oil Corporation.
"Alpha Stock Option" means an option (issued and outstanding on the date
hereof and immediately prior to the Effective Time) to acquire shares of Alpha
Common Stock granted pursuant to the Alpha Stock Compensation Plans.
"Alpha Warrants" means the Prudential Warrants and Institutional Warrants.
"Alternative Transaction" has the meaning specified in Section 7.3(b).
"Bank Credit Agreement" means the Amended and Restated Credit Agreement,
dated as of December 21, 1994, between Alpha, as borrower, the banks listed
therein, as lenders, and Morgan Guaranty Trust Company of New York, as agent (as
amended and supplemented) as filed or incorporated by reference in the Alpha SEC
Documents.
- 3 -
<PAGE>
"Cash-Out Amount" has the meaning specified in Section 2.4(b)(iv).
"Cash Consideration" means $3.00.
"Certificates of Merger" means the certificates of merger, prepared and
executed in accordance with the applicable provisions of the DGCL and the OGCA,
as the case may be, filed with the Secretaries of State of Delaware and Oklahoma
to effect the consummation of the Merger.
"Closing" means the closing of the Merger.
"Closing Date" means the date on which the Closing occurs, which date
shall be the first business day following the day on which both the Alpha
Meeting and the Lima Meeting have been held (or such later date as is agreed
upon by the parties).
"Code" means the Internal Revenue Code of 1986, as amended.
"Competing Proposal" has the meaning specified in Section 5.3(b).
"Confidentiality Agreement" means the agreement dated May 5, 1997 between
Alpha and Lima relating to Alpha's furnishing of information to Lima and Lima's
furnishing of information to Alpha in connection with Lima's and Alpha's
evaluation of the possibility of the Merger.
"Conversion Number" means 0.72.
"DGCL" means the Delaware General Corporation Law.
"Deposit Agreement" means that certain deposit agreement dated December
10, 1993 between Alpha and Harris Trust and Savings Bank relating to the Alpha
Depositary Shares.
"Dissenting Stockholder(s)" means holder(s) of Alpha Common Stock who have
validly perfected appraisal rights under Section 262 of the DGCL.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Effective Time" has the meaning specified in Section 2.7.
"Environmental Law" means any federal, state, local or foreign statute,
code, ordinance, rule, regulation, policy, guideline, permit, consent, approval,
license, judgment, order, writ, decree, common law, injunction or other
authorization in effect on the date hereof or at a previous time applicable to
Alpha's or to Lima's, as the case may be, operations relating to (a) emissions,
discharges, releases or threatened releases of Hazardous Materials into the
natural environment, including into ambient air, soil, sediments, land surface
or subsurface, buildings or facilities, surface water, groundwater,
publicly-owned treatment works, septic systems or land;
- 4 -
<PAGE>
(b) the generation, treatment, storage, disposal, use, handling, manufacturing,
transportation or shipment of Hazardous Materials; (c) occupational health and
safety; or (d) otherwise relating to the pollution of the environment, solid
waste handling treatment or disposal, or operation or reclamation of oil and gas
operations or mines.
"Exchange Agent" means Chase Mellon Shareholder Services, L.L.C., which
shall serve as transfer agent for shares of Lima Common Stock, Lima Preferred
Stock and Lima Depositary Shares, or such other agent as may be duly appointed
from time to time by Lima.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Fund" has the meaning specified in Section 2.5(a).
"GAAP" means generally accepted accounting principles, as recognized by
the U.S. Financial Accounting Standards Board (or any generally recognized
successor).
"Governmental Authority" means any national, state, county or municipal
government, domestic or foreign, any agency, board, bureau, commission, court,
department or other instrumentality of any such government, or any arbitrator in
any case that has jurisdiction over any of the Alpha Companies, Lima or Merger
Sub or any of their respective properties or assets.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"Hazardous Material" means (a) any "hazardous substance," as defined by
CERCLA; (b) any "hazardous waste" or "solid waste," in either case as defined by
the Resource Conservation and Recovery Act, as amended; (c) any solid,
hazardous, dangerous or toxic chemical, material, waste or substance, within the
meaning of and regulated by any Environmental Law; (d) any radioactive material,
including any naturally occurring radioactive material, and any source, special
or byproduct material as defined in 42 U.S.C. 2011 et seq. and any amendments or
authorizations thereof; (e) any asbestos-containing materials in any form or
condition; (f) any polychlorinated biphenyl in any form or condition; or (g)
petroleum, petroleum hydrocarbons, or any fraction or byproducts thereof.
"Initial Termination Fee" has the meaning specified in Section 7.3(a).
"Institutional Warrants" means those certain warrants to purchase Alpha
Common Stock issued to certain institutional investors in connection with the
issuance of the Alpha 11% Senior Subordinated Notes.
"Lien" means any lien, mortgage, security interest, pledge, deposit,
production payment, restriction, burden, encumbrance, rights of a vendor under
any title retention or conditional sale agreement, or lease or other arrangement
substantially equivalent thereto.
- 5 -
<PAGE>
"Lima" means Louis Dreyfus Natural Gas Corp., an Oklahoma corporation.
"Lima Certificate" means a certificate representing shares of Lima Common
Stock or Lima Preferred Stock, as the case may be.
"Lima Common Stock" means the common stock, par value $.01 per share, of
Lima.
"Lima Companies" means Lima and each of the other entities specifically
listed in the Lima Disclosure Schedule as a subsidiary of Lima.
"Lima Depositary Shares" means the depositary shares of Lima to be issued
in exchange for Alpha Depositary Shares as provided herein each to represent a
1/200 interest in a share of Lima Preferred Stock.
"Lima Disclosure Schedule" means the disclosure schedule delivered by Lima
to Alpha on or before the date of this agreement arranged in paragraphs
corresponding to the numbered and lettered paragraphs in Article IV.
"Lima Employee Benefit Plans" has the meaning specified in Section
4.15(a).
"Lima Financial Statements" means the audited and unaudited consolidated
financial statements of Lima and its subsidiaries (including the related notes)
included (or incorporated by reference) in Lima's Annual Report on Form 10-K for
the year ended December 31, 1996, and Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997, in each case as filed with the SEC, and any other
financial statements of Lima and its subsidiaries relating to subsequent periods
filed with the SEC.
"Lima Material Agreement(s)" means any written or oral agreement,
contract, commitment or understanding to which any of the Lima Companies is a
party, by which any of the Lima Companies is directly or indirectly bound or to
which any asset of any of the Lima Companies may be subject, involving total
value or consideration in excess of $3,000,000.
"Lima Meeting" means the meeting of the stockholders of Lima called for
the purpose of voting on this Agreement and the Merger.
"Lima Permits" has the meaning specified in Section 4.10.
"Lima Preferred Stock" means the series of preferred stock, par value $.01
per share, of Lima to be established on or prior to the Effective Time having
substantially the same rights, preferences, powers and privileges as the Alpha
Preferred Stock, all as set forth in Exhibit "1.1" attached hereto or, if the
vote required by Section 3.18(b) is not received but the vote required by
Section 3.18(a) is received, a series of preferred stock of the Surviving
Corporation having equivalent terms, including rights to convert into Lima
Common Stock and cash as provided in Exhibit "1.1".
- 6 -
<PAGE>
"Lima Representative" means any director, officer, employee, agent,
advisor (including legal, accounting and financial advisors), Affiliate or other
representative of the Lima Companies.
"Lima SEC Documents" has the meaning specified in Section 4.6.
"Lima Stock Option Plan" means the Stock Option Plan of Lima, as amended.
"Market Price" means the average of the per share closing sales prices of
the Lima Common Stock on the NYSE (as reported by The Wall Street Journal, or if
not so reported, by another authoritative source) over the 10 trading days
immediately preceding the Closing Date.
"Material Adverse Effect" means (a) when used with respect to Alpha, a
result or consequence that would materially adversely affect the condition
(financial or otherwise), results of operations or business of the Alpha
Companies (taken as a whole) or the aggregate value of their assets, would
materially impair the ability of the Alpha Companies (taken as a whole) to own,
hold, develop and operate their assets, or would materially impair Alpha's
ability to perform its obligations hereunder or consummate the transactions
contemplated hereby; and (b) when used with respect to Lima, a result or
consequence that would materially adversely affect the condition (financial or
otherwise), results of operations or business of the Lima Companies (taken as a
whole) or the aggregate value of their assets, would materially impair the
ability of the Lima Companies (taken as a whole) to own, hold, develop and
operate their assets, or would materially impair Lima's or Merger Sub's ability
to perform its respective obligations hereunder or consummate the transactions
contemplated hereby.
"Merger" has the meaning specified in Section 2.1.
"Merger Sub" means LDNG Acquisition, Inc., an Oklahoma corporation and a
wholly-owned subsidiary of Lima.
"Merger Sub Common Stock" means the common stock, par value $.01 per
share, of Merger Sub.
"NYSE" means The New York Stock Exchange, Inc.
"OGCA" means the Oklahoma General Corporation Act.
"Person" means any natural person, corporation, company, limited or
general partnership, joint stock company, joint venture, association, limited
liability company, trust, bank, trust company, land trust, business trust or
other entity or organization, whether or not a Governmental Authority.
- 7 -
<PAGE>
"Proxy Statement/Prospectus" means a joint proxy statement in definitive
form relating to the Alpha Meeting and the Lima Meeting, which proxy statement
will be included as a prospectus in the Registration Statement.
"Prudential Warrants" means those certain warrants to purchase Alpha
Common Stock issued in September 1992 to Prudential Insurance Company of
America.
"Registration Statement" means the Registration Statement on Form S-4 to
be filed by Lima in connection with the issuance of Lima Common Stock, Lima
Preferred Stock and Lima Depositary Shares pursuant to the Merger.
"Responsible Officer" means, with respect to any corporation, the Chief
Executive Officer, President or any Vice President of such corporation.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Superior Proposal" has the meaning specified in Section 5.3(b).
"Surviving Corporation" has the meaning specified in Section 2.2.
"Tax Returns" has the meaning specified in Section 3.14(a).
"Taxes" means taxes of any kind, levies or other like assessments,
customs, duties, imposts, charges or fees, including income, gross receipts, ad
valorem, value added, excise, real or personal property, asset, sales, use,
federal royalty, license, payroll, transaction, capital, net worth and franchise
taxes, estimated taxes, withholding, employment, social security, workers
compensation, utility, severance, production, unemployment compensation,
occupation, premium, windfall profits, transfer and gains taxes or other
governmental taxes imposed or payable to the United States or any state, local
or foreign governmental or Native American tribal subdivision or agency thereof,
and in each instance such term shall include any interest, penalties or
additions to tax attributable to any such Tax, including penalties for the
failure to file any Tax Return or report.
"Third-Party Consent" means the consent or approval of any Person other
than Alpha, Lima or any Governmental Authority.
1.2 References and Titles. All references in this Agreement to Exhibits,
Schedules, Articles, Sections, subsections and other subdivisions refer to the
corresponding Exhibits, Schedules, Articles, Sections, subsections and other
subdivisions of or to this Agreement unless expressly provided otherwise. Titles
appearing at the beginning of any Articles, Sections, subsections or other
subdivisions of this Agreement are for convenience only, do not constitute any
part of this Agreement, and shall be disregarded in construing the language
hereof. The
- 8 -
<PAGE>
words "this Agreement," "herein," "hereby," "hereunder" and "hereof," and words
of similar import, refer to this Agreement as a whole and not to any particular
subdivision unless expressly so limited. The words "this Article," "this
Section" and "this Subsection," and words of similar import, refer only to the
Article, Section or Subsection hereof in which such words occur. The word "or"
is not exclusive, and the word "including" (in its various forms) means
"including without limitation." Pronouns in masculine, feminine or neuter
genders shall be construed to state and include any other gender, and words,
terms and titles (including terms defined herein) in the singular form shall be
construed to include the plural and vice versa, unless the context otherwise
requires.
As used in the representations and warranties contained in this Agreement,
the phrase "to the knowledge" of the representing party shall mean that
Responsible Officers of such representing party, individually or collectively,
either (a) know that the matter being represented and warranted is true and
accurate or (b) have no reason, after reasonable inquiry, to believe that the
matter being represented and warranted is not true and accurate.
ARTICLE II
THE MERGER
2.1 The Merger. Subject to the terms and conditions set forth in this
Agreement, at the Effective Time, Alpha shall be merged with and into Merger Sub
in accordance with the provisions of this Agreement. Such merger is referred to
herein as the "Merger."
2.2 Effect of the Merger. Upon the effectiveness of the Merger, the
separate existence of Alpha shall cease and Merger Sub, as the surviving
corporation in the Merger (the "Surviving Corporation"), shall continue its
corporate existence under the laws of the State of Oklahoma. The Merger shall
have the effects specified in this Agreement and the DGCL and the OGCA.
2.3 Governing Instruments, Directors and Officers of the Surviving
Corporation.
(a) The certificate of incorporation of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the certificate of
incorporation of the Surviving Corporation until duly amended in
accordance with its terms and applicable law; provided, however, that
Article I thereof shall be amended and restated to read in its entirety as
follows: "Article I: The name of the corporation is American Exploration
Company."
(b) The by-laws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the by-laws of the Surviving Corporation until
duly amended in accordance with their terms and applicable law.
(c) The directors and officers of Merger Sub at the Effective Time
shall be the directors and officers, respectively, of the Surviving
Corporation from the Effective Time until their respective successors have
been duly elected or appointed in accordance with
- 9 -
<PAGE>
the certificate of incorporation and by-laws of the Surviving Corporation
and applicable law.
2.4 Effect on Securities.
(a) Merger Sub Stock. At the Effective Time, by virtue of the Merger
and without any action on the part of any holder thereof, each share of
Merger Sub Common Stock outstanding immediately prior to the Effective
Time shall remain outstanding and continue as one share of capital stock
of the Surviving Corporation and each certificate evidencing ownership of
any such shares shall continue to evidence ownership of the same number of
shares of the capital stock of the Surviving Corporation.
(b) Alpha Securities.
(i) Alpha Common Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of any holder thereof
(but subject to the provisions of Section 2.5(e)), each share of
Alpha Common Stock that is issued and outstanding immediately prior
to the Effective Time (other than shares of Alpha Common Stock held
by Dissenting Stockholders) shall be converted into the right to
receive (A) shares of validly issued, fully paid and nonassessable
Lima Common Stock, with each such share of Alpha Common Stock being
converted into the fraction of a share of Lima Common Stock equal to
the Conversion Number; and (B) cash in the amount of the Cash
Consideration. Each share of Alpha Common Stock, when so converted,
shall automatically be canceled and retired, shall cease to exist
and shall no longer be outstanding; and the holder of any
certificate representing any such shares shall cease to have any
rights with respect thereto, except the right to receive the shares
of Lima Common Stock to be issued in exchange therefor and the Cash
Consideration (along with any cash in lieu of fractional shares of
Lima Common Stock as provided in Section 2.5(e)) and any unpaid
dividends and distributions with respect to such shares of Lima
Common Stock as provided in Section 2.5(c), without interest, upon
the surrender of such certificate in accordance with Section 2.5.
(ii) Alpha Treasury Stock. At the Effective Time, by virtue of
the Merger, any and all shares of Alpha Common Stock that are issued
and held as treasury stock shall be canceled and retired and shall
cease to exist, and no shares of Lima Common Stock, Cash
Consideration or other consideration shall be paid or payable in
exchange therefor.
(iii) Alpha Preferred Stock and Depositary Shares. At the
Effective Time, by virtue of the Merger and without any action on
the part of any holder thereof, each share of Alpha Preferred Stock
that is issued and outstanding immediately prior to the Effective
Time shall be converted into the right to receive one (1) validly
issued, fully paid and nonassessable share of Lima Preferred Stock.
- 10 -
<PAGE>
Thereafter, in accordance with the Deposit Agreement, the Alpha
Depositary Shares will represent rights with respect to the Lima
Preferred Stock and any required action to issue Lima Depositary
Shares in exchange for Alpha Depositary Shares shall be promptly
taken. Each share of Alpha Preferred Stock, when so converted, shall
automatically be canceled and retired, shall cease to exist and
shall no longer be outstanding; and the holder of any certificate
representing any such shares shall cease to have any rights with
respect thereto, except the right to receive the shares of Lima
Preferred Stock to be issued in exchange therefore and any unpaid
dividends and distributions with respect of such shares of Lima
Preferred Stock as provided in Section 2.5(c), without interest,
upon surrender of such certificate in accordance with Section 2.5.
The portion of the cumulative quarterly dividend with respect to the
Alpha Preferred Stock accrued as of the Effective Time shall be
carried to and accumulated with the first cumulative quarterly
dividend to become payable with respect to the Lima Preferred Stock
after the Effective Time. The holders of the Alpha Depositary Shares
shall continue to have the same rights with respect to the Lima
Preferred Stock as they had prior to the Effective Time with respect
to shares of Alpha Preferred Stock under the terms of the Deposit
Agreement.
(iv) Alpha Equity Awards. Each Alpha Stock Option (including
any Alpha Stock Option granted within six months of the Effective
Time) shall be or become fully vested prior to or concurrently with
the Effective Time and, except as provided in the Alpha Employee
Agreements, shall be canceled in accordance with the respective
terms of the Alpha Stock Compensation Plans or otherwise by
appropriate action by Alpha in consideration for the payment of the
Cash-Out Amount to the holder of such Alpha Stock Option as soon as
practicable following the Effective Time. For purposes of this
Agreement, the "Cash-Out Amount" means (i) in the case of any Alpha
Stock Option granted under the Alpha 1983 or 1994 Stock Compensation
Plan, the excess, if any, of the Determined Value (as defined in
such Plan) over the exercise price of such Alpha Stock Option,
multiplied by the number of shares of Alpha Common Stock subject to
such Alpha Stock Option, and (ii) in the case of any Alpha Stock
Option granted under the Alpha Amended and Restated 1983 or 1988
Stock Option Plan of Hershey Oil Corporation, the excess, if any, of
the Effective Time Value over the exercise price of such Alpha Stock
Option, multiplied by the number of shares of Alpha Common Stock
subject to such Alpha Stock Option. For purposes of this Agreement,
the "Effective Time Value" means the sum of (i) the Cash
Consideration and (ii) the product determined by multiplying (x) the
Conversion Number by (y) the Market Price. The restrictions
applicable to each Alpha Restricted Share outstanding under the
Alpha Stock Compensation Plans immediately prior to the Effective
Time shall lapse as of the Effective Time. Each Alpha Restricted
Unit outstanding immediately prior to the Effective Time shall
become fully vested immediately prior to or concurrently with the
Effective Time, and shall be redeemed as soon as practicable
following the Effective Time by
- 11 -
<PAGE>
payment to the holder thereof of an amount in cash equal to the
Effective Time Value less the amount payable per unit by the holder
as set forth in Section 3.15 of the Alpha Disclosure Schedule.
(v) Alpha Warrants. All Alpha Warrants shall remain
outstanding following the Effective Time. At the Effective Time, by
virtue of the Merger and without any action on the part of Alpha or
any holder of Alpha Warrants, each Alpha Warrant shall be assumed by
Lima and shall be exercisable for shares of Lima Common Stock and
other consideration, if any, as may be required pursuant to the
terms and conditions of such Alpha Warrants.
(vi) Alpha 11% Senior Subordinated Notes. All Alpha 11% Senior
Subordinated Notes shall remain outstanding following the Effective
Time. At the Effective Time, by virtue of the Merger and without any
action on the part of Alpha or any holder of Alpha 11% Senior
Subordinated Notes, each Alpha 11% Senior Subordinated Note shall be
assumed by the Surviving Corporation.
(vii) Other Securities. Except as provided in this Section
2.4(b) or in the Alpha Employee Agreements or as otherwise agreed to
by the parties, (A) at the Effective Time, the provisions of any
other plan, program or arrangement providing for the issuance or
grant of any other interest in respect of the capital stock of the
Alpha Companies shall become null and void, and (B) the Alpha
Companies shall use all reasonable efforts to ensure that, following
the Effective Time, no holder of options or rights or any
participant in any plan, program or arrangement shall have any right
thereunder to acquire any equity securities of the Alpha Companies,
Merger Sub, Lima or any direct or indirect subsidiary thereof.
(viii) Shares of Dissenting Stockholders. Any issued and
outstanding shares of Alpha Common Stock held by a Dissenting
Stockholder shall be converted into the right to receive such
consideration as may be determined to be due to such Dissenting
Stockholder pursuant to the DGCL; provided, however, shares of Alpha
Common Stock outstanding at the Effective Time and held by a
Dissenting Stockholder who shall, after the Effective Time, withdraw
his demand for appraisal or lose his right of appraisal as provided
in the DGCL, shall be deemed to be converted, as of the Effective
Time, into the right to receive the shares of Lima Common Stock and
the amount of cash (without interest) specified in Section
2.4(b)(i), in accordance with the procedures specified in Section
2.5(b). Alpha shall give Lima (A) prompt notice of any written
demand for appraisal, withdrawal of demand for appraisal and any
other instruments served pursuant to the DGCL received by Alpha, and
(B) the opportunity to direct all negotiations and proceedings with
respect to demand for appraisal under the DGCL. Alpha will not
voluntarily make any payment with respect to any demands for
appraisal and will not, except with the prior written consent of
Lima, settle or offer to settle any such demands.
- 12 -
<PAGE>
2.5 Exchange of Certificates.
(a) Exchange Fund. Immediately prior to the Effective Time, Lima
shall deposit with the Exchange Agent, for the benefit of the holders of
shares of Alpha Common Stock and Alpha Preferred Stock and for exchange in
accordance with this Agreement, certificates representing the shares of
Lima Common Stock and Lima Preferred Stock to be issued, and funds
necessary to pay the Cash Consideration, in exchange for shares of Alpha
Common Stock pursuant to Section 2.4(b)(i) and the Alpha Preferred Stock
pursuant to Section 2.4(b)(iii). Such shares of Lima Common Stock and Lima
Preferred Stock, together with any dividends or distributions with respect
thereto (as provided in Section 2.5(c)) and such funds, are referred to
herein as the "Exchange Fund." The Exchange Agent, pursuant to irrevocable
instructions consistent with the terms of this Agreement, shall deliver
the Lima Common Stock and Lima Preferred Stock and the Cash Consideration
to be issued or paid pursuant to Sections 2.4(b)(i) and 2.4(b)(iii) out of
the Exchange Fund, and the Exchange Fund shall not be used for any other
purpose whatsoever. The Exchange Agent shall not be entitled to vote or
exercise any rights of ownership with respect to the Lima Common Stock and
Lima Preferred Stock held by it from time to time hereunder, except that
it shall receive and hold all dividends or other distributions paid or
distributed with respect thereto for the account of Persons entitled
thereto.
(b) Exchange Procedures.
(i) As soon as reasonably practicable after the Effective
Time, Lima shall cause the Exchange Agent to mail to each holder of
record of an Alpha Certificate that, immediately prior to the
Effective Time, represented shares of Alpha Common Stock or Alpha
Preferred Stock, which was converted into the right to receive Lima
Common Stock and Cash Consideration pursuant to Section 2.4(b)(i) or
Lima Preferred Stock pursuant to Section 2.4(b)(iii), as applicable,
a letter of transmittal to be used to effect the exchange of such
Alpha Certificate for an applicable Lima Certificate (and cash in
lieu of fractional shares) and the Cash Consideration, along with
instructions for using such letter of transmittal to effect such
exchange. The letter of transmittal (or the instructions thereto)
shall specify that delivery of any Alpha Certificate shall be
effected, and risk of loss and title thereto shall pass, only upon
delivery of such Alpha Certificate to the Exchange Agent and shall
be in such form and have such other provisions as Lima may
reasonably specify.
(ii) Upon surrender to the Exchange Agent of an Alpha
Certificate for cancellation, together with a duly completed and
executed letter of transmittal and any other required documents
(including, in the case of any Person constituting an "affiliate" of
Alpha for purposes of Rule 145(c) and (d) under the Securities Act,
a written agreement from such Person as described in Section 5.9, if
not
- 13 -
<PAGE>
theretofore delivered to Lima), (A) the holder of such Alpha
Certificate shall be entitled to receive in exchange therefor a Lima
Certificate representing the number of whole shares of Lima Common
Stock and Cash Consideration that such holder has the right to
receive pursuant to Section 2.4(b)(i) or the number of shares of
Lima Preferred Stock that such holder has the right to receive
pursuant to Section 2.4(b)(iii), any cash in lieu of fractional
shares of Lima Common Stock as provided in Section 2.5(e), and any
unpaid dividends and distributions that such holder has the right to
receive pursuant to Section 2.5(c) (after giving effect to any
required withholding of taxes); and (B) the Alpha Certificate so
surrendered shall forthwith be canceled. No interest shall be paid
or accrued on the Cash Consideration, cash in lieu of fractional
shares and unpaid dividends and distributions, if any, payable to
holders of Alpha Certificates.
(iii) In the event of a transfer of ownership of Alpha Common
Stock or Alpha Preferred Stock that is not registered in the
transfer records of Alpha, a Lima Certificate representing the
appropriate number of shares of Lima Common Stock or shares of Lima
Preferred Stock and the appropriate Cash Consideration, if any
(along with any cash in lieu of fractional shares and any unpaid
dividends and distributions that such holder has the right to
receive), may be issued or paid to a transferee if the Alpha
Certificate representing such shares of Alpha Common Stock or Alpha
Preferred Stock is presented to the Exchange Agent accompanied by
all documents required to evidence and effect such transfer and to
evidence that any applicable stock transfer taxes have been paid.
(iv) Until surrendered as contemplated by this Section 2.5(b),
each Alpha Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive upon such
surrender a Lima Certificate representing shares of Lima Common
Stock and Cash Consideration as provided in Section 2.4(b)(i) or
shares of Lima Preferred Stock pursuant to Section 2.4(b)(iii) (in
each case, along with any cash in lieu of fractional shares and any
unpaid dividends and distributions).
(v) The procedure for exchange of Alpha Depositary Shares for
Lima Depositary Shares shall be governed by the Deposit Agreement.
(c) Distributions with Respect to Unexchanged Shares. No dividends
or other distributions with respect to Lima Common Stock or Lima Preferred
Stock declared or made after the Effective Time with a record date after
the Effective Time shall be paid to the holder of any unsurrendered Alpha
Certificate. Subject to the effect of applicable laws, (i) at the time of
the surrender of a Alpha Certificate for exchange in accordance with the
provisions of this Section 2.5, there shall be paid to the surrendering
holder, without interest, the amount of dividends or other distributions
(having a record date after the Effective Time but on or prior to
surrender and a payment date on or prior to surrender) theretofore paid
with respect to the number of whole shares of Lima Common
- 14 -
<PAGE>
Stock and Lima Preferred Stock that such holder is entitled to receive
(less the amount of any withholding taxes that may be required with
respect thereto); and (ii) at the appropriate payment date, there shall be
paid to the surrendering holder, without interest, the amount of dividends
or other distributions (having a record date after the Effective Time but
on or prior to surrender and a payment date subsequent to surrender)
payable with respect to the number of whole shares of Lima Common Stock
and Lima Preferred Stock that such holder receives (less the amount of any
withholding taxes that may be required with respect thereto).
(d) No Further Ownership Rights. All shares of Lima Common Stock and
Lima Preferred Stock issued, and the Cash Consideration paid, upon the
surrender for exchange of shares of Alpha Common Stock and Alpha Preferred
Stock in accordance with the terms hereof (including any cash paid
pursuant to Section 2.5(c) or (e)) shall be deemed to have been issued in
full satisfaction of all rights pertaining to such shares of Alpha Common
Stock and Alpha Preferred Stock. After the Effective Time, there shall be
no further registration of transfers on the Surviving Corporation's stock
transfer books of the shares of Alpha Common Stock or Alpha Preferred
Stock that were outstanding immediately prior to the Effective Time. If,
after the Effective Time, an Alpha Certificate is presented to the
Surviving Corporation for any reason, it shall be canceled and exchanged
as provided in this Section 2.5.
(e) Treatment of Fractional Shares. No Lima Certificates or scrip
representing fractional shares of Lima Common Stock shall be issued in the
Merger and, except as provided in this Section 2.5(e), no dividend or
other distribution, stock split or interest shall relate to any such
fractional share, and such fractional share shall not entitle the owner
thereof to vote or to any other rights of a stockholder of Lima. In lieu
of any fractional share of Lima Common Stock to which a holder of Alpha
Common Stock would otherwise be entitled, such holder, upon surrender of
an Alpha Certificate as described in this Section, shall be paid an amount
in cash (without interest) determined by multiplying (i) the Market Price
by (ii) the fraction of a share of Lima Common Stock to which such holder
would otherwise be entitled, in which case Lima shall make available to
the Exchange Agent, without regard to any other cash being provided to the
Exchange Agent, the amount of cash necessary to make such payments.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
and cash held by the Exchange Agent in accordance with the terms of this
Section 2.5 that remains unclaimed by the former stockholders of Alpha for
a period of one year following the Effective Time shall be delivered to
Lima, upon demand. Thereafter, any former stockholders of Alpha who have
not theretofore complied with the provisions of this Section 2.5 shall
look only to Lima for payment of their claim for Lima Common Stock, Lima
Preferred Stock, the Cash Consideration, any cash in lieu of fractional
shares of Lima Common Stock and any dividends or distributions with
respect to Lima Common Stock or Lima Preferred Stock (all without
interest).
- 15 -
<PAGE>
(g) No Liability. Neither Lima, Alpha, the Surviving Corporation,
the Exchange Agent nor any other Person shall be liable to any former
holder of shares of Alpha Common Stock or Alpha Preferred Stock for any
amount properly delivered to any public official pursuant to any
applicable abandoned property, escheat or similar law. Any amounts
remaining unclaimed by former holders of Alpha Common Stock or Alpha
Preferred Stock for a period of three years following the Effective Time
(or such earlier date immediately prior to the time at which such amounts
would otherwise escheat to or become property of any governmental entity)
shall, to the extent permitted by applicable law, become the property of
Lima, free and clear of any claims or interest of any such holders or
their successors, assigns or personal representatives previously entitled
thereto.
(h) Lost, Stolen, or Destroyed Alpha Certificates. If any Alpha
Certificate shall have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the Person claiming such Alpha Certificate to
be lost, stolen or destroyed and, if required by Lima, the posting by such
Person of a bond, in such reasonable amount as Lima may direct, as
indemnity against any claim that may be made against it with respect to
such Alpha Certificate, the Exchange Agent shall issue in exchange for
such lost, stolen or destroyed Alpha Certificate the shares of Lima Common
Stock, Lima Preferred Stock and the Cash Consideration (along with any
cash in lieu of fractional shares pursuant to Section 2.5(e), and any
unpaid dividends and distributions, if any, pursuant to Section 2.5(c))
deliverable with respect thereto pursuant to this Agreement.
2.6 Closing. The Closing shall take place on the Closing Date at 10:00
a.m., local time, at the offices of Crowe & Dunlevy, A Professional Corporation,
1800 Mid-America Tower, 20 North Broadway, Oklahoma City, Oklahoma, or at such
time and place as is otherwise agreed upon by Lima and Alpha.
2.7 Effective Time of the Merger. The Merger shall become effective
immediately when the Certificates of Merger are accepted for filing by the
respective Secretaries of State of Delaware and Oklahoma or at such time
thereafter as is provided in the Certificates of Merger (the "Effective Time").
As soon as practicable after the Closing, the Certificates of Merger shall be
filed, and the Effective Time shall occur, on the Closing Date; provided,
however, that the Certificates of Merger may be filed prior to the Closing Date
or prior to the Closing so long as it provides for an effective time that occurs
on the Closing Date immediately after the Closing.
2.8 Taking of Necessary Action; Further Action. Each of Lima, Merger Sub,
and Alpha shall use all reasonable efforts to take all such actions as may be
necessary or appropriate in order to effectuate the Merger under the DGCL and
the OGCA as promptly as commercially practicable. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of either of Merger Sub or Alpha, the officers and directors of
the Surviving Corporation are fully authorized, in the name of the Surviving
Corporation or otherwise to take, and shall take, all such lawful and necessary
action.
- 16 -
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ALPHA
Except as set forth in the Alpha Disclosure Schedule, Alpha hereby
represents and warrants to Lima and Merger Sub as follows:
3.1 Organization. Each of the Alpha Companies (a) is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation, (b) has the requisite power and authority to own, lease and
operate its properties and to conduct its business as it is presently being
conducted, and (c) is duly qualified to do business as a foreign corporation,
and is in good standing, in each jurisdiction where the character of the
properties owned or leased by it or the nature of its activities makes such
qualification necessary (except, in each case, where any failure to be so
qualified as a foreign corporation or to be in good standing would not,
individually or in the aggregate, have a Material Adverse Effect on Alpha).
Copies of the certificate or articles of incorporation and by-laws of each of
the Alpha Companies have heretofore been delivered to Lima, and such copies are
accurate and complete as of the date hereof.
3.2 Other Entities. Alpha has no direct or indirect equity interest in any
corporation, partnership, limited liability company, joint venture, business
association or other entity other than the entities included in the Alpha
Companies (other than joint venture, joint operating or ownership arrangements
entered into in the ordinary course of business or other partnerships that,
individually or in the aggregate, are not material to the operations or business
of the Alpha Companies, taken as a whole).
3.3 Authority and Enforceability. Alpha has the requisite corporate power
and authority to enter into and deliver this Agreement and (with respect to
consummation of the Merger, subject to the valid approval of this Agreement and
the Merger by the stockholders of Alpha) to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and (with
respect to consummation of the Merger, subject to the valid approval of this
Agreement and the Merger by the stockholders of Alpha) the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of Alpha, including approval by the board
of directors of Alpha, and no other corporate proceedings on the part of Alpha
are necessary to authorize the execution or delivery of this Agreement or (with
respect to consummation of the Merger, subject to the valid approval of this
Agreement and the Merger by the stockholders of Alpha) to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Alpha and (with respect to the Merger, subject to the
valid approval of this Agreement and the Merger by the stockholders of Alpha and
assuming that this Agreement constitutes a valid and binding obligation of Lima
and Merger Sub) constitutes a valid and binding obligation of Alpha enforceable
against Alpha in accordance with its terms.
- 17 -
<PAGE>
3.4 No Violations. The execution and delivery of this Agreement does not,
and the consummation of the transactions contemplated hereby and compliance by
Alpha with the provisions hereof will not, conflict with, result in any
violation of or default (with or without notice or lapse of time or both) under,
give rise to a right of termination, cancellation or acceleration of any
obligation or to the loss of a material benefit under, or result in the creation
of any Lien on any of the properties or assets of any of the Alpha Companies
under, any provision of (a) the certificate or articles of incorporation or
by-laws of any of the Alpha Companies, (b) any loan or credit agreement, note,
bond, mortgage, indenture, lease, permit, concession, franchise, license or
other agreement or instrument applicable to any of the Alpha Companies, or (c)
assuming the consents, approvals, authorizations or permits and filings or
notifications referred to in Section 3.5 are duly and timely obtained or made,
any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to any of the Alpha Companies or any of their respective properties
or assets, other than (y) in the case of clause (b) above, any such conflict,
violation, default, right, loss or Lien that may arise under the Bank Credit
Agreement and (z) in the case of clause (b) or (c) above, any such conflict,
violation, default, right, loss or Lien that, individually or in the aggregate,
would not have a Material Adverse Effect on Alpha.
3.5 Consents and Approvals. No consent, approval, order or authorization
of, registration, declaration or filing with, or permit from, any Governmental
Authority is required by or with respect to any of the Alpha Companies in
connection with the execution and delivery of this Agreement by Alpha or the
consummation by Alpha of the transactions contemplated hereby, except for the
following: (a) any such consent, approval, order, authorization, registration,
declaration, filing or permit which the failure to obtain or make would not,
individually or in the aggregate, have a Material Adverse Effect on Alpha; (b)
the filing of the Certificates of Merger with the respective Secretaries of
State of Delaware and Oklahoma pursuant to the provisions of the DGCL and the
OGCA; (c) the filing of a pre-merger notification report by Alpha under the HSR
Act and the expiration or termination of the applicable waiting period; (d) the
filing with the SEC of the Proxy Statement/Prospectus and such reports under
Section 13(a) of the Exchange Act and such other compliance with the Exchange
Act and the Securities Act and the rules and regulations of the SEC thereunder
as may be required in connection with this Agreement and the transactions
contemplated hereby and the obtaining from the SEC of such orders as may be so
required; (e) such filings and approvals as may be required by any applicable
state securities, "blue sky" or takeover laws or Environmental Laws; and (f)
such filings and approvals as may be required by any foreign pre-merger
notification, securities, corporate or other law, rule or regulation. No
Third-Party Consent is required by or with respect to any of the Alpha Companies
in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for (x) any such
Third-Party Consent which the failure to obtain would not, individually or in
the aggregate, have a Material Adverse Effect on Alpha, (y) the valid approval
of this Agreement and the Merger by the stockholders of Alpha, and (z) any
consent, approval or waiver required by the terms of the Bank Credit Agreement.
3.6 SEC Documents. Alpha has made available to Lima a true and complete
copy of each report, schedule, registration statement and definitive proxy
statement filed by Alpha with
- 18 -
<PAGE>
the SEC since December 31, 1994, and prior to the date of this Agreement (the
"Alpha SEC Documents"), which are all the documents (other than preliminary
material) that Alpha was required to file with the SEC since such date. As of
their respective dates, the Alpha SEC Documents complied in all material
respects with the requirements of the Securities Act or the Exchange Act, as the
case may be, and the rules and regulations of the SEC thereunder applicable to
such Alpha SEC Documents, and none of the Alpha SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
3.7 Financial Statements. The Alpha Financial Statements were, or will be,
prepared in accordance with the applicable published rules and regulations of
the SEC with respect thereto and in accordance with GAAP applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or, in the case of unaudited statements, as permitted by Rule 10-01 of
Regulation S-X of the SEC) and fairly present, or will fairly present, in
accordance with such requirements (in the case of the unaudited statements,
subject to normal, recurring adjustments which are not expected to be material),
the consolidated financial position of Alpha and its subsidiaries as of their
respective dates and the consolidated results of operations and the consolidated
cash flows of Alpha and its subsidiaries for the periods presented therein.
There are no material imbalances of production from the oil and gas properties
of any of the Alpha Companies whether required to be disclosed pursuant to GAAP
or otherwise.
3.8 Capital Structure.
(a) The authorized capital stock of Alpha consists of 50,000,000
shares of Alpha Common Stock and 100,000 shares of preferred stock, par
value $1.00 per share.
(b) As of the date hereof, there are issued and outstanding (i)
15,698,870 shares of Alpha Common Stock, (ii) 4,000 shares of Alpha
Preferred Stock and 800,000 Alpha Depositary Shares with respect thereto,
(iii) Alpha Stock Options relating to 1,071,168 shares of Alpha Common
Stock, (iv) Prudential Warrants relating to 356,489 shares of Alpha Common
Stock at an exercise price on the date of this Agreement of $20.20 per
share (subject to future adjustment pursuant to the terms of such
warrants), and (v) Institutional Warrants relating to 1,247,837 shares of
Alpha Common Stock at an exercise price on the date of this Agreement of
$15.01 per share (subject to future adjustment pursuant to the terms of
such warrants). No shares of Alpha Common Stock or Alpha Preferred Stock
(or Alpha Depositary Shares with respect thereto) are held by Alpha as
treasury stock.
(c) Except as set forth in Section 3.8(b) and as provided in the
Alpha Rights Agreement, there are outstanding (i) no shares of capital
stock or other voting securities of Alpha, (ii) no securities of Alpha or
any other Person convertible into or exchangeable or exercisable for
shares of capital stock or other voting securities of Alpha, and (iii) no
subscriptions, options, warrants, calls, rights (including preemptive
rights), commitments,
- 19 -
<PAGE>
understandings or agreements to which Alpha is a party or by which it is
bound obligating Alpha to issue, deliver, sell, purchase, redeem or
acquire shares of capital stock or other voting securities of Alpha (or
securities convertible into or exchangeable or exercisable for shares of
capital stock or other voting securities of Alpha) or obligating Alpha to
grant, extend or enter into any such subscription, option, warrant, call,
right, commitment, understanding or agreement.
(d) All outstanding shares of Alpha capital stock are validly
issued, fully paid and nonassessable and not subject to any preemptive
right.
(e) All outstanding shares of capital stock and other voting
securities of each entity (other than Alpha) included in the Alpha
Companies are owned, directly or indirectly, by Alpha, free and clear of
all Liens, claims and options of any nature. With respect to each entity
(other than Alpha) included in the Alpha Companies, there are outstanding
(i) no securities of any such entity or any other Person convertible into
or exchangeable or exercisable for shares of capital stock or other voting
securities of any such entity, and (ii) no subscriptions, options,
warrants, calls, rights (including preemptive rights), commitments,
understandings or agreements to which any of such entities is a party or
by which it is bound obligating any of such entities to issue, deliver,
sell, purchase, redeem or acquire shares of capital stock or other voting
securities of any of such entities (or securities convertible into or
exchangeable or exercisable for shares of capital stock or other voting
securities of any of such entities) or obligating any of such entities to
grant, extend or enter into any such subscription, option, warrant, call,
right, commitment, understanding or agreement.
(f) To the best knowledge of Alpha, there are no voting trusts,
proxies or other agreements or understandings with respect to the voting
of shares of capital stock of Alpha.
3.9 Absence of Certain Changes or Events. Since March 31, 1997, the Alpha
Companies have conducted their business only in the ordinary course of business
consistent with past practices and, since such date, there has not been any
event (financial or otherwise, whether or not in the ordinary course of
business), circumstance or condition (a) that would be reasonably likely to have
a Material Adverse Effect; or (b) that would have required the consent of Lima
pursuant to Section 5.1 had such event occurred prior to the date of this
Agreement (other than changes, including changes in commodity prices, generally
affecting the oil and gas industry and changes arising from the announcement of
the Merger).
3.10 Compliance with Laws, Material Agreements and Permits. None of the
Alpha Companies is in violation of, or in default under, and no event has
occurred that (with notice or the lapse of time or both) would constitute a
violation of or default under, (a) its certificate or articles of incorporation
or by-laws, (b) any applicable law, rule, regulation, order, writ, decree or
judgment of any Governmental Authority, or (c) any Alpha Material Agreement,
except (in the case of clause (b) or (c) above) for any violation or default
that would not, individually or
- 20 -
<PAGE>
in the aggregate, have a Material Adverse Effect on Alpha. Each of the Alpha
Companies has obtained and holds all permits, licenses, variances, exemptions,
orders, franchises, approvals and authorizations of all Governmental Authorities
necessary for the lawful conduct of its business or the lawful ownership, use
and operation of its assets ("Alpha Permits"), except for Alpha Permits which
the failure to obtain or hold would not, individually or in the aggregate, have
a Material Adverse Effect on Alpha. Each of the Alpha Companies is in compliance
with the terms of its Alpha Permits, except where the failure to comply would
not, individually or in the aggregate, have a Material Adverse Effect on Alpha.
No investigation or review by any Governmental Authority with respect to any of
the Alpha Companies is pending or, to the knowledge of Alpha, threatened, other
than those the outcome of which would not, individually or in the aggregate,
have a Material Adverse Effect on Alpha. To the knowledge of Alpha, no party to
any Alpha Material Agreement is in material breach of the terms, provisions and
conditions of such Alpha Material Agreement.
3.11 Governmental Regulation. None of the Alpha Companies is subject to
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Interstate Commerce Act, the Investment Company Act of 1940 or
any state public utilities laws.
3.12 Litigation. There is no litigation, arbitration, investigation or
other proceeding of any Governmental Authority pending or, to the knowledge of
Alpha, threatened against any of the Alpha Companies or their respective assets
which, if adversely determined, could reasonably be expected to have a Material
Adverse Effect on Alpha. Alpha has no knowledge of any facts that are likely to
give rise to any litigation, arbitration, investigation or other proceeding of
any Governmental Authority which, individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect on Alpha. No Alpha Company
is subject to any outstanding injunction, judgment, order, decree or ruling
(other than routine oil and gas field regulatory orders and any injunction,
judgment, order, decree or ruling that, either individually or in the aggregate,
would not have a Material Adverse Effect). There is no litigation, proceeding or
investigation pending or, to the knowledge of Alpha, threatened against or
affecting any of the Alpha Companies that questions the validity or
enforceability of this Agreement or any other document, instrument or agreement
to be executed and delivered by Alpha in connection with the transactions
contemplated hereby. For purposes of this Section 3.12 only, a Material Adverse
Effect on Alpha shall not be deemed to occur unless any litigation, arbitration,
investigation or other proceeding would result in liabilities of the Alpha
Companies in excess of $5 million.
3.13 No Restrictions. None of the Alpha Companies is a party to (a) any
agreement, indenture or other instrument that contains restrictions with respect
to the payment of dividends or other distributions with respect to its capital,
(b) any financial arrangement with respect to or creating any indebtedness for
borrowed money or indebtedness classified as debt under GAAP to any Person
(other than indebtedness reflected in the Alpha Financial Statements or
indebtedness for borrowed money or indebtedness classified as debt under GAAP
incurred in the ordinary course of business), (c) any agreement, contract or
commitment relating to the making of any advance to, or investment in, any
Person (other than advances in the ordinary course of business and to
wholly-owned subsidiaries), (d) any guaranty or other contingent liability with
- 21 -
<PAGE>
respect to any indebtedness or obligation of any Person (other than guaranties
undertaken in the ordinary course of business and other than the endorsement of
negotiable instruments for collection in the ordinary course of business), or
(e) any agreement, contract or commitment limiting in any respect its ability to
compete with any Person or otherwise conduct business of any line or nature.
3.14 Taxes.
(a) Each of the Alpha Companies and any affiliated, combined or
unitary group of which any such corporation is or was a member has (i)
timely filed all material federal, state, local and foreign returns,
declarations, reports, estimates, information returns and statements ("Tax
Returns") required to be filed by it with respect to any Taxes, and each
such Tax Return was true, correct and complete in all material respects,
(ii) timely paid all material Taxes that are due and payable (except for
Taxes that are being contested in good faith by appropriate proceedings
and for which sufficient reserves have been established in accordance with
GAAP) for which any of the Alpha Companies may be liable, and (iii)
complied in all material respects with all applicable laws, rules and
regulations relating to the payment and withholding of Taxes, and has
timely withheld from employee wages and paid over to the proper
governmental authorities all amounts required to be so withheld and paid
over.
(b) No audits or other administrative or court proceedings are
presently pending with regard to any Taxes for which any of the Alpha
Companies would be liable. There are no pending requests for rulings from
any taxing authority, no outstanding subpoenas or requests for information
by any taxing authority with respect to any Taxes, no proposed
reassessments by any taxing authority of any property owned or leased, and
no agreements in effect to extend the time to file any material Tax Return
or the period of limitations for the assessment or collection of any
material Taxes for which any of the Alpha Companies would be liable.
(c) Except as set forth in the Alpha SEC Documents, none of the
Alpha Companies is a party to, is bound by or has any obligation under any
tax sharing or allocation agreement or similar agreement or arrangement.
(d) There are no material excess loss accounts or deferred
intercompany transactions between Alpha and/or any of its subsidiaries
within the meaning of Treas. Reg. Section 1.1502-19 or 1.1502-13,
respectively.
3.15 Employee Benefit Plans.
(a) Section 3.15 to the Alpha Disclosure Schedule includes (i) a
list of all of Alpha's material "employee benefit plans," as defined in
Section 3(3) of ERISA, and all other material severance, termination,
change in control, sick leave, vacation pay, salary continuation for
disability, consulting, employment, compensation, retirement, deferred
- 22 -
<PAGE>
compensation, bonus, long-term incentive, stock option, stock purchase,
hospitalization, medical insurance, life insurance and scholarship
programs, plans, arrangements or agreements maintained by any of the Alpha
Companies or to which any of the Alpha Companies contributes or is
obligated to contribute for the benefit of any current or former employee,
consultant or director of any of the Alpha Companies, or with respect to
which any of the Alpha Companies would incur material liability under
Section 4069, 4212(c) or 4204 of ERISA (the "Alpha Employee Benefit
Plans"); (ii) a true and complete list of all Alpha Stock Options granted
pursuant to the Alpha Stock Compensation Plans including names of
optionees, grant date, option price and number of shares covered thereby;
(iii) a list of all outstanding awards, including holders, of Alpha
Restricted Shares and Alpha Restricted Units; and (iv) a true and correct
list of all severance or change in control payments payable to any
employee or group of employees of any of the Alpha Companies payable upon
any termination of employment or as a result of the execution and delivery
of this Agreement or the consummation of the transactions contemplated
hereby, including the name and amount payable for any officer and the
aggregate amount payable to all other employees broken down by department.
(b) There is no violation of ERISA with respect to the filing of
applicable reports, documents and notices regarding any Alpha Employee
Benefit Plan with any Governmental Authority or the furnishing of such
documents to the participants or beneficiaries of the Alpha Employee
Benefit Plans that is reasonably likely to have a Material Adverse Effect
on the Alpha Companies. With respect to the Alpha Employee Benefit Plans,
there exists no condition or set of circumstances in connection with the
Alpha Companies that could be expected to result in liability reasonably
likely to have a Material Adverse Effect on the Alpha Companies under
ERISA, the Code or any applicable law. With respect to the Alpha Employee
Benefit Plans, individually and in the aggregate, there are no unfunded
benefit obligations which have not been accounted for by reserves, or
otherwise properly footnoted in accordance with GAAP, on the financial
statements of the Alpha Companies, which obligations are reasonably likely
to have a Material Adverse Effect on the Alpha Companies.
(c) The Alpha Employee Benefit Plans have been maintained in
accordance with their terms and in accordance with all applicable federal
and state laws, and none of the Alpha Companies has engaged in any
"prohibited transaction" within the meaning of Section 4975 of the Code,
except where the violation of any such term or law or the occurrence of a
prohibited transaction would not be reasonably likely to have a Material
Adverse Effect on the Alpha Companies.
3.16 Environmental Matters. Except for any event, circumstance or
condition that would not have a Material Adverse Effect:
(a) Each of the Alpha Companies has conducted its business and
operated its assets, and is conducting its business and operating its
assets, in material compliance with all Environmental Laws;
- 23 -
<PAGE>
(b) None of the Alpha Companies has been notified by any
Governmental Authority or other third party that any of the operations or
assets of any of the Alpha Companies is the subject of any investigation
or inquiry by any Governmental Authority or other third party evaluating
whether any material remedial action is needed to respond to a release or
threatened release of any Hazardous Material or to the improper storage or
disposal (including storage or disposal at offsite locations) of any
Hazardous Material;
(c) None of the Alpha Companies and no other Person has filed any
notice under any federal, state or local law indicating that (i) any of
the Alpha Companies is responsible for the improper release into the
environment, or the improper storage or disposal, of any Hazardous
Material, or (ii) any Hazardous Material is improperly stored or disposed
of upon any property of any of the Alpha Companies;
(d) None of the Alpha Companies has any material contingent
liability in connection with (i) the release or threatened release into
the environment at, beneath or on any property now or previously owned or
leased by any of the Alpha Companies, or (ii) the storage or disposal of
any Hazardous Material;
(e) None of the Alpha Companies has received any claim, complaint,
notice, inquiry or request for information involving any matter which
remains unresolved as of the date hereof with respect to any alleged
violation of any Environmental Law or regarding potential liability under
any Environmental Law relating to operations or conditions of any
facilities or property (including off-site storage or disposal of any
Hazardous Material from such facilities or property) currently or formerly
owned, leased or operated by any of the Alpha Companies;
(f) There are no sites, locations or operations at which any of the
Alpha Companies is currently undertaking, or has completed, any remedial
or response action relating to any such disposal or release, as required
by Environmental Laws; and
(g) All underground storage tanks and solid waste disposal
facilities owned or operated by the Alpha Companies are used and operated
in material compliance with Environmental Laws.
3.17 Brokers. Other than Prudential Securities, Inc., no broker, finder,
investment banker or other Person is or will be, in connection with the
transactions contemplated by this Agreement, entitled to any brokerage, finder's
or other fee or compensation based on any arrangement or agreement made by or on
behalf of Alpha and for which Alpha, Lima, any of the Alpha Companies or Lima
Companies will have any obligation or liability. A copy of any agreement between
Alpha and Prudential Securities, Inc. relating to this Agreement or the Merger
has been provided to Lima.
- 24 -
<PAGE>
3.18 Vote Required. The affirmative vote of (a) the holders of a majority
of the outstanding shares of Alpha Common Stock and Alpha Preferred Stock (or
Alpha Depositary Shares with respect thereto), voting together as a single class
in the manner provided in the certificate of designation relating to the Alpha
Preferred Stock filed with the Secretary of State of Delaware and (b) the
holders of at least two-thirds of the outstanding shares of Alpha Preferred
Stock (or Alpha Depositary Shares with respect thereto), are the only votes of
the holders of any class or series of Alpha capital stock or other voting
securities necessary to approve this Agreement, the Merger and the transactions
contemplated hereby.
3.19 Amendment to Alpha Rights Agreement.
(a) The Board of Directors of Alpha has taken, or will take, all
necessary action to amend the Alpha Rights Agreement so that none of the
execution and delivery of this Agreement and the consummation of the
Merger or any other transaction contemplated hereby will cause (i) the
rights issuable or issued pursuant to the Alpha Rights Agreement (the
"Alpha Rights") to become exercisable under the Alpha Rights Agreement,
(ii) Lima or any of its affiliates to be deemed an "Acquiring Person" (as
defined in the Alpha Rights Agreement), (iii) any such event to be deemed
a "Triggering Event" (as defined in the Alpha Rights Agreement) or (iv)
the "Stock Acquisition Date" (as defined in the Alpha Rights Agreement) to
occur upon any such event.
(b) As of the date of this Agreement, the Alpha Rights have not
separated from the Alpha Common Stock and no distribution of Rights
Certificates (as defined in the Alpha Rights Agreement) will occur as a
result of the execution of this Agreement or the consummation of the
transactions contemplated hereby.
3.20 Opinion of Financial Advisor. The Board of Directors of Alpha has
received the opinion dated as of the date hereof of Prudential Securities, Inc.
addressed to such Board (a copy of which has been provided to Lima for
information purposes only) that, as of such date, the Conversion Number and the
Cash Consideration are fair from a financial point of view to the holders of
Alpha Common Stock.
3.21 Affiliate Transactions. Other than as disclosed in the Alpha SEC
Documents, there are no transactions between Alpha and any of its Affiliates
(other than directly or indirectly wholly-owned subsidiaries of Alpha) pending
or proposed, except such transactions as are in the ordinary course of business
consistent with past practices and that would not be in violation of the
restrictions upon transactions with Affiliates set forth in Section 5.1(i)
below. There are no agreements pursuant to which any of the Alpha Companies are
obligated to indemnify any of the persons described in Section 5.13(a) other
than any obligation under the certificate of incorporation or bylaws of any
Alpha Company which are not materially broader in scope than the provisions of
the certificate of incorporation and bylaws of Alpha as contained in the Alpha
SEC Documents.
- 25 -
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF LIMA AND MERGER SUB
Except as set forth in the Lima Disclosure Schedule, Lima hereby
represents and warrants to Alpha as follows:
4.1 Organization. Each of the Lima Companies and Merger Sub (a) is a
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation, (b) has the requisite power and authority to own,
lease and operate its properties and to conduct its business as it is presently
being conducted, and (c) is duly qualified to do business as a foreign
corporation, and is in good standing, in each jurisdiction where the character
of the properties owned or leased by it or the nature of its activities makes
such qualification necessary (except, in each case, where any failure to be so
qualified as a foreign corporation or to be in good standing would not,
individually or in the aggregate, have a Material Adverse Effect on Lima).
Copies of the Certificate of Incorporation and Bylaws of each of the Lima
Companies and Merger Sub have heretofore been delivered to Alpha, and such
copies are accurate and complete as of the date hereof.
4.2 Other Entities. Lima has no direct or indirect equity interest in any
corporation, partnership, limited liability company, joint venture, business
association or other entity other than the entities included in the Lima
Companies (other than joint venture, joint operating or ownership arrangements
entered into in the ordinary course of business or other partnerships that,
individually or in the aggregate, are not material to the operations or business
of the Lima Companies, taken as a whole).
4.3 Authority and Enforceability. Each of Lima and Merger Sub has the
requisite corporate power and authority to enter into and deliver this Agreement
and (with respect to consummation of this Agreement and the Merger, subject to
the approval by the stockholders of Lima) to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and (with
respect to consummation of this Agreement and the Merger, subject to the
approval by the stockholders of Lima) the consummation of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of Lima and Merger Sub, including approval by the
board of directors of Lima and the board of directors and stockholders of Merger
Sub, and no other corporate proceedings on the part of Lima or Merger Sub are
necessary to authorize the execution or delivery of this Agreement or (with
respect to consummation of this Agreement and the Merger, subject to the
approval by the stockholders of Lima) to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Lima and Merger Sub and (with respect to consummation of this
Agreement and the Merger, subject to the approval by the stockholders of Lima,
and assuming that this Agreement constitutes a valid and binding obligation of
Alpha) constitutes a valid and binding obligation of each of Lima and Merger Sub
enforceable against each of them in accordance with its terms.
- 26 -
<PAGE>
4.4 No Violations. The execution and delivery of this Agreement does not,
and the consummation of the transactions contemplated hereby and compliance by
Lima and Merger Sub with the provisions hereof will not, conflict with, result
in any violation of or default (with or without notice or lapse of time or both)
under, give rise to a right of termination, cancellation or acceleration of any
obligation or to the loss of a material benefit under, or result in the creation
of any Lien on any of the properties or assets of any of the Lima Companies,
including Merger Sub, under, any provision of (a) the Certificate of
Incorporation or Bylaws of any of the Lima Companies, including Merger Sub, (b)
any loan or credit agreement, note, bond, mortgage, indenture, lease, permit,
concession, franchise, license or other agreement or instrument applicable to
any of the Lima Companies, including Merger Sub, or (c) assuming the consents,
approvals, authorizations or permits and filings or notifications referred to in
Section 4.5 are duly and timely obtained or made, any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to any of the Lima
Companies, including Merger Sub, or any of their respective properties or
assets, other than, in the case of clause (b) or (c) above, any such conflict,
violation, default, right, loss or Lien that, individually or in the aggregate,
would not have a Material Adverse Effect on Lima.
4.5 Consents and Approvals. No consent, approval, order or authorization
of, registration, declaration or filing with, or permit from, any Governmental
Authority is required by or with respect to any of the Lima Companies or Merger
Sub in connection with the execution and delivery of this Agreement by Lima and
Merger Sub or the consummation by Lima and Merger Sub of the transactions
contemplated hereby, except for the following: (a) any such consent, approval,
order, authorization, registration, declaration, filing or permit which the
failure to obtain or make would not, individually or in the aggregate, have a
Material Adverse Effect on Lima; (b) the filing of the Certificates of Merger
with the respective Secretaries of State of Delaware and Oklahoma pursuant to
the provisions of the DGCL and the OGCA; (c) the filing of a pre-merger
notification report by Lima under the HSR Act and the expiration or termination
of the applicable waiting period; (d) the filing with the SEC of the
Registration Statement and such reports under Section 13(a) of the Exchange Act
and such other compliance with the Exchange Act and the Securities Act and the
rules and regulations of the SEC thereunder as may be required in connection
with this Agreement and the transactions contemplated hereby and the obtaining
from the SEC of such orders as may be so required; (e) the filing with the NYSE
of a listing application relating to the shares of Lima Common Stock and Lima
Depositary Shares to be issued pursuant to the Merger and the obtaining from the
NYSE of its approvals thereof; (f) such filings and approvals as may be required
by any applicable state securities, "blue sky" or takeover laws or Environmental
Laws; and (g) such filings and approvals as may be required by any foreign
pre-merger notification, securities, corporate or other law, rule or regulation.
No Third-Party Consent is required by or with respect to any of the Lima
Companies, including Merger Sub, in connection with the execution and delivery
of this Agreement or the consummation of the transactions contemplated hereby,
except for (x) any such Third-Party Consent which the failure to obtain would
not, individually or in the aggregate, have a Material Adverse Effect on Lima,
and (y) the valid approval of this Agreement and the Merger by the stockholders
of Lima.
- 27 -
<PAGE>
4.6 SEC Documents. Lima has made available to Alpha a true and complete
copy of each report, schedule, registration statement and definitive proxy
statement filed by Lima with the SEC since December 31, 1994, and prior to the
date of this Agreement (the "Lima SEC Documents"), which are all the documents
(other than preliminary material) that Lima was required to file with the SEC
since such date. As of their respective dates, the Lima SEC Documents complied
in all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such Lima SEC Documents, and none of the Lima SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
4.7 Financial Statements. The Lima Financial Statements were, or will be,
prepared in accordance with the applicable published rules and regulations of
the SEC with respect thereto and in accordance with GAAP applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or, in the case of unaudited statements, as permitted by Rule 10-01 of
Regulation S-X of the SEC) and fairly present, or will fairly present, in
accordance with such requirements (in the case of the unaudited statements,
subject to normal, recurring adjustments which are not expected to be material),
the consolidated financial position of Lima and its subsidiaries as of their
respective dates and the consolidated results of operations and the consolidated
cash flows of Lima and its subsidiaries for the periods presented therein. There
are no material imbalances of production from the oil and gas properties of any
of the Lima Companies whether required to be disclosed pursuant to GAAP or
otherwise.
4.8 Capital Structure.
(a) The authorized capital stock of Lima consists of 100,000,000
shares of Lima Common Stock and 10,000,000 shares of preferred stock, par
value $.01 per share, of Lima. The authorized capital stock of Merger Sub
consists of 1,000 shares of Merger Sub Common Stock.
(b) As of the date hereof, (i) there are issued and outstanding
27,802,000 shares of Lima Common Stock and no shares of Lima Preferred
Stock and (ii) 963,500 shares of Lima Common Stock are issuable upon
exercise of outstanding stock options. No shares of Lima Common Stock are
held by Lima as treasury stock.
(c) Except as set forth in Section 4.8(b), there are outstanding (i)
no shares of capital stock or other voting securities of Lima, (ii) no
securities of Lima or any other Person convertible into or exchangeable or
exercisable for shares of capital stock or other voting securities of
Lima, and (iii) no subscriptions, options, warrants, calls, rights
(including preemptive rights), commitments, understandings or agreements
to which Lima is a party or by which it is bound obligating Lima to issue,
deliver, sell, purchase, redeem or acquire shares of capital stock or
other voting securities of Lima (or securities convertible into or
exchangeable or exercisable for shares of capital stock or other voting
- 28 -
<PAGE>
securities of Lima) or obligating Lima to grant, extend or enter into any
such subscription, option, warrant, call, right, commitment, understanding
or agreement.
(d) All outstanding shares of Lima capital stock are, and (when
issued) the shares of Lima Common Stock to be issued pursuant to the
Merger and issuable upon conversion of the Lima Preferred Stock and
exercise of the Alpha Warrants will be, validly issued, fully paid and
nonassessable and not subject to any preemptive right.
(e) 1,000 shares of Merger Sub Common Stock are issued and
outstanding, all of which are owned by Lima. All outstanding shares of
Merger Sub Common Stock are validly issued, fully paid and nonassessable
and not subject to any preemptive right.
(f) Other than the agreement of Lima Holdings Corp. to vote for this
Agreement and the Merger referred to elsewhere in this Agreement, to the
best knowledge of Lima, there are no voting trusts, proxies or other
agreements or understandings with respect to the voting of shares of
capital stock of Lima.
4.9 Absence of Certain Changes or Events. Since March 31, 1997, the Lima
Companies have conducted their business only in the ordinary course of business
consistent with past practices and, since such date, there has not been any
event (financial or otherwise, whether or not in the ordinary course of
business), circumstance or condition (a) that would be reasonably likely to have
a Material Adverse Effect; or (b) that would have required the consent of Alpha
pursuant to Section 5.1 had such event occurred prior to the date of this
Agreement (other than changes, including changes in commodity prices, generally
affecting the oil and gas industry and changes arising from the announcement of
the Merger).
4.10 Compliance with Laws, Material Agreements and Permits. None of the
Lima Companies is in violation of, or in default under, and no event has
occurred that (with notice or the lapse of time or both) would constitute a
violation of or default under, (a) its certificate or articles of incorporation
or by-laws, (b) any applicable law, rule, regulation, order, writ, decree or
judgment of any Governmental Authority, or (c) any Lima Material Agreement,
except (in the case of clause (b) or (c) above) for any violation or default
that would not, individually or in the aggregate, have a Material Adverse Effect
on Lima. Each of the Lima Companies has obtained and holds all permits,
licenses, variances, exemptions, orders, franchises, approvals and
authorizations of all Governmental Authorities necessary for the lawful conduct
of its business or the lawful ownership, use and operation of its assets ("Lima
Permits"), except for Lima Permits which the failure to obtain or hold would
not, individually or in the aggregate, have a Material Adverse Effect on Lima.
Each of the Lima Companies is in compliance with the terms of its Lima Permits,
except where the failure to comply would not, individually or in the aggregate,
have a Material Adverse Effect on Lima. No investigation or review by any
Governmental Authority with respect to any of the Lima Companies is pending or,
to the knowledge of Lima, threatened, other than those the outcome of which
would not, individually or in the aggregate, have a Material Adverse Effect on
Lima. To the knowledge of Lima, no
- 29 -
<PAGE>
party to any Lima Material Agreement is in material breach of the terms,
provisions and conditions of such Lima Material Agreement.
4.11 Governmental Regulation. None of the Lima Companies is subject to
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Interstate Commerce Act, the Investment Company Act of 1940 or
any state public utilities laws.
4.12 Litigation. There is no litigation, arbitration, investigation or
other proceeding of any Governmental Authority pending or, to the knowledge of
Lima, threatened against any of the Lima Companies or their respective assets
which, if adversely determined, could reasonably be expected to have a Material
Adverse Effect on Lima. Lima has no knowledge of any facts that are likely to
give rise to any litigation, arbitration, investigation or other proceeding of
any Governmental Authority which, individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect on Lima. No Lima Company is
subject to any outstanding injunction, judgment, order, decree or ruling (other
than routine oil and gas field regulatory orders and any injunction, judgment,
order, decree or ruling that, either individually or in the aggregate, would not
have a Material Adverse Effect). There is no litigation, proceeding or
investigation pending or, to the knowledge of Lima, threatened against or
affecting any of the Lima Companies, including Merger Sub, that questions the
validity or enforceability of this Agreement or any other document, instrument
or agreement to be executed and delivered by Lima or Merger Sub in connection
with the transactions contemplated hereby.
4.13 No Restrictions. None of the Lima Companies is a party to (a) any
agreement, indenture or other instrument that contains restrictions with respect
to the payment of dividends or other distributions with respect to its capital,
(b) any financial arrangement with respect to or creating any indebtedness for
borrowed money or indebtedness classified as debt under GAAP to any Person
(other than indebtedness reflected in the Lima Financial Statements or
indebtedness for borrowed money or indebtedness classified as debt under GAAP
incurred in the ordinary course of business), (c) any agreement, contract or
commitment relating to the making of any advance to, or investment in, any
Person (other than advances in the ordinary course of business and to
wholly-owned subsidiaries), (d) any guaranty or other contingent liability with
respect to any indebtedness or obligation of any Person (other than guaranties
undertaken in the ordinary course of business and other than the endorsement of
negotiable instruments for collection in the ordinary course of business), or
(e) any agreement, contract or commitment limiting in any respect its ability to
compete with any Person or otherwise conduct business of any line or nature.
4.14 Taxes.
(a) Each of the Lima Companies and any affiliated, combined or
unitary group of which any such corporation is or was a member has (i)
timely filed all material Tax Returns required to be filed by it with
respect to any Taxes, and each such Tax Return was true, correct and
complete in all material respects, (ii) timely paid all material Taxes
that are due and payable (except for Taxes that are being contested in
good faith by appropriate proceedings and for which sufficient reserves
have been established in
- 30 -
<PAGE>
accordance with GAAP) for which any of the Lima Companies may be liable,
and (iii) complied in all material respects with all applicable laws,
rules and regulations relating to the payment and withholding of Taxes,
and has timely withheld from employee wages and paid over to the proper
governmental authorities all amounts required to be so withheld and paid
over.
(b) No audits or other administrative or court proceedings are
presently pending with regard to any Taxes for which any of the Lima
Companies would be liable. There are no pending requests for rulings from
any taxing authority, no outstanding subpoenas or requests for information
by any taxing authority with respect to any Taxes, no proposed
reassessments by any taxing authority of any property owned or leased, and
no agreements in effect to extend the time to file any material Tax Return
or the period of limitations for the assessment or collection of any
material Taxes for which any of the Lima Companies would be liable.
(c) No Lima Company has entered into any compensatory agreements
which would result in a nondeductible expense pursuant to Section 280G or
162(m) of the Code.
(d) Except as set forth in the Lima SEC Documents, none of the Lima
Companies is a party to, is bound by or has any obligation under any tax
sharing or allocation agreement or similar agreement or arrangement.
4.15 Employee Benefit Plans.
(a) Section 4.15 to the Lima Disclosure Schedule includes a list of
all material "employee benefit plans," as defined in Section 3(3) of
ERISA, and all other material severance, termination, change in control,
sick leave, vacation pay, salary continuation for disability, consulting,
employment, compensation, retirement, deferred compensation, bonus,
long-term incentive, stock option, stock purchase, hospitalization,
medical insurance, life insurance and scholarship programs, plans,
arrangements or agreements maintained by any of the Lima Companies or to
which any of the Lima Companies contributes or is obligated to contribute
for the benefit of any current or former employee, consultant or director
of any of the Lima Companies, or with respect to which any of the Lima
Companies would incur material liability under Section 4069, 4212(c) or
4204 of ERISA (the "Lima Employee Benefit Plans").
(b) There is no violation of ERISA with respect to the filing of
applicable reports, documents and notices regarding any Lima Employee
Benefit Plan with any Governmental Authority or the furnishing of such
documents to the participants or beneficiaries of the Lima Employee
Benefit Plans that is reasonably likely to have a Material Adverse Effect
on the Lima Companies. With respect to the Lima Employee Benefit Plans,
there exists no condition or set of circumstances in connection with the
Lima Companies that could be expected to result in liability reasonably
likely to have a Material Adverse Effect on the Lima Companies under
ERISA, the Code or any
- 31 -
<PAGE>
applicable law. With respect to the Lima Employee Benefit Plans,
individually and in the aggregate, there are no unfunded benefit
obligations which have not been accounted for by reserves, or otherwise
properly footnoted in accordance with GAAP, on the financial statements of
the Lima Companies, which obligations are reasonably likely to have a
Material Adverse Effect on the Lima Companies.
(c) The Lima Employee Benefit Plans have been maintained in
accordance with their terms and in accordance with all applicable federal
and state laws, and none of the Lima Companies has engaged in any
"prohibited transaction" within the meaning of Section 4975 of the Code,
except where the violation of any such term or law or the occurrence of a
prohibited transaction would not be reasonably likely to have a Material
Adverse Effect on the Lima Companies.
(d) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will result in any
payment becoming due to any employee or group of employees of any of the
Lima Companies.
4.16 Environmental Matters. Except for any event, circumstance or
condition that would not have a Material Adverse Effect:
(a) Each of the Lima Companies has conducted its business and
operated its assets, and is conducting its business and operating its
assets, in material compliance with all Environmental Laws;
(b) None of the Lima Companies has been notified by any Governmental
Authority or other third party that any of the operations or assets of any
of the Lima Companies is the subject of any investigation or inquiry by
any Governmental Authority or other third party evaluating whether any
material remedial action is needed to respond to a release or threatened
release of any Hazardous Material or to the improper storage or disposal
(including storage or disposal at offsite locations) of any Hazardous
Material;
(c) None of the Lima Companies and no other Person has filed any
notice under any federal, state or local law indicating that (i) any of
the Lima Companies is responsible for the improper release into the
environment, or the improper storage or disposal, of any Hazardous
Material, or (ii) any Hazardous Material is improperly stored or disposed
of upon any property of any of the Lima Companies;
(d) None of the Lima Companies has any material contingent liability
in connection with (i) the release or threatened release into the
environment at, beneath or on any property now or previously owned or
leased by any of the Lima Companies, or (ii) the storage or disposal of
any Hazardous Material;
(e) None of the Lima Companies has received any claim, complaint,
notice, inquiry or request for information involving any matter which
remains unresolved as of
- 32 -
<PAGE>
the date hereof with respect to any alleged violation of any Environmental
Law or regarding potential liability under any Environmental Law relating
to operations or conditions of any facilities or property (including
off-site storage or disposal of any Hazardous Material from such
facilities or property) currently or formerly owned, leased or operated by
any of the Lima Companies;
(f) There are no sites, locations or operations at which any of the
Lima Companies is currently undertaking, or has completed, any remedial or
response action relating to any such disposal or release, as required by
Environmental Laws; and
(g) All underground storage tanks and solid waste disposal
facilities owned or operated by the Lima Companies are used and operated
in material compliance with Environmental Laws.
4.17 Interim Operations of Merger Sub. Merger Sub was formed solely for
the purpose of engaging in the transactions contemplated by this Agreement and
has not engaged in any business or activity (or conducted any operations) of any
kind, entered into any agreement or arrangement with any person or entity, or
incurred, directly or indirectly, any material liabilities or obligations,
except in connection with its incorporation, the negotiation of this Agreement,
the Merger and the transactions contemplated hereby.
4.18 Brokers. Other than Salomon Brothers Inc., no broker, finder,
investment banker or other Person is or will be, in connection with the
transactions contemplated by this Agreement, entitled to any brokerage, finder's
or other fee or compensation based on any arrangement or agreement made by or on
behalf of Lima or Merger Sub and for which Alpha, Lima or any of the Alpha
Companies or Lima Companies, including Merger Sub, will have any obligation or
liability. A copy of any agreement between Lima and Salomon Brothers Inc.
relating to this Agreement or the Merger has been provided to Alpha.
4.19 Opinion of Financial Advisor. The Board of Directors of Lima has
received the opinion dated as of the date hereof of Salomon Brothers Inc.
addressed to such Board (a copy of which has been provided to Alpha for
information purposes only) that, as of such date, the consideration to be paid
in the Merger is fair from a financial point of view to Lima.
4.20 Certain Lima Gas Contracts. Lima has provided or made available to
Alpha complete and accurate copies of each of the Lima gas contracts listed in
Section 4.20 of the Lima Disclosure Schedule as in effect on the date of this
Agreement.
4.21 Affiliate Transactions. Other than as disclosed in the Lima SEC
Documents, there are no transactions between Lima and any of its Affiliates
(other than directly or indirectly wholly- owned subsidiaries of Lima) pending
or proposed, except such transactions as are in the ordinary course of business
consistent with past practices and that would not be in violation of the
restrictions upon transactions with Affiliates set forth in Section 5.1(i)
below.
- 33 -
<PAGE>
ARTICLE V
COVENANTS
5.1 Conduct of Business Pending Closing. Prior to the Effective Time (i)
Alpha agrees as to the Alpha Companies that (except as expressly contemplated or
permitted by this Agreement, or to the extent that Lima shall otherwise consent
in writing) and (ii) Lima agrees as to the Lima Companies that (except as
expressly contemplated or permitted by this Agreement, or to the extent that
Alpha shall otherwise consent in writing) (for purposes of this Section 5.1
Alpha and Lima each being a "Party"):
(a) Ordinary Course. Each Party and its respective subsidiaries
shall carry on its businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted and shall use all
commercially reasonable efforts to preserve intact its present business
organizations, keep available the services of its current officers and
employees, and endeavor to preserve its relationships with customers,
suppliers and others having business dealings with it.
(b) Dividends; Changes in Stock. Except for transactions solely
among a Party and its subsidiaries, a Party shall not and it shall not
permit any of its respective subsidiaries to: (i) declare or pay any
dividends on or make other distributions in respect of any of its capital
stock or partnership interests, except in the case of Alpha, for the
declaration and payment of regular cash dividends with respect to the
Alpha Preferred Stock in accordance with its terms; (ii) split, combine or
reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of such Party's capital stock; or (iii)
repurchase, redeem or otherwise acquire, or permit any of its subsidiaries
to purchase, redeem or otherwise acquire, any shares of its capital stock,
except as required by the terms of its securities outstanding on the date
hereof or as contemplated by any existing employee benefit plan.
(c) Issuance of Securities. A Party shall not and it shall not
permit any of its subsidiaries to, issue, deliver or sell, or authorize or
propose to issue, deliver or sell, any shares of its capital stock of any
class, or other voting securities or any securities convertible into, or
any rights, warrants or options to acquire, any such shares, other voting
securities or convertible securities, other than: (i) in the case of
Alpha, (x) the issuance of Alpha Common Stock upon the exercise of Alpha
Warrants or Alpha Stock Options that are outstanding on the date hereof,
(y) issuances by a wholly owned subsidiary of Alpha of such subsidiary's
capital stock to its parent, and (z) the issuance of Alpha Common Stock
upon the conversion of the Alpha Preferred Stock in accordance with its
terms; and (ii) in the case of Lima (y) the issuance of Lima Common Stock
upon the exercise of stock options granted under the Lima Stock Option
Plan that are outstanding on the date hereof, and (z) issuances by a
wholly owned subsidiary of Lima of such subsidiary's capital stock to its
parent.
- 34 -
<PAGE>
(d) Governing Documents. Except as contemplated hereby or in
connection herewith, no Party shall amend its certificate or articles of
incorporation or bylaws.
(e) No Acquisitions. A Party shall not, and it shall not permit any
of its subsidiaries to, acquire or agree to acquire by merging or
consolidating with, or by purchasing any equity interest in or any of the
assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof, other than (i) in the case of Alpha, any such acquisition or
acquisitions having a purchase price not exceeding $1,000,000 in the
aggregate; and (ii) in the case of Lima, any such acquisition or
acquisitions having a purchase price not exceeding $3,000,000 in the
aggregate.
(f) No Dispositions. Other than: (i) as may be necessary or required
by law to consummate the transactions contemplated hereby or (ii) sales,
leases, encumbrances or other dispositions in the ordinary course of
business consistent with past practice that are not material, individually
or in the aggregate, to a Party and its subsidiaries taken as a whole, a
Party shall not, and it shall not permit any of its subsidiaries to, sell,
lease, encumber or otherwise dispose of, or agree to sell, lease (whether
such lease is an operating or capital lease), encumber or otherwise
dispose of, any of its material assets.
(g) No Dissolution, Etc. Except as otherwise permitted or
contemplated by this Agreement, neither Party shall authorize, recommend,
propose or announce an intention to adopt a plan of complete or partial
liquidation or dissolution of such Party or any of its subsidiaries,
except that either Party may merge any of its subsidiaries into itself or
another directly or indirectly wholly-owned subsidiary.
(h) Accounting. Neither Party shall, nor shall either Party permit
any of its subsidiaries to, make any changes in their accounting methods
which would be required to be disclosed under the rules and regulations of
the SEC, except as required by law, rule, regulation or GAAP.
(i) Affiliate Transactions. Neither Party shall, nor shall either
Party permit any of its subsidiaries to, enter into any agreement or
arrangement with any of their respective Affiliates other than with wholly
owned subsidiaries of such Party, on terms less favorable to such Party or
such subsidiary, as the case may be, than could be reasonably expected to
have been obtained with an unaffiliated third party on an arm's-length
basis.
(j) Certain Employee Matters. Except as otherwise required by law, a
Party shall not and it shall not permit any of its subsidiaries to: (i)
pay any bonuses to (whether in cash or property), or grant any increases
in the compensation of, any of its directors, officers or employees,
except increases in salary to employees who are not directors or officers
made in the ordinary course of business and in accordance with past
practice; (ii) pay or agree to pay any material pension, retirement
allowance or other employee benefit not required or contemplated by any of
the existing Alpha Employee Benefit Plans or
- 35 -
<PAGE>
Lima Employee Benefit Plans as applicable, in each case as in effect on
the date hereof to any such director, officer or employee, whether past or
present; (iii) enter into any new, or amend any existing, material
employment or severance or termination agreement with any director,
officer or employee; (iv) grant any options or other awards under the
Alpha Stock Compensation Plans or Lima Stock Option Plan, as applicable,
or any other equity or incentive plan of Alpha or Lima; or (v) become
obligated under any new Alpha Employee Benefit Plan, or any new Lima
Employee Benefit Plan which was not in existence prior to the date hereof,
or amend any such plan or arrangement in existence on the date hereof if
such amendment would have the effect of materially enhancing any benefits
thereunder.
(k) Indebtedness; Leases; Capital Expenditures. No Party shall, nor
shall any Party permit any of its subsidiaries to, (i) incur any
indebtedness for borrowed money (except (x) to finance any transactions or
capital or other expenditures permitted by this Agreement and regular
borrowings under credit facilities made in the ordinary course of such
Party's business, (y) refinancings of existing debt and (z) immaterial
borrowings that, in each such case, permit prepayment of such debt without
penalty (other than LIBOR breakage costs)) or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities of such Party or any of its subsidiaries or
guarantee any debt securities of others (other than directly or indirectly
wholly-owned subsidiaries), (ii) except in the ordinary course of
business, enter into any material lease (whether such lease is an
operating or capital lease) or create any material mortgages, liens,
security interests or other encumbrances on the property of such Party or
any of its subsidiaries in connection with any indebtedness thereof, or
(iii) make or commit to make aggregate capital expenditures not described
in the Alpha SEC Documents or Lima SEC Documents in excess, in the case of
each of Alpha and Lima, of an amount equal to the sum of (A) capital
expenditures budgeted by such Party for the fiscal year ending December
31, 1997 as set forth in the capital expenditure budgets delivered to the
other Party, less any budgeted capital expenditures expended prior to the
date of this Agreement, plus (B) capital expenditures (not otherwise
included in budgeted capital expenditures) that may be incurred in
connection with the acquisitions by Alpha and Lima, as applicable,
permitted under Section 5.1(e). Each Party shall consult with the other in
advance prior to actually committing to make budgeted capital expenditures
relating to a single project or field not specifically identified in the
budget in excess of $1,000,000 for Alpha or in excess of $3,000,000 for
Lima.
(l) Material Agreements. No Party shall, nor shall any Party permit
any of its subsidiaries to, (i) enter into any new Alpha Material
Agreement or Lima Material Agreement, as applicable, not contemplated by
the budgeted capital expenditures described in Section 5.1(k) or (ii)
amend, modify or alter any existing Alpha Material Agreement or Lima
Material Agreement, as applicable, in a manner materially adverse to Alpha
or Lima, as applicable.
- 36 -
<PAGE>
(m) Agreements. No Party shall, nor shall any Party permit any of
its subsidiaries to, agree in writing or otherwise to take any action
inconsistent with any of the foregoing.
5.2 Access to Assets, Personnel and Information.
(a) From the date hereof until the Effective Time, Alpha shall
afford to Lima and the Lima Representatives, at Lima's sole risk and
expense, reasonable access to any of the assets, books and records,
contracts, employees, representatives, agents and facilities of the Alpha
Companies and shall, upon request, furnish promptly to Lima (at Lima's
expense) a copy of any file, book, record, contract, permit,
correspondence, or other written information, document or data concerning
any of the Alpha Companies (or any of their respective assets) that is
within the possession or control of Alpha.
(b) From the date hereof until the Effective Time, Lima shall afford
to Alpha and the Alpha Representatives, at Alpha's sole risk and expense,
reasonable access to any of the assets, books and records, contracts,
employees, representatives, agents and facilities of the Lima Companies
and shall, upon request, furnish promptly to Alpha (at Alpha's expense) a
copy of any file, book, record, contract, permit, correspondence, or other
written information, document or data concerning any of the Lima Companies
(or any of their respective assets) that is within the possession or
control of Lima.
(c) From the date hereof until the Effective Time, Alpha will fully
and accurately disclose, and will cause each of the other Alpha Companies
to fully and accurately disclose, to Lima and the Lima Representatives all
information that is (i) reasonably requested by Lima or any of the Lima
Representatives, (ii) known to any of the Alpha Companies, and (iii)
relevant in any material manner or degree to the value, ownership, use,
operation, development or transferability of the assets of any of the
Alpha Companies.
(d) From the date hereof until the Effective Time, Lima will fully
and accurately disclose to Alpha and the Alpha Representatives all
information that is (i) reasonably requested by Alpha or any of the Alpha
Representatives, (ii) known to any of the Lima Companies, and (iii)
relevant in any manner or degree to the value, ownership, use, operation,
development or transferability of the assets of any of the Lima Companies.
(e) From the date hereof until the Effective Time, each of Lima and
Alpha shall (i) furnish to the other, promptly upon receipt or filing (as
the case may be), a copy of each communication between such party and the
SEC after the date hereof relating to the Merger or the Registration
Statement and each report, schedule, registration statement or other
document filed by such party with the SEC after the date hereof relating
to the Merger, and (ii) promptly advise the other of the substance of any
oral communications between such party and the SEC relating to the Merger
or the Registration Statement.
- 37 -
<PAGE>
(f) Alpha will (and will cause each of the other Alpha Companies and
the Alpha Representatives to) fully cooperate in all reasonable respects
with Lima and the Lima Representatives in connection with Lima's
examinations, evaluations and investigations described in this Section
5.2, and Lima will (and will cause the Lima Representatives to) fully
cooperate in all reasonable respects with Alpha and the Alpha
Representatives in connection with Alpha's examinations, evaluations and
investigations described in this Section 5.2.
(g) Alpha agrees that it will not (and will cause the Alpha
Representatives not to), and Lima agrees that it will not (and will cause
the Lima Representatives not to), use any information obtained pursuant to
this Section 5.2 for any purpose unrelated to the consummation of the
transactions contemplated by this Agreement.
(h) Notwithstanding anything in this Section 5.2 to the contrary,
(i) Alpha shall not be obligated under the terms of this Section 5.2 to
disclose to Lima or the Lima Representatives, or grant Lima or the Lima
Representatives access to, information that is within Alpha's possession
or control but subject to a valid and binding confidentiality agreement
with a third party without first obtaining the consent of such third
party, and Alpha, to the extent reasonably requested by Lima, will use its
reasonable best efforts to obtain any such consent; and (ii) Lima shall
not be obligated under the terms of this Section 5.2 to disclose to Alpha
or the Alpha Representatives, or grant Alpha or the Alpha Representatives
access to, information that is within Lima's possession or control but
subject to a valid and binding confidentiality agreement with a third
party without first obtaining the consent of such third party, and Lima,
to the extent reasonably requested by Alpha, will use its reasonable best
efforts to obtain any such consent.
5.3 No Solicitation by Alpha.
(a) Immediately following the execution of this Agreement, Alpha
will (and will use its reasonable best efforts to cause each of the Alpha
Representatives to) terminate any and all existing activities, discussions
and negotiations with third parties with respect to any possible
transaction involving any proposal to acquire all or any part of the Alpha
Common Stock, Alpha Preferred Stock or all or any material portion of the
assets, business or equity interest of Alpha (other than the transactions
contemplated by this Agreement), whether by merger, purchase of assets,
tender offer, exchange offer or otherwise.
(b) Alpha will not (and will use its reasonable best efforts to
cause the Alpha Representatives not to), directly or indirectly (i)
solicit, initiate or knowingly encourage the submission of any offer or
proposal to acquire all or more than fifteen (15) percent of the Alpha
Common Stock, Alpha Preferred Stock or all or any material portion of the
assets, business or equity interest of Alpha (other than the transactions
contemplated by this Agreement), whether by merger, purchase of assets,
tender offer, exchange offer or otherwise (a "Competing Proposal"); (ii)
engage in negotiations or discussions concerning
- 38 -
<PAGE>
or provide any non-public information to any Person relating to a
Competing Proposal; or (iii) agree to, approve or recommend, or otherwise
facilitate any effort or attempt to make or implement, any Competing
Proposal, or withdraw its recommendation of the Merger, provided, however,
that (i) Alpha's Board of Directors may take and disclose to the
stockholders of Alpha a position contemplated by Rule 14e-2(a) promulgated
under the Exchange Act with regard to the Competing Proposal and (ii)
following receipt from a third party (without any solicitation, initiation
or encouragement, directly or indirectly, by Alpha or any Alpha
Representatives) of a bona fide written Competing Proposal, (x) Alpha may
engage in discussions or negotiations with such third party and may
furnish such third party non-public information concerning it, and its
business, properties and assets if such third party executes a
confidentiality agreement in reasonably customary form and on terms,
including so called "standstill" provisions, at least as restrictive as
those contained in the Confidentiality Agreement and (y) the Board of
Directors of Alpha may recommend such Competing Proposal or withdraw,
modify or not make its recommendation referred to in Section 5.4, if and
only to the extent that (1) Alpha's Board of Directors determines in good
faith based on advice of Alpha's financial advisor that such Competing
Proposal, if consummated, would result in a transaction more favorable to
Alpha's stockholders from a financial point of view than the transaction
contemplated by this Agreement (a "Superior Proposal") and that the Person
making such Superior Proposal has the financial means, or the ability to
obtain the necessary financing, to conclude such transaction; and (2)
Alpha's Board of Directors determines in good faith based on the advice of
Alpha's outside counsel that such action is necessary in order for Alpha's
Board of Directors to act in a manner that is consistent with its
fiduciary obligations under applicable law.
(c) Alpha shall promptly notify Lima after receipt by Alpha or the
Alpha Representatives of any Competing Proposal, any inquiries indicating
that any person is considering making or wishes to make a Competing
Proposal or any requests for nonpublic information.
(d) Nothing in this Section 5.3 shall permit Alpha to terminate this
Agreement except as specifically provided in Section 7.1.
5.4 Alpha Stockholders Meeting. Alpha shall take all action necessary in
accordance with applicable law and its certificate of incorporation and by-laws
to convene a meeting of its stockholders as promptly as practicable after the
date hereof for the purpose of voting on this Agreement and the Merger. The
Board of Directors of Alpha shall recommend approval of this Agreement and the
Merger (unless Alpha's Board of Directors determines in good faith based on the
advice of Alpha's outside counsel that such action is inconsistent with its
fiduciary obligations under applicable law, subject, however, to the provisions
of Article VII hereof) and shall take all lawful action to solicit such
approval, including timely mailing the Proxy Statement/Prospectus to the
stockholders of Alpha. Notwithstanding the above, however, the mailing of the
Proxy Statement/Prospectus shall be subject to the condition that Alpha shall
have received an opinion (reasonably acceptable in form and substance to Alpha)
from Shearman & Sterling (or such other
- 39 -
<PAGE>
firm as is reasonably acceptable to Alpha) to the effect that (i) the Merger
will be treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code, (ii) each of Lima, Alpha and Merger Sub
will be a party to such reorganization within the meaning of Section 368(b) of
the Code, (iii) no gain or loss will be recognized by Lima, Alpha or Merger Sub
as a result of the Merger, and (iv) no gain or loss, except with respect to the
amount of Cash Consideration received (and cash received in lieu of fractional
shares), will be recognized by a stockholder of Alpha as a result of the Merger
with respect to the shares of Alpha Common Stock converted into shares of Lima
Common Stock or the shares of Alpha Preferred Stock converted into shares of
Lima Preferred Stock, and such opinion shall not have been withdrawn, revoked or
modified. Such opinion may be based upon representations of the parties and
shareholders of the parties.
5.5 Lima Stockholders Meeting. Lima shall take all action necessary in
accordance with applicable law and its certificate of incorporation and bylaws
to convene a meeting of its stockholders as promptly as practicable after the
date hereof for the purpose of voting on this Agreement and the Merger. The
Board of Directors of Lima shall recommend approval of this Agreement and the
Merger and shall take all lawful action to solicit such approval, including
timely mailing the Proxy Statement/Prospectus to the stockholders of Lima.
Notwithstanding the above, however, the mailing of the Proxy Statement/
Prospectus shall be subject to the condition that Lima shall have received an
opinion of the type described in Section 5.4 from counsel as is reasonably
acceptable to Lima and such opinion shall not have been withdrawn, revoked or
modified.
5.6 Registration Statement and Proxy Statement/Prospectus.
(a) Lima and Alpha shall cooperate and promptly prepare the
Registration Statement, Lima and Alpha shall file the Proxy
Statement/Prospectus as soon as practicable after the date hereof and Lima
shall file the Registration Statement with the SEC as soon as practicable
thereafter. Lima shall use its best efforts, and Alpha shall cooperate
with Lima (including furnishing all information concerning Alpha and the
holders of Alpha Common Stock as may be reasonably requested by Lima), to
have the Registration Statement declared effective under the Securities
Act as promptly as practicable after such filing. Lima shall use its best
efforts, and Alpha shall cooperate with Lima, to obtain all necessary
state securities laws or "blue sky" permits, approvals and registrations
in connection with the issuance of Lima Common Stock pursuant to the
Merger.
(b) Lima and Alpha will cause the Registration Statement (including
the Proxy Statement/ Prospectus), at the time it becomes effective under
the Securities Act, to comply as to form in all material respects with the
applicable provisions of the Securities Act, the Exchange Act and the
rules and regulations of the SEC thereunder.
(c) Alpha hereby covenants and agrees with Lima that (i) the
Registration Statement (at the time it becomes effective under the
Securities Act and at the Effective
- 40 -
<PAGE>
Time) will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading (provided, however, that this clause
(i) shall apply only to information contained in the Registration
Statement that was supplied by Alpha specifically for inclusion therein);
and (ii) the Proxy Statement/Prospectus (at the time it is first mailed to
stockholders of Alpha and Lima, at the time of the Alpha Meeting and the
Lima Meeting, and at the Effective Time) will not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading
(provided, however, that this clause (ii) shall not apply to any
information contained in the Proxy Statement/ Prospectus that was supplied
by Lima specifically for inclusion therein). If, at any time prior to the
Effective Time, any event with respect to Alpha, or with respect to other
information supplied by Alpha specifically for inclusion in the
Registration Statement, occurs and such event is required to be described
in an amendment to the Registration Statement, Alpha shall promptly notify
Lima of such occurrence and shall cooperate with Lima in the preparation
and filing of such amendment. If, at any time prior to the Effective Time,
any event with respect to Alpha, or with respect to other information
included in the Proxy Statement/Prospectus, occurs and such event is
required to be described in a supplement to the Proxy
Statement/Prospectus, such event shall be so described and such supplement
shall be promptly prepared, filed and disseminated.
(d) Lima hereby covenants and agrees with Alpha that (i) the
Registration Statement (at the time it becomes effective under the
Securities Act and at the Effective Time) will not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading (provided, however, that this clause (i) shall not apply to any
information contained in the Registration Statement that was supplied by
Alpha specifically for inclusion therein); and (ii) the Proxy
Statement/Prospectus (at the time it is first mailed to stockholders of
Alpha and Lima, at the time of the Alpha Meeting and the Lima Meeting, and
at the Effective Time) will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading (provided,
however, that this clause (ii) shall apply only to information contained
in the Proxy Statement/ Prospectus that was supplied by Lima specifically
for inclusion therein). If, at any time prior to the Effective Time, any
event with respect to Lima, or with respect to other information included
in the Registration Statement, occurs and such event is required to be
described in an amendment to the Registration Statement, such event shall
be so described and such amendment shall be promptly prepared and filed.
If, at any time prior to the Effective Time, any event with respect to
Lima, or with respect to other information supplied by Lima specifically
for inclusion in the Proxy Statement/Prospectus, occurs and such event is
required to be described in a supplement to the Proxy
Statement/Prospectus, Lima shall promptly notify Alpha of such occurrence
- 41 -
<PAGE>
and shall cooperate with Alpha in the preparation, filing and
dissemination of such supplement.
(e) Neither the Registration Statement nor the Proxy
Statement/Prospectus nor any amendment or supplement thereto will be filed
or disseminated to the stockholders of Alpha or Lima without the approval
of both Lima and Alpha. Lima shall advise Alpha, promptly after it
receives notice thereof, of the time when the Registration Statement has
become effective under the Securities Act, the issuance of any stop order
with respect to the Registration Statement, the suspension of the
qualification of the Lima Common Stock issuable in connection with the
Merger for offering or sale in any jurisdiction, or any comments or
requests for additional information by the SEC with respect to the
Registration Statement.
5.7 Stock Exchange Listing. Lima shall cause the shares of Lima Common
Stock to be issued in the Merger, the shares of Lima Common Stock issuable upon
conversion of the Lima Preferred Stock to be issued in the Merger, the shares of
Lima Common Stock issuable upon exercise of the Alpha Warrants assumed by Lima
in connection with the Merger, and the Lima Preferred Stock and/or Lima
Depositary Shares, as applicable, to be issued in the Merger to be approved for
listing on the NYSE, subject to official notice of issuance, prior to the
Closing Date.
5.8 Additional Arrangements. Subject to the terms and conditions herein
provided, each of Alpha and Lima shall take, or cause to be taken, all action
and shall do, or cause to be done, all things necessary, appropriate or
desirable under the HSR Act and any other applicable laws and regulations or
under applicable governing agreements to consummate and make effective the
transactions contemplated by this Agreement, including using its best efforts to
obtain all necessary waivers, consents and approvals and effecting all necessary
registrations and filings. Each of Alpha and Lima shall take, or cause to be
taken, all action or shall do, or cause to be done, all things necessary,
appropriate or desirable to cause the covenants and conditions applicable to the
transactions contemplated hereby to be performed or satisfied as soon as
practicable. In addition, if any Governmental Authority shall have issued any
order, decree, ruling or injunction, or taken any other action that would have
the effect of restraining, enjoining or otherwise prohibiting or preventing the
consummation of the transactions contemplated hereby, each of Alpha and Lima
shall use its reasonable efforts to have such order, decree, ruling or
injunction or other action declared ineffective as soon as practicable.
5.9 Agreements of Affiliates. At least 30 days prior to the Effective
Time, Alpha shall cause to be prepared and delivered to Lima a list identifying
all Persons who, at the time of the Alpha Meeting, may be deemed to be
"affiliates" of Alpha as that term is used in paragraphs (c) and (d) of Rule 145
under the Securities Act. Alpha shall use its best efforts to cause each Person
who is identified as an affiliate of Alpha in such list to execute and deliver
to Lima, on or prior to the Closing Date, a written agreement, in the form
attached hereto as Exhibit "5.9" (if such Person has not executed and delivered
an agreement substantially to the same effect contemporaneously with the
execution of this Agreement). Lima shall be entitled to place legends as
specified in such agreements on the Lima Certificates representing any Lima
Common Stock
- 42 -
<PAGE>
or Lima Preferred Stock (or Depositary Shares with respect thereto) to be issued
to such Persons in the Merger.
5.10 Public Announcements. Prior to the Closing, Alpha and Lima will
consult with each other before issuing any press release or otherwise making any
public statements with respect to the transactions contemplated by this
Agreement and shall not issue any press release or make any such public
statement prior to obtaining the approval of the other party; provided, however,
that such approval shall not be required where such release or announcement is
required by applicable law or the rules of the NYSE; and provided further, that
either Alpha or Lima may respond to inquiries by the press or others regarding
the transactions contemplated by this Agreement, so long as such responses are
consistent with such party's previously issued press releases.
5.11 Notification of Certain Matters. Alpha shall give prompt notice to
Lima of (a) any representation or warranty contained in Article III being untrue
or inaccurate when made, (b) the occurrence of any event or development that
would cause (or could reasonably be expected to cause) any representation or
warranty contained in Article III to be untrue or inaccurate on the Closing
Date, or (c) any failure of Alpha to comply with or satisfy any covenant,
condition, or agreement to be complied with or satisfied by it hereunder. Lima
shall give prompt notice to Alpha of (x) any representation or warranty
contained in Article IV being untrue or inaccurate when made, (y) the occurrence
of any event or development that would cause (or could reasonably be expected to
cause) any representation or warranty contained in Article IV to be untrue or
inaccurate on the Closing Date, or (z) any failure of Lima to comply with or
satisfy any covenant, condition, or agreement to be complied with or satisfied
by it hereunder.
5.12 Payment of Expenses. Except as otherwise provided in Section 7.3,
each party hereto shall pay its own expenses incident to preparing for, entering
into and carrying out this Agreement and the consummation of the transactions
contemplated hereby, whether or not the Merger shall be consummated, except that
(a) the fee for filing the Registration Statement with the SEC shall be borne by
Lima; (b) the costs and expenses associated with printing the Proxy
Statement/Prospectus shall be borne equally by Lima and Alpha; and (c) the costs
and expenses associated with mailing the Proxy Statement/Prospectus to the
stockholders of (i) Alpha, and soliciting the votes of the stockholders of
Alpha, shall be borne by Alpha, and (ii) Lima, and soliciting the votes of the
stockholders of Lima, shall be borne by Lima.
5.13 Indemnification.
(a) For a period of six (6) years after the Effective Time, Lima and
the Surviving Corporation shall, to the fullest extent permitted under
applicable law, indemnify and hold harmless, each present and former
director or officer of the Alpha Companies and each such person who served
at the request of Alpha or any Alpha Company as a director, officer,
trustee, partner, fiduciary, employee or agent of Alpha or of another
corporation, partnership, joint venture, trust, pension or other employee
benefit plan or enterprise against all costs and expenses (including
reasonable attorneys fees),
- 43 -
<PAGE>
judgments, fines, losses, claims, damages, liabilities and settlement
amounts paid in connection with any claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time),
whether civil, administrative or investigative, arising out of or
pertaining to any action or omission in their capacity as an officer,
director, employee, agent or other person to whom this section applies, in
each case occurring before the Effective Time, including the transactions
contemplated by this Agreement; provided, however, that neither Lima nor
the Surviving Corporation shall be liable for any amounts in connection
with any settlement effected by any indemnified party without Lima's prior
written consent (which consent shall not be unreasonably withheld).
Without limiting the foregoing, in the event of any such claim, action,
suit, proceeding or investigation, Lima or the Surviving Corporation shall
pay the fees and expenses of counsel selected by any such indemnified
party, which counsel shall be reasonably satisfactory to Lima and the
Surviving Corporation, as the case may be, promptly after statements
therefor are received (unless Lima or the Surviving Corporation shall
elect to defend such action). If Lima or the Surviving Corporation shall
elect to defend any such action, Lima and the Surviving Corporation shall
have the right to control the investigation, defense and/or settlement of
each such action or matter, at its cost and expense, including use of
counsel of its choice reasonably satisfactory to the indemnified party;
provided, however, that Lima and the Surviving Corporation will consult
with the indemnified party and take the views of the indemnified party
into consideration in effecting or rejecting any settlement; provided,
further, that if both Lima or the Surviving Corporation and any
indemnified party are parties to any litigation, such indemnified party
shall be entitled to retain separate counsel if there are actual or
potential conflicts of interest between such indemnified party and Lima or
the Surviving Corporation, as the case may be; provided, further, that
neither Lima nor the Surviving Corporation shall enter into any settlement
of any action or matter, except for any action relating solely to money
damages that includes a complete and unconditional release of such
indemnified party, without the prior written consent of such indemnified
party which consent shall not be unreasonably withheld. Lima and the
Surviving Corporation and any indemnified party shall cooperate with each
other in connection with the investigation and defense of any action or
matter for which indemnification is provided under this Section 5.13(a).
(b) From and after the Effective Time, Lima and the Surviving
Corporation shall continue and guarantee the continuation of the rights to
indemnification, including provisions relating to advances of expenses
incurred in defense of any action or suit, and exculpation from liability
existing in favor of the parties so indemnified in the Certificate of
Incorporation and Bylaws of Alpha as in effect on the date of this
Agreement with respect to matters occurring through the Effective Time for
a period of six (6) years from the Effective Time.
(c) In the event Lima or the Surviving Corporation or any of their
respective successor or assigns (i) consolidates with or merges with or
into any other person and shall not be the continuing or surviving
corporation or entity in such consolidation or merger or (ii) transfers
all or substantially all of its properties and assets to any person,
- 44 -
<PAGE>
then, in each case proper provision shall be made so that the successors
and assigns of Lima or the Surviving Corporation, as the case may be,
honor the indemnification obligations set forth in this Section 5.13.
(d) The obligations of Lima and the Surviving Corporation under this
Section 5.13 shall not be terminated or modified in such manner as to
adversely affect any indemnified party without the consent of the affected
indemnified party (it being expressly agreed that each such indemnified
party shall be a third party beneficiary of this Section 5.13).
5.14 Alpha Employees.
(a) As soon as reasonably practicable after the Effective Time, Lima
shall provide employee benefit plans and arrangements to active employees
of the Alpha Companies that are the same as, or substantially the
equivalent of, the employee benefit plans and arrangements of the Lima
Companies as in effect immediately prior to the Effective Time or as may
be modified or terminated from time to time thereafter by Lima. Pending
such action, Lima shall, or shall cause the Surviving Corporation to,
maintain the effectiveness of the Alpha Benefit Plans. From and after the
Effective Time, Lima shall also honor, and shall cause the Alpha Companies
to honor, in accordance with their terms, all employment and severance
agreements and arrangements which apply to employees of the Alpha
Companies as disclosed in the Alpha Disclosure Schedule. Lima further
agrees that the employees of the Alpha Companies shall be credited for
their actual and credited service with the Alpha Companies for purposes of
eligibility, vesting and benefit accrual (except in the case of a defined
benefit pension plan) in the employee plans provided by Lima. Such
employees' benefits under Lima's medical benefit plan shall not be subject
to any exclusions for any pre-existing conditions, and credit shall be
received for any deductibles or out-of-pocket amounts previously paid.
(b) As soon as practicable after the Effective Time, the
participants in the Alpha annual incentive and bonus plans for 1997 will
be paid a pro-rata cash bonus through the Effective Time determined by the
Board of Directors of Alpha, which bonuses shall not exceed in any event a
total of $750,000.
5.15 Board of Directors of Lima Following Effective Time. Lima and Alpha
shall take such action as may be necessary or advisable (including seeking
approval of such matters as may be necessary or advisable at the Lima Meeting
and including a solicitation of proxies for such matters in the Proxy
Statement/Prospectus) to ensure that, immediately after the Effective Time, the
Board of Directors of Lima shall consist of not more than eleven individuals,
including three individuals acceptable to Lima who shall be designated by Alpha,
including Mark Andrews (who shall be appointed as Vice Chairman of the Board of
Directors and shall serve on the Executive Committee of the Board of Directors
of Lima), and to cause such persons (or such substitute nominees as may be
designated by Mark Andrews and acceptable to Lima) to be nominated for
- 45 -
<PAGE>
reelection at the next annual meeting of the stockholders of Lima, each to serve
until his or her respective successor shall be duly elected and shall qualify.
5.16 Employee Agreements; Certain Payments.
(a) Lima will enter into, and Alpha will use reasonable best efforts
to cause each of the employees of Alpha listed in Section 5.16(a) of the
Alpha Disclosure Schedule to enter into, agreements of employment or
retention in the forms attached to the Alpha Disclosure Schedule (the
"Alpha Employee Agreements").
(b) At the Effective Time, Alpha shall make the payments in amounts
no greater than set forth in Section 5.16(b) of the Alpha Disclosure
Schedule to the employees listed therein and, as a condition to receipt of
any such payment by any such employee, such employee must agree, in form
satisfactory to Lima, to waive any rights to any severance payments for
any termination of employment occurring within two years after the
Effective Time, except as may be otherwise specifically provided in any of
the Alpha Employee Agreements.
5.17 Tax-Free Reorganization. Subject to the terms and conditions hereof,
Alpha and Lima shall each use its best efforts to cause the Merger to be treated
as a reorganization within the meaning of Section 368(a) of the Code and to
obtain the opinions of counsel referred to in Sections 5.4 and 5.5 to such
effect.
5.18 Alpha Rights Plan. Unless and until this Agreement is terminated in
accordance with its terms, Alpha shall maintain the Alpha Rights Agreement in
effect and shall not make any other amendments or modifications, except such
amendments or modifications that are contemplated by Section 3.19 and such other
amendments or modifications that (a) would not adversely affect this Agreement,
the Merger or the transactions contemplated hereby and (b) would not (1)
facilitate or permit the acquisition by any Person of 15% of the outstanding
Alpha Common Stock without such Person becoming an "Acquiring Person" pursuant
to the Alpha Rights Agreement or (2) otherwise modify or impair the operation of
the Alpha Rights Plan in a manner that would diminish the anti-takeover effects
thereof.
5.19 Restructuring of Reorganization. If, as a result of any facts
relating to Alpha, Lima or their respective shareholders, either of the opinions
required by Section 5.4 or 5.5 are not obtained or if either of the conditions
to closing in Section 6.2(d) or 6.3(c) are not either satisfied or waived by the
party entitled to waive such condition, Alpha and Lima shall use their
reasonable best efforts to restructure the transaction contemplated by this
Agreement pursuant to which (a) Lima will cause there to be organized a newly
created holding company corporation ("Newco") with a certificate of
incorporation and bylaws substantially equivalent to those of Lima as of the
date hereof; (b) the holders of Lima Common Stock will receive one share of
common stock ("Newco Common Stock") of Newco in exchange for each share of Lima
Common Stock as a result of a merger of a newly created subsidiary of Newco with
and into Lima; and (c) another newly created subsidiary of Newco will be merged
with and into Alpha and the terms
- 46 -
<PAGE>
of this Agreement shall apply to such merger except that Newco Common Stock and
Newco Preferred Stock shall be issued to Alpha security holders in lieu of the
Lima Common Stock and Lima Preferred Stock issuable hereunder and the Alpha
Warrants shall be exercisable for shares of Newco Common Stock instead of Lima
Common Stock. In such event, this Agreement shall be deemed to be appropriately
modified to reflect such restructuring and the parties hereto shall use their
reasonable best efforts to effect such restructured transaction. It shall be a
condition to the obligations of Alpha and Lima to close the Merger as provided
in Sections 6.3(c) and 6.2(d), respectively, that each party shall have received
tax opinions in satisfactory form and substance to the effect that the
restructured transaction will be treated for federal income tax purposes as a
transaction to which Section 351 and/or Section 368(a) of the Code applies and
will otherwise have the tax attributes and effects described in Section 5.4(iii)
and (iv) as to Alpha, Lima and their respective stockholders.
ARTICLE VI
CONDITIONS
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the satisfaction, at or prior to the Closing Date, of the following conditions:
(a) Stockholder Approval. This Agreement and the Merger shall have
been duly and validly approved and adopted by the stockholders of Alpha
and Lima, all as required by the DGCL, the NYSE and the charter and bylaws
of Alpha and Lima.
(b) Other Approvals. Any waiting period applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated and all filings required to be made prior to the Effective Time
with, and all consents, approvals, permits and authorizations required to
be obtained prior to the Effective Time from, any Governmental Authority
or other person in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby by
Alpha, Lima and Merger Sub shall have been made or obtained (as the case
may be), except where the failure to obtain such consents, approvals,
permits and authorizations would not result in a Material Adverse Effect
on Lima (assuming the Merger has taken place) or to materially adversely
affect the consummation of the Merger.
(c) Securities Law Matters. The Registration Statement shall have
been declared effective by the SEC under the Securities Act and shall be
effective at the Effective Time, and no stop order suspending such
effectiveness shall have been issued, no action, suit, proceeding or
investigation by the SEC to suspend such effectiveness shall have been
initiated and be continuing, and all necessary approvals under state
securities laws relating to the issuance or trading of the Lima Common
Stock to be issued in the Merger shall have been received.
- 47 -
<PAGE>
(d) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction preventing the consummation of the Merger shall be
in effect; provided, however, that prior to invoking this condition, each
party shall have complied fully with its obligations under Section 5.8
and, in addition, shall use all reasonable efforts to have any such
decree, ruling, injunction or order vacated, except as otherwise
contemplated by this Agreement.
(e) NYSE Listing. The shares of Lima Common Stock and Lima Preferred
Stock and/or Lima Depositary Shares, as applicable, described in Section
5.7 shall have been authorized for listing on the NYSE, subject to
official notice of issuance.
6.2 Conditions to Obligations of Lima and Merger Sub. The obligations of
Lima and Merger Sub to effect the Merger are subject to the satisfaction of the
following conditions, any or all of which may be waived in whole or in part by
Lima and Merger Sub:
(a) Representations and Warranties. The representations and
warranties of Alpha set forth in Article III shall be true and correct in
all material respects as of the Closing Date as though made on and as of
that time other than any breach that would not, either individually or in
the aggregate, have a Material Adverse Effect, and Lima shall have
received a certificate signed by the chief executive officer of Alpha to
such effect.
(b) Performance of Covenants and Agreements by Alpha. Alpha shall
have performed all covenants and agreements required to be performed by it
under this Agreement at or prior to the Closing Date other than any breach
that would not, either individually or in the aggregate, have a Material
Adverse Effect, and Lima shall have received a certificate signed by the
chief executive officer of Alpha to such effect.
(c) No Adverse Change. From the date of this Agreement through the
Closing, except as disclosed in the Alpha Disclosure Schedule, there shall
not have occurred any change in the condition (financial or otherwise),
operations or business of any of the Alpha Companies that would have or
would be reasonably likely to have a Material Adverse Effect on Alpha
(other than changes, including changes in commodity prices, generally
affecting the oil and gas industry or changes due to the announcement of
the Merger).
(d) Tax Opinion. The tax opinion described in Section 5.5 shall have
been confirmed as of the Closing Date.
(e) Dissenting Stockholders. The holders of no more than fifteen
(15) percent of the outstanding Alpha Common Stock shall have exercised
their right to dissent from the Merger under the DGCL.
- 48 -
<PAGE>
6.3 Conditions to Obligation of Alpha. The obligation of Alpha to effect
the Merger is subject to the satisfaction of the following conditions, any or
all of which may be waived in whole or in part by Alpha:
(a) Representations and Warranties. The representations and
warranties of Lima and Merger Sub set forth in Article IV shall be true
and correct in all material respects as of the Closing Date as though made
on and as of that time other than any breach that would not, either
individually or in the aggregate, have a Material Adverse Effect, and
Alpha shall have received a certificate signed by the chief executive
officer of Lima to such effect.
(b) Performance of Covenants and Agreements by Lima and Merger Sub.
Lima and Merger Sub shall have performed all covenants and agreements
required to be performed by them under this Agreement at or prior to the
Closing Date other than any breach that would not, either individually or
in the aggregate, have a Material Adverse Effect, and Alpha shall have
received a certificate signed by the chief executive officer of Lima to
such effect.
(c) Tax Opinion. The tax opinion described in Section 5.4 shall have
been confirmed as of the Closing Date.
(d) No Adverse Change. From the date of this Agreement through the
Closing, there shall not have occurred any change in the condition
(financial or otherwise), operations or business of the Lima Companies
that would have or would be reasonably likely to have a Material Adverse
Effect on Lima (other than changes, including changes in commodity prices,
generally affecting the oil and gas industry or changes due to the
announcement of the Merger).
(e) Alpha Employee Agreements. Lima shall have entered into the
Alpha Employee Agreements with those applicable employees of Alpha who
have also agreed to enter into such respective Alpha Employee Agreements.
ARTICLE VII
TERMINATION
7.1 Termination Rights. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, whether before or
after approval of this Agreement and the Merger by the stockholders of Alpha and
Lima:
(a) By mutual written consent of Lima and Alpha;
(b) By either Alpha or Lima if (i) the Merger has not been
consummated by November 15, 1997 (provided, however, that the right to
terminate this Agreement
- 49 -
<PAGE>
pursuant to this clause (i) shall not be available to any party whose
breach of any representation or warranty or failure to perform any
covenant or agreement under this Agreement has been the cause of or
resulted in the failure of the Merger to occur on or before such date); or
(ii) any Governmental Authority shall have issued an order, decree or
ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling or other
action shall have become final and nonappealable (provided, however, that
the right to terminate this Agreement pursuant to this clause (ii) shall
not be available to any party until such party has used all reasonable
efforts to remove such injunction, order or decree).
(c) By Lima, if there has been a breach of the representations,
warranties or covenants made by Alpha in this Agreement which would cause
the conditions in Section 6.2 not to be satisfied and such breach is not
capable of being cured or if capable of being cured, shall not have been
cured within ten (10) business days following receipt by Alpha of written
notice of such breach from Lima.
(d) By Alpha, if there has been a breach of the representations,
warranties or covenants made by Lima in this Agreement which would cause
the conditions in Section 6.3 not to be satisfied and such breach is not
capable of being cured or if capable of being cured, shall not have been
cured within ten (10) business days following receipt by Lima of written
notice of such breach from Alpha.
(e) By Alpha or Lima if this Agreement and the Merger shall not have
been approved by the required vote of the Alpha stockholders at the Alpha
Meeting or at any adjournment thereof.
(f) By Alpha if (i) Alpha is prepared to enter into a binding
definitive agreement to effect a Superior Proposal; and (ii) Alpha has
given Lima at least three (3) business days' prior notice of its intention
to terminate this Agreement pursuant to this Section 7.1(f), during which
period Lima shall have the opportunity to propose amendments or
modifications to the terms of the Merger.
(g) By Lima if (i) the board of directors of Alpha shall have
withdrawn or modified its recommendation or otherwise failed to recommend
adoption of this Agreement and the Merger or shall have resolved or
publicly announced or disclosed to any third party its intention to do so;
(ii) an Alternative Transaction involving Alpha shall have taken place or
the Board of Directors of Alpha shall have recommended such an Alternative
Transaction to the stockholders of Alpha or shall have resolved or
publicly announced its intention to recommend or engage in such an
Alternative Transaction; or (iii) a tender offer or exchange offer for
thirty percent (30%) or more of the outstanding shares of Alpha Common
Stock shall be commenced or a registration statement with respect thereto
shall have been filed (other than by Lima or an affiliate thereof), and
the Board of Directors of Alpha shall have (A) recommended (or shall have
resolved or publicly announced its intention to recommend) that the
stockholders of Alpha tender their
- 50 -
<PAGE>
shares in such tender or exchange offer or (B) resolved or publicly
announced its intention to take no position with respect to such tender or
exchange offer.
(h) By Alpha if the banks parties to the Pledge Agreements dated as
of December 23, 1994 and December 27, 1996 among S. A. Louis Dreyfus, et
Cie and the banks named therein shall not have consented to the voting of
the shares of Lima Common Stock pledged pursuant thereto in favor of the
transactions contemplated hereby on or prior to the twentieth business day
after the date hereof; provided, however, that the period for obtaining
the consent of the banks shall be extended an additional five (5) business
days, and Alpha shall not have the right to terminate this Agreement
pursuant to Section 7.1(h) prior to such time, if Lima and Louis Dreyfus
Natural Gas Holdings Corp. shall have used, and shall be continuing to
use, their reasonable best efforts in good faith to obtain any required
consents or waivers of such banks.
7.2 Effect of Termination. If this Agreement is terminated by either Alpha
or Lima pursuant to the provisions of Section 7.1, this Agreement shall
forthwith become void, and there shall be no further obligation on the part of
any party hereto or its respective Affiliates, directors, officers, or
stockholders, except pursuant to the provisions of Sections 5.2 (but only to the
extent of the confidentiality and indemnification provisions contained therein),
5.6(c), 5.6(d), 5.10, 5.12 and 7.3, Article VIII and the Confidentiality
Agreement (which shall continue pursuant to their terms); provided, however,
that a termination of this Agreement shall not relieve any party hereto from any
liability for damages incurred as a result of a breach by such party of its
representations, warranties, covenants, agreements or other obligations
hereunder occurring prior to such termination.
7.3 Termination Fees and Expenses.
(a) If this Agreement is terminated (i) by Lima pursuant to Sections
7.1(e) or 7.1(g) or (ii) by Alpha pursuant to Sections 7.1(e) or 7.1(f),
then Alpha shall promptly, but in no event later than one business day
after termination of this Agreement, pay to Lima a termination fee in cash
("Initial Termination Fee") equal to $3,000,000; provided, however, the
Initial Termination Fee shall not be payable for a termination pursuant to
Section 7.1(e) or Section 7.1(g)(i), if, in either case, both (A) the Lima
Ratio is less than 85% of the Index Ratio and (B) no Competing Proposal
has been made which has not been rejected by Alpha prior to the date of
the Alpha Meeting in the case of a termination pursuant to Section 7.1(e)
or, in the case of a termination pursuant to Section 7.1(g)(i) prior to
the action of the board of Alpha referred to therein. In addition, if the
Initial Termination Fee is payable and if, within 12 months after payment
of the Initial Termination Fee, an Alternative Transaction involving Alpha
is consummated or Alpha enters into a definitive agreement with respect to
an Alternative Transaction, Alpha shall pay to Lima an additional fee (the
"Additional Termination Fee") of $5,000,000 in cash, at or prior to
consummation of such Alternative Transaction, or within one business day
following the effective date of such definitive agreement, whichever is
earlier.
- 51 -
<PAGE>
(b) For purposes of this Section 7.3, the following terms shall have
the meanings indicated:
(i) "Alternative Transaction" means (A) a transaction or
series of transactions to which any person or group (as such term is
defined under the Exchange Act) other than Lima or any Affiliate
thereof (a "Third Party") acquires or would acquire (upon completion
of such transaction or series of transactions) shares (or securities
exercisable or convertible into shares) representing more than
fifteen percent (15%) of the outstanding shares of Alpha's Common
Stock, pursuant to a tender offer or exchange offer or otherwise,
(B) a merger, consolidation, share exchange or other business
combination involving Alpha or any of its material subsidiaries, if,
upon consummation of such merger, consolidation, share exchange or
other business combination such Third Party owns or would own more
than 15% of the outstanding equity securities of Alpha or any of its
material subsidiaries or the entity surviving such merger or
business combination or resulting from such consolidation, or (C)
any other transaction or series of transactions pursuant to which
any control of assets of Alpha or any of its material subsidiaries
(including for this purpose, outstanding equity securities of
subsidiaries of Alpha) having a fair market value equal to more than
25% of the fair market value of all of the consolidated assets of
Alpha immediately prior to such transaction or series of
transactions.
(ii) "Average Closing Price" means the average of the daily
last sale prices of Lima Common Stock as reported on the NYSE
Composite Transactions reporting system (as reported in The Wall
Street Journal or, if not reported therein, in another mutually
agreed upon authoritative source) for the ten consecutive full
trading days on which such shares are traded on the NYSE ending at
the close of trading on the Determination Date.
(iii) "Average Index Price" means the average of the Index
Prices for the ten consecutive full NYSE trading days ending at the
close of trading on the Determination Date.
(iv) "Determination Date" means (A) for purposes of a
termination pursuant to Section 7.1(e), the last business day before
the date of the Alpha Meeting at which the vote of the stockholders
of Alpha is taken with respect to this Agreement and the Merger; or
(B) for purposes of a termination pursuant to Section 7.1(g)(i), the
last business day before the date of any action of the board of
directors of Alpha referred to in such Section 7.1(g)(i).
(v) "Index Group" means the group of each of the twelve oil
and gas companies listed below, the common stock of all of which
shall be publicly traded and as to which there shall not have been
since the Starting Date and before the Determination Date, any
public announcement of a proposal for such company to
- 52 -
<PAGE>
be acquired or for such company to acquire another company or
companies in transactions with a value exceeding 25% of the
acquiror's market capitalization. In the event that the common stock
of any such company ceases to be publicly traded or such an
announcement is made, such company will be removed from the Index
Group, and the weights (which have been determined based on their
relative market capitalization) redistributed proportionately for
purposes of determining the Index Price. The twelve oil and gas
companies and the weights attributed them are as follows:
Oil and Gas Company Weighting
------------------- ---------
Barrett Resources 14.70
Cabot Oil and Gas 5.42
Comstock Resources 2.97
Cross Timbers Oil and Gas 6.00
Devon Energy 15.31
HS Resources 2.81
Lomak Petroleum 4.97
Nuevo Energy 10.09
Seagull Energy 15.42
Snyder Oil and Gas 7.12
Swift Energy 4.54
Vintage Petroleum 10.65
-----
Total 100%
(vi) "Index Price" on a given date means the weighted average
(weighted in accordance with the factors listed above) of the
closing prices on such date of the companies composing the Index
Group.
(vii) "Index Ratio" means the number obtained by dividing the
Average Index Price by the Index Price on the Starting Date.
(viii) "Lima Ratio" means the number obtained by dividing the
Average Closing Price by the Starting Price.
(ix) "Starting Date" means the last full day on which the NYSE
was open for trading prior to the execution of this Agreement.
(x) "Starting Price" shall mean the last sale price per share
of Lima Common Stock on the Starting Date, as reported by the NYSE
Composite Transactions reporting system (as reported in The Wall
Street Journal or, if not reported therein, in another mutually
agreed upon authoritative source.)
- 53 -
<PAGE>
(c) In no event shall Alpha be required to pay any termination fee
to Lima if, immediately prior to the applicable termination of this
Agreement, Lima was in breach of its material obligations under this
Agreement.
(d) If Alpha fails to promptly pay any fee or expense due hereunder,
Alpha shall pay the costs and expenses (including reasonable documented
legal fees and expenses) in connection with any action, including the
filing of any lawsuit or other legal action, taken to collect payment,
together with interest on the amount of any unpaid fee at the prime rate
as quoted in the Wall Street Journal, Southwest Edition as in effect from
time to time from the date such fee was required to be paid to the date of
payment.
ARTICLE VIII
MISCELLANEOUS
8.1 Nonsurvival of Representations and Warranties. None of the
representations or warranties contained in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the consummation of the
Merger, except for covenants and agreements which, by their terms, are to be
performed after the Effective Time.
8.2 Amendment. This Agreement may be amended by the parties hereto at any
time before or after approval of this Agreement and the Merger by the
stockholders of Alpha or Lima; provided, however, that after any such approval,
no amendment shall be made that by law requires further approval by such
stockholders without such further approval. This Agreement may not be amended
except by a written instrument signed on behalf of each of the parties hereto.
8.3 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and either delivered personally, by facsimile
transmission or by registered or certified mail (postage prepaid and return
receipt requested) and shall be deemed given when received (or, if mailed, five
business days after the date of mailing) at the following addresses or facsimile
transmission numbers (or at such other address or facsimile transmission number
for a party as shall be specified by like notice):
(a) If to Lima or Merger Sub: Louis Dreyfus Natural Gas Corp., 14000
Quail Springs Parkway, Suite 600, Oklahoma City, Oklahoma 73134-2600,
Attention: Mark E. Monroe, President and CEO (facsimile transmission
number (405) 749-6659), with a copy (which shall not constitute notice) to
Crowe & Dunlevy, A Professional Corporation, 1800 Mid-America Tower,
Oklahoma City, Oklahoma 73102, Attention: Michael M. Stewart (facsimile
transmission number (405) 272-5238).
(b) If to Alpha: American Exploration Company, 1331 Lamar Street,
Suite 900, Houston, Texas 77010-3088, Attention: Mark Andrews, Chairman
and CEO (facsimile transmission number (713) 659-5620), with a copy (which
shall not constitute notice) to
- 54 -
<PAGE>
Shearman & Sterling, 599 Lexington Avenue, New York, New York 10022,
Attention: Peter D. Lyons (facsimile transmission number (212) 848-7179).
8.4 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
8.5 Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Confidentiality Agreement and the documents and instruments
delivered by the parties in connection with this Agreement) (a) constitutes the
entire agreement and supersedes all other prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof; and (b) except as provided in Article II or Section 5.13, 5.14 or 5.16,
is solely for the benefit of the parties hereto and their respective successors,
legal representatives and assigns and does not confer on any other person any
rights or remedies hereunder.
8.6 Applicable Law. This Agreement shall be governed and construed in
accordance with by the laws of the State of Delaware regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof,
except to the extent the OGCA is required to govern the Merger.
8.7 No Remedy in Certain Circumstances. Each party agrees that, should any
court or other competent authority hold any provision of this Agreement or part
hereof to be null, void or unenforceable, or order any party to take any action
inconsistent herewith or not to take an action consistent herewith or required
hereby, the validity, legality and enforceability of the remaining provisions
and obligations contained or set forth herein shall not in any way be affected
or impaired thereby, unless the foregoing inconsistent action or the failure to
take an action constitutes a material breach of this Agreement or makes this
Agreement impossible to perform, in which case this Agreement shall terminate
pursuant to Article VII. Except as otherwise contemplated by this Agreement, to
the extent that a party hereto took an action inconsistent herewith or failed to
take action consistent herewith or required hereby pursuant to an order or
judgment of a court or other competent Governmental Authority, such party shall
not incur any liability or obligation unless such party breached its obligations
under Section 5.8 or did not in good faith seek to resist or object to the
imposition or entering of such order or judgment.
8.8 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties, except that Merger Sub may assign, in its sole discretion, any or all
of its rights, interests and obligations hereunder to any newly-formed direct or
indirect wholly-owned corporate subsidiary of Lima. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns.
- 55 -
<PAGE>
8.9 Waivers. At any time prior to the Effective Time, the parties hereto
may, to the extent legally allowed, (a) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto, and (c) waive performance of any of the
covenants or agreements, or satisfaction of any of the conditions, contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in a written instrument signed on behalf
of such party. Except as provided in this Agreement, no action taken pursuant to
this Agreement, including any investigation by or on behalf of any party, shall
be deemed to constitute a waiver by the party taking such action of compliance
with any representations, warranties, covenants or agreements contained in this
Agreement. The waiver by any party hereto of a breach of any provision hereof
shall not operate or be construed as a waiver of any prior or subsequent breach
of the same or any other provisions hereof.
8.10 Confidentiality Agreement. The Confidentiality Agreement shall remain
in full force and effect following the execution of this Agreement until
terminated according to its terms, and is hereby incorporated herein by
reference and shall constitute a part of this Agreement for all purposes. Any
and all information received by Lima or Alpha pursuant to the terms and
provisions of this Agreement shall be governed by the applicable terms and
provisions of the Confidentiality Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives, on the date first written above.
"ALPHA" "LIMA"
AMERICAN EXPLORATION COMPANY LOUIS DREYFUS NATURAL GAS CORP.
By: By:
--------------------------------- ---------------------------------
Name: Name:
Title: Title:
"MERGER SUB"
LDNG ACQUISITION, INC.
By:_________________________________
Name:
Title:
- 56 -
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT ("Agreement") is made and entered into as of
June 24, 1997 by and among American Exploration Company, a Delaware corporation
("Alpha"), Louis Dreyfus Natural Gas Corp, an Oklahoma corporation ("Lima"), and
Louis Dreyfus Natural Gas Holdings Corp. ("Shareholder") with reference to the
following circumstances.
A. Alpha, Lima and Lima Acquisition, Inc., an Oklahoma corporation and
wholly-owned subsidiary of Lima ("Merger Sub"), are entering into an Agreement
and Plan of Reorganization, dated as of the date hereof (the "Reorganization
Agreement"). Capitalized terms not defined in this Agreement have the meanings
ascribed to them in the Reorganization Agreement.
B. The Reorganization Agreement provides, among other things, for the
merger ("Merger"), upon the terms and subject to the conditions of the
Reorganization Agreement, of Alpha with and into Merger Sub, with Merger Sub
being the surviving corporation.
C. As of the date hereof, Shareholder owns of record and has the right to
vote 20,000,000 shares of Lima Common Stock (the "Shares").
D. As a condition to the willingness of Alpha to enter into the
Reorganization Agreement, Alpha has required that Shareholder agree, and in
order to induce Alpha to enter into the Reorganization Agreement, Shareholder
has agreed, to vote the Shares in accordance with the terms of this Agreement.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, the parties agree as follows:
ARTICLE I
REPRESENTATIONS, WARRANTIES AND COVENANTS OF SHAREHOLDER
1.1 Representations and Warranties. Shareholder represents and warrants to
Alpha as follows:
(a) Title to Shares. Shareholder has good and marketable title to
the Shares, free and clear of all liens, claims, charges and encumbrances
and has full power and authority to exercise all voting rights in respect
thereof.
(b) Authority Relative to This Agreement.
(i) Shareholder is a corporation duly organized and validly
existing under the laws of the State of Delaware, has all necessary
power and authority to
<PAGE>
execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby.
(ii) This Agreement has been duly and validly executed and
delivered by Shareholder and, assuming the due authorization,
execution and delivery by Alpha and Lima, constitutes a legal, valid
and binding obligation of Shareholder, enforceable against
Shareholder in accordance with its terms.
(c) No Conflict.
(i) The execution and delivery of this Agreement by
Shareholder does not, and the performance of this Agreement by
Shareholder shall not, (A) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to Shareholder or
by which the Shares are bound or affected, (B) conflict with or
violate any term or provision of the certificate of incorporation or
by-laws of Shareholder or any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Shareholder is party or by which
Shareholder or the Shares are bound or affected, or (C) result in
any breach of or constitute a default (or an event that with notice
or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance
on any of the Shares pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Shareholder is party or by
which Shareholder or the shares are bound or affected, except in the
case of the foregoing, for any such conflicts, violations, breaches,
defaults or other occurrences which would not prevent or delay or
render invalid the performance by Shareholder of its obligations
under this Agreement.
(ii) The execution and delivery of this Agreement by
Shareholder does not, and the performance of this Agreement by
Shareholder shall not, require any consent, approval, authorization
or permit of, or filing with or notification to, any Governmental
Authority (as such term is defined in the Reorganization Agreement)
or third party except for applicable requirements, if any, of the
Securities Exchange Act of 1934.
1.2 Agreement to Vote. Shareholder will attend in person through its duly
authorized representatives or by proxy any meeting of the shareholders of Lima
to be held for the purpose of obtaining shareholder approval of the Merger and
related matters and will vote all the Shares in favor of the Merger and each of
the related matters recommended by the Board of Directors of Lima. However, the
foregoing notwithstanding, the obligation of Shareholder in the preceding
sentence shall be suspended during any period that Lima is claiming a right to
terminate the Reorganization Agreement and such claim is being disputed by
Alpha. In addition, provided the Reorganization Agreement is closed in
accordance with its terms, Shareholder shall vote all of
- 2 -
<PAGE>
the Shares in accordance with the recommendations of the Board of Directors of
Lima with respect to the election to the Board of Directors of Lima of certain
persons specified in Section 5.15 of the Reorganization Agreement at Lima's 1998
annual meeting of stockholders.
1.3 Pledge Agreements. The Shares are subject to Pledge Agreements dated
as of December 23, 1994 and December 27, 1995 among S.A. Louis Dreyfus et Cie
and the banks (the "Banks") named therein (the "Pledge Agreements"), a copy of
each of which has been provided to Alpha. Anything herein to the contrary
notwithstanding, the representations, warranties, covenants, agreements, proxies
and obligations of Shareholder and rights of Alpha set forth in or resulting
from this Agreement are subject in all respects to, and qualified in their
entirety by, the Pledge Agreements and, without limiting the generality of the
foregoing, any consents or waivers of the Banks required by the Pledge
Agreements in connection with this Agreement and the transactions contemplated
hereby. Shareholder shall notify the Banks of its obligations under Section 1.2
hereof and shall use its reasonable best efforts to request that the Banks grant
all waivers and consents necessary, in each case, in accordance with the Pledge
Agreements.
1.4 Irrevocable Proxy. In the event Shareholder fails to comply with the
provisions of Section 1.2 hereof, such failure shall result, without any further
action by Shareholder, in the irrevocable appointment of Alpha, until
termination of this Agreement, as Shareholder's attorney and proxy pursuant to
the provisions of Section 1057 of the Oklahoma General Corporation Act, with
full power of substitution, to vote, and otherwise act (by written consent or
otherwise) with respect to the Shares which Shareholder is entitled to vote at
any meeting of shareholders of Lima (whether annual or special and whether or
not an adjourned or postponed meeting) or consent in lieu of any such meeting or
otherwise, but only for the approval of the Merger and related matters as
contemplated by Section 1.2. THIS PROXY AND POWER OF ATTORNEY IS IRREVOCABLE AND
COUPLED WITH AN INTEREST. Shareholder hereby revokes all other proxies and
powers of attorney with respect to the Shares which Shareholder may have
heretofore appointed or granted, and no subsequent proxy or power of attorney
shall be given or written consent executed (and if given or executed, shall not
be effective) by Shareholder with respect thereto. All authority herein
conferred or agreed to be conferred shall survive the dissolution or winding up
of Shareholder and any obligation of Shareholder under this Agreement shall be
binding upon the successors and assigns of Shareholder.
1.5 Further Assurances. Shareholder shall execute and deliver such
additional instruments and other documents and shall take such further actions
as may be necessary or appropriate to effectuate, carry out and comply with its
obligations under this Agreement, including without limitation any actions
reasonably requested by Lima or Alpha in connection with obtaining any required
consents or approvals to the actions contemplated hereby under the HSR Act or
the Exchange Act or the Pledge Agreements. Without limiting the generality of
the foregoing, Shareholder shall not enter into any new agreement or arrangement
(or alter, amend or terminate any existing agreement or arrangement) if such
action would impair its ability to effectuate, carry out or comply with the
terms of this Agreement. However, nothing in this Section 1.5 shall require
Shareholder to cause the terms of either of the Pledge Agreements or the loans
secured thereby to be changed.
- 3 -
<PAGE>
ARTICLE II
MISCELLANEOUS
2.1 Expenses. Except as otherwise provided in this Agreement or in the
Reorganization Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party incurring
such expenses.
2.2 Specific Performance. Irreparable damage may occur in the event any
provision of this Agreement were not performed in accordance with its terms, and
the parties shall be entitled to specific performance or injunctive relief in
respect of those terms.
2.3 Entire Agreement. This Agreement constitutes the entire agreement
among Alpha, Lima and Shareholder with respect to the obligations of Shareholder
to vote the shares in accordance with Section 1.2 hereof and supersedes all
prior agreements and understandings, both written and oral, among Alpha, Lima
and Shareholder with respect to that obligation.
2.4 Assignment. This Agreement shall not be assigned by operation of law
or otherwise, except with the prior written consent of each of the other parties
hereto.
2.5 Parties in Interest. This Agreement shall inure to the benefit of, and
be enforceable by, the parties hereto and their respective successors and
permitted assigns. Nothing in this Agreement, express or implied, is intended to
or shall confer upon any person other than the parties hereto any right, benefit
or remedy of any nature whatsoever under or by reason of this Agreement.
2.6 Amendment; Waiver. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto. Lima or Shareholder,
on the one hand, and Alpha, on the other hand, may (i) extend the time for the
performance of any obligation or other act of the other, (ii) waive any
inaccuracy in the representations and warranties of the other contained herein
or in any document delivered by the other pursuant hereto and (iii) waive
compliance by the other with any agreement or condition contained herein. Any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed by the party or parties to be bound thereby.
2.7 Effect on the Reorganization Agreement. Nothing in this Agreement
shall be construed to limit any rights or obligations that Lima or Alpha have
under the Reorganization Agreement. In case of any inconsistency between this
Agreement and the Reorganization Agreement, the terms of the Reorganization
Agreement shall control.
2.8 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the approval by or on behalf of
Shareholder of the Merger, as contemplated by Section 1.2, is not
- 4 -
<PAGE>
affected in any manner materially adverse to any party. Upon such determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in a mutually acceptable manner in order that the terms of this
Agreement remain as originally contemplated to the fullest extent possible.
2.9 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and either delivered personally, by facsimile
transmission or by registered or certified mail (postage prepaid and return
receipt requested) and shall be deemed given when received (or, if mailed, five
business days after the date of mailing), if to Lima or Alpha, at their
respective addresses or facsimile transmission numbers set forth for notices in
the Reorganization Agreement or, if to Shareholder, at the following address or
facsimile transmission number (or at such other address or facsimile
transmission number for a party as shall be specified by like notice):
To Shareholder:
Louis Dreyfus Natural Gas Holdings Corp.
3411 Silverside Road, Baynard Building, Suite 210E
Wilmington, Delaware 19810
Attn: President
with a copy to:
Thomas Scheuer, Esq.
Louis Dreyfus Holding Company, Inc.
10 Westport Road
P.O. Box 810
Wilton, Connecticut 06897
2.10 Termination. This Agreement shall terminate upon the Effective Time
or upon the termination of the Reorganization Agreement in accordance with the
termination provisions provided therein.
2.11 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Oklahoma applicable to contracts
executed in and to be performed in that State.
2.12 Headings. The descriptive headings contained in this Agreement are
included for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
2.13 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
5
<PAGE>
IN WITNESS WHEREOF, each of Lima, Alpha and Shareholder have caused this
Agreement to be executed by its respective officer thereunto duly authorized
each as of the date first written above.
"ALPHA"
AMERICAN EXPLORATION COMPANY
By:
-------------------------------
Name: Mark Andrews
Title: Chairman and Chief Executive Officer
"LIMA"
LOUIS DREYFUS NATURAL GAS CORP.
By:
-------------------------------
Name: Mark E. Monroe
Title: President and Chief Executive Officer
"SHAREHOLDER"
LOUIS DREYFUS NATURAL GAS
HOLDINGS CORP.
By:
-------------------------------
Name:
Title:
6
EMPLOYMENT AGREEMENT
BETWEEN
LOUIS DREYFUS NATURAL GAS CORP.
AND
MARK ANDREWS
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I. TERM AND DUTIES .............................................. 1
SECTION 1.1 TERM .................................................... 1
SECTION 1.2 DUTIES .................................................. 2
SECTION 1.3 REPORTING RESPONSIBILITIES .............................. 2
SECTION 1.4 RECONSIDERATION OF DUTIES, TITLES
AND RESPONSIBILITIES ............................... 2
ARTICLE II. COMPENSATION ................................................. 2
SECTION 2.1 BASIC COMPENSATION ...................................... 2
SECTION 2.2 ANNUAL BONUS ............................................ 3
SECTION 2.3 STOCK OPTIONS ........................................... 3
SECTION 2.4 INCENTIVE, SAVINGS AND RETIREMENT PLANS ................. 3
SECTION 2.5 WELFARE BENEFIT PLANS ................................... 3
SECTION 2.6 EXPENSES ................................................ 4
SECTION 2.7 FRINGE BENEFITS ......................................... 4
SECTION 2.8 OFFICE AND SUPPORT STAFF ................................ 4
SECTION 2.9 VACATION ................................................ 4
SECTION 2.10 TOTAL COMPENSATION ..................................... 4
SECTION 2.11 SPECIAL SERVICE BONUS .................................. 4
SECTION 2.12 EXISTING STOCK OPTIONS ................................. 4
ARTICLE III. TERMINATION OF EMPLOYMENT .................................. 5
SECTION 3.1 EVENTS OF TERMINATION ................................... 5
SECTION 3.2 TERMINATION PROCEDURES AND CERTAIN DEFINITIONS .......... 8
SECTION 3.3 OBLIGATIONS OF THE CORPORATION ON TERMINATION ........... 9
ARTICLE IV. PURPOSE; NONCOMPETITION ..................................... 11
SECTION 4.1 PURPOSE ................................................. 11
SECTION 4.2 CONFIDENTIAL INFORMATION ................................ 11
SECTION 4.3 NONCOMPETITION .......................................... 11
SECTION 4.4 OIL AND GAS INTEREST OWNERSHIP .......................... 12
SECTION 4.5 CORPORATE OPPORTUNITY ................................... 12
ARTICLE V. ADJUSTMENTS FOR CERTAIN PAYMENTS ............................. 12
ARTICLE VI. MISCELLANEOUS ............................................... 14
SECTION 6.1 ENFORCEABILITY .......................................... 14
SECTION 6.2 REMEDIES ................................................ 14
SECTION 6.3 RESIGNATION AS BOARD AND COMMITTEE MEMBER ............... 14
i
<PAGE>
SECTION 6.4 NO OFFSET; ENFORCEMENT OF AGREEMENT. .................... 15
SECTION 6.5 ASSIGNMENT BY THE EXECUTIVE'S SUCCESSORS ................ 15
SECTION 6.6 WAIVER .................................................. 16
SECTION 6.7 NOTICE .................................................. 16
SECTION 6.8 APPLICABLE LAW .......................................... 16
SECTION 6.9 TAXES ................................................... 16
SECTION 6.10 ENTIRE AGREEMENT ....................................... 16
ii
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of the 24th day of June, 1997 (the
"Agreement"), by and between LOUIS DREYFUS NATURAL GAS CORP., an Oklahoma
corporation, having its principal place of business at 14000 Quail Springs
Parkway, Suite 600, Oklahoma City, Oklahoma (the "Corporation") and MARK
ANDREWS, an individual residing at 2909 Inwood, Houston, Texas 77019 (the
"Executive").
WITNESSETH THAT:
WHEREAS, the Executive is currently serving as the Chairman of the
Board of Directors and Chief Executive Officer of American Exploration Company,
a Delaware corporation ("American");
WHEREAS, pursuant to the Agreement and Plan of Reorganization, dated
as of June 24, 1997 (the "Merger Agreement"), by and among the Corporation, LDNG
Acquisition, Inc. and American, the parties thereto have agreed to a merger (the
"Merger") pursuant to the terms thereof;
WHEREAS, the Corporation desires to secure the employment of the
Executive, and the Executive is willing to be employed by the Corporation, on
the terms and conditions herein set forth; and
WHEREAS, in connection with the Merger, the parties hereto desire to
enter into this Agreement, to be effective upon the consummation of the Merger.
NOW, THEREFORE, in consideration of the mutual premises, covenants
and agreements herein contained, the parties hereto agree as follows:
ARTICLE I. TERM AND DUTIES
SECTION 1.1 TERM. The Corporation hereby agrees to employ the
Executive as Vice Chairman of the Board of Directors of the Corporation (the
"Board") and the Executive hereby agrees to serve in such capacity, upon the
terms and conditions herein contained. The initial term of this Agreement is for
a period (such term, including any renewal thereof, the "Term") commencing as of
the Effective Time (as defined in the Merger Agreement) (the "Effective Date")
and continuing until the third anniversary of the Effective Date. Thereafter,
this Agreement shall be renewed automatically for one additional year on each
anniversary of the Effective Date unless either party provides the other party
with written notice that it or he, as the case may be, does not wish to so
extend this Agreement at least three months prior to any such renewal date in
which event this Agreement shall terminate at such anniversary date. The "Active
Employment Period" shall mean the period commencing on the Effective Date
<PAGE>
and ending upon termination of the Executive's employment in accordance with the
provisions of this Agreement. Notwithstanding the foregoing, in the event that
the Merger Agreement is terminated, then at the time of such termination, this
Agreement shall be deemed canceled and of no force or effect and the Executive
shall continue to be subject to such agreements and arrangements that were in
effect prior to the execution of the Merger Agreement.
SECTION 1.2 DUTIES. As Vice Chairman of the Board, the Executive
shall have and perform those duties on behalf of the Corporation which are
reasonable and customary for an individual holding such office to perform. In
addition, following the Effective Date (and without regard to whether the
Executive remains employed by the Corporation), the Executive will serve on the
Board and as a member of the Executive Committee, and the Corporation agrees to
nominate the Executive for reelection at the next annual meeting of stockholders
of the Corporation following the Effective Date, and if reelected the Executive
shall continue to serve on the Executive Committee. The duties of the Executive
may be changed from time-to-time by the mutual consent of the Executive and the
Corporation without terminating this Agreement and, in such event, the
employment of the Executive shall continue under this Agreement as so modified.
SECTION 1.3 REPORTING RESPONSIBILITIES. The Executive shall report
exclusively to the Chairman of the Board (the "Chairman").
SECTION 1.4 RECONSIDERATION OF DUTIES, TITLES AND RESPONSIBILITIES.
Promptly after the first anniversary of the Effective Date, the Executive and
the Corporation shall negotiate in good faith to establish new or additional
duties, titles and responsibilities that the Executive shall have or perform
under this Agreement (collectively, the "New Duties"). In the event that the
Executive and the Corporation are unable to reach an agreement reasonably
satisfactory to the Executive with respect to (i) the establishment of the New
Duties and (ii) a commensurate adjustment in the Executive's compensation and
benefits under this Agreement within 90 days after the first anniversary of the
Effective Date, either the Executive or the Corporation may elect within 30 days
following the end of such 90 day period to terminate the Executive's employment
(a "Special Termination") and become or engage the Executive as a consultant to
the Corporation on the terms and conditions set forth in Section 3.3(d).
ARTICLE II. COMPENSATION
SECTION 2.1 BASIC COMPENSATION.
(a) During the Active Employment Period, the Corporation shall pay
to the Executive an annual base salary (which shall accrue proportionately from
day to day) of $350,000 payable in equal bi-weekly installments on the same
dates the other officers of the Corporation are paid. The Executive's base
annual salary payable pursuant to this Section 2.1
2
<PAGE>
(including any increases thereof pursuant to Section 2.1(b)) is hereinafter
referred to as the Executive's "Basic Compensation."
(b) The Corporation and the Executive acknowledge that the
Compensation Committee of the Board (the "Compensation Committee") shall, from
time to time, but no less frequently than annually, review the Executive's Basic
Compensation and may increase (but in no event decrease) such compensation by
such amounts as the Compensation Committee deems proper.
SECTION 2.2 ANNUAL BONUS. In addition to his Basic Compensation, the
Executive shall participate in any bonus plan or program adopted by the
Corporation to the same extent generally provided to other senior executives of
the Corporation under which the Executive shall be awarded, with respect to each
fiscal year ending during the Active Employment Period, an annual bonus (the
"Annual Bonus"). Subject to Section 3.3, each such Annual Bonus shall be paid on
the same dates the other officers of the Corporation are paid, unless the
Executive shall elect to defer the receipt of such Annual Bonus.
SECTION 2.3 STOCK OPTIONS. Effective as of the Effective Date and in
consideration of the services to be rendered by the Executive to the
Corporation, the Executive shall be awarded options (which options shall
constitute "incentive stock options" to the maximum extent permissible under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")) to
purchase 100,000 shares of the common stock of the Corporation ("Corporation
Common Stock") pursuant to the terms of the Corporation's Stock Option Plan (the
"Plan") at an exercise price equal to the fair market value (as determined under
the Plan)Eof the Corporation's common stock as of the Effective Date. Such
options shall have a ten year term and shall vest in four equal annual
installments on the first four anniversaries of the Effective Date.
SECTION 2.4 INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the
Active Employment Period, the Executive shall be entitled to participate in all
incentive compensation, savings and retirement plans, practices, policies and
programs applicable generally to other senior executives of the Corporation.
Unless additional grants are awarded to other senior executives of the
Corporation, the Executive shall not be entitled to participate in the Louis
Dreyfus Stock Equivalent Plan sponsored by S.A. Louis Dreyfus et Cie.
SECTION 2.5 WELFARE BENEFIT PLANS. During the Active Employment
Period, the Executive and/or the Executive's family, as the case may be, shall
be eligible for participation in and shall receive all benefits under the
welfare benefit plans, practices, policies and programs provided by the
Corporation to the extent applicable generally to other senior executives of the
Corporation. During the Active Employment Period and, if applicable, the
Consulting Period, the Corporation shall continue the $2.5 million life
insurance policy currently maintained on the Executive's life for the benefit of
his family.
3
<PAGE>
SECTION 2.6 EXPENSES. During the Active Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the most favorable
policies, practices and procedures of the Corporation as in effect generally
with respect to other senior executives of the Corporation.
SECTION 2.7 FRINGE BENEFITS. During the Active Employment Period,
the Executive shall be entitled to fringe benefits in accordance with the most
favorable plans, practices, programs and policies of the Corporation as in
effect generally with respect to other senior executives of the Corporation.
SECTION 2.8 OFFICE AND SUPPORT STAFF. During the Active Employment
Period, the Executive shall be entitled to an office or offices of a size and
with furnishings and other appointments, and to exclusive secretarial and other
assistance, at least as favorable as that provided by American to the Executive
prior to the Effective Date.
SECTION 2.9 VACATION. During the Active Employment Period, the
Executive shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Corporation as in
effect generally with respect to other senior executives of the Corporation, but
in no event less than four (4) weeks annually.
SECTION 2.10 TOTAL COMPENSATION. For purposes of this Agreement, the
Executive's "Total Compensation" means the total of (i) the Executive's Basic
Compensation, including amounts the Executive has electively deferred under an
arrangement qualified under Section 401(k) of the Code, and pursuant to any
cafeteria plan under Section 125 of the Code or otherwise, plus (ii) an amount
equal to the aggregate amounts paid to the Executive in respect of bonuses over
the three most recent fiscal years of the Corporation or American, as the case
may be, divided by three.
SECTION 2.11 SPECIAL SERVICE BONUS. In recognition of the
extraordinary services to be performed by the Executive in connection with the
integration of the Corporation and American following the Effective Date, the
Executive shall be paid, in a cash lump sum as promptly as practicable after the
first anniversary of the Effective Date, a special service recognition bonus
(the "Special Service Bonus") in the amount of $250,000. The Special Service
Bonus shall be in addition to, and shall not reduce, any other amounts payable
to the Executive under this Agreement.
SECTION 2.12. EXISTING STOCK OPTIONS. Notwithstanding Section
2.4(b)(iv) of the Merger Agreement, the Executive may elect by written notice
delivered to the Corporation on or prior to the Effective Time to require the
Corporation to assume all or a portion of the Executive's Alpha Stock Options
(as defined in the Merger Agreement) on the following terms and conditions. Each
such assumed Alpha Stock Option shall be or become fully vested prior to or
concurrently with the Effective Time and shall be converted at the Effective
Time into an option (a "Lima Option") to purchase a number of shares of
Corporation
4
<PAGE>
Common Stock equal to the number of shares of Alpha Common Stock (as defined in
the Merger Agreement) that could have been purchased under such Alpha Stock
Option multiplied by the Conversion Ratio (as defined below), rounded up to the
nearest whole number of shares of Corporation Common Stock, at a price per share
of Corporation Common Stock equal to the per share option exercise price
specified in the Alpha Stock Option divided by the Conversion Ratio (rounded
down to the nearest whole cent). Such Lima Option shall otherwise be subject to
the same terms and conditions as such Alpha Stock Option; provided, however,
that in the case of any Alpha Stock Option to which Section 421 of the Code
applies by reason of its qualification under Section 422 of the Code, the option
price, the number of shares subject to such option and the terms and conditions
of exercise of such option shall be determined in a manner consistent with the
requirements of Section 424(a) of the Code. For purposes of this Section 2.12,
the "Conversion Ratio" means the sum of (i) the Conversion Number (as defined in
the Merger Agreement) and (ii) the quotient determined by dividing the amount of
the Cash Consideration (as defined in the Merger Agreement) by the Market Price
(as defined in the Merger Agreement). The date of grant of each substituted Lima
Option shall be the date on which the corresponding Alpha Stock Option was
granted. At the Effective Time, with respect to the Lima Options, (i) all
references to American in the Alpha Stock Compensation Plans (as defined in the
Merger Agreement) and in the related stock option agreements shall be deemed to
refer to the Corporation; and (ii) the Corporation shall assume all of
American's obligations with respect to the Alpha Stock Options as so amended. As
soon as practicable after the Effective Time, the Corporation shall issue to the
Executive a document evidencing the foregoing assumption by the Corporation. As
soon as practicable after the Effective Time, to the extent necessary to provide
for registration of the shares of Corporation Common Stock subject to such
substituted Lima Options, the Corporation shall file a registration statement on
FormES-8 with respect to such shares of Corporation Common Stock and shall use
its best efforts to maintain the effectiveness of such registration statement,
including the current status of any related prospectus or prospectuses, for so
long as the Lima Options remain outstanding.
ARTICLE III. TERMINATION OF EMPLOYMENT
SECTION 3.1 EVENTS OF TERMINATION.
(a) DEATH. The Executive's employment shall terminate automatically
upon the Executive's death.
(b) DISABILITY. If the Corporation determines in good faith that the
Disability of the Executive has occurred during the Active Employment Period it
may give the Executive notice of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Corporation shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the thirty
(30) days after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Corporation on a full-time
5
<PAGE>
basis for 180 consecutive business days as a result of incapacity due to mental
or physical illness which is determined to be total and permanent by a physician
selected by the Corporation or its insurers and acceptable to the Executive or
the Executive's legal representative.
(c) WITHOUT CAUSE. Notwithstanding any other provision hereunder,
the Corporation shall have the right to terminate the Executive's employment
hereunder without Cause at any time during the Active Employment Period for any
reason in the sole discretion of the Corporation upon not less than ninety (90)
days' prior written notice to the Executive.
(d) CAUSE. The Corporation may terminate the Executive's employment
during the Active Employment Period for Cause. For purposes of this Agreement,
"Cause" shall mean:
(i) The willful and continued failure of the Executive to perform
substantially the Executive's duties with the Corporation (other than any
such failure resulting from incapacity due to physical or mental illness),
after a written demand for substantial performance is delivered to the
Executive by the Chairman, which demand shall specifically identify the
manner in which the Chairman believes that the Executive has not
substantially performed the Executive's duties, or
(ii) The willful engaging by the Executive in illegal conduct or
gross misconduct in connection with the performance of his duties
hereunder which is materially injurious to the Corporation.
For purposes of this provision, no act or failure to act, on the
part of the Executive, shall be considered "willful" unless it is done, or
omitted to be done, by the Executive in bad faith or without reasonable belief
that the Executive's action or omission was in the best interests of the
Corporation. Any act, or failure to act, based upon authority given pursuant to
a resolution duly adopted by the Board or upon the instructions of any senior
officer of the Corporation or based upon the advice of counsel for the
Corporation shall be conclusively presumed to be done, or omitted to be done, by
the Executive in good faith and in the best interests of the Corporation. The
cessation of employment of the Executive shall not be deemed to be for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
of the entire membership of the Board at a meeting of the Board called and held
for such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above and specifying
the particulars thereof in detail.
(e) GOOD REASON. The Executive may terminate his employment
during the Active Employment Period for Good Reason at any time upon thirty (30)
days' notice to
6
<PAGE>
the Corporation. For purposes of this Agreement, "Good Reason" shall mean the
occurrence, without the Executive's express written consent, of any one or more
of the following events:
(i) A change in the Executive's duties, titles or offices described
in Section 1.2, any removal of the Executive from, or any failure to
re-elect the Executive to, any of such positions, or a change in the
Executive's reporting responsibilities as set forth in Section 1.3, except
with the Executive's written consent;
(ii) A reduction in the Executive's Basic Compensation or the
failure by the Corporation to increase such compensation each year by an
amount which at least equals, on a percentage basis, the mean average
percentage increase in base salary for all senior officers of the
Corporation (other than the Executive) during such year or the failure by
the Corporation to continue to provide prompt payment (or reimbursement to
the Executive) of all reasonable expenses incurred by the Executive in
connection with the Executive's professional and business activities;
(iii) The Corporation requiring the Executive to be based anywhere
other than Houston, Texas, except for travel on business to an extent
reasonably required in the performance of the Executive's duties
hereunder;
(iv) The failure by the Corporation to include the Executive as a
participant in any benefit or compensation plan or arrangement generally
available to senior executives of the Corporation or the failure by the
Corporation to provide the Executive with the number of paid vacation
days, holidays and personal days to which the Executive is entitled in
accordance with the Corporation's normal leave policy;
(v) The failure of the Corporation to obtain the assumption of this
Agreement, without limitation or reduction, by any successor to the
Corporation;
(vi) Any purported termination of the Executive's employment by the
Corporation which is not effected pursuant to the express terms of this
Agreement, including the Notice of Termination requirements of Section
3.2(a);
(vii) The failure of the Corporation to maintain for the benefit and
use by the Executive of an office and support staff as contemplated by
Section 2.8;
(viii) The failure of the Corporation to pay or reimburse the
Executive for any expenses incurred by the Executive as provided in this
Agreement; or
(ix) The filing of a voluntary or involuntary petition of bankruptcy
by or against the Corporation or the insolvency of the Corporation.
7
<PAGE>
For purposes of this Section 3.1(e), any good faith determination of "Good
Reason" made by the Executive shall be conclusive.
(f) RETIREMENT. The Executive may terminate his employment by reason
of "Retirement" at the end of the fiscal year of the Corporation in which the
Executive attains the age of 65 or such later date as the Board shall set with
the written consent of the Executive (the "Retirement Effective Date").
(g) VOLUNTARY TERMINATION. The Executive shall have the right at any
time after the Effective Date to voluntarily terminate his employment by the
Corporation (a "Voluntary Termination") for any reason in the sole discretion of
the Executive by not less than thirty (30) days' prior written notice to the
Corporation; provided, however, that neither a termination without Cause, by
reason of death, Disability, Retirement or Good Reason nor a Special Termination
shall be treated for any purpose hereunder as a Voluntary Termination.
SECTION 3.2 TERMINATION PROCEDURES AND CERTAIN DEFINITIONS.
(a) NOTICE OF TERMINATION. Any termination by the Corporation for
Cause, without Cause, by reason of Disability or by the Executive for Good
Reason or in a Voluntary Termination or Retirement, or as a result of a Special
Termination, shall be communicated by Notice of Termination to the other party
hereto given in accordance with Section 6.7 of this Agreement. For purposes of
this Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date. The failure by the Executive or the Corporation to set
forth in the Notice of Termination any fact or circumstance which contributes to
a showing of Good Reason or Cause shall not waive any right of the Executive or
the Corporation, respectively, hereunder or preclude the Executive or the
Corporation, respectively, from asserting such fact or circumstance in enforcing
the Executive's or the Corporation's rights hereunder. The Executive's continued
employment or other status with the Corporation after a Notice of Termination is
provided shall not constitute consent to, or a waiver of any rights with respect
to, any circumstance constituting Good Reason hereunder.
(b) DATE OF TERMINATION. "Date of Termination" means (i) if the
Executive's employment is terminated by the Corporation for Cause, the date of
receipt of the Notice of Termination or any later date specified therein, as the
case may be, (ii) if the Executive's employment is terminated by the Corporation
other than for Cause or Disability, the Date of Termination shall be the date
not less than ninety (90) days after the date on which the Corporation notifies
the Executive of such termination, (iii) if the Executive terminates his
employment for Good Reason, in a Voluntary Termination or in a Special
Termination, the Date
8
<PAGE>
of Termination shall be the date, not less than thirty (30) days after the date
on which the Executive notifies the Corporation of such termination and (iv) if
the Executive's employment is terminated by reason of death, Disability or
Retirement, the Date of Termination shall be the date of death of the Executive,
the Disability Effective Date or the Retirement Effective Date, as the case may
be. In the case of a Voluntary Termination, the Corporation shall have the
option, exercisable by written notice to the Executive within ten (10) days
after the Executive's Notice of Termination is provided to the Corporation, to
designate any date prior to the expiration of the aforesaid notice as the date
on which the Executive shall cease to be an officer of the Corporation, and the
effective date of termination hereunder shall be any earlier date so designated
by the Corporation.
SECTION 3.3 OBLIGATIONS OF THE CORPORATION ON TERMINATION.
(a) TERMINATION UPON DEATH OR DISABILITY, WITHOUT CAUSE, FOR GOOD
REASON OR AS A RESULT OF A SPECIAL TERMINATION.
If, during the Term, the Executive's employment is terminated upon
his death or Disability, without Cause, for Good Reason or as a result of a
Special Termination:
(i) IN GENERAL; SPECIAL SERVICE BONUS.
The Corporation shall immediately pay the Executive in cash (i) the
amount of Basic Compensation previously earned but not yet paid, (ii) a
pro rata Annual Bonus for the year of termination and (iii) if not
previously paid, the Special Service Bonus.
(ii) SEVERANCE BENEFITS.
(1) All stock options held by the Executive that have not
already vested shall immediately vest.
(2) The Executive shall continue to participate in all welfare
benefit plans, including health and medical plans in which the Executive
was participating prior to the Date of Termination, for six months after
termination and shall be entitled to (a) reimbursement of COBRA payments
to maintain medical and dental insurance up to 18 additional months for
said coverage and (b) the use of one or more executive out-placement
services, designated by the Executive and paid for by the Corporation; and
(3) If the Executive's employment is terminated upon his death
or Disability, the Corporation shall pay the Executive in a lump sum a
"Severance Benefit" in cash equal to three (3) times the Executive's Total
Compensation as of the time of such termination. Such payment shall be
made within thirty (30) days following said
9
<PAGE>
termination. In the event of the Executive's death, any amounts payable
under this Agreement shall be paid to the beneficiary (or beneficiaries)
designated by the Executive and in such amounts or proportions as the
Executive shall so designate. If no beneficiary is designated by the
Executive or if none shall survive the Executive, then any amounts payable
under this Agreement shall be paid to the Executive's surviving spouse, if
any, or, if no such surviving spouse exists, to the Executive's estate.
(iii) DISABILITY.
(1) If, following a Disability termination, the Executive
becomes entitled to and receives disability benefits under any disability
payment plan sponsored and maintained by the Corporation, the amount
otherwise payable by the Corporation to the Executive pursuant to Section
3.3(a) shall be reduced, on a dollar-for-dollar basis, but not below zero,
by the amount of any such disability benefits received by him, but only to
the extent such benefits are attributable to payments made by the
Corporation.
(2) The Executive shall have the right in his sole discretion
after the Disability Effective Date to engage in regular employment
(whether as an employee of another entity or as a self-employed person)
and shall have no obligation to perform further services for the
Corporation.
(b) VOLUNTARY TERMINATION OR TERMINATION FOR CAUSE.
In case of a Voluntary Termination or a termination for Cause, the
Executive shall be entitled to his Basic Compensation accrued to the Date of
Termination and any benefits or awards accrued or vested prior to such date,
including, without limitation, his right to exercise any vested stock options.
Except as otherwise provided in this Agreement or under any employee benefit
plan maintained by the Corporation, the Corporation shall have no further
obligations to the Executive.
(c) RETIREMENT.
(i) Upon the Retirement of the Executive, the Executive shall
receive the payments and benefits set forth in Sections 3.3(a)(i),
3.3(a)(ii)(1) and (2). In addition, the Executive shall receive all
retirement benefits he is eligible to receive under the Corporation's
employee benefit plans, subject to the terms and conditions of such plans.
(ii) The Executive shall have the right in his sole discretion after
his Retirement to engage in regular employment (whether as an employee of
another entity or as a self-employed person) and shall have no obligation
to perform further services for the Corporation.
(d) CONSULTING ENGAGEMENT. If, during the Term, the Executive's
employment is terminated without Cause, for Good Reason or as a result of a
Special
10
<PAGE>
Termination, the Corporation shall engage the Executive as a consultant
to the Corporation for a period (the "Consulting Period") commencing on the Date
of Termination and ending on the third anniversary thereof. The Executive's
services hereunder during the Consulting Period shall consist of such consulting
and advisory services, and shall be provided at such times and on such other
terms and conditions, as may be agreed upon from time to time between the
Executive and the Corporation. As compensation for the consulting services to be
performed by the Executive hereunder and the continued application to be
Executive of the provisions of Article IV during the Consulting Period, the
Executive shall be paid a fee (the "Consulting Fee") at an annual rate of
$500,000 payable in monthly installments. The provisions of Article IV shall be
appropriately amended to take into account the fact that the Executive is no
longer an employee of the Corporation.
ARTICLE IV. PURPOSE; NONCOMPETITION
SECTION 4.1 PURPOSE. The Corporation recognizes that the Executive
is a key executive of the Corporation and is expected to be a factor in the
continued growth and success of the Corporation. The Corporation also recognizes
that the continued success of the Corporation depends upon the effective
performance of the Executive's duties as set forth in this Agreement. Therefore,
one of the primary purposes of this Agreement is to provide for the long-term
financial security of the Executive and his family so that he will be better
able to direct his undivided attention to the successful performance of his
duties on behalf of the Corporation.
SECTION 4.2 CONFIDENTIAL INFORMATION. In the Executive's position of
responsibility with the Corporation, he has access to, and familiarity with, the
business methods and confidential information of the Corporation and its
subsidiaries, including, but not limited to, its exploration and development
techniques and information, its service and organizational techniques, its
expansion projects, its personnel training and development techniques, its
petroleum exploitation, exploration and development techniques, and its
petroleum exploration and development information. Therefore, in order to
protect the business and good will of the Corporation, the Executive shall be
bound by the following provisions for the periods prescribed below.
SECTION 4.3 NONCOMPETITION. Except with respect to the exploration
for, and the production and marketing of, oil and gas which shall be controlled
by Section 4.4, during the Active Employment Period and, if applicable, the
Consulting Period, the Executive shall not, without the prior written consent of
the Corporation, directly or indirectly engage in, or assist or have an active
interest in (whether as proprietor, partner, investor, shareholder, officer,
director or any type of principal whatsoever), or be employed by, or act as an
agent for, advisor or consultant to, any person, firm, partnership, association,
corporation or business organization, entity or enterprise that is, or is about
to become, directly or indirectly engaged in any business that competes
substantially with, or is substantially similar to, any business or proposed
business of the Corporation or any subsidiary of the Corporation; provided that
ownership of not more than 2% of the outstanding stock of a corporation traded
on a national securities exchange or
11
<PAGE>
quoted on NASDAQ shall not of itself be viewed as engaging, assisting or having
an active interest; provided further that during the Consulting Period (but only
if the Executive is no longer serving on the Board) the restrictions set forth
in this Section 4.3 shall not apply to any geographical area in which the
Corporation or a subsidiary of the Corporation has not conducted any business,
or has not had any business in the planning or development stage, within one
year prior to the date of the Executive's activities otherwise referred to in
this Section 4.3.
SECTION 4.4 OIL AND GAS INTEREST OWNERSHIP. For the same time
periods and with respect to the same capacities as set forth in Section 4.3,
except as required by the Corporation, the Executive shall not in any manner
(whether through employment by another corporation or otherwise) participate in,
or own directly or indirectly any interest (whether working, royalty, overriding
royalty or other) in, any oil and gas lease or prospect or any partnership or
other entity engaged in oil and gas exploration or production unless such
participation or interest shall first have been approved in writing by the Board
in accordance with guidelines to be established by the Board or shall have been
acquired by the Executive prior to the Effective Date, provided that in no event
shall any proposed participation or interest require a significant time
commitment by the Executive during his active employment other than that
involved in making the investment decision relating thereto and in obtaining the
Corporation's approval thereof.
SECTION 4.5 CORPORATE OPPORTUNITY. Except as to such actions within
the ordinary course of the Executive's employment by the Corporation which the
Executive in good faith believes to be in the best interests of the Corporation,
the Executive shall not at any time during the Active Employment Period and, if
applicable, the Consulting Period, without the prior written consent of the
Corporation: (i) request or advise any supplier, or other person, firm,
partnership, association, corporation or business organization, entity or
enterprise having business dealings with the Corporation or any subsidiary of
the Corporation to withdraw, curtail or cancel such business dealings; (ii)
disclose to any competitor or potential competitor of the Corporation or any
subsidiary of the Corporation any trade secret, know-how or knowledge relating
to costs, products, equipment, merchandising and marketing methods, oil and gas
exploration and/or production, business plans, or research results used by, or
useful to, the Corporation or any subsidiary of the Corporation; or (iii)
solicit or attempt to entice away from the Corporation or any subsidiary of the
Corporation any executive thereof.
ARTICLE V. ADJUSTMENTS FOR CERTAIN PAYMENTS
For purposes of this Article V, (i) "Payment" shall mean any payment
or distribution in the nature of compensation to or for the benefit of the
Executive, whether paid or payable pursuant to this Agreement or otherwise; (ii)
"Agreement Payment" shall mean a Payment paid or payable pursuant to this
Agreement (disregarding this Article V); (iii) "Net After Tax Receipt" shall
mean the Present Value (as defined below) of a Payment net of all federal, state
and local taxes imposed on the Executive with respect thereto, including the tax
imposed under Section 4999 of the Code, determined by applying the highest
applicable
12
<PAGE>
marginal rates which apply to the Executive's taxable income; (iv)
"Present Value" shall mean such value determined in accordance with Section
280G(d)(4) of the Code; and (v) "Reduced Amount" shall mean the largest
aggregate amount of Agreement Payments which (a) is less than the sum of all
Agreement Payments and (b) results in aggregate Net After Tax Receipts which are
equal to or greater than the Net After Tax Receipts which would result if the
aggregate Agreement Payments were made.
Anything in this Agreement to the contrary notwithstanding, in the
event a national certified public accounting firm designated by the Executive
(the "Accounting Firm") shall determine that receipt of all Payments would
subject the Executive to tax under Section 4999 of the Code, it shall determine
whether some amount of Agreement Payments would meet the definition of a
"Reduced Amount." If said firm determines that there is a Reduced Amount, the
aggregate Agreement Payments shall be reduced to such Reduced Amount. The
aggregate amount by which the Agreement Payments are reduced to arrive at the
Reduced Amount shall be referred to as the "Foregone Amount."
If the Accounting Firm determines that aggregate Agreement Payments
should be reduced to the Reduced Amount, the Corporation shall promptly give the
Executive notice to that effect and a copy of the detailed calculation thereof,
and the Executive may then elect, in his sole discretion, which and how much of
the Agreement Payments shall be eliminated or reduced (as long as after such
election the Present Value of the aggregate Agreement Payments equals the
Reduced Amount), and shall advise the Corporation in writing of his election
within ten days of his receipt of notice. If no such election is made by the
Executive within such ten-day period, the Corporation may elect which of such
Agreement Payments shall be eliminated or reduced (as long as after such
election the Present Value of the aggregate Agreement Payments equals the
Reduced Amount) and shall notify the Executive promptly of such election. All
determinations made by the Accounting Firm under this Article V shall be binding
upon the Corporation and the Executive. As promptly as practicable following
such determination, the Corporation shall pay to, or distribute for the benefit
of, the Executive such Agreement Payments as are then due to the Executive under
this Agreement and shall promptly pay to or distribute for the benefit of the
Executive in the future such Agreement Payments as become due to the Executive
under this Agreement.
While it is the intention of the Corporation and the Executive to
reduce the amounts payable or distributable to the Executive hereunder only if
the aggregate Net After Tax Receipts to the Executive would thereby be
increased, as a result of the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that amounts will have been paid or distributed by the
Corporation to or for the benefit of the Executive pursuant to this Agreement
which should not have been so paid or distributed ("Overpayment") or that
additional amounts which will have not been paid or distributed by the
Corporation to or for the benefit of the Executive pursuant to this Agreement
could have been so paid or distributed ("Underpayment"), in each case,
consistent with the calculation of the Reduced Amount hereunder. In the event
that the Accounting Firm, based
13
<PAGE>
either upon the assertion of a deficiency by the Internal Revenue Service
against the Corporation or the Executive which the Accounting Firm believes has
a high probability of success or otherwise, determines that an Overpayment has
been made, any such overpayment paid or distributed by the Corporation to or for
the benefit of the Executive shall be treated for all purposes as a loan to the
Executive which the Executive shall repay to the Corporation together with
interest at the applicable federal rate provided for in Section 7872(f)(2) of
the Code; provided, however, that no such loan shall be deemed to have been made
and no amount shall be payable by the Executive to the Corporation if and to the
extent such deemed loan and payment would not either reduce the amount on which
the Executive is subject to tax under Section 1 and Section 4999 of the Code or
generate a refund of such taxes. In the event that the Accounting Firm
determines that an Underpayment has occurred, any such Underpayment shall be
promptly paid by the Corporation to or for the benefit of the Executive together
with interest at the applicable federal rate provided for in Section 7872(f)(2)
of the Code.
Notwithstanding the foregoing, at the election of the Executive, the
Reduced Amount shall be the largest amount of Agreement Payments which may be
made without causing any Payment to be subject to tax under Section 4999 of the
Code.
ARTICLE VI. MISCELLANEOUS
SECTION 6.1 ENFORCEABILITY. If the scope of any provision of this
Agreement is too broad to permit enforcement of such provision to its fullest
extent, then such provision shall be enforced to the maximum extent permitted by
applicable law, and, if necessary, the scope of any such provision may be
judicially modified (to the extent necessary in any proceeding brought to
enforce such provision) and thereafter fully enforced.
SECTION 6.2 REMEDIES. The parties acknowledge that the remedy at law
for any breach of any of a party's obligations hereunder would be inadequate and
consent to the granting of temporary and permanent injunctive relief in any
proceeding brought to enforce any of such provisions without the necessity of
proof of actual damages; provided, however, that the foregoing shall not be
construed to limit any other right or remedy available to the Corporation or the
Executive at law or in equity, and all such rights and remedies shall be
cumulative to the extent permitted by applicable law, and the exercise of any
one or more of such rights or remedies shall be without prejudice to the
exercise of any other such right or remedy.
SECTION 6.3 RESIGNATION AS BOARD AND COMMITTEE MEMBER. Unless
otherwise requested by the Board, and except as provided in Section 1.2, upon
the termination of his employment for any reason, the Executive hereby agrees
that he shall simultaneously submit his resignation as a member of the Board,
Boards of Directors of the Corporation's subsidiaries and any Board committees
on which he serves in writing on or before the date he ceases to be an executive
of the Corporation. If the Executive fails or neglects to submit such
resignations in writing, the Corporation shall be permitted to deem the
Executive to have submitted his written resignation as such member effective on
the same date that the
14
<PAGE>
Executive ceases to be an executive of the Corporation. If the Executive
continues to serve as a member of the Board at the request of the Board after
his termination of employment or pursuant to Section 1.2, the Executive shall be
entitled to all benefits provided to other Board members who are not employees
of the Corporation.
SECTION 6.4 NO OFFSET; ENFORCEMENT OF AGREEMENT. The Corporation's
obligation to make the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which the
Corporation may have against the Executive or others, except as provided in
Section 3.3(a)(iii). In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Corporation agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Corporation, the
Executive or others of the validity or enforceability of, or liability under,
any provision of this Agreement or any guarantee of performance thereof
(including as a result of any contest by the Executive about the amount of any
payment pursuant to this Agreement), plus in each case interest on any delayed
payment at the applicable federal rate provided for in Section 7872(f)(2) of the
Code and amounts sufficient to reimburse the Executive for all tax liabilities
due in respect of such payments of legal fees and expenses; provided, however,
if an action brought by the Executive, or if the Executive's defense of an
action brought by the Corporation, is finally determined to be without merit by
a court of competent jurisdiction, the Executive shall refund amounts paid by
the Corporation for legal fees, taxes and interest pursuant to this Section 6.4.
SECTION 6.5 ASSIGNMENT BY THE EXECUTIVE'S SUCCESSORS.
(a) This Agreement is personal to the Executive and, without the
prior written consent of the Corporation, shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) Except as is otherwise herein expressly provided, this Agreement
shall inure to the benefit of and be binding upon the Corporation, its
successors and assigns, and upon the Executive, his spouse, heirs, executors and
administrators, provided, however, that the obligations of the Executive
hereunder shall not be delegated.
(c) The Corporation will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform it if no such
succession had taken place. As used in this Agreement, "Corporation" shall mean
Corporation as
15
<PAGE>
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
SECTION 6.6 WAIVER. Failure of either party hereto to insist upon
strict compliance by the other party with any term, covenant or condition hereof
shall not be deemed a waiver of such term, covenant or condition, nor shall any
waiver or relinquishment or failure to insist upon strict compliance of any
right or power hereunder at any one time or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 6.7 NOTICE. Any notice required or desired to be given
pursuant to this Agreement shall be sufficient if in writing sent by registered
or certified mail to the addresses hereinafter set forth above or to such other
address as any party hereto may designate in writing, transmitted by hand
delivery or by registered or certified mail to the other.
SECTION 6.8 APPLICABLE LAW. This Agreement shall be governed by the
laws of the State of Texas, without giving effect to the conflicts of laws
principles thereof.
SECTION 6.9 TAXES. The Corporation may deduct from all amounts paid
under this Agreement all federal, state, local and other taxes required by law
to be withheld with respect to such payments.
SECTION 6.10 ENTIRE AGREEMENT. The parties hereto agree that this
Agreement and the Merger Agreement (together with, to the extent benefits or
rights are otherwise affected by this Agreement, any employee benefit plan
maintained or sponsored by the Corporation) contains the entire understanding
and agreement between them and supercedes all previous agreements and
arrangements, if any, relating to the subject matter hereof. This Agreement
shall not be amended, modified or supplemented in any respect except by an
agreement in writing signed by the Executive and the Corporation.
16
<PAGE>
IN WITNESS WHEREOF, the Corporation and the Executive have duly
executed this Agreement as of the day and the year first above written.
LOUIS DREYFUS NATURAL GAS CORP.
By: /s/ [ILLEGIBLE]
----------------------------------
Name:
Title:
EXECUTIVE
/s/ Mark Andrews
-------------------------------------
Mark Andrews
17
RETENTION AGREEMENT
BETWEEN
LOUIS DREYFUS NATURAL GAS CORP.
AND
ELLIOTT PEW
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I. TERM; CERTAIN COMPENSATION ............................... 2
SECTION 1.1 TERM ................................................ 2
SECTION 1.2 STOCK OPTIONS. ...................................... 2
SECTION 1.3 TOTAL COMPENSATION .................................. 3
ARTICLE II. TERMINATION OF EMPLOYMENT ................................ 3
SECTION 2.1 EVENTS OF TERMINATION ............................... 3
SECTION 2.2 TERMINATION PROCEDURES AND CERTAIN DEFINITIONS. ..... 5
SECTION 2.3 OBLIGATIONS OF THE CORPORATION ON TERMINATION ....... 6
ARTICLE III.PURPOSE; NONCOMPETITION .................................. 8
SECTION 3.1 PURPOSE ............................................. 8
SECTION 3.2 CONFIDENTIAL INFORMATION ............................ 8
SECTION 3.3 NONCOMPETITION ...................................... 8
SECTION 3.4 OIL AND GAS INTEREST OWNERSHIP ...................... 9
SECTION 3.5 CORPORATE OPPORTUNITY ............................... 9
ARTICLE IV. MISCELLANEOUS ............................................ 10
SECTION 4.1 ENFORCEABILITY ...................................... 10
SECTION 4.2 REMEDIES ............................................ 10
SECTION 4.3 NO OFFSET; ENFORCEMENT OF AGREEMENT. ................ 10
SECTION 4.4 ASSIGNMENT BY THE EXECUTIVE'S SUCCESSORS ............ 10
SECTION 4.5 WAIVER .............................................. 11
SECTION 4.6 NOTICE .............................................. 11
SECTION 4.7 APPLICABLE LAW ...................................... 11
SECTION 4.8 TAXES. .............................................. 11
SECTION 4.9 ENTIRE AGREEMENT .................................... 11
1
<PAGE>
RETENTION AGREEMENT
RETENTION AGREEMENT, dated as of the 24th day of June, 1997 (the
"Agreement"), by and between LOUIS DREYFUS NATURAL GAS CORP., an Oklahoma
corporation, having its principal place of business at 14000 Quail Springs
Parkway, Suite 600, Oklahoma City, Oklahoma (the "Corporation") and ELLIOTT PEW,
an individual residing at 4 Wellington Lane, Conroe, Texas 77304 (the
"Executive").
WITNESSETH THAT:
WHEREAS, the Executive is currently serving as the Senior Vice
President - Exploration of American Exploration Company, a Delaware corporation
("American");
WHEREAS, pursuant to the Agreement and Plan of Reorganization, dated
as of June 24, 1997 (the "Merger Agreement"), by and among the Corporation, LDNG
Acquisition, Inc. and American, the parties thereto have agreed to a merger (the
"Merger") pursuant to the terms thereof;
WHEREAS, the Corporation desires to secure the employment of the
Executive, and the Executive is willing to be employed by the Corporation, and
certain of the terms and conditions of such employment are set forth herein; and
WHEREAS, in connection with the Merger, the parties hereto desire to
enter into this Agreement, to be effective upon the consummation of the Merger.
NOW, THEREFORE, in consideration of the mutual premises, covenants
and agreements herein contained, the parties hereto agree as follows:
ARTICLE I. TERM; CERTAIN COMPENSATION
SECTION 1.1 TERM. This Agreement shall have a term (the "Term")
commencing as of the Effective Time of the Merger (as defined in the Merger
Agreement) (the "Effective Date") and terminating on the second anniversary
thereof. The "Active Employment Period" shall mean the period commencing on the
Effective Date and ending upon termination of the Executive's employment in
accordance with the provisions of this Agreement.
SECTION 1.2 STOCK OPTIONS. Effective as of the Effective Date and in
consideration of the services to be rendered by the Executive to the
Corporation, the Executive shall be awarded options (which options shall
constitute "incentive stock options" to the maximum extent permissible under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")) to
purchase 50,000 shares of the common stock of the Corporation
2
<PAGE>
pursuant to the terms of the Corporation's Stock Option Plan (the "Plan") at an
exercise price equal to the fair market value (as determined under the Plan) of
the Corporation's common stock as of the Effective Date. Such options shall have
a ten year term and shall vest in four equal annual installments on the first
four anniversaries of the Effective Date.
SECTION 1.3 TOTAL COMPENSATION. For purposes of this Agreement, the
Executive's "Total Compensation" means the total of (i) the Executive's base
annual salary, including amounts the Executive has electively deferred under an
arrangement qualified under Section 401(k) of the Code, and pursuant to any
cafeteria plan under Section 125 of the Code or otherwise, plus (ii) an amount
equal to the aggregate amounts paid to the Executive in respect of bonuses over
the three most recent fiscal years of the Corporation or American, as the case
may be, divided by three, excluding 1997; provided that Total Compensation shall
not be less than $243,333.00.
ARTICLE II. TERMINATION OF EMPLOYMENT
SECTION 2.1 EVENTS OF TERMINATION.
(a) DEATH. The Executive's employment shall terminate automatically
upon the Executive's death.
(b) DISABILITY. If the Corporation determines in good faith that the
Disability of the Executive has occurred during the Active Employment Period, it
may give the Executive notice of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Corporation shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the thirty
(30) days after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Corporation on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Corporation or its insurers
and acceptable to the Executive or the Executive's legal representative.
(c) WITHOUT CAUSE. Notwithstanding any other provision hereunder,
the Corporation shall have the right to terminate the Executive's employment
hereunder without Cause at any time during the Active Employment Period for any
reason in the sole discretion of the Corporation upon not less than thirty (30)
days' prior written notice to the Executive.
(d) CAUSE. The Corporation may terminate the Executive's employment
during the Active Employment Period for Cause. For purposes of this Agreement,
"Cause" shall mean:
(i) The willful and continued failure of the Executive to perform
substantially the Executive's duties with the Corporation (other than any
such failure resulting from
3
<PAGE>
incapacity due to physical or mental illness), after a written demand for
substantial performance is delivered to the Executive by the Chief
Executive Officer of the Corporation, which demand shall specifically
identify the manner in which the Chief Executive Officer believes that the
Executive has not substantially performed the Executive's duties, or
(ii) The willful engaging by the Executive in illegal conduct or
gross misconduct in connection with the performance of his duties
hereunder which is materially injurious to the Corporation.
For purposes of this provision, no act or failure to act, on the
part of the Executive, shall be considered "willful" unless it is done, or
omitted to be done, by the Executive in bad faith or without reasonable belief
that the Executive's action or omission was in the best interests of the
Corporation. Any act, or failure to act, based upon authority given pursuant to
a resolution duly adopted by the Board of Directors of the Corporation (the
"Board") or upon the instructions of any senior officer of the Corporation or
based upon the advice of counsel for the Corporation shall be conclusively
presumed to be done, or omitted to be done, by the Executive in good faith and
in the best interests of the Corporation.
(e) GOOD REASON. The Executive may terminate his employment during
the Active Employment Period for Good Reason at any time upon thirty (30) days'
notice to the Corporation. For purposes of this Agreement, "Good Reason" shall
mean the occurrence, without the Executive's express written consent, of any one
or more of the following events:
(i) A reduction in the Executive's annual base salary from that in
effect at the Effective Date or as it may be increased thereafter or the
failure by the Corporation to provide prompt payment (or reimbursement to
the Executive) of all reasonable expenses incurred by the Executive in
connection with the Executive's professional and business activities;
(ii) The Corporation requiring the Executive to be based anywhere
other than Houston, Texas, except for travel on business to an extent
reasonably required in the performance of the Executive's duties
hereunder;
(iii) The failure by the Corporation to include the Executive as a
participant in any benefit or compensation plan or arrangement generally
available to other key executives of the Corporation or the failure by the
Corporation to provide the Executive with the number of paid vacation
days, holidays and personal days to which the Executive is entitled in
accordance with the Corporation's normal leave policy;
(iv) The failure of the Corporation to obtain the assumption of this
Agreement, without limitation or reduction, by any successor to the
Corporation;
4
<PAGE>
(v) Any purported termination of the Executive's employment by the
Corporation which is not effected pursuant to the express terms of this
Agreement, including the Notice of Termination requirements of Section
2.2(a);
(vi) The budgeting or expenditure of less than $25 million in the
Corporation's oil and gas exploration activities during either of the
calendar years 1998 or 1999; or
(vii) The filing of a voluntary or involuntary petition of
bankruptcy by or against the Corporation or the insolvency of the
Corporation.
For purposes of this Section 2.1(e), any good faith determination of "Good
Reason" made by the Executive shall be conclusive.
(f) RETIREMENT. The Executive may terminate his employment by reason
of "Retirement" at the end of the fiscal year of the Corporation in which the
Executive attains the age of 65 or such later date as the Board shall set with
the written consent of the Executive (the "Retirement Effective Date").
(g) VOLUNTARY TERMINATION. The Executive shall have the right at any
time after the Effective Date to voluntarily terminate his employment by the
Corporation (a "Voluntary Termination") for any reason in the sole discretion of
the Executive by not less than thirty (30) days' prior written notice to the
Corporation; provided, however, that a termination without Cause, by reason of
death, Disability or Retirement, or Good Reason shall not be treated for any
purpose hereunder as a Voluntary Termination.
SECTION 2.2 TERMINATION PROCEDURES AND CERTAIN DEFINITIONS.
(a) NOTICE OF TERMINATION. Any termination by the Corporation for
Cause, without Cause, by reason of Disability or by the Executive for Good
Reason or in a Voluntary Termination or Retirement, shall be communicated by
Notice of Termination to the other party hereto given in accordance with Section
4.6 of this Agreement. For purposes of this Agreement, a "Notice of Termination"
means a written notice which (i) indicates the specific termination provision in
this Agreement relied upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated and
(iii) if the Date of Termination (as defined below) is other than the date of
receipt of such notice, specifies the termination date. The failure by the
Executive or the Corporation to set forth in the Notice of Termination any fact
or circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Corporation, respectively, hereunder or
preclude the Executive or the Corporation, respectively, from asserting such
fact or circumstance in enforcing the Executive's or the Corporation's rights
hereunder. The Executive's continued employment or other status
5
<PAGE>
with the Corporation after a Notice of Termination is provided shall not
constitute consent to, or a waiver of any rights with respect to, any
circumstance constituting Good Reason hereunder.
(b) DATE OF TERMINATION. "Date of Termination" means (i) if the
Executive's employment is terminated by the Corporation for Cause, the date of
receipt of the Notice of Termination or any later date specified therein, as the
case may be, (ii) if the Executive's employment is terminated by the Corporation
other than for Cause or Disability, the Date of Termination shall be the date
not less than thirty (30) days after the date on which the Corporation notifies
the Executive of such termination, (iii) if the Executive terminates his
employment for Good Reason or in a Voluntary Termination, the Date of
Termination shall be the date, not less than thirty (30) days after the date on
which the Executive notifies the Corporation of such termination and (iv) if the
Executive's employment is terminated by reason of death, Disability or
Retirement, the Date of Termination shall be the date of death of the Executive,
the Disability Effective Date or the Retirement Effective Date, as the case may
be. In the case of any termination of the Executive's employment, the
Corporation shall have the option, exercisable by written notice to the
Executive within ten (10) days after the Executive's Notice of Termination is
provided to the Corporation, to designate any date prior to the expiration of
the aforesaid notice as the date on which the Executive shall cease to be an
officer of the Corporation.
SECTION 2.3 OBLIGATIONS OF THE CORPORATION ON TERMINATION.
(a) TERMINATION UPON DEATH OR DISABILITY, WITHOUT CAUSE OR FOR GOOD
REASON.
If, during the Term, the Executive's employment is terminated upon
his death or Disability, without Cause or for Good Reason:
(i) IN GENERAL.
The Corporation shall immediately pay the Executive in cash the
amount of Basic Compensation previously earned but not yet paid.
(ii) SEVERANCE BENEFITS.
(1) All stock options held by the Executive that have not already
vested shall immediately vest.
(2) The Executive shall continue to participate in all welfare
benefit plans, including health and medical plans, in which the Executive
was participating prior to the Date of Termination for six months after
termination and shall be entitled to (a) reimbursement of COBRA payments
to maintain medical and dental insurance up to 18
6
<PAGE>
additional months for said coverage and (b) the use of one or more
executive out-placement services, designated by the Executive and paid for
by the Corporation; and
(3) If the Executive's employment is terminated upon his death or
Disability, the Corporation shall pay the Executive in a lump sum a
"Severance Benefit" in cash equal to two (2) times the Executive's Total
Compensation as of the time of such termination. Such payment shall be
made within thirty (30) days following said termination. In the event of
the Executive's death, any amounts payable under this Agreement shall be
paid to the beneficiary (or beneficiaries) designated by the Executive and
in such amounts or proportions as the Executive shall so designate. If no
beneficiary is designated by the Executive or if none shall survive the
Executive, then any amounts payable under this Agreement shall be paid to
the Executive's surviving spouse, if any, or, if no such surviving spouse
exists, to the Executive's estate.
(iii) DISABILITY.
(1) If, following a Disability termination, the Executive becomes
entitled to and receives disability benefits under any disability payment
plan sponsored and maintained by the Corporation, the amount otherwise
payable by the Corporation to the Executive pursuant to Section 2.3(a)
shall be reduced, on a dollar-for-dollar basis, but not below zero, by the
amount of any such disability benefits received by him, but only to the
extent such benefits are attributable to payments made by the Corporation.
(2) The Executive shall have the right in his sole discretion after
the Disability Effective Date to engage in regular employment (whether as
an employee of another entity or as a self-employed person) and shall have
no obligation to perform further services for the Corporation.
(b) VOLUNTARY TERMINATION OR TERMINATION FOR CAUSE. In case of a
Voluntary Termination or a termination for Cause, the Executive shall be
entitled to his Basic Compensation accrued to the Date of Termination and any
benefits or awards accrued or vested prior to such date, including, without
limitation, his right to exercise any vested stock options. Except as otherwise
provided in this Agreement or under any employee benefit plan maintained by the
Corporation, the Corporation shall have no further obligations to the Executive.
(c) RETIREMENT.
(i) Upon the Retirement of the Executive, the Executive shall
receive the payments and benefits set forth in Sections 2.3(a)(i), 2.3(a)(ii)(1)
and (2). In addition, the Executive shall receive all retirement benefits he is
eligible to receive under the Corporation's employee benefit plans, subject to
the terms and conditions of such plans.
7
<PAGE>
(ii) The Executive shall have the right in his sole discretion after
his Retirement to engage in regular employment (whether as an employee of
another entity or as a self-employed person) and shall have no obligation
to perform further services for the Corporation.
(d) CONSULTING ENGAGEMENT. If, during the Term, the Executive's
employment is terminated without Cause or for Good Reason, the Corporation shall
engage the Executive as a consultant to the Corporation for a period (the
"Consulting Period") commencing on the Date of Termination and ending on the
second anniversary thereof. The Executive's services hereunder during the
Consulting Period shall consist of such consulting and advisory services, and
shall be provided at such times and on such other terms and conditions, as may
be agreed upon from time to time between the Executive and the Corporation. As
compensation for the consulting services to be performed by the Executive
hereunder and the continued application to be Executive of the provisions of
Article III during the Consulting Period, the Executive shall be paid a fee (the
"Consulting Fee") at an annual rate equal to his Total Compensation as of the
time of termination of the Executive's employment payable in monthly
installments. The provisions of Article III shall be appropriately amended to
take into account the fact that the Executive is no longer an employee of the
Corporation. In the event of the Executive's death prior to the end of the
Consulting Period, the Consulting Fee shall continue to be paid to the
Executive's beneficiaries on the terms set forth in Section 2.3(a)(ii)(3).
ARTICLE III. PURPOSE; NONCOMPETITION
SECTION 3.1 PURPOSE. The Corporation recognizes that the Executive
is a key executive of the Corporation and is expected to be a factor in the
continued growth and success of the Corporation. The Corporation also recognizes
that the continued success of the Corporation depends upon the effective
performance of the Executive's duties as set forth in this Agreement. Therefore,
one of the primary purposes of this Agreement is to provide for the long-term
financial security of the Executive and his family so that he will be better
able to direct his undivided attention to the successful performance of his
duties on behalf of the Corporation.
SECTION 3.2 CONFIDENTIAL INFORMATION. In the Executive's position of
responsibility with the Corporation, he has access to, and familiarity with, the
business methods and confidential information of the Corporation and its
subsidiaries, including, but not limited to, its exploration and development
techniques and information, its service and organizational techniques, its
expansion projects, its personnel training and development techniques, its
petroleum exploitation, exploration and development techniques, and its
petroleum exploration and development information. Therefore, in order to
protect the business and good will of the Corporation, the Executive shall be
bound by the following provisions for the periods prescribed below.
SECTION 3.3 NONCOMPETITION. Except with respect to the exploration
for, and the production and marketing of, oil and gas which shall be controlled
by
8
<PAGE>
Section 3.4, during the Active Employment Period and, if applicable, the
Consulting Period, the Executive shall not, without the prior written consent of
the Corporation, directly or indirectly engage in, or assist or have an active
interest in (whether as proprietor, partner, investor, shareholder, officer,
director or any type of principal whatsoever), or be employed by, or act as an
agent for, advisor or consultant to, any person, firm, partnership, association,
corporation or business organization, entity or enterprise that is, or is about
to become, directly or indirectly engaged in any business that competes
substantially with, or is substantially similar to, any business or proposed
business of the Corporation or any subsidiary of the Corporation; provided that
ownership of not more than 2% of the outstanding stock of a corporation traded
on a national securities exchange or quoted on NASDAQ shall not of itself be
viewed as engaging, assisting or having an active interest; provided further
that during the Consulting Period the restrictions set forth in this Section 3.3
shall not apply to any geographical area in which the Corporation or a
subsidiary of the Corporation has not conducted any business, or has not had any
business in the planning or development stage, within one year prior to the date
of the Executive's activities otherwise referred to in this Section 3.3.
SECTION 3.4 OIL AND GAS INTEREST OWNERSHIP. For the same time
periods and with respect to the same capacities as set forth in Section 3.3,
except as required by the Corporation, the Executive shall not in any manner
(whether through employment by another corporation or otherwise) participate in,
or own directly or indirectly any interest (whether working, royalty, overriding
royalty or other) in, any oil and gas lease or prospect or any partnership or
other entity engaged in oil and gas exploration or production unless such
participation or interest shall first have been approved in writing by the Board
in accordance with guidelines to be established by the Board or shall have been
acquired by the Executive prior to the Effective Date, provided that in no event
shall any proposed participation or interest require a significant time
commitment by the Executive during his active employment other than that
involved in making the investment decision relating thereto and in obtaining the
Corporation's approval thereof.
SECTION 3.5 CORPORATE OPPORTUNITY. Except as to such actions within
the ordinary course of the Executive's employment by the Corporation which the
Executive in good faith believes to be in the best interests of the Corporation,
the Executive shall not at any time during the Active Employment Period and, if
applicable, the Consulting Period, without the prior written consent of the
Corporation: (i) request or advise any supplier, or other person, firm,
partnership, association, corporation or business organization, entity or
enterprise having business dealings with the Corporation or any subsidiary of
the Corporation to withdraw, curtail or cancel such business dealings; (ii)
disclose to any competitor or potential competitor of the Corporation or any
subsidiary of the Corporation any trade secret, know-how or knowledge relating
to costs, products, equipment, merchandising and marketing methods, oil and gas
exploration and/or production, business plans, or research results used by, or
useful to, the Corporation or any subsidiary of the Corporation; or (iii)
solicit or attempt to entice away from the Corporation or any subsidiary of the
Corporation any executive thereof.
9
<PAGE>
ARTICLE IV. MISCELLANEOUS
SECTION 4.1 ENFORCEABILITY. If the scope of any provision of this
Agreement is too broad to permit enforcement of such provision to its fullest
extent, then such provision shall be enforced to the maximum extent permitted by
applicable law, and, if necessary, the scope of any such provision may be
judicially modified (to the extent necessary in any proceeding brought to
enforce such provision) and thereafter fully enforced.
SECTION 4.2 REMEDIES. The parties acknowledge that the remedy at law
for any breach of any of a party's obligations hereunder would be inadequate and
consent to the granting of temporary and permanent injunctive relief in any
proceeding brought to enforce any of such provisions without the necessity of
proof of actual damages; provided, however, that the foregoing shall not be
construed to limit any other right or remedy available to the Corporation or the
Executive at law or in equity, and all such rights and remedies shall be
cumulative to the extent permitted by applicable law, and the exercise of any
one or more of such rights or remedies shall be without prejudice to the
exercise of any other such right or remedy.
SECTION 4.3 NO OFFSET; ENFORCEMENT OF AGREEMENT. The Corporation's
obligation to make the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which the
Corporation may have against the Executive or others, except as provided in
Section 2.3(a)(iii). In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Corporation agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Corporation, the
Executive or others of the validity or enforceability of, or liability under,
any provision of this Agreement or any guarantee of performance thereof
(including as a result of any contest by the Executive about the amount of any
payment pursuant to this Agreement), plus in each case interest on any delayed
payment at the applicable federal rate provided for in Section 7872(f)(2) of the
Code and amounts sufficient to reimburse the Executive for all tax liabilities
due in respect of such payments of legal fees and expenses; provided, however,
if an action brought by the Executive, or if the Executive's defense of an
action brought by the Corporation, is finally determined to be without merit by
a court of competent jurisdiction, the Executive shall refund amounts paid by
the Corporation for legal fees, taxes and interest pursuant to this Section 4.3.
SECTION 4.4 ASSIGNMENT BY THE EXECUTIVE'S SUCCESSORS.
(a) This Agreement is personal to the Executive and, without the
prior written consent of the Corporation, shall not be assignable by the
Executive otherwise than by will or the
10
<PAGE>
laws of descent and distribution. This Agreement shall inure to the benefit of
and be enforceable by the Executive's legal representatives.
(b) Except as is otherwise herein expressly provided, this Agreement
shall inure to the benefit of and be binding upon the Corporation, its
successors and assigns, and upon the Executive, his spouse, heirs, executors and
administrators, provided, however, that the obligations of the Executive
hereunder shall not be delegated.
(c) The Corporation will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform it if no such
succession had taken place. As used in this Agreement, "Corporation" shall mean
Corporation as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
SECTION 4.5 WAIVER. Failure of either party hereto to insist upon
strict compliance by the other party with any term, covenant or condition hereof
shall not be deemed a waiver of such term, covenant or condition, nor shall any
waiver or relinquishment or failure to insist upon strict compliance of any
right or power hereunder at any one time or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 4.6 NOTICE. Any notice required or desired to be given
pursuant to this Agreement shall be sufficient if in writing sent by registered
or certified mail to the addresses hereinafter set forth above or to such other
address as any party hereto may designate in writing, transmitted by hand
delivery or by registered or certified mail to the other.
SECTION 4.7 APPLICABLE LAW. This Agreement shall be governed by the
laws of the State of Texas, without giving effect to the conflicts of laws
principles thereof.
SECTION 4.8 TAXES. The Corporation may deduct from all amounts paid
under this Agreement all federal, state, local and other taxes required by law
to be withheld with respect to such payments.
SECTION 4.9 ENTIRE AGREEMENT. The parties hereto agree that this
Agreement and the Merger Agreement (together with, to the extent benefits or
rights are otherwise affected by this Agreement, any employee benefit plan
maintained or sponsored by the Corporation) contains the entire understanding
and agreement between them and supercedes all previous agreements and
arrangements, if any, relating to the subject matter hereof. Notwithstanding the
foregoing, in the event that the Merger Agreement is terminated, then at the
time of such termination, this Agreement shall be deemed canceled and of no
force or effect and the Executive shall continue to be subject to such
agreements and arrangements that were in effect prior to the execution of the
Merger Agreement. This Agreement shall not be amended,
11
<PAGE>
modified or supplemented in any respect except by an agreement in writing signed
by the Executive and the Corporation.
IN WITNESS WHEREOF, the Corporation and the Executive have duly
executed this Agreement as of the day and the year first above written.
LOUIS DREYFUS NATURAL GAS CORP.
By: /s/ [ILLEGIBLE]
---------------------------------------
Name:
Title:
EXECUTIVE
-------------------------------------
Elliott Pew
12
RETENTION AGREEMENT
BETWEEN
LOUIS DREYFUS NATURAL GAS CORP.
AND
T. FRANK MURPHY
<PAGE>
TABLE OF CONTENTS
ARTICLE I. CERTAIN DUTIES.................................................. 1
ARTICLE II. ADJUSTMENTS FOR CERTAIN PAYMENTS................................ 3
ARTICLE III. MISCELLANEOUS................................................. 4
SECTION 3.1 NO OFFSET; ENFORCEMENT OF AGREEMENT...................... 4
SECTION 3.2 ASSIGNMENT BY THE EXECUTIVE; SUCCESSORS.................. 5
SECTION 3.3 WAIVER................................................... 5
SECTION 3.4 NOTICE................................................... 6
SECTION 3.5 APPLICABLE LAW........................................... 6
SECTION 3.6 TAXES.................................................... 6
SECTION 3.7 ENTIRE AGREEMENT......................................... 6
i
<PAGE>
RETENTION AGREEMENT
RETENTION AGREEMENT, dated as of the 24th day of June, 1997 (the
"Agreement"), by and between LOUIS DREYFUS NATURAL GAS CORP., an Oklahoma
corporation having its principal place of business at 14000 Quail Springs
Parkway, Suite 600, Oklahoma City, Oklahoma (the "Corporation") and T. FRANK
MURPHY, an individual residing at 301 Maple Valley, Houston, Texas 77056 (the
"Executive").
WITNESSETH THAT:
WHEREAS, the Executive is currently serving as Vice President -
Corporate Finance and Corporate Secretary of American Exploration Company, a
Delaware corporation ("American");
WHEREAS, pursuant to the Agreement and Plan of Reorganization, dated
as of June 24, 1997 (the "Merger Agreement"), by and among the Corporation, LDNG
Acquisition, Inc. and American, the parties thereto have agreed to a merger (the
"Merger") pursuant to the terms thereof;
WHEREAS, the Corporation has determined that it is essential to the
best interests of the Corporation, its subsidiaries and affiliates, as well as
to the success of the Merger, to foster the continued employment of certain key
officers of American pending consummation of the Merger and for a transition
period thereafter; and
WHEREAS, in connection with the Merger the parties hereto desire to
enter into this Agreement, to be effective upon the consummation of the Merger.
NOW, THEREFORE, in consideration of the mutual premises, covenants
and agreements herein contained, the parties hereto agree as follows:
ARTICLE I. CERTAIN DUTIES
This Agreement shall become effective as of the Effective Time of
the Merger (as defined in the Merger Agreement) (the "Effective Date").
Following the Effective Date, the Executive's duties shall include assisting the
Corporation in connection with the integration of the Corporation and American.
If the Corporation elects to terminate the Executive's employment other than for
"Cause" (as defined below) prior to the first anniversary of the Effective Date,
the Corporation shall engage the Executive as a consultant to the Corporation
for a period (the "Consulting Period") commencing on the date of termination
(the "Consulting Commencement Date") and ending on the first anniversary of the
Effective Date. The Executive's services hereunder during the Consulting Period
shall consist of, in addition to the services described in the first sentence of
this paragraph, such consulting and advisory services, and shall be provided at
such times and on such other terms and conditions, as may be agreed upon from
time to time between the Executive and the Corporation. As compensation for the
consulting services to be performed by the Executive hereunder during the
Consulting Period, the
<PAGE>
2
Executive shall be paid a fee (the "Consulting Fee") at an annual rate equal to
his annual base salary as of the time of termination of the Executive's
employment payable in monthly installments. In the event of the Executive's
death prior to the end of the Consulting Period, the Consulting Fee shall
continue to be paid to the beneficiaries designated by the Executive. If no
beneficiary is designated by the Executive or if none shall survive the
Executive, then the Consulting Fee shall be paid to the Executive's surviving
spouse, if any, or if no such surviving spouse exists, to the Executive's
estate.
If the Corporation elects to terminate the Executive's employment
other than for Cause or the Executive resigns, the Executive shall be entitled
to (a) reimbursement of COBRA payments to maintain medical and dental insurance
up to 18 additional months for said coverage and (b) the use of one or more
executive out-placement services, designated by the Executive and paid for by
the Corporation.
For purposes of this Agreement, "Cause" shall mean:
(i) The willful and continued failure of the Executive to perform
substantially the Executive's duties with the Corporation (other than any such
failure resulting from incapacity due to physical or mental illness), after a
written demand for substantial performance is delivered to the Executive by the
Board of Directors of the Corporation (the "Board"), which demand shall
specifically identify the manner in which the Board believes that the Executive
has not substantially performed the Executive's duties, or
(ii) The willful engaging by the Executive in illegal conduct or
gross misconduct in connection with the performance of his duties hereunder
which is materially injurious to the Corporation.
For purposes of this provision, no act or failure to act, on the
part of the Executive, shall be considered "willful" unless it is done, or
omitted to be done, by the Executive in bad faith or without reasonable belief
that the Executive's action or omission was in the best interests of the
Corporation. Any act, or failure to act, based upon authority given pursuant to
a resolution duly adopted by the Board or upon the instructions of any senior
officer of the Corporation or based upon the advice of counsel for the
Corporation shall be conclusively presumed to be done, or omitted to be done, by
the Executive in good faith and in the best interests of the Corporation. The
cessation of employment of the Executive shall not be deemed to be for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
of the entire membership of the Board at a meeting of the Board called and held
for such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above and specifying
the particulars thereof in detail.
<PAGE>
3
If within two years after the Effective Date the Corporation
terminates the Executive's employment other than for Cause or the Executive
resigns, and within one year thereafter the Executive sells his current
residence and moves away from Houston, Texas, then, the Corporation will pay the
Executive $25,000 for relocation costs and will reimburse the Executive for the
loss, if any, the Executive realizes as a result of the sale of his current
residence up to a maximum of $25,000.
ARTICLE II. ADJUSTMENTS FOR CERTAIN PAYMENTS
For purposes of this Article II, (i) "Payment" shall mean any
payment or distribution in the nature of compensation to or for the benefit of
the Executive, whether paid or payable pursuant to this Agreement or otherwise;
(ii) "Agreement Payment" shall mean a Payment paid or payable pursuant to this
Agreement (disregarding this Article II); (iii) "Net After Tax Receipt" shall
mean the Present Value (as defined below) of a Payment net of all federal, state
and local taxes imposed on the Executive with respect thereto, including the tax
imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), determined by applying the highest applicable marginal rates which
apply to the Executive's taxable income; (iv) "Present Value" shall mean such
value determined in accordance with Section 280G(d)(4) of the Code; and (v)
"Reduced Amount" shall mean the largest aggregate amount of Agreement Payments
which (a) is less than the sum of all Agreement Payments and (b) results in
aggregate Net After Tax Receipts which are equal to or greater than the Net
After Tax Receipts which would result if the aggregate Agreement Payments were
made.
Anything in this Agreement to the contrary notwithstanding, in the
event a national certified public accounting firm designated by the Executive
(the "Accounting Firm") shall determine that receipt of all Payments would
subject the Executive to tax under Section 4999 of the Code, it shall determine
whether some amount of Agreement Payments would meet the definition of a
"Reduced Amount." If said firm determines that there is a Reduced Amount, the
aggregate Agreement Payments shall be reduced to such Reduced Amount. The
aggregate amount by which the Agreement Payments are reduced to arrive at the
Reduced Amount shall be referred to as the "Foregone Amount."
If the Accounting Firm determines that aggregate Agreement Payments
should be reduced to the Reduced Amount, the Corporation shall promptly give the
Executive notice to that effect and a copy of the detailed calculation thereof,
and the Executive may then elect, in his sole discretion, which and how much of
the Agreement Payments shall be eliminated or reduced (as long as after such
election the Present Value of the aggregate Agreement Payments equals the
Reduced Amount), and shall advise the Corporation in writing of his election
within ten days of his receipt of notice. If no such election is made by the
Executive within such ten-day period, the Corporation may elect which of such
Agreement Payments shall be eliminated or reduced (as long as after such
election the Present Value of the aggregate Agreement Payments equals the
Reduced Amount) and shall notify the Executive promptly of such election. All
determinations made by the Accounting Firm under this Article II shall be
binding upon the Corporation and the
<PAGE>
4
Executive. As promptly as practicable following such determination, the
Corporation shall pay to, or distribute for the benefit of, the Executive such
Agreement Payments as are then due to the Executive under this Agreement and
shall promptly pay to or distribute for the benefit of the Executive in the
future such Agreement Payments as become due to the Executive under this
Agreement.
While it is the intention of the Corporation and the Executive to
reduce the amounts payable or distributable to the Executive hereunder only if
the aggregate Net After Tax Receipts to the Executive would thereby be
increased, as a result of the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that amounts will have been paid or distributed by the
Corporation to or for the benefit of the Executive pursuant to this Agreement
which should not have been so paid or distributed ("Overpayment") or that
additional amounts which will have not been paid or distributed by the
Corporation to or for the benefit of the Executive pursuant to this Agreement
could have been so paid or distributed ("Underpayment"), in each case,
consistent with the calculation of the Reduced Amount hereunder. In the event
that the Accounting Firm, based either upon the assertion of a deficiency by the
Internal Revenue Service against the Corporation or the Executive which the
Accounting Firm believes has a high probability of success or otherwise,
determines that an Overpayment has been made, any such overpayment paid or
distributed by the Corporation to or for the benefit of the Executive shall be
treated for all purposes as a loan to the Executive which the Executive shall
repay to the Corporation together with interest at the applicable federal rate
provided for in Section 7872(f)(2) of the Code; provided, however, that no such
loan shall be deemed to have been made and no amount shall be payable by the
Executive to the Corporation if and to the extent such deemed loan and payment
would not either reduce the amount on which the Executive is subject to tax
under Section 1 and Section 4999 of the Code or generate a refund of such taxes.
In the event that the Accounting Firm determines that an Underpayment has
occurred, any such Underpayment shall be promptly paid by the Corporation to or
for the benefit of the Executive together with interest at the applicable
federal rate provided for in Section 7872(f)(2) of the Code.
Notwithstanding the foregoing, at the election of the Executive, the
Reduced Amount shall be the largest amount of Agreement Payments which may be
made without causing any Payment to be subject to tax under Section 4999 of the
Code.
ARTICLE III. MISCELLANEOUS.
SECTION 3.1 NO OFFSET; ENFORCEMENT OF AGREEMENT.
The Corporation's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Corporation may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the
<PAGE>
5
Executive under any of the provisions of this Agreement and such amounts shall
not be reduced whether or not the Executive obtains other employment. The
Corporation agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Corporation, the
Executive or others of the validity or enforceability of, or liability under,
any provision of this Agreement or any guarantee of performance thereof
(including as a result of any contest by the Executive about the amount of any
payment pursuant to this Agreement), plus in each case interest on any delayed
payment at the applicable federal rate provided for in Section 7872(f)(2) of the
Code and amounts sufficient to reimburse the Executive for all tax liabilities
due in respect of such payments of legal fees and expense, provided, however, if
an action brought by the Executive, or if the Executive's defense of an action
brought by the Corporation, is finally determined to be without merit by a court
of competent jurisdiction, the Executive shall refund amounts paid by the
Corporation for legal fees, taxes and interest pursuant to this Section 3.1.
SECTION 3.2 ASSIGNMENT BY THE EXECUTIVE; SUCCESSORS.
(a) This Agreement is personal to the Executive and without the
prior written consent of the Corporation shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) Except as is otherwise herein expressly provided, this Agreement
shall inure to the benefit of and be binding upon the Corporation, its
successors and assigns, and upon the Executive, his spouse, heirs, executors and
administrators, provided, however, that the obligations of the Executive
hereunder shall not be delegated.
(c) The Corporation will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform it if no such
succession had taken place. As used in this Agreement, "Corporation" shall mean
Corporation as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
SECTION 3.3 WAIVER.
Failure of either party hereto to insist upon strict compliance by
the other party with any term, covenant or condition hereof shall not be deemed
a waiver of such term, covenant or condition, nor shall any waiver or
relinquishment or failure to insist upon strict compliance of any right or power
hereunder at any one time or more times be deemed a waiver or relinquishment of
such right or power at any other time or times.
<PAGE>
6
SECTION 3.4 NOTICE.
Any notice required or desired to be given pursuant to this
Agreement shall be sufficient if in writing sent by registered or certified mail
to the addresses hereinafter set forth above or to such other address as any
party hereto may designate in writing, transmitted by hand delivery or by
registered or certified mail to the other.
SECTION 3.5 APPLICABLE LAW.
This Agreement shall be governed by the laws of the State of Texas,
without giving effect to the conflicts of laws principles thereof.
SECTION 3.6 TAXES.
The Corporation may deduct from all amounts paid under this
Agreement all federal, state, local and other taxes required by law to be
withheld with respect to such payments.
SECTION 3.7 ENTIRE AGREEMENT.
The parties hereto agree that this Agreement and the Merger
Agreement (and, to the extent benefits or rights are otherwise affected by this
Agreement, any employee benefit plan maintained or sponsored by American or the
Corporation, as the case may be) contains the entire understanding and agreement
between them and supersedes all previous agreements and arrangements, if any,
relating to the subject matter hereof. Notwithstanding the foregoing, in the
event that the Merger Agreement is terminated, then at the time of such
termination, this Agreement shall be deemed canceled and of no force or effect
and the Executive shall continue to be subject to such agreements and
arrangements that were in effect prior to the execution of the Merger Agreement.
This Agreement shall not be amended, modified or supplemented in any respect
except by an agreement in writing signed by the Executive and the Corporation.
<PAGE>
7
IN WITNESS WHEREOF, the Corporation and the Executive have duly
executed this Agreement as of the day and the year first above written.
LOUIS DREYFUS NATURAL GAS CORP.
By:
-------------------------------------
Name:
Title:
EXECUTIVE
-----------------------------------------
T. Frank Murphy
RETENTION AGREEMENT
BETWEEN
LOUIS DREYFUS NATURAL GAS CORP.
AND
CINDY L. GEROW
<PAGE>
TABLE OF CONTENTS
ARTICLE I. CERTAIN DUTIES ................................................. 1
ARTICLE II. ADJUSTMENTS FOR CERTAIN PAYMENTS ............................... 3
ARTICLE III. MISCELLANEOUS .................................................. 4
SECTION 3.1 NO OFFSET; ENFORCEMENT OF AGREEMENT .................... 4
SECTION 3.2 ASSIGNMENT BY THE EXECUTIVE; SUCCESSORS ................ 5
SECTION 3.3 WAIVER ................................................. 5
SECTION 3.4 NOTICE ................................................. 6
SECTION 3.5 APPLICABLE LAW. ........................................ 6
SECTION 3.6 TAXES .................................................. 6
SECTION 3.7 ENTIRE AGREEMENT ....................................... 6
i
<PAGE>
RETENTION AGREEMENT
RETENTION AGREEMENT, dated as of the 24th day of June, 1997 (the
"Agreement"), by and between LOUIS DREYFUS NATURAL GAS CORP., an Oklahoma
corporation having its principal place of business at 14000 Quail Springs
Parkway, Suite 600, Oklahoma City, Oklahoma (the "Corporation") and CINDY L.
GEROW, an individual residing at 10909 Long Shadows, Houston, Texas 77024 (the
"Executive").
WITNESSETH THAT:
WHEREAS, the Executive is currently serving as Vice President -
Controller of American Exploration Company, a Delaware corporation ("American");
WHEREAS, pursuant to the Agreement and Plan of Reorganization, dated
as of June 24, 1997 (the "Merger Agreement"), by and among the Corporation, LDNG
Acquisition, Inc. and American, the parties thereto have agreed to a merger (the
"Merger") pursuant to the terms thereof;
WHEREAS, the Corporation has determined that it is essential to the
best interests of the Corporation, its subsidiaries and affiliates, as well as
to the success of the Merger, to foster the continued employment of certain key
officers of American pending consummation of the Merger and for a transition
period thereafter; and
WHEREAS, in connection with the Merger the parties hereto desire to
enter into this Agreement, to be effective upon the consummation of the Merger.
NOW, THEREFORE, in consideration of the mutual premises, covenants
and agreements herein contained, the parties hereto agree as follows:
ARTICLE I. CERTAIN DUTIES
This Agreement shall become effective as of the Effective Time of
the Merger (as defined in the Merger Agreement) (the "Effective Date").
Following the Effective Date, the Executive's duties shall include assisting the
Corporation in connection with the integration of the Corporation and American.
If the Corporation elects to terminate the Executive's employment other than for
"Cause" (as defined below) prior to the first anniversary of the Effective Date,
the Corporation shall engage the Executive as a consultant to the Corporation
for a period (the "Consulting Period") commencing on the date of termination
(the "Consulting Commencement Date") and ending on the first anniversary of the
Effective Date. The Executive's services hereunder during the Consulting Period
shall consist of, in addition to the services described in the first sentence of
this paragraph, such consulting and advisory services, and shall be provided at
such times and on such other terms and conditions, as may be agreed upon from
time to time between the Executive and the Corporation. As compensation for the
consulting services to be performed by the Executive hereunder during the
Consulting Period, the Executive shall be paid a fee (the "Consulting Fee") at
an annual rate equal to her annual base
<PAGE>
2
salary as of the time of termination of the Executive's employment payable in
monthly installments. In the event of the Executive's death prior to the end of
the Consulting Period, the Consulting Fee shall continue to be paid to the
beneficiaries designated by the Executive. If no beneficiary is designated by
the Executive or if none shall survive the Executive, then the Consulting Fee
shall be paid to the Executive's surviving spouse, if any, or if no such
surviving spouse exists, to the Executive's estate.
If the Corporation elects to terminate the Executive's employment
other than for Cause or the Executive resigns, the Executive shall be entitled
to (a) reimbursement of COBRA payments to maintain medical and dental insurance
up to 18 additional months for said coverage and (b) the use of one or more
executive out-placement services, designated by the Executive and paid for by
the Corporation.
For purposes of this Agreement, "Cause" shall mean:
(i) The willful and continued failure of the Executive to perform
substantially the Executive's duties with the Corporation (other than any such
failure resulting from incapacity due to physical or mental illness), after a
written demand for substantial performance is delivered to the Executive by the
Board of Directors of the Corporation (the "Board"), which demand shall
specifically identify the manner in which the Board believes that the Executive
has not substantially performed the Executive's duties, or
(ii) The willful engaging by the Executive in illegal conduct or
gross misconduct in connection with the performance of her duties hereunder
which is materially injurious to the Corporation.
For purposes of this provision, no act or failure to act, on the
part of the Executive, shall be considered "willful" unless it is done, or
omitted to be done, by the Executive in bad faith or without reasonable belief
that the Executive's action or omission was in the best interests of the
Corporation. Any act, or failure to act, based upon authority given pursuant to
a resolution duly adopted by the Board or upon the instructions of any senior
officer of the Corporation or based upon the advice of counsel for the
Corporation shall be conclusively presumed to be done, or omitted to be done, by
the Executive in good faith and in the best interests of the Corporation. The
cessation of employment of the Executive shall not be deemed to be for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
of the entire membership of the Board at a meeting of the Board called and held
for such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above and specifying
the particulars thereof in detail.
In recognition of the extraordinary services to be performed by the
Executive in
<PAGE>
3
connection with the integration of the Corporation and American following the
Effective Date (as an employee of or, if applicable, consultant to the
Corporation), the Executive shall be paid, in a cash lump sum as promptly as
practicable after the end of the 180 day period following the Effective Date, a
special service recognition bonus (the "Special Service Bonus") in the amount of
$100,000. The Special Service Bonus shall be in addition to, and shall not
reduce, any other amounts payable to the Executive under this Agreement.
ARTICLE II. ADJUSTMENTS FOR CERTAIN PAYMENTS
For purposes of this Article II, (i) "Payment" shall mean any
payment or distribution in the nature of compensation to or for the benefit of
the Executive, whether paid or payable pursuant to this Agreement or otherwise;
(ii) "Agreement Payment" shall mean a Payment paid or payable pursuant to this
Agreement (disregarding this Article II); (iii) "Net After Tax Receipt" shall
mean the Present Value (as defined below) of a Payment net of all federal, state
and local taxes imposed on the Executive with respect thereto, including the tax
imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), determined by applying the highest applicable marginal rates which
apply to the Executive's taxable income; (iv) "Present Value" shall mean such
value determined in accordance with Section 280G(d)(4) of the Code; and (v)
"Reduced Amount" shall mean the largest aggregate amount of Agreement Payments
which (a) is less than the sum of all Agreement Payments and (b) results in
aggregate Net After Tax Receipts which are equal to or greater than the Net
After Tax Receipts which would result if the aggregate Agreement Payments were
made.
Anything in this Agreement to the contrary notwithstanding, in the
event a national certified public accounting firm designated by the Executive
(the "Accounting Firm") shall determine that receipt of all Payments would
subject the Executive to tax under Section 4999 of the Code, it shall determine
whether some amount of Agreement Payments would meet the definition of a
"Reduced Amount." If said firm determines that there is a Reduced Amount, the
aggregate Agreement Payments shall be reduced to such Reduced Amount. The
aggregate amount by which the Agreement Payments are reduced to arrive at the
Reduced Amount shall be referred to as the "Foregone Amount."
If the Accounting Firm determines that aggregate Agreement Payments
should be reduced to the Reduced Amount, the Corporation shall promptly give the
Executive notice to that effect and a copy of the detailed calculation thereof,
and the Executive may then elect, in her sole discretion, which and how much of
the Agreement Payments shall be eliminated or reduced (as long as after such
election the Present Value of the aggregate Agreement Payments equals the
Reduced Amount), and shall advise the Corporation in writing of her election
within ten days of her receipt of notice. If no such election is made by the
Executive within such ten-day period, the Corporation may elect which of such
Agreement Payments shall be eliminated or reduced (as long as after such
election the Present Value of the aggregate Agreement Payments equals the
Reduced Amount) and shall notify the Executive promptly of such election. All
determinations made by the Accounting Firm under this Article II shall be
binding upon the Corporation and the
<PAGE>
4
Executive. As promptly as practicable following such determination, the
Corporation shall pay to, or distribute for the benefit of, the Executive such
Agreement Payments as are then due to the Executive under this Agreement and
shall promptly pay to or distribute for the benefit of the Executive in the
future such Agreement Payments as become due to the Executive under this
Agreement.
While it is the intention of the Corporation and the Executive to
reduce the amounts payable or distributable to the Executive hereunder only if
the aggregate Net After Tax Receipts to the Executive would thereby be
increased, as a result of the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that amounts will have been paid or distributed by the
Corporation to or for the benefit of the Executive pursuant to this Agreement
which should not have been so paid or distributed ("Overpayment") or that
additional amounts which will have not been paid or distributed by the
Corporation to or for the benefit of the Executive pursuant to this Agreement
could have been so paid or distributed ("Underpayment"), in each case,
consistent with the calculation of the Reduced Amount hereunder. In the event
that the Accounting Firm, based either upon the assertion of a deficiency by the
Internal Revenue Service against the Corporation or the Executive which the
Accounting Firm believes has a high probability of success or otherwise,
determines that an Overpayment has been made, any such overpayment paid or
distributed by the Corporation to or for the benefit of the Executive shall be
treated for all purposes as a loan to the Executive which the Executive shall
repay to the Corporation together with interest at the applicable federal rate
provided for in Section 7872(f)(2) of the Code; provided, however, that no such
loan shall be deemed to have been made and no amount shall be payable by the
Executive to the Corporation if and to the extent such deemed loan and payment
would not either reduce the amount on which the Executive is subject to tax
under Section 1 and Section 4999 of the Code or generate a refund of such taxes.
In the event that the Accounting Firm determines that an Underpayment has
occurred, any such Underpayment shall be promptly paid by the Corporation to or
for the benefit of the Executive together with interest at the applicable
federal rate provided for in Section 7872(f)(2) of the Code.
Notwithstanding the foregoing, at the election of the Executive, the
Reduced Amount shall be the largest amount of Agreement Payments which may be
made without causing any Payment to be subject to tax under Section 4999 of the
Code.
ARTICLE III. MISCELLANEOUS.
SECTION 3.1 NO OFFSET; ENFORCEMENT OF AGREEMENT.
The Corporation's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Corporation may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the
<PAGE>
5
Executive under any of the provisions of this Agreement and such amounts shall
not be reduced whether or not the Executive obtains other employment. The
Corporation agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Corporation, the
Executive or others of the validity or enforceability of, or liability under,
any provision of this Agreement or any guarantee of performance thereof
(including as a result of any contest by the Executive about the amount of any
payment pursuant to this Agreement), plus in each case interest on any delayed
payment at the applicable federal rate provided for in Section 7872(f)(2) of the
Code and amounts sufficient to reimburse the Executive for all tax liabilities
due in respect of such payments of legal fees and expense, provided, however, if
an action brought by the Executive, or if the Executive's defense of an action
brought by the Corporation, is finally determined to be without merit by a court
of competent jurisdiction, the Executive shall refund amounts paid by the
Corporation for legal fees, taxes and interest pursuant to this Section 3.1.
SECTION 3.2 ASSIGNMENT BY THE EXECUTIVE; SUCCESSORS.
(a) This Agreement is personal to the Executive and without the
prior written consent of the Corporation shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) Except as is otherwise herein expressly provided, this Agreement
shall inure to the benefit of and be binding upon the Corporation, its
successors and assigns, and upon the Executive, her spouse, heirs, executors and
administrators, provided, however, that the obligations of the Executive
hereunder shall not be delegated.
(c) The Corporation will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform it if no such
succession had taken place. As used in this Agreement, "Corporation" shall mean
Corporation as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
SECTION 3.3 WAIVER.
Failure of either party hereto to insist upon strict compliance by
the other party with any term, covenant or condition hereof shall not be deemed
a waiver of such term, covenant or condition, nor shall any waiver or
relinquishment or failure to insist upon strict compliance of any right or power
hereunder at any one time or more times be deemed a waiver or relinquishment of
such right or power at any other time or times.
<PAGE>
6
SECTION 3.4 NOTICE.
Any notice required or desired to be given pursuant to this
Agreement shall be sufficient if in writing sent by registered or certified mail
to the addresses hereinafter set forth above or to such other address as any
party hereto may designate in writing, transmitted by hand delivery or by
registered or certified mail to the other.
SECTION 3.5 APPLICABLE LAW.
This Agreement shall be governed by the laws of the State of Texas,
without giving effect to the conflicts of laws principles thereof.
SECTION 3.6 TAXES.
The Corporation may deduct from all amounts paid under this
Agreement all federal, state, local and other taxes required by law to be
withheld with respect to such payments.
SECTION 3.7 ENTIRE AGREEMENT.
The parties hereto agree that this Agreement and the Merger
Agreement (and, to the extent benefits or rights are otherwise affected by this
Agreement, any employee benefit plan maintained or sponsored by American or the
Corporation, as the case may be) contains the entire understanding and agreement
between them and supersedes all previous agreements and arrangements, if any,
relating to the subject matter hereof. Notwithstanding the foregoing, in the
event that the Merger Agreement is terminated, then at the time of such
termination, this Agreement shall be deemed canceled and of no force or effect
and the Executive shall continue to be subject to such agreements and
arrangements that were in effect prior to the execution of the Merger Agreement.
This Agreement shall not be amended, modified or supplemented in any respect
except by an agreement in writing signed by the Executive and the Corporation.
<PAGE>
7
IN WITNESS WHEREOF, the Corporation and the Executive have duly
executed this Agreement as of the day and the year first above written.
LOUIS DREYFUS NATURAL GAS CORP.
By:
----------------------------------
Name:
Title:
EXECUTIVE
-------------------------------------
Cindy L. Gerow
RETENTION AGREEMENT
BETWEEN
LOUIS DREYFUS NATURAL GAS CORP.
AND
JOHN M. HOGAN
<PAGE>
TABLE OF CONTENTS
ARTICLE I. CERTAIN DUTIES.................................................. 1
ARTICLE II. ADJUSTMENTS FOR CERTAIN PAYMENTS................................ 3
ARTICLE III. MISCELLANEOUS................................................. 4
SECTION 3.1 NO OFFSET; ENFORCEMENT OF AGREEMENT...................... 4
SECTION 3.2 ASSIGNMENT BY THE EXECUTIVE; SUCCESSORS.................. 5
SECTION 3.3 WAIVER................................................... 5
SECTION 3.4 NOTICE................................................... 5
SECTION 3.5 APPLICABLE LAW........................................... 6
SECTION 3.6 TAXES.................................................... 6
SECTION 3.7 ENTIRE AGREEMENT......................................... 6
i
<PAGE>
RETENTION AGREEMENT
RETENTION AGREEMENT, dated as of the 24th day of June, 1997 (the
"Agreement"), by and between LOUIS DREYFUS NATURAL GAS CORP., an Oklahoma
corporation having its principal place of business at 14000 Quail Springs
Parkway, Suite 600, Oklahoma City, Oklahoma (the "Corporation") and JOHN M.
HOGAN, an individual residing at 1 Silktassel Lane, The Woodlands, Texas 77380
(the "Executive").
WITNESSETH THAT:
WHEREAS, the Executive is currently serving as Senior Vice President
and Chief Financial Officer of American Exploration Company, a Delaware
corporation ("American");
WHEREAS, pursuant to the Agreement and Plan of Reorganization, dated
as of June 24, 1997 (the "Merger Agreement"), by and among the Corporation, LDNG
Acquisition, Inc. and American, the parties thereto have agreed to a merger (the
"Merger") pursuant to the terms thereof;
WHEREAS, the Corporation has determined that it is essential to the
best interests of the Corporation, its subsidiaries and affiliates, as well as
to the success of the Merger, to foster the continued employment of certain key
officers of American pending consummation of the Merger and for a transition
period thereafter; and
WHEREAS, in connection with the Merger the parties hereto desire to
enter into this Agreement, to be effective upon the consummation of the Merger.
NOW, THEREFORE, in consideration of the mutual premises, covenants
and agreements herein contained, the parties hereto agree as follows:
ARTICLE I. CERTAIN DUTIES
This Agreement shall become effective as of the Effective Time of
the Merger (as defined in the Merger Agreement) (the "Effective Date").
Following the Effective Date, the Executive's duties shall include assisting the
Corporation in connection with the integration of the Corporation and American.
If the Corporation elects to terminate the Executive's employment other than for
"Cause" (as defined below) prior to the first anniversary of the Effective Date,
the Corporation shall engage the Executive as a consultant to the Corporation
for a period (the "Consulting Period") commencing on the date of termination
(the "Consulting Commencement Date") and ending on the first anniversary of the
Effective Date. The Executive's services hereunder during the Consulting Period
shall consist of, in addition to the services described in the first sentence of
this paragraph, such consulting and advisory services, and shall be provided at
such times and on such other terms and conditions, as may be agreed upon from
time to time between the Executive and the Corporation. As compensation for the
consulting services to be performed by the Executive hereunder during the
Consulting Period, the Executive shall be paid a fee (the "Consulting Fee") at
an annual rate equal to his annual base
<PAGE>
2
salary as of the time of termination of the Executive's employment payable in
monthly installments. In the event of the Executive's death prior to the end of
the Consulting Period, the Consulting Fee shall continue to be paid to the
beneficiaries designated by the Executive. If no beneficiary is designated by
the Executive or if none shall survive the Executive, then the Consulting Fee
shall be paid to the Executive's surviving spouse, if any, or if no such
surviving spouse exists, to the Executive's estate.
If the Corporation elects to terminate the Executive's employment
other than for Cause or the Executive resigns, the Executive shall be entitled
to (a) reimbursement of COBRA payments to maintain medical and dental insurance
up to 18 additional months for said coverage and (b) the use of one or more
executive out-placement services, designated by the Executive and paid for by
the Corporation.
For purposes of this Agreement, "Cause" shall mean:
(i) The willful and continued failure of the Executive to perform
substantially the Executive's duties with the Corporation (other than any such
failure resulting from incapacity due to physical or mental illness), after a
written demand for substantial performance is delivered to the Executive by the
Board of Directors of the Corporation (the "Board"), which demand shall
specifically identify the manner in which the Board believes that the Executive
has not substantially performed the Executive's duties, or
(ii) The willful engaging by the Executive in illegal conduct or
gross misconduct in connection with the performance of his duties hereunder
which is materially injurious to the Corporation.
For purposes of this provision, no act or failure to act, on the
part of the Executive, shall be considered "willful" unless it is done, or
omitted to be done, by the Executive in bad faith or without reasonable belief
that the Executive's action or omission was in the best interests of the
Corporation. Any act, or failure to act, based upon authority given pursuant to
a resolution duly adopted by the Board or upon the instructions of any senior
officer of the Corporation or based upon the advice of counsel for the
Corporation shall be conclusively presumed to be done, or omitted to be done, by
the Executive in good faith and in the best interests of the Corporation. The
cessation of employment of the Executive shall not be deemed to be for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
of the entire membership of the Board at a meeting of the Board called and held
for such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above and specifying
the particulars thereof in detail.
<PAGE>
3
ARTICLE II. ADJUSTMENTS FOR CERTAIN PAYMENTS
For purposes of this Article II, (i) "Payment" shall mean any
payment or distribution in the nature of compensation to or for the benefit of
the Executive, whether paid or payable pursuant to this Agreement or otherwise;
(ii) "Agreement Payment" shall mean a Payment paid or payable pursuant to this
Agreement (disregarding this Article II); (iii) "Net After Tax Receipt" shall
mean the Present Value (as defined below) of a Payment net of all federal, state
and local taxes imposed on the Executive with respect thereto, including the tax
imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), determined by applying the highest applicable marginal rates which
apply to the Executive's taxable income; (iv) "Present Value" shall mean such
value determined in accordance with Section 280G(d)(4) of the Code; and (v)
"Reduced Amount" shall mean the largest aggregate amount of Agreement Payments
which (a) is less than the sum of all Agreement Payments and (b) results in
aggregate Net After Tax Receipts which are equal to or greater than the Net
After Tax Receipts which would result if the aggregate Agreement Payments were
made.
Anything in this Agreement to the contrary notwithstanding, in the
event a national certified public accounting firm designated by the Executive
(the "Accounting Firm") shall determine that receipt of all Payments would
subject the Executive to tax under Section 4999 of the Code, it shall determine
whether some amount of Agreement Payments would meet the definition of a
"Reduced Amount." If said firm determines that there is a Reduced Amount, the
aggregate Agreement Payments shall be reduced to such Reduced Amount. The
aggregate amount by which the Agreement Payments are reduced to arrive at the
Reduced Amount shall be referred to as the "Foregone Amount."
If the Accounting Firm determines that aggregate Agreement Payments
should be reduced to the Reduced Amount, the Corporation shall promptly give the
Executive notice to that effect and a copy of the detailed calculation thereof,
and the Executive may then elect, in his sole discretion, which and how much of
the Agreement Payments shall be eliminated or reduced (as long as after such
election the Present Value of the aggregate Agreement Payments equals the
Reduced Amount), and shall advise the Corporation in writing of his election
within ten days of his receipt of notice. If no such election is made by the
Executive within such ten-day period, the Corporation may elect which of such
Agreement Payments shall be eliminated or reduced (as long as after such
election the Present Value of the aggregate Agreement Payments equals the
Reduced Amount) and shall notify the Executive promptly of such election. All
determinations made by the Accounting Firm under this Article II shall be
binding upon the Corporation and the Executive. As promptly as practicable
following such determination, the Corporation shall pay to, or distribute for
the benefit of, the Executive such Agreement Payments as are then due to the
Executive under this Agreement and shall promptly pay to or distribute for the
benefit of the Executive in the future such Agreement Payments as become due to
the Executive under this Agreement.
While it is the intention of the Corporation and the Executive to
reduce the
<PAGE>
4
amounts payable or distributable to the Executive hereunder only if the
aggregate Net After Tax Receipts to the Executive would thereby be increased, as
a result of the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm hereunder, it is
possible that amounts will have been paid or distributed by the Corporation to
or for the benefit of the Executive pursuant to this Agreement which should not
have been so paid or distributed ("Overpayment") or that additional amounts
which will have not been paid or distributed by the Corporation to or for the
benefit of the Executive pursuant to this Agreement could have been so paid or
distributed ("Underpayment"), in each case, consistent with the calculation of
the Reduced Amount hereunder. In the event that the Accounting Firm, based
either upon the assertion of a deficiency by the Internal Revenue Service
against the Corporation or the Executive which the Accounting Firm believes has
a high probability of success or otherwise, determines that an Overpayment has
been made, any such overpayment paid or distributed by the Corporation to or for
the benefit of the Executive shall be treated for all purposes as a loan to the
Executive which the Executive shall repay to the Corporation together with
interest at the applicable federal rate provided for in Section 7872(f)(2) of
the Code; provided, however, that no such loan shall be deemed to have been made
and no amount shall be payable by the Executive to the Corporation if and to the
extent such deemed loan and payment would not either reduce the amount on which
the Executive is subject to tax under Section 1 and Section 4999 of the Code or
generate a refund of such taxes. In the event that the Accounting Firm
determines that an Underpayment has occurred, any such Underpayment shall be
promptly paid by the Corporation to or for the benefit of the Executive together
with interest at the applicable federal rate provided for in Section 7872(f)(2)
of the Code.
Notwithstanding the foregoing, at the election of the Executive, the
Reduced Amount shall be the largest amount of Agreement Payments which may be
made without causing any Payment to be subject to tax under Section 4999 of the
Code.
ARTICLE III. MISCELLANEOUS.
SECTION 3.1 NO OFFSET; ENFORCEMENT OF AGREEMENT.
The Corporation's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Corporation may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement and such amounts shall not be reduced
whether or not the Executive obtains other employment. The Corporation agrees to
pay as incurred, to the full extent permitted by law, all legal fees and
expenses which the Executive may reasonably incur as a result of any contest
(regardless of the outcome thereof) by the Corporation, the Executive or others
of the validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof (including as a result of any
contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in
<PAGE>
5
each case interest on any delayed payment at the applicable federal rate
provided for in Section 7872(f)(2) of the Code and amounts sufficient to
reimburse the Executive for all tax liabilities due in respect of such payments
of legal fees and expense, provided, however, if an action brought by the
Executive, or if the Executive's defense of an action brought by the
Corporation, is finally determined to be without merit by a court of competent
jurisdiction, the Executive shall refund amounts paid by the Corporation for
legal fees, taxes and interest pursuant to this Section 3.1.
SECTION 3.2 ASSIGNMENT BY THE EXECUTIVE; SUCCESSORS.
(a) This Agreement is personal to the Executive and without the
prior written consent of the Corporation shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) Except as is otherwise herein expressly provided, this Agreement
shall inure to the benefit of and be binding upon the Corporation, its
successors and assigns, and upon the Executive, his spouse, heirs, executors and
administrators, provided, however, that the obligations of the Executive
hereunder shall not be delegated.
(c) The Corporation will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform it if no such
succession had taken place. As used in this Agreement, "Corporation" shall mean
Corporation as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
SECTION 3.3 WAIVER.
Failure of either party hereto to insist upon strict compliance by
the other party with any term, covenant or condition hereof shall not be deemed
a waiver of such term, covenant or condition, nor shall any waiver or
relinquishment or failure to insist upon strict compliance of any right or power
hereunder at any one time or more times be deemed a waiver or relinquishment of
such right or power at any other time or times.
SECTION 3.4 NOTICE.
Any notice required or desired to be given pursuant to this
Agreement shall be sufficient if in writing sent by registered or certified mail
to the addresses hereinafter set forth above or to such other address as any
party hereto may designate in writing, transmitted by hand delivery or by
registered or certified mail to the other.
<PAGE>
6
SECTION 3.5 APPLICABLE LAW.
This Agreement shall be governed by the laws of the State of Texas,
without giving effect to the conflicts of laws principles thereof.
SECTION 3.6 TAXES.
The Corporation may deduct from all amounts paid under this
Agreement all federal, state, local and other taxes required by law to be
withheld with respect to such payments.
SECTION 3.7 ENTIRE AGREEMENT.
The parties hereto agree that this Agreement and the Merger
Agreement (and, to the extent benefits or rights are otherwise affected by this
Agreement, any employee benefit plan maintained or sponsored by American or the
Corporation, as the case may be) contains the entire understanding and agreement
between them and supersedes all previous agreements and arrangements, if any,
relating to the subject matter hereof. Notwithstanding the foregoing, in the
event that the Merger Agreement is terminated, then at the time of such
termination, this Agreement shall be deemed canceled and of no force or effect
and the Executive shall continue to be subject to such agreements and
arrangements that were in effect prior to the execution of the Merger Agreement.
This Agreement shall not be amended, modified or supplemented in any respect
except by an agreement in writing signed by the Executive and the Corporation.
<PAGE>
7
IN WITNESS WHEREOF, the Corporation and the Executive have duly
executed this Agreement as of the day and the year first above written.
LOUIS DREYFUS NATURAL GAS CORP.
By:
-------------------------------------
Name:
Title:
EXECUTIVE
-----------------------------------------
John M. Hogan
CONFIDENTIAL AND LEGALLY PRIVILEGED
SEVERANCE AGREEMENT
between
AMERICAN EXPLORATION COMPANY
and
ELLIOTT PEW
<PAGE>
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT, effective as of the ____ day of April,
1997 (the "Effective Date"), by and between AMERICAN EXPLORATION COMPANY, a
Delaware corporation having its principal place of business at 1331 Lamar, Suite
900, Houston, Texas 77010 (the "Corporation") and Elliott Pew, an individual
residing at 4 Wellington Lane, Conroe, Texas 77304 (the "Executive"),
WITNESSETH THAT:
WHEREAS, the Executive has been employed by the Corporation
continuously since October, 1992;
WHEREAS, the Executive currently is the Senior Vice
President-Exploration of the Corporation;
WHEREAS, certain terms and conditions of the Executive's rights upon
termination of employment by the Corporation are set forth in that certain
Severance Agreement, dated as of November 30, 1995 (the "Prior Severance
Agreement");
WHEREAS, the terms of this Agreement were duly approved and
authorized for and on behalf of the Corporation by the Board of Directors of the
Corporation and the Compensation Committee thereof at meetings held on March 25,
1997, at which meetings quorum was present and voted;
NOW, THEREFORE, in consideration of the mutual promises and
covenants herein contained, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree, effective upon the Effective Date, to
substitute the provisions of this Agreement
<PAGE>
for the provisions of the Prior Severance Agreement;
ARTICLE . Termination of Employment
Section . Events of Termination
() Death. The Executive's employment shall terminate automatically
upon the Executive's death.
() Disability. If the Corporation determines in good faith that the
Executive is unable to perform the Executive's duties because of a Disability
(as defined below) that has occurred while the Executive is employed by the
Corporation, it may give the Executive written notice in accordance with Section
2.6 of this Agreement of its intention to terminate the Executive's employment.
In such event, the Executive's employment with the Corporation shall terminate
effective on the 30th day after receipt of such notice by the Executive,
provided that, within thirty (30) days after such receipt, the Executive shall
not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" shall mean the absence of the Executive
from the Executive's duties with the Corporation as a result of incapacity due
to mental or physical illness which is determined to be total and permanent by a
physician selected by the Corporation or its insurers and acceptable to the
Executive or the Executive's legal representative.
() Without Cause. Notwithstanding any other provision hereunder, the
Corporation shall have the right to terminate the Executive's employment
hereunder without "Cause" (as defined in Section 1.1(d)) at any time for any
reason in the sole discretion of the Corporation upon not less than thirty (30)
days' prior written notice to the Executive.
() Cause. The Corporation may terminate the Executive's employment
for Cause. For purposes of this Agreement, "Cause" shall mean:
<PAGE>
() The willful and continued failure of the Executive to
perform substantially the Executive's duties with the Corporation (other than
any such failure resulting from incapacity due to physical or mental illness),
after a written demand for substantial performance is delivered to the
Executive, which demand shall specifically identify the manner in which the
Corporation believes that the Executive has not substantially performed the
Executive's duties, or
() The willful engaging by the Executive in illegal conduct or
gross misconduct in connection with the performance of his duties hereunder
which is materially injurious to the Corporation.
For purposes of this provision, no act or failure to act, on the
part of the Executive, shall be considered "willful" unless it is done, or
omitted to be done, by the Executive in bad faith or without reasonable belief
that the Executive's action or omission was in the best interests of the
Corporation. Any act, or failure to act, based upon authority given pursuant to
a resolution duly adopted by the Board or upon the instructions of any senior
officer of the Corporation or based upon the advice of counsel for the
Corporation shall be conclusively presumed to be done, or omitted to be done, by
the Executive in good faith and in the best interests of the Corporation.
() Good Reason. The Executive may terminate his employment by the
Corporation for Good Reason at any time within two (2) years after a Change of
Control (as hereinafter defined). For purposes of this Agreement, "Good Reason"
shall mean the occurrence, without the Executive's express written consent, of
any one or more of the following events:
() The assignment to the Executive of any duties inconsistent
with
<PAGE>
the Executive's positions, duties, responsibilities and status with the
Corporation as of the time immediately prior to the Change of Control or a
change in the Executive's reporting responsibilities, titles or offices in
effect as of the time immediately prior to the Change of Control or any removal
of the Executive from or any failure to re-elect the Executive to any of such
positions, except with the Executive's written consent.
() A reduction in the Executive's Basic Compensation or the
failure by the Corporation to increase such compensation each year by an amount
which at least equals, on a percentage basis, the mean average percentage
increase in base salary for all officers of the Corporation (other than the
Executive) during such year or the failure by the Corporation to continue to
provide prompt payment (or reimbursement to the Executive) of all reasonable
expenses incurred by the Executive in connection with the Executive's
professional and business activities;
() A failure by the Corporation to waive any and all
restrictions that might exist on the exercise of any stock options or with
respect to any awards of restricted stock or other benefits held by the
Executive under the Stock Compensation Plans (as defined below) as of the date
of a Change of Control;
() The Corporation requiring the Executive to be based
anywhere other than Houston, Texas ("Office"), except for travel on business to
an extent reasonably required in the performance of the Executive's duties
hereunder or, in the event the Executive consents to any relocation of his
Office, the failure by the Corporation to pay (or reimburse the Executive for)
all reasonable moving expenses (including all costs, fees and transfer taxes
incurred in selling his principal residence) incurred by the Executive relating
to a change of the Executive's principal residence in connection with such
relocation and to indemnify the
<PAGE>
Executive against, and reimburse him for, any loss (defined as the difference
between the actual sales price of such residence and the higher of (a) the
Executive's aggregate investment in such residence or (b) the fair market value
of such residence as determined, at the Corporation's expense, by an independent
real estate appraiser designated by the Executive (and reasonably satisfactory
to the Corporation)), together with an amount equal to the federal, state and
local taxes payable by the Executive in respect of all of the amounts payable to
the Executive as contemplated under this paragraph.
() The failure by the Corporation to include the Executive as
a participant in any benefit or compensation plan or arrangement generally
available to executives of comparable level or the failure by the Corporation to
provide the Executive with the number of paid vacation days, holidays and
personal days to which the Executive is entitled in accordance with the
Corporation's normal leave policy in effect as of the time immediately prior to
the Change of Control;
() The failure of the Corporation to obtain the assumption of
this Agreement, without limitation or reduction, by any successor to the
Corporation;
() The failure of the Corporation to maintain for the benefit
and use by the Executive of an office and support staff as of the time
immediately prior to the Change of Control, except with consent of the
Executive;
() The failure of the Corporation to pay or reimburse the
Executive for any expenses incurred by the Executive as provided by the
Corporation's reimbursement of business expense policy in effect as of the time
immediately prior to the Change of Control; or
() The filing of a voluntary or involuntary petition of
bankruptcy
<PAGE>
by or against the Corporation or the insolvency of the Corporation.
For purposes of this Section 1.1(e), any good faith determination of "Good
Reason" made by the Executive shall be conclusive.
() Retirement The Executive may terminate his employment by reason
of "Retirement" at the end of the fiscal year of the Corporation in which the
Executive attains the age of 65 or such later date as the Board shall set with
the consent of the Executive.
() Voluntary Termination. The Executive shall have the right at any
time to voluntarily terminate his employment by the Corporation (a "Voluntary
Termination") for any reason in the sole discretion of the Executive by not less
than thirty (30) days' prior written notice to the Corporation; provided
however, a termination without Cause, by reason of Death, Disability or
Retirement, or Good Reason shall not be treated for any purpose hereunder as a
Voluntary Termination.
Section . Certain Definitions
() Change of Control. A "Change of Control" shall have occurred if:
() twenty percent (20%) or more of the outstanding common
stock of the Corporation has been acquired by any person (as defined by Section
3(a)(9) of the Securities Exchange Act of 1934) other than directly from the
Corporation;
() there has been a merger or equivalent combination involving
the Corporation after which 49% or more of the voting stock of the surviving
corporation is held by persons other than former shareholders of the
Corporation; or
() twenty percent (20%) or more of the members of the Board
elected by shareholders are persons who were not nominated in the then most
recent annual meeting proxy statement of the Corporation, except as a condition
of, or a contractual obligation
<PAGE>
assumed in connection with, the hiring by the Corporation, or the election as a
director of the Corporation, of John F. Bookout.
() Basic Compensation, Target Bonus and Total Compensation.
() "Basic Compensation" means the Executive's annual base
salary, as adjusted from time to time, including amounts the Executive has
electively deferred under an arrangement qualified under Section 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code"), to any cafeteria plan
under Section 125 of the Code or otherwise. Basic Compensation does not include
bonuses, grants under the American Exploration Company Stock Compensation Plan
and the 1994 American Exploration Company Stock Compensation Plan, or any
successor plans thereto, or any other stock compensation or employee benefit
plan of the Corporation (collectively, all such plans are herein referred to as
the "Stock Compensation Plans"), the value of amounts payable under the
Corporation's incentive, savings and retirement plans or welfare benefit plans
or the value of any fringe benefits or perquisites the Executive may receive.
() "Target Bonus" means an amount equal to the aggregate cash
amount paid to the Executive in respect of bonuses over the three most recent
fiscal years of the Corporation divided by three.
() "Total Compensation" means the total of the Executive's
Basic Compensation plus Target Bonus.
Section . Obligations of the Corporation on Termination
() Termination Upon Death or Disability, Without Cause or for Good
Reason.
If the Executive's employment is terminated upon his death or
<PAGE>
Disability, without Cause or for Good Reason:
() In general.
The Corporation shall immediately pay the Executive in
cash the amount of Basic Compensation previously earned but not yet paid.
() Severance benefits
() All of the Executive's stock options, awards of
restricted common stock and other awards under the Stock Compensation Plans,
which have not already vested, shall immediately vest and all performance shares
and other awards under the Stock Compensation Plans and other compensatory
plans, programs or arrangements, if any, shall vest and be paid in full,
computed on the assumption that 100% (or, if greater, the maximum percentage) of
the targeted level of the Corporation's or the Executive's performance has been
met, using the Executive's date of termination as the valuation date;
() Except as otherwise determined by the Executive, the
period during which any stock options granted to the Executive under the Stock
Compensation Plans may be exercised shall be extended for an additional six
months following the end of the exercise period otherwise applicable to such
options; and
() The Executive shall continue to participate in all
executive welfare benefit plans, including health and medical plans, for six
months after termination and shall be entitled to (a) reimbursement of COBRA
payments to maintain medical and dental insurance up to 18 additional months for
said coverage and (b) the use of one or more executive out-placement services,
designated by the Executive and paid for by the Corporation.
() If the Executive's employment is terminated prior to
a
<PAGE>
Change of Control or more than two years after the last Change of Control, the
Corporation shall pay the Executive in a lump sum a "Severance Benefit" in cash
equal to two (2) times the Executive's Total Compensation as of the time of such
termination. If the Executive's employment is terminated during the period
ending two years after the last Change of Control, the Corporation shall pay the
Executive in a lump sum a Severance Benefit in cash equal to three (3) times the
Executive's Total Compensation. Such payment shall be made within thirty (30)
days following said termination. In the event of the Executive's death, any
amounts payable under this Agreement shall be paid to the beneficiary (or
beneficiaries) designated by the Executive and in such amounts or proportions as
the Executive shall so designate. If no beneficiary is designated by the
Executive or if none shall survive the Executive, then any amounts payable under
this Agreement shall be paid to the Executive's surviving spouse, if any, or, if
no such surviving spouse exists, to the Executive's estate.
() Disability.
() If, following a termination on account of Disability,
the Executive becomes entitled to and receives disability benefits under any
disability payment plan sponsored and maintained by the Corporation, the amount
otherwise payable by the Corporation to the Executive pursuant to Section 1.3(a)
shall be reduced, on a dollar-for-dollar basis, but not below zero, by the
amount of any such disability benefits received by him, but only to the extent
such benefits are attributable to payments made by the Corporation.
() The Executive shall have the right in his sole
discretion after a termination on account of Disability to engage in regular
employment (whether as an employee of another entity or as a self-employed
person) and shall have no obligation to
<PAGE>
perform further services for the Corporation.
() Voluntary Termination or Termination for Cause
In case of a Voluntary Termination or a termination for Cause,
the Executive shall be entitled to (i) his Basic Compensation accrued to the
date of termination and (ii) any benefits or awards vested prior to such date,
including, without limitation, his right to exercise any vested stock options.
Except as otherwise provided in this Agreement or under any employee benefit
plan maintained by the Corporation, the Corporation shall have no further
obligations to the Executive.
() Retirement.
() Upon the Retirement of the Executive, the Executive shall
receive all of the payments and benefits set forth in Sections 1.3(a)(i) and
1.3(a)(ii)(1), (2) and (3). In addition, the Executive shall receive all
retirement benefits he is eligible to receive under the Corporation's employee
benefit plans, subject to the terms and conditions of such plans.
() The Executive shall have the right in his sole discretion
after his Retirement to engage in regular employment (whether as an employee of
another entity or as a self-employed person) and shall have no obligation to
perform further services for the Corporation.
() Adjustments for Certain Payments. For purposes of this Section,
(i) "Payment" shall mean any payment or distribution in the nature of
compensation to or for the benefit of the Executive, whether paid or payable
pursuant to this Agreement or otherwise; (ii) Agreement Payment shall mean a
Payment paid or payable pursuant to this Agreement (disregarding this Section);
(iii) Net After Tax Receipt shall mean the Present Value of a
<PAGE>
Payment net of all federal, state and local taxes imposed on the Executive with
respect thereto, including the tax imposed under Section 4999 of the Code,
determined by applying the highest applicable marginal rates which apply to the
Executive's taxable income; (iv) "Present Value" shall mean such value
determined in accordance with Section 280G(d)(4) of the Code; and (v) "Reduced
Amount" shall mean the largest aggregate amount of Agreement Payments which (a)
is less than the sum of all Agreement Payments and (b) results in aggregate Net
After Tax Receipts which are equal to or greater than the Net After Tax Receipts
which would result if the aggregate Agreement Payments were made.
Anything in this Agreement to the contrary notwithstanding, in the
event a certified public accounting firm designated by the Executive (the
"Accounting Firm") shall determine that receipt of all Payments would subject
the Executive to tax under Section 4999 of the Code, it shall determine whether
some amount of Agreement Payments would meet the definition of a "Reduced
Amount." If said firm determines that there is a Reduced Amount, the aggregate
Agreement Payments shall be reduced to such Reduced Amount.
If the Accounting Firm determines that aggregate Agreement Payments
should be reduced to the Reduced Amount, the Corporation shall promptly give the
Executive notice to that effect and a copy of the detailed calculation thereof,
and the Executive may then elect, in his sole discretion, which and how much of
the Agreement Payments shall be eliminated or reduced (as long as after such
election the Present Value of the
<PAGE>
aggregate Agreement Payments equals the Reduced Amount), and shall advise the
Corporation in writing of his election within ten days of his receipt of notice.
If no such election is made by the Executive within such ten-day period, the
Corporation may elect which of such Agreement Payments shall be eliminated or
reduced (as long as after such election the Present Value of the aggregate
Agreement Payments equals the Reduced Amount) and shall notify the Executive
promptly of such election. All determinations made by the Accounting Firm under
this Section shall be binding upon the Corporation and the Executive and shall
be made within 30 days of a termination of employment of the Executive. As
promptly as practicable following such determination, the Corporation shall pay
to, or distribute for the benefit of, the Executive such Agreement Payments as
are then due to the Executive under this Agreement and shall promptly pay to or
distribute for the benefit of the Executive in the future such Agreement
Payments as become due to the Executive under this Agreement.
While it is the intention of the Corporation and the Executive to
reduce the amounts payable or distributable to the Executive hereunder only if
the aggregate Net After Tax Receipts to the Executive would thereby be
increased, as a result of the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that amounts will have been paid or distributed by the
Corporation to or for the benefit of the Executive pursuant to this Agreement
which should not have been so paid or distributed ("Overpayment") or that
additional amounts which will have not been paid or distributed by the
Corporation to or for the benefit of the Executive pursuant to this Agreement
could have been so paid or distributed ("Underpayment"), in each case,
consistent with the calculation of the Reduced Amount hereunder. In the event
that the Accounting Firm, based either upon the assertion of a deficiency by the
Internal Revenue Service against the Corporation or the Executive which the
Accounting Firm believes has a high probability of success or otherwise,
determines that an Overpayment has been made, any such overpayment paid or
distributed by the Corporation to or for the benefit of the Executive shall be
treated for all purposes as a loan to the Executive
<PAGE>
which the Executive shall repay to the Corporation together with interest at the
applicable federal rate provided for in Section 7872(f)(2) of the Code;
provided, however, that no such loan shall be deemed to have been made and no
amount shall be payable by the Executive to the Corporation if and to the extent
such deemed loan and payment would not either reduce the amount on which the
Executive is subject to tax under Section 1 and Section 4999 of the Code or
generate a refund of such taxes. In the event that the Accounting Firm
determines that an Underpayment has occurred, any such underpayment shall be
promptly paid by the Corporation to or for the benefit of the Executive together
with interest at the applicable federal rate provided for in Section 7872(f)(2)
of the Code.
ARTICLE . Miscellaneous
Section . Enforceability.
If the scope of any restriction set forth above is too broad to
permit enforcement of such restriction to its full extent, then such restriction
shall be enforced to the maximum extent permitted by applicable law, and, if
necessary, the scope of any such restriction may be judicially modified (to the
extent necessary in any proceeding brought to enforce such restriction) and
thereafter fully enforced.
Section . Remedies
The parties acknowledge that the remedy at law for any breach of any
of a party's obligations hereunder would be inadequate and consent to the
granting of temporary and permanent injunctive relief in any proceeding brought
to enforce any of such provisions without the necessity of proof of actual
damages; provided, however, that the foregoing shall not be construed to limit
any other right or remedy available to the Corporation or the
<PAGE>
Executive at law or in equity, and all such rights and remedies shall be
cumulative to the extent permitted by applicable law, and the exercise of any
one or more of such rights or remedies shall be without prejudice to the
exercise of any other such right or remedy.
Section . No Offset; Enforcement of Agreement
The Corporation's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Corporation may have against the Executive or others, except
as provided in Section 1.3(a)(iii). In no event shall the Executive be obligated
to seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and such amounts shall not be reduced whether or not the Executive obtains other
employment. The Corporation agrees to pay as incurred, to the full extent
permitted by law, all legal fees and expenses which the Executive may reasonably
incur as a result of any contest (regardless of the outcome thereof) by the
Corporation, the Executive or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable federal rate provided for in Section
7872(f)(2) of the Code and amounts sufficient to reimburse the Executive for all
tax liabilities due in respect of such payments of legal fees and expenses,
provided however, if an action brought by the Executive, or if the Executive's
defense of an action brought by the Corporation, is finally determined to be
without merit by a court of competent jurisdiction, the Executive shall refund
amounts paid by the Corporation for legal fees, taxes and interest
<PAGE>
pursuant to this Section 2.3.
Section . Assignment by the Executive; Successors
() This Agreement is personal to the Executive and without the prior
written consent of the Corporation shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
() Except as is otherwise herein expressly provided, this Agreement
shall inure to the benefit of and be binding upon the Corporation, its
successors and assigns, and upon the Executive, his spouse, heirs, executors and
administrators, provided, however, that the obligations of the Executive
hereunder shall not be delegated.
() The Corporation will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform it if no such
succession had taken place. As used in this Agreement, "Corporation" shall mean
Corporation as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
Section . Waiver
Failure of either party hereto to insist upon strict compliance by
the other party with any term, covenant or condition hereof shall not be deemed
a waiver of such term, covenant or condition, nor shall any waiver or
relinquishment or failure to insist upon strict compliance of any right or power
hereunder at any one time or more times be deemed a
<PAGE>
waiver or relinquishment of such right or power at any other time or times.
Section . Notice
Any notice required or desired to be given pursuant to this
Agreement shall be sufficient if in writing sent by registered or certified mail
to the addresses hereinafter set forth above or to such other address as any
party hereto may designate in writing, transmitted by hand delivery or by
registered or certified mail to the other.
Section . Applicable Law
This Agreement shall be governed by the laws of the State of Texas.
Section . Taxes
The Corporation may deduct from all amounts paid under this
Agreement all federal, state, local and other taxes required by law to be
withheld with respect to such payments.
Section . Entire Agreement
The parties hereto agree that this Agreement (together with, to the
extent benefits or rights are otherwise affected by this Agreement, any employee
benefit plan maintained or sponsored by the Corporation) contains the entire
understanding and agreement between them and supersedes all previous agreements
and arrangements, if any, relating to the employment of the Executive. This
Agreement shall not be amended, modified or supplemented in any respect except
by an agreement in writing signed by the Executive and the Corporation.
Section . Term
This Agreement shall remain in full force and effect as long as the
Executive is employed by the Corporation. Notwithstanding the foregoing, the
terms of this Agreement
<PAGE>
may be changed by the Corporation with the consent of the Executive. In
addition, the Executive may enforce the terms of this Agreement following the
termination of the Executive's employment.
IN WITNESS WHEREOF, the Corporation and the Executive have duly
executed this Agreement as of the day and the year first above written.
Attest: AMERICAN EXPLORATION COMPANY
__________________ By:___________________________________
Name: Mark Andrews
Title: Chairman of the Board
Witness: EXECUTIVE
__________________ ______________________________________
Name: Elliott Pew
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I. Termination of Employment -2-
Section 1.1 Events of Termination -2-
Section 1.2 Certain Definitions -7-
Section 1.3 Obligations of the Corporation on Termination -8-
ARTICLE II. Miscellaneous -14-
Section 2.1 Enforceability. -14-
Section 2.2 Remedies -14-
Section 2.3 No Offset; Enforcement of Agreement -15-
Section 2.4 Assignment by the Executive; Successors -16-
Section 2.5 Waiver -16-
Section 2.6 Notice -17-
Section 2.7 Applicable Law -17-
Section 2.8 Taxes -17-
Section 2.9 Entire Agreement -17-
Section 2.10 Term -17-
[GRAPHIC OMITTED]
[GRAPHIC OMITTED]
NEWS RELEASE
LOUIS DREYFUS NATURAL GAS AND
AMERICAN EXPLORATION COMPANY TO MERGE
Houston, Texas and Oklahoma City, Oklahoma, June 24, 1997 -- Louis Dreyfus
Natural Gas Corp. (NYSE: LD) and American Exploration Company (ASE: AX) today
signed a definitive agreement to merge.
Under the merger agreement, holders of American Exploration Company common
stock will receive .72 shares of Louis Dreyfus Natural Gas common stock and
$3.00 cash for each share of American Exploration Company common stock. Holders
of American's $20 million convertible preferred stock will receive Louis Dreyfus
Natural Gas preferred shares. These shares would be convertible thereafter at
the option of the holders, unless redeemed, into a total of 960,000 shares of
Louis Dreyfus Natural Gas common plus $4 million cash.
The merger will create an independent exploration and production company
which will rank among the largest independents. The combined companies will have
a high quality, long-lived base of proved reserves, a large inventory of
development drilling opportunities, significant exploration potential, talented
exploration and production personnel, and the financial resources to maintain an
aggressive exploration and
- more -
<PAGE>
development drilling program and pursue new opportunities.
On a combined basis at year-end 1996, the companies had proved reserves
totaling over 1 trillion cubic feet of natural gas and 33 million barrels of oil
with a pre-tax present value (discounted at 10%) of $1.7 billion of future net
revenues. As of December 31, 1996, the companies together held interests in 2.8
million gross undeveloped acres. On a combined basis, daily production during
the first quarter of 1997 averaged approximately 249 million cubic feet of gas
(MMcf) and 9,100 barrels of oil, or 303 MMcfe per day. Based on these volumes
the combined companies have a reserve life of approximately 11 years.
Based on today's closing prices for each company's common and preferred
stock, the combined company will have an enterprise value of approximately $1.1
billion with approximately $400 million in senior and subordinated debt. The
companies together generated approximately $170 and $140 million in EBITDAX and
cash flows, respectively, in 1996.
The combined company will be well positioned to grow through development
drilling and exploration with a 1997 budget of $180 million. At present, the
companies together have approximately 400 proved development and over 1,000
potential development locations, the majority of which are in the Sawyer Canyon
Field (West Texas) and the Anadarko Basin (Oklahoma). In 1996, Louis Dreyfus
Natural Gas replaced 124 percent of production through the drill bit,
principally through development drilling. Pro forma 1997 development spending is
expected to total $105 million.
The combined company will also have significant growth potential through
exploration. American Exploration and Louis Dreyfus Natural Gas are currently
partners in the Yoakum Gorge Wilcox project in South Texas where they hold an
aggregate 85 percent working interest in approximately 60,000 gross acres.
Approximately 50 exploratory wells are planned in 1997 in the Yoakum Gorge area,
including several high potential tests to the Lower Wilcox formation.
The combined companies will also hold interests in approximately 100,000
gross acres in the Cotton
- more -
<PAGE>
Valley Pinnacle Reef trend of East Texas where American Exploration is currently
drilling its first reef prospect in the Bear Grass area with a working interest
of 63%. In the Gulf of Mexico, the combined companies will hold interests in 50
exploration blocks totaling approximately 103,000 gross undeveloped acres, with
a particularly strong position in the Texas State Waters area.
Simon Rich, currently Chairman of Louis Dreyfus Natural Gas, will be
Chairman of the combined company. Mark Andrews, currently Chairman and CEO of
American Exploration, will become Vice Chairman of the combined company. Mark
Monroe, currently President and CEO of Louis Dreyfus, will serve in the same
capacities for the combined company.
Commenting on the merger, Mark Monroe stated, "American Exploration has a
solid base of producing properties which geographically complement our assets, a
strong technical team with an onshore and offshore Gulf Coast exploration focus
and an attractive inventory of high potential exploration projects. The addition
of Louis Dreyfus' operating, exploitation and financial strengths will enhance
the value of each of those elements. Additionally, the proposed transaction will
significantly increase the trading liquidity in our stock, an important
objective of our stock offering which was filed in February and tabled in April
due to market conditions."
Commenting for American Exploration Company, Mark Andrews said, "This
merger represents a strategic move for American Exploration which will have
several benefits for our shareholders. First, it gives American Exploration
shareholders a significant stake in a large independent with high quality,
long-lived reserves and production. Second, the merger balances American's high
potential exploration program with a substantial inventory of lower-risk
development drilling locations. Third, the merger creates an entity with the
resources and scale to pursue growth opportunities and attract a broader range
of investors."
The combined company will be headquartered in Oklahoma City, Oklahoma.
American Exploration's operations in Houston, Texas will become the Gulf Coast
regional headquarters.
- more -
<PAGE>
The merger is subject to Louis Dreyfus Natural Gas and American
Exploration shareholder approvals. Louis Dreyfus Natural Gas Holdings Corp.,
which owns approximately 72 percent of the common stock of Louis Dreyfus Natural
Gas, has agreed to vote in favor of the merger. The merger was unanimously
approved by the Boards of Directors of both companies and is expected to be
completed in September.
Salomon Brothers Inc has rendered its opinion to the Board of Directors of
Louis Dreyfus Natural Gas that the consideration to be paid is fair to Louis
Dreyfus Natural Gas Corp. from a financial point of view. Prudential Securities
Incorporated has rendered its opinion to the Board of Directors of American
Exploration Company that, from a financial point of view, the merger
consideration to be paid to the shareholders of American Exploration is fair.
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
Companies expect, believe or anticipate will or may occur in the future,
including drilling of wells, reserve estimates, future production of oil and
gas, future cash flows and other such matters are forward-looking statements.
These statements are based on certain assumptions and analyses made by the
Companies in light of their experience and perception of historical trends,
current conditions, expected future developments and other factors they believe
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 Companies. 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.
# # #
Contacts: Louis Dreyfus Natural Gas American Exploration Company
Kevin White Frank Murphy
Executive Vice President-Corporate Vice President-Corporate Finance
Development and Strategic Planning (713) 756-6269
(405) 749-5202
Media Contact
Troy McCombs
Coltrin & Associates
(212) 221-1616
-end-
