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): January 8, 1997 (December 31,
1997)
TEXOIL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 0-12633 88-0177083
(STATE OF INCORPORATION) (COMMISSION FILE NUMBER) (IRS EMPLOYER
IDENTIFICATION NO.)
1600 SMITH STREET, SUITE 4000
HOUSTON, TEXAS 77002
(ADDRESS OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
(713) 652-5741
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
(NOT APPLICABLE)
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
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ITEM 1. CHANGES IN CONTROL OF REGISTRANT
On December 31, 1997, Texoil, Inc., a Nevada corporation ("Texoil"),
Texoil Acquisition, Inc., a Texas corporation and wholly-owned subsidiary of
Texoil ("Texoil Sub"), and Cliffwood Oil & Gas Corp., a Texas corporation
("Cliffwood"), signed and closed an Agreement and Plan of Merger dated December
31, 1997 (the "Merger Agreement") pursuant to which Texoil Sub was merged with
and into Cliffwood, with Cliffwood being the surviving entity (the "Merger").
Articles of Merger were filed with the Secretary of State of the State of Texas
on December 31, 1997.
Pursuant to the Merger Agreement, fifty-three former Cliffwood
shareholders were issued shares of Texoil's common stock, par value $.01 (the
"Texoil Common Stock"), equal to approximately 70% of Texoil's outstanding
shares. Texoil's Board of directors was restructured so that five Texoil
directors (T. W. Hoehn Jr., Walter L. Williams, William F. Seagle, Joe C.
Richardson Jr. and Ruben Medrano) resigned and the remaining members of the
Texoil Board of Directors filled the resulting vacancies with five candidates
nominated by Cliffwood's Board of Directors. The current members of the Texoil
Board of Directors are: Frank A. Lodzinski, Jerry M. Crews, Michael A. Vlasic,
Robert E. La Joie and Thomas A. Reiser, all of whom have been, and currently
are, directors of Cliffwood, and Gary J. Milavec and T. W. Hoehn, III, both
formerly directors of Texoil. Also, upon closing, Frank A. Lodzinski, the
President and Chief Executive Officer of Cliffwood, became the President and
Chairman of the Board of Texoil, and Jerry M. Crews, the Secretary and Executive
Vice-President of Cliffwood, became the Secretary of Texoil.
Frank A. Lodzinski, age 48, has been President and a director of
Cliffwood since he founded Cliffwood and it commenced operations in February
1996. From January 1992 to February 1995 he served as President and a director
of Hampton Resources Corporation, a public corporation which he co-founded. From
February 1995 (when Hampton was sold to Bellwether Exploration Company) to
February 1996, he was self-employed and was a consultant to Bellwether
Exploration Company. From 1984 to 1992, Mr. Lodzinski was engaged in the oil and
natural gas business through Energy Resource Associates, Inc., a closely-held
Texas corporation which he owned and controlled. Prior to 1984, he was employed
in public accounting with Arthur Andersen & Co., and in various capacities with
independent oil and gas companies. He is a Certified Public Accountant and holds
a BSBA degree from Wayne State University.
Jerry M. Crews, age 47, has been an officer and director of Cliffwood
since he joined Cliffwood in April 1996. For the preceding 12 years he was an
officer of Citation Oil & Gas Corporation and was responsible for all production
operations. His experience includes acquisitions, drilling and development in
most of the producing basins of the United States. Prior experience was with
Conoco and Lear Petroleum. He holds a B.S. in petroleum engineering from Texas
A&M University.
Michael A. Vlasic, age 38, has been a director of Cliffwood since July
1996. For more than the past five years, he has been a principal with Vlasic
Investments L.L.C. He is a graduate of Brown University.
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Robert E. La Joie, age 72, has been a director of Cliffwood since July
1996. Mr. La Joie retired in 1977 and is a private investor with more than forty
years experience in oil and natural gas, real estate and food services. He is a
graduate of the University of Michigan.
Thomas A. Reiser, age 46, has been a director of Cliffwood since April
1996. For more than the past five years he has served as Chairman and President
of Technical Risks, Inc. a private insurance brokerage firm, which he founded.
He is a graduate of the College of William and Mary.
Gary J. Milavec, age 35, has been a director of Texoil since September
1996 and served as its Secretary from October 1996 to December 1997. He has been
a Vice President of RIMCO Associates, Inc. and active in its investment
management and corporate finance activities since October 1990. He is also a
director of Universal Seismic Associates, Inc. and Brigham Exploration Company.
From May 1989 to October 1990, he was an investment banker with Rauscher Pierce
Refsnes, Inc. From July 1986 to May 1989, he was a geologist with Shell Oil
Company. Mr. Milavec received a B.A. in Geology from the University of
Rochester, an M.S. in Geology from the University of Oklahoma, and an M.B.A.
from the University of Houston.
T. W. Hoehn, III, age 47, has been a director of Texoil since 1984 and
became its Chairman in October 1996. He is President and General Manager of
Hoehn Motors, Inc., a multi-line automobile agency located in Carlsbad,
California, where he has been employed since 1975. He is a graduate of Stanford
University.
There are no arrangements known to Texoil, including any pledge by any
person of Texoil securities, the operation of which may result at a subsequent
date in a change in control of Texoil.
Additional information concerning the Merger is contained in Items 2 and
5 below.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
AGREEMENT AND PLAN OF MERGER WITH CLIFFWOOD OIL & GAS CORP.
As a result of the Merger and pursuant to the terms of the Merger
Agreement, Texoil issued 6.74 shares of Texoil Common Stock for every share of
issued and outstanding Cliffwood Class A common stock, par value $.01 per share,
and Class B common stock, par value $.01 per share, comprising an issuance of
25,450,179 shares of Texoil Common Stock representing approximately 70% of the
shares of Texoil Common Stock currently outstanding. In addition, Texoil issued
replacement warrants and options to holders of Cliffwood warrants and options
representing obligations to issue, upon exercise of such replacement warrants or
options, up to 9,385,450 shares of Texoil Common Stock.
In connection with the Merger, the holders of all of Texoil's Series A
Preferred Stock and all of Texoil's outstanding convertible notes converted
those securities into Texoil Common Stock in accordance with the terms of such
securities. Prior to the Merger, 23,000 shares of Series A Preferred Stock were
outstanding for which Texoil issued 766,667 shares of Texoil Common Stock upon
conversion, in addition to 138,000 shares issued for accrued but unpaid
dividends on such
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Series A Preferred Stock. Similarly, $5.1 million in convertible notes were
outstanding for which Texoil issued 5.5 million shares of Texoil Common Stock
upon conversion, in addition to 90,813 shares issued for accrued and unpaid
interest on such notes. Texoil also repaid $1,050,000 of nonconvertible notes
owed to a Texoil director and his affiliates. The cash necessary to repay the
notes and pay transaction costs associated with the Merger was obtained from
cash on hand and the proceeds of the financing from affiliates of Resource
Investors Management Company ("RIMCO") described below.
Texoil expects that the Merger will be accounted for under the pooling
of interests method of accounting pursuant to generally accepted accounting
principles. The effect of pooling of interests accounting treatment is that the
assets and liabilities accounts of Cliffwood will be recorded at their
historical book values on December 31, 1997.
The Texoil Common Stock that was issued in the Merger was not registered
under the Securities Act of 1933, as amended, (the "Securities Act") or
applicable state securities laws in reliance on exemptions from the securities
registration provisions of the Securities Act and state securities laws. Texoil
has extended registration rights with respect to the shares of Texoil Common
Stock issued in the Merger and with respect to certain shares of Texoil Common
Stock held by current and former affiliates of Texoil prior to the Merger. As a
result of the registration rights granted in connection with the Merger,
approximately 93.3% of outstanding Texoil Common Stock is subject to various
registration rights. In addition, Texoil has extended registration rights with
respect to 11,623,218 shares of Texoil Common Stock issuable upon exercise of
the options and warrants issued in conjunction with the Merger and certain
options and warrants held by current and former affiliates of Texoil prior to
the Merger.
NATURE OF THE BUSINESS OF THE ACQUIRED COMPANY
Cliffwood is a private independent energy company whose primary focus is
on the acquisition and development of oil and natural gas properties. Cliffwood
was initially incorporated in September 1993 as AMF Production Company. The name
was changed to Cliffwood Oil & Gas Corp. when it commenced operations in early
1996. In May 1996, the corporate structure was revised and Cliffwood Oil & Gas
Corp. became the parent corporation to Cliffwood Production Co. ("Cliffwood
Production") and Cliffwood Energy Company ("Cliffwood Energy"), both
wholly-owned subsidiaries. In June 1997, Cliffwood formed Cliffwood Exploration
Company ("Cliffwood Exploration"), a wholly-owned subsidiary. References herein
to the term "Cliffwood" shall refer to Cliffwood Oil & Gas Corp. and all
consolidated subsidiaries.
Cliffwood is principally engaged in the exploration, acquisition,
development and production of oil and natural gas. Cliffwood's exploration
efforts are focused primarily in Texas with additional undeveloped properties
and prospects located in southern Louisiana and the Texas Gulf Coast area.
Cliffwood's principal proved reserves are located onshore in Texas. As of
September 30, 1997, Cliffwood had estimated proved reserves of 2,874,000 bbls of
oil and 7,022,000 mcf of natural gas having an estimated Present Value of Proved
Reserves of approximately $23.5 million. The estimates of Cliffwood's proved
developed reserves as of September 30, 1997, referred to in this Memorandum are
based upon the reports prepared by Cliffwood's management and technical staff.
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Such reports do not vary materially from independent reports prepared to
calculate Cliffwood's lending capacity by Comerica Bank-Texas, the lead bank for
Cliffwood's existing line of credit. The term "Present Value of Proved Reserves"
refers to the present value of estimated future revenues to be generated from
the production of proved reserves calculated in accordance with Securities and
Exchange Commission guidelines, net of estimated production and future
development costs, using prices and costs as of the date of estimation, without
giving effect to certain non-property related expenses and discounted using an
annual discount rate of 10%.
From the commencement of its operations in February 1996, Cliffwood has
focused on reserve acquisitions and development activities. Following the
acquisition of Cliffwood Energy and its related oil and gas interests in
February, 1996, Cliffwood acquired 15 wells located in Madison County, Texas in
April 1996. In September of 1996, in connection with the acquisition of the Fort
Stockton and Goldsmith-Landreth Units, Cliffwood Energy became the general
partner of a limited partnership known as Cliffwood Acquisition 1996 Limited
Partnership ("CALP 96"). CALP 96 was capitalized with approximately $3,000,000
by its limited partners who include Energy Capital Investment Company, PLC and
Encap Equity 1996 Limited Partnership, who were issued warrants to acquire a
total of 300,000 shares of the Cliffwood Class A Common Stock. Generally,
Cliffwood Energy funds 10% of the capital requirement for each project
undertaken by CALP 96 and may earn up to 70% of the cash flows of CALP 96 if
certain conditions are satisfied. Cliffwood must offer CALP 96 25% of future
acquisitions sponsored by Cliffwood up to CALP 96's capital limit of
$10,000,000.
Cliffwood and its affiliated partnerships acquired a 100% working
interest in the Fort Stockton Unit in September 1996. At approximately the same
time, Cliffwood and its affiliated partnerships acquired an 83% working interest
in the Goldsmith-Landreth San Andres Unit.
Effective December 1, 1996, Cliffwood and its affiliated partnerships
acquired a 100% interest in the Huff and McFadden Fields. The Company thereafter
acquired interests in two additional fields in 1996 and closed the acquisition
of an interest in the Magnet Withers and Ollie London Fields in March of 1997.
In the summer of 1997, Cliffwood established an exploration and development
joint venture with Bechtel Exploration Company known as the Cliffwood-Blue Moon
Joint Venture ("Cliffwood-Blue Moon JV"). Pursuant to the Cliffwood-Blue Moon
JV, Cliffwood has acquired rights to certain 3-D seismic data covering 150
square miles located in Acadia, Lafayette and Vermilion Parishes, Louisiana, and
access to 3-D seismic data covering an additional 50 square miles located in
Cameron and Calcasieu Parishes, Louisiana.
Effective August 1, 1997, Cliffwood acquired from V&C Energy Limited
Partnership ("V&C") all of the oil and natural gas interests held by V&C in
exchange for $2,500,000 cash, 100,000 shares of Cliffwood's Class A Common Stock
and a warrant to acquire 50,000 shares of Cliffwood Class A Common Stock at a
price of $4.50 per share. The acquisition of the V&C properties resulted in
Cliffwood acquiring V&C's undivided interests in six fields in which Cliffwood
already held an existing interest. V&C is a limited partnership whose general
partner is Energy Resources Associates, Inc., a wholly-owned entity of Mr.
Lodzinski and its limited partners include Mr. Lodzinski and Vlasic Investments,
LLC, an entity controlled by Michael A. Vlasic, a director of Cliffwood.
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In 1996, upon the closing of certain acquisitions for Cliffwood, Mr.
Lodzinski was paid a cash fee in the aggregate of $40,250. Cliffwood also had an
arrangement with Mr. Crews that he would earn a certain amount of its Class A
Common Stock based upon his agreement to work without compensation for a period
of six months. Mr. Crews also earned a fee of $57,250 for his services in
generating and closing certain acquisitions on behalf of Cliffwood. Mr. Mandell
C. Selber, an officer of Cliffwood, was paid a cash fee in the amount of $23,800
as a commission with respect to the acquisitions in the New Diana Field, such
fee was negotiated with Mr. Selber prior to his employment by Cliffwood.
Cliffwood's strategy has been to continue to pursue exploration and
development opportunities which shall constitute a significant part of the
overall business plan and to continue to achieve growth through purchases of
reserves, re-engineering, development and exploration. Cliffwood's primary
business strategy for drilling is to originate prospects, acquire leases and/or
options and solicit participants on a promoted basis pursuant to which Cliffwood
has the potential to earn interest in the properties and possibly receive a
profit interest greater than its proportionate cost. Cliffwood will also seek to
sell participations in the higher risk and higher cost prospects in an effort to
reduce the risk of exploration. Texoil presently intends to continue this
strategy with Cliffwood's properties and reserves.
ITEM 5. OTHER EVENTS
RIMCO FINANCING
Texoil Company and Texoil, Inc. had existing financing arrangements with
affiliates of RIMCO and with certain of their directors and affiliates of those
directors ("Existing Financing"). All of the outstanding principal and accrued
and unpaid interest under the Existing Financing was either paid in full or
converted into (or exchanged for) the Common Stock of Texoil, Inc. All unfunded
commitments to lend or sell notes under the Existing Financing were canceled or
terminated.
On December 31, 1997, Texoil entered into a Note Purchase Agreement (the
"RIMCO Agreement") with four limited partnerships of which RIMCO is the
controlling general partner (the "RIMCO Lenders"). Under the RIMCO Agreement,
the RIMCO Lenders have agreed to provide up to $10,000,000 in financing and
Texoil issued 7.875% Convertible Subordinated General Obligation Notes in the
principal amount of $10,000,000 to RIMCO (the "Convertible Notes").
A portion of the proceeds from the sale of the Convertible Notes was
used to repay a portion of the Existing Financing. The remainder of the proceeds
from the sale of the Convertible Notes may be used for working capital purposes.
The Convertible Notes will mature December 1, 1999, subject to extension
pursuant to the terms of the RIMCO Agreement ("Maturity Date"). Amounts advanced
under the Convertible Notes will accrue interest at a fixed, annual rate of
7.875%. Interest is payable on the first day of each month beginning February 1,
1998. All outstanding principal plus all accrued and unpaid interest
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is due and payable on the Maturity Date or upon a "Change of Control" as defined
in the RIMCO Agreement.
At any time prior to the Maturity Date, indebtedness outstanding under
the Convertible Notes is convertible by the holders, in whole or in part, into
Texoil Common Stock at an initial per share conversion price equal to $1.75,
subject to anti-dilution adjustments. Texoil can convert all of the outstanding
indebtedness under the Convertible Notes into Texoil Common Stock if the average
closing price per share during a period of 20 consecutive trading days ("Average
Price") equals or exceeds 130% of the conversion price.
If on December 1, 1999, cash availability of Texoil and its subsidiaries
is less than the principal and accrued and unpaid interest outstanding under the
Convertible Notes, the RIMCO Lenders can be required to convert the outstanding
principal and accrued and unpaid interest into Texoil Common Stock, if the
relationship between the Average Price and the conversion price satisfies
certain conditions set out in the RIMCO Agreement.
The Company granted the holders of the Convertible Notes certain
registration rights in respect of shares of Texoil Common Stock issuable upon
conversion of debt under the Convertible Notes.
The indebtedness under the RIMCO Agreement is subject to the terms of a
subordination agreement among the RIMCO Lenders, Comerica Bank-Texas, N.A. (as
agent for itself and certain other lenders), Cliffwood Oil & Gas Corp.,
Cliffwood Energy Company, and Cliffwood Production Company, under which
indebtedness under the RIMCO Agreement is subordinated in right of payment and
the RIMCO Lenders are subject to restrictions on their right to exercise
remedies under the RIMCO Agreement. The subordination provisions to not affect
the ability to convert indebtedness under the RIMCO Agreement into Common Stock
of Texoil.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
Financial statements will be filed as soon as practicable but no later
than sixty days from the date this report is required to be filed.
PRO FORMA FINANCIAL INFORMATION
Pro forma financial statements will be filed as soon as practicable but
no later than sixty days from the date this report is required to be
filed.
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EXHIBITS
The following exhibits are filed with the Form 8-K in accordance with
the provisions of Item 601 of Regulation S-B promulgated under the Securities
Act of 1933, as amended:
2.1 Agreement and Plan of Merger, dated December 31, 1997, by and among
Texoil, Inc., Texoil Acquisition, Inc., and Cliffwood Oil & Gas Corp.
2.2 Executive Employment Agreement, dated January 1, 1998, by and among
Texoil, Inc. and Frank A. Lodzinski.
5.1 Note Purchase Agreement, dated December 31, 1997, by and among Texoil,
Inc. and Resource Investors Management Company.
5.2 Form of the Texoil, Inc. 7.875% Convertible Subordinated General
Obligation Note.
5.3 Guaranty Agreement, dated December 31, 1997, by and among Cliffwood Oil
& Gas Corp. and RIMCO Partners, L.P., RIMCO Partners, L.P. II, RIMCO
Partners, L.P. III, and RIMCO Partners, L.P. IV.
5.4 Guaranty Agreement, dated December 31, 1997, by and among Texoil Company
and RIMCO Partners, L.P., RIMCO Partners, L.P. II, RIMCO Partners, L.P.
III, and RIMCO Partners, L.P. IV.
5.5 Amended and Restated Stock Ownership and Registration Rights Agreement
among Texoil, Inc. and RIMCO Partners, L.P., RIMCO Partners, L.P. II,
RIMCO Partners, L.P. III, and RIMCO Partners, L.P. IV, dated December
31, 1997.
FORWARD-LOOKING STATEMENTS
This Report contains certain statements that may be deemed
"forward-looking statements" within the meaning of Section 27A of the Securities
Act, and Section 21E of the Exchange Act. All statements, other than statements
of historical facts, so included in this Report that address activities, events
or developments that Texoil expects, projects, believes or anticipates will or
may occur in the future are forward-looking statements. Such statements are
based on certain assumptions and analyses made by management of Texoil in light
of its experience and its perception of historical trends, current conditions,
expected future developments and other factors it believes to be appropriate.
The forward-looking statements included in this Report are also subject to a
number of material risks and uncertainties. Such forward-looking statements are
not guarantees of future performance and actual results, developments and
business decisions may differ from those envisaged by such forward-looking
statements.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: January 8, 1998
TEXOIL, INC.
/S/ FRANK A. LODZINSKI
Frank A. Lodzinski,
President
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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
AMONG
TEXOIL, INC.,
TEXOIL ACQUISITION, INC.,
AND
CLIFFWOOD OIL & GAS CORP.
DECEMBER 31, 1997
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TABLE OF CONTENTS
PAGE
ARTICLE 1
THE MERGER
1.1 Effective Time of the Merger.....................................2
1.2 Closing..........................................................2
1.3 Effects of the Merger............................................2
ARTICLE 2
CONVERSION OF SHARES; PAYMENT OF MERGER CONSIDERATION
2.1 Conversion of Shares.............................................2
2.2 Payment of the Merger Consideration..............................3
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF CLIFFWOOD
3.1 Organization and Good Standing...................................4
3.2 Capitalization of Cliffwood......................................4
3.3 Cliffwood Subsidiaries...........................................4
3.4 Authority; No Conflicts..........................................5
3.5 Consents.........................................................6
3.6 No Brokers.......................................................6
3.7 Financial Statements.............................................6
3.8 Absence of Changes...............................................6
3.9 Absence of Undisclosed Liabilities...............................7
3.10 Tax Returns......................................................8
3.11 Intellectual Property............................................8
3.12 Contracts and Permits............................................8
3.13 Insurance Policies...............................................9
3.14 Employees........................................................9
3.15 Employee Benefit Matters........................................10
3.16 Litigation......................................................12
3.17 Absence of Sensitive Payments...................................12
3.18 No Default......................................................12
3.19 Good and Marketable Title.......................................12
3.20 Status of the Cliffwood Leases..................................14
3.21 Gas Contracts...................................................15
3.22 Preferential Rights.............................................15
3.23 Books and Records...............................................15
3.24 Operations and Expenditures.....................................15
3.25 Tax Partnerships................................................15
3.26 Wells...........................................................16
3.27 Seismic Data....................................................16
3.28 Compliance with Laws............................................16
3.29 Property........................................................16
3.30 Environmental Compliance........................................17
3.31 Transactions with Management....................................18
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TABLE OF CONTENTS
(Continued)
PAGE
3.32 Full Disclosure.................................................18
3.33 Untrue Statements...............................................18
3.34 Survival........................................................18
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF TEXOIL
4.1 Organization and Good Standing..................................19
4.2 Capitalization of Texoil........................................19
4.3 Texoil Subsidiaries.............................................19
4.4 Authority; No Conflicts.........................................20
4.5 Consents........................................................20
4.6 No Brokers......................................................20
4.7 Financial Statements............................................20
4.8 Securities Reports and Filings..................................21
4.9 Absence of Changes..............................................21
4.10 Absence of Undisclosed Liabilities..............................22
4.11 Tax Returns.....................................................23
4.12 Intellectual Property...........................................23
4.13 Contracts and Permits...........................................23
4.14 Insurance Policies..............................................24
4.15 Employees.......................................................24
4.16 Employee Benefit Matters........................................25
4.17 Litigation......................................................26
4.18 Absence of Sensitive Payments...................................27
4.19 No Default......................................................27
4.20 Good and Marketable Title.......................................27
4.21 Status of the Texoil Leases.....................................28
4.22 Gas Contracts...................................................29
4.23 Preferential Rights.............................................29
4.24 Books and Records...............................................30
4.25 Operations and Expenditures.....................................30
4.26 Tax Partnerships................................................30
4.27 Wells...........................................................30
4.28 Seismic Data....................................................30
4.29 Compliance with Laws............................................30
4.30 Property........................................................30
4.31 Environmental Compliance........................................31
4.32 Transactions with Management....................................32
4.33 Full Disclosure.................................................32
4.34 Untrue Statements...............................................32
4.35 Survival........................................................32
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF TEXOIL SUB
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TABLE OF CONTENTS
(Continued)
PAGE
5.1 Organization and Qualification..................................32
5.2 No Operations...................................................33
5.3 Capitalization..................................................33
5.4 Authority Relative to Agreement.................................33
5.5 Non-Contravention...............................................33
5.6 Governmental Consents...........................................33
5.7 Survival of Representations and Warranties......................33
ARTICLE 6
ADDITIONAL COVENANTS AND UNDERTAKINGS
6.1 Stockholder Approval............................................34
6.2 Further Assurances and Assistance...............................34
6.3 Access to Information...........................................34
6.4 Conduct of Business Prior to Closing............................34
6.5 Inquiries and Negotiations......................................36
6.6 Expenses........................................................37
6.7 Options and Warrants of Cliffwood...............................37
6.8 Indemnification of Resigning Texoil Officers and Directors......37
6.9 Certain Registration Rights.....................................37
ARTICLE 7
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PARTIES TO CLOSE
7.1 Conditions Precedent to the Obligation of Texoil................40
7.2 Conditions Precedent to the Obligation of Cliffwood.............41
7.3 Conditions to the Obligations of Cliffwood, Texoil and Texoil
Sub.............................................................42
ARTICLE 8
TERMINATION
8.1 Methods of Termination..........................................43
8.2 Termination by Board of Directors...............................43
8.3 Effect of Termination...........................................43
8.4 Waiver of Conditions............................................43
8.5 Expense on Termination..........................................43
ARTICLE 9
MISCELLANEOUS
9.1 Notice..........................................................43
9.2 Schedules and Exhibits..........................................44
9.3 Execution in Counterparts.......................................44
9.4 Entire Agreement................................................45
9.5 Applicable Law and Venue........................................45
9.6 Modification....................................................45
9.7 Successors and Assigns..........................................45
9.8 Amendments and Waivers..........................................45
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TABLE OF CONTENTS
(Continued)
PAGE
9.9 Severability....................................................46
9.10 Announcements...................................................46
9.11 Knowledge, Headings, Gender, and Certain References.............46
9.12 Rights of Parties...............................................47
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of
December 31, 1997, is by and among Texoil, Inc., a Nevada corporation
("Texoil"), Texoil Acquisition, Inc., a Texas corporation and a wholly-owned
subsidiary of Texoil ("Texoil Sub") and Cliffwood Oil & Gas Corp., a Texas
corporation ("Cliffwood"). Cliffwood and Texoil Sub are the only parties to the
merger contemplated hereby and are sometimes referred to herein as the
"Constituent Corporations," and Cliffwood, as it shall exist after the
consummation of the merger contemplated hereby, is sometimes referred to herein
as the "Continuing Corporation."
WITNESSETH:
WHEREAS, Cliffwood and Texoil are each engaged in the business of
exploring for, producing and selling oil and natural gas;
WHEREAS, the Board of Directors of Texoil previously determined to
pursue a potential business combination with another oil and gas industry
participant with a view to maximizing shareholder value for Texoil shareholders;
WHEREAS, the Board of Directors of Texoil has solicited indications of
interest in such a business combination from numerous oil and gas industry
participants and having considered the available alternatives has determined
that the merger of Texoil Sub with and into Cliffwood on the terms and subject
to the conditions set forth in this Agreement (the "Merger") offers the best
opportunity for the maximization of shareholder value for Texoil stockholders;
WHEREAS, the Board of Directors of Texoil has therefore determined that
the Merger is fair to Texoil stockholders and that consummation of the Merger is
advisable and in the best interest of Texoil and its stockholders; and
WHEREAS, the Board of Directors of Cliffwood has also solicited and
considered potential business combinations with numerous other oil and gas
industry participants for the purpose of maximizing shareholder value for
Cliffwood shareholders and has likewise determined that the Merger is fair to
Cliffwood shareholders and that it is advisable and in the best interest of
Cliffwood and its shareholders that Cliffwood consummate the Merger.
NOW, THEREFORE, for the purpose of consummating the Merger and other
transactions contemplated hereby and in consideration of the respective
agreements, representations, warranties and covenants contained herein, the
parties hereby agree as follows:
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ARTICLE 1
THE MERGER
1.1 EFFECTIVE TIME OF THE MERGER. Subject to the provisions of this
Agreement, Articles of Merger (the "Articles of Merger") in such form as
required by the relevant provisions of the Texas Business Corporation Act (the
"TBCA") shall be duly prepared, executed and acknowledged by each of the
Constituent Corporations and thereafter delivered to the Secretary of State of
the State of Texas for filing, as provided in the TBCA, on the Closing Date (as
defined herein). The Merger shall become effective upon the filing of the
Articles of Merger with the Secretary of State of the State of Texas or at such
time thereafter as is provided in the Articles of Merger (the "Effective Time").
1.2 CLOSING. The closing of the Merger (the "Closing") will take place
at the offices of Porter & Hedges, L.L.P. or such other place as shall be agreed
by the parties hereto, on (i) the first business day after the last of the
conditions set forth in Article 7 is fulfilled or waived, or (ii) on such other
date as is specified by Texoil and Cliffwood after all of the conditions to the
Merger set forth in Article 7 have been satisfied or waived, subject to the
rights of termination and abandonment hereinafter set forth (the "Closing
Date").
1.3 EFFECTS OF THE MERGER.
1.3.1 At the Effective Time: (i) the separate existence of
Texoil Sub shall cease and Texoil Sub shall be merged with and into Cliffwood
with Cliffwood as the surviving entity, (ii) the Articles of Incorporation of
Cliffwood on the Closing Date shall be the Articles of Incorporation of the
Continuing Corporation, (iii) the Bylaws of Cliffwood on the Closing Date shall
be the Bylaws of the Continuing Corporation, and (iv) the directors and officers
of Cliffwood shall be the officers and directors of the Continuing Corporation.
1.3.2(i) The separate existence of Texoil Sub shall cease; (ii)
all rights, title and interests to all real estate and other property owned by
the Constituent Corporations shall be allocated to and vested in Cliffwood as
provided in this Agreement without reversion or impairment, without further act
or deed, and without any transfer or assignment having occurred, but subject to
any existing liens or other encumbrances thereon; and (iii) all liabilities and
obligations of the Constituent Corporations shall be allocated to Cliffwood.
ARTICLE 2
CONVERSION OF SHARES; PAYMENT OF MERGER CONSIDERATION
2.1 CONVERSION OF SHARES. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of capital
stock of Texoil Sub or Cliffwood:
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2.1.1 Each issued and outstanding share of Cliffwood's Class A
Common Stock, par value $0.01 per share, and Cliffwood's Class B Common Stock,
par value $0.01 per share at the Effective Time (collectively, the "Old
Cliffwood Common Stock") shall be converted, automatically and without further
action on the part of the holder, into the right to receive 6.74 shares (the
"Merger Consideration") of common stock, par value $0.01 per share of Texoil
(the "Texoil Common Stock"). Until surrendered, the certificates representing
shares of Old Cliffwood Common Stock shall represent for all purposes only the
right to receive the Merger Consideration. At the Effective Time, the holders of
such certificates shall immediately and permanently cease to have any rights as
stockholders of Cliffwood, except such rights, if any, as they may have pursuant
to the TBCA.
2.1.2 Each issued and outstanding share of common stock, par
value $0.01 per share, of Texoil Sub at the Effective Time (the "Texoil Sub
Common Stock") shall be converted into and become one validly issued, fully paid
and nonassessable share of common stock, par value $0.01 per share, of the
Continuing Corporation (the "New Cliffwood Common Stock"). After the Effective
Time and until surrender, each certificate representing shares of Texoil Sub
Common Stock shall represent for all purposes a like number of shares of New
Cliffwood Common Stock.
2.2 PAYMENT OF THE MERGER CONSIDERATION.
2.2.1 As soon as practicable after the Effective Time, Texoil
shall mail or otherwise cause to be delivered to each record holder of
certificates representing shares of Old Cliffwood Common Stock who has not
already delivered a transmittal form and related stock certificates to Texoil, a
notice and transmittal form for use in effecting the surrender of such holder's
Old Cliffwood Common Stock certificates for payment therefor. Upon surrender to
Texoil of such certificates together with such letter of transmittal duly
executed, the holder of such certificate(s) shall be entitled to receive the
Merger Consideration in exchange therefor and such certificate shall forthwith
be canceled.
2.2.2 All payments of the Merger Consideration made in respect
of shares of Old Cliffwood Common Stock which are made in accordance with the
terms of this Article shall be deemed to have been made in full satisfaction of
all rights pertaining to such shares of Old Cliffwood Common Stock.
2.2.3 No certificates or scrip representing fractional shares
of Texoil Common Stock shall be issued for shares of Old Cliffwood Common Stock,
and such fractional share interests will not entitle the owner thereof to vote
or to any rights of a stockholder of Texoil. Each holder of shares of Old
Cliffwood Common Stock who would otherwise have been entitled to receive in the
Merger a fraction of a share of Texoil Common Stock, after taking into account
all certificates surrendered by such holder, shall be entitled to receive, in
lieu thereof, cash in an amount equal to such fractional part of a share of
Texoil Common Stock multiplied by the average of the bid and asked price for the
Texoil Common Stock, as quoted on the Nasdaq SmallCap Market for the five
trading days immediately preceding the Closing Date. All fractional shares of
Texoil Common Stock otherwise due to a holder of Old Cliffwood Common Stock
shall be aggregated so that such holder shall receive additional whole shares of
Texoil Common Stock to the extent the sum of such
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fractional parts equals or exceeds a whole number, and such holder shall receive
cash for any net fractional shares less than one whole share.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF CLIFFWOOD
Except as disclosed in the Cliffwood Property Schedule or other
schedules referred to in this Article 3, Cliffwood hereby represents and
warrants to Texoil and Texoil Sub as follows:
3.1 ORGANIZATION AND GOOD STANDING. Cliffwood is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas and has full corporate power and authority to carry on its business as it
is now being conducted. Cliffwood is qualified as a foreign corporation and is
in good standing under the laws of each jurisdiction in which the conduct of its
business or the ownership of its properties requires such qualification, except
where the failure to be so qualified would not have a Material Adverse Effect
with respect to Cliffwood (a "Cliffwood Material Adverse Effect"). As used
herein, the term "Material Adverse Effect" shall mean, with respect to any
party, a material adverse effect on the assets, financial condition or business
of such party and its Subsidiaries, taken as a whole. As used herein, the term
"Subsidiary" shall mean, with respect to any party, any corporations,
partnerships, limited liability companies, joint ventures or other business
entities owned or controlled by such party, directly or indirectly, whether by
owning a majority of the shares or other interests having the power to elect
directors of such entity or other persons exercising similar functions or
otherwise.
3.2 CAPITALIZATION OF CLIFFWOOD. The authorized capital stock of
Cliffwood consists of 25,000,000 shares of Old Cliffwood Common Stock, par value
$0.01 per share, divided into 20,000,000 shares of Class A Common Stock, of
which 3,442,657 shares are issued and outstanding, and 5,000,000 shares of Class
B Common Stock, of which 333,334 shares are issued and outstanding; and
10,000,000 shares of preferred stock, par value $0.01 per share, of which none
are issued and outstanding. All the outstanding shares of capital stock of
Cliffwood have been validly issued, are fully paid and nonassessable, were
issued in compliance with all applicable state and federal laws, and were not
issued in violation of any right of first refusal, preemptive right, or similar
right of any person. Except as described in SCHEDULE 3.2, (i) no shares of
capital stock of Cliffwood are held in treasury and (ii) there are no other
issued or outstanding securities (as defined under the Securities Act of 1933,
as amended (the "Securities Act")) of Cliffwood. Except as described in SCHEDULE
3.2, Cliffwood is not subject to any commitment or obligation that would require
the issuance or sale of additional securities of Cliffwood at any time under
options, subscriptions, warrants, rights, conversion rights, exercise rights or
any other obligations or that requires Cliffwood to purchase or redeem any
securities.
3.3 CLIFFWOOD SUBSIDIARIES. Each of the Subsidiaries of Cliffwood (each
a "Cliffwood Subsidiary") is set forth as SCHEDULE 3.3. As used herein, the term
"Cliffwood Group" means Cliffwood and all of its Subsidiaries. Except as set
forth in SCHEDULE 3.3, all of the outstanding securities of each of the
Cliffwood Subsidiaries are duly authorized, validly issued, fully paid and
nonassessable, are owned beneficially and of record by Cliffwood or a Cliffwood
Subsidiary and
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Cliffwood has good and marketable title thereto free and clear of any
Encumbrance (as defined herein). Each such Cliffwood Subsidiary is duly
organized, validly existing, and in good standing under the laws of the
jurisdiction under which it is organized and has full requisite power and
authority to own its property and carry on its business as presently conducted
by it and is duly qualified or licensed to do business and in good standing as a
foreign business entity authorized to do business in all jurisdictions in which
the character of the properties owned or the nature of the business conducted
makes such qualification or licensing necessary except for those jurisdictions
where the failure to be so qualified or licensed and in good standing would not
constitute a Cliffwood Material Adverse Effect. Except as set forth in SCHEDULE
3.3, there are no existing options, warrants, calls, commitments, agreements,
conversion rights, exercise rights or other securities obligating any Cliffwood
Subsidiary to issue or transfer any securities to any person or that require any
of the Cliffwood Subsidiaries to purchase or redeem any securities. Except as
set forth in SCHEDULE 3.3, no member of the Cliffwood Group directly or
indirectly owns any security issued by any corporation, partnership, joint
venture or other business association or entity.
3.4 AUTHORITY; NO CONFLICTS.
3.4.1 Cliffwood has all requisite corporate power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Cliffwood. This Agreement has been duly executed
and delivered by Cliffwood and, assuming the due authorization, execution and
delivery by Texoil and Texoil Sub, constitutes the valid and binding obligation
of Cliffwood, enforceable in accordance with its terms, except as such
enforceability may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to creditors rights
generally and (ii) the availability of injunctive relief and other general
principles of equity.
3.4.2 Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will: (i) conflict with
or result in any violation or breach of any provision of the Articles of
Incorporation or Bylaws of any member of the Cliffwood Group; (ii) give rise to
any right to purchase any securities or assets of any member of the Cliffwood
Group; (iii) conflict with, result in a breach of, constitute a default under,
without regard to requirements of notice or the lapse of time or both,
accelerate or permit the acceleration of the performance required by, result in
the loss or modification of, or require any consent, authorization or approval
under any lease, license, franchise, permit, contract or other agreement,
authorization or instrument to which any member of the Cliffwood Group is a
party or by which they are bound or to which any of their properties are
subject; or (iv) conflict with or result in any violation of any judgment,
order, decree, statute or law applicable to any member of the Cliffwood Group or
any of their properties or assets, except in the case of (ii), (iii) or (iv) for
any such conflicts, violations, defaults, terminations, cancellations or
accelerations which would not have a Cliffwood Material Adverse Effect.
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3.5 CONSENTS. Except for (i) filings required by the TBCA, (ii) consents
of private third parties that have been or will be obtained by Closing, and
(iii) filings, consents, approvals and authorizations that the failure to obtain
or make would not have a Cliffwood Material Adverse Effect, no filing with or
consent, approval or authorization of any governmental authority or of any third
party on the part of any member of the Cliffwood Group is required in connection
with the execution and delivery of this Agreement or the consummation of any of
the transactions contemplated hereby.
3.6 NO BROKERS. No member of the Cliffwood Group or anyone acting on
their behalf has employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders' fees in connection with the transactions
contemplated by this Agreement.
3.7 FINANCIAL STATEMENTS. Cliffwood has delivered to Texoil copies of
its unaudited consolidated balance sheets as of September 30, 1997, its audited
consolidated balance sheets as at December 31, 1996 and related audited
consolidated statements of operations, consolidated statements of cash flows for
the year ended December 31, 1996 with appended notes which are an integral part
of such statements (collectively, the "Cliffwood Financial Statements"). True
and correct copies of such financial statements are appended hereto as SCHEDULE
3.7. The Cliffwood Financial Statements are complete in all material respects,
present fairly the financial condition of the Cliffwood Group as at the dates
indicated and the results of operations for the respective periods indicated,
and have been prepared in accordance with generally accepted accounting
principles in the United States applied on a consistent basis ("GAAP"), except
as noted therein. The accounts receivable reflected in the September 30, 1997
balance sheet, and those which have been thereafter acquired by any member of
the Cliffwood Group, have been collected or are not delinquent and collectible
in the aggregate recorded amounts thereof less applicable reserves computed in
accordance with GAAP, which reserves are adequate. None of the Cliffwood
Financial Statements include or omit an asset or a liability of any kind or
nature, the inclusion or omission of which would render such financial
statements materially misleading.
3.8 ABSENCE OF CHANGES. Since September 30, 1997, there has not been
any:
3.8.1 transaction by any member of the Cliffwood Group except
in the ordinary course of business as conducted on that date except as otherwise
provided on SCHEDULE 3.8;
3.8.2 capital expenditure by any member of the Cliffwood Group
exceeding $4,000,000 in the aggregate;
3.8.3 Cliffwood Material Adverse Effect;
3.8.4 destruction, damage to, or loss of any asset of any
member of the Cliffwood Group, whether or not covered by insurance, that could
have a Cliffwood Material Adverse Effect;
3.8.5 labor difficulties or other event or condition of any
character that could have a Cliffwood Material Adverse Effect;
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3.8.6 change in accounting methods or practices including,
without limitation, any change in depreciation or amortization policies or rates
by any member of the Cliffwood Group;
3.8.7 re-valuation by any member of the Cliffwood Group of any
of its assets;
3.8.8 declaration, setting aside or payment of a dividend or
other distribution in respect to the capital stock of any member of the
Cliffwood Group or any direct or indirect redemption, purchase or other
acquisition by any member of the Cliffwood Group of any securities;
3.8.9 material increase in the salary or other compensation
payable or to become payable by any member of the Cliffwood Group to any of
their officers, directors or employees, or any declaration, payment or
commitment or obligation of any kind for the payment by any member of the
Cliffwood Group of a bonus or other additional salary or compensation to any
such person;
3.8.10 sale or transfer of any asset of any member of the
Cliffwood Group, except in the ordinary course of business;
3.8.11 amendment or termination of any material contract, to
which any member of the Cliffwood Group is a party, except in the ordinary
course of business;
3.8.12 loan by any member of the Cliffwood Group to any person
or entity or guaranty by any member of the Cliffwood Group of any loan, except
as otherwise disclosed herein;
3.8.13 mortgage, pledge, lien or other encumbrance (an
"Encumbrance") of any asset of any member of the Cliffwood Group;
3.8.14 waiver or release of any material right or claim of any
member of the Cliffwood Group;
3.8.15 other event or condition of any character that has or
might reasonably have a Cliffwood Material Adverse Effect;
3.8.16 issuance or sale by any member of the Cliffwood Group of
any securities; or
3.8.17 agreement or understanding by any member of the
Cliffwood Group to do any of the things described in the preceding clauses 3.8.1
through 3.8.16, except as otherwise contemplated or disclosed by this Agreement.
3.9 ABSENCE OF UNDISCLOSED LIABILITIES. No member of the Cliffwood Group
has any debt, liability, or obligation of any nature, whether accrued, absolute,
contingent or otherwise, and whether due or to become due, that is not reflected
or reserved against in the Cliffwood Financial Statements, except for those
incurred after September 30, 1997 that: (i) were incurred in the ordinary course
of business, (ii) are usual and normal in amount both individually and in the
aggregate, and (iii) do not exceed $1,000,000 in the aggregate.
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3.10 TAX RETURNS. Within the times and in the manner prescribed by law,
each member of the Cliffwood Group has filed all required federal, state and
local tax returns and paid all taxes, assessments and penalties due and payable,
except as set forth in SCHEDULE 3.10. No federal tax return of any member of the
Cliffwood Group has been audited by the Internal Revenue Service, and no notice
of any proposed audit has been received by any member of the Cliffwood Group.
The provisions for taxes reflected in the Cliffwood Financial Statements are
adequate for any and all federal, state, county and local taxes for the periods
covered by the Cliffwood Financial Statements and for all prior periods, whether
or not disputed. There are no present disputes with any governmental authority
as to taxes of any nature payable by any member of the Cliffwood Group. Each
member of the Cliffwood Group has made all withholdings of taxes required to be
made under all federal, state, county, local and other tax laws and regulations.
No member of the Cliffwood Group has granted any extension to any taxing
authority of the limitation period during which any tax liability may be
asserted thereby.
3.11 INTELLECTUAL PROPERTY. Except as set forth in SCHEDULE 3.11 or in
the CLIFFWOOD PROPERTY SCHEDULE, there are no Encumbrances on any patent
applications, trademarks and service marks, including registrations and
applications therefor, trade names, copyrights and written know-how, trade
secrets, and all other similar proprietary data owned by any member of the
Cliffwood Group or regarding which any such member has rights or licenses
(collectively, the "Cliffwood Intellectual Property") that are material to the
business of the Cliffwood Group. SCHEDULE 3.11 and the CLIFFWOOD PROPERTY
SCHEDULE together set forth all Cliffwood Intellectual Property that is material
to the business of the Cliffwood Group. Except as set forth in SCHEDULE 3.11 or
in the CLIFFWOOD PROPERTY SCHEDULE, no member of the Cliffwood Group has granted
to any other person or entity any license to use any Cliffwood Intellectual
Property. No member of the Cliffwood Group has received any notice of
infringement, misappropriation, or conflict with the intellectual property
rights of others in connection with the use by any member of the Cliffwood Group
of the Cliffwood Intellectual Property.
3.12 CONTRACTS AND PERMITS. Except for contracts which provide for
consideration with a fair market value of less than $25,000, SCHEDULE 3.12 and
the CLIFFWOOD PROPERTY SCHEDULE together set forth a complete and current list
of all contracts (other than Cliffwood Employment Agreements, as defined below),
leases, oil and gas leases, licenses (including without limitation Cliffwood
Seismic Licenses, as defined herein) and permits of each member of the Cliffwood
Group (the "Cliffwood Permits"), all such contracts, together with the Cliffwood
Employment Agreements, the Cliffwood Leases (as defined herein) the Cliffwood
Seismic Licenses and Cliffwood Permits being hereafter referred to as the
"Cliffwood Material Contracts." Each of the Cliffwood Material Contracts is
valid and binding upon each party thereto and is in full force and effect
according to its terms, and there have been no amendments, modifications or
supplements thereto other than such as are listed on SCHEDULE 3.12 or the
CLIFFWOOD PROPERTY SCHEDULE. Except as set forth on SCHEDULE 3.12 or the
CLIFFWOOD PROPERTY SCHEDULE, there is no default or claim of default under any
Cliffwood Material Contract and, to Cliffwood's Knowledge, no event has occurred
which, with the passage of time or the giving of notice, would constitute a
default by any member of the Cliffwood Group, or any other party thereto, under
any Cliffwood Material Contract or would permit modification, acceleration or
termination of any Cliffwood Material Contract, or result in the
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creation of any Encumbrance on any assets of any member of the Cliffwood Group,
except for such defaults or creation of Encumbrances which would not have a
Cliffwood Material Adverse Effect. Except as indicated on SCHEDULE 3.12 or the
CLIFFWOOD PROPERTY SCHEDULE, no Cliffwood Material Contract will require the
consent of or notice to any party thereto with respect to any of the
transactions contemplated hereby, except to the extent that the failure to
obtain such consent or provide notice will not have a Cliffwood Material Adverse
Effect. None of the material permits require the payments of any further fees
except as listed on SCHEDULE 3.12 or the CLIFFWOOD PROPERTY SCHEDULE nor, to
Cliffwood's Knowledge, do any facts or circumstances exist which would indicate
that any member of the Cliffwood Group will not be entitled to renew any
material permit upon its expiration or would be required to pay an extraordinary
fee or charge in connection therewith. Except for the permits listed on SCHEDULE
3.12 or the CLIFFWOOD PROPERTY SCHEDULE, no permit is required for the operation
of the businesses of any member of the Cliffwood Group as presently conducted,
except for such permits, the absence of which would not have a Cliffwood
Material Adverse Effect.
3.13 INSURANCE POLICIES. A description of all insurance policies held by
each member of the Cliffwood Group concerning its businesses and properties is
set forth on SCHEDULE 3.13. All of these policies are in the respective
principal amounts as set forth on SCHEDULE 3.13. Each member of the Cliffwood
Group has maintained and now maintains (i) insurance on all of its material
assets and businesses of a type customarily insured, covering property damage
and loss of income by fire or other casualty and (ii) adequate insurance
protection against all liabilities, claims, and risks against which it is
customary to insure.
3.14 EMPLOYEES. SCHEDULE 3.14 contains a correct and current list of all
contracts with respect to employment and collective bargaining agreements to
which any member of the Cliffwood Group is a party or by which any member of the
Cliffwood Group is bound (the "Cliffwood Employment Agreements"); all such
contracts are in full force and effect, and no member of the Cliffwood Group or
any other party is in default under any of them. There have been no claims of
defaults, and there are no facts or conditions which if continued or on notice
will result in a default under such contracts. Each member of the Cliffwood
Group has paid all salaries and wages accrued to or for the benefit of its
respective employees and has complied in all respects with all applicable laws
relating to the employment of labor, including those relating to wages, hours,
collective bargaining and the payment and withholding of taxes, and has withheld
and paid to the appropriate governmental authority, or is holding for payment
not yet due to such authority, all amounts required by law or agreement to be
withheld from the wages or salaries of such employees. Except as set forth on
SCHEDULE 3.14, there has been no material adverse change in the relationship of
any member of the Cliffwood Group with its employees, including any threatened
union organization, any strike, work stoppage or labor disturbance by any such
employees or any other third party employees performing services, and no member
of the Cliffwood Group is aware of any indication that such a change or event is
likely. A complete and correct list of the names and addresses of all officers,
directors and employees of each member of the Cliffwood Group, stating the rates
of compensation payable to each, is set forth on SCHEDULE 3.14.
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3.15 EMPLOYEE BENEFIT MATTERS.
3.15.1 SCHEDULE 3.15 sets forth a brief description all of the
bonus, deferred and incentive compensation, profit sharing, pension, retirement,
vacation, sick leave, leave of absence, disability, life insurance,
hospitalization, severance, and fringe benefit plans, policies, programs and
arrangements, all "employee pension benefit plans" (as defined in Section 3(2)
of the Employee Retirement Income Security Act ("ERISA")), and all "employee
welfare benefit plans" (as defined in Section 3(1) of ERISA), which any member
of the Cliffwood Group maintains, to which any member of the Cliffwood Group
contributes or has an obligation to contribute, or with respect to which any
member of the Cliffwood Group has any liability or reasonable expectation of
liability (all such plans, policies, programs and arrangements shall be
individually referred to herein as "Plan" and collectively as "Plans") as of the
Closing. Except as set forth in SCHEDULE 3.15, no member of the Cliffwood Group
maintains any Plans. For purposes of this Section 3.15, all references to the
Cliffwood Group shall be deemed to refer to each member of the Cliffwood Group
and any trade or business, whether or not incorporated, which together with
Cliffwood would be deemed or treated as a "single employer" within the meaning
of Section 414 of the Internal Revenue Code of 1986, as amended (the "Code") or
ERISA Section 4001. None of the Plans (i) is subject to Title IV of ERISA or the
minimum funding requirements of Section 412 of the Code or Section 302 of ERISA,
(ii) is a plan of the type described in Section 4063 of ERISA or Section 413(c)
of the Code, (iii) is a "multi-employer plan" (as defined in Section 3(37) of
ERISA), (iv) provides for medical, dental, life, disability or other insurance
benefits to current or future retired employees or former employees of any
member of the Cliffwood Group (other than as required for group health plan
continuation coverage under Code Section 4980B or similar state law), (v)
obligates any member of the Cliffwood Group to pay any severance or similar
benefits solely as a result of a change in control or ownership within the
meaning of Code Section 280G, or (vi) is a "voluntary employees' beneficiary
association" within the meaning of Code Section 501(c)(9).
3.15.2 Each Plan is, in all material respects, in compliance,
and has been administered, maintained and funded in all material respects in
accordance, with the applicable provisions of ERISA and the Code and all other
applicable laws, rules and regulations. To the best knowledge of each member of
the Cliffwood Group, no member of the Cliffwood Group or any fiduciary to any
Plan, with respect to any Plan, has (i) engaged in any prohibited transaction
under ERISA or the Code, (ii) breached any fiduciary duty owed by it, or (iii)
failed to file and distribute, timely and properly, all reports and information
required to be filed or distributed in accordance with ERISA or the Code. There
are also no pending or threatened, actions, suits, investigations, arbitrations
or claims with respect to any Plan (other than routine claims for benefits)
which could reasonably be expected to result in material liability to any member
of the Cliffwood Group, and there are no changes in contributions or benefit
levels that have been implemented, or negotiated and not yet implemented, with
respect to any Plan that has not been disclosed in SCHEDULE 3.15.
3.15.3 All contributions or premiums which are due on or before
the Closing with respect to the Plans have been or will be timely paid by each
member of the Cliffwood Group.
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3.15.4 Each Plan which is intended to be qualified under Code
Section 401(a), (i) has been timely amended to reflect all requirements of the
Tax Reform Act of 1986 ("TRA 86") and all subsequent legislation which is
required to be adopted prior to the Closing and (ii) has received from the
Internal Revenue Service a favorable determination letter which considers the
terms of the Plan as amended for such tax law changes. Nothing has occurred
since the date of such determination letter that would adversely affect the
qualified status of each such Plan or the tax-exempt status of any related
trust.
3.15.5 During the six years preceding the Closing Date, (i) no
under-funded pension plan subject to Section 412 of the Code has been
transferred out of the Cliffwood Group, and (ii) no member of the Cliffwood
Group has participated in or contributed to, or had an obligation to contribute
to, any multiemployer plan (as defined in ERISA Section 3(37)).
3.15.6 No member of the Cliffwood Group has incurred, and has
no reason to expect that it will incur, any material liability (i) to the
Internal Revenue Service, the U.S. Department of Labor, or the Pension Benefit
Guaranty Corporation ("PBGC"), or (ii) under any multi-employer plan, Title IV
of ERISA (including any withdrawal liability or "reportable event"), or the
Code, with respect to any Plan that any member of the Cliffwood Group maintains
or has maintained, or contributes to or had an obligation to contribute to,
during the six years preceding the Closing.
3.15.7 The current present value of all accrued benefits, both
vested and unvested, under all Plans which are subject to Title IV of ERISA does
not exceed the current fair market value of the assets of each such Plan
allocable to such accrued benefits and, for purposes of this sentence, the
assumptions used by PBGC for valuing plan assets and liabilities upon plan
termination shall be applied.
3.15.8 None of the Plans requires any member of the Cliffwood
Group to make any bonus, severance or other payment to or on behalf of any
current or former employee, officer or director of any member of the Cliffwood
Group solely by reason of the change of ownership or control contemplated by
this Agreement.
3.15.9 Each Plan may be amended or terminated after the Closing
without contravening the terms of such Plan or any applicable laws and without
material liability to any member of the Constituent Groups (as defined herein).
3.15.10 With respect to each Plan, Cliffwood has made available
to Texoil with true, complete and correct copies, to the extent applicable, of
(i) all documents pursuant to which the Plans are maintained, funded and
administered, (ii) the most recent annual report (Form 5500 series) filed with
the Internal Revenue Service (with attachments including, without limitation,
audited financial statements), and (iii) all rulings, determinations, notices
and opinions issued by any governmental entity in the last three years (and
pending requests for governmental rulings, determinations, and opinions).
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3.16 LITIGATION. Except as set forth on SCHEDULE 3.16:
3.16.1 No member of the Cliffwood Group is engaged in or, to
Cliffwood's Knowledge, threatened with the prosecution of any claim, demand,
action, suit, charge, allegation, citation, proceeding or investigation by or
through an administrative or judicial governmental authority (a "Proceeding").
3.16.2 No member of the Cliffwood Group has, to Cliffwood's
Knowledge, committed any act which would give rise to any Proceeding which would
have a Cliffwood Material Adverse Effect.
3.16.3 No investigation of or claims against the officers and
directors of any member of the Cliffwood Group arising as a result of the status
of such officers or directors is pending, and, to Cliffwood's Knowledge, there
is no investigation of or any claim against any agent of any member of the
Cliffwood Group arising as a result of his status as an agent of such member of
the Cliffwood Group pending or threatened by any person.
3.17 ABSENCE OF SENSITIVE PAYMENTS. No member of the Cliffwood Group nor
any of its executive officers, directors, or to Cliffwood's Knowledge, agents,
or employees has:
3.17.1 made or has agreed to make any contributions, payments or
gifts of funds or property through any governmental official, employee or agent
where either the payment or purpose of such contribution, payment or gift was or
is illegal under applicable foreign or domestic law;
3.17.2 established or maintained any unrecorded fund or asset for
any purpose or has made any false or artificial entries on any of its books or
records for any reason; or
3.17.3 made or agreed to make any contribution or expenditure, or
reimbursed any political gift or contribution or any expenditure made by any
other person to candidates for public office, whether federal, state or local
where such contributions were or would be in violation of applicable foreign or
domestic law.
3.18 NO DEFAULT. No member of the Cliffwood Group is in default under,
and, to Cliffwood's Knowledge, no condition exists that with notice or lapse of
time or both would constitute a default under any order, judgment or decree of
any governmental authority.
3.19 GOOD AND MARKETABLE TITLE. Except as set forth in SCHEDULE 3.19 or
the CLIFFWOOD PROPERTY SCHEDULE, each member of the Cliffwood Group has, and
will have at the Closing, Good and Marketable Title to the Cliffwood Oil and Gas
Interests. For purposes of this Article 3, the term "Good and Marketable Title"
shall mean title to the Cliffwood Oil and Gas Interests which is free from any
reasonable doubt as to its validity and such title as a reasonably intelligent
person, who is well informed as to facts and their legal bearings, and ready and
willing to perform his contract, would be willing to accept in the exercise of
ordinary business prudence and which is free and clear of all Encumbrances other
than Permitted Encumbrances, and which (i) entitles the owner of the
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applicable Cliffwood Oil and Gas Interests to a net revenue interest in
production from the Cliffwood Wells (as defined below) of no less than the net
revenue interest percentages set forth with respect to the Cliffwood Wells in
the CLIFFWOOD PROPERTY SCHEDULE and (ii) burdens the owner with working
interests in the applicable Cliffwood Wells no greater than the working interest
percentages for the Cliffwood Wells set forth in the CLIFFWOOD PROPERTY
SCHEDULE. As used herein, the term "Permitted Encumbrance" shall mean any or all
of the following: (i) Encumbrances that arise under operating agreements to
secure payment of amounts not yet delinquent or are being contested in good
faith and are of a type and nature customary in the oil and gas industry; (ii)
Encumbrances that arise as a result of pooling and unitization agreements,
declarations, orders or laws to secure payment of amounts not yet delinquent;
(iii) Encumbrances securing payments to mechanics and materialmen and
Encumbrances securing payment of taxes or assessments that are, in either case,
not yet delinquent or, if delinquent, are being contested in good faith in the
normal course of business; (iv) consents to assignment by governmental
authorities (a) that are obtained on or prior to the Closing Date or (b) that
are customarily obtained after the consummation of transactions of the nature
contemplated by this Agreement; (v) consents to assignment by private third
parties for which written consents have been, or will be, obtained prior to
Closing; (vi) such title defects as have been expressly waived in writing by the
party otherwise entitled to assert the title defect as a breach of this
Agreement. As used herein, the term "Cliffwood Oil and Gas Interests" shall mean
the undivided interests in the Cliffwood Wells set out in the CLIFFWOOD PROPERTY
SCHEDULE together with (x) the Cliffwood Proprietary Data (as defined below) and
the Cliffwood Seismic Licenses (as defined below) and (y) an undivided interest
proportionate to the ownership interests of each member of the Cliffwood Group
in and to the Cliffwood Leases and Cliffwood Wells in, to and under, or derived
from:
3.19.1 all unitization, communitization and pooling agreements
and orders covering any of the Cliffwood Leases or Cliffwood Wells or any
portion thereof and the units and pooled areas created thereby;
3.19.2 all easements, rights of way, permits, licenses,
servitudes or other interests appertaining to the Cliffwood Leases and Cliffwood
Wells;
3.19.3 all equipment and other personal property, fixtures and
improvements situated upon the Cliffwood Leases or lands pooled or unitized
therewith, or used or held for use in connection with the exploration,
development or operation of the Cliffwood Leases or the production, treatment,
processing, storage or transportation of hydrocarbons from the Cliffwood Leases;
3.19.4 all hydrocarbon sales, purchase and processing contracts
and agreements, transportation and charter agreements, farmout or farmin
agreements, joint operating agreements, utility agreements and all other
contracts or agreements of whatever kind or character affecting or relating to
the Cliffwood Leases or Cliffwood Wells; and
3.19.5 all inventories of hydrocarbons and accounts receivable in
connection with the sale of hydrocarbons.
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As used herein, the term "Cliffwood Leases" shall mean the oil and gas
leases, oil, gas and mineral leases, farmouts, mineral interests, mineral
servitudes, royalty interest, overriding royalty interests, net profits
interests, production payments and other oil and gas and mineral interests and
estates of whatever nature described in the CLIFFWOOD PROPERTY SCHEDULE. As used
herein, the term "Cliffwood Wells" shall mean the oil and gas wells, injection
wells and other wells described in the CLIFFWOOD PROPERTY SCHEDULE.
3.20 STATUS OF THE CLIFFWOOD LEASES. To Cliffwood's Knowledge and except
as disclosed in the CLIFFWOOD PROPERTY SCHEDULE:
(i) the Cliffwood Leases have been maintained according to their
terms, in compliance with the agreements to which the Cliffwood Leases
are subject except where noncompliance would not have a Cliffwood
Material Adverse Effect;
(ii) the Cliffwood Leases are in full force and effect;
(iii) all payments due with respect to the Cliffwood Leases,
including royalties, delay rentals and shut-in royalties have been paid
in full when due;
(iv) the entire interest of each member of the Cliffwood Group in
each Cliffwood Well is in paying status and has not been suspended by
the purchaser or any other remitter of proceeds of production;
(v) no other party to any Cliffwood Lease is in breach or default
with respect to any of its obligations thereunder, except where such
breach or default would not have a Cliffwood Material Adverse Effect;
(vi) there has not occurred any event, fact or circumstance which
with the lapse of time or the giving of notice, or both, would
constitute such a breach or default of any obligation under any
Cliffwood Lease, except where such breach or default would not have a
Cliffwood Material Adverse Effect;
(vii) no lessor of any Cliffwood Lease has given or threatened to
give notice of any action to terminate, cancel, rescind or procure a
judicial reformation of any Cliffwood Lease or any provisions thereof;
(viii) there are no obligations to engage in continuous
development operations in order to maintain any Cliffwood Lease in
force, except as included in documents listed in the CLIFFWOOD PROPERTY
SCHEDULE;
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(ix) there are no gas balancing agreements covering the Cliffwood
Leases except those described in the CLIFFWOOD PROPERTY SCHEDULE and,
except those described on the CLIFFWOOD PROPERTY SCHEDULE, no
hydrocarbon imbalances (whether production imbalance, pipeline imbalance
or otherwise) presently exist in connection with any well on the
Cliffwood Leases; and
(x) no hydrocarbons produced from the Cliffwood Leases are
subject to a sales contract or other agreement relating to the
production, gathering, transporting, processing, treating or marketing
of hydrocarbons which cannot be terminated by Cliffwood without penalty
to Cliffwood upon Cliffwood's notice within 60 days or less of such
notice, and no person has any call upon, option to purchase or other
similar rights with respect to the Cliffwood Leases or to the production
therefrom.
3.21 GAS CONTRACTS. With respect to any Cliffwood Material Contract
which is a hydrocarbon purchase and sales agreement, no member of the Cliffwood
Group is obligated by virtue of any prepayment arrangement under any Cliffwood
Material Contract containing a "take or pay" or similar provision or a
production payment or any other arrangement to deliver hydrocarbons produced
from Cliffwood Oil and Gas Interests at some future time without then or
thereafter receiving full payment therefor, except as included in documents
listed in the CLIFFWOOD PROPERTY SCHEDULE.
3.22 PREFERENTIAL RIGHTS. Each member of the Cliffwood Group shall have
obtained by Closing (i) all prerequisite waivers of preferential rights of
purchase or evidence of proper delivery and receipt of notices of such
preferential rights, evidencing the expiration of the appropriate election
period, and (ii) all necessary consents for transfer of the interests, except
those which by their nature cannot be requested or obtained until after Closing,
or Texoil shall have waived same.
3.23 BOOKS AND RECORDS. To Cliffwood's Knowledge, all lease files, land
files, well files, abstracts, title opinions, maps, electric logs, geological
and geophysical data, and all production records that relate to the Cliffwood
Oil and Gas Interests and Cliffwood Wells of any member of the Cliffwood Group
and that are owned by or are in the possession of any member of the Cliffwood
Group are, or shall prior to the Closing Date be, located in the offices of
Cliffwood.
3.24 OPERATIONS AND EXPENDITURES. Except as listed in the CLIFFWOOD
PROPERTY SCHEDULE, there are no joint operating agreements in effect in
connection with the assets of any member of the Cliffwood Group. Except as
described in the CLIFFWOOD PROPERTY SCHEDULE, there are no outstanding calls or
payments under authorities for expenditures which are due or which any member of
the Cliffwood Group has committed to make and which have not been made.
3.25 TAX PARTNERSHIPS. None of the assets of any member of the Cliffwood
Group are subject to a tax partnership.
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3.26 WELLS. To Cliffwood's Knowledge, (i) all of the Cliffwood Wells
which have been drilled and completed on the Cliffwood Oil and Gas Interests
have been drilled and completed within the boundaries of the Cliffwood Leases or
within the limit otherwise permitted by contract, pooling or unit agreement and
by laws; and (ii) all drilling and completion, and plugging and abandonment, of
such wells and all development and operations on the Cliffwood Oil and Gas
Interests have been conducted in compliance with all applicable laws,
ordinances, rules, regulations and permits, and judgments, orders and decrees of
any governmental authority. To Cliffwood's Knowledge, there are no wells located
on the Cliffwood Leases (other than the Cliffwood Wells) which have not been
plugged and abandoned in accordance with all laws, statutes, ordinances,
decrees, requirements, orders, judgments, rules and regulations of, including
all licenses and permits issued by governmental authorities. To Cliffwood's
Knowledge, none of the Cliffwood Wells is subject to penalty or reduced
allowables after the date hereof because of any overproduction or other
violation of applicable laws, rules, regulations or permits or judgments, orders
or decrees of any governmental authority which would prevent any of such
Cliffwood Wells from being entitled to its full legal and regular allowable from
and after the date hereof as prescribed by any governmental authority.
3.27 SEISMIC DATA. All of the geophysical data and interpretations in
Cliffwood's possession are either owned by a member of the Cliffwood Group (the
"Cliffwood Proprietary Data") or licensed to a member of the Cliffwood Group by
others pursuant to valid and subsisting licensing agreements (the "Cliffwood
Seismic Licenses"). The seismic licenses described on the CLIFFWOOD PROPERTY
SCHEDULE are all of the material Cliffwood Seismic Licenses.
3.28 COMPLIANCE WITH LAWS. Each member of the Cliffwood Group has at all
times complied with all applicable laws in all material respects.
3.29 PROPERTY. Except as described in SCHEDULE 3.29 or the CLIFFWOOD
PROPERTY SCHEDULE, and except for property sold, used or otherwise disposed of
in the ordinary course of business for fair market value, each member of the
Cliffwood Group has good and defensible title to all their properties, interests
in properties and assets, real and personal, reflected in the September 30, 1997
unaudited consolidated financial statements referred to in Section 3.7 free and
clear of any Encumbrance, except (i) Encumbrances reflected in the consolidated
balance sheets of Cliffwood dated September 30, 1997 and (ii) liens for current
taxes not yet due and payable. All leases pursuant to which any member of the
Cliffwood Group leases, whether as lessee or lessor, any material amount of real
or personal property are valid, subsisting and effective; and there is not,
under any such lease, any existing or to Cliffwood's Knowledge any prospective
default or event of default or event which with notice or lapse of time, or
both, would constitute a default by any member of the Cliffwood Group. The
buildings and premises of each member of the Cliffwood Group that are used in
its business is in good operating condition and repair, subject only to ordinary
wear and tear. All items of equipment of each member of the Cliffwood Group are
in an operating condition and in a state of maintenance and repair so as to not
substantially interfere with the continued use thereof in the conduct of normal
operations as conducted by such member of the Cliffwood Group in the past.
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3.30 ENVIRONMENTAL COMPLIANCE. Except as set forth on SCHEDULE 3.30, and
except to the extent that inaccuracy of any of the following, individually or in
the aggregate, could not have a Cliffwood Material Adverse Effect:
3.30.1 There are no environmental conditions or circumstances,
including, without limitation, the presence or release of any Substance of
Environmental Concern (as defined below), on any property presently or
previously owned, leased, operated or used by any member of the Cliffwood Group,
or on any property on or in which any waste generated by any member of the
Cliffwood Group was disposed;
3.30.2 Each member of the Cliffwood Group has, and within the
period of all applicable statutes of limitations has had, in full force and
effect all Environmental Permits (as defined below) required to conduct its
operations, and is, and within the period of all applicable statutes of
limitations has been, operating in compliance thereunder;
3.30.3 The operations of each member of the Cliffwood Group and
use of their respective assets are, and within the period of all applicable
statutes of limitations have been, in compliance with applicable Environmental
Law (as defined below);
3.30.4 No notice has been received by any member of the Cliffwood
Group, or to Cliffwood's Knowledge by any predecessor of any member of the
Cliffwood Group, from any entity, governmental agency or individual regarding,
nor is any member of the Cliffwood Group otherwise aware of, any existing,
pending or threatened investigation, inquiry, enforcement action, litigation or
liability, including, without limitation, any claim for remedial obligations,
response costs or contribution, relating to any Environmental Law;
3.30.5 No member of the Cliffwood Group, and to Cliffwood's
Knowledge no predecessor of any member of the Cliffwood Group, or other party
acting on behalf of any member of the Cliffwood Group has entered into or agreed
to any consent decree, order, settlement or other agreement, nor is subject to
any judgment, decree, order or other agreement, in any judicial, administrative,
arbitral, or other forum, relating to compliance with or liability under any
Environmental Law;
3.30.6 No member of the Cliffwood Group has assumed or retained
pursuant to any contract any known liabilities of any kind under any
Environmental Law;
3.30.7 To Cliffwood's Knowledge, no member of the Cliffwood Group
is aware of any reason any Environmental Permit required to conduct the current
and planned operations of any member of the Cliffwood Group pursuant to any
applicable Environmental Law could not be renewed without material expense; and
3.30.8 No friable asbestos currently exists on any property
owned, leased or operated by any member of the Cliffwood Group, nor do
polychlorinated biphenyls exist in concentrations
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of 50 parts per million or more in electrical equipment owned or being used by
any member of the Cliffwood Group in its operations or on its properties.
3.30.9 As used herein, "Environmental Law" means any and all
laws, rules, orders, regulations, statutes, ordinances, codes, decrees, and
other legally enforceable requirements (including, without limitation, common
law) of the United States, or any State, local, municipal or other governmental
authority or quasi-governmental authority, regulating, relating to, or imposing
liability or standards of conduct concerning protection of the environment,
natural resources, human health, or employee health and safety as from time to
time has been or is now in effect. As used herein, "Environmental Permits" means
any and all permits, licenses, registrations, approvals, notifications,
exemptions and any other authorization required under any Environmental Law. As
used herein, "Substance of Environmental Concern" means any gasoline, petroleum
(including crude oil or any fraction thereof), petroleum product,
polychlorinated biphenyls, urea-formaldehyde insulation, asbestos, pollutant,
contaminant, radiation, and any other substance of any kind, whether or not any
such substance is defined as toxic or hazardous under any Environmental Law,
that is regulated pursuant to or could give rise to liability under any
Environmental Law.
3.31 TRANSACTIONS WITH MANAGEMENT. Except as set forth in SCHEDULE 3.31
OR SCHEDULE 3.2, no member of the Cliffwood Group is a party to any contract,
lease or commitment with any of its shareholders, directors, officers,
employees, or agents, or with any shareholder, director, officer, employee, or
agent of any member of the Cliffwood Group.
3.32 FULL DISCLOSURE. None of the representations and warranties made by
any member of the Cliffwood Group or made in any certificate, document,
instrument or other writing furnished or to be furnished by any member of the
Cliffwood Group or on their behalf in connection with the transactions
contemplated by this Agreement, contain or will contain any untrue statement of
material fact, or omit any material fact, the omission of which would be
misleading. Except as disclosed in this Agreement or in schedules attached
hereto, there is no fact, circumstance or condition which does or could
reasonably be expected to have a Cliffwood Material Adverse Effect.
3.33 UNTRUE STATEMENTS. This Agreement, the exhibits and appendices
hereto, the Cliffwood Financial Statements and all other documents and
information furnished by any member of the Cliffwood Group or any of their
affiliates or representatives to Texoil or its representatives pursuant to or in
connection with this Agreement does not include and will not include any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements made herein and therein not misleading.
3.34 SURVIVAL. None of the representations and warranties made herein by
Cliffwood shall survive the Closing.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF TEXOIL
Except as disclosed in the TEXOIL PROPERTY SCHEDULE or other schedules
referred to in this Article 4, Texoil hereby represents and warrants to
Cliffwood as follows:
4.1 ORGANIZATION AND GOOD STANDING. Texoil is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada and has full corporate power and authority to carry on its business as it
is now being conducted. Texoil is qualified as a foreign corporation and is in
good standing under the laws of each jurisdiction in which the conduct of its
business or the ownership of its properties requires such qualification, except
where the failure to be so qualified would not have a Material Adverse Effect
with respect to Texoil (a "Texoil Material Adverse Effect").
4.2 CAPITALIZATION OF TEXOIL. The authorized capital stock of Texoil
consists of 50,000,000 shares of Texoil Common Stock of which 4,574,923 shares
are issued and outstanding as of November 1, 1997 and 10,000,000 shares of
preferred stock, par value $0.01 per share, of which 23,000 shares are issued
and outstanding. All the outstanding shares of capital stock of Texoil have been
validly issued, are fully paid and nonassessable, were issued in compliance with
all applicable state and federal laws, and were not issued in violation of any
right of first refusal, preemptive right, or similar right of any person. Except
as described in SCHEDULE 4.2, (i) no shares of capital stock of Texoil are held
in treasury and (ii) there are no other issued or outstanding securities (as
defined under the Securities Act) of Texoil. Except as described in SCHEDULE
4.2, Texoil is not subject to any commitment or obligation that would require
the issuance or sale of additional securities of Texoil at any time under
options, subscriptions, warrants, rights, conversion rights, exercise rights or
any other obligations or that requires Texoil to purchase or redeem any
securities.
4.3 TEXOIL SUBSIDIARIES. Each of the Subsidiaries of Texoil (each a
"Texoil Subsidiary") is set forth as SCHEDULE 4.3. As used herein, the term
"Texoil Group" means Texoil and all of its Subsidiaries. Except as set forth in
SCHEDULE 4.3, all of the outstanding securities of each of the Texoil
Subsidiaries are duly authorized, validly issued, fully paid and nonassessable,
are owned beneficially and of record by Texoil or a Texoil Subsidiary and Texoil
has good and marketable title thereto free and clear of any Encumbrance. Each
such Texoil Subsidiary is a corporation duly organized, validly existing, and in
good standing under the laws of the jurisdiction under which it is incorporated
and has full requisite corporate power and authority to own its property and
carry on its business as presently conducted by it and is duly qualified or
licensed to do business and in good standing as a foreign corporation authorized
to do business in all jurisdictions in which the character of the properties
owned or the nature of the business conducted makes such qualification or
licensing necessary except for those jurisdictions where the failure to be so
qualified or licensed and in good standing would not constitute a Texoil
Material Adverse Effect. Except as set forth in SCHEDULE 4.3, there are no
existing options, warrants, calls, commitments, agreements, conversion rights,
exercise rights or other securities obligating any Texoil Subsidiary to issue or
transfer any securities to any person or that require any of the Texoil
Subsidiaries to purchase or redeem any securities. Except
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as set forth in SCHEDULE 4.3, no member of the Texoil Group directly or
indirectly owns any security issued by any corporation, partnership, joint
venture or other business association or entity.
4.4 AUTHORITY; NO CONFLICTS.
4.4.1 Texoil has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Texoil. This Agreement has been duly executed
and delivered by Texoil and, assuming the due authorization, execution and
delivery by Cliffwood, constitutes the valid and binding obligation of Texoil,
enforceable in accordance with its terms, except as such enforceability may be
limited by (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting or relating to creditors rights generally and (ii) the
availability of injunctive relief and other general principles of equity.
4.4.2 Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will: (i) conflict with
or result in any violation or breach of any provision of the Articles of
Incorporation or Bylaws of any member of the Texoil Group; (ii) give rise to any
right to purchase any securities or assets of any member of the Texoil Group;
(iii) conflict with, result in a breach of, constitute a default under, without
regard to requirements of notice or the lapse of time or both, accelerate or
permit the acceleration of the performance required by, result in the loss or
modification of, or require any consent, authorization or approval under any
lease, license, franchise, permit, contract or other agreement, authorization or
instrument to which any member of the Texoil Group is a party or by which they
are bound or to which any of their properties are subject; or (iv) conflict with
or result in any violation of any judgment, order, decree, statute or law
applicable to any member of the Texoil Group or any of their properties or
assets, except in the case of (ii), (iii) or (iv) for any such conflicts,
violations, defaults, terminations, cancellations or accelerations which would
not have a Texoil Material Adverse Effect.
4.5 CONSENTS. Except for (i) filings required by the TBCA, (ii) consents
of private third parties that have been or will be obtained prior to Closing,
and (iii) filings, consents, approvals and authorizations that the failure to
obtain or make would not have a Texoil Material Adverse Effect, no filing with
or consent, approval or authorization of any governmental authority or of any
third party on the part of any member of the Texoil Group is required in
connection with the execution and delivery of this Agreement or the consummation
of any of the transactions contemplated hereby.
4.6 NO BROKERS. No member of the Texoil Group or anyone acting on their
behalf has employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders' fees in connection with the transactions
contemplated by this Agreement.
4.7 FINANCIAL STATEMENTS. Texoil has delivered to Cliffwood copies of
its filings pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), for each of the years ending December 31, 1997, 1996, and 1995,
which contain the annual and quarterly, as applicable, consolidated balance
sheets and statements of cash flows and shareholders' equity
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required to be included therein for the respective periods covered thereby
(collectively, the "Texoil Financial Statements"). The Texoil Financial
Statements are complete in all material respects, present fairly the financial
condition of the Texoil Group as at the dates indicated and the results of
operations for the respective periods indicated, and have been prepared in
accordance with GAAP, except as noted therein. The accounts receivable reflected
in the September 30, 1997 balance sheet, and those which have been thereafter
acquired by any member of the Texoil Group, have been collected or are not
delinquent and collectible in the aggregate recorded amounts thereof less
applicable reserves computed in accordance with GAAP, which reserves are
adequate. None of the Texoil Financial Statements include or omit an asset or a
liability of any kind or nature, the inclusion or omission of which would render
such financial statements materially misleading.
4.8 SECURITIES REPORTS AND FILINGS. Texoil has filed all forms, reports,
and documents required to be filed with the Securities and Exchange Commission
(the "SEC") since December 31, 1996 and has heretofore delivered to Cliffwood,
in the form filed with the SEC, all such reports, proxy statements, registration
statements and other forms filed with the SEC pursuant to the Securities Act or
the Exchange Act (collectively, "Texoil SEC Reports"). The Texoil SEC Reports
were prepared in substantial compliance with the requirements of the Securities
Act or the Exchange Act, as the case may be, and at the time they were filed,
were complete and accurate in all material respects and did not include an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. No Texoil Subsidiary is required to
file any forms, reports, or other documents with the SEC.
4.8.1 Texoil's Common Stock is currently listed on the Nasdaq
SmallCap Market. Texoil has filed all forms, reports and documents required to
be filed since December 31, 1996 to maintain such listing. Except as set forth
on SCHEDULE 4.8, Texoil has not received any notification that Texoil has failed
to maintain, or otherwise satisfy, the minimum standards necessary to maintain
such listing and, to Texoil's knowledge, there has not occurred any event, fact
or circumstance which with the lapse of time or the giving of notice, or both,
would cause Texoil's Common Stock to no longer be listed on the Nasdaq SmallCap
Market.
4.9 ABSENCE OF CHANGES. Since September 30, 1997, there has not been
any:
4.9.1 transaction by any member of the Texoil Group except in the
ordinary course of business as conducted on that date except as otherwise
provided on SCHEDULE 4.9;
4.9.2 capital expenditure by any member of the Texoil Group
exceeding $2,000,000 in the aggregate;
4.9.3 Texoil Material Adverse Effect;
4.9.4 destruction, damage to, or loss of any asset of any member
of the Texoil Group, whether or not covered by insurance, that could have a
Texoil Material Adverse Effect;
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4.9.5 labor difficulties or other event or condition of any
character that could have a Texoil Material Adverse Effect;
4.9.6 change in accounting methods or practices including,
without limitation, any change in depreciation or amortization policies or rates
by any member of the Texoil Group;
4.9.7 re-valuation by any member of the Texoil Group of any of
its assets;
4.9.8 declaration, setting aside or payment of a dividend or
other distribution in respect to the capital stock of any member of the Texoil
Group or any direct or indirect redemption, purchase or other acquisition by any
member of the Texoil Group of any securities;
4.9.9 material increase in the salary or other compensation
payable or to become payable by any member of the Texoil Group to any of their
officers, directors or employees, or any declaration, payment or commitment or
obligation of any kind for the payment by any member of the Texoil Group of a
bonus or other additional salary or compensation to any such person;
4.9.10 sale or transfer of any asset of any member of the Texoil
Group, except in the ordinary course of business;
4.9.11 amendment or termination of any material contract, to
which any member of the Texoil Group is a party, except in the ordinary course
of business;
4.9.12 loan by any member of the Texoil Group to any person or
entity or guaranty by any member of the Texoil Group of any loan, except as
otherwise disclosed herein;
4.9.13 Encumbrance of any asset of any member of the Texoil
Group;
4.9.14 waiver or release of any material right or claim of any
member of the Texoil Group;
4.9.15 other event or condition of any character that has or
might reasonably have a Texoil Material Adverse Effect;
4.9.16 issuance or sale by any member of the Texoil Group of any
securities; or
4.9.17 agreement or understanding by any member of the Texoil
Group to do any of the things described in the preceding clauses 4.9.1 through
4.9.16, except as otherwise contemplated or disclosed by this Agreement.
4.10 ABSENCE OF UNDISCLOSED LIABILITIES. No member of the Texoil Group
has any debt, liability, or obligation of any nature, whether accrued, absolute,
contingent or otherwise, and whether due or to become due, that is not reflected
or reserved against in the Texoil Financial Statements, except for those
incurred after September 30, 1997 that: (i) were incurred in the ordinary course
of
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business, (ii) are usual and normal in amount both individually and in the
aggregate, and (iii) do not exceed $1,000,000 in the aggregate.
4.11 TAX RETURNS. Within the times and in the manner prescribed by law,
each member of the Texoil Group has filed all required federal, state and local
tax returns and paid all taxes, assessments and penalties due and payable,
except as set forth in SCHEDULE 4.11. No federal tax return of any member of the
Texoil Group has been audited by the Internal Revenue Service, and no notice of
any proposed audit has been received by any member of the Texoil Group. The
provisions for taxes reflected in the Texoil Financial Statements are adequate
for any and all federal, state, county and local taxes for the periods covered
by the Texoil Financial Statements and for all prior periods, whether or not
disputed. There are no present disputes with any governmental authority as to
taxes of any nature payable by any member of the Texoil Group. Each member of
the Texoil Group has made all withholdings of taxes required to be made under
all federal, state, county, local and other tax laws and regulations. No member
of the Texoil has granted any extension to any taxing authority of the
limitation period during which any tax liability may be asserted thereby.
4.12 INTELLECTUAL PROPERTY. Except as set forth in SCHEDULE 4.12 or in
the TEXOIL PROPERTY SCHEDULE, there are no Encumbrances on any patents, patent
applications, trademarks and service marks, including registrations and
applications therefor, trade names, copyrights and written know-how, trade
secrets, and all other similar proprietary data owned by any member of the
Cliffwood Group or regarding which any such member has rights or licenses
(collectively, the "Texoil Intellectual Property") that are material to the
business of the Texoil Group. SCHEDULE 4.12 and the TEXOIL PROPERTY SCHEDULE
together set forth all Texoil Intellectual Property that is material to the
business of the Texoil Group. Except as set forth in SCHEDULE 4.12 or the TEXOIL
PROPERTY SCHEDULE, no member of the Texoil Group has granted to any other person
or entity any license to use any Texoil Intellectual Property. No member of the
Texoil Group has received any notice of infringement, misappropriation, or
conflict with the intellectual property rights of others in connection with the
use by any member of the Texoil Group of the Texoil Intellectual Property.
4.13 CONTRACTS AND PERMITS. Except for contracts which provide for
consideration with a fair market value of less than $25,000, SCHEDULE 4.13 and
TEXOIL PROPERTY SCHEDULE together set forth a complete and current list of all
contracts (other than Texoil Employment Agreements, as defined below), leases,
oil and gas leases, licenses (including without limitation Texoil Seismic
Licenses, as defined below) and permits of each member of the Texoil Group (the
"Texoil Permits"), all such contracts, together with the Texoil Employment
Agreements, the Texoil Leases (as defined herein), the Texoil Seismic Leases and
Texoil Permits being referred to herein as the "Texoil Material Contracts." Each
of the Texoil Material Contracts is valid and binding upon each party thereto
and is in full force and effect according to its terms, and there have been no
amendments, modifications or supplements thereto other than such as are
specifically described on SCHEDULE 4.13 or the TEXOIL PROPERTY SCHEDULE. Except
as set forth on SCHEDULE 4.13 or the TEXOIL PROPERTY SCHEDULE, there is no
default or claim of default under any Texoil Material Contract and no event has
occurred which, with the passage of time or the giving of notice, would
constitute a default by any member of the Texoil Group, or any other party
thereto, under any Texoil Material Contract or
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would permit modification, acceleration or termination of any Texoil Material
Contract, or result in the creation of any Encumbrance on any assets of any
member of the Texoil Group, except for such defaults or creation of Encumbrances
which would not have a Texoil Material Adverse Effect. Except as indicated on
SCHEDULE 4.13 or TEXOIL PROPERTY SCHEDULE, no Texoil Material Contract will
require the consent of or notice to any party thereto with respect to any of the
transactions contemplated hereby, except to the extent that the failure to
obtain such consent or provide notice will not have a Texoil Material Adverse
Effect. None of the material permits require the payments of any further fees
except as listed on SCHEDULE 4.13 or TEXOIL PROPERTY SCHEDULE, nor, to Texoil's
Knowledge, do any facts or circumstances exist which would indicate that any
member of the Texoil Group will not be entitled to renew any material permit
upon its expiration or would be required to pay an extraordinary fee or charge
in connection therewith. Except for the permits listed on SCHEDULE 4.13 or the
TEXOIL PROPERTY SCHEDULE, no permit is required for the operation of the
businesses of any member of the Texoil Group as presently conducted except for
such permits the absence of which would not have a Texoil Material Adverse
Effect.
4.14 INSURANCE POLICIES. A description of all insurance policies held by
each member of the Texoil Group concerning its businesses and properties is set
forth on SCHEDULE 4.14. All of these policies are in the respective principal
amounts as set forth on SCHEDULE 4.14. Each member of the Texoil Group has
maintained and now maintains (i) insurance on all of its material assets and
businesses of a type customarily insured, covering property damage and loss of
income by fire or other casualty and (ii) adequate insurance protection against
all liabilities, claims, and risks against which it is customary to insure.
4.15 EMPLOYEES. SCHEDULE 4.15 contains a correct and current list of all
contracts with respect to employment and collective bargaining agreements to
which any member of the Texoil Group is a party or by which any member of the
Texoil Group is bound (the "Texoil Employment Agreements"); all such contracts
are in full force and effect, and no member of the Texoil Group nor any other
party is in default under any of them. There have been no claims of defaults,
and there are no facts or conditions which if continued or on notice will result
in a default under such contracts. Each member of the Texoil Group has paid all
salaries and wages accrued to or for the benefit of its respective employees and
has complied in all respects with all applicable laws relating to the employment
of labor, including those relating to wages, hours, collective bargaining and
the payment and withholding of taxes, and has withheld and paid to the
appropriate governmental authority, or is holding for payment not yet due to
such authority, all amounts required by law or agreement to be withheld from the
wages or salaries of such employees. Except as set forth on SCHEDULE 4.15, there
has been no material adverse change in the relationship of any member of the
Texoil Group with its employees, including any threatened union organization,
any strike, work stoppage or labor disturbance by any such employees or any
other third party employees performing services, and no member of the Texoil
Group is aware of any indication that such a change or event is likely. A
complete and correct list of the names and addresses of all officers, directors,
and employees, of each member of the Texoil Group, stating the rates of
compensation payable to each is set forth on SCHEDULE 4.15.
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4.16 EMPLOYEE BENEFIT MATTERS.
4.16.1 SCHEDULE 4.16 sets forth a brief description of all Plans
of the Texoil Group. Except as set forth in SCHEDULE 4.16, no member of the
Texoil Group maintains any Plans. For purposes of this Section 4.16, all
references to the Texoil Group shall be deemed to refer to each member of the
Texoil Group and any trade or business, whether or not incorporated, which
together with Texoil would be deemed or treated as a "single employer" within
the meaning of Section 414 of the Code or ERISA Section 4001. None of the Plans
(i) is subject to Title IV of ERISA or the minimum funding requirements of
Section 412 of the Code or Section 302 of ERISA, (ii) is a plan of the type
described in Section 4063 of ERISA or Section 413(c) of the Code, (iii) is a
"multi-employer plan" (as defined in Section 3(37) of ERISA), (iv) provides for
medical, dental, life, disability or other insurance benefits to current or
future retired employees or former employees of any member of the Texoil Group
(other than as required for group health plan continuation coverage under Code
Section 4980B or similar state law), (v) obligates any member of the Texoil
Group to pay any severance or similar benefits solely as a result of a change in
control or ownership within the meaning of Code Section 280G, or (vi) is a
"voluntary employees' beneficiary association" within the meaning of Code
Section 501(c)(9).
4.16.2 Each Plan is, in all material respects, in compliance, and
has been administered, maintained and funded in all material respects in
accordance, with the applicable provisions of ERISA and the Code and all other
applicable laws, rules and regulations. To the best knowledge of each member of
the Texoil Group, no member of the Texoil Group or any fiduciary to any Plan,
with respect to any Plan, has (i) engaged in any prohibited transaction under
ERISA or the Code, (ii) breached any fiduciary duty owed by it, or (iii) failed
to file and distribute, timely and properly, all reports and information
required to be filed or distributed in accordance with ERISA or the Code. There
are also no pending or threatened, actions, suits, investigations, arbitrations
or claims with respect to any Plan (other than routine claims for benefits)
which could reasonably be expected to result in material liability to any member
of the Texoil Group, and there are no changes in contributions or benefit levels
that have been implemented, or negotiated and not yet implemented, with respect
to any Plan that has not been disclosed in SCHEDULE 4.16.
4.16.3 All contributions or premiums which are due on or before
the Closing with respect to the Plans have been or will be timely paid by each
member of the Texoil Group.
4.16.4 Each Plan which is intended to be qualified under Code
Section 401(a), (i) has been timely amended to reflect all requirements of the
TRA 86 and all subsequent legislation which is required to be adopted prior to
the Closing and (ii) has received from the Internal Revenue Service a favorable
determination letter which considers the terms of the Plan as amended for such
tax law changes. Nothing has occurred since the date of such determination
letter that would adversely affect the qualified status of each such Plan or the
tax-exempt status of any related trust.
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4.16.5 During the six years preceding the Closing Date, (i) no
under-funded pension plan subject to Section 412 of the Code has been
transferred out of the Texoil Group, and (ii) no member of the Texoil Group has
participated in or contributed to, or had an obligation to contribute to, any
multi-employer plan (as defined in ERISA Section 3(37)).
4.16.6 No member of the Texoil Group has incurred, and has no
reason to expect that it will incur, any material liability (i) to the Internal
Revenue Service, the U.S. Department of Labor, or the PBGC, or (ii) under any
multi-employer plan, Title IV of ERISA (including any withdrawal liability or
"reportable event"), or the Code, with respect to any Plan that any member of
the Texoil Group maintains or has maintained, or contributes to or had an
obligation to contribute to, during the six years preceding the Closing.
4.16.7 The current present value of all accrued benefits, both
vested and unvested, under all Plans which are subject to Title IV of ERISA does
not exceed the current fair market value of the assets of each such Plan
allocable to such accrued benefits and, for purposes of this sentence, the
assumptions used by PBGC for valuing plan assets and liabilities upon plan
termination shall be applied.
4.16.8 None of the Plans requires any member of the Texoil Group
to make any bonus, severance or other payment to or on behalf of any current or
former employee, officer or director of any member of the Texoil Group solely by
reason of the change of ownership or control contemplated by this Agreement.
4.16.9 Each Plan may be amended or terminated after the Closing
without contravening the terms of such Plan or any applicable laws and without
material liability to any member of the Constituent Groups.
4.16.10 With respect to each Plan, Texoil has made available to
Cliffwood with true, complete and correct copies, to the extent applicable, of
(i) all documents pursuant to which the Plans are maintained, funded and
administered, (ii) the most recent annual report (Form 5500 series) filed with
the Internal Revenue Service (with attachments including, without limitation,
audited financial statements), and (iii) all rulings, determinations, notices
and opinions issued by any governmental entity in the last three years (and
pending requests for governmental rulings, determinations, and opinions).
4.17 LITIGATION. Except as set forth on SCHEDULE 4.17:
4.17.1 No member of the Texoil Group is engaged in or, to
Texoil's Knowledge (as defined herein), threatened with any Proceeding.
4.17.2 No member of the Texoil Group has, to Texoil's Knowledge,
committed any act which would give rise to any Proceeding which would have a
Texoil Material Adverse Effect.
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4.17.3 No investigation of or claims against the officers and
directors of any member of the Texoil Group arising as a result of the status of
such officers or directors is pending, and, to Texoil's Knowledge, there is no
investigation of or any claim against any agent of any member of the Texoil
Group arising as a result of his status as an agent of such member of the Texoil
Group pending or threatened by any person.
4.18 ABSENCE OF SENSITIVE PAYMENTS. No member of the Texoil Group nor
any of its executive officers, directors, or, to Texoil's Knowledge, agents, or
employees has:
4.18.1 made or has agreed to make any contributions, payments or
gifts of funds or property through any governmental official, employee or agent
where either the payment or purpose of such contribution, payment or gift was or
is illegal under applicable foreign or domestic law;
4.18.2 established or maintained any unrecorded fund or asset for
any purpose or has made any false or artificial entries on any of its books or
records for any reason; or
4.18.3 made or agreed to make any contribution or expenditure, or
reimbursed any political gift or contribution or any expenditure made by any
other person to candidates for public office, whether federal, state or local
where such contributions were or would be in violation of applicable foreign or
domestic law.
4.19 NO DEFAULT. No member of the Texoil Group is in default under, and,
to Texoil's Knowledge, no condition exists that with notice or lapse of time or
both would constitute a default under any order, judgment or decree of any
governmental authority.
4.20 GOOD AND MARKETABLE TITLE. Except as set forth in SCHEDULE 4.20 or
the TEXOIL PROPERTY SCHEDULE, each member of the Texoil Group has, and will have
at the Closing, Good and Marketable Title to the Texoil Oil and Gas Interests.
For purposes of this Article 4, the term "Good and Marketable Title" shall mean
title to the Texoil Oil and Gas Interests which is free from any reasonable
doubt as to its validity and such title as a reasonably intelligent person, who
is well informed as to facts and their legal bearings, and ready and willing to
perform his contract, would be willing to accept in the exercise of ordinary
business prudence and which is free and clear of all Encumbrances other than
Permitted Encumbrances, and which (i) entitles the owner of the applicable
Texoil Oil and Gas Interests to a net revenue interest in production from the
Texoil Wells (as defined below) of no less than the net revenue interest
percentages set forth with respect to the Texoil Wells set forth in the TEXOIL
PROPERTY SCHEDULE, and (ii) burdens the owner with working interests in the
applicable Texoil Wells no greater than the working interest percentages set
forth for the Texoil Wells set forth in the TEXOIL PROPERTY SCHEDULE. As used
herein, the term "Texoil Oil and Gas Interests" shall mean the undivided
interests in the Texoil Wells set out in the TEXOIL PROPERTY SCHEDULE together
with (x) the Texoil Proprietary Data (as defined herein) and the Texoil Seismic
Licenses (as defined herein) and (y) an undivided interest proportionate to the
ownership interests of each member of the Texoil Group in and to the Texoil
Leases and Texoil Wells in, to and under, or derived from:
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4.20.1 all unitization, communitization and pooling agreements
and orders covering any of the Texoil Leases or Texoil Wells or any portion
thereof and the units and pooled areas created thereby;
4.20.2 all easements, rights of way, permits, licenses,
servitudes or other interests appertaining to the Texoil Leases and Texoil
Wells;
4.20.3 all equipment and other personal property, fixtures and
improvements situated upon the Texoil Leases or lands pooled or unitized
therewith, or used or held for use in connection with the exploration,
development or operation of the Texoil Leases or the production, treatment,
processing, storage or transportation of hydrocarbons from the Texoil Leases;
4.20.4 all hydrocarbon sales, purchase and processing contracts
and agreements, transportation and charter agreements, farmout or farmin
agreements, joint operating agreements, utility agreements and all other
contracts or agreements of whatever kind or character affecting or relating to
the Texoil Leases or Texoil Wells; and
4.20.5 all inventories of hydrocarbons and accounts receivable in
connection with the sale of hydrocarbons.
As used herein, the term "Texoil Leases" shall mean the oil and gas
leases, oil, gas and mineral leases, farmouts, mineral interests, mineral
servitudes, royalty interest, overriding royalty interests, net profits
interests, production payments and other oil and gas and mineral interests and
estates of whatever nature described in the TEXOIL PROPERTY SCHEDULE. As used
herein, the term "Texoil Wells" shall mean the oil and gas wells, injection
wells and other wells described in the TEXOIL PROPERTY SCHEDULE.
4.21 STATUS OF THE TEXOIL LEASES. To Texoil's Knowledge and except as
disclosed in the TEXOIL PROPERTY SCHEDULE:
(i) the Texoil Leases have been maintained according to their
terms, in compliance with the agreements to which the Texoil Leases are
subject;
(ii) the Texoil Leases are in full force and effect, except where
non-compliance would not have a Texoil Material Adverse Effect;
(iii) all payments due with respect to the Texoil Leases,
including royalties, delay rentals and shut-in royalties have been paid
in full when due;
(iv) the entire interest of each member of the Texoil Group in
each Texoil Well is in paying status and has not been suspended by the
purchaser or any other remitter of proceeds of production;
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(v) no other party to any Texoil Lease is in breach or default
with respect to any of its obligations thereunder, except where such
breach or default would not have a Texoil Material Adverse Effect;
(vi) there has not occurred any event, fact or circumstance which
with the lapse of time or the giving of notice, or both, would
constitute such a breach or default of any obligation under any Texoil
Lease, except where such breach or default would not have a Texoil
Material Adverse Effect;
(vii) no lessor of any Texoil Lease has given or threatened to
give notice of any action to terminate, cancel, rescind or procure a
judicial reformation of any Texoil Lease or any provisions thereof;
(viii) there are no obligations to engage in continuous
development operations in order to maintain any Texoil Lease in force
except as included in the documents listed in the TEXOIL PROPERTY
SCHEDULE;
(ix) there are no gas balancing agreements covering the Texoil
Leases except those described in the TEXOIL PROPERTY SCHEDULE and,
except those described on the TEXOIL PROPERTY SCHEDULE, no hydrocarbon
imbalances (whether production imbalance, pipeline imbalance or
otherwise) presently exist in connection with any well on the Texoil
Leases; and
(x) no hydrocarbons produced from the Texoil Leases are subject
to a sales contract or other agreement relating to the production,
gathering, transporting, processing, treating or marketing of
hydrocarbons which cannot be terminated by Texoil without penalty to
Texoil upon Texoil's notice within 60 days or less of such notice, and
no person has any call upon, option to purchase or other similar rights
with respect to the Texoil Leases or to the production therefrom.
4.22 GAS CONTRACTS. With respect to any Texoil Material Contract which
is a hydrocarbon purchase and sales agreement, no member of the Texoil Group is
obligated by virtue of any prepayment arrangement under any Texoil Material
Contract containing a "take or pay" or similar provision or a production payment
or any other arrangement to deliver hydrocarbons produced from Texoil Oil and
Gas Interests at some future time without then or thereafter receiving full
payment therefor, except as included in documents listed in the TEXOIL PROPERTY
SCHEDULE.
4.23 PREFERENTIAL RIGHTS. Each member of the Texoil Group shall have
obtained by Closing (i) all prerequisite waivers of preferential rights of
purchase or evidence of proper delivery and receipt of notices of such
preferential rights, evidencing the expiration of the appropriate election
period, and (ii) all necessary consents for transfer of the interests, except
those which by their nature cannot be requested or obtained until after Closing,
or Cliffwood and Texoil shall have waived same.
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4.24 BOOKS AND RECORDS. To Texoil's Knowledge, all lease files, land
files, well files, abstracts, title opinions, maps, electric logs, geological
and geophysical data, and all production records that relate to the Texoil Oil
and Gas Interests and Texoil Wells of any member of the Texoil Group and that
are owned by or are in the possession of any member of the Texoil Group are, or
shall prior to the Closing Date be, located in the offices of Texoil.
4.25 OPERATIONS AND EXPENDITURES. Except as listed on the TEXOIL
PROPERTY SCHEDULE, there are no joint operating agreements in effect in
connection with the assets of any member of the Texoil Group. Except as set out
on set forth on the TEXOIL PROPERTY SCHEDULE, as of the Effective Time there are
no outstanding calls or payments under authorities for expenditures which are
due or which any member of the Texoil Group has committed to make and which have
not been made.
4.26 TAX PARTNERSHIPS. None of the assets of any member of the Texoil
Group are subject to a tax partnership.
4.27 WELLS. To Texoil's Knowledge, (i) all of the Texoil Wells which
have been drilled and completed on the Texoil Oil and Gas Interests have been
drilled and completed within the boundaries of the Texoil Leases or within the
limit otherwise permitted by contract, pooling or unit agreement and by laws;
(ii) and all drilling and completion, and plugging and abandonment, of such
wells and all development and operations on the Texoil Oil and Gas Interests
have been conducted in compliance with all applicable laws, ordinances, rules,
regulations and permits, and judgments, orders and decrees of any governmental
authority. To Texoil's Knowledge, there are no wells located on the Texoil
Leases (other than the Texoil Wells) which have not been plugged and abandoned
in accordance with all laws, statutes, ordinances, decrees, requirements,
orders, judgments, rules and regulations of, including all licenses and permits
issued by governmental authorities. To Texoil's Knowledge, none of the Texoil
Wells is subject to penalty or reduced allowables after the date hereof because
of any overproduction or other violation of applicable laws, rules, regulations
or permits or judgments, orders or decrees of any governmental authority which
would prevent any of such Texoil Wells from being entitled to its full legal and
regular allowable from and after the date hereof as prescribed by any
governmental authority.
4.28 SEISMIC DATA. All of the geophysical data and interpretations in
Texoil's possession are either owned by a member of the Texoil Group (the
"Texoil Proprietary Data") or licensed to a member of the Texoil Group by others
pursuant to valid and subsisting licensing agreements (the "Texoil Seismic
Licenses"). The seismic licenses described on the TEXOIL PROPERTY SCHEDULE are
all of the material Texoil Seismic Licenses.
4.29 COMPLIANCE WITH LAWS. Each member of the Texoil Group has at all
times complied with all applicable laws in all material respects.
4.30 PROPERTY. Except as described in SCHEDULE 4.30 or the TEXOIL
PROPERTY SCHEDULE, and except for property sold, used or otherwise disposed of
in the ordinary course of business for fair market value, each member of the
Texoil Group has good and defensible title to all their properties, interests in
properties and assets, real and personal, reflected in the September 30, 1997
unaudited
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consolidated financial statements referred to in Section 4.7 free and clear of
any Encumbrance, except (i) Encumbrances reflected in the consolidated balance
sheets of Texoil dated September 30, 1997, and (ii) liens for current taxes not
yet due and payable. All leases pursuant to which any member of the Texoil Group
leases, whether as lessee or lessor, any material amount of real or personal
property are valid, subsisting and effective; and there is not, under any such
lease, any existing or, to Texoil's Knowledge, any prospective default or event
of default or event which with notice or lapse of time, or both, would
constitute a default by any member of the Texoil Group, except for such defaults
which would not have a Texoil Material Adverse Effect. The buildings and
premises of each member of the Texoil Group that are used in its business is in
good operating condition and repair, subject only to ordinary wear and tear. All
items of equipment of each member of the Texoil Group are in an operating
condition and in a state of maintenance and repair so as to not substantially
interfere with the continued use thereof in the conduct of normal operations as
conducted by such member of the Texoil Group in the past.
4.31 ENVIRONMENTAL COMPLIANCE. Except as set forth on SCHEDULE 4.31, and
except to the extent that inaccuracy of any of the following, individually or in
the aggregate, could not have a Texoil Material Adverse Effect:
4.31.1 There are no environmental conditions or circumstances,
including, without limitation, the presence or release of any Substance of
Environmental Concern, on any property presently or previously owned, leased,
operated or used by any member of the Texoil Group, or on any property on or in
which any waste generated by any member of the Texoil Group was disposed;
4.31.2 Each member of the Texoil Group has, and within the period
of all applicable statutes of limitations has had, in full force and effect all
Environmental Permits required to conduct its operations, and is, and within the
period of all applicable statutes of limitations has been, operating in
compliance thereunder;
4.31.3 The operations of each member of the Texoil Group and use
of their respective assets are, and within the period of all applicable statutes
of limitations have been, in compliance with applicable Environmental Law;
4.31.4 No notice has been received by any member of the Texoil
Group, or to Texoil's Knowledge by any predecessor of any member of the Texoil
Group, from any entity, governmental agency or individual regarding, nor is any
member of the Texoil Group otherwise aware of, any existing, pending or
threatened investigation, inquiry, enforcement action, litigation or liability,
including, without limitation, any claim for remedial obligations, response
costs or contribution, relating to any Environmental Law;
4.31.5 No member of the Texoil Group, and to Texoil's Knowledge
no predecessor of any member of the Texoil Group, or other party acting on
behalf of any member of the Texoil Group has entered into or agreed to any
consent decree, order, settlement or other agreement, nor is subject to any
judgment, decree, order or other agreement, in any judicial, administrative,
arbitral, or other forum, relating to compliance with or liability under any
Environmental Law;
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4.31.6 No member of the Texoil Group has assumed or retained
pursuant to any contract any known liabilities of any kind under any
Environmental Law;
4.31.7 To Texoil's Knowledge, no member of the Texoil Group is
aware of any reason any Environmental Permit required to conduct the current and
planned operations of any member of the Texoil Group pursuant to any applicable
Environmental Law could not be renewed without material expense; and
4.31.8 No friable asbestos currently exists on any property
owned, leased or operated by any member of the Texoil Group, nor do
polychlorinated biphenyls exist in concentrations of 50 parts per million or
more in electrical equipment owned or being used by any member of the Texoil
Group in its operations or on its properties.
4.32 TRANSACTIONS WITH MANAGEMENT. Except as set forth in SCHEDULE 4.32
OR SCHEDULE 4.2, no member of the Texoil Group is a party to any contract, lease
or commitment with any of its shareholders, directors, officers, employees, or
agents, or with any shareholder, director, officer, employee, or agent of any
member of the Texoil Group.
4.33 FULL DISCLOSURE. None of the representations and warranties made by
any member of the Texoil Group or made in any certificate, document, instrument
or other writing furnished or to be furnished by any member of the Texoil Group
or on their behalf in connection with the transactions contemplated by this
Agreement, contain or will contain any untrue statement of material fact, or
omit any material fact, the omission of which would be misleading. Except as
disclosed in this Agreement or in schedules attached hereto, there is no fact,
circumstance or condition which does or could reasonably be expected to have a
Texoil Material Adverse Effect.
4.34 UNTRUE STATEMENTS. This Agreement, the exhibits and appendices
hereto, the Texoil Financial Statements and all other documents and information
furnished by any member of the Texoil Group or any of their affiliates or
representatives to Cliffwood or its representatives pursuant to or in connection
with this Agreement does not include and will not include any untrue statement
of a material fact or omit to state any material fact necessary to make the
statements made herein and therein not misleading.
4.35 SURVIVAL. None of the representations and warranties made herein by
Texoil shall survive the Closing.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF TEXOIL SUB
Texoil Sub represents and warrants to Cliffwood as follows:
5.1 ORGANIZATION AND QUALIFICATION. Texoil Sub is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas.
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5.2 NO OPERATIONS. Texoil Sub has been formed for the sole purpose of
effecting the Merger and, except as contemplated by this Agreement, Texoil Sub
has not conducted any business activities and does not have any material
liabilities or obligations.
5.3 CAPITALIZATION. The authorized capital stock of Texoil Sub consists
of 1,000 shares of Texoil Sub Common Stock. As of the date hereof, 1,000 shares
of Texoil Sub Common Stock are validly issued and outstanding, fully paid and
nonassessable and are owned of record and beneficially by Texoil, and no shares
of Texoil Sub Common Stock are held in the treasury of Texoil Sub. Texoil Sub
has no commitments to issue or sell any shares of its capital stock or any
securities or obligations convertible into or exchangeable for, or giving any
person any right to subscribe for or acquire from Texoil Sub, any shares of its
capital stock, and no securities or obligations evidencing any such rights are
outstanding.
5.4 AUTHORITY RELATIVE TO AGREEMENT. Texoil Sub has all requisite
corporate power and authority to enter into this Agreement and to perform its
obligations hereunder. The execution and delivery of this Agreement by Texoil
Sub and the consummation by Texoil Sub of the transactions contemplated hereby
have been duly authorized by the Board of Directors of Texoil Sub and by Texoil
as its sole stockholder, and no other corporate proceedings on the part of
Texoil Sub are necessary to authorize this Agreement and the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Texoil Sub and constitutes the legal, valid and binding obligation of Texoil
Sub, enforceable against Texoil Sub in accordance with its terms.
5.5 NON-CONTRAVENTION. The execution and delivery of this Agreement by
Texoil Sub and the consummation by Texoil Sub of the transactions contemplated
hereby will not (i) conflict with any provision of the Articles of Incorporation
or Bylaws of Texoil Sub or (ii) result (with the giving of notice or the lapse
of time or both) in any violation of or default or loss of a benefit under, or
permit the acceleration of any obligation under, any mortgage, indenture, lease,
agreement, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Texoil Sub or its properties, other than any such
violation, default, loss or acceleration that would not constitute a Material
Adverse Effect on the ability of Texoil Sub to consummate the transactions
contemplated hereby.
5.6 GOVERNMENTAL CONSENTS. No consent, approval, order or authorization
of, or registration, declaration or filing with, any federal, state, local or
foreign governmental or regulatory authority is required to be made or obtained
by Texoil Sub in connection with the execution and delivery of this Agreement by
Texoil Sub or the consummation by Texoil Sub of the transactions contemplated
hereby, except for (i) filings required by the TBCA and (ii) such consents,
approvals, orders or authorizations which if not obtained, or registrations,
declarations or filings which if not made, would not constitute a Material
Adverse Effect on the ability of Texoil Sub to consummate the transactions
contemplated hereby.
5.7 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. No representations and
warranties made by Texoil Sub herein shall survive the Closing.
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ARTICLE 6
ADDITIONAL COVENANTS AND UNDERTAKINGS
6.1 STOCKHOLDER APPROVAL. As soon as reasonably practicable following
the date of this Agreement, Cliffwood shall take all action necessary in
accordance with the TBCA, its Articles of Incorporation and Bylaws to obtain the
consent of its stockholders for the consummation of the Merger, whether by
stockholder meeting or otherwise. The Board of Directors of Cliffwood will upon
execution of this Agreement, subject to its fiduciary duties, recommended that
Cliffwood's stockholders approve the Merger contemplated by this Agreement. The
Board of Directors of Cliffwood shall, subject to its fiduciary duties, use its
reasonable best efforts to secure from stockholders of Cliffwood such approval.
6.2 FURTHER ASSURANCES AND ASSISTANCE. Texoil, Texoil Sub and Cliffwood
agree that each will execute and deliver to the other any and all documents, in
addition to those expressly provided for herein, that may be necessary or
appropriate to implement the provisions of this Agreement, whether before, at or
after the Closing. The parties agree to cooperate with each other to any extent
reasonably required in order to accomplish fully the transactions herein
contemplated.
6.3 ACCESS TO INFORMATION. Each of the Cliffwood Group and the Texoil
Group (the "Constituent Groups") from and after the date of this Agreement and
until the Closing Date, shall give the other Constituent Group and its employees
and counsel full and complete access upon reasonable notice during normal
business hours, to all officers, employees, offices, properties, agreements,
records and affairs of each member of such Constituent Group or otherwise
relating to its business, will provide the other Constituent Group with all
regularly prepared financial statements of each member of such Constituent
Group, and will provide copies of such information concerning each member of
such Constituent Group and its business as the other Constituent Group may
reasonably request; provided, however, that the foregoing shall not permit the
other Constituent Group or any agent thereto to (i) disrupt the business of any
member of such Constituent Group or (ii) contact any employee of any member of
such Constituent Group without providing reasonable prior notice to such
Constituent Group and allowing a representative of such Constituent Group to be
present. The other Constituent Group shall return all copies so made to such
Constituent Group if the Closing does not occur.
6.4 CONDUCT OF BUSINESS PRIOR TO CLOSING. Except for: (i) the sale by
Texoil of up to 12.5% of the working interest in Raceland project; (ii) the sale
by Cliffwood of certain producing assets in Rocky Mountain states to Prima
Exploration, Inc. for consideration of $1,325,000; and (iii) as otherwise
contemplated or disclosed by this Agreement, from and after the date hereof
until the Effective Time, each member of the Constituent Groups shall use its
reasonable best efforts to conduct its business in the ordinary course and,
after the date hereof, each of the Constituent Groups shall act as follows:
6.4.1 No Constituent Group will adopt any change in any method of
accounting or accounting practice, except as contemplated or required by GAAP;
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6.4.2 No member of the Constituent Groups will make any material
amendment to its certificate or articles of incorporation or bylaws;
6.4.3 Except for the disposition of obsolete equipment in the
ordinary course of business or as contemplated under this Agreement, no member
of either Constituent Group will sell, mortgage, pledge or otherwise dispose of
any material assets or properties owned or used in the operation of their
business;
6.4.4 No member of either Constituent Group will merge or
consolidate with, or agree to merge or consolidate with, or purchase or agree to
purchase all or substantially all of the assets of, or otherwise acquire, any
other business entity;
6.4.5 Except as provided pursuant to the terms of any outstanding
stock options and warrants or as contemplated under this Agreement, no member of
either Constituent Group will authorize for issuance, issue or sell any
additional shares of its capital stock or any other securities;
6.4.6 Except as otherwise contemplated under this Agreement, no
member of either Constituent Group will incur, or agree to incur, any debt for
borrowed money other than borrowings under existing revolving credit facilities
not to exceed $1,000,000;
6.4.7 Neither Cliffwood nor Texoil will declare, set aside, or
pay, directly or indirectly, any dividend, cash or stock, or other distribution
in respect to its securities;
6.4.8 Except with respect to increases in the salary of employees
who are not executive officers or directors that arise pursuant to normal merit
reviews in the ordinary course of business, no member of either Constituent
Group will make or adopt any agreement or plan, including any severance plan to
increase in the compensation or severances payable to any of its employees,
officers or directors;
6.4.9 No member of either Constituent Group shall make or cause
to be made any amendment to any bonus, insurance, pension, compensation, or
other benefit plan for, with, or covering any of its employees, officers, or
directors;
6.4.10 Each member of each Constituent Group will use reasonable
efforts to preserve its business relationships, directors, officers, employees
or agents, suppliers, customers, and others having business relations with such
Constituent Group;
6.4.11 Each member of each Constituent Group will develop,
maintain and operate the oil and gas properties which are operated by them in a
good and workmanlike manner;
6.4.12 Each member of each Constituent Group shall use all
reasonable efforts to cause the oil and gas properties which are not operated by
them to be developed, maintained and operated in substantially the same manner
as heretofore unless it is economically prudent to do so;
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6.4.13 Each member of each Constituent Group shall maintain
insurance coverage substantially similar to that now in effect with respect to
the Constituent Group;
6.4.14 Each Constituent Group shall use all reasonable efforts to
keep its material contracts in full force and effect in all material respects,
unless any such material contract terminates pursuant to its own terms or in the
ordinary course of business;
6.4.15 Each Constituent Group shall perform and comply with all
of the covenants and conditions contained in its material contracts in all
material respects;
6.4.16 Each Constituent Group shall in all material respects
comply with all laws and any governmental authority having jurisdiction over its
assets or business; and
6.4.17 Each Constituent Group shall otherwise carry on its
business in substantially the same manner as heretofore conducted.
6.5 INQUIRIES AND NEGOTIATIONS. Each Constituent Group shall immediately
cease and cause to be terminated any existing activities, discussions or
negotiations with any person or entity conducted heretofore in respect of the
acquisition of all or any substantial part of the business and properties of
such Constituent Group, whether by sale of assets or shares of capital stock, or
by merger, consolidation, recapitalization, liquidation or similar transaction
(each, an "Acquisition Transaction"). Each member of each Constituent Group
shall not, and shall not permit its officers, employees, representatives or
agents to, directly or indirectly, (i) solicit or initiate discussions or
negotiations with, or provide any non-public information to, any person other
than the other Constituent Group or its affiliates concerning an Acquisition
Transaction or (ii) otherwise solicit, initiate or encourage inquiries or the
submissions or any proposal contemplating an Acquisition Transaction. Each
Constituent Group shall promptly communicate to the other Constituent Group the
terms of any inquiry or proposal which it may receive in respect of an
Acquisition Transaction. Such Constituent Group's notification under this
Section 6.5 shall include the identity of the person making such proposal or any
other such information with respect thereto as the other Constituent Group may
reasonably request. Nothing contained in this Agreement shall be construed to
prohibit a Constituent Group from (a), if advised in writing by counsel to be
required by fiduciary obligations under applicable law, providing non-public
information to, and participating in negotiations with, a person or entity who
has made a bona fide offer to effect an Acquisition Transaction and (b)
accepting an offer for an Acquisition Transaction which the Board of Directors
of the parent entity of a Constituent Group believes is more favorable to such
Constituent Group's stockholders than the Merger contemplated hereby; provided,
however, in the event that an offer for an Acquisition Transaction is accepted
by a Constituent Group pursuant to this Section, the parent entity of such
Constituent Group shall pay to the parent entity of the other Constituent Group,
within 10 days of such acceptance, the sum of $400,000 (the "Break-up Fee"). The
Break-up Fee shall not be payable in the event that: (i) Texoil does not receive
the fairness opinion of Rauscher, Pierce, Refsnes, Inc. contemplated by Article
7; (ii) litigation is initiated against any party hereto by a third party not
acting in concert with a party to this Agreement in which an injunction against,
or damages for, the Merger is sought to be obtained; (iii) Resource Investors
Management Company Limited
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Partnership and its affiliates (collectively, "RIMCO") do not provide the new
financing to Texoil contemplated by Article 7; (iv) an event occurs or a
condition exists that has a Material Adverse Effect on the Cliffwood Group or
the Texoil Group.
6.6 EXPENSES. Each party to this Agreement will pay its own fees,
expenses and disbursements and those of its counsel in connection with the
subject matter of this Agreement, including the negotiations with respect hereto
and the preparation of any documents, and all other costs and expenses incurred
by it in the performance and compliance with all conditions and obligations to
be performed by it pursuant to this Agreement or as contemplated hereby.
6.7 OPTIONS AND WARRANTS OF CLIFFWOOD. At and conditioned upon the
Closing, Texoil will issue to each holder of options or warrants issued by
Cliffwood and exercisable for Old Cliffwood Common Stock (the "Cliffwood Options
and Warrants"), options or warrants of Texoil with similar terms and exercisable
for the number of shares of Texoil Common Stock each such holder of Cliffwood
Options and Warrants would be entitled to receive under this Agreement if each
such holder exercised its rights under the Cliffwood Options and Warrants prior
to Merger to receive the maximum number of shares of Old Cliffwood Common Stock
(and each such holder's rights under the Cliffwood Options and Warrants were
100% vested prior to the Merger unless within 30 days of the Closing Date the
Board of Directors of Texoil elects to maintain the vesting schedule under the
Cliffwood Options and Warrants and give written notice thereof to the holders of
the Cliffwood Options and Warrants).
6.8 INDEMNIFICATION OF RESIGNING TEXOIL OFFICERS AND DIRECTORS. Texoil
shall provide to each officer and director of Texoil in office on the day
immediately preceding the Closing Date indemnification and insurance coverage
for the actions of such persons their capacity as officers and directors
substantially identical to that provided to officers and directors of Texoil in
office in comparable positions after the Closing Date; PROVIDED, HOWEVER, that
such insurance coverage need be provided only if, and to the extent that, Texoil
elects in its sole discretion to purchase such insurance and it is available on
commercially reasonable terms and PROVIDED, FURTHER, that such insurance
coverage, if any, need be provided only through the fourth anniversary of the
Closing Date. Notwithstanding any provision in this Agreement to the contrary,
the obligations contained in this Section shall be enforceable by each person
who was an officer or director of Texoil immediately prior to the Closing Date
as a third party beneficiary.
6.9 CERTAIN REGISTRATION RIGHTS
6.9.1 By June 30, 1998, Texoil shall (i) prepare and file with
the Commission a registration statement (the "Shelf Registration Statement")
covering the number of shares of Texoil Common Stock set forth below with
respect to each Holder (as defined below) and the number of shares of Texoil
Common Stock issuable upon exercise of options and warrants owned by such Holder
as set forth below with respect to each Holder (collectively, the "Registrable
Stock") covering the nonunderwritten secondary offering and resale by each
Holder of such Texoil Common Stock on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act, and (ii) use reasonable efforts to cause the
Shelf Registration Statement to become effective as soon as possible
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after the filing thereof so as to permit the secondary offering and resale of
such Registrable Stock by the Holders or any of them. Texoil shall be required
to file the Shelf Registration Statement with respect to any particular shares
of Registrable Stock, however, only if: (i) Texoil is eligible under the then
applicable rules and interpretations of the Commission to cause the Shelf
Registration Statement regarding such shares of Registrable Stock to be filed
and become effective on Form S-3 and (ii) such shares of Registrable Stock are
not covered by a registration statement on form S-8 that may be used by the
Holder of such Registrable Stock for nonunderwritten secondary offerings and
resales of such Registrable Stock.
6.9.2 Notwithstanding the provisions of the foregoing paragraph
6.9.1, if Texoil determines in good faith that: (i) the secondary offering and
resale of Registrable Stock by the Holders as contemplated by the foregoing
paragraph 6.9.1, would materially and adversely affect a pending or proposed
public offering of securities of Texoil, an acquisition, merger,
recapitalization, consolidation, reorganization or similar transaction relating
to Texoil (or any subsidiary) or negotiations, discussions or pending proposals
with respect thereto or require premature disclosure of information to the
potential detriment of Texoil; or (ii) the Shelf Registration Statement contains
or will contain a material misstatement of fact or omits a material fact
required to make a statement in the Shelf Registration Statement not misleading,
then upon written notice of such determination to each of the Holders, Texoil
shall be entitled to require the suspension by the Holders of any distribution
of Registrable Stock under the Shelf Registration Statement for a period of time
which, for purposes of this paragraph 6.9.1, shall not exceed 90 days in any
twelve month period. Such written notice need contain only a general statement
of the reasons of such suspension. Texoil shall promptly notify each of the
Holders of the expiration or earlier termination of such suspension.
6.9.3 Notwithstanding the provisions of paragraph 6.9.1, if
Texoil shall file a registration statement with respect to an offering by it
through an underwriter or group of underwriters (an "Underwritten Registration
Statement") of Texoil Common Stock or securities convertible into or
exchangeable or exercisable for Texoil Common Stock, and the managing
underwriter or underwriters advise Texoil that a sale or distribution of the
Registrable Stock covered by the Shelf Registration Statement would adversely
affect such offering, then upon written notice to each of the Holders, the
Holders shall suspend the distribution of any shares of Registrable Stock
pursuant to the Shelf Registration Statement during a period specified by or on
behalf of such underwriters, which period shall not be greater than 14 days
prior to or 120 days following the effective date of such Underwritten
Registration Statement. The period following the effective date of such
Underwritten Registration Statement shall be subject to early termination by the
managing underwriter or underwriters.
6.9.4 If and when Texoil is required by the provisions of this
Section to use its reasonable efforts to effect the registration of any
Registrable Stock under the Securities Act, Texoil will:
6.9.4.1as expeditiously as reasonably practicable, prepare
and file with the Commission a registration statement on the appropriate
form with respect to such Registrable Stock and use reasonable efforts
to cause such registration statement to become effective and
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remain effective until the second anniversary of the Closing Date or
such shorter period of time until the transfer or sale of all
Registrable Stock so registered has been completed; PROVIDED, HOWEVER,
that if Rule 144 or Rule 145 as promulgated under the Securities Act or
any successor or similar rule or statute shall permit the sale by a
Holder at any time over a period of 90 consecutive days of all the
shares of Registrable Stock, then the rights of the Holder as to
registration provided for in this Section with respect to all of that
Holder's Registrable Stock shall terminate immediately.
6.9.4.2as expeditiously as reasonably practicable, prepare
and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective and to
comply with the provisions of the Securities Act with respect to the
disposition of such Registrable Stock in accordance with the intended
method of distribution set forth in such registration statement;
6.9.4.3as expeditiously as reasonably practicable, furnish
to each of the Holders offering Registrable Stock registered, or to be
registered under the Securities Act, such number of copies of
prospectuses and preliminary prospectuses in conformity with the
requirements of the Securities Act, and such other documents as such
Holder may reasonably request, in order to facilitate the public sale or
other disposition of such Registrable Stock owned by such Holder;
PROVIDED, HOWEVER, that the obligation of Texoil to deliver copies of
prospectuses or preliminary prospectuses to such Holders shall be
subject to the receipt by Texoil of reasonable assurances from such
Holders that they will comply with the applicable provisions of the
Securities Act and of such other securities laws as may be applicable in
connection with any use by it of any prospectuses or preliminary
prospectus;
6.9.4.4as expeditiously as reasonably practicable, list
the shares of Registrable Stock registered, or to be registered under
the Securities Act, for trading on such registered securities exchanges
or other national securities market systems as the Texoil Common Stock
shall be then listed for trading;
6.9.4.5as expeditiously as practicable, use its reasonable
efforts to register or qualify the Registrable Stock under such other
securities laws of such United States jurisdictions as the Holders
making such request shall reasonably request (considering the nature and
size of the offering) and do any and all other acts and things which may
be necessary or desirable to enable the Holders making such request to
consummate the public sale or other disposition in such jurisdictions of
Registrable Stock owned by such Holders; PROVIDED, HOWEVER, that Texoil
shall not be required to qualify to transact business as a foreign
corporation in any jurisdiction in which it would otherwise not be
required to be so qualified or to take any action which would subject it
to general service of process or to taxation in any jurisdiction in
which it is not then so subject; and
6.9.4.6bear all Registration Expenses (as defined below)
in connection with all registrations hereunder; PROVIDED, HOWEVER, that
all Selling Expenses (as defined below)
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with respect to Registrable Stock held by the Holders and all fees and
disbursements of counsel for the Holders in connection with each
registration pursuant to this Section shall be borne by such Holders pro
rata in proportion to the number of shares of Registrable Stock covered
thereby being sold or in such proportion as they may agree. All (i)
registration and filing fees; (ii) printing expenses; (iii) fees and
disbursements of counsel for Texoil; (iv) blue sky fees and expenses;
and (v) fees and expenses of accountants for Texoil are herein referred
to as "Registration Expenses." All underwriting fees and discounts and
brokerage and selling commissions and fees and expenses of the counsel
for the Holders and any underwriter's counsel applicable to the sales in
connection with any such registration are herein referred to as "Selling
Expenses."
6.9.5 As used in this section, "Holder" shall mean each person
listed below and "Holders" shall mean all such persons. The shares of
Registrable Stock with respect to each Holder shall include only the shares of
presently outstanding Texoil Common Stock and the shares of Texoil Common Stock
issuable upon exercise of the options and warrants as indicated opposite the
name of each Holder (in each case including any shares of Texoil Common Stock or
other securities received by the Holders on account of any stock split, stock
dividend or merger of Texoil) in Exhibit 6.9.
6.9.6 Notwithstanding anything in this Agreement to the contrary,
the obligations contained in this Section 6.9 shall be enforceable by each
Holder as a third party beneficiary of this Agreement.
ARTICLE 7
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PARTIES TO CLOSE
7.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF TEXOIL. The obligation of
Texoil to consummate the Closing is subject to the fulfillment or waiver, on or
prior to the Closing Date, of each of the following conditions precedent:
7.1.1 Cliffwood shall have complied in all material respects with
its agreements and covenants contained herein to be performed at or prior to the
Closing, and the representations and warranties of Cliffwood contained herein
shall be true and correct in all material respects on and as of the Closing Date
with the same effect as though made on and as of the Closing Date, and Texoil
shall have received an officer's certificate of Cliffwood in form and substance
satisfactory to Texoil, dated as of the Closing Date, certifying as to the
fulfillment of the conditions set forth in this Section 7.1.1.
7.1.2 No statute, rule or regulation, or order of any court or
administrative agency shall be in effect which restrains or prohibits Texoil
from consummating the transactions contemplated hereby.
7.1.3 There shall not have occurred any change or event which
will cause or can reasonably be expected to cause a Cliffwood Material Adverse
Effect.
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7.1.4 The form and substance of all certificates, instruments,
opinions and other documents delivered to Texoil under this Agreement shall be
satisfactory in all reasonable respects to Texoil and its counsel.
7.1.5 Each of Cliffwood's shareholders and each holder of
Cliffwood Options and Warrants will fully complete, execute and deliver a
Consent and Investment Questionnaire in the form attached hereto as Exhibit A,
each such questionnaire to be satisfactory in form and substance to Texoil.
7.1.6 The Board of Directors of Texoil shall have received a
favorable fairness opinion from Rauscher, Pierce, Refsnes, Inc. or another
investment banking firm mutually agreeable to the Constituent Groups.
7.1.7 An officer of Cliffwood will execute and deliver an
Officer's Certificate in a form mutually agreeable to Cliffwood and Texoil.
7.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF CLIFFWOOD. The obligation
of Cliffwood to consummate the Closing is subject to the fulfillment or waiver,
on or prior to the Closing Date, of each of the following conditions precedent:
7.2.1 Each of Texoil and Texoil Sub shall have complied in all
material respects with its agreements and covenants contained herein to be
performed at or prior to the Closing, and the representations and warranties of
Texoil and Texoil Sub contained herein shall be true and correct in all material
respects on and as of the Closing Date with the same effect as though made on
and as of the Closing Date and Cliffwood shall have received officer's
certificates of Texoil and, dated as of the Closing Date, certifying as to the
fulfillment of the conditions set forth in this Section 7.2.1.
7.2.2 No statute, rule, or regulation or order of any court or
administrative agency shall be in effect which restrains or prohibits Cliffwood
or Cliffwood's shareholders from consummating the transactions contemplated
hereby.
7.2.3 There shall not have occurred any change or event which
will cause or can reasonably be expected to cause a Texoil Material Adverse
Effect.
7.2.4 The form and substance of all certificates, instruments,
opinions and other documents delivered to Cliffwood under this Agreement shall
be satisfactory in all reasonable respects to Cliffwood and its counsel.
7.2.5 An officer of Texoil and Texoil Sub will execute and
deliver an Officer's Certificate in a form mutually agreeable to Cliffwood and
Texoil.
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7.3 CONDITIONS TO THE OBLIGATIONS OF CLIFFWOOD, TEXOIL AND TEXOIL SUB.
The obligation of Cliffwood, Texoil and Texoil Sub to consummate the Closing is
subject to the fulfillment or waiver, on or prior to the Closing Date, of each
of the following conditions precedent:
7.3.1 Each of the following securities issued by Texoil shall
have been converted into shares of Texoil Common Stock in accordance with the
terms of such security: (i) the Series A Preferred Stock of Texoil; (ii) the
$4.5 million aggregate principal amount of convertible notes issued to RIMCO;
and (iii) $600,000 aggregate principal amount of convertible notes issued by
Texoil to current directors of Texoil and their affiliates.
7.3.2 At or contemporaneously with the Closing, the notes issued
by Texoil in the aggregate original principal amount of $1,050,000 to current
directors of Texoil and their affiliates shall have been paid.
7.3.3 No more than 10% of the stockholders of Cliffwood shall
have exercised dissenters' rights pursuant to the TBCA regarding the Merger.
7.3.4 Frank A. Lodzinski shall have entered into an Employment
Agreement with Texoil in substantially the form attached hereto as Exhibit B.
7.3.5 Cliffwood shall have unrestricted cash and current
borrowing capacity under its line of credit with its commercial banks and other
credit facilities totaling at least $3.0 million.
7.3.6 RIMCO shall make up to $10.0 million of new financing
available to Texoil, conditioned upon the Closing, in the form of convertible
subordinated notes with terms mutually agreeable to Texoil and RIMCO.
7.3.7 This Agreement and the Merger shall have been approved by
the stockholders of Cliffwood.
7.3.8 The holder of all Cliffwood Options and Warrants shall have
canceled all such Cliffwood Options and Warrants in exchange for Texoil options
and warrants as contemplated by Article 6.
7.3.9 The Board of Directors of Texoil shall have elected to the
Board of Directors of Texoil, conditioned upon the Closing, the persons set
forth in SCHEDULE 7.3.9, which shall comprise all of the members of the Board of
Directors of Texoil after the Effective Time.
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ARTICLE 8
TERMINATION
8.1 METHODS OF TERMINATION. This Agreement may be terminated by
Cliffwood or Texoil if (i) the Closing does not occur prior to February 1, 1998,
or (ii) either Cliffwood or Texoil if the other Constituent Group consummates an
Acquisition Transaction with a third party, or (iii) the board of directors of
either Cliffwood or Texoil elects to terminate this Agreement.
8.2 TERMINATION BY BOARD OF DIRECTORS. An election by any of the parties
hereto to terminate this Agreement and abandon the Merger as provided in Section
8.1 shall be communicated by its president or chief executive officer.
8.3 EFFECT OF TERMINATION. Upon termination of this Agreement as a
result of Cliffwood's failure to meet any of the conditions listed in Sections
7.1, 7.3.3, 7.3.4, 7.3.5, 7.3.7 and 7.3.8, herein, Texoil shall be entitled to
exercise any rights and remedies at law or in equity to which it may be
entitled. Upon termination of this Agreement as a result of Texoil's failure to
meet any of the conditions listed in Sections 7.2, 7.3.1, 7.3.2, 7.3.4, 7.3.6
and 7.3.9, herein, Cliffwood shall be entitled to exercise any rights and
remedies at law or in equity to which it may be entitled.
8.4 WAIVER OF CONDITIONS. Subject to the requirements of any applicable
law, any of the terms or conditions of this Agreement may be waived at any time
by the party which is entitled to the benefit thereof, but only by written
instrument signed by its board of directors, the executive committee of its
board of directors, or its president or chief executive officer. Without
limiting the generality of the preceding sentence, the closing of the
transactions contemplated hereby shall not in any way be deemed a waiver of, or
otherwise preclude the assertion of, any breach or default occurring on or
before the Effective Time.
8.5 EXPENSE ON TERMINATION. If the Merger contemplated hereby is
terminated pursuant to a vote of the board of directors of either Cliffwood or
Texoil, expenses of the non-terminating party will be paid by the terminating
party.
ARTICLE 9
MISCELLANEOUS
9.1 NOTICE. All notices, requests, consents, demands and other
communications required or contemplated under this Agreement shall be in writing
and (i) personally delivered or sent via telecopy (receipt confirmed), or (ii)
sent by Federal Express or other reputable overnight delivery service, shipping
prepaid, as follows:
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If to Texoil or Texoil Sub to:
Texoil, Inc.
1600 Smith Street, Suite 400
Houston, Texas 77002
Attention: Mr. Ruben Medrano
with a copy to:
Mr. Nick D. Nicholas
Porter & Hedges, L.L.P.
700 Louisiana, 35th Floor
Houston, Texas 77002-2764
If to Cliffwood to:
Cliffwood Oil & Gas Corp.
110 Cypress Station Drive, Suite 220
Houston, Texas 77090
Attention: Mr. Frank A. Lodzinski
with a copy to:
Mr. Howard Shulman
Hirsch & Westheimer, P.C.
700 Louisiana, 25th Floor
Houston, Texas 77002-2728
or to such other persons or addresses as any person or entity may request by
notice given as aforesaid. Notices shall be deemed given and received at the
time of personal delivery or completed telecopying or if sent by Federal Express
or such other overnight delivery service one business day after such sending.
9.2 SCHEDULES AND EXHIBITS. All schedules and exhibits attached to this
Agreement constitute an integral part of this Agreement as if fully rewritten
herein. Matters disclosed by a party in any single Schedule to this Agreement
shall be deemed also to be disclosed with respect to all other Schedules
required of the party to which the matter disclosed is pertinent.
9.3 EXECUTION IN COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
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9.4 ENTIRE AGREEMENT. This Agreement and the documents to be delivered
hereunder and thereunder constitute the entire understanding and agreement
between the parties hereto concerning the subject matter hereof. All
negotiations and writings between the parties hereto are merged into this
Agreement, and there are no representations, warranties, covenants,
understandings, or agreements, oral or otherwise, in relation thereto between
the parties other than those incorporated herein or to be delivered hereunder.
9.5 APPLICABLE LAW AND VENUE. All questions concerning the construction,
validity and interpretation of this Agreement shall be governed by the internal
laws, and not the law of conflicts, of the State of Texas. Except where
arbitration is expressly provided for in this agreement, all controversies which
may arise out of or in connection with this agreement, particularly with respect
to the performance, interpretation, breach, or enforcement of this agreement,
shall be brought and resolved solely and exclusively in the state or federal
courts of Harris County, Texas, and each party hereto consents to service,
jurisdiction, and venue of such courts for such purpose, and each hereby
irrevocably waives any other venue to which it might be entitled by virtue of
domicile, residence, jurisdiction of formation or otherwise. Each party hereto
acknowledges and agrees that it has consulted legal counsel in connection with
the negotiation of this Agreement and that it has bargaining power equal to that
of the other parties hereto in connection with the negotiation and execution of
this Agreement. Accordingly, the rule of contract construction that an agreement
shall be interpreted and construed against the draftsman shall have no
application in the interpretation or construction of this Agreement.
9.6 MODIFICATION. This Agreement shall not be modified or amended except
in writing signed by each of the parties hereto. After approval of the Merger by
the stockholders of Cliffwood, no amendment may be made which decreases the
Merger Consideration or otherwise materially adversely affects the stockholders
of Cliffwood without the further approval of the stockholders of Cliffwood.
9.7 SUCCESSORS AND ASSIGNS. Neither this Agreement nor any of the rights
and obligations hereunder shall be assigned, delegated, sold, transferred,
sublicensed, or otherwise disposed of by operation of law or otherwise, without
the prior written consent of each of the other parties hereto. In the event of
such permitted assignment or other transfer, all of the rights, obligations,
liabilities, and other terms and provisions of this Agreement shall be binding
upon, inure to the benefit of, and be enforceable by and against the respective
successors and assigns of the parties hereto, whether so expressed or not.
9.8 AMENDMENTS AND WAIVERS. This Agreement may be amended, modified, or
superseded only by written instrument executed by all parties hereto. The
failure of any party at any time or times to require performance of any
provision hereof shall in no manner affect the right to enforce the same. No
waiver by any party of any condition, or of the breach of any term, provision,
covenant, representation, or warranty contained in this Agreement in one or more
instances shall be deemed to be or construed as a further or continuing waiver
of any such condition or breach or a waiver of any other condition or the breach
of any other term, provision, covenant, representation, or warranty.
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9.9 SEVERABILITY. The provisions of this Agreement shall be deemed
severable, and if any part of any provision is held to be illegal, void,
voidable, invalid, nonbinding or unenforceable in its entirety or partially or
as to any party, for any reason, such provision may be changed, consistent with
the intent of the parties hereto, to the extent reasonably necessary to make the
provision, as so changed, legal, valid, binding, and enforceable. If any
provision of this Agreement is held to be illegal, void, voidable, invalid,
nonbinding or unenforceable in its entirety or partially or as to any party, for
any reason, and if such provision cannot be changed consistent with the intent
of the parties hereto to make it fully legal, valid, binding and enforceable,
then such provisions shall be stricken from this Agreement, and the remaining
provisions of this Agreement shall not in any way be affected or impaired, but
shall remain in full force and effect.
9.10 ANNOUNCEMENTS. From the date of this Agreement, all further public
announcements relating to this Agreement or the transactions contemplated hereby
will be made only as agreed upon jointly by Texoil and Cliffwood, except that
nothing herein shall prevent Texoil from making any disclosure in connection
with the transactions contemplated by this Agreement if required by applicable
law or otherwise as a result of its being a public company, provided that prior
notice of such disclosure is given to Cliffwood.
9.11 KNOWLEDGE, HEADINGS, GENDER, AND CERTAIN REFERENCES. A
representation or statement made herein to Cliffwood's Knowledge refers to the
knowledge or belief of the directors, officers, employees, agents, and
independent accountants of any member of the Cliffwood Group, regardless of
whether the knowledge of such person was obtained outside the course and scope
of his employment by or duties to any member of the Cliffwood Group, and
regardless of whether any such person's interests are adverse to any member of
the Cliffwood Group in respect of the matters as to which his knowledge is
attributed to Cliffwood. A representation or statement made herein to Texoil's
Knowledge refers to the knowledge or belief of the directors, officers,
employees, agents, and independent accountants of any member of the Texoil
Group, regardless of whether the knowledge of such person was obtained outside
the course and scope of his employment by or duties to any member of the Texoil
Group, and regardless of whether any such person's interests are adverse to any
member of the Texoil Group in respect of the matters as to which his knowledge
is attributed to Texoil. The headings contained in this Agreement have been
inserted for the convenience of reference only, and neither such headings nor
the placement of any term hereof under any particular heading shall in any way
restrict or modify any of the terms or provisions hereof. Whenever from the
context it appears appropriate, each term stated in either the singular or the
plural shall include both the singular and the plural, and pronouns stated in
the masculine or the neuter gender shall include the masculine, the feminine and
the neuter gender. The terms "hereof," "herein," "herewith," or "hereunder"
refer to this Agreement as a whole and not to any particular Article, Section,
or paragraph hereof. The term "include" and derivatives thereof are used in an
illustrative sense and not in a limiting sense. The term "or" is not exclusive.
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9.12 RIGHTS OF PARTIES. Except as expressly provided in this Agreement,
no provision of this Agreement (whether express or implied) is intended or shall
be construed to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties to it and their respective
successors and assigns, nor shall any provision give any third persons any right
of subrogation or action over or against any party to this Agreement. Without
limiting the generality of the foregoing, it is expressly understood that this
Agreement does not create any third party beneficiary rights, except as
expressly herein provided.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date and year first written above.
CLIFFWOOD OIL & GAS CORP.
By: /S/ FRANK A. LODZINSKI
Name:FRANK A. LODZINSKI
Title: PRESIDENT
TEXOIL, INC.
By: /S/ RUBEN MEDRANO
Name:RUBEN MEDRANO
Title: PRESIDENT AND CHIEF EXECUTIVE OFFICER
TEXOIL ACQUISITION, INC.
By: /S/ RUBEN MEDRANO
Name:RUBEN MEDRANO
Title: PRESIDENT AND CHIEF EXECUTIVE OFFICER
48
EXHIBIT 2.2
EXECUTIVE EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is dated as of January 1,
1998 (the "Effective Date") and is entered into by and between Texoil, Inc., a
Nevada corporation (the "Company"), and Frank A. Lodzinski, an individual
resident of Montgomery County (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company and Cliffwood Oil & Gas Corp. ("Cliffwood") have
agreed to a merger in which Texoil Acquisition, Inc. ("Texoil Sub"), a
wholly-owned subsidiary of Texoil, will merge with and into Cliffwood with
Cliffwood being the surviving corporation (the "Merger") pursuant to an
Agreement and Plan of Merger among Texoil, Texoil Sub and Cliffwood dated
December 20, 1997 (the "Merger Agreement").
WHEREAS, the Executive is currently employed by Cliffwood and the
Company wishes to secure for itself the benefit of the Executive's background,
experience, ability and expertise and the Executive has indicated his
willingness to provide his services, on the terms and conditions set forth
herein;
WHEREAS, it is a condition to closing of the transactions contemplated
by the Merger Agreement that the Executive and the Company enter into this
Agreement;
NOW, THEREFORE, on the basis of the foregoing premises and in
consideration of the mutual promises and covenants contained herein, the patties
hereto agree as follows:
SECTION 1. EMPLOYMENT.
(a) The Company hereby agrees to employ the Executive and the
Executive hereby accepts employment with the Company, on the terms and
subject to the conditions contained in this Agreement. Subject to the
terms and conditions contained herein, the Executive shall serve as
Chairman of the Board of Directors of the Company (the "Board of
Directors") and Chief Executive Officer of the Company and, in such
capacity, shall report directly to the Board of Directors. In addition,
the Company hereby agrees to nominate the Executive to serve as a member
of the Board of Directors for at least three (3) consecutive one year
terms beginning on the Effective Date. The Executive shall have such
duties, functions, responsibilities and authority as are consistent with
the Executive's position as the senior executive officer in charge of
the general management, business and affairs of the Company and its
subsidiaries including, but not limited to, the development and
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implementation of strategies, goals, internal policies and programs
designed to achieve the profit, market share and growth that the Company
and its subsidiaries desire, together with such additional duties,
functions, responsibilities and authority including, without limitation,
serving as an officer and/or director of any subsidiary of the Company,
commensurate with the Executive's position as set forth in this
Agreement, as may be reasonably assigned to the Executive from time to
time by the Board of Directors. In connection with his employment under
this Agreement, the Executive shall be based at the offices of
Cliffwood.
(b) As additional consideration for the Executive to enter into
the obligations set forth in this Agreement: (i) the Company shall,
contemporaneous with execution and delivery of this Agreement, cause to
be granted to the Executive options to acquire each year during the
Employment Term (as defined below) 33,334 shares of Company common stock
at the prevailing market rate on the date of each grant pursuant to the
Texoil, Inc. 1994 Stock Option Plan; and (ii) the Company and its
wholly-owned subsidiaries, jointly and severally, shall indemnify and
hold harmless Executive from any claim asserted against him as an
employee, officer or director of the Company or any subsidiary or
affiliate of the Company to the fullest extent permitted by, and subject
to the provisions of, Nevada law, except only that Executive shall not
be indemnified for any material violation by Executive of the terms of
this Agreement.
SECTION 2. TERM. Subject to the provisions and conditions of this
Agreement (including Section 6), the Executive's employment hereunder shall
commence on the date hereof and shall continue until the third anniversary of
the Effective Date unless extended by mutual written agreement of the Company
and the Executive (the "Employment Term").
SECTION 3. COMPENSATION.
(a) SALARY. As compensation for the performance of the
Executive's services under this Agreement, the Company shall pay to the
Executive a base salary (the "Salary") of Ninety Thousand and No/100
Dollars ($90,000.00) per annum with increases, if any, as may be
approved in writing by the Board of Directors. The Salary shall be
payable in accordance with payroll practices of the Company as the same
shall exist from time to time. In no event shall the Salary be decreased
during the Employment Term.
(b) BONUS PLAN. The Executive shall be entitled to receive bonus
compensation consisting of cash, securities or property (the "Bonus") in
accordance with any management incentive plan or plans which may be
established from time to time by the Board of Directors for its
executive officers and management.
(c) BENEFITS. In addition to the Salary and the Bonus, the
Executive shall be entitled to participate in or to receive the health,
insurance, pension, automobile, severance, vacation, holiday, sick
leave, disability, profit sharing, 401(k) savings and other benefits as
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shall be determined by the Board of Directors to be consistent with the
best interest of the Company.
(d) PAYING ENTITY. The Company may cause any one or more of its
subsidiaries to provide the Salary, Bonus and other benefits to the
Executive as are required by this Agreement.
SECTION 4. EXCLUSIVITY. During the Employment Term, the Executive shall
devote substantially all of his time to the business of the Company, shall
faithfully serve the Company, shall in all respects conform to and comply with
the lawful and reasonable directions and instructions given to him by the Board
of Directors or its designee in accordance with the terms of this Agreement,
shall use his best efforts to promote and serve the interests of the Company and
shall not engage in any other business activity, whether or not such activity
shall be engaged in for pecuniary profit, except that the Executive may (a)
participate in the activities of the subsidiaries and affiliates of the Company
as an officer and/or director of such companies, (b) devote such time as is
necessary to cause Energy Resource Associates, Inc., the general partner of V&C
Energy Limited Partnership, to satisfy its obligations under the terms of the
V&C Limited Partnership Agreement dated effective July 1, 1989, (c) participate
in the activities of professional trade organizations related to the business of
the Company, and, (d) engage in personal investing and charitable activities,
provided that the activities set forth in the foregoing clauses, either singly
or in the aggregate, do not interfere in any material respect with the services
to be provided by the Executive under this Agreement.
SECTION 5. REIMBURSEMENT FOR EXPENSES. The Company shall promptly
reimburse the Executive for all reasonable out-of-pocket travel, entertainment
and other business expenses incurred by the Executive during the term of this
Agreement and in the performance of his duties hereunder in accordance with the
Company's reimbursement policies as determined by the Board of Directors.
SECTION 6. TERMINATION.
6.1 DEATH. This Agreement shall automatically terminate upon the
death of the Executive and upon such event, the Executive's estate shall
be entitled to receive the amounts specified in Section 6.6 below.
6.2 DISABILITY. If the Executive is unable to perform the duties
required of him under this Agreement because of physical or mental
disability, this Agreement shall remain in full force and effect and the
Company shall pay all compensation required to be paid to the Executive
hereunder, unless the Executive is unable to perform the duties required
of him under this Agreement for an aggregate of one hundred twenty (120)
days (whether or not consecutive) during any twelve (12) month period
during the term of this Agreement, in which event this Agreement (other
than Sections 7 and 15 hereof), including, but not limited to, the
Company's obligations to pay any Salary or to provide any privileges
under this Agreement, shall, upon written notice by the Company to the
Executive to such effect, terminate; provided, however, that the
foregoing shall not prejudice the Executive's rights
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to continuing, existing insurance benefits for which he is otherwise
eligible, including disability benefits. In case of any dispute as to
whether Executive is disabled within the meaning of this Section 6.2,
the determination of such disability for the period specified shall be
certified by a physician reasonably acceptable to both the Company and
the Executive, which physician's determination shall be final and
binding on the parties hereto. The Company shall be permitted to hire a
replacement for the Executive, so long as this Agreement shall remain in
effect, to serve in the event and for so long as the Executive shall be
unable to perform the duties required of him hereunder due to his
disability for an aggregate of ninety (90) days during any twelve (12)
month period during the term of this Agreement.
6.3 JUST CAUSE. The Company may terminate this Agreement (other
than Sections 7 and 15 hereof) for "Just Cause." For purposes of this
Agreement, "Just Cause" shall mean: (a) the Executive's willful and
continued failure, neglect or refusal to perform his duties hereunder
which failure, neglect or refusal shall not have been corrected by the
Executive within thirty (30) days of receipt by the Executive of written
notice from the Company of such failure, neglect or refusal, which
notice shall specifically set forth the nature of said failure, neglect
or refusal; (b) any willful or intentional engagement by the Executive
in misconduct (including repeated drunkenness or use of illegal drugs)
that is materially injurious to the reputation or business of the
Company or its affiliates or that materially impairs the ability of the
Executive to perform his duties and responsibilities hereunder; (c) any
continued or repeated absence from the Company, unless such absence is
(i) approved or excused by the Board of Directors or (ii) is the result
of the Executive's physical or mental disability (in which event the
provisions of Section 6.2 hereof shall control) or a personal or family
emergency; (d) conviction or plea of nob contendere by the Executive for
the commission of a felony; or (e) the commission by the Executive of an
act of fraud or embezzlement against the Company or any of its
subsidiaries of affiliates. If the Executive's employment is terminated
for Just Cause, the Executive shall be entitled to receive the amounts
specified in Section 6.6 hereof. In the event of any termination
pursuant to this Section 6.3, the Company shall deliver to the Executive
written notice setting forth the basis for such termination, which
notice shall specifically set forth the nature of the Just Cause, and
the facts and circumstances in connection therewith, which is the reason
for such termination.
6.4 GOOD REASON. The Executive may terminate this Agreement for
"Good Reason" following a Substantial Breach (as defined below) if such
Substantial Breach shall not have been corrected by the Company within
thirty (30) days of receipt by the Company of written notice from the
Executive of the occurrence of such Substantial Breach, which notice
shall specifically set forth the nature of the Substantial Breach which,
if not corrected, will entitle the Executive at any time after such
thirty (30) day notice period and by subsequent written notice to
terminate this Agreement. In the event of resignation by the Executive
following a Substantial Breach, the Executive shall be entitled to
receive the amounts specified in Section 6.6 hereof. An election by the
Executive to terminate his
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employment under this paragraph shall not be a breach of this Agreement.
The term "Substantial Breach" means any material breach by the Company
of its obligations hereunder consisting of: (a) the failure of the
Company to pay the Executive the Salary or Bonus, if any, in accordance
with Sections 3(a) and (b) hereof; (b) the failure by the Company to
substantially maintain and continue the Executive's participation in
benefit plans as provided in Section 3(c) hereof; (c) any material
diminishment in the duties or responsibilities of the Executive
described in Section 1 hereof, or any removal of the Executive from or
any failure to re-elect the Executive to (x) the positions described in
Section 1, except in connection with promotions to higher office, or (y)
the position as a director of the Company; (d) the Company's requiring
the Executive to be based anywhere other than in or within thirty-five
(35) miles of the Executive's current principal place of employment,
except for required travel on the business of the Company to an extent
substantially consistent with the Executive's prior business travel
obligations, or, in the event the Executive consents to relocation, the
failure of the Company to pay or reimburse the Executive for all
reasonable costs incurred by the Executive in connection with such
relocation as mutually agreed by the Company and the Executive prior to
such relocation; and (e) the failure of any successor to all or
substantially all of the business and/or assets of the Company to assume
this Agreement; provided, however, that the term "SUBSTANTIAL BREACH"
shall not include a termination of the Executive's employment hereunder
pursuant to Section 6.2 or 6.3 hereof. The date of termination of the
Executive's employment under this Section 6.4 shall be the effective
date of any resignation specified in writing by the Executive, which
shall not be less than thirty (30) days after receipt by the Company of
written notice of such resignation, provided that any resignation by
Executive shall not be effective pursuant to this Section 6.4 if such
Substantial Breach shall have been corrected by the Company during the
thirty (30) day period following notice by the Executive of the
existence thereof or if corrected thereafter prior to the date of
resignation by the Executive.
6.5 WITHOUT CAUSE. The Company, by action of its Board of
Directors, may terminate this Agreement (other than Sections 7 and 10
hereof) without Just Cause upon the giving to the Executive of thirty
(30) days' prior written notice of such termination. If the Executive's
employment is terminated by the Company without Just Cause, the
Executive shall be entitled to receive the amounts specified in Section
6.6 hereof.
6.6 PAYMENTS. In the event that the Executive's employment
hereunder terminates for any reason, the Company shall promptly pay to
the Executive all amounts accrued but unpaid hereunder through the date
of termination in respect of the Salary and for reimbursement of any
expenses pursuant to Section 5 hereof, and, in the ease of any
termination by reason of death or physical or mental disability of the
Executive pursuant to Section 6.1 or 6.2 hereof, a pro rated portion of
the Bonus, if any, which the Executive would have been otherwise
entitled to receive under Section 3(b) for the calendar year in which
such termination occurs, such pro rated portion being the portion of
such Bonus corresponding to the period commencing on January 1 of such
year and ending on the date of termination. In the event that the
Executive's employment has been terminated by the
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Company for Just Cause, the Company shall have no obligations to the
Executive for Salary, Bonus or other benefits herein provided accruing
on or after the date of termination except as set forth in the preceding
sentence or as may be otherwise provided by law. In the event that the
Executive's employment hereunder is terminated by the Company without
Just Cause or by the Executive with Good Reason, in addition to the
amounts specified in the first sentence of this Section 6.6, the
Executive shall continue to receive the Salary at the rate in effect
hereunder on the date of such termination periodically, in accordance
with the Company's prevailing payroll practices, until the last date of
the Employment Term or until the first anniversary of the termination
date, if longer, plus (a) the cost of the Executive's premiums for
health care benefits under COBRA or the cost of the Executive's premiums
under any replacement health insurance coverage obtained by Executive
containing substantially the same coverage as provided to the Executive
(including amounts paid to reimburse Executive for the premium costs he
incurred to maintain his own health insurance coverage) at such time,
which premiums shall be payable as and when the Salary would otherwise
have been payable as provided in this Agreement; and (b) a pro rated
portion of the Bonus, if any, which the Executive would have otherwise
been entitled to receive under Section 3(b) hereof for the calendar year
in which the Executive is terminated pro rated in the same manner as set
forth in the first sentence of this Section 6.6. Without intending to
limit the generality of Section 7 hereof, in the event that the
Executive accepts other employment or engages in his own business prior
to the last date of the Employment Term, the Executive shall forthwith
notify the Company and the Company shall be entitled to set off from
amounts due the Executive under this Section 6.6 the amounts paid to the
Executive in respect of such other employment or business activity. Upon
any termination of this Agreement, all of the rights, privileges and
duties of the Executive hereunder shall cease, except for any rights
under this Section 6.6 and any obligations under Sections 7 and 15
hereunder.
Section 7. SECRECY.
7.1 NONDISCLOSURE OF CONFIDENTIAL INFORMATION. The Executive,
except in connection with his employment hereunder or as required by
legal process, shall not disclose to any person or entity or use, during
the Employment Term or at any time thereafter, any information not in
the public domain or generally known in the industry, in any form
acquired by the Executive while employed by the Company or any
predecessor to the Company's business or, if acquired following the
Employment Term, such information which, to the Executive's knowledge,
has been acquired, directly, or indirectly, from any person or entity
owing a duty of confidentiality to the Company or any of its
subsidiaries or affiliates, relating to the Company, its subsidiaries or
affiliates, including but not limited to information regarding
customers, vendors, suppliers, trade secrets, training programs, manuals
or materials, technical information including without limitation
geological and geophysical data, contracts, systems, procedures, mailing
lists, know-how, trade names, improvements, price lists, financial or
other data (including the revenues, costs or profits associated with any
of the Company's properties), invoices and other financial statements,
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computer programs, software systems, databases, customer and industry
lists, correspondence, internal reports, personnel files, sales and
advertising material, telephone numbers, names, addresses or any other
compilation of information, written or unwritten, which is or was used
in the business of the Company or any of its subsidiaries or affiliates
(collectively, "Confidential Information"); provided, however, that the
term Confidential Information shall not include (a) general skills and
general knowledge of an industry obtained by reason of the Executive's
association with the Company; (b) information concerning the business
and operations of the Company and its subsidiaries and/or the industry
in which the Company and its subsidiaries conduct business which was in
the possession of or known to the Executive prior to the Executive's
employment with the Company; and (c) any financial or other information
with respect to the assets, properties, rights, business or operations
of Cliffwood or any of its subsidiaries. The Executive agrees and
acknowledges that all Confidential Information, in any form, and copies
and extracts thereof are and shall remain the sole and exclusive
property of the Company, and upon termination of his employment with the
Company, the Executive shall return to the Company the originals and all
copies of any Confidential Information provided to or acquired by the
Executive in connection with the performance of his duties for the
Company, and shall return to the Company all files, correspondence
and/or other communications received, maintained and/or originated by
the Executive during the course of his employment.
7.2 INVENTIONS. The Executive hereby sells, transfers and assigns
to the Company, or to any person or entity designated in writing by the
Company, all of the right, title and interest of the Executive in and to
all inventions, sales materials, software, training materials,
disclosures and improvements, whether patented or unpatented, and
copyrightable material, made or conceived by the Executive, solely or
jointly, in whole or in part, during his employment with the Company
which are not generally known to the public or the industry or
recognized as standard practice and which (a) relate to services, trade
names, methods, ideas, apparatus, designs, products, processes or
devices which may be sold, leased, used or under construction or
development by the Company, or any franchise affiliated with the Company
and (b) arise (wholly or partly) from the efforts of the Executive
during and in the course of his employment with the Company (an
"Invention"). The Executive shall communicate promptly and disclose to
the Company, in such form as the Company reasonably requests, all
information, details and data pertaining to any such any Invention. With
respect to all Inventions which are to be assigned pursuant to this
Section 7, the Executive will assist the Company in any reasonable
manner to obtain for the Company's benefit patents thereon, including,
but not limited to, executing patent applications, transfers or
assignments thereof to the Company and any and all other documents
reasonably deemed necessary by the Company. The Company shall pay all
costs incident to the preparation, execution and delivery of such patent
applications, transfers, assignments and other documents. Any Invention
by the Executive within six (6) months following the termination of his
employment under shall be presumed to fall within the provisions of this
Section 7.2 unless Executive bears the burden of proof of showing that
the Invention was first conceived and made following such termination.
Notwithstanding anything contained herein to the
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contrary, the Executive shall continue to own the exclusive right, title
and interest in and to any and all inventions, improvements,
discoveries, ideas, designs, documents and other data (whether or not
patentable): (a) conceived, made and developed prior to the date of this
Agreement; and (b) irrespective of when conceived, made or developed,
which do not relate to the actual or anticipated business of the Company
or any existing or prior research and development activities of the
Company or any of its subsidiaries or affiliates.
7.3 INJUNCTIVE RELIEF. Without intending to limit the remedies
available to the Company, the Executive acknowledges that a breach of
any of the covenants contained in Section 7 hereof may result in
material irreparable injury to the Company or its subsidiaries or
affiliates for which there is no adequate remedy at law, that it will
not be possible to measure damages for such injuries precisely and that,
in the event of such a breach or threat thereof, the Company shall be
entitled to seek a temporary restraining order and/or a preliminary or
permanent injunction, restraining the Executive from engaging in
activities prohibited by Section 7 hereof or such other relief as may be
required specifically to enforce any of the covenants in Section 7
hereof.
SECTION 8. SUCCESSORS AND ASSIGNS: NO THIRD-PARTY BENEFICIARIES. This
Agreement shall inure to the benefit of, and be binding upon, the parties hereto
and their respective successors and assigns, including, but not limited to, the
Executive's heirs and personal representatives of the Executive's estate;
provided, however, that neither party shall assign or delegate any of the
obligations created under this Agreement without the prior written consent of
the other party. Notwithstanding the foregoing, the Company shall have the
unrestricted right to assign this Agreement and to delegate all or any part of
its obligations hereunder to any of its subsidiaries, so long as such assignment
does not diminish the duties, function, responsibility or authority of the
Executive or result in any assignment of duties or responsibilities materially
inconsistent with those set forth in this Agreement (unless consented to by the
Executive) but in such event such assignee shall expressly assume all
obligations of the Company hereunder and the Company shall remain fully liable
for the performance of all such obligations in the manner prescribed in this
Agreement. Nothing in this Agreement shall confer upon any person or entity not
a party to this Agreement, or (unless otherwise expressly provided herein) the
legal representatives of such person or entity, any rights or remedies of any
nature or kind whatsoever under or by reason of this Agreement.
SECTION 9. WAIVER AND AMENDMENTS. Any waiver, alteration, amendment or
modification of any of the terms of this Agreement shall be valid only if made
in writing and signed by the parties hereto. No waiver by either of the parties
hereto of their rights hereunder shall be deemed to constitute a waiver with
respect to any subsequent occurrences or transactions hereunder unless such
waiver specifically states that it is to be construed as a continuing waiver.
SECTION 10. SEVERABILITY AND GOVERNING LAW. The Executive acknowledges
and agrees that the covenants set forth Section 7 hereof are reasonable and
valid in all respects. Each party hereto acknowledges and agrees that if any of
such covenants or other provisions of this Agreement are found to be invalid or
unenforceable by a final determination of a court of competent jurisdiction
8
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(a) the remaining terms and provisions hereof shall be unimpaired and (b) the
invalid and unenforceable term or provision shall be deemed replaced by a term
or provision that is valid and enforceable and that comes closest to expressing
the intention of the invalid or unenforceable term or provision. THIS AGREEMENT
SHALL BE GOVERNED BY AND INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF TEXAS WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PROVISIONS
THEREOF.
SECTION 11. NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made if delivered personally or sent by registered or certified mail postage
prepaid, return receipt requested), or sent by facsimile transmission or
overnight courier service, addressed in the ease of the Company, to Cliffwood
Oil & Gas Corp., 110 Cypress Station Drive, Houston, Texas 77090 Attention:
President, fax: (281) 537-8324 and, in the case of the Executive, to the
Executive's address set forth on the signature page hereof or, in each case, to
such other address as may be designated to the other party from time to time as
provided above. All notices so given shall be effective when received at the
designated address.
SECTION 12. CAPTIONS AND SECTION HEADINGS. Captions and section headings
herein are solely for convenience of reference and shall not affect the meaning
or interpretation of this Agreement or of any term or provision hereof.
SECTION 13. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding and agreement of the parties hereto regarding the employment of
the Executive. This Agreement supersedes all prior negotiations, discussions,
correspondence, communications, understandings and agreements between the
parties relating to the subject matter of this Agreement, all of which are
merged into this Agreement.
SECTION 14. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
SECTION 15. DISPUTES. Any dispute or controversy arising under, out of,
in connection with or in relation to this Agreement, the employment of Executive
or the termination of Executive's employment ("Disputes") shall, at the election
and upon written demand of either party, be finally determined and settled by
binding arbitration in the city of Houston, Texas in accordance with the
procedures set forth in the exhibit entitled "ARBITRATION PROCEDURES" attached
hereto, and judgment upon the award may be entered in any court having
jurisdiction thereof; provided, however, that: (a) this Section 15 shall not
apply to matters required to be determined by a physician pursuant to Section
6.2; and 6.3 the parties acknowledge and agree that an arbitrator or arbitrators
shall not have the power or right to order the payment by either party of
damages (including punitive damages), compensation or other amounts that are not
provided for in this Agreement, it being the intention of the parties that the
arbitrator or arbitrators shall resolve Disputes, in respect of the payments,
only
9
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as to whether or not a payment is due hereunder and, if so, the amount thereof,
but shall not provide for any additional payments as a result of the matters
contemplated hereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first above written.
TEXOIL, INC.
By: /S/ RUBEN MEDRANO
Name: RUBEN MEDRANO
Title: PRESIDENT AND CHIEF EXECUTIVE OFFICER
EXECUTIVE
/S/ FRANK A. LODZINSKI
Frank A. Lodzinski
Address:
18726 White Candle
Spring, Texas 77002
Fax. No.: (713) 350-4492
10
<PAGE>
ARBITRATION PROCEDURES
(a) All Disputes between the parties submitted to arbitration shall be
resolved by binding arbitration administered by the American Arbitration
Association (the "AAA") in accordance with, and in the following order of
priority: (i) the terms of these arbitration provisions; (ii) the Commercial
Arbitration Rules of the AAA; (iii) the Federal Arbitration Act (Title 9 of the
United States Code); and (iv) to the extent the foregoing are inapplicable,
unenforceable or invalid, the laws of the State of Texas. The validity and
enforceability of these arbitration provisions shall be determined in accordance
with this same order of priority. In the event of any inconsistency between
these arbitration provisions and such rules and statutes, these arbitration
provisions shall control. Judgment upon any award rendered hereunder shall be
entered in any court having jurisdiction.
(b) All statutes of limitation applicable to any Dispute shall apply to
any proceeding in accordance with these arbitration provisions.
(c) Arbitrators are empowered to resolve Disputes by summary rulings
substantially similar to summary judgments and motions to dismiss. Arbitrators
shall resolve all Disputes in accordance with the applicable substantive law.
Any arbitrator selected shall be required to be experienced and knowledgeable in
the substantive laws applicable to the subject matter of the Dispute. With
respect to a Dispute in which the claims or amounts in controversy do not exceed
$100,000, a single arbitrator shall be chosen and shall resolve the Dispute. In
such ease, the arbitrator shall be required to make specific, written findings
of fact, and shall have authority to render an award up to but not to exceed
$100,000, including all amounts properly payable and costs, fees and expenses
(subject to Section 15 of the Agreement). A Dispute involving claims or amounts
in controversy exceeding $100,000, shall be decided by a majority vote of a
panel of three (3) arbitrators (an "Arbitration Panel"), the determination of
any two (2) of the three (3) arbitrators constituting the determination of the
Arbitration Panel; PROVIDED. HOWEVER, that all three (3) arbitrators on the
Arbitration Panel must actively participate in all hearings and deliberations.
Arbitrators, including any Arbitration Panel, may grant any remedy or relief
deemed just and equitable and within the scope of these arbitration provisions
and may also grant such ancillary relief as is necessary to make effective any
award. The determination of an arbitrator or Arbitration Panel shall be binding
on all parties and shall not be subject to further review or appeal except as
otherwise allowed by applicable law.
(d) To the maximum extent practicable, the AAA, the arbitrator (or the
Arbitration Panel, as appropriate) and the parties shall take any action
necessary to require that an arbitration proceeding hereunder shall be concluded
within one hundred eighty (180) days of the filing of the Dispute with the AAA.
Unless the Company and the Executive shall agree otherwise, arbitration
proceedings hereunder shall be conducted in Houston, Texas. Arbitrators shall be
empowered to impose sanctions and to take such other actions as they deem
necessary to the same extent a judge could pursuant to the Federal Rules of
Civil Procedure and applicable law. With respect to any Dispute, each party
agrees that all discovery activities shall be expressly limited to matters
directly
11
<PAGE>
relevant to the Dispute and any arbitrator, Arbitration Panel and the AAA shall
be required to fully enforce this requirement. The provisions of these
arbitration provisions shall survive any termination, amendment or expiration of
this Agreement, unless the parties otherwise expressly agree in writing. To the
extent permitted by applicable law, arbitrators, including any Arbitration
Panel, shall have the power to award recovery of all costs and fees (including
attorneys' fees, administrative fees and arbitrators' fees) to the prevailing
party or, if no clear prevailing party, as the arbitrator (or Arbitration Panel,
if applicable) shall deem just and equitable. Each party agrees to keep all
Disputes and arbitration proceedings strictly confidential, except for
disclosures of information required by applicable law.
12
EXHIBIT 5.1
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TEXOIL, INC.
$10,000,000
7.875% Convertible Subordinated General Obligation Notes
NOTE PURCHASE AGREEMENT
Dated as of December 31, 1997
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<PAGE>
NOTE PURCHASE AGREEMENT
This NOTE PURCHASE AGREEMENT dated as of December 31, 1997 is
among TEXOIL, INC., a Nevada corporation (the "COMPANY"), and RIMCO PARTNERS,
L.P., a Delaware limited partnership, RIMCO PARTNERS, L.P. II, a Delaware
limited partnership, RIMCO PARTNERS, L.P. III, a Delaware limited partnership,
and RIMCO PARTNERS, L.P. IV, a Delaware limited partnership (together with their
respective successors and assigns, collectively, the "NOTEHOLDERS").
In consideration of the mutual covenants herein contained, the
Company and the Noteholders agree as follows:
ARTICLE I
DEFINITIONS, ETC.
SECTION 1.01 CERTAIN DEFINED TERMS. Capitalized terms used in
this Agreement and not otherwise defined herein shall have the respective
meanings set forth in ANNEX A attached hereto (such meanings to be equally
applicable to both singular and plural forms of the terms defined).
SECTION 1.02 COVENANT CONSTRUCTION. Each covenant contained
herein shall be construed (absent express provision to the contrary) as being
independent of each other covenant contained herein, so that compliance with any
one covenant shall not (absent such an express contrary provision) be deemed to
excuse compliance with any other covenant. Where any provision herein refers to
action to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether such action is taken directly
or indirectly by such Person.
SECTION 1.03 OTHER RULES OF CONSTRUCTION. The words "hereof,"
"herein" and "hereunder" and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any particular provision of
this Agreement. All references herein to articles, sections, annexes, exhibits
and schedules shall, unless the context requires a different construction, be
deemed to be references to the articles and sections of this Agreement and the
annexes, exhibits and schedules attached hereto and made a part hereof. In this
Agreement, unless a clear contrary intention appears, the word "including" (and
with correlative meaning "include") means including, without limiting the
generality of any description preceding such term. The headings of the various
articles and sections of this Agreement are for convenience only and shall not
affect the meaning of the terms and conditions of this Agreement. No provision
of this Agreement shall be interpreted or
<PAGE>
construed against any party solely because that party or its legal
representative drafted such provision.
ARTICLE II
SALE OF NOTES
SECTION 2.01 CONVERTIBLE NOTES. The Company will authorize the
issue and sale of $10,000,000 aggregate principal amount of its 7.875%
Convertible Subordinated General Obligation Notes (the "NOTES"). The Notes will
be convertible into shares of the common stock of the Company pursuant to and in
accordance with ARTICLE IV. Subject to the terms and conditions of this
Agreement, at the Closing provided for in ARTICLE III, the Company will issue
and sell to the Noteholders, and the Noteholders will purchase from the Company,
Notes in the principal amount specified opposite such Noteholder's name in
SCHEDULE A at the purchase price of 100% of the principal amount thereof. The
Notes shall be substantially in the form set out in EXHIBIT 2.01, with such
changes therefrom, if any, as may be approved by the Noteholders and the
Company.
ARTICLE III
CLOSING
The sale and purchase of the Notes to be purchased by the
Noteholders shall occur at the offices of Andrews & Kurth, L.L.P., 600 Travis,
Houston, Texas 77002, at 10:00 a.m., Houston time, at a closing (the "CLOSING")
on December 31, 1997 or on such other Business Day thereafter on or prior to
December 31, 1997 as may be agreed upon by the Company and the Noteholders. At
the Closing the Company will deliver to each Noteholder the Note to be purchased
by such Noteholder, registered in such Noteholder's name, against delivery by
such Noteholder to or for the account of the Company of immediately available
funds in the amount of the purchase price therefor by wire transfer to the
Company. If at the Closing the Company shall fail to tender such Notes to the
Noteholders as provided above in this ARTICLE III, or any of the conditions
specified in this ARTICLE III shall not have been fulfilled to the Noteholders'
satisfaction, the Noteholders shall, at the Noteholders' election, be relieved
of all further obligations under this Agreement, without thereby waiving any
rights the Noteholders may have by reason of such failure or such
nonfulfillment.
The Noteholders' obligation to purchase and pay for the Notes to
be sold to the Noteholders at the Closing is subject to the fulfillment to the
Noteholders' reasonable satisfaction, prior to or at the Closing, of the
following conditions:
SECTION 3.01 EXECUTION OF DOCUMENTS. The Noteholders shall have
received the following agreements (together with this Agreement, collectively,
the "TRANSACTION DOCUMENTS"), in such number of counterparts as the Noteholders
may reasonably request, each dated the date of the Closing and duly executed by
the Persons indicated below:
(a) the Notes duly executed by the Company;
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(b) Guaranty Agreements duly executed by each Guarantor; and
(c) the Registration Rights Agreement duly executed by the
Company and each Noteholder.
SECTION 3.02 MERGER. Evidence reasonably satisfactory to the
Noteholders that (a) the Merger has been consummated and become effective and
(b) that all of the Existing Noteholder Indebtedness shall have been exchanged
for shares of common stock in accordance with the terms thereof.
SECTION 3.03 CERTIFICATES. The Company shall have delivered to
the Noteholders:
(a) an Officer's Certificate, dated the date of the Closing,
certifying that the conditions specified in SECTION 3.05 and SECTION 3.06 have
been fulfilled;
(b) Officer's Certificates from the Company and the Guarantors
certifying as to the resolutions attached thereto and other corporate
proceedings relating to the authorization, execution and delivery of the Notes
and the other Transaction Documents to be executed by each such Person; and
(c) certificates of appropriate public officials as to the
corporate existence and good standing of, and the payment of all franchise taxes
owing by, the Company in the States of Nevada and Texas.
SECTION 3.04 OPINION OF COUNSEL. The Noteholders shall have
received opinions in form and substance satisfactory to the Noteholders, dated
the date of the Closing from Porter & Hedges, L.L.P., counsel for the Company
and Texoil Company, and from Hirsch & Westheimer, P.C., counsel for Cliffwood
Oil & Gas Corp., covering such matters incident to the transactions contemplated
hereby as the Noteholders or the Noteholders' counsel may reasonably request
(and the Company hereby instructs its counsel to deliver such opinion to the
Noteholders).
SECTION 3.05 REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the Company and the Guarantors in this Agreement and the other
Transaction Documents shall be correct when made and at the time of the Closing.
SECTION 3.06 PERFORMANCE; NO DEFAULT. The Company shall have
performed and complied with all agreements and conditions contained in this
Agreement or the other Transaction Documents required to be performed or
complied with by it prior to or at the Closing and after giving effect to the
issue and sale of the Notes (and the application of the proceeds thereof as
contemplated by SECTION 5.14) no Default or Event of Default shall have occurred
and be continuing.
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<PAGE>
SECTION 3.07 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated by this Agreement
and all documents and instruments incident to such transactions shall be
reasonably satisfactory to the Noteholders and the Noteholders' special counsel,
and the Noteholders and the Noteholders' special counsel shall have received all
such counterpart originals or certified or other copies of such documents as the
Noteholders or they may reasonably request.
ARTICLE IV
CONVERSION OF NOTES
SECTION 4.01. CONVERSION. (a) Each Noteholder shall have the
right, at the option of such Noteholder exercisable at any time that any of the
Notes shall remain outstanding, to convert the outstanding principal balance of
the Notes (or any portion thereof that is $1,000 or an integral multiple
thereof), plus accrued and unpaid interest due thereon to the effective date of
the conversion, into fully paid and non-assessable shares of common stock of the
Company, par value $.01 per share ("COMMON STOCK"). The number of shares of
Common Stock issuable in the conversion of the Notes shall be equal to the
quotient of the principal amount of the Notes (or the portion thereof) submitted
for conversion plus accrued, unpaid interest due thereon to the effective date
of conversion, divided by the "Conversion Price" (as defined below), subject to
possible adjustment as provided below. As used herein, the term "CONVERSION
PRICE" shall mean the price of $1.75 per share, or, in case an adjustment of
such price has taken place pursuant to the provisions hereof, then at the price
as last adjusted.
(b) If at any time following the issuance of the Notes up to and
including the Maturity Date (the "DETERMINATION PERIOD"), the average closing
price per share of Common Stock (as reported by the principal securities
exchange or trading market, as the case may be, on which the Common Stock is
then traded and subject to appropriate adjustment for any Stock Split) during a
period of 20 consecutive trading days immediately preceding any date during the
Determination Period (such 20-day average being referred to herein as the
"AVERAGE PRICE") equals or exceeds 130% of the Conversion Price (a "SPECIAL
CONVERSION EVENT"), the Company may, at its option exercisable in its sole
discretion at any time during the 30-day period following such Special
Conversion Event, convert all (but not less than all) of the outstanding
principal balance of the Notes, plus accrued, unpaid interest due thereon to the
effective date of such conversion into fully paid and non-assessable shares of
Common Stock at the Conversion Price in effect as of the effective date of such
conversion. Such conversion shall be deemed to have been effected immediately
upon the mailing of the notice referred to in SECTION 4.02(B) hereof, which
notice to be effective must be deposited in the mail on or prior to the close of
business on the thirtieth day following the Special Conversion Event, whereupon
the person or persons entitled to receive the Common Stock deliverable upon such
conversion shall thereupon be treated for all purposes as the record holder or
holders of such Common Stock, and the Notes shall be deemed to represent only
the right to receive certificates representing the number of shares of Common
Stock, plus cash in lieu of fractional shares in accordance with SECTION 4.04,
into which each such Note has been so converted. If the Company does not convert
the Notes in accordance with this SECTION 4.01(B) within the 30-day
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period following any Special Conversion Event, then a new period of trading days
shall begin for purposes of determining whether the Company may convert the
Notes pursuant to this SECTION 4.01(B).
(c) If, on December 31, 1999, (i) Cash Availability is less than
the sum of the aggregate outstanding principal of and accrued, unpaid interest
due on the Notes, and (ii) the Average Price of the Common Stock on such date is
greater than the Conversion Price, then the Noteholders must convert all
outstanding principal of the Notes, plus accrued, unpaid interest due thereon to
the effective date of such conversion into fully paid and non-assessable shares
of Common Stock at the Conversion Price then in effect.
(d) If, on December 31, 1999, (i) Cash Availability is less than
the sum of the aggregate outstanding principal of and accrued, unpaid interest
due on the Notes, and (ii) the Average Price of the Common Stock on such date is
less than the Conversion Price, but greater than 60% of the Conversion Price,
then the Noteholders must convert all outstanding principal of the Notes, plus
accrued, unpaid interest due thereon to the effective date of such conversion
into fully paid and non-assessable shares of Common Stock at the Average Price
as of December 31, 1999.
(e) If, on December 31, 1999, (i) Cash Availability is less than
the sum of the aggregate outstanding principal of and accrued, unpaid interest
due on the Notes, (ii) the Average Price of the Common Stock on such date is
equal to or less than 60% of the Conversion Price, and (iii) the Noteholders
elect not to extend the Maturity Date in accordance with SECTION 7.04, then the
Noteholders must convert all outstanding principal of the Notes, plus accrued,
unpaid interest due thereon to the effective date of such conversion into fully
paid and non-assessable shares of Common Stock at the Average Price as of
December 31, 1999.
SECTION 4.02. CONVERSION PROCEDURE. (a) If a Noteholder desires
to convert such Note into Common Stock pursuant to SECTION 4.01(A) hereof or if
the Notes have been converted pursuant to SECTIONS 4.01(B), (C), (D), or (E)
hereof, the Noteholder shall surrender the Note at the office of the Company,
duly endorsed to the Company or in blank, or accompanied by proper instruments
of transfer to the Company or in blank, accompanied, in the case of a conversion
pursuant to SECTIONS 4.01(A) or (E) hereof, by an irrevocable written notice to
the Company that the Noteholder elects so to convert this Note in accordance
with the terms hereof, and specifying the name or names (with address) in which
a certificate or certificates for Common Stock are to be issued.
(b) If the Company elects pursuant to SECTION 4.01(B) hereof to
convert the issued and outstanding Notes into Common Stock, the Company shall,
within 30 days after the Special Conversion Event with respect to which such
election is made, send notice (or cause notice to be sent) by first class mail,
postage prepaid, to each Noteholder of record of the Notes at such Noteholder's
address as specified pursuant to the Note Purchase Agreement. Each such notice
of conversion shall specify the date such conversion was effected, the
Conversion Price, the Conversion Rate (as defined in SECTION 4.03), the place or
places that the certificates representing the Notes shall
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<PAGE>
be surrendered and that on and after such conversion date, interest will cease
to accrue on such Notes.
(c) The Company will, as soon as practicable after such surrender
of the Notes accompanied, in the case of a conversion pursuant to SECTIONS
4.01(A) or (E) hereof, by the written notice specified in SECTION 4.02(A) hereof
and compliance with any other conditions herein contained, deliver or cause to
be delivered, to the Person for whose account such Note was so surrendered,
certificates for the number of full shares of Common Stock to which such Person
shall be entitled upon conversion as aforesaid and a cash adjustment for any
fraction of a share of Common Stock as hereinafter provided. In the case of a
conversion pursuant to SECTIONS 4.01(A), (C), (D), or (E) hereof, such
conversion shall be deemed to have been made as of the date of such surrender of
the Note, and the Person entitled to receive the Common Stock deliverable upon
conversion of the Note shall be treated for all purposes as the record holder of
such Common Stock on such date of surrender.
SECTION 4.03. ADJUSTMENTS. The Conversion Price and the number of
shares of Common Stock or amount of any other securities and property as
hereinafter provided into which a Note is convertible (the "CONVERSION RATE")
shall be subject to adjustment from time to time effective upon each occurrence
of any of the following events. As used in this SECTION 4.03, the term "SHARES"
means, collectively, shares of Common Stock (i) issued or issuable upon
conversion of the Notes and (ii) converted, distributed, issued or issuable with
respect to, the shares included in clause (i) of this definition. In case by
reason of the operation of this SECTION 4.03 the Note shall be convertible into
any other shares of stock or other securities or property of the Company or of
any other corporation, any reference herein to the conversion of the Note shall
be deemed to refer to and include the conversion of the Note for such other
shares of stock or other securities or property.
(a) If the Company shall declare or pay any dividend with respect
to its Common Stock payable in Common Stock, subdivide the outstanding shares of
Common Stock into a greater number of shares of Common Stock, or reduce the
number of shares of Common Stock outstanding (by stock split, reverse stock
split, reclassification or otherwise than by repurchase of its Common Stock)
(any of such events being hereinafter called a "STOCK SPLIT"), the Conversion
Price and number of shares of Common Stock issuable upon conversion of the Notes
shall be appropriately adjusted so as to entitle the holder hereof to receive
upon conversion of the Note, for the same aggregate consideration provided
herein, the same number of shares of Common Stock, plus cash in lieu of
fractional Shares, as the holder would have received as a result of such Stock
Split had the holder hereof converted the Note in full immediately prior to such
Stock Split.
(b) If the Company shall merge or consolidate with or into one or
more corporations or partnerships and the Company is the sole surviving
corporation, or the Company shall adopt a plan of recapitalization or
reorganization in which shares of Common Stock are exchanged for or changed into
another class of stock or other security of the Company, the Noteholders shall,
for the same aggregate consideration provided herein, be entitled upon
conversion of the Notes to receive in lieu of the number of shares of Common
Stock (plus cash in lieu of
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<PAGE>
fractional Shares) into which the Notes would otherwise be convertible, the
number of shares of Common Stock or other securities, plus cash in lieu of
fractional Shares, to which such holder would have been entitled pursuant to the
terms of the agreement or plan of merger, consolidation, recapitalization or
reorganization had such holder converted the Notes in full immediately prior to
such merger, consolidation, recapitalization or reorganization.
(c) If the Company is merged or consolidated with or into one or
more corporations or partnerships under circumstances in which the Company is
not the sole surviving corporation, or if the Company sells or otherwise
disposes of substantially all its assets, and in connection with any such
merger, consolidation or sale the holders of Common Stock receive stock or other
securities convertible into equity of the surviving or acquiring corporations or
entities, after the effective date of such merger, consolidation or sale, as the
case may be, the Noteholders shall, for the same aggregate consideration
provided herein, be entitled upon conversion of the Notes to receive, in lieu of
shares of Common Stock (plus cash in lieu of fractional Shares) into which the
Notes would otherwise be convertible, shares of such stock or other securities
(plus cash in lieu of fractional Shares) as the Noteholders would have received
pursuant to the terms of the merger, consolidation or sale had such Noteholder
converted the Notes in full immediately prior to such merger, consolidation or
sale. In the event of any consolidation, merger or sale as described in this
SECTION 4.03(C), provision shall be made in connection therewith for the
surviving or acquiring corporations or partnerships to assume all obligations
and duties of the Company hereunder with all such changes and adjustments in the
number or kind of shares of Common Stock or other securities or property or in
the Conversion Price as shall be required in connection with this SECTION 4.03.
(d) If the Company shall declare or pay any dividend, or make any
distribution, with respect to its Common Stock that is payable in preferred
stock or other securities, assets or rights to subscribe for or purchase any
security of the Company other than Common Stock, or that is payable in debt
securities of the Company convertible into Common Stock, preferred stock or
other equity securities of the Company, the holder hereof shall, for the same
aggregate consideration provided herein, be entitled to receive upon conversion
of the Notes in lieu of the shares of Common Stock (plus cash in lieu of
fractional Shares) into which the Notes would otherwise be convertible, the same
amount of Common Stock, preferred stock and other securities, assets or rights
to subscribe for or purchase any security (plus cash in lieu of fractional
Shares) as the holder would have received had the holder converted the Notes in
full immediately prior to any such dividend or distribution.
(e) If the Company (other than in connection with a sale
described in SECTION 4.03(C)) proposes to liquidate and dissolve, the Company
shall give notice thereof as provided in SECTION 4.05(E) hereof and shall permit
the Noteholders to convert any unconverted portion hereof at any time, if such
holder should elect to do so, and participate as a stockholder of the Company in
connection with such dissolution.
(f) If the Conversion Price shall fall below the par value of the
Common Stock, the Company agrees to use its best efforts to appropriately adjust
the par value of the Common Stock to an amount less than or equal to the
Conversion Price.
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(g) In order to protect each Noteholder against the dilution of
its interest in the Company, if and whenever on or after the date hereof the
Company issues or sells any Common Stock (except any Permitted Issuance) for a
consideration per share which is less than the initial Conversion Price (a
"SPECIAL ISSUANCE"), then forthwith upon such issuance or sale the number of
Shares (as defined in SECTION 4.03), as determined immediately prior to such
Special Issuance, will be increased to equal the New Conversion Shares (as
defined below), and the Conversion Price will be equal to the New Conversion
Price, each as determined pursuant to the following formulas:
NCS = S x ((OS + SI) / (OS + SI/OCP)
NCP = (OCP x S) / NCS
where:
S = the Shares (as defined in SECTION 4.03), as determined immediately
prior to such Special Issuance
OS = the number of shares of Common Stock outstanding immediately prior
to such Special Issuance on a fully diluted basis without giving
effect to such Special Issuance
NCS = the number of Shares (as defined in SECTION 4.03), as determined
immediately following the adjustment made by reason of this SECTION
4.03(G) ("NEW CONVERSION SHARES")
SI = the number of shares of Common Stock issued or sold (or deemed
issued or sold) in such Special Issuance
SI/OCP = the number of shares of Common Stock that the aggregate cash
consideration actually received by the Company for SI would purchase
at OCP
NCP = the "NEW CONVERSION PRICE"
OCP = the Conversion Price in effect immediately prior to such Special
Issuance
"PERMITTED ISSUANCES" means any and all issuances of shares of Common Stock
pursuant to (x) any stock option, stock purchase or other employee or director
benefit plan of the Company and (y) any warrant or other right to purchase
Common Stock, in each case specifically disclosed on SCHEDULE 4.03 attached
hereto.
(h) Whenever the Conversion Rate or the Conversion Price is
adjusted as provided in any provision of this SECTION 4.03:
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(i) the Company shall compute the adjusted Conversion Rate and
Conversion Price, as applicable, in accordance with this SECTION
4.03 and shall prepare a certificate signed by the Senior
Financial Officer of the Company setting forth the adjusted
Conversion Rate and Conversion Price, as applicable, and showing
in reasonable detail the facts upon which such adjustment is
based, and such certificate shall forthwith be filed with the
Company or its designee; and
(ii) a notice stating that the Conversion Rate and the Conversion
Price, as applicable, has been adjusted and setting forth the
adjusted Conversion Rate and the Conversion Price, as applicable,
shall forthwith be required, and as soon as practicable after it
is prepared, such notice shall be mailed by the Company to the
holder of record of each Note at such holder's address specified
pursuant to the Note Agreement.
(i) If at any time, as a result of any adjustment to the
Conversion Rate made pursuant to this SECTION 4.03, the holder of any Note
thereafter surrendered for conversion shall become entitled to receive any
shares of the Company other than shares of the Company's Common Stock or to
receive any other securities, the number of such other shares or securities so
receivable upon conversion of such Note shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions contained in this SECTION 4.03 with respect to the Common Stock.
(j) All of the events requiring adjustments pursuant to the Notes
are subject to such prohibitions, limitations, restrictions and other provisions
as set forth in this Agreement or the other Transaction Documents, as any of
same may be amended from time to time.
SECTION 4.04. CASH IN LIEU OF FRACTIONAL SHARES. No fractional
shares or scrip representing fractional shares of Common Stock shall be issued
upon the conversion of the Notes. Instead of any fractional share of Common
Stock that would otherwise be issuable upon conversion of the Notes, the Company
will pay a cash adjustment in respect of such fractional interest in an amount
equal to the same fraction of the market price per share of Common Stock (as
determined by the Board of Directors or in any manner prescribed by the Board of
Directors, which shall be the last reported sale price of the Common Stock on
the principal securities exchange or trading market on which the Common Stock is
then traded) at the close of business on the Business Day prior to the day of
surrender of shares for conversion or, in the case of conversion effected
pursuant to SECTION 4.01(B) hereof, the Business Day prior to the effective date
of such conversion.
SECTION 4.05. ADDITIONAL COMPANY OBLIGATIONS. (a) The Company
shall at all times reserve and keep available, out of its authorized and
unissued stock, solely for the purpose of effecting the conversion of the Notes,
such number of shares of its Common Stock free of preemptive rights as shall
from time to time be sufficient to effect the conversion of all Notes from time
to time outstanding. The Company shall from time to time, in accordance with the
laws of the State of Nevada, increase the authorized number of shares of Common
Stock if at any time the
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number of shares of Common Stock authorized but unissued shall not be sufficient
to permit the conversion of all the then outstanding Notes into Common Stock at
the Conversion Rate then in effect.
(b) If any shares of Common Stock required to be reserved for
purposes of conversion of the Notes require registration with or approval of any
governmental authority under any federal or state law before such shares may be
issued upon conversion, the Company will in good faith and as expeditiously as
possible endeavor to cause such shares to be duly registered or approved, as the
case may be. If the Common Stock is then traded on any other national securities
exchange or trading market, the Company will, if permitted by the rules of such
exchange or trading market, list and keep listed on such exchange or approved
for trading on such trading market, subject to official notice of issuance, all
shares of Common Stock issuable upon conversion of the Notes.
(c) The Company will pay any and all issue or other taxes that
may be payable in respect of any issue or delivery of shares of Common Stock on
conversion of the Notes. The Company shall not, however, be required to pay any
tax that may be payable in respect of any transfer involved in the issue or
delivery of Common Stock (or other securities or assets) in any name or names
other than that in which the Notes were registered, and no such issue or
delivery shall be made unless and until the Person requesting such issue has
paid to the Company or its designee the amount of such tax or has represented,
to the reasonable satisfaction of the Company, that such tax has been paid.
(d) Before taking any action that would cause an adjustment
increasing the Conversion Rate, such that the effective Conversion Price would
be below the then par or stated value of the Common Stock, the Company will take
such corporate action as may, in the opinion of counsel to the Company, be
necessary in order that the Company may validly and legally issue fully paid and
non-assessable shares of Common Stock at the Conversion Rate as so adjusted.
(e) In case the Company proposes, to the extent then permitted by
this Agreement and the other Transaction Documents,
(i) to pay any stock dividend upon the Common Stock or
make any distribution (other than ordinary cash dividends payable
out of earnings) or offer any subscription or other rights to the
holders of Common Stock, or
(ii) to effect any capital reorganization or
reclassification of capital stock of the Company, or
(iii) to effect the consolidation, merger, sale of all or
substantially all of the assets, liquidation, dissolution or
winding up of the Company, or
(iv) to take any other action that would result in any
adjustment pursuant to SECTION 4.03 in the number of Shares or
the Conversion Price,
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then the Company shall cause notice of any such intended action to be given to
the Noteholders not less than 30 nor more than 60 days prior to the date on
which the transfer books of the Company shall close or a record be taken for
such dividend or distribution, or the date when such capital reorganization,
reclassification, consolidation, merger, sale, liquidation, dissolution or
winding up shall be effected, or the date of such other event, as the case may
be.
SECTION 4.06. CONVERSION RATE INCREASE. (a) The Company from time
to time may increase the Conversion Rate by any amount for any period of time if
the period is at least 20 days and if the increase is irrevocable during the
period. Whenever the Conversion Rate is so increased, the Company shall mail to
Noteholders a notice of the increase at least 30 days before the date the
increased Conversion Rate takes effect, and such notice shall state the
increased Conversion Rate and the period it will be in effect.
(b) The Company may make such increases in the Conversion Rate,
in addition to those required or allowed by the Notes, as shall be determined by
it, as evidenced by a resolution of the Company's Board of Directors, to be
advisable in order to avoid or diminish any income tax to holders of Common
Stock resulting from any dividend or distribution of stock or issuance of rights
or warrants to purchase or subscribe for stock or from any event treated as such
for income tax purposes.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Noteholders that:
SECTION 5.01 ORGANIZATION; POWER AND AUTHORITY. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada, and is duly qualified as a foreign corporation and is in
good standing in each jurisdiction in which such qualification is required by
law, other than those jurisdictions as to which the failure to be so qualified
or in good standing could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. The Company has the corporate power
and authority to own or hold under lease the properties it purports to own or
hold under lease, to transact the business it transacts and proposes to
transact, to execute and deliver this Agreement and the other Transaction
Documents to which it is a party and to perform the provisions hereof and
thereof.
SECTION 5.02 AUTHORIZATION, ETC. This Agreement and the other
Transaction Documents to which the Company is a party have been duly authorized
by all necessary corporate action on the part of the Company, and this Agreement
constitutes, and upon execution and delivery thereof each such other Transaction
Document will constitute, a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by (a) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (b) general
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principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
SECTION 5.03 COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC. The
execution, delivery and performance by the Company of this Agreement and the
other Transaction Documents to which it is a party will not (a) contravene,
result in any breach of, or constitute a default under, or result in the
creation of any Lien in respect of any property of the Company or any Subsidiary
of the Company under, any indenture, mortgage, deed of trust, loan, purchase or
credit agreement, lease, corporate charter or by-laws, or any other agreement or
instrument to which the Company or any Subsidiary of the Company is bound or by
which the Company or any Subsidiary of the Company or any of their respective
properties may be bound or affected the consequence of which would have a
Material Adverse Effect, (b) conflict with or result in a breach of any of the
terms, conditions or provisions of any order, judgment, decree, or ruling of any
court, arbitrator or Governmental Authority in respect of a proceeding to which
the Company or any Subsidiary of the Company is a party or (c) to the knowledge
of the Company, violate any provision of any statute or other rule or regulation
of any Governmental Authority applicable to the Company or any Subsidiary of the
Company.
SECTION 5.04 GOVERNMENTAL AUTHORIZATIONS, ETC. No consent,
approval or authorization of, or registration, filing or declaration with, any
Governmental Authority is required in connection with the execution, delivery or
performance by the Company of this Agreement or the other Transaction Documents
to which it is a party.
SECTION 5.05 SUBSIDIARIES. SCHEDULE 5.05 contains complete and
correct lists of the Company's Subsidiaries, showing, as to each Subsidiary, the
correct name thereof, the jurisdiction of its organization, and the percentage
of shares of each class of its capital stock or similar equity interests
outstanding owned by the Company and each other Subsidiary. No Subsidiary is a
party to, or otherwise subject to any legal restriction or any agreement (other
than this Agreement, the Credit Agreement and customary limitations imposed by
corporate law statutes) restricting the ability of such Subsidiary to pay
dividends out of profits or make any other similar distributions of profits to
the Company or any of its Subsidiaries that owns outstanding shares of capital
stock or similar equity interests of such Subsidiary.
SECTION 5.06 FINANCIAL STATEMENTS. The consolidated balance sheet
of the Company and its Subsidiaries as at September 30, 1997, and the related
consolidated statements of income, retained earnings and cash flows for the
9-month period then ended, copies of which the Company has delivered to each
Noteholder, fairly present in all material respects the consolidated financial
position of the Company and its Subsidiaries as of such date and the
consolidated results of their operations and cash flows for such period and have
been prepared in accordance with GAAP consistently applied throughout the
periods involved except as set forth in the notes thereto (subject, in the case
of any interim financial statements, to normal year-end adjustments).
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SECTION 5.07 DISCLOSURE. This Agreement, the documents,
certificates or other writings delivered to the Noteholders by or on behalf of
the Company in connection with the transactions contemplated hereby and the
financial statements referred to in SECTION 5.06, taken as a whole, do not
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading. Except as
disclosed in the financial statements referred to in SECTION 5.06, since
September 30, 1997, there has been no change in the financial condition,
operations, business, properties or prospects of the Company or any Subsidiary
except changes that individually or in the aggregate could not reasonably be
expected to have a Material Adverse Effect. There is no fact known to the
Company that could reasonably be expected to have a Material Adverse Effect that
has not been set forth herein or in the other documents, certificates and other
writings (including the financial statements referred to in SECTION 5.06)
delivered to the Noteholders by or on behalf of the Company specifically for use
in connection with the transactions contemplated hereby.
SECTION 5.08 LITIGATION. Except as disclosed in SCHEDULE 5.08,
there are no actions, suits or proceedings pending of which the Company or any
of its Subsidiaries has received notice or, to the knowledge of the Company,
threatened against or affecting the Company or any Subsidiary of the Company or
any property of the Company or any Subsidiary in any court or before any
arbitrator of any kind or before or by any Governmental Authority that,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
SECTION 5.09 OBSERVANCE OF AGREEMENTS, STATUTES AND ORDERS.
Neither the Company nor any Subsidiary of the Company is in default under any
term of any agreement or instrument to which it is a party or by which it is
bound, or any order, judgment, decree or ruling of any court, arbitrator or
Governmental Authority arising out of any proceeding to which it is a party or
of which it has notice or is in violation of any applicable law, ordinance, rule
or regulation (including without limitation Environmental Laws) of any
Governmental Authority, which default or violation, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
SECTION 5.10 TAXES. The Company and its Subsidiaries have filed
all tax returns that are required to have been filed in any jurisdiction, and
have paid all taxes shown to be due and payable on such returns and all other
taxes and assessments levied upon them or their properties, assets, income or
franchises, to the extent such taxes and assessments have become due and payable
and before they have become delinquent, except for any taxes and assessments (i)
the amount of which is not individually or in the aggregate Material or (ii) the
amount, applicability or validity of which is currently being contested in good
faith by appropriate proceedings and with respect to which the Company or a
Subsidiary, as the case may be, has established adequate reserves in accordance
with GAAP. The Company knows of no basis for any other tax or assessment that,
if imposed, could reasonably be expected to have a Material Adverse Effect. The
charges, accruals and reserves on the books of the Company and its Subsidiaries
in respect of Federal, state or other taxes for all fiscal periods are adequate
in all material respects.
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SECTION 5.11 TITLE TO PROPERTY. The Company and its Subsidiaries
have good and sufficient title to their respective properties that individually
or in the aggregate are Material, including all such properties reflected in the
most recent audited balance sheet referred to in SECTION 5.06 or purported to
have been acquired by the Company or any Subsidiary after said date, in each
case free and clear of Liens other than those permitted by this Agreement. All
leases that individually or in the aggregate are Material are valid and
subsisting and are in full force and effect in all material respects.
SECTION 5.12 LICENSES, PERMITS, ETC. The Company and its
Subsidiaries own or possess all licenses, permits, franchises, authorizations,
patents, copyrights, service marks, trademarks and trade names, or rights
thereto, that individually or in the aggregate are Material, without known
conflict with the rights of others. To the best knowledge of the Company, (a) no
product of the Company infringes in any material respect any license, permit,
franchise, authorization, patent, copyright, service mark, trademark, trade name
or other right owned by any other Person; and (b) there is no Material violation
by any Person of any right of the Company or any of its Subsidiaries with
respect to any patent, copyright, service mark, trademark, trade name or other
right owned or used by the Company or any of its Subsidiaries.
SECTION 5.13 COMPLIANCE WITH ERISA.
(a) The Company and each ERISA Affiliate have operated and
administered each Plan, if any, in compliance with all applicable laws except
for such instances of noncompliance as have not resulted in and could not
reasonably be expected to result in a Material Adverse Effect. Neither the
Company nor any ERISA Affiliate has incurred any liability pursuant to Title I
or IV or ERISA or the penalty or excise tax provisions of the Code relating to
employee benefit plans (as defined in Section 3 of ERISA), and no event,
transaction or condition has occurred or exists that could reasonably be
expected to result in the incurrence of any such liability by the Company or any
ERISA Affiliate, or in the imposition of any Lien on any of the rights,
properties or assets of the Company or any ERISA Affiliate, in either case
pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions
or to Section 401(a)(29) or 412 of the Code, other than such liabilities or
Liens as would not be individually or in the aggregate Material.
(b) The present value of the aggregate benefit liabilities under
each of the Plans (other than Multiemployer Plans), determined as of the end of
such Plan's most recently ended plan year on the basis of the actuarial
assumptions specified for funding purposes in such Plan's most recent actuarial
valuation report, did not exceed the aggregate current value of the assets of
such Plan allocable to such benefit liabilities. The term "BENEFIT LIABILITIES"
has the meaning specified in section 4001 of ERISA and the terms "CURRENT VALUE"
and "PRESENT VALUE" have the meaning specified in section 3 of ERISA.
(c) The Company and its ERISA Affiliates have not incurred
withdrawal liabilities (and are not subject to contingent withdrawal
liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer
Plans that individually or in the aggregate are Material.
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(d) The expected post-retirement benefit obligation (determined
as of the last day of the Company's most recently ended fiscal year in
accordance with Financial Accounting Standards Board Statement No. 106, without
regard to liabilities attributable to continuation coverage mandated by section
4980B of the Code) of the Company and its Subsidiaries is not Material.
SECTION 5.14 USE OF PROCEEDS; MARGIN REGULATIONS. The Company
will apply $6,050,000 of the proceeds of the sale of the Notes to repay the
indebtedness described on SCHEDULE 5.14 and the remainder of the proceeds of the
sale of the Notes for working capital purposes. No part of the proceeds from the
sale of the Notes hereunder will be used, directly or indirectly, for the
purpose of buying or carrying any margin stock within the meaning of Regulation
G of the Board of Governors of the Federal Reserve System (12 CFR 207), or for
the purpose of buying or carrying or trading in any securities under such
circumstances as to involve the Company in a violation of Regulation X of said
Board (12 CFR 224) or to involve any broker or dealer in a violation of
Regulation T of said Board (12 CFR 220).
SECTION 5.15 STATUS UNDER CERTAIN STATUTES. Neither the Company
nor any Subsidiary is subject to regulation under the Investment Company Act of
1940, as amended, the Public Utility Holding Company Act of 1935, as amended,
the Interstate Commerce Act, as amended, or the Federal Power Act, as amended.
SECTION 5.16 CAPITALIZATION. After giving effect to the Merger
and the transactions related thereto, the authorized capital stock of the
Company consists solely of 50,000,000 shares of $.01 par common stock, of which
36,523,638 shares are issued and outstanding and 10,000,000 shares of $.01 par
Series A preferred stock, of which no shares are issued and outstanding.
SECTION 5.17 SECURITIES MATTERS. Other than offers to Accredited
Investors, neither the Company nor anyone acting on its behalf has directly or
indirectly offered the Notes or any part thereof or any similar securities for
sale to, or solicited any offer to buy any of the same from, or otherwise
approached or negotiated in respect thereof with, anyone other than the
Noteholders named in SCHEDULE A. Neither the Company nor anyone acting on its
behalf has taken or will take any action which would subject the issuance and
sale of the Notes to the registration and prospectus delivery provisions of the
Securities Act.
SECTION 5.18 ENVIRONMENTAL MATTERS. Neither the Company nor any
Subsidiary has knowledge of any claim or has received any notice of any claim,
and no proceeding has been instituted of which the Company has notice raising
any claim against the Company or any of its Subsidiaries or any of their
respective real properties now or formerly owned, leased or operated by any of
them or other assets, alleging any damage to the environment or violation of any
Environmental Laws, except, in each case, such as could not reasonably be
expected to result in a Material Adverse Effect. Except as otherwise disclosed
to the Noteholders in writing, (a) neither the Company nor any Subsidiary has
knowledge of any facts which would give rise to any claim, public
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or private, of violation of Environmental Laws or damage to the environment
emanating from, occurring on or in any way related to real properties now or
formerly owned, leased or operated by any of them or to other assets or their
use, except, in each case, such as could not reasonably be expected to result in
a Material Adverse Effect; (b) neither the Company nor any of its Subsidiaries
has stored any Hazardous Materials on real properties now or formerly owned,
leased or operated by any of them and has not disposed of any Hazardous
Materials in a manner contrary to any Environmental Laws in each case in any
manner that could reasonably be expected to result in a Material Adverse Effect;
and (c) all buildings on all real properties now owned, leased or operated by
the Company or any of its Subsidiaries are in compliance with applicable
Environmental Laws, except where failure to comply could not reasonably be
expected to result in a Material Adverse Effect.
ARTICLE VI
REPRESENTATIONS OF THE PURCHASER
SECTION 6.01 PURCHASE FOR INVESTMENT. Each Noteholder represents
that it is acquiring its Notes for its own account or for one of its separate
accounts (or for the account of trusts for which it is trustee) for investment
with no intention of presently distributing or reselling the same, subject,
nevertheless, to its right to dispose of, in compliance with applicable
securities laws, its respective Notes, or any part of any thereof held by it, if
at some future time in its sole discretion it deems it advisable so to do. Each
Noteholder hereby agrees that it will not sell, transfer or otherwise dispose of
its Notes in violation of the Securities Act.
SECTION 6.02 STATUS; NO REGISTRATION. Each Noteholder represents
that it is an Accredited Investor. Each Noteholder acknowledges that the Notes
have not been registered under the Securities Act, and that such Notes must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available.
ARTICLE VII
PAYMENT OF THE NOTES
SECTION 7.01 PLACE OF PAYMENT. The Company will pay all sums
becoming due to any Noteholder under any Transaction Document by the method and
at the address specified for such purpose below such Noteholder's name in
SCHEDULE A, or by such other method or at such other address as such Noteholder
shall have from time to time specified to the Company in writing for such
purpose, without the presentation or surrender of such Note or the making of any
notation thereon, except that upon written request of the Company made
concurrently with or reasonably promptly after payment or prepayment in full of
any Note, the Noteholders shall surrender such Note for cancellation, reasonably
promptly after any such request, to the Company at its principal executive
office.
SECTION 7.02 PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this
Agreement or the Notes to the contrary notwithstanding, any payment of principal
of or interest on any Note that
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is due on a date other than a Business Day shall be made on the next succeeding
Business Day without including the additional days elapsed in the computation of
the interest payable on such next succeeding Business Day.
SECTION 7.03 MANDATORY REPAYMENT OF NOTES. The Notes shall be due
and payable as follows:
(a) commencing on February 1, 1998, on the first day of each
month, a payment equal to all accrued, unpaid interest on the Notes shall be due
and payable;
(b) on the Maturity Date, the entire unpaid principal of the
Notes, together with all accrued, unpaid interest on the Notes, shall be fully
and finally due and payable; and
(c) if a Change of Control shall occur, the entire unpaid
principal of the Notes, together with all accrued, unpaid interest on the Notes
shall be fully and finally due and payable on the date one day after such Change
of Control occurs.
All payments on the Notes shall be applied pro rata, in accordance with the
principal amounts outstanding on the Notes, first to accrued unpaid interest on
the Notes and the remainder, if any, to the principal amount outstanding on the
Notes.
SECTION 7.04 EXTENSION OF MATURITY DATE. If, on December 31,
1999, (a) Cash Availability is less than the sum of the aggregate outstanding
principal of and accrued, unpaid interest due on the Notes, (b) the Average
Price of the Company's Common Stock on such date is equal to or less than 60% of
the Conversion Price, and (c) the Noteholders elect not to convert the aggregate
outstanding principal of and interest on the Notes into the Company's Common
Stock on such date in accordance with ARTICLE IV, then the Maturity Date shall
be extended to February 1, 2001.
SECTION 7.05 NO OPTIONAL PREPAYMENTS OF NOTES. The Company shall
not have the right to prepay the Notes, in whole or in part, prior to the
Maturity Date.
SECTION 7.06 PURCHASE OF NOTES. The Company will not, and will
not permit any Affiliate to, purchase, redeem, prepay or otherwise acquire,
directly or indirectly, any of the outstanding Notes except upon the payment of
the Notes in accordance with the terms of this Agreement and the Notes. The
Company will promptly cancel all Notes acquired by it or any Affiliate pursuant
to any payment, prepayment or purchase of Notes pursuant to any provision of
this Agreement and no Notes may be issued in substitution or exchange for any
such Notes.
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ARTICLE VIII
INFORMATION AS TO COMPANY
SECTION 8.01 FINANCIAL AND BUSINESS INFORMATION. The Company
shall deliver to each of the Noteholders:
(a) Within 45 days after the end of each quarterly fiscal period
in each fiscal year of the Company, copies of (i) a consolidated balance sheet
of the Company and its Subsidiaries as at the end of such quarter, and (ii)
consolidated statements of income, changes in shareholders' equity and cash
flows of the Company and its Subsidiaries, for such quarter and for the portion
of the fiscal year ending with such quarter, setting forth in each case in
comparative form the figures for the corresponding periods in the previous
fiscal year, all in reasonable detail, prepared in accordance with GAAP
applicable to quarterly financial statements generally, and certified by a
Senior Financial Officer as fairly presenting, in all material respects, the
financial position of the companies being reported on and their results of
operations and cash flows, subject to changes resulting from year-end
adjustments.
(b) Within 90 days after the end of each fiscal year of the
Company, copies of (i) a consolidated balance sheet of the Company and its
Subsidiaries, as at the end of such year, and (ii) consolidated statements of
income, changes in shareholders' equity and cash flows of the Company and its
Subsidiaries, for such year, setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable detail, prepared in
accordance with GAAP, and accompanied (A) by an opinion thereon of independent
certified public accountants of recognized national standing, which opinion
shall state that such financial statements present fairly, in all material
respects, the financial position of the companies being reported upon and their
results of operations and cash flows and have been prepared in conformity with
GAAP, and that the examination of such accountants in connection with such
financial statements has been made in accordance with generally accepted
auditing standards, and that such audit provides a reasonable basis for such
opinion in the circumstances, and (B) a certificate of such accountants stating
that they have reviewed this Agreement and stating further whether, in making
their audit, they have become aware of any condition or event that then
constitutes a Default or an Event of Default, and, if they are aware that any
such condition or event then exists, specifying the nature and period of the
existence thereof.
(c) Within 25 days after the end of each calendar month, copies
of (i) a consolidated balance sheet of the Company and its Subsidiaries as at
the end of such month, and (ii) consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its Subsidiaries, for
such month and for the portion of the fiscal year ending with such month,
setting forth in each case in comparative form the figures for the corresponding
periods in the previous fiscal year, all in reasonable detail, prepared in
accordance with GAAP applicable to monthly financial statements generally, and
certified by a Senior Financial Officer as fairly presenting, in all material
respects, the financial position of the companies being reported on and their
results of operations and cash flows, subject to changes resulting from year-end
adjustments.
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(d) By March 1 each year commencing March 1, 1998, the Company
shall furnish to the Noteholders a Reserve Report dated as of the immediately
preceding December 31. Each Reserve Report shall be prepared by certified
independent petroleum engineers acceptable to the Noteholders. Each such Reserve
Report shall be in form and substance satisfactory to the Noteholders and shall
set forth, as of the immediately preceding December 31: (i) the Proved Reserves
attributable to the Company's and its Subsidiaries' Oil and Gas Properties
together with a projection of the rate of production and future net income,
taxes, operating expenses and capital expenditures with respect thereto as of
such date, based upon pricing and escalation assumptions acceptable to the
Noteholders and (ii) such other information as the Noteholders may reasonably
request.
(e) Promptly upon their becoming available, one copy of (i) each
financial statement, report, notice or proxy statement sent by the Company or
any Subsidiary of the Company to public securities holders generally, and (ii)
each regular or periodic report, each registration statement (without exhibits
except as expressly requested by such holder), and each prospectus and all
amendments thereto filed by the Company or any Subsidiary of the Company with
the Securities and Exchange Commission and of all press releases and other
statements made available generally by the Company or any Subsidiary of the
Company to the public concerning developments that are Material.
(f) Promptly, and in any event within five Business Days after a
Responsible Officer becoming aware of the existence of any Default or Event of
Default or that any Person has given any notice or taken any action with respect
to a claimed default hereunder or that any Person has given any notice or taken
any action with respect to a claimed default of the type referred to in SECTION
11.01, a written notice specifying the nature and period of existence thereof
and what action the Company is taking or proposes to take with respect thereto.
(g) Promptly, and in any event within five Business Days after a
Responsible Officer becoming aware of any of the following, a written notice
setting forth the nature thereof and the action, if any, that the Company or an
ERISA Affiliate proposes to take with respect thereto: (i) with respect to any
Plan, any reportable event, as defined in section 4043(b) of ERISA and the
regulations thereunder, for which notice thereof has not been waived pursuant to
such regulations as in effect on the date hereof; or (ii) the taking by the PBGC
of steps to institute, or the threatening by the PBGC of the institution of,
proceedings under section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or the receipt by the Company
or any ERISA Affiliate of a notice from a Multiemployer Plan that such action
has been taken by the PBGC with respect to such Multiemployer Plan; or (iii) any
event, transaction or condition that could result in the incurrence of any
liability by the Company or any ERISA Affiliate pursuant to Title I or IV of
ERISA or the penalty or excise tax provisions of the Code relating to employee
benefit plans, or in the imposition of any Lien on any of the rights, properties
or assets of the Company or any ERISA Affiliate pursuant to Title I or IV of
ERISA or such penalty or excise tax provisions, if such liability
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or Lien, taken together with any other such liabilities or Liens then existing,
could reasonably be expected to be Material.
(h) Promptly, and in any event within 30 days of receipt thereof,
copies of any notice to the Company or any Subsidiary of the Company from any
Federal or state Governmental Authority relating to any order, ruling, statute
or other law or regulation that could reasonably be expected to have a Material
Adverse Effect.
(i) With reasonable promptness, such other data and information
relating to the business, operations, affairs, financial condition, assets or
properties of the Company or any of its Subsidiaries or relating to the ability
of the Company to perform its obligations hereunder and under the Notes as from
time to time may be reasonably requested by any of Noteholder.
SECTION 8.02 OFFICER'S CERTIFICATE. Each set of financial
statements delivered to a holder of Notes pursuant to SECTION 8.01(A), SECTION
8.01(B) or SECTION 8.01(C) shall be accompanied by a certificate of a Senior
Financial Officer setting forth: (a) the information (including detailed
calculations) required in order to establish whether the Company was in
compliance with the requirements of SECTION 10.03 hereof during the monthly,
quarterly or annual period covered by the statements then being furnished
(including with respect to each such Section, where applicable, the calculations
of the maximum or minimum amount, ratio or percentage, as the case may be,
permissible under the terms of such Sections, and the calculation of the amount,
ratio or percentage then in existence); and (b) a statement that such officer
has reviewed the relevant terms hereof and has made, or caused to be made, under
his or her supervision, a review of the transactions and conditions of the
Company and its Subsidiaries from the beginning of the monthly, quarterly or
annual period covered by the statements then being furnished to the date of the
certificate and that such review shall not have disclosed the existence during
such period of any condition or event that constitutes a Default or an Event of
Default or, if any such condition or event existed or exists (including, without
limitation, any such event or condition resulting from the failure of the
Company or any Subsidiary of the Company to comply with any Environmental Law),
specifying the nature and period of existence thereof and what action the
Company shall have taken or proposes to take with respect thereto.
SECTION 8.03 INSPECTION. The Company shall permit the
representatives of each Noteholder, at the expense of the Company and upon
reasonable prior notice to the Company, to visit and inspect any of the offices
or properties of the Company or any Subsidiary of the Company, to examine all
their respective books of account, records, reports and other papers, to make
copies and extracts therefrom, and to discuss their respective affairs, finances
and accounts with their respective officers and independent public accountants
(and by this provision the Company authorizes said accountants to discuss the
affairs, finances and accounts of the Company and its Subsidiaries), all at such
times and as often as may be requested.
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ARTICLE IX
AFFIRMATIVE COVENANTS
The Company covenants that so long as any of the Notes are
outstanding:
SECTION 9.01 COMPLIANCE WITH LAW; CONTRACTS. The Company will,
and will cause each of its Subsidiaries to, comply with all laws, ordinances or
governmental rules or regulations to which each of them is subject, including,
without limitation, Environmental Laws, and will obtain and maintain in effect
all licenses, certificates, permits, franchises and other governmental
authorizations necessary to the ownership of their respective properties or to
the conduct of their respective businesses, in each case to the extent necessary
to ensure that non-compliance with such laws, ordinances or governmental rules
or regulations or failures to obtain or maintain in effect such licenses,
certificates, permits, franchises and other governmental authorizations could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. The Company will, and will cause each of its Subsidiaries to,
comply with, and perform their respective obligations under, each contract or
agreement to which each is a party, unless, in the good faith judgment of the
Company, the failure to so comply or perform could not reasonably be expected to
have a Material Adverse Effect.
SECTION 9.02 INSURANCE. The Company will, and will cause each of
its Subsidiaries to, maintain, with financially sound and reputable insurers,
insurance with respect to their respective properties and businesses against
such casualties and contingencies, of such types, on such terms and in such
amounts (including deductibles, co-insurance and self-insurance, if adequate
reserves are maintained with respect thereto) as is customary in the case of
entities of established reputations engaged in the same or a similar business
and similarly situated.
SECTION 9.03 MAINTENANCE OF PROPERTIES. The Company will, and
will cause each of its Subsidiaries to, maintain and keep, or cause to be
maintained and kept, their respective properties in good repair, working order
and condition (other than ordinary wear and tear), so that the business carried
on in connection therewith may be properly conducted at all times, provided that
this Section shall not prevent the Company or any Subsidiary of the Company from
discontinuing the operation and the maintenance of any of its properties if such
discontinuance is desirable in the conduct of its business and the Company has
concluded that such discontinuance could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
SECTION 9.04 PAYMENT OF TAXES AND CLAIMS. The Company will, and
will cause each of its Subsidiaries to, file all tax returns required to be
filed in any jurisdiction and to pay and discharge all taxes shown to be due and
payable on such returns and all other taxes, assessments, governmental charges,
or levies imposed on them or any of their properties, assets, income or
franchises, to the extent such taxes and assessments have become due and payable
and before they have become delinquent and all claims for which sums have become
due and payable that have or might become a Lien on properties or assets of the
Company or any Subsidiary of the Company, provided that neither the Company nor
any Subsidiary of the Company need pay any such tax or
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assessment or claims if (i) the amount, applicability or validity thereof is
contested by the Company or such Subsidiary on a timely basis in good faith and
in appropriate proceedings, and the Company or such Subsidiary has established
adequate reserves therefor in accordance with GAAP on the books of the Company
or such Subsidiary or (ii) the nonpayment of all such taxes and assessments in
the aggregate could not reasonably be expected to have a Material Adverse
Effect.
SECTION 9.05 CORPORATE EXISTENCE, ETC. The Company will at all
times preserve and keep in full force and effect its corporate existence. The
Company will at all times preserve and keep in full force and effect the
corporate existence of each of its Subsidiaries and all rights and franchises of
the Company and its Subsidiaries unless, in the good faith judgment of the
Company, the termination of or failure to preserve and keep in full force and
effect such corporate existence, right or franchise could not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect.
ARTICLE X
NEGATIVE COVENANTS
The Company covenants that so long as any of the Notes are
outstanding:
SECTION 10.01 RESTRICTIONS ON INDEBTEDNESS. The Company will not,
and will not permit any Subsidiary of the Company to, create, incur, assume,
Guaranty or permit to exist any Indebtedness, except: (a) the Notes, and (b) the
Senior Debt.
SECTION 10.02 RESTRICTIONS ON LIENS. The Company will not, and
will not permit any Subsidiary of the Company to, create, incur, assume, or
permit to exist any Lien with respect to any asset now owned or hereafter
acquired, except:
(a) Liens securing the Senior Debt;
(b) all contracts, leases, agreements and instruments, and all
defects and irregularities and other matters affecting the Company's or its
Subsidiaries' Oil and Gas Properties which were in existence at the time such
Oil and Gas Properties were originally acquired by such Person and all routine
operational agreements related to such Oil and Gas Properties entered into in
the ordinary course of business, which contracts, agreements, instruments,
defects, irregularities and other matters and routine operational agreements do
not reduce the Company's or its Subsidiaries' net interest in production in its
Oil and Gas Properties below the interests reflected in each Reserve Report
delivered to the Noteholders and do not interfere Materially with the operation,
value or use of such Oil and Gas Properties;
(c) royalties, overriding royalties, reversionary interests,
production payments and similar burdens granted by the Company or its
Subsidiaries with respect to their respective Oil and Gas Properties to the
extent such burdens do not reduce the Company's or its Subsidiaries' net
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interests in production in their respective Oil and Gas Properties below the
interests reflected in each Reserve Report delivered to the Noteholders and do
not operate to deprive the Company or its Subsidiaries of any Material rights in
respect of such Oil and Gas Properties;
(d) encumbrances consisting of easements of ingress or egress
over real property, where the same do not materially detract from the use or
enjoyment of such property by, or the value of such property to, the Company;
(e) Liens for taxes or assessments or governmental charges or
levies, if payment shall not at the time be required to be made in accordance
with the provisions of SECTION 9.04;
(f) any judgment lien, unless the judgment it secures shall not,
within 30 days after the entry thereof, have been discharged or execution
thereof stayed pending appeal, or shall not have been discharged within 30 days
after the expiration of any such stay;
(g) statutory liens of landlords and liens of carriers,
warehousemen, mechanics, laborers and materialmen incurred in the ordinary
course of business for sums not yet due or being contested in good faith; and
(h) Liens (other than liens created by section 4068 of ERISA)
incurred on pledges or deposits made in the ordinary course of business in
connection with workmen's compensation, unemployment insurance, social security
laws or similar legislation.
SECTION 10.03 FINANCIAL COVENANTS. The Company will not permit:
(a) its Current Assets, at any time, to be less than the sum of
(i) its Current Liabilities as at such date, minus (ii) any portion of such
Current Liabilities consisting of amounts owing on the Notes; or
(b) the Total Debt, at any time, to be greater than the Reserve
Value.
SECTION 10.04 RESTRICTED PAYMENTS. The Company will not, directly
or indirectly, make or pay (a) any dividend or other distribution on any shares
of the Company's capital stock (including any dividends payable in shares of
capital stock), or (b) any payment on account of the purchase, redemption,
retirement or acquisition of any shares of the Company's capital stock or any
option, warrant or other right to acquire such shares, except with respect to
the redemption obligations specifically listed on SCHEDULE 10.04 attached
hereto.
SECTION 10.05 MERGER, CONSOLIDATION, ETC. Without the
Noteholders' prior written consent, the Company shall not, and shall not permit
any Subsidiary of the Company to, (a) consolidate with or merge with any other
Person, except that any Subsidiary of the Company may consolidate or merge with
any other Subsidiary of the Company or the Company or (b) convey,
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transfer or lease all or substantially all of its assets in a single transaction
or series of transactions to any Person.
SECTION 10.06 RESTRICTIONS ON ASSET SALES. Without the
Noteholders' prior written consent, the Company will not, and will not permit
any of its Subsidiaries to, sell, transfer, assign, convey or otherwise dispose
of an interest in any asset now owned or hereafter acquired, except (a) sales of
Hydrocarbon production in the ordinary course of business, (b) sales of assets,
the net proceeds of which are used to pay Senior Debt and (c) sales of other
assets that have an aggregate sales price not to exceed $2,000,000.
SECTION 10.07 TRANSACTIONS WITH AFFILIATES. After the date
hereof, the Company will not, and will not permit any of its Subsidiaries to,
enter into directly or indirectly any Material transaction or Material group of
related transactions (including without limitation the purchase, lease, sale or
exchange of properties of any kind or the rendering of any service) with any
Affiliate (other than the Company or another Subsidiary of the Company), except
in the ordinary course and pursuant to the reasonable requirements of the
Company's or such Subsidiary's business and upon fair and reasonable terms no
less favorable to the Company or such Subsidiary than would be obtainable in a
comparable arm's-length transaction with a Person not an Affiliate.
SECTION 10.08 CHANGE IN BUSINESS. The Company will not, and will
not permit any of its Subsidiaries to, directly or indirectly engage to a
material extent in any business other than those in which it is presently
engaged or that are directly related thereto, or discontinue any of its existing
lines of business or substantially alter its method of doing business.
ARTICLE XI
DEFAULT AND REMEDIES
SECTION 11.01 EVENTS OF DEFAULT. An "EVENT OF DEFAULT" shall
exist if any of the following conditions or events shall occur and be
continuing:
(a) the Company defaults in the payment of any principal or
interest on any Note when the same becomes due and payable, whether at maturity,
by declaration or otherwise; or
(b) the Company defaults in the performance of or compliance with
any term contained in ARTICLE X; or
(c) the Company defaults in the performance of or compliance with
any term contained herein (other than those referred to in paragraphs (a) and
(b) of this SECTION 11.01) and such default is not remedied within 30 days after
the earlier of (i) a Responsible Officer obtains actual knowledge of such
default or (ii) the Company receives written notice of such default from any
holder of a Note; or
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(d) any representation or warranty made in writing by or on
behalf of the Company or any Guarantor or by any officer of the Company or any
Guarantor in this Agreement or the other Transaction Documents or in any writing
furnished in connection with the transactions contemplated hereby or thereby
proves to have been false or incorrect in any Material respect on the date as of
which made; or
(e) (i) the Company or any Subsidiary of the Company is in
default (as principal or as guarantor or other surety) in the payment of any
principal of or premium or interest on any Indebtedness that is outstanding in
an aggregate principal amount of at least $100,000 beyond any period of grace
provided with respect thereto, or (ii) the Company or any Subsidiary of the
Company is in default in the performance of or compliance with any term of any
evidence of any Indebtedness in an aggregate outstanding principal amount of at
least $100,000 or of any mortgage, indenture or other agreement relating thereto
or any other condition exists, and as a consequence of such default or condition
such Indebtedness has become, or has been declared (or one or more Persons are
entitled to declare such Indebtedness to be), due and payable before its stated
maturity or before its regularly scheduled dates of payment, or (iii) as a
consequence of the occurrence or continuation of any event or condition (other
than the passage of time or the right of the holder of Indebtedness to convert
such Indebtedness into equity interests), (x) the Company or any Subsidiary of
the Company has become obligated to purchase or repay Indebtedness before its
regular maturity or before its regularly scheduled dates of payment in an
aggregate outstanding principal amount of at least $100,000, or (y) one or more
Persons have the right to require the Company or any Subsidiary of the Company
to purchase or repay such Indebtedness; or
(f) the Company or any Subsidiary of the Company (i) is generally
not paying, or admits in writing its inability to pay, its debts as they become
due, (ii) files, or consents by answer or otherwise to the filing against it of,
a petition for relief or reorganization or arrangement or any other petition in
bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency,
reorganization, moratorium or other similar law of any jurisdiction, (iii) makes
an assignment for the benefit of its creditors, (iv) consents to the appointment
of a custodian, receiver, trustee or other officer with similar powers with
respect to it or with respect to any substantial part of its property, (v) is
adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for
the purpose of any of the foregoing; or
(g) a Governmental Authority enters an order appointing, without
consent by the Company or any of its Subsidiaries, a custodian, receiver,
trustee or other officer with similar powers with respect to it or with respect
to any substantial part of its property, or constituting an order for relief or
approving a petition for relief or reorganization or any other petition in
bankruptcy or for liquidation or to take advantage of any bankruptcy or
insolvency law of any jurisdiction, or ordering the dissolution, winding-up or
liquidation of the Company or any of its Subsidiaries, or any such petition
shall be filed against the Company or any of its Subsidiaries and such petition
shall not be dismissed within 60 days; or
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(h) a final judgment or judgments for the payment of money
aggregating in excess of $250,000 are rendered against one or more of the
Company and its Subsidiaries and such judgments are not, within 60 days after
entry thereof, bonded, discharged or stayed pending appeal, or are not
discharged within 60 days after the expiration of such stay; or
(i) the Company fails to own (both beneficially and of record)
100% of the common stock and other equity securities of the Guarantors; or
(j) if (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a waiver of
such standards or extension of any amortization period is sought or granted
under section 412 of the Code, (ii) a notice of intent to terminate any Plan
shall have been or is reasonably expected to be filed with the PBGC or the PBGC
shall have instituted proceedings under ERISA section 4042 to terminate or
appoint a trustee to administer any Plan or the PBGC shall have notified the
Company or any ERISA Affiliate that a Plan may become a subject to any such
proceedings (iii) the aggregate "amount of unfunded benefit liabilities" (within
the meaning of section 4001(a)(18) of ERISA) under all Plans, determined in
accordance with Title IV of ERISA, shall exceed $25,000, (iv) the Company or any
ERISA Affiliate shall have incurred or is reasonably expected to incur any
liability pursuant to Title I or IV of ERISA or the penalty or excise tax
provisions of the Code relating to employee benefit plans, (v) the Company or
any ERISA Affiliate withdraws from any Multiemployer Plan, (vi) the Company or
any ERISA Affiliate fails to make any contribution due, or payment to, any
employee benefit plan, or (vii) the Company or any Subsidiary establishes or
amends any employee welfare benefit plan that provides post-employment welfare
benefits in a manner that would increase the liability of the Company or any
Subsidiary thereunder, and any such event or events described in clauses (i)
through (vii) above, either individually or together with any other such event
or events, could reasonably be expected to have a Material Adverse Effect.
As used in this Section 11.01(j), the terms "EMPLOYEE BENEFIT PLAN" and
"EMPLOYEE WELFARE BENEFIT PLAN" shall have the respective meanings assigned to
such terms in Section 3 of ERISA.
SECTION 11.02 ACCELERATION.
(a) If an Event of Default with respect to the Company described
in paragraph (f) or (g) of SECTION 11.01 (other than an Event of Default
described in clause (i) of paragraph (f) or described in clause (vi) of
paragraph (f) by virtue of the fact that such clause encompasses clause (i) of
paragraph (f)) has occurred, all the Notes then outstanding shall automatically
become immediately due and payable.
(b) If any other Event of Default has occurred and is continuing,
the Required Holders at any time at its or their option, by notice or notices to
the Company, declare all the Notes then outstanding to be immediately due and
payable.
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(c) If any Event of Default described in paragraph (a) of SECTION
11.01 has occurred and is continuing, any holder or holders of Notes at the time
outstanding affected by such Event of Default may at any time, at its or their
option, by notice or notices to the Company, declare all the Notes held by it or
them to be immediately due and payable.
Upon any Notes becoming due and payable under this SECTION 11.02,
whether automatically or by declaration, such Notes will forthwith mature and
the entire unpaid principal amount of such Notes, plus all accrued and unpaid
interest thereon, shall all be immediately due and payable, in each and every
case without presentment, demand, notice of default, notice of intent to
accelerate, notice of acceleration, protest or further notice, all of which are
hereby waived.
SECTION 11.03 OTHER REMEDIES. If any Default or Event of Default
has occurred and is continuing, and irrespective of whether any Notes have
become or have been declared immediately due and payable under SECTION 11.02,
the holder of any Note at the time outstanding may proceed to protect and
enforce the rights of such holder by an action at law, suit in equity or other
appropriate proceeding, whether for the specific performance of any agreement
contained herein or in any Note, or for an injunction against a violation of any
of the terms hereof or thereof, or in aid of the exercise of any power granted
hereby or thereby or by law or otherwise.
SECTION 11.04 NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC.
No course of dealing and no delay on the part of any holder of any Note in
exercising any right, power or remedy shall operate as a waiver thereof or
otherwise prejudice such holder's rights, powers or remedies. No right, power or
remedy conferred by this Agreement or by any Note upon any holder thereof shall
be exclusive of any other right, power or remedy referred to herein or therein
or now or hereafter available at law, in equity, by statute or otherwise.
Without limiting the obligations of the Company under SECTION 13.01, the Company
will pay to the holder of each Note on demand such further amount as shall be
sufficient to cover all reasonable costs and expenses of such holder incurred in
any enforcement or collection under this ARTICLE XI, including, without
limitation, reasonable attorneys' fees, expenses and disbursements, together
with interest on such amounts at the Default Rate accruing from the date of
demand.
ARTICLE XII
REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES
SECTION 12.01 REGISTRATION OF NOTES. The Company shall keep at
its principal executive office a register for the registration and registration
of transfers of Notes. The name and address of each holder of one or more Notes,
each transfer thereof and the name and address of each transferee of one or more
Notes shall be registered in such register. Prior to due presentment for
registration of transfer, the Person in whose name any Note shall be registered
shall be deemed and treated as the owner and holder thereof for all purposes
hereof, and the Company shall not be affected by any notice or knowledge to the
contrary. The Company shall give to any holder of a Note promptly upon request
therefor, a complete and correct copy of the names and addresses of all
registered holders of Notes.
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SECTION 12.02 TRANSFER AND EXCHANGE OF NOTES. Subject to
compliance with all applicable securities laws, upon surrender of any Note at
the principal executive office of the Company for registration of transfer or
exchange (and in the case of a surrender for registration of transfer, duly
endorsed or accompanied by a written instrument of transfer duly executed by the
registered holder of such Note or his attorney duly authorized in writing and
accompanied by the address for notices of each transferee of such Note or part
thereof), the Company shall execute and deliver, at the Company's expense, one
or more new Notes (as requested by the holder thereof) in exchange therefor, in
an aggregate principal amount equal to the unpaid principal amount of the
surrendered Note. Each such new Note shall be payable to such Person as such
holder may request and shall be substantially in the form specified herein. Each
such new Note shall be dated and bear interest from the date to which interest
shall have been paid on the surrendered Note or dated the date of the
surrendered Note if no interest shall have been paid thereon.
SECTION 12.03 REPLACEMENT OF NOTES. Upon receipt by the Company
of evidence reasonably satisfactory to it of the ownership of and the loss,
theft, destruction or mutilation of any Note, and (a) in the case of loss, theft
or destruction, of indemnity reasonably satisfactory to it (provided that if the
holder of such Note is, or is a nominee for, an original Noteholder, such
Person's own unsecured agreement of indemnity shall be deemed to be
satisfactory), or (b) in the case of mutilation, upon surrender and cancellation
thereof, the Company at its own expense shall execute and deliver, in lieu
thereof, a new Note, dated and bearing interest from the date to which interest
shall have been paid on such lost, stolen, destroyed or mutilated Note or dated
the date of such lost, stolen, destroyed or mutilated Note if no interest shall
have been paid thereon.
ARTICLE XIII
MISCELLANEOUS
SECTION 13.01 TRANSACTION EXPENSES. Whether or not the
transactions contemplated hereby are consummated, the Company will pay all
reasonable costs and expenses (including reasonable attorneys' fees of a special
counsel and any local or other counsel) incurred by the Noteholders or holder of
a Note in connection with such transactions and in connection with any
amendments, waivers or consents under or in respect of this Agreement or the
other Transaction Documents (whether or not such amendment, waiver or consent
becomes effective), including, without limitation: (a) the reasonable costs and
expenses incurred in enforcing or defending (or determining whether or how to
enforce or defend) any rights under this Agreement or the other Transaction
Documents or in responding to any subpoena or other legal process or informal
investigative demand issued in connection with this Agreement or the other
Transaction Documents, or by reason of being a holder of any Note, (b) the
reasonable costs and expenses of negotiation, preparation and execution of this
Agreement and the other Transaction Documents, and (c) the reasonable costs and
expenses, including reasonable financial advisors' fees, incurred in connection
with the insolvency or bankruptcy of the Company or any Subsidiary or in
connection with any work-out or restructuring of the transactions contemplated
hereby and by the Notes. The Company will pay, and will save the Noteholders and
each other holder of a Note harmless from, all claims in respect of any fees,
costs or expenses if any, of brokers and finders (other than those retained by
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the Noteholders). The obligations of the Company under this SECTION 13.01 will
survive the payment or transfer of any Note, the enforcement, amendment or
waiver of any provision of this Agreement or the other Transaction Documents,
and the termination of this Agreement.
SECTION 13.02 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained herein shall survive the execution and
delivery of this Agreement and the Notes, the purchase or transfer by the
Noteholders of any Note or portion thereof or interest therein and the payment
of any Note, and may be relied upon by any subsequent holder of a Note,
regardless of any investigation made at any time by or on behalf of the
Noteholders or any other holder of a Note. All statements contained in any
certificate or other instrument delivered by or on behalf of the Company
pursuant to this Agreement shall be deemed representations and warranties of the
Company under this Agreement.
SECTION 13.03 AMENDMENT AND WAIVER. This Agreement and the Notes
may be amended, and the observance of any term hereof or of the Notes may be
waived (either retroactively or prospectively), with (and only with) the written
consent of the Company and the Required Holders, except that (a) no amendment or
waiver of any of the provisions of ARTICLES II, III OR IV, or any defined term
(as it is used therein), will be effective as to the Noteholders unless
consented to by all of the Noteholders in writing, and (b) no such amendment or
waiver may, without the written consent of the holder of each Note at the time
outstanding affected thereby, (i) subject to the provisions of ARTICLE XI
relating to acceleration or rescission, change the amount or time of any
prepayment or payment of principal of, or reduce the rate or change the time of
payment or method of computation of interest on, the Notes, or (ii) change the
percentage of the principal amount of the Notes the holders of which are
required to consent to any such amendment or waiver. Any amendment or waiver
consented to as provided in this SECTION 13.03 applies equally to all holders of
Notes and is binding upon them and upon each future holder of any Note and upon
the Company without regard to whether such Note has been marked to indicate such
amendment or waiver. No such amendment or waiver will extend to or affect any
obligation, covenant, agreement, Default or Event of Default not expressly
amended or waived or impair any right consequent thereon. No course of dealing
between the Company and the holder of any Note nor any delay in exercising any
rights hereunder or under any Note shall operate as a waiver of any rights of
any holder of such Note.
SECTION 13.04 NOTICES. All notices and communications provided
for hereunder shall be in writing and sent (a) by telecopy if the sender on the
same day sends a confirming copy of such notice by a recognized overnight
delivery service (charges prepaid), or (b) by registered or certified mail with
return receipt requested (postage prepaid), or (c) by a recognized overnight
delivery service (with charges prepaid). Any such notice must be sent: (i) if to
a Noteholder, to its address specified for such communications in SCHEDULE A, or
at such other address as it shall have specified to the Company in writing, (ii)
if to the Company, to the Company at 1600 Smith Street, Suite 4000, Houston,
Texas 77002, Telecopy No.: 713-652-9601, or at such other address as the Company
shall have specified to the holder of each Note in writing. Notices under this
SECTION 13.04 will be deemed given only when actually received.
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SECTION 13.05 LIMITATION ON INTEREST. Each provision in this
Agreement and each other Transaction Document is expressly limited so that in no
event whatsoever shall the amount paid, or otherwise agreed to be paid, by the
Company for the use, forbearance or detention of the money to be loaned under
this Agreement or any other Transaction Document or otherwise (including any
sums paid as required by any covenant or obligation contained herein or in any
other Transaction Document which is for the use, forbearance or detention of
such money), exceed that amount of money which would cause the effective rate of
interest thereon to exceed the Highest Lawful Rate, and all amounts owed under
this Agreement and each other Transaction Document shall be held to be subject
to reduction to the effect that such amounts so paid or agreed to be paid which
are for the use, forbearance or detention of money under this Agreement or such
Transaction Document shall in no event exceed that amount of money which would
cause the effective rate of interest thereon to exceed the Highest Lawful Rate.
Notwithstanding the provisions of SECTION 13.14, to the extent that the Highest
Lawful Rate applicable to a Noteholder is at any time determined by Texas law,
such rate shall be the "indicated rate ceiling" described in Section (a)(1) of
Article 1.04 of Chapter 1, Title 79, of the Revised Civil Statutes of Texas,
1925, as amended; PROVIDED, HOWEVER, to the extent permitted by such Article,
the Noteholders from time to time by notice to Company may revise the aforesaid
election of such interest rate ceiling as such ceiling affects the then-current
or future balances of the loans outstanding under the Notes. Notwithstanding any
provision in this Agreement or any other Transaction Document to the contrary,
if the maturity of the Notes or the obligations in respect of the other
Transaction Documents are accelerated for any reason, or in the event of
prepayment of all or any portion of the Notes or the obligations in respect of
the other Transaction Documents by the Company or in any other event, earned
interest on the Notes and such other obligations of the Company may never exceed
the maximum amount permitted by applicable law, and any unearned interest
otherwise payable under the Notes or the obligations in respect of the other
Transaction Documents that is in excess of the maximum amount permitted by
applicable law shall be canceled automatically as of the date of such
acceleration or prepayment or other such event and, if theretofore paid, shall
be credited on the principal of the Notes or, if the principal of the Notes has
been paid in full, refunded to the Company. In determining whether or not the
interest paid or payable, under any specific contingency, exceeds the Highest
Lawful Rate, the Company and the Noteholders shall, to the maximum extent
permitted by applicable law, amortize, prorate, allocate and spread, in equal
parts during the period of the actual term of this Agreement, all interest at
any time contracted for, charged, received or reserved in connection with the
Transaction Documents.
SECTION 13.06 INDEMNIFICATION. The Company agrees to indemnify,
defend and hold each Noteholder, their partners and their respective officers,
employees, agents, directors, partners, affiliates and shareholders
(collectively, "INDEMNIFIED PERSONS") harmless from and against any and all
loss, liability, damage, judgment, claim, deficiency or reasonable expense
(including interest, penalties, reasonable attorneys' fees and amounts paid in
settlement) incurred by or asserted against any Indemnified Person arising out
of, in any way connected with, or as a result of (a) the execution and delivery
of this Agreement and the other documents contemplated hereby, the performance
by the parties hereto and thereto of their respective obligations hereunder and
thereunder and consummation of the transactions contemplated hereby and thereby,
(b) the
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<PAGE>
actual or proposed use of the proceeds of the loans contemplated hereby, (c) any
violation by the Company or any of its Subsidiaries of any requirement of law,
including but not limited to Environmental Laws, (d) any Noteholder being deemed
an operator of any real or personal property of the Company in circumstances in
which no Noteholder is generally operating or generally exercising control over
such property, to the extent such losses, liabilities, damages, judgments,
claims, deficiencies or expenses arise out of or result from any Hazardous
Materials located in, on or under such property or (e) any claim, litigation,
investigation or proceeding relating to any of the foregoing, whether or not any
Indemnified Person is a party thereto; PROVIDED that such indemnity shall not
apply to any such losses, claims, damages, liabilities or related expenses that
are determined by a court of competent jurisdiction by final and nonappealable
judgment to have resulted from the gross negligence or willful misconduct of, or
willful violation of the Transaction Documents by, such Indemnified Person.
WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION
DOCUMENTS, IT IS THE EXPRESS INTENTION OF THE PARTIES THAT EACH INDEMNIFIED
PERSON SHALL BE INDEMNIFIED AND HELD HARMLESS AGAINST ANY AND ALL LOSSES,
LIABILITIES, CLAIMS, DEFICIENCIES, JUDGMENTS AND REASONABLE EXPENSES ARISING OUT
OF OR RESULTING FROM THE ORDINARY NEGLIGENCE (WHETHER SOLE OR CONTRIBUTORY) OF
SUCH INDEMNIFIED PERSON. Each Indemnified Person will attempt to consult with
the Company prior to entering into any settlement of any lawsuit or proceeding
that could give rise to a claim for indemnity under this SECTION 13.06, although
nothing herein shall give the Company the right to direct, or control any such
settlement negotiations or any related lawsuit or proceeding on behalf of such
Indemnified Party. The obligations of the Company under this SECTION 13.06 shall
survive the termination of this Agreement and repayment of the Notes.
SECTION 13.07 SUCCESSORS AND ASSIGNS. All covenants and other
agreements contained in this Agreement by or on behalf of any of the parties
hereto bind and inure to the benefit of their respective successors and assigns
(including, without limitation, any subsequent holder of a Note) whether so
expressed or not.
SECTION 13.08 SEVERABILITY. Any provision of this Agreement that
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall (to the full
extent permitted by law) not invalidate or render unenforceable such provision
in any other jurisdiction.
SECTION 13.09 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies hereof, each signed by less than all, but together signed by
all, of the parties hereto.
SECTION 13.10 CONFIDENTIALITY. In connection with the negotiation
and administration of this Agreement and the other Transaction Documents, the
Company has furnished
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<PAGE>
and will from time to time furnish the Noteholders certain written information
(such information, other than any such information which (i) was publicly
available, or otherwise known to the Noteholders, at the time of disclosure,
(ii) subsequently becomes publicly available other than through any act or
omission by the Noteholders or (iii) otherwise subsequently becomes known to the
Noteholders, being hereinafter referred to as "CONFIDENTIAL INFORMATION"). The
Noteholders will maintain the confidentiality of any Confidential Information in
accordance with such procedures as the Noteholders apply generally to
information of that nature. Subject to the prohibitions and restrictions imposed
on the Noteholders with respect to the Confidential Information under applicable
securities laws, it is understood that the foregoing will not restrict the
Noteholders' ability to exchange such Confidential Information with their
current or prospective investors, assignees of the Notes and advisors. It is
further understood that the foregoing will not prohibit the disclosure of any or
all Confidential Information if and to the extent that such disclosure may be
required or requested (w) by a Governmental Authority, (x) pursuant to court
order, subpoena or other legal process or in connection with any pending or
threatened litigation hereunder, (y) otherwise as required by law, or (z) in
order to protect its interests or its rights or remedies hereunder or under the
other Transaction Documents; in the event of any required disclosure under
clause (w), (x), or (y) above, the Noteholders agree to use reasonable efforts
to inform the Company as promptly as practicable.
SECTION 13.11 FINAL AGREEMENT OF THE PARTIES. THIS AGREEMENT AND
THE OTHER TRANSACTION DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
SECTION 13.12 JURY WAIVER. THE COMPANY AND THE NOTEHOLDERS HEREBY
IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
SECTION 13.13 CHOICE OF FORUM. THE COMPANY AND THE NOTEHOLDERS
AGREE THAT ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED HEREBY SHALL BE BROUGHT IN THE FEDERAL OR STATE
COURTS OF HARRIS COUNTY, TEXAS, OTHER THAN LEGAL PROCEEDINGS INSTITUTED BY THE
NOTEHOLDERS WITH RESPECT TO THEIR RIGHTS AND REMEDIES UNDER THE SECURITY
DOCUMENTS, WHICH PROCEEDINGS MAY BE BROUGHT IN THE FEDERAL OR STATE COURTS OF
HARRIS COUNTY, TEXAS OR THE COURTS OF ANY OTHER JURISDICTION DEEMED APPROPRIATE
BY THE NOTEHOLDERS TO ENFORCE THEIR RIGHTS AND REMEDIES UNDER THE SECURITY
DOCUMENTS.
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<PAGE>
SECTION 13.14 GOVERNING LAW. This Agreement and the Notes shall
be construed and enforced in accordance with, and the rights of the parties
shall be governed by, the law of the State of New York excluding choice-of-law
principles of the law of such State that would require the application of the
laws of a jurisdiction other than such State.
SECTION 13.15 SUBORDINATION AGREEMENT. Each Noteholder
acknowledges that its rights hereunder are subject to the rights of the "Senior
Creditors" under that certain Subordination Agreement dated as of even date
herewith by and among Comerica Bank - Texas, as Agent, the Noteholders, the
Company, Cliffwood Oil & Gas Corp., Cliffwood Energy Company and Cliffwood
Production Co.; provided that nothing in such Subordination Agreement shall
limit, release, impair or waive any liability or obligation of the Company under
this Agreement, the Notes or the other Transaction Documents.
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<PAGE>
IN WITNESS WHEREOF, the Company and the Noteholders have caused
this Agreement to be executed by their respective representatives thereunto duly
authorized effective as of the date first above written.
TEXOIL, INC.
By: /s/ RUBEN MEDRANO
Ruben Medrano
President
RIMCO PARTNERS, L.P.,
RIMCO PARTNERS, L.P. II,
RIMCO PARTNERS, L.P. III, AND
RIMCO PARTNERS, L.P. IV
By: RESOURCE INVESTORS MANAGEMENT COMPANY
LIMITED PARTNERSHIP, THEIR GENERAL
PARTNER
By: RIMCO ASSOCIATES, INC.,
ITS GENERAL PARTNER
By: /s/ A. L. JORDEN
A. L. Jorden
Vice President
<PAGE>
SCHEDULE A
INFORMATION RELATING TO NOTEHOLDERS
Principal Amount of
NAME AND ADDRESS OF NOTEHOLDER NOTES TO BE PURCHASED
NOTES
RIMCO PARTNERS, L.P. $4,730,000.00
RIMCO PARTNERS, L.P. II 2,540,000.00
RIMCO PARTNERS, L.P. III 970,000.00
RIMCO PARTNERS, L.P. IV 1,760,000.00
------------
$10,000,000.00
(1) All payments by wire transfer of immediately available funds to:
Fleet Bank, N.Y.
ABA No. 021404465
Account Name: Texoil, Inc.
Automatic Clearing Account
Account No. 939 066 5251
with sufficient information to identify the source and application of
such funds.
(2) All notices of payments and
written confirmations of such
wire transfers:
Resource Investors Management Company
22 Waterville Road
Avon, Connecticut 06001
Attn: Doug Skelley
Telecopy No.: 860-678-9382
Schedule A-1
<PAGE>
(3) All other communications:
Resource Investors Management Company
Suite 6875
600 Travis Street
Houston, Texas 77002
Attn: Gary Milavec
Telecopy No.: 713-247-0730
with a copy to
Resource Investors Management Company
22 Waterville Road
Avon, Connecticut 06001
Attn: David Whitney
Telecopy No.: 860-678-9382
Schedule A-2
<PAGE>
SCHEDULE 4.03
Schedule 4.03
<PAGE>
SCHEDULE 5.05
TEXOIL SUBSIDIARIES
Texoil Company, a Tennessee corporation;
Texoil de Argentina, S.A., a Nevada Corporation;
Cliffwood Oil & Gas Corp.; a Texas corporation; 100% of its issued and
outstanding shares is owned by Texoil, Inc.;
Cliffwood Production Co., a Texas corporation; 100% of its issued and
outstanding shares is owned by Cliffwood Oil & Gas Corp.;
New Cliffwood Company, a Texas corporation; 100% of its issued and outstanding
shares is owned by Cliffwood Oil & Gas Corp.; and
Cliffwood Exploration Company, a Texas corporation; 100% of its issued and
outstanding shares is owned by Cliffwood Oil & Gas Corp.
New Cliffwood Company is the general partner of Cliffwood Acquisition - 1996
Limited Partnership, a Texas limited partnership, and Cliffwood Exploration
Company owns 80% of the issued and outstanding shares of Cliffwood-Blue Moon
Joint Venture, Inc., a Texas corporation.
Schedule 5.05
<PAGE>
SCHEDULE 5.08
LITIGATION
None
Schedule 5.08
<PAGE>
SCHEDULE 5.14
LIST OF INDEBTEDNESS TO BE PAID
1. The sum of $1,000,000 payable to T.W. Hoehn, Jr. pursuant to a promissory
note executed by Texoil, Inc.;
2. The sum of $50,000 payable to Opal Air, Inc. pursuant to a promissory
note executed by Texoil, Inc.; and
3. The sum of $5,000,000 payable to Comerica Bank - Texas pursuant to the
Amended and Restated Credit Agreement dated August 1, 1997 by and among
Cliffwood Oil & Gas Corp., Cliffwood Energy Company, Cliffwood
Production Co., First Union National Bank and Comerica Bank - Texas.
Schedule 5.14
<PAGE>
SCHEDULE 10.04
REDEMPTION OBLIGATIONS
I Common Stock and Warrant Purchase Agreement Between Cliffwood Oil & Gas
Corp. and First Union Capital Partners, Inc. dated May 30, 1997: On the
earlier of (i) May 27, 2001 or (ii) a change of control in the company,
First Union Capital Partners, Inc. ("First Union") will have the right
to require Cliffwood Oil & Gas Corp. ("Cliffwood") to repurchase all or
part of the 333,334 shares and 167,500 warrants purchased by First
Union. This put right will terminate upon (i) a public offering
resulting in gross proceeds of $20,000,000 or more or (ii) a cash
purchase by a third party of over 75% of Cliffwood Common Stock.
II. Common Stock and Warrant Purchase Agreement between Cliffwood Oil & Gas
Corp. and Belleview 1992 Income Fund, L.P., dated August 4, 1997: From
August 4, 1999 until the earlier of (i) August 4, 2002 or (ii) any class
of the securities of Cliffwood become subject to reporting requirements
under the Securities Exchange Act of 1934, Belleview 1992 Income Fund,
L.P. ("Belleview") will have the right to require Cliffwood to
repurchase all or part of the 550,000 shares of Class A Common Stock
purchased by Belleview. If Cliffwood grants put rights to a third party
within 2 years after August 4, 1997, Belleview will have the right to
receive put rights equivalent to those in the new grant.
III. Investment Agreement ("Investment Agreement") by and between Cliffwood
Oil & Gas Corp. ("Cliffwood"), Energy Capital Investment Company PLC
("Energy") and EnCap Equity 1996 Limited Partnership ("EnCap") dated
September 27, 1996; if, Energy and/or EnCap determine in good faith
during the period commencing May 27, 2001 and ending September 27, 2001
that (i) there is no reasonable prospect that a public market for the
Cliffwood Class A Common Stock is likely to develop or (ii) the
Cliffwood Class A Common Stock held by either of them cannot be sold
pursuant to the demand and piggyback registration provisions of the
Investment Agreement at a price per share equal to or greater than a
price per share equal to the net asset value of Cliffwood, as determined
under the Investment Agreement, then Energy and/or EnCap shall have the
right to require Cliffwood to purchase all or a portion of the 75,000
and 225,000 shares of Class A Common Stock purchased by Energy and
EnCap, respectively, at a price per share equal to the net asset value
of Cliffwood, as determined in the Investment Agreement.
Schedule 10.04
<PAGE>
ANNEX A
DEFINED TERMS
"ACCREDITED INVESTOR" means an "accredited investor" as such term
is defined in Regulation D, Rule 501, promulgated by the Securities and Exchange
Commission.
"AFFILIATE" means, at any time, and with respect to any Person,
(a) any other Person that at such time directly or indirectly through one or
more intermediaries Controls, or is Controlled by, or is under common Control
with, such first Person, and (b) any Person beneficially owning or holding,
directly or indirectly, 10% or more of any class of voting or equity interests
of the Company or any Subsidiary or any corporation of which the Company and its
Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly,
10% or more of any class of voting or equity interests. As used in this
definition, "CONTROL" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
Unless the context otherwise clearly requires, any reference to an "Affiliate"
is a reference to an Affiliate of the Company.
"AGREEMENT" means this Amended and Restated Note Purchase
Agreement, as amended, modified or restated from time to time.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a
day on which commercial banks in Houston, Texas or New York, New York are
required or authorized to be closed.
"CAPITAL LEASE" means, at any time, a lease with respect to which
the lessee is required concurrently to recognize the acquisition of an asset and
the incurrence of a liability in accordance with GAAP.
"CASH AVAILABILITY" means, as of any date, the sum (without
duplication) of (a) the aggregate amount of the Company's and its Subsidiaries'
cash, cash equivalents and 80% of the borrowing base in effect as of such date
under the Credit Agreement (or such larger percentage of the borrowing base in
effect as of such date under the Credit Agreement agreed to by the holders of
the Senior Debt in the absence of capital expenditure requirements necessary to
maintain or enhance production from the Company's and its Subsidiaries' Oil and
Gas Properties), plus (b) the aggregate amount of the Company's and its
Subsidiaries' accounts receivable, minus (c) the aggregate amount of the
Company's and its Subsidiaries' accounts payable and accrued current
liabilities, minus (d) an amount equal to the projected operating expenses for
the Company's and its Subsidiaries' Oil and Gas Properties (exclusive of
optional drilling and development expenditures) for the following six months.
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<PAGE>
"CHANGE OF CONTROL" means any of (a) the acquisition by any
Person or two or more Persons (excluding underwriters in the course of their
distribution of voting stock in an underwritten public offering) acting in
concert, of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Security Exchange Act of 1934, as amended) of 35% or more of the
outstanding shares of voting stock of the Company, (b) 50% or more of the
members of the Board of Directors of the Company on any date shall not have been
(i) members of the Board of Directors of the Company on the date 12 months prior
to such date or (ii) approved (by recommendation, nomination, election or
otherwise) by Persons who constitute at least a majority of the members of the
Board of Directors of the Company as constituted on the date 12 months prior to
such date, (c) all or substantially all of the assets of the Company or any
Subsidiary of the Company are sold in a single transaction or series or related
transactions to any Person, or (d) the Company or any Subsidiary of the Company
merges with or consolidates with any other Person other than the merger or
consolidation of any Subsidiary of the Company with the Company or another
Subsidiary of the Company.
"CLOSING" is defined in ARTICLE III.
"CODE" means the Internal Revenue Code of 1986, as amended from
time to time, and the rules and regulations promulgated thereunder from time to
time.
"COMPANY" is defined in the introduction to this Agreement.
"CREDIT AGREEMENT" means that certain Amended and Restated Credit
Agreement by and among Cliffwood Oil & Gas Corp., Cliffwood Energy Company and
Cliffwood Production Co., Comerica Bank - Texas, N.A., as Agent and the
financial institutions party thereto dated as of August 1, 1997, as amended by
that certain First Amendment dated as of September 23, 1997, that certain Second
Amendment dated as of October 1, 1997, that certain Third Amendment dated as of
November 21, 1997 and that certain Fourth Amendment of even date herewith and as
same may be amended, extended, renewed, replaced or restated in the future or
any other subsequent credit agreement or other similar agreement entered into by
the Company or any Subsidiary of the Company, together with all notes, Swap
agreements, security documents and other instruments or agreements executed in
connection therewith or secured thereby.
"CURRENT ASSETS" means, as of any date, all assets of the Company
and its Subsidiaries that would be reflected as current assets on a consolidated
balance sheet of the Company and its Subsidiaries prepared on such date in
accordance with GAAP consistently applied.
"CURRENT LIABILITIES" means, as of any date, all liabilities of
the Company and its Subsidiaries that would be reflected as current liabilities
on a consolidated balance sheet of the Company and its Subsidiaries prepared on
such date in accordance with GAAP consistently applied.
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<PAGE>
"DEFAULT" means an event or condition the occurrence or existence
of which would, with the lapse of time or the giving of notice or both, become
an Event of Default.
"DEFAULT RATE" means twelve percent (12%) per annum, but in no
event to exceed the Highest Lawful Rate.
"ENVIRONMENTAL LAWS" means any and all Federal, state, local, and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the release of any materials into the environment, including but
not limited to those related to hazardous substances or wastes, air emissions
and discharges to waste or public systems.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the rules and regulations promulgated
thereunder from time to time in effect.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Company
under section 414 of the Code.
"EVENT OF DEFAULT" is defined in SECTION 11.01.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXISTING NOTEHOLDER INDEBTEDNESS" means the Indebtedness owing
to the Noteholders under those certain Tranche A Notes and Tranche C Notes
issued by Texoil Company under that certain Amended and Restated Note Purchase
Agreement dated May 21, 1997.
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States of America.
"GOVERNMENTAL AUTHORITY" means (a) the government of (i) the
United States of America or any State or other political subdivision thereof, or
(ii) any jurisdiction in which the Company or any of its Subsidiaries conducts
all or any part of its business, or which asserts jurisdiction over any
properties of the Company or any of its Subsidiaries, or (b) any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of, or pertaining to, any such government.
"GUARANTORS" means Texoil Company, a Tennessee corporation, and
Cliffwood Oil & Gas Corp., a Texas corporation.
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<PAGE>
"GUARANTY" means, with respect to any Person, any obligation
(except the endorsement in the ordinary course of business of negotiable
instruments for deposit or collection) of such Person guaranteeing or in effect
guaranteeing any indebtedness, dividend or other obligation of any other Person
in any manner, whether directly or indirectly, including (without limitation)
obligations incurred through an agreement, contingent or otherwise, by such
Person: (a) to purchase such indebtedness or obligation or any property
constituting security therefor; (b) to advance or supply funds (i) for the
purchase or payment of such indebtedness or obligation, or (ii) to maintain any
working capital or other balance sheet condition or any income statement
condition of any other Person or otherwise to advance or make available funds
for the purchase or payment of such indebtedness or obligation; (c) to lease
properties or to purchase properties or services primarily for the purpose of
assuring the owner of such indebtedness or obligation of the ability of any
other Person to make payment of the indebtedness or obligation; or (d) otherwise
to assure the owner of such indebtedness or obligation against loss in respect
thereof. In any computation of the indebtedness or other liabilities of the
obligor under any Guaranty, the indebtedness or other obligations that are the
subject of such Guaranty shall be assumed to be direct obligations of such
obligor.
"GUARANTY AGREEMENT" means each Guaranty Agreement executed by a
Guarantor, guaranteeing the obligations of the Company under this Agreement and
the Notes, in form and substance satisfactory to the Noteholders, as any of the
same may be amended from time to time.
"HAZARDOUS MATERIAL" means any and all pollutants, toxic or
hazardous wastes or any other substances that might pose a hazard to health or
safety, the removal of which may be required or the generation, manufacture,
refining, production, processing, treatment, storage, handling, transportation,
transfer, use, disposal, release, discharge, spillage, seepage, or filtration of
which is or shall be restricted, prohibited or penalized by any applicable law
(including, without limitation, asbestos, urea formaldehyde foam insulation and
polycholorinated biphenyls).
"HIGHEST LAWFUL RATE" means with respect to any indebtedness owed
to any Noteholder under any Transaction Document, the maximum nonusurious
interest rate, if any, that at any time or from time to time may be contracted
for, taken, reserved, charged or received by such Noteholder with respect to
such indebtedness under law applicable to such Noteholder.
"HOLDER" means, with respect to any Note, the Person in whose
name such Note is registered in the register maintained by the Company pursuant
to SECTION 13.01.
"HYDROCARBONS" means oil, natural gas, condensate and all other
liquid or gaseous hydrocarbons and all products produced or separated therefrom.
"INDEBTEDNESS" with respect to any Person means, at any time,
without duplication, (a) its liabilities for borrowed money and its redemption
obligations in respect of mandatorily
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<PAGE>
redeemable Preferred Stock; (b) its liabilities for the deferred purchase price
of property acquired by such Person (excluding accounts payable arising in the
ordinary course of business but including all liabilities created or arising
under any conditional sale or other title retention agreement with respect to
any such property); (c) all liabilities appearing on its balance sheet in
accordance with GAAP in respect of Capital Leases; (d) all liabilities for
borrowed money secured by any Lien with respect to any property owned by such
Person (whether or not it has assumed or otherwise become liable for such
liabilities); (e) all its liabilities in respect of letters of credit or
instruments serving a similar function issued or accepted for its account by
banks and other financial institutions (whether or not representing obligations
for borrowed money); (f) Swaps of such Person; and (g) any Guaranty of such
Person with respect to liabilities of a type described in any of clauses (a)
through (f) hereof. Indebtedness of any Person shall include all obligations of
such Person of the character described in clauses (a) through (g) to the extent
such Person remains legally liable in respect thereof notwithstanding that any
such obligation is deemed to be extinguished under GAAP.
"INDEMNIFIED PERSON" is defined in SECTION 13.06.
"INVESTMENT" means, with respect to any Person, any direct or
indirect purchase or other acquisition by such Person of stock or other
securities of any other Person, or any direct or indirect loan, advance or
capital contribution by such Person to any other Person, and any other item
which would be classified as an "investment" on a balance sheet of such Person
prepared in accordance with GAAP.
"LIEN" means, with respect to any Person, any mortgage, lien,
pledge, charge, security interest or other encumbrance of any kind (whether
voluntary or involuntary), or any interest or title of any vendor, lessor,
lender or other secured party to or of such Person under any conditional sale or
other title retention agreement or Capital Lease, upon or with respect to any
property or asset of such Person (including in the case of stock, stockholder
agreements, voting trust agreements and all similar arrangements).
"MATERIAL" means, as to any Person, material in relation to the
business, operations, affairs, financial condition, assets, properties, or
prospects of such Person and its Subsidiaries and parents taken as a whole.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a)
the business, operations, affairs, financial condition, assets or properties of
the Company and its Subsidiaries taken as a whole, or (b) the ability of the
Company to perform its obligations under this Agreement and the other
Transaction Documents, or (c) the validity or enforceability of this Agreement
or the other Transaction Documents.
"MATURITY DATE" means December 31, 1999 or such later date as
provided for in SECTION 7.04.
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<PAGE>
"MERGER" means the merger of Texoil Acquisition, Inc. with and
into Cliffwood Oil & Gas Corp., pursuant to that certain Agreement and Plan of
Merger among such parties and the Company dated of even date herewith.
"MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer
plan" (as such term is defined in section 4001(a)(3) of ERISA).
"NOTEHOLDERS" is defined in the introduction to this Agreement.
"NOTES" is defined in SECTION 2.01.
"OFFICER'S CERTIFICATE" means a certificate of a Senior Financial
Officer or of any other officer of the Company whose responsibilities extend to
the subject matter of such certificate.
"OIL AND GAS PROPERTIES" means oil and gas leasehold interests,
overriding royalty interests, mineral interests, royalty interests, net profits
interests, oil payments, production payments, carried interests, operating
rights and other similar properties or interests, including contractual rights
to any of the foregoing, together with all wells and units located on, or
attributable to, such properties or interests.
"PBGC" means the Pension Benefit Guaranty Corporation referred to
and defined in ERISA or any successor thereto.
"PERMITTED LIENS" means Liens permitted under SECTION 10.02.
"PERSON" means an individual, partnership, corporation, limited
liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
"PLAN" means an "employee benefit plan" (as defined in section
3(3) of ERISA) that is or, within the preceding five years, has been established
or maintained, or to which contributions are or, within the preceding five
years, have been made or required to be made, by the Company or any ERISA
Affiliate or with respect to which the Company or any ERISA Affiliate may have
any liability.
"PREFERRED STOCK" means any class of capital stock of a
corporation that is preferred over any other class of capital stock of such
corporation as to the payment of dividends or the payment of any amount upon
liquidation or dissolution of such corporation.
"PROVED RESERVES" means recoverable Hydrocarbon reserves that
have been proved to a high degree of certainty by analysis of the producing
history of a reservoir and/or by volumetric analysis of adequate geological and
engineering data. Commercial productivity has been established
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<PAGE>
by actual production, successful testing, or in certain cases by favorable core
analyses and electrical- log interpretation when the producing characteristics
of the formation are known from nearby fields.
"REGISTRATION RIGHTS AGREEMENT" means that certain Amended and
Restated Stock Ownership and Registration Rights Agreement dated of even date
herewith among the Company and the Noteholders, as same may be amended from time
to time.
"REQUIRED HOLDERS" means, at any time, the holder or holders of
at least 51% of the then outstanding principal amount of the Notes (exclusive of
Notes then owned by the Company or any of its Affiliates).
"RESERVE REPORT" means each reserve report delivered to the
Noteholders in accordance with SECTION 8.01(D).
"RESERVE VALUE" means, as of any date, the sum of (a) the
aggregate present value of the estimated future net revenues from Proved
Reserves for each of the Company's and its Subsidiaries' Oil and Gas Properties,
discounted at 10%, as set forth in the most recent Reserve Report delivered to
the Noteholders under SECTION 8.01(D), plus (b) the lesser of (i) the costs of
the Company's and its Subsidiaries' Oil and Gas Properties with no Proved
Reserves attributable thereto, including lease costs, costs of seismic data and
other capitalized prospect costs attributable thereto, and (ii) the fair market
value of such Oil and Gas Properties with no Proved Reserves attributable
thereto.
"RESPONSIBLE OFFICER" means any Senior Financial Officer and any
other officer of the Company with responsibility for the administration of the
relevant portion of this Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as amended
from time to time.
"SENIOR DEBT" means the principal, interest, fees and other
Indebtedness outstanding under the Credit Agreement or any other Indebtedness
under a bank credit facility to the extent such Indebtedness is in compliance
with SECTION 10.03(B).
"SENIOR FINANCIAL OFFICER" means any of the chief financial
officer, principal accounting officer, treasurer or comptroller of the Company.
"SUBSIDIARY" means, as to any Person, any corporation,
association or other business entity in which such Person or one or more of its
Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient
equity or voting interests to enable it or them (as a group) ordinarily, in the
absence of contingencies, to elect a majority of the directors (or Persons
performing similar functions) of such entity, and any partnership or joint
venture if more than a 50% interest in the profits or capital thereof is owned
by such Person or one or more of its Subsidiaries or such Person
-viii-
<PAGE>
and one or more of its Subsidiaries (unless such partnership can and does
ordinarily take major business actions without the prior approval of such Person
or one or more of its Subsidiaries).
"TOTAL DEBT" means the sum of the Senior Debt, plus all
outstanding principal of and interest on the Notes.
"SWAPS" means, with respect to any Person, foreign exchange
transactions and commodity, currency and interest rate swaps, floors, caps,
collars, forward sales, options, other similar transactions and combinations of
the foregoing.
"TRANSACTION DOCUMENTS" is defined in SECTION 3.01.
-ix-
EXHIBIT 5.2
TEXOIL, INC.
7.875% CONVERTIBLE SUBORDINATED
GENERAL OBLIGATION NOTE
No. [____________] December 31, 1997
$[______________________]
FOR VALUE RECEIVED, the undersigned, TEXOIL, INC., a Nevada
corporation (the "COMPANY"), hereby promises to pay to , or registered assigns,
the principal sum of and /100 DOLLARS ($ ), together with interest (computed on
the basis of a 360-day year of twelve 30-day months) (a) on the unpaid principal
balance hereof at the rate of 7.875% per annum from the date hereof, until the
principal hereof shall have become due and payable, and (b) on any overdue
payment of principal or interest, at a rate per annum equal to twelve percent
(12%); PROVIDED, HOWEVER, in no event shall such rate of interest ever exceed
the Highest Lawful Rate (as defined in the Note Purchase Agreement referred to
below).
This Note is one of a series of Notes (herein called the "NOTES")
issued pursuant to the Note Purchase Agreement dated of even date herewith (as
from time to time amended, the "NOTE PURCHASE AGREEMENT"), among the Company and
the Noteholders named therein and is entitled to the benefits, and otherwise
subject to the provisions, thereof, including, without limitation, the
limitations on interest set forth in SECTION 13.05 thereof. This Note is subject
to the terms of that certain Subordination Agreement of even date herewith,
among Comerica Bank - Texas, as Agent, the Noteholders named therein, the
Company, Cliffwood Oil & Gas Corp., Cliffwood Energy Company and Cliffwood
Production Co.; provided, that nothing in such Subordination Agreement shall
limit, release, impair or waive any liability or obligation of the Company
hereunder.
The principal amount of this Note and interest hereon shall be
due and payable at the places, on the dates and in the manner set forth in the
Note Purchase Agreement.
This Note is convertible into shares of common stock of the
Company upon the terms and conditions of the Note Purchase Agreement.
All payments on this Note shall be applied first, to the accrued,
unpaid interest hereon, and the remainder, if any, shall be applied to the
principal balance hereof. The Company does not have the right to prepay this
Note, in whole or in part, prior to maturity.
Payments of principal of and interest on this Note are to be made
in lawful money of the United States of America at the places designated in the
Note Purchase Agreement.
This Note is a registered Note and, as provided in the Note
Purchase Agreement, upon surrender of this Note for registration of transfer,
duly endorsed, or accompanied by a written
<PAGE>
instrument of transfer duly executed, by the registered holder hereof or such
holder's attorney duly authorized in writing, a new Note for a like principal
amount will be issued to, and registered in the name of, the transferee. Prior
to due presentment for registration of transfer, the Company may treat the
person in whose name this Note is registered as the owner hereof for the purpose
of receiving payment and for all other purposes, and the Company will not be
affected by any notice to the contrary.
If an Event of Default, as defined in the Note Purchase
Agreement, occurs and is continuing, the principal and other amounts outstanding
under this Note may be declared or otherwise become due and payable in the
manner, at the price and with the effect provided in the Note Purchase
Agreement.
This Note shall be governed by and construed in accordance with
the laws of the State of New York, excluding the choice of law rules thereof.
TEXOIL, INC.
By: ________________________________
Name: ________________________________
Title:________________________________
Page 2
EXHIBIT 5.3
GUARANTY AGREEMENT
GUARANTY AGREEMENT dated as of December 31, 1997 among CLIFFWOOD
OIL & GAS CORP., a Texas corporation ("SUBSIDIARY"), and RIMCO PARTNERS, L.P., a
Delaware limited partnership, RIMCO PARTNERS, L.P. II, a Delaware limited
partnership, RIMCO PARTNERS, L.P. III, a Delaware limited partnership, and RIMCO
PARTNERS, L.P. IV, a Delaware limited partnership (together with their
respective successors and assigns, collectively, the "NOTEHOLDERS").
PRELIMINARY STATEMENTS
Texoil, Inc., a Nevada corporation (the "COMPANY") and the
Noteholders have entered into that certain Note Purchase Agreement, dated as of
December 31, 1997 (the "NOTE AGREEMENT") whereby the Noteholders have committed
to purchase $10,000,000 of Convertible Subordinated General Obligation Notes
issued by the Company.
It is a condition precedent to the obligation of the Noteholders
to purchase the Notes under the Note Agreement that Subsidiary shall have
executed and delivered this Agreement. The Subsidiary has determined that it
will receive a substantial benefit if the Notes are purchased by the Noteholders
from the Company under the Note Agreement.
In consideration of the mutual covenants herein contained the
Subsidiary and the Noteholders agree as follows:
ARTICLE I
DEFINITIONS, ETC.
SECTION 1.01. CERTAIN DEFINED TERMS. Capitalized terms used in
this Agreement and not otherwise defined herein shall have the respective
meanings set forth in the Note Agreement and the Annex A attached thereto (such
meanings to be equally applicable to both singular and plural forms of the terms
defined).
SECTION 1.02. COVENANT CONSTRUCTION. Each covenant contained
herein shall be construed (absent express provision to the contrary) as being
independent of each other covenant contained herein, so that compliance with any
one covenant shall not (absent such an express contrary provision) be deemed to
excuse compliance with any other covenant. Where any provision herein refers to
action to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether such action is taken directly
or indirectly by such Person.
SECTION 1.03. OTHER RULES OF CONSTRUCTION. The words "hereof,"
"herein" and "hereunder" and words of similar import when used in this Agreement
shall refer to this Agreement
<PAGE>
as a whole and not to any particular provision of this Agreement. All references
herein to articles, sections, annexes, exhibits and schedules shall, unless the
context requires a different construction, be deemed to be references to the
articles and sections of this Agreement and the annexes, exhibits and schedules
attached hereto and made a part hereof. In this Agreement, unless a clear
contrary intention appears, the word "including" (and with correlative meaning
"include") means including, without limiting the generality of any description
preceding such term. The headings of the various articles and sections of this
Agreement are for convenience only and shall not affect the meaning of the terms
and conditions of this Agreement. No provision of this Agreement shall be
interpreted or construed against any party solely because that party or its
legal representative drafted such provision.
ARTICLE II
GUARANTY
SECTION 2.01. GUARANTY. Subsidiary hereby unconditionally and
irrevocably guarantees the full and punctual payment when due, whether at stated
maturity or earlier by acceleration or otherwise, of any and all debts,
liabilities and obligations of the Company now or hereafter existing under the
Note Agreement or the Notes whether for principal, interest (including, without
limitation, all interest that accrues after the commencement of any proceeding
by or against the Company under any bankruptcy, insolvency, liquidation,
moratorium, receivership, reorganization or other similar debtor relief law),
fees, expenses or otherwise (such obligations being the "OBLIGATIONS"), and
agrees to pay any and all reasonable costs and expenses (including counsel fees
and legal expenses) incurred by the Noteholders in connection with the
protection, defense or enforcement of any rights under this Agreement and any of
the other Transaction Documents.
SECTION 2.02. GUARANTY ABSOLUTE. Subsidiary unconditionally
guarantees that the Obligations will be paid strictly in accordance with the
terms of the Note Agreement and the Notes, regardless of any law, regulation or
order now or hereafter in effect in any jurisdiction affecting any of such terms
or the rights of the Noteholders with respect thereto. The liability of
Subsidiary under this Agreement shall be absolute and unconditional irrespective
of: (a) any lack of validity or enforceability of the Note Agreement, the Notes,
the other Transaction Documents or any other agreement or instrument relating
thereto (unless such invalidity or unenforceability results from a failure of
consideration on the part of the Noteholders); (b) any change in the time,
manner or place of payment of, or in any other term of, all or any of the
Obligations, or any other amendment or waiver of or any consent to departure
from the Note Agreement, the Notes or the other Transaction Documents; (c) any
taking, exchange, release or non-perfection of any collateral, or any release or
amendment or waiver of or consent to departure from any other guaranty, for all
or any of the Obligations; (d) any manner of application of collateral, or
proceeds thereof, to all or any of the Obligations, or any manner of sale or
other disposition of any collateral for all or any of the Obligations or any
other assets of the Company; (e) any change, restructuring or termination of the
corporate structure or existence of the Company; or (f) any other circumstances
which might otherwise constitute a defense available to, or a discharge of, the
Company or a guarantor (except full and indefeasible payment of the
Obligations).
-2-
<PAGE>
The obligations of Subsidiary under this Agreement shall not be
subject to reduction, termination or other impairment by reason of any setoff,
recoupment, counterclaim or defense or for any other reason (except full and
indefeasible payment of the Obligations). This Agreement is to be in addition to
and is not to prejudice or be prejudiced by any other securities or guaranties
(including any guaranty signed by Subsidiary) which the Noteholders may now or
hereafter hold from or on account of the Company and is to be binding on
Subsidiary as a continuing security notwithstanding any payments from time to
time made to the Noteholders or any settlement of account or disability or
incapacity affecting Subsidiary or any other thing whatsoever. This Agreement is
a continuing guaranty and shall remain in full force and effect until payment in
full of the Obligations and all other amounts payable under this Agreement and
the termination of the Commitments.
SECTION 2.03. WAIVER. Subsidiary hereby waives promptness,
diligence, notice of acceptance and any other notice with respect to any of the
Obligations and this Agreement and any liability to which this Agreement applies
or may apply, and waives presentment, demand of payment, notice of intent to
accelerate, notice of acceleration, notice of dishonor or nonpayment, and any
requirement that the Noteholders institute suit, collection proceedings or take
any other action to collect the Obligations including any requirement that the
Noteholders protect, secure, perfect or insure any security interest or lien or
any property subject thereto or exhaust any right or take any action against the
Company or any other person or entity or any collateral (it being the intention
of the Noteholders and Subsidiary that this Agreement is to be a guaranty of
payment and not of collection) or that the Company or any other person be joined
in any action hereunder. Notwithstanding the provisions of SECTION 4.12,
Subsidiary hereby expressly waives each and every right to which it may be
entitled by virtue of the suretyship laws of the State of Texas, including,
without limitation, any and all rights it may have pursuant to Rule 31 or Rule
32, Texas Rules of Civil Procedure, Section 17.001 of the Texas Civil Practice
and Remedies Code and Chapter 34 of the Texas Business and Commerce Code.
Subsidiary hereby waives marshalling of assets and liabilities, sale in inverse
order of alienation, notice by the Noteholders of any indebtedness or liability
to which it applies or may apply any amounts received by the Noteholders, and of
the creation, advancement, increase, existence, extension, renewal,
rearrangement and/or modification of the Obligations.
SECTION 2.04. WAIVER OF SUBROGATION; ETC. Subsidiary will not
exercise any rights of subrogation under this Agreement, by any payment made
hereunder or otherwise, until such time as the Noteholders have received full
payment of the Obligations and the Commitments have terminated. If,
notwithstanding the preceding sentence, any amount shall be paid to Subsidiary
on account of subrogation rights at any time when all the Obligations shall not
have been paid in full, such amount shall be held in trust for the benefit of
the Noteholders and shall forthwith be paid to the Noteholders to be credited
and applied upon the Obligations in accordance with the terms of the Note
Agreement.
SECTION 2.05. INTENTIONALLY OMITTED.
-3-
<PAGE>
SECTION 2.06. TRANSACTION DOCUMENTS. Subsidiary acknowledges that
it has had full and complete access to the Note Agreement, the Notes and the
other Transaction Documents, has fully reviewed same and is fully aware of their
contents.
SECTION 2.07. EFFECT OF BANKRUPTCY PROCEEDING, ETC. This
Agreement shall continue to be effective, or be automatically reinstated, as the
case may be, if at any time payment, in whole or in part, of any of the sums due
any Noteholders pursuant to the terms of the Note Agreement or hereunder is
rescinded or must otherwise be restored or returned by the Noteholders upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of the
Company or Subsidiary, or upon or as a result of the appointment of a custodian,
receiver, trustee or other officer with similar powers with respect to the
Company or Subsidiary or any substantial part of their property, or otherwise,
all as though such payments had not been made. If an Event of Default shall at
any time have occurred and be continuing and declaration of such Event of
Default shall at such time be prevented by reason of the pendency against the
Company of a case or proceeding under a bankruptcy or insolvency law, Subsidiary
agrees that, for purposes of this Agreement and its obligations hereunder, the
Note Agreement shall be deemed to have been declared in default with the same
effect as if the Note Agreement had been declared in default in accordance with
the terms thereof, and Subsidiary shall forthwith pay the amounts specified by
the Noteholders to be paid thereunder, any interest thereon and any other
amounts guaranteed hereunder without further notice or demand.
SECTION 2.08. NO WAIVER; REMEDIES. No failure on the part of the
Noteholders to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
SECTION 2.09. FURTHER ASSURANCES. Subsidiary hereby agrees to
execute and deliver all such instruments and take all such action as the
Noteholders may from time to time reasonably request in order to fully
effectuate the purpose of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SUBSIDIARY
Subsidiary represents and warrants to the Noteholders that:
SECTION 3.01. ORGANIZATION; POWER AND AUTHORITY. Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas, and is duly qualified as a foreign corporation and is in
good standing in each jurisdiction in which such qualification is required by
law, other than those jurisdictions as to which the failure to be so qualified
or in good standing would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. Subsidiary has the corporate power
and authority to own or hold
-4-
<PAGE>
under lease the properties it purports to own or hold under lease, to transact
the business it transacts and proposes to transact, to execute and deliver this
Agreement and the other Transaction Documents to which it is a party and to
perform the provisions hereof and thereof.
SECTION 3.02. AUTHORIZATION, ETC. This Agreement and the other
Transaction Documents to which it is a party have been duly authorized by all
necessary corporate action on the part of Subsidiary, and this Agreement
constitutes, and upon execution and delivery thereof each other Transaction
Document to which it is a party will constitute, a legal, valid and binding
obligation of Subsidiary enforceable against Subsidiary in accordance with its
terms, except as such enforceability may be limited by (a) applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and (b) general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
SECTION 3.03. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC. The
execution, delivery and performance by Subsidiary of this Agreement and the
other Transaction Documents to which it is a party will not (a) contravene,
result in any breach of, or constitute a default under, or result in the
creation of any Lien in respect of any property of Subsidiary under, any
indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease,
corporate charter or by-laws, or any other agreement or instrument to which
Subsidiary is bound or by which or any of its respective properties may be bound
or affected (except for Liens created under the Transaction Documents) the
consequence of which would have a Material Adverse Effect on Subsidiary, (b)
conflict with or result in a breach of any of the terms, conditions or
provisions of any order, judgment, decree, or ruling of any court, arbitrator or
Governmental Authority in respect of a proceeding to which Subsidiary is a party
or (c) to the knowledge of Subsidiary, violate any provision of any statute or
other rule or regulation of any Governmental Authority applicable to Subsidiary.
SECTION 3.04. GOVERNMENTAL AUTHORIZATIONS, ETC. No consent,
approval or authorization of, or registration, filing or declaration with, any
Governmental Authority is required in connection with the execution, delivery or
performance by Subsidiary of this Agreement or the other Transaction Documents
to which it is a party that has not been obtained.
SECTION 3.05. NOTE AGREEMENT. Subsidiary represents and warrants
that the representations and warranties contained in the Note Agreement or any
other Transaction Documents that relate to the Subsidiary are true and correct
on and as of the date hereof in all material respects as though made as of the
date hereof.
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<PAGE>
ARTICLE IV
MISCELLANEOUS
SECTION 4.01. TRANSACTION EXPENSES. Whether or not the
transactions contemplated hereby are consummated, Subsidiary will pay all
reasonable costs and expenses (including reasonable attorneys' fees of a special
counsel and any local or other counsel) incurred by the Noteholders or holder of
a Note in connection with such transactions and in connection with any
amendments, waivers or consents under or in respect of this Agreement or the
other Transaction Documents (whether or not such amendment, waiver or consent
becomes effective), including, without limitation: (a) the reasonable costs and
expenses incurred in enforcing or defending (or determining whether or how to
enforce or defend) any rights under this Agreement or the other Transaction
Documents or in responding to any subpoena or other legal process or informal
investigative demand issued in connection with this Agreement or the other
Transaction Documents, or by reason of being a holder of any Note, (b) the
reasonable costs and expenses of negotiation, preparation and execution of this
Agreement and the other Transaction Documents and (c) the reasonable costs and
expenses, including reasonable financial advisors' fees, incurred in connection
with the insolvency or bankruptcy of Subsidiary in connection with any proposed
or finalized workout or restructuring of the transactions contemplated hereby
and by the Note Agreement. Subsidiary will pay, and will save the Noteholders
and each other holder of a Note harmless from, all claims in respect of any
fees, costs or expenses, if any, of brokers and finders (other than those
retained by the Noteholders). The obligations of Subsidiary under this SECTION
4.01 will survive the payment or transfer of any Note, the enforcement,
amendment or waiver of any provision of this Agreement or the other Transaction
Documents, and the termination of this Agreement.
SECTION 4.02. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained herein shall survive the execution and
delivery of this Agreement and the other Transaction Documents, the purchase or
transfer by the Noteholders of any Note or portion thereof or interest therein
and the payment of any Note, and may be relied upon by any subsequent holder of
a Note, regardless of any investigation made at any time by or on behalf of the
Noteholders or any other holder of a Note. All statements contained in any
certificate or other instrument delivered by or on behalf of Subsidiary pursuant
to this Agreement shall be deemed representations and warranties of Subsidiary
under this Agreement.
SECTION 4.03. AMENDMENT AND WAIVER. This Agreement may be
amended, and the observance of any term hereof may be waived (either
retroactively or prospectively), with (and only with) the written consent of the
Required Holders, except that no amendment or waiver may, without the written
consent of the holder of each Note at the time outstanding affected thereby,
release Subsidiary from its obligations hereunder. Any amendment or waiver
consented to as provided in this SECTION 4.03 applies equally to all holders of
Notes and is binding upon them and upon each future holder of any Note and upon
Subsidiary and the Company without regard to whether such Note has been marked
to indicate such amendment or waiver. No such amendment or waiver will extend to
or affect any obligation, covenant or agreement not expressly amended or waived
or impair any right consequent thereon. No course of dealing between Subsidiary
or the
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<PAGE>
Company and the holder of any Note nor any delay in exercising any rights
hereunder or under any Note shall operate as a waiver of any rights of any
holder of such Note.
SECTION 4.04. NOTICES. All notices and communications provided
for hereunder shall be in writing and sent (a) by telecopy if the sender on the
same day sends a confirming copy of such notice by a recognized overnight
delivery service (charges prepaid), or (b) by registered or certified mail with
return receipt requested (postage prepaid), or (c) by a recognized overnight
delivery service (with charges prepaid). Any such notice must be sent: (i) if to
a Noteholder, to its address specified for such communications in Schedule A to
the Note Agreement, or at such other address as it shall have specified to
Subsidiary in writing, (ii) if to Subsidiary, to Subsidiary at 1600 Smith
Street, Suite 4000, Houston, Texas 77002, Telecopy No.: 713-652-9601, or at such
other address as Subsidiary shall have specified to the holder of each Note in
writing. Notices under this SECTION 4.04 will be deemed given only when actually
received.
SECTION 4.05. LIMITATION ON INTEREST. Each provision in this
Agreement and each other Transaction Document is expressly limited so that in no
event whatsoever shall the amount paid, or otherwise agreed to be paid, by
Subsidiary for the use, forbearance or detention of the money to be loaned to
the Company under the Notes or any other Transaction Document or otherwise
(including any sums paid as required by any covenant or obligation contained
herein or in any other Transaction Document which is for the use, forbearance or
detention of such money), exceed that amount of money which would cause the
effective rate of interest thereon to exceed the Highest Lawful Rate, and all
amounts owed under this Agreement and each other Transaction Document shall be
held to be subject to reduction to the effect that such amounts so paid or
agreed to be paid which are for the use, forbearance or detention of money under
this Agreement or such Transaction Document shall in no event exceed that amount
of money which would cause the effective rate of interest thereon to exceed the
Highest Lawful Rate.
SECTION 4.06. SUCCESSORS AND ASSIGNS. All covenants and other
agreements contained in this Agreement by or on behalf of any of the parties
hereto bind and inure to the benefit of their respective successors and assigns
(including, without limitation, any subsequent holder of a Note) whether so
expressed or not.
SECTION 4.07. SEVERABILITY. Any provision of this Agreement that
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall (to the full
extent permitted by law) not invalidate or render unenforceable such provision
in any other jurisdiction.
SECTION 4.08. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies hereof, each signed by less than all, but together signed by
all, of the parties hereto.
-7-
<PAGE>
SECTION 4.09. FINAL AGREEMENT OF THE PARTIES. THIS AGREEMENT AND
THE OTHER TRANSACTION DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
SECTION 4.10. JURY WAIVER. SUBSIDIARY AND THE NOTEHOLDERS
HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 4.11. CHOICE OF FORUM. SUBSIDIARY AND THE NOTEHOLDERS
AGREE THAT ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED HEREBY SHALL BE BROUGHT IN THE FEDERAL OR STATE
COURTS OF HARRIS COUNTY, TEXAS.
SECTION 4.12. GOVERNING LAW. This Agreement shall be construed
and enforced in accordance with, and the rights of the parties shall be governed
by, the law of the State of New York excluding choice-of-law principles of the
law of such State that would require the application of the laws of a
jurisdiction other than such State.
SECTION 4.13. SUBORDINATION AGREEMENT. Each Noteholder
acknowledges that its rights hereunder are subject to the rights of the "Senior
Creditors" under that certain Subordination Agreement dated of even date
herewith by and among Comerica Bank - Texas, as Agent, the Noteholders, the
Company, Cliffwood Oil & Gas Corp., Cliffwood Energy Company and Cliffwood
Production Co.; provided that nothing in such Subordination Agreement shall
limit, release, impair or waive any liability or obligation of Subsidiary
hereunder.
IN WITNESS WHEREOF, Subsidiary and the Noteholders have caused
this Agreement to be executed by their respective representatives thereunto duly
authorized effective as of the date first above written.
CLIFFWOOD OIL & GAS CORP.
By: /S/ FRANK A. LODZINSKI
Frank A. Lodzinski
President
-8-
<PAGE>
RIMCO PARTNERS, L.P.
RIMCO PARTNERS, L.P. II,
RIMCO PARTNERS, L.P. III, AND
RIMCO PARTNERS, L.P. IV
By: RESOURCE INVESTORS MANAGEMENT COMPANY
LIMITED PARTNERSHIP, their general
partner
By: RIMCO ASSOCIATES, INC.,
its general partner
By: /S/ A. L. JORDEN
A. L. Jorden
Vice President
-9-
EXHIBIT 5.4
GUARANTY AGREEMENT
GUARANTY AGREEMENT dated as of December 31, 1997 among TEXOIL
COMPANY, a Tennessee corporation ("SUBSIDIARY"), and RIMCO PARTNERS, L.P., a
Delaware limited partnership, RIMCO PARTNERS, L.P. II, a Delaware limited
partnership, RIMCO PARTNERS, L.P. III, a Delaware limited partnership, and RIMCO
PARTNERS, L.P. IV, a Delaware limited partnership (together with their
respective successors and assigns, collectively, the "NOTEHOLDERS").
PRELIMINARY STATEMENTS
Texoil, Inc., a Nevada corporation (the "COMPANY") and the
Noteholders have entered into that certain Note Purchase Agreement, dated as of
December 31, 1997 (the "NOTE AGREEMENT") whereby the Noteholders have committed
to purchase $10,000,000 of Convertible Subordinated General Obligation Notes
issued by the Company.
It is a condition precedent to the obligation of the Noteholders
to purchase the Notes under the Note Agreement that Subsidiary shall have
executed and delivered this Agreement. Subsidiary has determined that it will
receive a substantial benefit if the Notes are purchased by the Noteholders from
the Company under the Note Agreement.
In consideration of the mutual covenants herein contained the
Subsidiary and the Noteholders agree as follows:
ARTICLE I
DEFINITIONS, ETC.
SECTION 1.01. CERTAIN DEFINED TERMS. Capitalized terms used in
this Agreement and not otherwise defined herein shall have the respective
meanings set forth in the Note Agreement and the Annex A attached thereto (such
meanings to be equally applicable to both singular and plural forms of the terms
defined).
SECTION 1.02. COVENANT CONSTRUCTION. Each covenant contained
herein shall be construed (absent express provision to the contrary) as being
independent of each other covenant contained herein, so that compliance with any
one covenant shall not (absent such an express contrary provision) be deemed to
excuse compliance with any other covenant. Where any provision herein refers to
action to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether such action is taken directly
or indirectly by such Person.
SECTION 1.03. OTHER RULES OF CONSTRUCTION. The words "hereof,"
"herein" and "hereunder" and words of similar import when used in this Agreement
shall refer to this Agreement
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as a whole and not to any particular provision of this Agreement. All references
herein to articles, sections, annexes, exhibits and schedules shall, unless the
context requires a different construction, be deemed to be references to the
articles and sections of this Agreement and the annexes, exhibits and schedules
attached hereto and made a part hereof. In this Agreement, unless a clear
contrary intention appears, the word "including" (and with correlative meaning
"include") means including, without limiting the generality of any description
preceding such term. The headings of the various articles and sections of this
Agreement are for convenience only and shall not affect the meaning of the terms
and conditions of this Agreement. No provision of this Agreement shall be
interpreted or construed against any party solely because that party or its
legal representative drafted such provision.
ARTICLE II
GUARANTY
SECTION 2.01. GUARANTY. Subsidiary hereby unconditionally and
irrevocably guarantees the full and punctual payment when due, whether at stated
maturity or earlier by acceleration or otherwise, of any and all debts,
liabilities and obligations of the Company now or hereafter existing under the
Note Agreement or the Notes whether for principal, interest (including, without
limitation, all interest that accrues after the commencement of any proceeding
by or against the Company under any bankruptcy, insolvency, liquidation,
moratorium, receivership, reorganization or other similar debtor relief law),
fees, expenses or otherwise (such obligations being the "OBLIGATIONS"), and
agrees to pay any and all reasonable costs and expenses (including counsel fees
and legal expenses) incurred by the Noteholders in connection with the
protection, defense or enforcement of any rights under this Agreement and any of
the other Transaction Documents.
SECTION 2.02. GUARANTY ABSOLUTE. Subsidiary unconditionally
guarantees that the Obligations will be paid strictly in accordance with the
terms of the Note Agreement and the Notes, regardless of any law, regulation or
order now or hereafter in effect in any jurisdiction affecting any of such terms
or the rights of the Noteholders with respect thereto. The liability of
Subsidiary under this Agreement shall be absolute and unconditional irrespective
of: (a) any lack of validity or enforceability of the Note Agreement, the Notes,
the other Transaction Documents or any other agreement or instrument relating
thereto (unless such invalidity or unenforceability results from a failure of
consideration on the part of the Noteholders); (b) any change in the time,
manner or place of payment of, or in any other term of, all or any of the
Obligations, or any other amendment or waiver of or any consent to departure
from the Note Agreement, the Notes or the other Transaction Documents; (c) any
taking, exchange, release or non-perfection of any collateral, or any release or
amendment or waiver of or consent to departure from any other guaranty, for all
or any of the Obligations; (d) any manner of application of collateral, or
proceeds thereof, to all or any of the Obligations, or any manner of sale or
other disposition of any collateral for all or any of the Obligations or any
other assets of the Company; (e) any change, restructuring or termination of the
corporate structure or existence of the Company; or (f) any other circumstances
which might otherwise constitute a defense available to, or a discharge of, the
Company or a guarantor (except full and indefeasible payment of the
Obligations).
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The obligations of Subsidiary under this Agreement shall not be
subject to reduction, termination or other impairment by reason of any setoff,
recoupment, counterclaim or defense or for any other reason (except full and
indefeasible payment of the Obligations). This Agreement is to be in addition to
and is not to prejudice or be prejudiced by any other securities or guaranties
(including any guaranty signed by Subsidiary) which the Noteholders may now or
hereafter hold from or on account of the Company and is to be binding on
Subsidiary as a continuing security notwithstanding any payments from time to
time made to the Noteholders or any settlement of account or disability or
incapacity affecting Subsidiary or any other thing whatsoever. This Agreement is
a continuing guaranty and shall remain in full force and effect until payment in
full of the Obligations and all other amounts payable under this Agreement and
the termination of the Commitments.
SECTION 2.03. WAIVER. Subsidiary hereby waives promptness,
diligence, notice of acceptance and any other notice with respect to any of the
Obligations and this Agreement and any liability to which this Agreement applies
or may apply, and waives presentment, demand of payment, notice of intent to
accelerate, notice of acceleration, notice of dishonor or nonpayment, and any
requirement that the Noteholders institute suit, collection proceedings or take
any other action to collect the Obligations including any requirement that the
Noteholders protect, secure, perfect or insure any security interest or lien or
any property subject thereto or exhaust any right or take any action against the
Company or any other person or entity or any collateral (it being the intention
of the Noteholders and Subsidiary that this Agreement is to be a guaranty of
payment and not of collection) or that the Company or any other person be joined
in any action hereunder. Notwithstanding the provisions of SECTION 4.12,
Subsidiary hereby expressly waives each and every right to which it may be
entitled by virtue of the suretyship laws of the State of Texas, including,
without limitation, any and all rights it may have pursuant to Rule 31 or Rule
32, Texas Rules of Civil Procedure, Section 17.001 of the Texas Civil Practice
and Remedies Code and Chapter 34 of the Texas Business and Commerce Code.
Subsidiary hereby waives marshalling of assets and liabilities, sale in inverse
order of alienation, notice by the Noteholders of any indebtedness or liability
to which it applies or may apply any amounts received by the Noteholders, and of
the creation, advancement, increase, existence, extension, renewal,
rearrangement and/or modification of the Obligations.
SECTION 2.04. WAIVER OF SUBROGATION; ETC. Subsidiary will not
exercise any rights of subrogation under this Agreement, by any payment made
hereunder or otherwise, until such time as the Noteholders have received full
payment of the Obligations and the Commitments have terminated. If,
notwithstanding the preceding sentence, any amount shall be paid to Subsidiary
on account of subrogation rights at any time when all the Obligations shall not
have been paid in full, such amount shall be held in trust for the benefit of
the Noteholders and shall forthwith be paid to the Noteholders to be credited
and applied upon the Obligations in accordance with the terms of the Note
Agreement.
SECTION 2.05. INTENTIONALLY OMITTED.
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SECTION 2.06. TRANSACTION DOCUMENTS. Subsidiary acknowledges that
it has had full and complete access to the Note Agreement, the Notes and the
other Transaction Documents, has fully reviewed same and is fully aware of their
contents.
SECTION 2.07. EFFECT OF BANKRUPTCY PROCEEDING, ETC. This
Agreement shall continue to be effective, or be automatically reinstated, as the
case may be, if at any time payment, in whole or in part, of any of the sums due
any Noteholders pursuant to the terms of the Note Agreement or hereunder is
rescinded or must otherwise be restored or returned by the Noteholders upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of the
Company or Subsidiary, or upon or as a result of the appointment of a custodian,
receiver, trustee or other officer with similar powers with respect to the
Company or Subsidiary or any substantial part of their property, or otherwise,
all as though such payments had not been made. If an Event of Default shall at
any time have occurred and be continuing and declaration of such Event of
Default shall at such time be prevented by reason of the pendency against the
Company of a case or proceeding under a bankruptcy or insolvency law, Subsidiary
agrees that, for purposes of this Agreement and its obligations hereunder, the
Note Agreement shall be deemed to have been declared in default with the same
effect as if the Note Agreement had been declared in default in accordance with
the terms thereof, and Subsidiary shall forthwith pay the amounts specified by
the Noteholders to be paid thereunder, any interest thereon and any other
amounts guaranteed hereunder without further notice or demand.
SECTION 2.08. NO WAIVER; REMEDIES. No failure on the part of the
Noteholders to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
SECTION 2.09. FURTHER ASSURANCES. Subsidiary hereby agrees to
execute and deliver all such instruments and take all such action as the
Noteholders may from time to time reasonably request in order to fully
effectuate the purpose of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SUBSIDIARY
Subsidiary represents and warrants to the Noteholders that:
SECTION 3.01. ORGANIZATION; POWER AND AUTHORITY. Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Tennessee, and is duly qualified as a foreign corporation and is
in good standing in each jurisdiction in which such qualification is required by
law, other than those jurisdictions as to which the failure to be so qualified
or in good standing would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. Subsidiary has the corporate power
and authority to own or hold
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under lease the properties it purports to own or hold under lease, to transact
the business it transacts and proposes to transact, to execute and deliver this
Agreement and the other Transaction Documents to which it is a party and to
perform the provisions hereof and thereof.
SECTION 3.02. AUTHORIZATION, ETC. This Agreement and the other
Transaction Documents to which it is a party have been duly authorized by all
necessary corporate action on the part of Subsidiary, and this Agreement
constitutes, and upon execution and delivery thereof each other Transaction
Document to which it is a party will constitute, a legal, valid and binding
obligation of Subsidiary enforceable against Subsidiary in accordance with its
terms, except as such enforceability may be limited by (a) applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and (b) general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
SECTION 3.03. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC. The
execution, delivery and performance by Subsidiary of this Agreement and the
other Transaction Documents to which it is a party will not (a) contravene,
result in any breach of, or constitute a default under, or result in the
creation of any Lien in respect of any property of Subsidiary under, any
indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease,
corporate charter or by-laws, or any other agreement or instrument to which
Subsidiary is bound or by which or any of its respective properties may be bound
or affected (except for Liens created under the Transaction Documents) the
consequence of which would have a Material Adverse Effect on Subsidiary, (b)
conflict with or result in a breach of any of the terms, conditions or
provisions of any order, judgment, decree, or ruling of any court, arbitrator or
Governmental Authority in respect of a proceeding to which Subsidiary is a party
or (c) to the knowledge of Subsidiary, violate any provision of any statute or
other rule or regulation of any Governmental Authority applicable to Subsidiary.
SECTION 3.04. GOVERNMENTAL AUTHORIZATIONS, ETC. No consent,
approval or authorization of, or registration, filing or declaration with, any
Governmental Authority is required in connection with the execution, delivery or
performance by Subsidiary of this Agreement or the other Transaction Documents
to which it is a party that has not been obtained.
SECTION 3.05. NOTE AGREEMENT. Subsidiary represents and warrants
that the representations and warranties contained in the Note Agreement or any
other Transaction Documents that relate to the Subsidiary are true and correct
on and as of the date hereof in all material respects as though made as of the
date hereof.
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ARTICLE IV
MISCELLANEOUS
SECTION 4.01. TRANSACTION EXPENSES. Whether or not the
transactions contemplated hereby are consummated, Subsidiary will pay all
reasonable costs and expenses (including reasonable attorneys' fees of a special
counsel and any local or other counsel) incurred by the Noteholders or holder of
a Note in connection with such transactions and in connection with any
amendments, waivers or consents under or in respect of this Agreement or the
other Transaction Documents (whether or not such amendment, waiver or consent
becomes effective), including, without limitation: (a) the reasonable costs and
expenses incurred in enforcing or defending (or determining whether or how to
enforce or defend) any rights under this Agreement or the other Transaction
Documents or in responding to any subpoena or other legal process or informal
investigative demand issued in connection with this Agreement or the other
Transaction Documents, or by reason of being a holder of any Note, (b) the
reasonable costs and expenses of negotiation, preparation and execution of this
Agreement and the other Transaction Documents and (c) the reasonable costs and
expenses, including reasonable financial advisors' fees, incurred in connection
with the insolvency or bankruptcy of Subsidiary in connection with any proposed
or finalized workout or restructuring of the transactions contemplated hereby
and by the Note Agreement. Subsidiary will pay, and will save the Noteholders
and each other holder of a Note harmless from, all claims in respect of any
fees, costs or expenses, if any, of brokers and finders (other than those
retained by the Noteholders). The obligations of Subsidiary under this SECTION
4.01 will survive the payment or transfer of any Note, the enforcement,
amendment or waiver of any provision of this Agreement or the other Transaction
Documents, and the termination of this Agreement.
SECTION 4.02. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained herein shall survive the execution and
delivery of this Agreement and the other Transaction Documents, the purchase or
transfer by the Noteholders of any Note or portion thereof or interest therein
and the payment of any Note, and may be relied upon by any subsequent holder of
a Note, regardless of any investigation made at any time by or on behalf of the
Noteholders or any other holder of a Note. All statements contained in any
certificate or other instrument delivered by or on behalf of Subsidiary pursuant
to this Agreement shall be deemed representations and warranties of Subsidiary
under this Agreement.
SECTION 4.03. AMENDMENT AND WAIVER. This Agreement may be
amended, and the observance of any term hereof may be waived (either
retroactively or prospectively), with (and only with) the written consent of the
Required Holders, except that no amendment or waiver may, without the written
consent of the holder of each Note at the time outstanding affected thereby,
release Subsidiary from its obligations hereunder. Any amendment or waiver
consented to as provided in this SECTION 4.03 applies equally to all holders of
Notes and is binding upon them and upon each future holder of any Note and upon
Subsidiary and the Company without regard to whether such Note has been marked
to indicate such amendment or waiver. No such amendment or waiver will extend to
or affect any obligation, covenant or agreement not expressly amended or waived
or impair any right consequent thereon. No course of dealing between Subsidiary
or the
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Company and the holder of any Note nor any delay in exercising any rights
hereunder or under any Note shall operate as a waiver of any rights of any
holder of such Note.
SECTION 4.04. NOTICES. All notices and communications provided
for hereunder shall be in writing and sent (a) by telecopy if the sender on the
same day sends a confirming copy of such notice by a recognized overnight
delivery service (charges prepaid), or (b) by registered or certified mail with
return receipt requested (postage prepaid), or (c) by a recognized overnight
delivery service (with charges prepaid). Any such notice must be sent: (i) if to
a Noteholder, to its address specified for such communications in Schedule A to
the Note Agreement, or at such other address as it shall have specified to
Subsidiary in writing, (ii) if to Subsidiary, to Subsidiary at 1600 Smith
Street, Suite 4000, Houston, Texas 77002, Telecopy No.: 713-652-9601, or at such
other address as Subsidiary shall have specified to the holder of each Note in
writing. Notices under this SECTION 4.04 will be deemed given only when actually
received.
SECTION 4.05. LIMITATION ON INTEREST. Each provision in this
Agreement and each other Transaction Document is expressly limited so that in no
event whatsoever shall the amount paid, or otherwise agreed to be paid, by
Subsidiary for the use, forbearance or detention of the money to be loaned to
the Company under the Notes or any other Transaction Document or otherwise
(including any sums paid as required by any covenant or obligation contained
herein or in any other Transaction Document which is for the use, forbearance or
detention of such money), exceed that amount of money which would cause the
effective rate of interest thereon to exceed the Highest Lawful Rate, and all
amounts owed under this Agreement and each other Transaction Document shall be
held to be subject to reduction to the effect that such amounts so paid or
agreed to be paid which are for the use, forbearance or detention of money under
this Agreement or such Transaction Document shall in no event exceed that amount
of money which would cause the effective rate of interest thereon to exceed the
Highest Lawful Rate.
SECTION 4.06. SUCCESSORS AND ASSIGNS. All covenants and other
agreements contained in this Agreement by or on behalf of any of the parties
hereto bind and inure to the benefit of their respective successors and assigns
(including, without limitation, any subsequent holder of a Note) whether so
expressed or not.
SECTION 4.07. SEVERABILITY. Any provision of this Agreement that
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall (to the full
extent permitted by law) not invalidate or render unenforceable such provision
in any other jurisdiction.
SECTION 4.08. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies hereof, each signed by less than all, but together signed by
all, of the parties hereto.
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SECTION 4.09. FINAL AGREEMENT OF THE PARTIES. THIS AGREEMENT AND
THE OTHER TRANSACTION DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
SECTION 4.10. JURY WAIVER. SUBSIDIARY AND THE NOTEHOLDERS
HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 4.11. CHOICE OF FORUM. SUBSIDIARY AND THE NOTEHOLDERS
AGREE THAT ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED HEREBY SHALL BE BROUGHT IN THE FEDERAL OR STATE
COURTS OF HARRIS COUNTY, TEXAS.
SECTION 4.12. GOVERNING LAW. This Agreement shall be construed
and enforced in accordance with, and the rights of the parties shall be governed
by, the law of the State of New York excluding choice-of-law principles of the
law of such State that would require the application of the laws of a
jurisdiction other than such State.
SECTION 4.13. SUBORDINATION AGREEMENT. Each Noteholder
acknowledges that its rights hereunder are subject to the rights of the "Senior
Creditors" under that certain Subordination Agreement dated of even date
herewith by and among Comerica Bank - Texas, as Agent, the Noteholders, the
Company, Cliffwood Oil & Gas Corp., Cliffwood Energy Company and Cliffwood
Production Co.; provided that nothing in such Subordination Agreement shall
limit, release, impair or waive any liability or obligation of Subsidiary
hereunder.
IN WITNESS WHEREOF, Subsidiary and the Noteholders have caused
this Agreement to be executed by their respective representatives thereunto duly
authorized effective as of the date first above written.
TEXOIL COMPANY
By: /s/ RUBEN MEDRANO
Ruben Medrano
President
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RIMCO PARTNERS, L.P.
RIMCO PARTNERS, L.P. II,
RIMCO PARTNERS, L.P. III, AND
RIMCO PARTNERS, L.P. IV
By: RESOURCE INVESTORS MANAGEMENT COMPANY
LIMITED PARTNERSHIP, their general
partner
By: RIMCO ASSOCIATES, INC.,
its general partner
By: /s/ A. L. JORDEN
A. L. Jorden
Vice President
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EXHIBIT 5.5
AMENDED AND RESTATED
STOCK OWNERSHIP AND
REGISTRATION RIGHTS AGREEMENT
AMONG
TEXOIL, INC.
AND
RIMCO PARTNERS, L.P.,
RIMCO PARTNERS, L.P. II,
RIMCO PARTNERS, L.P. III
AND
RIMCO PARTNERS, L.P. IV
DECEMBER 31, 1997
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AMENDED AND RESTATED
STOCK OWNERSHIP AND
REGISTRATION RIGHTS AGREEMENT
AMONG
TEXOIL, INC. AND
RIMCO PARTNERS, L.P., RIMCO PARTNERS, L.P. II,
RIMCO PARTNERS, L.P. III AND RIMCO PARTNERS, L.P. IV
THIS AMENDED AND RESTATED STOCK OWNERSHIP AND REGISTRATION RIGHTS
AGREEMENT dated as of December 31, 1997, (this "Agreement") is among TEXOIL,
INC., a Nevada corporation (the "Company"), and RIMCO Partners, L.P., RIMCO
Partners, L.P. II, RIMCO Partners, L.P. III and RIMCO Partners, L.P. IV
(collectively, the "RIMCO Holders," and together with their distributees,
successors and assigns, the "Holders"), is effective for all purposes as of the
date specified in Article III hereof.
W I T N E S S E T H:
WHEREAS, the Company, the RIMCO Holders and Texoil Company, a
Tennessee corporation, have entered into that certain Stock Ownership and
Registration Rights Agreement dated as of September 6, 1996, as amended by that
certain First Amendment to Stock Ownership and Registration Rights Agreement
dated as of May 21, 1997 (as so amended, the "Existing Registration Rights
Agreement"); and
WHEREAS, the Tranche A Notes and Tranche C Notes referred to in
the Existing Registration Rights Agreement have been exchanged for common stock
of the Company, par value $.01 per share (the "Common Stock") in accordance with
the terms of the Guaranty and Exchange Agreement; and
WHEREAS, pursuant to the terms and subject to the conditions of
that certain Note Purchase Agreement (the "Note Purchase Agreement") dated as of
even date herewith among the Company and the RIMCO Holders, the Company will
issue and sell to the RIMCO Holders the Notes; and
WHEREAS, the Notes are convertible according to the terms of the
Note Purchase Agreement for shares of the Common Stock; and
WHEREAS, the Company and the RIMCO Holders now desire to amend
and restate the Existing Registration Rights Agreement in accordance with the
terms hereof to, among other things, include in the Registrable Securities the
Shares issuable upon conversion of the Notes in the manner provided for in the
Note Purchase Agreement; and
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WHEREAS, Texoil Company is executing this Agreement to evidence
its agreement with the terms hereof; and
WHEREAS, the execution and delivery of this Agreement is a
condition precedent to the closing of the transactions contemplated by the Note
Purchase Agreement;
NOW, THEREFORE, to induce the parties hereto to close the
transactions contemplated by the Note Purchase Agreement (such closing referred
to herein as the "Closing") and in consideration of the aforesaid and of the
mutual representations, warranties and covenants contained herein and in the
Note Purchase Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, agree to amend and restate the Existing
Registration Rights Agreement to read as follows:
ARTICLE I
DEFINITIONS; COMPANY REPRESENTATIONS,
WARRANTIES AND COVENANTS
SECTION 1.01. CERTAIN DEFINED TERMS. Capitalized terms used herein and
not otherwise defined herein shall have the respective meanings set forth in the
Note Purchase Agreement and Annex A attached thereto. For purposes of this
Agreement,
"1933 ACT" means the Securities Act of 1933, as amended.
"1934 ACT" means the Securities and Exchange Act of 1934, as amended.
"AGREEMENT" has the meaning specified in the preamble.
"BLUE SKY FILING" has the meaning specified in SECTION 2.09(A).
"CLOSING" has the meaning specified in the recitals.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" has the meaning specified in the recitals.
"COMPANY" has the meaning specified in the preamble.
"DEMAND REGISTRATIONS" has the meaning specified in SECTION 2.01(A).
"EXISTING RIGHTS HOLDERS" means those Persons listed on SCHEDULE 1.07
attached hereto who hold existing registration rights.
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"GUARANTY AND EXCHANGE AGREEMENT" means that certain Amended and
Restated Guaranty and Exchange Agreement, dated May 21, 1997, among the Company,
the RIMCO Holders, and Texoil Company.
"HOLDERS" has the meaning specified in the preamble.
"MERGER AGREEMENT" means that certain Agreement and Plan of Merger dated
of even date herewith among the Company, Texoil Acquisition, Inc. and Cliffwood
Oil & Gas Corp.
"NOTE PURCHASE AGREEMENT" has the meaning specified in the recitals.
"NOTES" means the 7.875% Convertible Subordinated General Obligation
Notes the subject of the Note Purchase Agreement.
"PERMITTED INTERRUPTION" has the meaning specified in SECTION 2.01(G).
"PIGGYBACK REGISTRATION" has the meaning specified in SECTION 2.02(A).
"REGISTRABLE SECURITIES" means the Shares and the Related Securities. As
to any particular Registrable Securities, once issued such securities shall
cease to be Registrable Securities when (a) a registration statement with
respect to the sale of such securities shall have become effective under the
1933 Act and such securities shall have been disposed of in accordance with the
plan of distribution set forth in such registration statement, (b) such
securities shall have been distributed in accordance with Rule 144 under the
1933 Act or (c) such securities shall have been otherwise transferred, new
certificates therefor not bearing a legend restricting further transfer shall
have been delivered in exchange therefor by the Company and subsequent
disposition of such securities shall not require registration or qualification
under the 1933 Act or any similar state law then in force.
"REGISTRATION EXPENSES" has the meaning specified in SECTION 2.07.
"RELATED SECURITIES" means, collectively, other than the Shares, (i) any
and all securities issued or issuable as a result of adjustments made under the
Guaranty and Exchange Agreement or the Note Purchase Agreement, and in each case
any and all securities otherwise exchanged or converted therefor or distributed,
issued or issuable with respect thereto and (ii) any and all securities of the
Company or any successor thereto or assignee thereof that are hereafter
transferred, distributed, issued or issuable to the Holders.
"RIMCO HOLDERS" has the meaning specified in the preamble.
"SHARES" means, collectively, shares of the Common Stock issued or
issuable upon the exchange of the Tranche A Notes and the Tranche C Notes under
the Guaranty and Exchange Agreement and the conversion of the Notes and all
shares of the Common Stock exchanged or converted therefor or distributed,
issued or issuable with respect thereto.
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SECTION 1.02. UNDERTAKING TO FILE REPORTS AND COOPERATE IN RULE 144
TRANSACTIONS. For as long as any Holder shall continue to hold any Registrable
Securities, the Company shall file, on a timely basis, all annual, quarterly and
other reports required to be filed by it under Sections 13 and 15(d) of the 1934
Act and the rules and regulations promulgated by the Commission thereunder, as
amended from time to time during the term of this Agreement. In the event of any
proposed transfer of Registrable Securities other than pursuant to a sale or
transfer registered under the 1933 Act, the Company shall cooperate with each
Holder so as to enable such sales to be made in accordance with applicable laws,
rules and regulations, the requirements of the Company's transfer agents, and
the reasonable requirements of the broker through which the sales are proposed
to be executed, and shall, upon request and subject to applicable law, furnish
unlegended certificates representing Shares and Related Securities in such
numbers and denominations as any Holder shall reasonably require for delivery
pursuant to such sales. The Holders will have all of the rights set forth in
this Agreement to require a registration of the offering of the Registrable
Securities notwithstanding any availability of Rule 144 under the 1933 Act with
respect to the sale of all or part of the Registrable Securities.
SECTION 1.03. ELECTION OF DIRECTOR TO BOARD OF DIRECTORS OF THE COMPANY.
(a) Subject to compliance with applicable law, immediately following the
issuance of any of the Notes by the Company, the RIMCO Holders holding not less
than a majority (in then market value) of the then outstanding Notes and
Registrable Securities held by the RIMCO Holders, or any designee thereof, shall
be entitled to designate one person to be a member of the Company's Board of
Directors. The Company will use its reasonable best efforts, subject to
compliance with applicable law, to elect or cause to be elected the person
designated by the RIMCO Holders or their designee, so long as (i) any of the
Notes (or any securities converted therefor) are outstanding or (ii) the RIMCO
Holders, together with their Affiliates, own an aggregate of 5% or more of the
Common Stock, however acquired (or a then comparable proportion of the equity
securities of the Company entitled to vote for the election of directors). In
the event of any resignation, removal, death or other termination of the
director so designated by the RIMCO Holders or their designee, or the failure of
the stockholders of the Company for any reason to elect such designee or to
reelect such director, the RIMCO Holders holding not less than a majority (in
then market value) of the then outstanding Notes and Registrable Securities held
by the RIMCO Holders, or any designee thereof, shall be entitled to designate
one person to serve on the Company's Board of Directors in place of such
previously designated person, and the Company will use its reasonable best
efforts, subject to compliance with applicable law, to elect or cause to be
elected to the Board of Directors the person so designated by the RIMCO Holders
or their designee. The RIMCO Holders hereby undertake and agree that, not later
than 15 days following written request from the Company, the RIMCO Holders or
their designee shall furnish to the Company's Board of Directors such
information with respect to such director designee as is required to comply with
applicable law, rule or regulation, and with Items 401 and 404 of Regulation S-K
or Regulation S-B or any successor regulation under the 1933 Act, if then
applicable to the Company.
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SECTION 1.04. NO EXECUTIVE COMMITTEE. Until all the Notes are retired
or converted, there shall be no Executive Committee of the Company's Board of
Directors.
SECTION 1.05. SECTIONS 411 THROUGH 444 OF THE NEVADA GENERAL CORPORATION
LAW. If at any time the Company shall be governed by Sections 411 through 444 of
the Nevada General Corporation Law, the Company hereby covenants that it will
use its reasonable best efforts, subject to compliance with applicable law, to
take all actions necessary under Nevada law, including, without limitation, the
approval by the Board of Directors of the Company of the Transaction Documents
and the consummation of the transactions contemplated thereby, to render the
provisions of Sections 411 through 444 of the Nevada General Corporation Law
inapplicable to the RIMCO Holders and their affiliates and to the transactions
contemplated in the Transaction Documents, including, without limitation, the
acquisition of shares of the Common Stock by the RIMCO Holders pursuant to the
transactions contemplated by the Transaction Documents, as may be amended from
time to time.
SECTION 1.06. EXCHANGE LISTING. The Company shall as promptly as
practicable prepare and file an application to list the Registrable Securities
on each exchange or automated market on which comparable securities of the
Company are then traded, including, without limitation, the Boston Stock
Exchange (if applicable), effective as soon as practicable after the issuance of
such Registrable Securities and shall use its reasonable best efforts to cause
such application to be approved as promptly as practicable.
SECTION 1.07. OTHER REGISTRATION RIGHTS. The Company hereby represents
and warrants that there are no existing rights held by any Person to register
the offering of any securities of the Company under the 1933 Act or any
successor statute ("registration rights") other than (a) the rights granted in
this Agreement and the Merger Agreement, (b) the registration rights described
on SCHEDULE 1.07 granted to the Existing Rights Holders, and (c) the
registration rights granted under that certain Underwriters' Warrant Agreement
dated June 8, 1994 among the Company and Toluca Pacific Securities Corporation,
Tamaron Investments, Inc. and Grant Bettingen, Inc. Other than the existing
registration rights described in the immediately preceding sentence, the Company
will not grant any registration rights in favor of any Person with respect to
any of the Company's securities without the prior written consent of the
Holders.
ARTICLE II
REGISTRATION RIGHTS
SECTION 2.01. DEMAND REGISTRATIONS. (a) GENERAL. Upon the written
request to the Company of Holders of not less than a majority (in then market
value) of the then outstanding Registrable Securities, including not less than a
majority (in then market value) of the then outstanding Registrable Securities
held by the RIMCO Holders, that the Company effect the registration under the
1933 Act, such registration to occur at any time, of all or part of the
Registrable Securities and specifying the intended method of disposition
thereof, the Company will
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give prompt written notice of such request to all other Holders and to all other
Persons, if any, who have contractual rights to request that any of their shares
be piggybacked onto any registration form proposed to be used to register the
Registrable Securities requested by such Holders, and thereupon the Company
will, subject to the provisions of this Agreement, use its reasonable best
efforts to include in the registration under the 1933 Act all shares of the
Common Stock that persons having contractual registration rights with respect to
such shares have requested in writing that the Company register, PROVIDED such
request is given to the Company within 20 days after the receipt of the
aforesaid written notice by the Company (specifying the intended method of
disposition of such the Common Stock), all to the extent requisite to permit the
intended disposition of the Registrable Securities and shares of the Common
Stock to be so registered. All registrations requested by any Holders pursuant
to this SECTION 2.01(A) are referred to herein as "Demand Registrations."
(b) NUMBER OF DEMAND REGISTRATIONS. Subject to the provisions of SECTION
2.01(A), the Holders shall be entitled to request two Demand Registrations.
(c) REGISTRATION OF OTHER SECURITIES. Whenever the Company shall effect
a Demand Registration of Common Stock pursuant to SECTION 2.01(A) in connection
with an underwritten offering by the Holders, no securities other than shares of
the Common Stock shall be included among the securities covered by such
registration unless (i) the managing underwriter of such offering shall have
advised the Company in writing that the inclusion of such other securities would
not adversely affect such offering and (ii) the Holders of Registrable
Securities participating in such Demand Registration shall have consented in
writing to the inclusion of such other securities.
(d) REGISTRATION STATEMENT FORM. Demand Registrations shall be on such
appropriate registration form of the Commission (excluding Form S-8 or Form S-4
(or any successor form)) (i) as shall be selected by the Company and shall be
reasonably acceptable to the Holders and (ii) as shall permit the disposition of
such Registrable Securities in accordance with the intended method or methods of
disposition specified in the Holders' request for such registration, including,
without limitation, a "shelf offering" or disposition pursuant to Rule 415 under
the 1933 Act. The Company and the Holders agree to include in any such
registration statement all information and exhibits that, in the opinion of
counsel to the Holders or counsel to the Company, is required to be included
therein.
(e) EFFECTIVE REGISTRATION STATEMENT. A registration requested pursuant
to SECTION 2.01(A) shall not be deemed to have been effected and will NOT be
considered one of the Demand Registrations which may be requested pursuant to
this Agreement if (i) a registration statement with respect thereto has not
become effective or if the request for the Demand Registration is withdrawn
prior to effectiveness or such registration is interfered with by any stop
order, injunction or other order or requirement of the Commission or other
governmental agency or court for any reason and has not thereafter become
effective, (ii) after it has become effective, it does not remain effective for
a period of at least 120 days or, in the case of a "shelf" registration or
registration pursuant to Rule 415 under the 1933 Act, for a period of at least
two years (unless the Registrable Securities registered thereunder have been
sold or disposed of prior to the expiration of such 120-day period
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or such two-year period, as the case may be), (iii) the conditions to closing
specified in any underwriting agreement entered into in connection with such
registration are not satisfied or waived other than by reason of the failure or
refusal of the Holders to satisfy or perform a condition to such closing or (iv)
the Holders are not able to register and sell all of the Registrable Securities
requested to be included in such Demand Registration, but only if such
registration statement is for a "firm commitment underwriting" rather than for
an "at the market sale" by the Holders. In any event, the Company shall pay all
Registration Expenses in connection with any such registration initiated but not
so effected.
(f) PRIORITY ON DEMAND REGISTRATIONS. In the event that the managing
underwriters of a requested Demand Registration advise the Company in writing
that in their opinion the number of shares of Registrable Securities and other
shares requested to be included in any such registration exceeds the number of
securities that can be sold in such offering, the Company shall include in such
registration only the number of shares of Registrable Securities and other
shares requested to be included that in the opinion of such underwriters can be
sold. If the number of Registrable Securities and other shares requested to be
included requested to be sold in a Demand Registration exceeds the number of
shares of Registrable Securities and other shares requested to be included that
can be sold, the Company shall include in such Demand Registration (i) FIRST,
the Registrable Securities requested to be included therein by the Holders, and
(ii) SECOND, other securities requested to be included in such registration.
(g) RESTRICTIONS ON DEMAND REGISTRATIONS. The Company shall not be
obligated to effect any Demand Registration within 180 days after the effective
date of a previous Demand Registration or a previous registration under which
any Holder exercised piggyback rights pursuant to SECTION 2.02 hereof. The
Company may postpone (such postponement referred to herein as a "Permitted
Interruption") for a reasonable period of time (not to exceed 90 days, which may
not thereafter be extended without approval by the Holders participating in such
Demand Registration, which approval will not be unreasonably withheld) the
filing or the effectiveness of a registration statement for a Demand
Registration if, at the time it receives a request for such registration (i) the
Company is engaged in any active program for repurchase of Common Stock and
furnishes to the Holders an Officer's Certificate to that effect, (ii) the
Company is conducting or about to conduct an offering of the Common Stock or
other securities and the Company is advised by the investment banker engaged by
the Company to conduct the offering that such offering would be affected
adversely by the registration so demanded and the Company furnishes to the
Holders an Officer's Certificate to that effect, or (iii) the board of directors
of the Company shall determine in good faith that such offering will interfere
with a pending or contemplated financing, merger, acquisition, business
combination, sale of assets, recapitalization or other similar corporate action
of the Company and the Company furnishes to the Holders an Officer's Certificate
to that effect. After such Permitted Interruption, the Company shall effect such
registration as promptly as practicable without further request from the Holders
unless such request has been withdrawn.
(h) SELECTION OF UNDERWRITERS. The Holders shall have the right to
select such investment bankers and managers as shall be reasonably acceptable to
the Company to administer the offering
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of Registrable Securities for which a Demand Registration is requested. The
Holders shall, in their sole discretion, negotiate the terms of the
underwriters' fees and expenses, the underwriting discount and commission and
the transfer taxes.
(i) PREEMPTION OF DEMAND REGISTRATION. Notwithstanding anything to the
contrary contained herein, if at any time a Demand Registration has been
requested pursuant to SECTION 2.01(A), the Company may elect to effect an
underwritten primary registration on behalf of the Company if the Company's
Board of Directors believes that such primary registration would be in the best
interests of the Company or if the managing underwriter for the requested Demand
Registration advises the Company in writing that in their opinion in order to
sell the Registrable Securities subject to such Demand Registration the Company
should include its own securities. Promptly after receiving a request for a
Demand Registration, the Company shall notify the members of its Board of
Directors (and the Board of Directors shall consider the issue within 30 days
after receiving such request), and the Company shall meet with the managing
underwriter and shall decide whether or not to effect an underwritten primary
registration on behalf of the Company, and failure to convene such a meeting and
make such determination within such 30-day period shall constitute a waiver by
the Company of its right to preempt a Demand Registration under this SECTION
2.01(I). If the Company elects to effect a primary registration after receiving
a request to effect a Demand Registration, the Company shall give prompt written
notice (and in any event within 60 days after receiving a request for a Demand
Registration) to each Holder requesting such Demand Registration of the
Company's intention to effect such a primary registration and shall afford such
Holder or Holders rights to Piggyback Registrations contained in SECTION 2.02
hereof. If the Company elects to effect a primary registration after receiving a
request to effect a Demand Registration, such registration shall not count as
one of the Demand Registrations of the Holders permitted under SECTION 2.01(B)
hereof, unless all Registrable Securities requested to be included in the Demand
Registration are included in such primary registration.
SECTION 2.02. PIGGYBACK REGISTRATIONS. (a) GENERAL. Whenever the Company
proposes to register any shares of the Common Stock or other equity securities
under the 1933 Act (other than the shelf registration the Company is obligated
to undertake pursuant to the Merger Agreement or registrations solely for shares
to be issued in connection with any employee benefit plan or a merger,
consolidation or other business combination registered on Form S-4 (or any
successor form thereto)) and the registration form to be used may be used for
the registration of Shares or Related Securities, as the case may be (a
"Piggyback Registration"), the Company shall give prompt written notice (in any
event within 10 business days after its receipt of notice of any exercise of
other registration rights) to each Holder of its intention to effect such a
registration and shall use its reasonable best efforts to include in such
registration all of the Registrable Securities with respect to which the Company
receives from any Holder a written request for inclusion therein within 20 days
after the receipt by the Holders of the Company's notice (five business days if
the Company gives telephonic notice to the Holders, with written confirmation to
follow immediately thereafter, stating that (i) such registration will be on
Form S-3 (or any comparable or successor form or comparable form then applicable
to small business issuers) and (ii) such shorter period of time is required
because of a planned filing date), which request shall specify the number of
Registrable Securities requested to
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be included in such registration by such Holder. If the Company elects, prior to
effectiveness, not to proceed with the proposed registration of Common Stock or
other equity securities, it shall not be obligated to register any Registrable
Securities pursuant to such registration unless such primary registration was a
primary registration initiated as provided in SECTION 2.01(I) after the Company
received a request for Demand Registration.
(b) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback Registration is an
underwritten primary registration on behalf of the Company and the managing
underwriter of such offering advises the Company in writing that in their
opinion the number of securities requested to be included in such registration
exceeds the number that can reasonably be sold in such offering, then the
Company shall include in such registration (i) FIRST, the securities that the
Company proposes to sell, (ii) SECOND, the Registrable Securities and other
securities requested to be included therein by one or more Holders or Existing
Rights Holders, on a PRO RATA basis according to the number of securities
originally requested to be included by each Holder and Existing Rights Holder,
and (iii) THIRD, securities requested to be included therein by any other
persons having registration rights with respect to securities of the Company. If
the managing underwriter of such offering subsequently advises the Company in
writing that the number of securities that can be sold exceeds the number of
securities included in the offering, the Company shall include in the
registration (i) FIRST, the securities that the Company proposes to sell, (ii)
SECOND, such additional securities that one or more Holders or Existing Rights
Holders had originally requested be included in the registration, on a PRO RATA
basis according to the number of securities originally requested to be included
by each Holder and Existing Rights Holder, and (iii) THIRD, securities requested
to be included therein by any other persons having registration rights with
respect to securities of the Company.
(c) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback Registration is
an underwritten secondary registration on behalf of holders of the Company's
securities other than the Holders and the managing underwriter of such offering
advises the Company in writing that in their opinion the number of securities
requested to be included in such registration exceeds the number that can
reasonably be sold in such offering, then the Company shall include in such
registration (i) FIRST, if such registration is being made on behalf of other
stockholders of the Company exercising demand registration rights, then the
securities so requested to be included therein in accordance with such demand
registration rights, (ii) SECOND, the Registrable Securities and other
securities requested to be included in such registration by one or more Holders
or Existing Rights Holders, on a PRO RATA basis according to the number of
securities originally requested to be included by each Holder and Existing
Rights Holder, and (iii) THIRD, securities requested to be included therein by
any other persons having registration rights with respect to securities of the
Company. If the managing underwriter of such offering subsequently advises the
Company in writing that the number of securities that can be sold exceeds the
number of securities included in the offering, the Company shall include in the
registration (i) FIRST, the securities proposed to be sold on behalf of the
other stockholders of the Company exercising demand registration rights, (ii)
SECOND, such additional securities that one or more Holders or Existing Rights
Holders had originally requested be included in the registration, on a PRO RATA
basis according to the number of securities originally requested to be included
by each Holder and Existing Rights Holder, and (iii) THIRD, securities requested
to be
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included therein by any other persons having registration rights with respect to
securities of the Company.
(d) OTHER REGISTRATIONS. If (i) the Company has previously filed a
registration statement with respect to any of the Registrable Securities
pursuant to SECTION 2.01(A) OR 2.02(A) and (ii) such previous registration has
not been withdrawn or abandoned, the Company shall not file or cause to be
effective any other registration of any of its equity securities or securities
convertible or exchangeable into or exercisable for its equity securities under
the 1933 Act (except on Form S-8 or Form S-4 or any successor form), whether on
its own behalf or at the request of any holder or holders of such securities,
until a period of at least 180 days has elapsed from the effective date of such
previous registration (and, during the period of any "shelf offering" or
offering pursuant to Rule 415 under the 1933 Act, during such time as any Holder
is engaged in selling efforts pursuant thereto, except with the prior written
consent of the Holders named in the prospectus for such "shelf offering").
(e) PIGGYBACK NOT A DEMAND REGISTRATION. Should any Holder's
participation in a registration be pursuant to a Piggyback Registration in
connection with (i) an underwritten primary registration on behalf of the
Company as described in SECTION 2.02(B), or (ii) an underwritten secondary
registration on behalf of holders of the Company's securities other than the
Holders as described in SECTION 2.02(C), then such participation by any Holder
shall not constitute a Demand Registration for purposes of determining the
number of Demand Registrations the Holders are entitled to pursuant to SECTION
2.01(B).
SECTION 2.03. HOLDBACK AGREEMENTS. (a) GENERAL. Each Holder hereby
agrees not to effect any public sale or distribution of equity securities of the
Company, or any securities convertible into or exchangeable or exercisable for
such securities, including, without limitation, sales pursuant to Rule 144 under
the 1933 Act (or any similar rule then in effect), during the 10 days prior to
and the 90 days beginning on the effective date of any underwritten Demand
Registration or any underwritten Piggyback Registration in which Registrable
Securities are included (except as part of such underwritten registration)
unless the underwriters managing the registered public offering otherwise agree.
(b) AGREEMENT BY THE COMPANY. The Company agrees not to effect any
public sale or distribution of its equity securities, or any securities
convertible into or exchangeable or exercisable for such securities, during the
10 days prior to and during the 90 days beginning on the effective date of any
underwritten Demand Registration or any underwritten Piggyback Registration in
which Registrable Securities are included (except as part of such underwritten
registration in accordance with the provisions of this Agreement) unless the
underwriters managing the registered public offering otherwise agree.
(c) REGISTRATION PROCEDURES. Whenever any Holder requests registration
pursuant to this Agreement, the Company shall use its reasonable best efforts to
effect the registration of Registrable
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Securities for which registration is requested in accordance with the intended
method of disposition thereof, and pursuant thereto the Company shall as
expeditiously as possible:
(i) prepare and file with the Commission a registration statement with
respect to such securities and use its reasonable best efforts to cause
such registration statement to become effective (provided that before
filing a registration statement or prospectus or any amendments or
supplements thereto, the Company will furnish to the counsel selected by
the Holders copies of all documents proposed to be filed, which
documents will be subject to the review of such counsel);
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith and prepare and file any related registration
statement pursuant to Rule 462 under the 1933 Act, in each case as
necessary to keep such registration statement or registration statements
effective for a period of not less than 90 days after such registration
statement is declared effective, provided that the Company shall have no
obligation pursuant to this Agreement to maintain the effectiveness of
such registration statement after the sale of the securities registered
thereunder, and shall comply with the provisions of the 1933 Act with
respect to the disposition of all securities owned by each Holder that
are covered by such registration statement during such period in
accordance with the intended methods of disposition by such Holder;
(iii) furnish to the Holders such number of copies of such registration
statement, each amendment and supplement thereto, the prospectus
included in such registration statement (including each preliminary
prospectus) and such other documents as any Holder may reasonably
request in order to facilitate the disposition of the Registrable
Securities owned by such Holder;
(iv) use its reasonable best efforts to register or qualify such
Registrable Securities under such other securities or Blue Sky Laws of
such jurisdictions as any Holder requests and do any and all other acts
and things that may be necessary or advisable to enable each Holder to
consummate the disposition in such jurisdictions of the Registrable
Securities (provided that the Company will not be required to (A)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this sub-clause (iv), (B)
subject itself to taxation in any such jurisdiction or (c) consent to
general service of process in such jurisdiction);
(v) cause all such shares of Registrable Securities to be listed on each
securities exchange or qualified for trading on each market on which
securities issued by the Company that are of the same class as the
Registrable Securities are then listed or traded;
(vi) provide a transfer agent and registrar for all such Registrable
Securities no later than the effective date of such registration
statement;
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(vii) obtain a "cold comfort" letter from the Company's independent
public accountants in customary form, covering such matters of the type
customarily covered by "cold comfort" letters delivered to underwriters,
and covering such other matters as any Holder may reasonably request;
and obtain an opinion of counsel for the Company in customary form,
covering such matters of the type customarily covered in opinions of
legal counsel delivered to underwriters, and covering such other matters
as any Holder may reasonably request;
(viii) if underwriters are engaged in connection with any registration
referred to in this Agreement, the Company shall provide customary
indemnification, representations, covenants, opinions, and other
assurances to the underwriters, in each case in form and substance
reasonably satisfactory to such underwriter;
(ix) notify each Holder and the managing underwriters, if any, promptly,
and (if requested by any such Person) confirm such advice in writing,
(A) when a prospectus or any prospectus supplement or post-effective
amendment (or related registration statement filed pursuant to Rule 462
under the 1933 Act) has been filed, and, with respect to a registration
statement or any post-effective amendment, when the same has become
effective, (B) of any request by the Commission for amendments or
supplements to a registration statement or related prospectus or for
additional information, (C) of the issuance by the Commission of any
stop order suspending the effectiveness of a registration statement or
the initiation of any proceedings for that purpose, (D) of the receipt
by the Company of any notification with respect to the suspension of the
qualification of any of the registrable securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose, (E) of the happening of any event that requires the making of
any changes in a registration statement or related prospectus so that
such documents will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and (F) of the
Company's reasonable determination that a post-effective amendment to a
registration statement would be required;
(x) notify each Holder at any time when a prospectus relating thereto is
required to be delivered under the 1933 Act, of the occurrence of any
event as a result of which the prospectus included in such registration
statement contains an untrue statement of a material fact or omits any
fact necessary to make the statements therein not misleading, and, at
the request of any Holder, the Company shall prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the
purchasers of such shares such amended or supplemented prospectus shall
not contain an untrue statement of a material fact or omit to state any
fact necessary to make the statements therein not misleading;
(xi) use its reasonable best efforts to obtain as soon as reasonably
practicable the withdrawal of any order suspending the effectiveness of
a registration statement, or the lifting of any suspension of the
qualification of any of the Registrable Securities for sale in any
jurisdiction;
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(xii) if requested by the managing underwriters or any Holder,
incorporate in a prospectus supplement or post-effective amendment such
information as the managing underwriter and the Holders agree should be
included therein relating to the sale and distribution of Registrable
Securities, including, without limitation, information with respect to
the number of Registrable Securities being sold to such underwriters,
the purchase price being paid therefor by such underwriters and with
respect to any other terms of the underwritten (or best efforts
underwritten) offering of the Registrable Securities to be sold in such
offering; make all required filings of such prospectus supplement or
post-effective amendment as soon as notified of the matters to be
incorporated in such prospectus supplement or post-effective amendment;
and supplement or make amendments to any registration statement if
requested by any Holder or any underwriter of such securities;
(xiii) furnish to each Holder and each managing underwriter, without
charge, such signed copies of the registration statement or statements
and any post-effective amendment thereto, including financial statements
and schedules, all documents incorporated therein by reference and all
exhibits (including those incorporated by reference) as any Holder or
managing underwriter may reasonably request;
(xiv) cooperate with reasonable requests of the Holders and the managing
underwriter, if any, to facilitate the timely preparation and delivery
of certificates representing Shares or Related Securities to be sold and
not bearing any restrictive legends unless required by applicable law;
and enable such certificates to be in such denominations and registered
in such names as the managing underwriter may request at least two
business days prior to any sale of Registrable Securities to the
underwriters;
(xv) in the case of an underwritten offering, enter into such customary
agreements (including underwriting agreements in customary form) and
take all such other actions as any Holder or underwriter reasonably
requests in order to expedite or facilitate the disposition of such
Registrable Securities; and
(xvi) make available for inspection by any Holder, any underwriter
participating in any disposition pursuant to such registration
statement, and any attorney, accountant or other agent retained by any
such Holder or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the
Company's officers, directors, employees and independent accountants to
supply all information reasonably requested by any such Holder,
underwriter, attorney, accountant or agent in connection with such
registration statement.
SECTION 2.04. COMPANY REPORTS. The Company shall file all reports
required to be filed by it under the 1933 Act and the 1934 Act and the rules and
regulations promulgated by the Commission thereunder, and take such further
reasonable action as may be necessary or appropriate for the Company to use Form
S-2 or S-3 (or any similar registration form then applicable to small business
issuers or hereafter adopted by the Commission) to register the Registrable
Securities for
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sale thereon. Upon request, the Company shall deliver to the Holders a written
statement as to whether it has complied with such requirements.
SECTION 2.05. INFORMATION TO BE FURNISHED BY THE HOLDERS. In connection
with any registration of shares of Registrable Securities hereunder, the Company
may require the Holders to furnish the Company with such information regarding
the Holders and the distribution of such shares as the Company may from time to
time reasonably request in writing in order to comply with the 1933 Act. Each
Holder agrees to notify the Company as promptly as practicable of any inaccuracy
or change in information previously furnished to the Company or of the
occurrence of any event in either case as a result of which any prospectus
relating to such registration contains untrue statements of a material fact
regarding the Holders or the distribution of such shares or omits to state any
material fact regarding the Holders or the distribution of such shares required
to be stated therein or necessary to make the statement therein not misleading
in light of the circumstances under which such statements were made, and to
promptly furnish to the Company any additional information required to correct
and update any previously furnished information or required such that such
prospectus shall not contain, with respect to the Holders or the distribution of
such shares, an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances under which such statements are
made.
SECTION 2.06. SUSPENSION OF OFFERING PENDING PROSPECTUS SUPPLEMENT OR
AMENDMENT. Each Holder agrees that, upon receipt of any notice from the Company
of the occurrence of any event of the kind described in SECTION 2.03(C)(IX)(B),
(C), (D), (E) OR (F) hereof, such Holder will forthwith discontinue disposition
of the Registrable Securities covered by such registration statement or
prospectus until such holder's receipt of the copies of the supplemented or
amended prospectus relating to such registration statement or prospectus, or
until it is advised in writing by the Company that the use of the applicable
prospectus may be resumed, and has received copies of any additional or
supplemental filings which are incorporated by reference in such prospectus,
and, if so directed by the Company, such Holder will deliver to the Company all
copies, other than permanent file copies then in such Holder's possession, of
the prospectus covering the Registrable Securities current at the time of
receipt of such notice.
SECTION 2.07. REGISTRATION EXPENSES. (a) GENERAL. All expenses incident
to the Company's performance and execution of Demand Registrations or Piggyback
Registrations, and the Company's performance of or compliance with this
Agreement, including, without limitation, all registration and filing fees, fees
and expenses of compliance with securities or Blue Sky Laws, expenses and fees
for listing the securities on the appropriate securities exchanges or qualifying
such securities for trading in the appropriate securities markets, costs of
liability insurance, all internal expenses, the expense of any annual audit or
quarterly review, printing expenses, messenger and delivery expenses, fees and
disbursements of counsel for the Company and all independent certified public
accountants (including the expenses of any special audit and "cold comfort"
letters required by or incident to such performance), and fees and costs of
underwriters (excluding discounts and commissions and fees of underwriters,
selling brokers, dealer managers or similar securities industry
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professionals relating to the distribution of the Registrable Securities) and
other Persons (all such expenses being herein called "Registration Expenses"),
shall be borne by the Company.
(b) REIMBURSEMENT FOR COUNSEL FEES. In connection with each
Demand Registration and Piggyback Registration, the Company shall reimburse the
Holders for the reasonable fees and disbursements of one law firm chosen by
Holders of a majority (in then market value) of the then outstanding Registrable
Securities.
(c) PAYMENT OF EXPENSES BY THE HOLDERS. The Holders shall pay the
underwriters' discount and commissions and the commissions and fees, if any,
payable in respect of selling brokers, dealer managers or similar securities
industry professionals, and transfer taxes allocable to the registration of the
Holders' securities so included in any Demand Registration or Piggyback
Registration pursuant to this Agreement.
SECTION 2.08. UNDERWRITTEN OFFERINGS. (a) UNDERWRITING AGREEMENT. In any
underwritten offering by one or more Holders pursuant to a registration
requested under SECTION 2.01(A) OR 2.02(A), the Company shall enter into an
underwriting agreement which shall be reasonably satisfactory in form and
substance to the Company, such Holder or Holders and the underwriters and which
shall contain representations, warranties and agreements (including
indemnification agreements to the effect and consistent with that provided in
SECTION 2.09 hereof) as are customarily included by an issuer in underwriting
agreements with respect to primary distributions.
(b) CONDITION TO PARTICIPATION AND QUALIFICATIONS TO OBLIGATIONS UNDER
REGISTRATION COVENANTS. The obligations of the Company to use its reasonable
best efforts to cause the Registrable Securities to be registered under the 1933
Act are subject to each of the conditions that no Holder may participate in any
underwritten offering hereunder unless such Holder (a) agrees to sell such
Registrable Securities on the basis provided in any underwriting arrangements
approved by the persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably and customarily required
under the terms of such underwriting arrangements.
SECTION 2.09. INDEMNIFICATION. (a) BY THE COMPANY. In the event of any
registration of any Registrable Securities under the 1933 Act, the Company will,
and does hereby indemnify and hold harmless, to the fullest extent permitted by
law, each Holder, its directors and officers, each other Person who participates
as an underwriter in the offering or sale of such securities and each other
Person, if any, who controls such Holder or any such underwriter within the
meaning of the 1933 Act, against any and all losses, claims, damages,
liabilities and expenses, joint or several, (or actions or proceedings, whether
commenced or threatened, in respect thereof) to which they or any of them may
become subject under the 1933 Act or any other statute or common law, including
any amount paid in settlement of any litigation, commenced or threatened, and to
reimburse them for any legal or other expenses incurred by them in connection
with investigating any claims and defending any actions, insofar as any such
losses, claims, damages, liabilities, expenses or actions arise out of or are
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained
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in the registration statement relating to the sale of such securities or any
post-effective amendment thereto or any related registration statement filed
pursuant to Rule 462 or similar rule under the 1933 Act or in any filing made in
connection with the qualification of the offering under Blue Sky or other
securities laws or jurisdictions in which the Registrable Securities are offered
("Blue Sky Filing"), or the omission or alleged omission to state therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading or (ii) any untrue statement or
alleged untrue statement of a material fact contained in any preliminary
prospectus, if used prior to the effective date of such registration statement
(unless such statement is corrected in the final prospectus and the Company has
previously furnished copies thereof to each Holder and the underwriters), or
contained in the final prospectus (as amended or supplemented if the Company
shall have filed with the Commission, and furnished to each Holder and the
underwriters of such offering copies thereof, prior to the written confirmation
of any sale to the person asserting liability, any amendment thereof or
supplement thereto) if used within the period during which the Company is
required to keep the registration statement to which such prospectus relates
current, or the omission or alleged omission to state therein (if so used) a
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; PROVIDED, HOWEVER,
that the indemnification agreement contained herein shall not (i) apply to such
losses, claims, damages, liabilities, expenses or actions arising out of, or
based upon, any such untrue statement or alleged untrue statement, or any such
omission or alleged omission, if such statement or omission was made in reliance
upon and in conformity with written information furnished to the Company by a
Holder or such underwriter expressly for use in connection with preparation of
the registration statement, any preliminary prospectus or final prospectus
contained in the registration statement, any such amendment or supplement
thereto or any Blue Sky Filing or (ii) inure to the benefit of any underwriter
or any person controlling such underwriter, to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof) or expense
arises out of such person's failure to send or give a copy of the final
prospectus, as the same may be then supplemented or amended, to the person
asserting an untrue statement or alleged untrue statement or omission or alleged
omission at or prior to the written confirmation of the sale of Registrable
Securities to such person if such statement or omission was corrected in such
final prospectus. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Holder or any such
director, officer or controlling person and shall survive the transfer of such
securities by such Holder.
(b) BY THE HOLDERS. The Company may require, as a condition to including
any Registrable Securities in any registration statement filed pursuant to
SECTION 2.01 OR 2.02, that the Company shall have received an undertaking
satisfactory to it from the Holders to indemnify and hold harmless (in the same
manner and to the same extent as set forth in SECTION 2.09(A)) the Company, each
director of the Company, each officer of the Company and each other person, if
any, who controls the Company within the meaning of the 1933 Act, with respect
to any untrue statement or alleged untrue statement in, or omission or alleged
omission from, such registration statement, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto, if such
statement or omission was made in reliance upon and in conformity with written
information furnished to the Company by a Holder expressly for use in the
preparation of such
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registration statement, preliminary prospectus, final prospectus, amendment or
supplement. Such indemnity shall remain in full force and effect, regardless of
any investigation made by or on behalf of the Company or any such director,
officer or controlling person and shall survive the transfer of such securities
by such Holder. In no event shall any indemnity paid by any Holder to the
Company pursuant to this SECTION 2.09(B), or otherwise, exceed the proceeds
received by such Holder in such offering.
(c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding involving a
claim referred to in SECTION 2.09(A) OR 2.09(B), such indemnified party will, if
a claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action, PROVIDED that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under SECTION 2.09(A) OR
2.09(B), as the case may be. In case any such action is brought against an
indemnified party, the indemnifying party shall be entitled to participate in
and, unless in such indemnified party's reasonable judgment a conflict of
interest between such indemnified and indemnifying parties may exist in respect
of such claim, to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof other than reasonable costs of
investigation. In the event that the indemnifying party advises an indemnified
party that it will contest a claim for indemnification hereunder, or fails,
within 30 days of receipt of any indemnification notice to notify, in writing,
such person of its election to defend, settle or compromise, at its sole cost
and expense, any action, proceeding or claim (or discontinues its defense at any
time after it commences such defense), then the indemnified party may, at its
option, defend, settle or otherwise compromise or pay such action or claim. In
any event, unless and until the indemnifying party elects in writing to assume
and does so assume the defense of any such claim, proceeding or action, the
indemnified party's costs and expenses arising out of the defense, settlement or
compromise of any such action, claim or proceeding shall be losses subject to
indemnification hereunder. The indemnified party shall cooperate fully with the
indemnifying party in connection with any negotiation or defense of any such
action or claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the indemnified party which
relates to such action or claim. The indemnifying party shall keep the
indemnified party fully apprised at all times as to the status of the defense or
any settlement negotiations with respect thereto. If the indemnifying party
elects to defend any such action or claim, then the indemnified party shall be
entitled to participate in such defense with counsel of its choice at its sole
cost and expense. If the indemnifying party does not assume such defense, the
indemnified party shall keep the indemnifying party apprised at all times as to
the status of the defense; PROVIDED, HOWEVER, that the failure to keep the
indemnifying party so informed shall not affect the obligations of the
indemnifying party hereunder. No indemnifying party shall be liable for any
settlement of any action, claim or proceeding effected without its written
consent; PROVIDED, HOWEVER, that the indemnifying party shall not unreasonably
withhold, delay or condition its consent. No
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indemnifying party shall, without the consent of the indemnified party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.
(d) CONTRIBUTION. If the indemnification provided for in or pursuant to
SECTION 2.09(A) OR 2.09(B) is due in accordance with the terms thereof, but is
held by a court to be unavailable or unenforceable in respect of any losses,
claims, damages, liabilities or expenses referred to therein, then each
applicable indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified person as a
result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses as well as any other relevant equitable considerations.
The relative fault of the indemnifying party on the one hand and of the
indemnified person on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party, by such party's
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement, or omission. In no event shall the liability of any
Holder be greater in amount than the amount of proceeds received by such Holder
upon such sale.
ARTICLE III
EFFECTIVE TIME AND TERM OF THIS AGREEMENT
SECTION 3.01. EFFECTIVE TIME AND TERM OF THIS AGREEMENT. This Agreement
will be effective for all purposes as of the Closing and will continue in full
force and effect until the date that no Holder owns any of the Registrable
Securities.
ARTICLE IV
MISCELLANEOUS
SECTION 4.01. SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall (to the full extent permitted by law)
not invalidate or render unenforceable such provision in any other jurisdiction.
SECTION 4.02. AMENDMENTS. This Agreement contains the entire
understanding of the parties with respect to the Registrable Securities, and may
be amended only by an agreement in writing signed by (i) the Company and (ii)
the Holders of not less than a majority (in then market value) of the then
outstanding Registrable Securities, including not less than a majority (in then
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market value) of the then outstanding Registrable Securities held by the RIMCO
Holders, PROVIDED, HOWEVER, that in no event shall any amendment impose any
additional material obligations on any Holder without such Holder's written
consent.
SECTION 4.03. DESCRIPTIVE HEADINGS. Descriptive headings are for
convenience only and shall not control or affect the meaning or construction of
any provision of this Agreement.
SECTION 4.04. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be an original but all of which together
shall constitute one instrument. Each counterpart may consist of a number of
copies hereof, each signed by less than all, but together signed by all, of the
parties hereto.
SECTION 4.05. NOTICES. All notices and communications provided for
hereunder shall be in writing and sent (a) by telecopy if the sender on the same
day sends a confirming copy of such notice by a recognized overnight delivery
service (charges prepaid) or (ii) by registered or certified mail with return
receipt requested (postage prepaid) or (iii) by a recognized overnight delivery
service (with charges prepaid).
(i) if to a RIMCO Holder, at its addresses set forth below, or such
other address as it shall have specified to the Company in writing,
(ii) if to any other Holder, at such address as specified to the Company
in writing in the notice provided in SECTION 4.08(B), or such other
address as such Holder shall have subsequently specified to the Company
in writing, and
(iii) if to the Company or the Company, 1600 Smith Street, Suite 4000,
Houston, Texas 77002, Telecopy No.: 713-652-9601, or such other address
as it shall have specified to the Holders in writing.
Notices given under this SECTION 4.05 shall be deemed given only when actually
received.
SECTION 4.06. GOVERNING LAW. This Agreement shall be construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the laws of the State of New York, excluding choice-of-law principles of the law
of such State that would require the application of the laws of a jurisdiction
other than such State.
SECTION 4.07. SURVIVAL. The representations and warranties made by the
Company herein shall survive the execution and delivery of the Transaction
Documents and the purchase and transfer by the Holders of any of the Registrable
Securities, regardless of any investigation made at any time by or on behalf of
the RIMCO Holders or any other Holder. All statements contained in any
certificate or other instrument delivered by or on behalf of the Company
pursuant to this Agreement shall be deemed to be representations and warranties
of the Company under this Agreement.
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SECTION 4.08. SUCCESSORS AND ASSIGNS. (a) Subject to the provisions of
SECTION 4.08(B), all covenants and other agreements contained in this Agreement
by or on behalf of any of the parties hereto bind and inure to the benefit of
their respective successors and assigns (including, without limitation, any
subsequent holder of a Note or any Registrable Securities), whether so expressed
or not.
(b) The Registrable Securities and rights of any Holder under this
Agreement with respect to any Registrable Securities may be assigned to any
person who acquires Registrable Securities from a Holder, except that any Person
who acquires such Registrable Securities (x) pursuant to a public offering
registered under the 1933 Act or (y) pursuant to a transfer made in accordance
with Rule 144 under the 1933 Act may not be assigned rights hereunder with
respect to such Registrable Securities. Notwithstanding the foregoing, rights to
cause a Demand Registration under SECTION 2.01(A) may only be assigned if such
rights are expressly assigned in writing from a Holder. Any assignment of
registration rights pursuant to this SECTION 4.08(B) shall be effective upon
receipt by the Company of written notice from such assigning Holder (i) stating
the name and address of any assignee, (ii) describing the manner in which the
assignee acquired the Registrable Securities from such Holder and (iii)
identifying the number of Registrable Securities with respect to which the
rights under this Agreement are being assigned.
SECTION 4.09. ACTIONS BY HOLDERS OF MAJORITY OF REGISTRABLE SECURITIES.
Each of the parties hereto agrees, in connection with the taking of any action
permitted to be taken hereunder by the Holders or RIMCO Holders (as the case may
be), that the Holders or RIMCO Holders (as the case may be) holding a majority
(in then market value) of the then outstanding Registrable Securities are
entitled to take such action.
SECTION 4.10. EXISTING REGISTRATION RIGHTS. The Company and the RIMCO
Holders each acknowledge and agree that the Company has (i) either granted or is
otherwise bound by certain agreements granting demand and piggyback registration
rights to the Existing Rights Holders, and (ii) pursuant to the Merger
Agreement, agreed to prepare and file with the Commission a registration
statement covering certain shares of Common Stock held by the holders identified
therein. The Company and the RIMCO Holders each agree to undertake their
reasonable, good faith efforts to enter into an agreement with all of the
Company's shareholders who hold registration rights whereby such registration
rights are coordinated such that in the event of a registration of shares by the
Company that triggers "piggyback" rights among such shareholders, such
shareholders will have the rights to register their shares on a pro rata basis
if the total number of shares to be registered is cut back by the managing
underwriter; provided, however, that in the case of a "demand" registration by a
shareholder of the Company, the shareholder demanding registration will have
priority to register all of its shares before any shares are registered pursuant
to the "piggyback" rights of other shareholders (with such "piggyback" shares to
be registered on a pro rata basis in the event of an underwriter cutback).
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IN WITNESS WHEREOF, the Company, Texoil Company and the RIMCO Holders
have caused this Agreement to be executed by their respective representatives
thereunto duly authorized, effective as of the date first above written.
TEXOIL, INC.
By: /s/ RUBEN MEDRANO
Ruben Medrano
President
TEXOIL COMPANY
By: /s/ RUBEN MEDRANO
Ruben Medrano
President
RIMCO PARTNERS, L.P.
RIMCO PARTNERS, L.P. II
RIMCO PARTNERS, L.P. III
RIMCO PARTNERS, L.P. III
By: RESOURCES INVESTORS MANAGEMENT
COMPANY LIMITED PARTNERSHIP,
their general partner
By: RIMCO ASSOCIATES, INC.,
its general partner
By: /s/ A. L. JORDEN
A. L. Jorden
Vice President
Addresses for Notices:
22 Waterville Road
Avon, Connecticut 06001
Telecopy No.: 860-678-9382
600 Travis Street, Suite 6875
Houston, Texas 77002
Telecopy No.: 713-247-0730
<PAGE>
SCHEDULE 1.07
EXISTING RIGHTS HOLDERS
1. First Union Capital Partners, Inc. - Common Stock and Warrant Purchase
Agreement between Cliffwood Oil & Gas Corp. and First Union Partners,
Inc., dated May 30, 1997.
2. Belleview 1992 Income Fund, L.P. - Common Stock and Warrant Purchase
Agreement between Cliffwood Oil & Gas Corp. and Belleview 1992 Income
Fund, L.P., dated August 4, 1997.
3. Energy Capital Investment Company, PLC. and EnCap Equity 1996 Limited
Partnership - Investment Agreement by and between Cliffwood Oil & Gas
Corp., Energy Capital Investment Company, PLC. and EnCap Equity 1996
Limited Partnership, dated September 27, 1996.
4. The following individual persons who have registration rights under that
certain Stock Ownership and Registration Rights Agreement dated
September 6, 1996 among such persons and the Company:
T. W. Hoehn, Jr.
T. W. Hoehn, III
William F. Seagle
5. Holders of the following warrants issued pursuant to the underwritten
public offering of 750,000 units in May 1994:
Class A Warrants
Class B Warrants
Schedule 1.07
