SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
Commission file number: 0-12633
TEXOIL, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
NEVADA 88-0177083
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION
OR ORGANIZATION)
110 CYPRESS STATION DRIVE, SUITE 220
HOUSTON, TEXAS 77090
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(281) 537-9920
(ISSUER'S TELEPHONE NUMBER)
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Common Stock, par value $.01 per share Boston Stock Exchange
Class A Warrants exercisable to Boston Stock Exchange
purchase one share of Common Stock
Class B Warrants exercisable to Boston Stock Exchange
purchase one share of Common Stock
Securities registered under section 12(g) of the Exchange Act: Common
Stock, par value $.01 per share
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year $7,123,000.
The aggregate market value of the Common Stock held by non-affiliates of
the registrant was $21,529,219 as of March 31, 1998. On such date, the last
sales price of registrant's Common Stock was $1.125 per share.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 36,707,618 shares of Common
Stock, $.01 par value, issued and outstanding at March 31, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
None
Transitional Small Business Disclosure Format (check one): YES [ ] NO [X]
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TABLE OF CONTENTS
PART I
PAGE
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Item 1. Description of Business.............. 1
Item 2. Description of Property.............. 11
Item 3. Legal Proceedings.................... 19
Item 4. Submission of Matters to a Vote of
Security Holders................... 19
PART II
Item 5. Market for Common Equity and Related
Stockholder Matters................ 21
Item 6. Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 21
Item 7. Financial Statements................. 26
Item 8. Changes in Registrant's Certifying
Accountants........................ 27
PART III
Item 9. Directors, Executive Officers,
Promoters and Control Persons;
Compliance with Section 16(a) of
the Exchange Act................... 28
Item 10. Executive Compensation............... 29
Item 11. Security Ownership of Certain
Beneficial Owners and Management... 32
Item 12. Certain Relationships and Related
Transactions....................... 34
Item 13. Exhibits and Reports on Form 8-K..... 35
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Texoil, Inc. ("Texoil" or the "Company") acquires, explores for,
develops and produces oil and natural gas. The Company historically has focused
its operations on exploratory drilling for oil and natural gas primarily in
South Louisiana and the Texas Gulf Coast, but as a result of several related
transactions described in "Recent Developments", the Company underwent a
substantial change in ownership, management, assets, and business strategy, all
effective as of December 31, 1997. The Company's new address is 110 Cypress
Station Drive, Houston, Texas, 77090 and its telephone number is (281) 537-9920.
From 1964 through the end of 1997, the Company's exploration business was
conducted primarily by its wholly-owned subsidiary, Texoil Company, a Tennessee
corporation. Texoil Company became a subsidiary of the Company in March 1993
after surviving a merger. At the time of the merger, the Company (which was then
a Nevada corporation named Comet Entertainment, Inc.) was a Securities and
Exchange Commission ("SEC") reporting company, but had no substantive assets
or operations. Upon consummation of the merger, Texoil Company's stockholders
and management became management and controlling stockholders of the Company.
RECENT DEVELOPMENTS
CLIFFWOOD MERGER
On December 31, 1997, the Company acquired Cliffwood Oil & Gas Corp., a
privately-owned independent oil and gas company ("Cliffwood") in a merger
transaction that (i) shifted stockholder control of the Company to the former
stockholders of Cliffwood, (ii) changed the composition of the Company's Board
of Directors to include a majority of directors nominated by Cliffwood, (iii)
completely replaced the executive officers and employees of the Company with
those of Cliffwood, (iv) resulted in a significant change in the Company's oil
and gas operating strategy, (v) increased the quantity and geographic diversity
of the Company's oil and gas assets, and (vi) substantially improved the
Company's overall financial position and its capital resources in particular.
The acquisition of Cliffwood was accomplished through a merger and related
transactions pursuant to a Plan and Agreement of Merger (the "Merger
Agreement") dated December 31, 1997, between the Company, a newly formed
wholly-owned subsidiary of the Company ("Texoil Sub"), and Cliffwood. Pursuant
to the Merger Agreement, Texoil Sub was merged with and into Cliffwood, with
Cliffwood being the surviving entity (the "Merger"). Thus, Cliffwood became a
wholly-owned subsidiary of the Company.
As more fully described in Item 6. "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and in the Notes to
Consolidated Financial Statements, included in this annual report, the
acquisition of Cliffwood is accounted for as a reverse acquisition. Accordingly,
the historical financial information presented herein, represents the activities
of Cliffwood with the net assets of Texoil, exisitng immediately prior to the
Merger, treated as an acquisition on December 31, 1997. The combined entities
intend to operate in the future using the name Texoil, Inc. References to the
Company, as used herein, means Texoil, Inc., and all its wholly-owned
subsidiaries, including Texoil Company and Cliffwood Oil & Gas Corp., unless
otherwise specified.
Under the terms of the Merger Agreement, Texoil issued 6.74 shares of
common stock, par value $.01 per share ("Common Stock") for every share of
issued and outstanding Cliffwood Class A common stock and Class B common stock,
resulting in the issuance of approximately 25,512,000 shares of Texoil Common
Stock, or 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 9,203,470 shares of
Texoil Common Stock.
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Cliffwood was a private, independent oil & gas company whose strategy had
been to achieve growth through diversified activities, including purchases of
reserves, re-engineering, recompletions, development drilling, and exploration.
Its principal proved reserves are located onshore in Texas. Cliffwood's
exploratory drilling efforts are focused primarily in Southern Louisiana and the
Texas Gulf Coast. Its drilling strategy was to originate drilling prospects,
acquire leases and lease options, and solicit participants on a promoted basis
by which Cliffwood had the potential to earn a net revenue interest in the
properties greater than its proportionate cost.
Cliffwood's predecessor company was initially incorporated in September
1993. Significant operations did not begin until February 1996, with the
acquisition of Cliffwood Energy Company. In May 1996, the corporate structure
was revised and Cliffwood became the parent corporation to Cliffwood Production
Co. and Cliffwood Energy Company, both wholly-owned subsidiaries. In June 1997,
Cliffwood Exploration Company was formed, also as a wholly-owned subsidiary.
References herein to the term "Cliffwood" refers to Cliffwood Oil & Gas Corp.
and all consolidated subsidiaries, unless separately specified.
CONVERSION OF SECURITIES; REPAYMENT OF NON-CONVERTIBLE INDEBTEDNESS
The Merger Agreement required that all pre-Merger preferred stock and
indebtedness of the Company be converted into Common Stock or repaid as a
condition to closing the Merger. Accordingly, the following securities and
indebtedness of the Company outstanding immediately prior to the Merger were
converted or repaid.
o The holders of $2.3 million of Texoil's Series A Preferred Stock
converted those securities plus accrued dividends into 904,667 shares
of Common Stock in accordance with the terms of such securities.
o Convertible notes held by certain Directors of the Company, amounting
to $611,800 in unpaid principal and interest, were converted by the
directors into 764,795 shares of Common Stock in accordance with the
terms of those instruments.
o $1.05 million of unpaid principal and interest on non-convertible
notes owed to a director of the Company and his affiliates was repaid.
o $4.57 million of unpaid principal and accrued interest on convertible
notes owed to affiliates of Resource Investors Management Company
("RIMCO") was converted by the RIMCO affiliates into approximately
4.83 million shares of Common Stock in accordance with the terms of
those instruments.
NEW RIMCO FINANCING
Prior to the Merger, Texoil had existing financing arrangements with RIMCO
(the "Prior RIMCO Financing"). As described above, all of the outstanding
principal and accrued and unpaid interest under the Prior RIMCO Financing was
exchanged for Common Stock in connection with the Merger. All financing
arrangements under the Prior RIMCO Financing have been replaced by new
arrangements with RIMCO as summarized below.
As a condition to the Merger, 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 agreed to provide $10.0 million in
financing and Texoil issued 7.875% Convertible Subordinated General Obligation
Notes in the principal amount of $10.0 million to the RIMCO Lenders (the
"Convertible Notes") which will mature December 31, 1999, subject to extension
pursuant to the terms of the RIMCO Agreement ("Maturity Date"). Interest is
payable on the first day of each month beginning February 1, 1998. All
outstanding principal plus all accrued and unpaid interest 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, outstanding indebtedness is
convertible by holders of the Convertible Notes, in whole or in part, into
Texoil Common Stock at an initial conversion price equal to $1.75 per share,
subject to certain anti-dilution adjustments. Texoil can convert all of the
outstanding
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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, as defined in the RIMCO Agreement, 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 forth in the RIMCO Agreement.
The indebtedness under the RIMCO Agreement is subject to the terms of a
subordination agreement among the RIMCO Lenders, Comerica Bank-Texas, N.A. (for
itself and as agent for another lender), the Company and certain subsidiaries.
The subordination provisions do not affect the ability to convert indebtedness
under the RIMCO Agreement into Common Stock of Texoil. The Company granted the
holders of the Convertible Notes certain registration rights related to any
Texoil Common Stock issuable upon conversion of debt under the Convertible
Notes. The foregoing is only a summary of the Company's new RIMCO financing
arrangements and is qualified by the full text of the RIMCO Agreement and
related documents included as Exhibits to this Report.
BANK CREDIT AGREEMENT
In September 1996, Cliffwood entered into a revolving credit agreement
("Credit Agreement") with Comerica Bank-Texas to finance property acquisitions
and temporary working capital requirements. The Credit Agreement was amended and
assumed by the Company. The Credit Agreement, as amended, provides up to
$25,000,000 in available borrowings limited by a borrowing base (as defined in
the Credit Agreement) which was $10,000,000 and $3,750,000 at December 31, 1997
and 1996, respectively. The borrowing base is redetermined annually (or more
frequently at the option of the Company) and is reduced over a five-year period.
The Credit Agreement provides for an annual facility fee of 1/4% of the initial
borrowing base and on any increase thereto, and it also provides for monthly
interest payments at the lender's prime rate plus 1/2%. The Company has granted
first mortgages, assignments of production, security agreements and other
encumbrances on its oil and gas properties to the lender, as collateral,
pursuant to the Credit Agreement.
The Credit Agreement contains covenants which, among other things, restrict
the payment of dividends on any security, limit the amount of consolidated debt,
limit the Company's ability to make certain loans and investments and require
that the Company remain in compliance with certain covenants of the Credit
Agreement.
BUSINESS STRATEGY
POST-MERGER CHANGE OF BUSINESS STRATEGY
Following the Merger, new management modified the Company's business
strategy to include the purchase, re-engineering and development of proved oil
and gas properties as a core business activity. The Company's strategy will
continue to include exploration and development drilling programs designed to
use 3-D seismic technology with comprehensive integration of subsurface control,
production, engineering and other data, as available, as a means of reducing
risk. The Company will, however, seek to increase its reserves and replace
production through more diversified activities.
Of the Company's capital expenditures in 1998, management estimates that
approximately 70% will be for purchases and re-engineering of producing
properties, and developmental drilling, 15% for pre-drilling exploration costs,
including 2-D and 3-D seismic, and 15% for exploratory drilling. The proportion
of the Company's capital expenditure budget expended for each of these
activities could change substantially, depending upon the relative cost of the
drilling and acquisition opportunities presented to the Company, the
availability of external financing, and management's assessment of the risk,
cost, and potential return.
Before the Merger, the Company's business strategy for growth and
replacement of reserves focused almost exclusively on exploration activities, by
means of selling promoted working interests in its prospects
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to industry participants for a negotiated combination of cash and retained
interests. Under such arrangements, the Company's percentage interest in
revenues from a successful prospect could be higher than its percentage share of
the cost of lease acquisition and drilling. Historically, this strategy was
intended to conserve the Company's limited cash resources while exposing the
Company to potential growth through exploratory discoveries and subsequent
developmental drilling. In the opinion of new management, the business strategy
of generating exploratory and development projects which can be partially sold
to industry or institutional partners on a promoted basis should and will be
retained as a core business principle. However, the Company will maintain a
disciplined and financially oriented approach to such projects and will
determine its retained cost interest with full consideration of underlying
equity, profits from sales of partial interests, capital resources and cash
flows.
PROPERTY ACQUISITIONS, RE-ENGINEERING AND DEVELOPMENT DRILLING
Purchases of proved reserves, re-engineering older fields to enhance
production and lower operating costs, and development drilling are expected to
be a significant part of the Company's new strategy for growth. Re-engineering
and development projects are expected to be based on detailed engineering and
geological studies of applicable fields undertaken by the Company's own staff.
With respect to development drilling, new management believes that the most
effective application of 3-D seismic technology will be as an aid to the
Company's development drilling activities.
PROSPECT GENERATION AND DRILLING
The Company's post-Merger inventory of drilling prospects is more risk
diverse than either of the separate inventories of Texoil or Cliffwood prior to
the Merger. In addition to Texoil prospects existing prior to the Merger, the
Company has several potential drilling prospects resulting from Cliffwood's
producing property acquisitions and from a prospect generation joint venture.
The Company intends to maintain a diversified inventory of exploratory and
development prospects. The current portfolio includes lower risk development and
exploratory prospects, as well as higher risk deep exploratory prospects with
greater potential. The objective of the Company's near-term strategy is
maximization of the value of its existing prospect inventory while reducing its
cost and risk exposure. In the near term, the Company plans to retain a
12.5%-25% direct working interest in each prospect, plus any carried or
reversionary interest retained as part of sales to industry partners. Direct
participation will increase as corporate cash flows and capital resources
increase. The Company intends to evaluate and participate in a wider array of
prospects in more geographically and geologically diverse locations than it has
in the past.
EXPLORATION STAFFING
Prior to the Merger, the Company did not employ an in-house exploration
staff, preferring to use independent consultants and strategic alliances as its
primary source of prospect generation and prospect evaluation. Current
management intends to maintain existing and develop new strategic alliances, but
believes the Company's in-house staff and joint venture with Bechtel Exploration
Company can control timing, development and costs better than larger companies
and third-party consultants.
THREE-DIMENSIONAL SEISMIC SURVEYS
Three-dimensional seismic is the application of powerful computer
workstations and sophisticated software to seismic data acquired from a dense
pattern of shot points to create computer-generated, three-dimensional displays
of subsurface geological formations. Sophisticated seismic equipment and
detailed 3-D survey design gather thousands of times more data than conventional
2-D seismic surveys and permit a more comprehensive image of the subsurface.
This detail enables explorationists to detect seismic anomalies, faults and
structural features that are not apparent in 2-D surveys. Current management
believes that 3-D seismic surveys are particularly suited to exploration and
development activities in geologically complex areas of the Texas and Louisiana
Gulf Coast. Industry statistics have generally shown that 3-D seismic
technology, properly used, will reduce drilling risks and costs by reducing the
number of dry holes, optimizing well locations, and reducing the number of wells
required to develop a discovery.
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VOLATILITY OF OIL AND GAS PRICES
The Company's financial condition, operating results, future growth, and
the carrying value of its oil and gas properties are substantially dependent on
prevailing prices of oil and gas. The Company's ability to maintain or increase
its borrowing capacity and to obtain additional capital on attractive terms is
also substantially dependent upon oil and gas prices. Prices for oil and gas are
subject to wide fluctuations in response to relatively minor changes in the
supply of and demand for oil and gas, market uncertainty and a variety of
additional factors beyond the control of the Company. These factors include
weather conditions in the United States, the condition of the United States
and/or world economy, the actions of the Organization of Petroleum Exporting
Countries ("OPEC"), governmental regulation, political stability in the Middle
East and elsewhere, the foreign supply of oil and gas, the price of foreign
imports and the availability of alternate fuel sources. Any substantial and
extended decline in the price of oil or gas would have an adverse effect on the
Company's carrying value of its proved reserves, borrowing capacity, the
Company's ability to obtain additional capital, and its revenues, profitability
and cash flows from operations.
Fluctuations in oil and gas prices can also significantly impact the
Company's ability to replace and increase its oil and gas reserves. Volatile oil
and gas prices make it difficult to estimate the value of producing properties
for acquisition and often cause disruption in the market for oil and gas
producing properties, as buyers and sellers have difficulty agreeing on such
value. Price volatility also makes it difficult to project the estimated return
on investment for acquisitions, development and exploration projects.
HEDGING ACTIVITIES
The Company has not previously engaged in price swap or other hedging
activities intended to reduce the Company's sensitivity to oil and gas price
fluctuations. If the Company continues this strategy, it may be more adversely
affected by changes in oil and gas prices than other industry members that do
engage in hedging activities. In the future, however, the Company's new
management intends to consider hedging arrangements. Therefore, the Company may
engage in hedging activities through price swap and other derivative financial
instruments, derivative commodity instruments, and other market risk sensitive
instruments. The Company expects that any hedging activities undertaken will be
for the purpose of reducing its exposure to the volatility of oil and gas prices
and not for speculative investment purposes. While intended to reduce the
effects of oil and gas price volatility, hedging transactions may limit
potential gains by the Company from oil and gas price increases and may expose
the Company to the risk of financial loss in certain circumstances. In a typical
hedge transaction, it is expected that the Company will have the right to
receive payment from the counterparty to the hedge of the excess of the fixed
price specified in the hedge contract over a floating price based on a market
index, multiplied by the volume of production hedged. Conversely, if the
floating price exceeds the fixed price, the Company would be required to pay the
counterparty the difference multiplied by the volume of production hedged. The
Company would be required to pay the difference between the floating price and
the fixed price regardless of whether the Company has sufficient production to
cover the quantities specified in the hedge. Under such circumstances,
unanticipated reductions in production could require the Company to make
payments even when such payments are not offset by proceeds from sales of
production. Thus, although the Company could benefit from such a hedging
arrangement if the floating price drops below the fixed price, hedging would
also prevent the Company from receiving the full advantage of increases in crude
oil or natural gas prices above the fixed price specified in the hedge.
RESERVE REPLACEMENT AND GROWTH
The Company's future performance depends upon its ability to acquire and
develop additional oil and gas reserves that are economically recoverable.
Without successful acquisition, development and exploration activities, the
Company's reserves and revenues will decline. Prior to the Merger, the Company
focused its activities almost exclusively on exploration and had only limited
success in replacing its production. New management plans, however, to broadly
diversify activities by placing greater emphasis on acquisition,
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re-engineering and development activities. As a result of the Merger, the
Company's proved reserves increased significantly to approximately 4,703,000
Bbls of oil and 11,622,000 Mcf of natural gas. Although the Company's management
and business strategy, beginning in 1998, has changed, no assurances can be
given that the Company will be able to acquire, develop or discover additional
reserves at an economical cost.
ON-GOING CAPITAL REQUIREMENTS
The Company's business is capital intensive. Accordingly, to maintain its
asset base of oil and gas reserves, significant amounts of capital must be
reinvested in property acquisitions, development and exploration activities.
Without such investment, the Company's oil and gas reserves would deplete. Prior
to the Merger, insufficiency of capital resources severely constrained the
Company's ability to undertake projects intended to maintain and grow its
reserve base and, as a result, the Company has previously suffered recurring
losses and cash flow deficits. The Merger resulted in a substantial improvement
in the Company's consolidated financial condition, including greater financing
capabilities and an anticipated increase in cash flows from operations. However,
the successful implementation of the Company's plans for growth will require
significant cash resources sufficient to fund such projects. To the extent that
cash flow from operations is insufficient and external sources of capital become
limited or unavailable, the Company's ability to make the necessary capital
investments to maintain or expand its reserve base could be impaired.
ACQUISITION OF PRODUCING PROPERTIES
New post-Merger management plans to diversify the Company's operations by
placing a greater emphasis on the acquisition of proved properties, particularly
where such properties are currently producing and provide the opportunity to
increase production through re-engineering and development. The successful
acquisition of such properties requires an assessment of recoverable reserves,
future oil and natural gas prices, operating costs, potential environmental and
other liabilities and other factors beyond the Company's direct control. These
assessments are inexact and, therefore, the future financial performance of
acquired properties are inherently uncertain. In addition, the Company could be
liable for some preclosing liabilities, including possibly environmental
liabilities. There can be no assurance that any properties acquired by the
Company will be economically produced or developed, and uneconomical properties
could have a material adverse effect on the Company.
RE-ENGINEERING OF PRODUCING PROPERTIES
A significant part of the Company's efforts will be directed to
re-engineering projects designed to enhance current production and/or lower
operating costs, thereby potentially increasing the economic life and return on
investment of the applicable field or well. Re-engineering activities may
include well workovers, recompletions of existing or untested horizons in
existing well bores, installation of artificial lift equipment, revamping
production facilities, drilling and installing salt water disposal facilities
and the implementation or improvement of water flood or other secondary recovery
techniques. While generally involving less risk of failure than drilling
operations, re-engineering operations pose the risk that reserve additions or
production rate improvements will not be achieved, or that the results obtained
are not sufficient to recover the investment and the incremental cost of the
operations.
DRILLING ACTIVITIES
The Company expects that it will continue to engage in drilling operations.
Such activities, whether exploratory or developmental, are subject to many
risks, including the risk that no commercially productive reservoirs will be
encountered. There can be no assurance that any new wells drilled by the Company
will recover all or any portion of its investment. The cost of drilling,
completing and operating wells is often uncertain and substantial cost overruns
may occur. The Company's drilling operations may be curtailed, delayed or
canceled as a result of numerous factors, many of which are beyond the Company's
control, including title or mechanical problems, weather conditions, compliance
with governmental requirements
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and shortages or delays in the delivery of equipment and services, but to
mention a few. Unsuccessful drilling activities may have a material adverse
effect on the Company.
JOINT OPERATIONS WITH OTHERS; NON-OPERATOR STATUS
The Company owns less than 100% of the working interest in many of its oil
and gas properties. Therefore, operations on such properties will be conducted
jointly with other working interest owners. Joint operating arrangements are
customary in the oil and gas industry and are generally conducted pursuant to a
joint operating agreement, whereby a single working interest owner is designated
the operator. At present, the Company is the "operator" of the majority of its
oil and gas properties. The Company is also a non-operating working interest
owner in numerous wells. For properties where the Company owns less than 50% of
the working interest, drilling and operating decisions may not be entirely
within the Company's control. If the Company disagrees with the decision of a
majority of working interest owners, it may be required, among other things, to
postpone the proposed activity, relinquish or farmout its interest, or decline
to participate. If the Company declines to participate, it might be forced to
relinquish its interest or may be subject to certain non-consent penalties, as
provided in the applicable operating agreement. Such penalties typically allow
participating working interest owners to recover from the proceeds of
production, if any, an amount equal to 200%-500% of the non-participating
working interest owner's share of the cost of such operations.
Under most operating agreements, the operator is given direct and full
control over all operations on the property and is obligated to conduct
operations in a workman-like manner, however, the operator is usually not liable
to the working interest owners for losses sustained or for liabilities incurred,
except those resulting from its own gross negligence or willful misconduct. Each
working interest owner is generally liable for its share of the cost of
developing and operating jointly owned properties. The operator is required to
pay the expenses of developing and operating the property and will invoice
working interest owners for their proportionate share of such costs. In
instances where the Company is a non-operating working interest owner, it may
have a limited ability to exercise control over operations and the associated
costs of such operations. The success of the Company's investment in such
non-operated activities may, therefore, be dependent upon a number of factors
that are outside of the Company's direct control.
Operators may be granted liens on the working interests of other
non-operating owners in the well to secure the payment of amounts due the
operator. The bankruptcy or failure of the operator or other working interest
owners to pay vendors who have supplied goods or services applicable to wells
would most likely result in filing of mechanics' and materialmens' liens which
would encumber the well and the interests of all joint owners.
COMPETITION
The Company encounters strong competition from major oil companies and
independent operators in acquiring properties and leases for the exploration and
development of crude oil and natural gas. The principal competitive factors in
the acquisition of such oil and gas properties include the staff and data
necessary to identify, investigate and purchase such leases, and the financial
resources necessary to acquire and develop such leases. Many of the Company's
competitors have financial resources, staffs and facilities substantially
greater than those of the Company.
MARKETING OF PRODUCTION
The Company's oil and gas production is marketed to third parties
consistent with industry practices. Typically, oil is sold at the wellhead at
field posted prices, plus or minus adjustments for quality, and transportation.
Natural gas is sold usually under a contract at a negotiated price based upon
factors normally considered in the industry, such as gas quality, distance from
the well to the pipeline, estimated reserves, liquid hydrocarbon content of
natural gas, and prevailing supply/demand conditions.
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REGULATION
ENVIRONMENTAL REGULATION
Operations of the Company are subject to numerous federal, state, and local
laws and regulations governing the discharge of materials into the environment
or otherwise relating to environmental protection. These laws and regulations
may require the acquisition of a permit before drilling commences; restrict or
prohibit the types, quantities and concentration of substances that can be
released into the environment in connection with drilling and production
activities; prohibit or limit drilling activities on certain lands lying within
wetlands or other protected areas; and impose substantial liabilities for
pollution resulting from past or present drilling and production operations.
Moreover, changes in federal and state environmental laws and regulations occur
frequently and may result in more stringent and costly requirements which could
have a significant impact on the operating costs of the Company. In general,
under various applicable environmental programs, the Company may be subject to
enforcement action in the form of injunctions, cease and desist orders and
administrative, civil and criminal penalties for violations of environmental
laws. The Company may also be subject to liability for natural resource damages
and other civil claims arising out of a pollution event. Laws and regulations
protecting the environment may, in certain circumstances, impose strict
liability rendering a person liable for environmental damage without regard to
negligence or fault on the part of such person. Such laws and regulations may
expose the Company to liability for the conduct of or conditions caused by
others, or for acts of the Company which were in compliance with all applicable
laws at the time such acts were performed. Management believes that the Company
is in substantial compliance with current applicable environmental laws and
regulations and that continued compliance with existing requirements will not
have a material adverse impact on the Company. Insofar as such laws and
regulations are expanded, amended or reinterpreted, the Company is unable to
predict the future cost or impact of compliance.
The primary environmental statutory and regulatory programs that affect the
Company's operations include:
OIL POLLUTION ACT AND CLEAN WATER ACT. The Oil Pollution Act of 1990
("OPA") amends certain provisions of the Federal Water Pollution Control Act
of 1972, commonly referred to as the Clean Water Act ("CWA"), and other
statutes as they pertain to the prevention of and response to oil spills into
navigable waters. Under OPA, a person owning a facility or equipment from which
there is a discharge or threat of a discharge of oil into or upon navigable
waters and adjoining shorelines is liable as a "responsible party" for removal
costs and damages. Federal law imposes strict, joint and several liability on
facility owners for containment and clean-up costs and certain other damages,
including natural resource damages, arising from a spill. Responsible parties
under OPA include owners or operators of onshore or offshore drilling
facilities. OPA requires responsible parties to maintain proof of financial
responsibility to cover some portion of the cost of a potential spill and to
prepare an oil spill contingency plan. Failure to comply with these requirements
or inadequate cooperation in a spill event may subject a responsible party to
civil or criminal enforcement action. The CWA and similar state laws regulate
the discharge of pollutants, including dredged or fill materials, to waters of
the United States, including wetlands. A permit is required for such discharges,
and permit requirements may result either in operating limitations or treatment
requirements.
CLEAN AIR ACT. The operations of the Company may be subject to the Clean
Air Act ("CAA"), as amended, and comparable state statutes. Amendments to the
CAA contain provisions that may result in the imposition of certain requirements
for air pollution control equipment, obtaining operating permits and approvals,
and other emission-related requirements which may require capital expenditures
by the Company.
SUPERFUND. The Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), commonly referred to as the "Superfund" law,
imposes strict, joint and several liability on certain classes of persons with
respect to the release or threatened release of a hazardous substance to the
environment. These persons include: (i) the owner and operator of a facility
from which hazardous substances are released; (ii) owners and operators of a
facility at the time any hazardous substances were disposed; (iii) generators of
hazardous substances that were released at such facility; and (iv) parties who
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arranged for the transportation of hazardous substances to such facility. The
Company may be responsible under CERCLA for all or part of the costs to clean up
sites at which hazardous substances have been released. Some states have similar
provisions. In certain circumstances, neighbors and other third parties may file
claims based on common law tort liability theories for personal injury and
property damage allegedly caused by the release of hazardous substances at a
CERCLA site.
RESOURCE CONSERVATION AND RECOVERY ACT. The Company's operations may
generate and result in the transportation, treatment and disposal of both
hazardous and nonhazardous solid wastes that are subject to the requirements of
the Federal Resource Conservation and Recovery Act ("RCRA") and comparable
state and local requirements. Although many of the Company's wastes are
presently exempt from requirements applicable to hazardous wastes, legislation
has been proposed in Congress from time to time that would reclassify certain
oil and gas wastes as "hazardous wastes" under RCRA, which reclassification
would make such solid wastes subject to much more stringent handling,
transportation, storage, disposal and clean-up requirements. State initiatives
to increase regulation of oil and gas wastes could have a similar impact.
NORM. Oil and gas exploration and production activities have been
identified as generators of naturally-occurring radioactive materials
("NORM"). Some states currently regulate the generation, handling and disposal
of NORM due to oil and gas exploration and production activities. The Company
does not believe that its compliance with such regulations will have a material
effect on its operations or financial condition, but there can be no assurance
in this regard.
OSHA. The Occupational Safety and Health Act of 1970, as amended,
("OSHA") establishes employer responsibilities, including maintenance of a
workplace free of recognized hazards likely to cause death or serious injury,
compliance with standards promulgated by the Occupational Safety and Health
Administration, and various record keeping, disclosure and procedural
requirements. Various standards, including standards for notices of hazards,
safety in excavation and demolition work, and the handling of asbestos, may
apply to the Company's operations.
OIL AND GAS REGULATION
The federal government and various state and local governments have
adopted, and the Company's operations are continuously affected by, numerous and
complex laws and regulations respecting exploration and drilling for and
production, transportation and marketing of oil and natural gas. State and local
laws and regulations usually cover such matters as permitting and spacing of
wells, unitization and pooling of oil and gas properties, maximum and allowable
production rates, environmental protection, pollution control, taxation, bonding
and insurance, surface restoration, plugging and abandonment of wells, flaring
of gas, underground injection of saltwater and oilfield wastes, gathering and
transportation of oil and gas and other related matters. State laws and
regulations regarding spacing, unitization and pooling often dictate whether and
how much of the Company's leases will be entitled to participate in production
from oil and gas wells in which the Company has invested. Local governments are
becoming increasingly active in regulating oil and gas activities, especially
activities such as the location, drilling and operation of oil and gas wells and
the construction and operation of pipelines in or near populated areas.
Regulation by the federal government includes regulation of the
transportation and sale for resale of gas in interstate commerce pursuant to the
Natural Gas Act of 1938 and the Natural Gas Policy Act of 1978. In the past the
federal government has regulated prices at which gas could be sold. Currently,
producers can sell gas at uncontrolled market prices. In 1992, the Federal
Energy Regulatory Commission ("FERC") issued Order No. 636, which generally
required interstate pipelines to "unbundle" or separate their previously
combined services for transporting, selling, gathering and storing natural gas.
The federal government and various state governments have adopted laws and
regulations regarding the methods of calculating lease royalties, the time by
which proceeds of production attributable to the interests of others must be
paid by producers and the rights of producers to suspend payments for the
proceeds of production attributable to others. Federal, state and local
governments and their agencies are constantly reviewing the laws and regulations
affecting the oil and gas industry. These reviews frequently result in the
passage of
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new laws and the promulgation of new regulations affecting oil and gas
producers. Such continuing increases in federal, state and local regulation
could affect the profitability of the Company.
OPERATIONAL HAZARDS AND INSURANCE
The Company's operations are subject to all of the risks normally incident
to the production of oil and gas, including blowouts, mechanical failure, casing
collapse, oil spills and fires, each of which could result in severe damage to
or destruction of oil and gas wells, production facilities or other property, or
injury to persons. The energy business also is subject to environmental hazards,
such as oil spills, gas leaks, and ruptures and discharge of toxic substances or
gases that could expose the Company to substantial liability due to pollution
and other environmental damage. The Company maintains insurance coverage
considered to be customary in the industry, either directly or through third
party operators who are contractually obligated to provide insurance coverage.
The Company may not, however, be fully insured against certain of these risks,
either because such insurance is not available or because of high premium costs.
The occurrence of a significant event that is not fully insured against could
have a material adverse effect on the Company's financial position.
EMPLOYEES
As of December 31, 1997, the Company had 16 full time employees, of which
14 are management, technical and administrative personnel and two (2) are field
supervisors. Contract personnel operate the Company's producing fields under the
direct supervision of Company employees.
FACILITIES
The principal offices are located at 110 Cypress Station Dr., Suite 220,
Houston TX, 77090, where the Company occupies approximately 6,725 square feet.
The lease provides for gross rent of $69,432 per year and expires on February 1,
2000. The Company may terminate the lease in April 1998, and annually
thereafter, without incremental cost. Prior to the Merger, Texoil occupied
approximately 6,700 net square feet of office space, located at 1600 Smith,
Suite 4000, Houston, Texas 77002. The lease provides for gross rent of $122,540
per year and expires September 30, 2000. Under the terms of the lease, the
Company has the option to terminate the lease in October 1998, by paying a
one-time penalty of $33,403. In the event this option is exercised, the
approximate future minimum payments under the terms of the lease agreement would
be reduced by approximately $214,000. The rent expense is currently offset by
proceeds from a sublease for a portion of the space which expires in the year
2000, making the Company's net lease expense approximately $81,000 per year. The
Company intends to consolidate locations in its principal offices and will
attempt to sub-lease Texoil's prior space.
FORWARD-LOOKING INFORMATION
This annual report on Form 10-KSB contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statements of historical facts included in this report including,
without limitation, statements regarding the Company's business strategy, plans,
objectives, expectations, intent, and beliefs of management for future
operations are forward-looking statements. Such statements are based on certain
assumptions and analyses made by management of the Company 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. Important factors that could cause actual
results to differ materially from the Company's expectations are discussed
herein under the captions "Item 1. Description of Business," "Item 2.
Description of Property," and "Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations." Forward-looking statements are
not guarantees of future performance and actual results, developments and
business decisions may differ from those envisioned by such forward-looking
statements.
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ITEM 2. DESCRIPTION OF PROPERTY
Since the Merger, Company management has focused on integrating the
business activities and operations of the separate companies which have both
been engaged in exploration and production activities. In recent years, Texoil
pursued the discovery and development of oil and gas reserves, primarily through
an exploration program, utilizing 3-D seismic technology to test deeper
structures or undrilled fault blocks in prospect areas which have produced
significant reserves. Alternatively, since inception, in early 1996, Cliffwood's
activities have been initially directed towards the acquisition and development
of proved producing properties. In 1997 Cliffwood initiated an exploration and
development program.
EXPLORATION AND DEVELOPMENT PROSPECTS
The Company's domestic drilling is expected to be conducted primarily on
prospects located in South Louisiana and along the Texas Gulf Coast. The Company
expects to participate in exploratory and development drilling on prospects
generated internally or through a joint venture ("Joint Venture") with Bechtel
Exploration Company ("Bechtel"). Some of the Company's drilling prospects are
not fully leased or optioned but are in various stages of leasing. The Company
classifies individual prospects based on their risk profile. A drilling prospect
may be classified as "proved undeveloped" in accordance with rules of the
Society of Petroleum Evaluation Engineers ("SPEE") and the SEC. Such prospects
are referred to herein as "development prospects". All other drilling
prospects are classified as exploratory prospects. Risks associated with
exploratory drilling range from high risk "wildcat" type activities where
little data exists other than seismic data indicating a structure or trap, to
lower risk prospects where well control, engineering and other data exists,
along with seismic data, to indicate the possible presence of hydrocarbons.
Lower risk exploratory prospects are referred to herein as "exploitation"
opportunities or prospects. No assurances can be given that any drilling
prospect will result in commercial production. A summary of Company prospects is
set forth below.
TEXOIL PROSPECTS
Prior to the merger, Texoil had three significant prospects in various
stages of geological and geophysical evaluation. Each of these prospects contain
several prospective fault blocks, typically with multiple prospective sand
targets. The interpretation of 3-D data and development of pre-Merger prospects
continues to be a significant activity of the Company. A summary of the
prospects are as follows:
RACELAND 3-D PROSPECT. The Company currently owns interests ranging from
29.26% to 60% in leases and/or options in the Raceland Prospect, located in
Lafourche Parish, Louisiana. Approximately 62 square miles of proprietary 3-D
seismic data was acquired in 1996 and processing was completed in 1997. Texoil
assembled a land block of approximately 40,000 acres consisting of seismic lease
options and/or seismic permits, of which approximately 18,470 gross acres are
now under lease or option. The Company is continuing to interpret the 3-D data
set. The Raceland Field has produced approximately 27 million barrels of oil and
associated natural gas. It has not previously been analyzed by 3-D seismic
surveys. It lies in the vicinity of the Lake Boeuf and Southwest Lake Boeuf
fields and targets Miocene-age sand objectives ranging from 12,000 to 17,000
feet in depth. The dome is regarded as underexploited and substantially
underexplored. The Raceland Prospect is expected to generate multiple drillable
prospects consisting of exploration in fault traps lying on the southwest, south
and southeast flanks of the salt dome and exploitation and development drilling
potential around the producing Raceland Field.
GREENS LAKE 3-D PROSPECT. The Company owns a 30% non-operated working
interest in approximately 5,800 gross acres located in Galveston County, Texas.
Burlington Resources is the operator and owns 70% working interest.
Approximately 22 square miles of proprietary 3-D seismic data was initially
acquired in 1996. Interpretation of the complete 3-D data set continues over
prospective areas within the 3-D survey area. An initial test well was drilled
to a depth of 11,750 feet in the summer of 1997 and determined to be
non-commercial. However, more recently, two discovery wells have been drilled by
operators immediately offsetting the Company's acreage. Two proved undeveloped
locations have been established based on these adjacent discoveries.
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LAUREL GROVE PROSPECT. The Company owns a 30% working interest in
approximately 1,920 gross acres in its Laurel Grove 3-D Prospect in Lafourche
Parish, Louisiana. Phillips Petroleum is the operator and owns a 70% working
interest. Proprietary 3-D seismic data acquisition and data processing has
recently been completed and interpretation is expected to proceed during 1998.
Under the terms of the sale of the Laurel Grove Prospect, Phillips Petroleum
will pay for 100% of the 3-D seismic survey. Thereafter, the Company will pay
for 30% of leases and drilling costs. The Laurel Grove Prospect is a multi-pay
3-D exploratory prospect. The prospect was initially defined by subsurface
control and 2-D seismic data.
CLIFFWOOD PROSPECTS
Cliffwood's exploration and development drilling program is designed to
discover significant reserves through exploration and to develop both proved
undeveloped reserves and lower risk exploitation prospects, which are probable
but cannot be classified as proved. The current prospect inventory has been
internally generated by Cliffwood personnel or through the Joint Venture with
Bechtel.
CLIFFWOOD-BLUE MOON JOINT VENTURE, INC. The objective of the Joint Venture
is to generate and lease exploratory, exploitation and development prospects,
fully integrating 3-D seismic data with well control, engineering and other
data, thereby reducing drilling risk. To date, the Joint Venture has developed
nine prospects which are in various stages of leasing or acquisition. Bechtel
contributed numerous prospect leads, resulting from extensive experience in
South Louisiana and the Texas Gulf Coast, the use of a 3-D work station and more
than 50 square miles of 3-D data in Calcasieu and Cameron Parishes, Louisiana.
Cliffwood funded the acquisition of 150 square miles of non-proprietary 3-D
seismic data in Lafayette, Vermilion and Acadia Parishes, Louisiana, a limited
amount of monthly operating costs and land and related costs of leasing
prospects. The 3-D based prospect generation activity is referred to herein as
the "Lafayette Project". Joint Venture activities are not confined to the
Lafayette Project and, accordingly, Cliffwood retains an 80% interest in all
prospects generated by the Joint Venture. That interest is reduced to 75% on
prospects generated after Cliffwood is reimbursed for 100% of its costs. The
Company generally intends to retain a 12-25% interest in all prospects and sell
interests to industry or other partners on a promoted basis, whereby the Company
will earn an interest which exceeds its share of capital expenditures.
The following is a discussion of major prospect areas being developed by
the Company and the Joint Venture:
LAFAYETTE PROJECT. The primary focus of this project is to explore for and
develop reserves within a 150 square mile 3-D seismic data base located in
Acadia, Lafayette and Vermilion Parishes, Louisiana. The 3-D seismic data was
shot during the period 1993--1996 and is being interpreted by Bechtel and
Company representatives. Prospective horizons range from 9,000 feet to 18,000
feet subsurface. This project is designed to generate or acquire low risk
prospects with multiple objectives. The 3-D data is being fully integrated with
other subsurface control and engineering data (i.e., pressure, production,
cores, etc.). Since June of 1997, this project has generated five prospects, all
located in Lafayette Parish, presently leased or being leased as follows:
COMPANY
INTEREST GROSS ACRES
------- -----------
Lucky Seven.......................... 80% (1) 162
West Judice.......................... 80% (1) 350
Dixie Cup............................ 80% (1) 422
West Ridge........................... 20% (2) 135
- ------------
(1) The Company intends to sell a portion of its working interest.
(2) Net retained by the Company
LAROSE PROJECT. The LaRose prospect is located in Lafourche Parish,
Louisiana and includes two development drilling prospects with multiple
objective sands, at depths down to approximately 13,500 feet, a shallow
exploratory test in a fault block adjacent to production and significant
potential below 14,500 feet. The Company presently controls 631 acres in the
heart of the play and is considering leasing additional
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acreage. Prospects have initially been defined using traditional 2-D, well
control and engineering techniques and will be further developed with 3-D
seismic technology. Shallow objectives can be imaged with existing 3-D coverage
which the Company plans to purchase, but deeper potential may require shooting
additional data.
OTHER PROSPECTS. The Company has several other prospects under lease,
option or which are held by production in existing fields. Some of the drilling
opportunities can be classified as proved undeveloped. Certain prospects may be
drilled without 3-D analysis due to the quality of existing engineering and
geological data and nature of the objective reservoir. Numerous other prospects
and leads are expected to be developed as a result of the continuing exploration
and development program of the Company.
TEXAS MERIDIAN-OPERATED PROSPECTS. In December 1992 the Company sold
certain prospects to Texas Meridian for cash, plus overriding royalty interests
of 2.0% to 3.75% in wells drilled (depending on landowner and certain other
royalty burdens) as well as the right to participate on a proportional cost
basis for up to a 10% working interest in a defined area around each prospect.
DRILLING ACTIVITIES, PRODUCTION AND RESERVES
The information set forth below concerning the Company's drilling
activities, properties, production, and oil & gas reserves reflect the
operations of Cliffwood as of and for the periods ended December 31, 1997 and
1996, with the net oil and gas properties of Texoil existing immediately prior
to the Merger reflected as an acquisition on December 31, 1997. Accordingly, the
tabular presentations of production and sales and revenues from purchasers
exclude the activities of Texoil prior to the Merger, except as otherwise
indicated or footnoted. Other tabular information set forth below includes the
Texoil oil and gas assets as an acquisition on December 31, 1997.
DRILLING ACTIVITIES
Cliffwood's drilling activity was limited to one gross exploratory well (.2
net) in 1997 which resulted in a dry hole. In 1997, Texoil participated in the
drilling of one gross exploratory well (.3 net) and one gross development well
(.3 net), both of which resulted in dry holes. Drilling activities in 1996 were
limited to negligible earned interests.
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PRODUCING PROPERTIES
CLIFFWOOD PROPERTIES
From the commencement of significant operations in February 1996, Cliffwood
has acquired producing properties with the intent of enhancing production and
lowering operating costs through re-engineering and development. Management
believes further development opportunities exist in several of the fields. The
following table lists fields operated by the Company, their location, and
approximate working and net revenue interest.
CLIFFWOOD OPERATED PROPERTIES
NET
WORKING REVENUE
1996 ACQUISITIONS COUNTY INTEREST INTEREST
- ------------------------------------- --------- -------- --------
TEXAS
Day Dome............................. Madison 47% 38%
Northeast Madisonville............... Madison 50% 43%
Fort Stockton........................ Pecos 40% 32%
Goldsmith-Landreth................... Ector 34% 30%
S. Monahans.......................... Ward 40% 32%
New Diana............................ Upshur 100% 82%
1997 ACQUISITIONS
TEXAS
Huff-McFaddin........................ Victoria 60% 45%
Magnet Withers....................... Wharton 60% 50%
London Gin........................... Neuces 60% 50%
Fort Stockton(1)..................... Pecos 20% 16%
Goldsmith -- Landreth(1)............. Ector 16% 14%
Loma Alta............................ McMullen 57% 43%
N. E. Madisonville................... Madison 71% 57%
S. Monahans(1)....................... Ward 20% 16%
Fall City............................ Karnes 100% 89%
NEBRASKA
Hayes Field.......................... Hayes 100% 81%
- ------------
(1) Incremental purchases in previous acquisitions.
In addition to the operated fields listed above, the Company has acquired
interests in numerous non-operated properties located primarily in Texas,
Oklahoma and Louisiana.
TEXOIL PROPERTIES
The most significant Texoil producing property is the Ariel Corp. No. 1
well, successfully drilled and completed in June 1994. Texoil owns a 9.9%
working interest and 11.1% net revenue interest. Texoil has several smaller
interests in non-operated producing properties in South Louisiana.
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OIL AND GAS RESERVES
Presented below is information related to the proved reserves owned by the
Company as of December 31, 1997 and 1996. The Company's oil and gas reserves,
estimated pre-tax future net cash flows and related discounted present value at
10% ("PV-10 Value") were estimated by T.J. Smith & Company, Inc., independent
petroleum engineers.
DECEMBER 31,
--------------------
1997 1996
--------- ---------
Proved developed:
Crude oil (MBbls).................. 4,138 1,684
Natural gas (MMcf)................. 7,294 4,622
Proved undeveloped:
Crude oil (MBbls).................. 565 --
Natural gas (MMcf)................. 4,329 --
Total proved:
Crude oil (MBbls).................. 4,703 1,684
Natural gas (MMcf)................. 11,622 4,622
Estimated pre-tax future net cash flows
($000's).............................. $ 46,252 $ 28,410
PV-10, Pre-Tax Value (000's)............ $ 27,116 $ 17,743
The net reserve data listed above are only estimates. Numerous
uncertainties are inherent in estimating quantities of proved reserves and in
projecting future rates of production, timing of development expenditures,
prices and many factors beyond the control of the Company. Reserve engineering
is a subjective process of estimating underground accumulations of crude oil and
natural gas that cannot be measured in an exact manner. The accuracy of any
reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment. The quantities of oil
and gas that are ultimately recovered, production and operating costs, the
amount and timing of future development expenditures and future oil and gas
sales prices may all differ from those assumed in these estimates. Therefore,
the present value shown above should not be construed as the current market
value of the estimated oil and gas reserves attributable to Texoil's properties.
In accordance with SEC guidelines, estimates of future net revenues from
the Company's properties and the present value thereof are made using oil and
gas sales prices in effect as of the dates of such estimates and are held
constant throughout the life of the properties except where such guidelines
permit alternate treatment, including, in the case of gas contracts, the use of
fixed and determinable contractual price escalations. The averages of the
product prices as of December 31, 1997, were $18.50 per barrel of oil and $2.11
per thousand cubic feet of gas, which compare to December 31, 1996 prices of
$22.67 per barrel of oil and $1.97 per thousand cubic feet of gas.
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PRODUCTION AND SALES
The following table presents certain information with respect to oil and
gas production attributable to the Company's interest in its properties, average
sales price received and average production costs incurred during the two years
ended December 31, 1997 and 1996.
YEAR ENDED DECEMBER
31,
--------------------
1997 1996
--------- ---------
Production:
Oil (MBbls).......................... 255 47
Gas (MMcf)........................... 707 193
Total (MBOE).................... 374 79
Average Sales Price..................
Oil (MBbls)..................... $ 18.50 $ 22.67
Gas (MMcf)...................... $ 2.11 $ 1.97
Per BOE......................... $ 16.66 $ 18.49
Production costs per BOE............. $ 6.49 $ 5.39
The Company's production is sold primarily to large company petroleum
purchasers. Due to the quality of its crude oil production, the Company may
receive a premium or discount from index prices or "posted" prices in the
area. Texoil's gas production is sold primarily to pipelines and/or gas
marketers under short-term contracts at prices which are pegged to the "spot"
market for gas sold in the area. The Company's management believes that certain
of the production costs incurred in 1997 are a result of re-engineering
activities that are non-recurring.
Revenues received (or receivable) from companies comprising more than 10%
of the Company's total sales in each of the last two years were as follows:
YEAR ENDED DECEMBER
31,
--------------------
1997 1996
--------- ---------
EOTT Energy.......................... 16% 24%
Gateway Gathering.................... 20% --
Phillips............................. 13% --
ADA Crude Oil........................ -- 22%
PRODUCTIVE WELLS AND ACREAGE
The following table summarizes the producing oil and gas wells in which the
Company had a working interest as of December 31, 1997:
<TABLE>
<CAPTION>
OIL WELLS GAS WELLS TOTAL
-------------------- -------------------- --------------------
GROSS(1) NET(2) GROSS(1) NET(2) GROSS(1) NET(2)
--------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Texas................................ 191 112 60 14 251 126
Nebraska............................. 7 7 -- -- 7 7
Other(3)............................. 75 3 24 1 99 4
--------- ------- --------- ------- --------- -------
Total......................... 273 122 84 15 357 137
=== ======= == ======= === =======
</TABLE>
- ------------
(1) Gross wells are the total number of wells in which the Company has a working
interest.
(2) Net wells are the sum of the Company's fractional working interests in the
gross wells.
(3) Includes small geographically scattered non-operated interests in several
states including Louisiana, Alabama and Colorado.
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The following table shows the Company's developed and undeveloped acreage
over its producing property interests in Louisiana and Texas, as of December 31,
1997.
GROSS NET
--------- ---------
Developed Acreage(1)................. 38,760 14,368
Undeveloped Acreage(2)(3)............ 33,653 11,151
--------- ---------
Total......................... 72,413 25,519
========= =========
- ------------
(1) Developed acreage is comprised of acres pooled with, unitized from, or
assigned to productive wells.
(2) Undeveloped acres are acres on which wells have not been drilled or have not
been completed to a point that could permit the production of commercial
quantities of oil and gas regardless of whether or not such acreage contains
proved reserves.
(3) Includes 6,685 gross and 1,956 net acres of options to lease acreage in the
Raceland prospect. Also includes 931 gross and 745 net acres related to
options on Joint Venture prospects.
TITLE TO PROPERTIES
It is customary in the oil and gas industry to make a limited review of
title to undeveloped oil and gas leases at the time they are acquired. It is
also customary to obtain more extensive title examinations prior to the
commencement of drilling operations on undeveloped leases or prior to the
acquisition of producing oil and gas properties. With respect to the future
acquisition of both undeveloped and developed leaseholds, the Company plans to
conduct title examinations on such properties in a manner generally consistent
with such industry practices. The Company has obtained title opinions, title
reports or otherwise conducted title investigations covering substantially all
of its producing properties and believes it has satisfactory title to such
properties in accordance with standards generally accepted in the oil and gas
industry. The Company's properties are subject to customary royalty interests,
overriding royalty interests, liens for current taxes and other burdens which
the Company believes do not materially interfere with the use or affect the
value of such properties.
Substantially all of the Company's oil and gas properties are and may
continue to be mortgaged to secure borrowings under bank credit facilities (see
"Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operation -- Liquidity and Capital Resources -- Cash Flow from
Financing").
GLOSSARY
The terms defined in this section are used throughout this Annual Report.
"BARREL OR BBL" refers to 42 U.S. gallons liquid volume, and represents
the basic unit for measuring crude oil or other liquid hydrocarbons.
"BOE" refers to one barrel of oil equivalent, which is determined using
the ratio of one barrel of crude oil, condensate or natural gas liquids to six
Mcf (see below) of natural gas so that six thousand cubic feet of natural gas is
referred to as equivalent to one barrel of crude oil, condensate or natural gas
liquids.
"DEVELOPMENT WELL" means a well drilled within the proved area of an oil
or gas reservoir to the depth of a stratigraphic horizon indicated to be
productive in an attempt to recover proved undeveloped reserves.
"DRY HOLE" refers to a well that is found to be incapable of producing
either oil or gas in sufficient quantities to justify completion as an oil or
gas well.
"EXPLORATORY WELL" means a well drilled to find and produce oil or gas in
an unproved area, to find a new reservoir in a field previously found to be
productive of oil or gas in another reservoir, or to extend a known reservoir.
"FARMOUT" means an agreement whereby the owner of an oil and gas lease
who does not desire to drill agrees to sign the lease, or an interest therein,
to another who does desire to drill on the prospect of which the lease is a
part. The obligation of the lease owner to assign the lease or interest therein
is usually
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conditioned upon the drilling of one or more wells by the farmee and the lease
owner generally retains some interest in the interest assigned such as an
overriding royalty interest, working interest, production payment, offset
acreage or other type of interest.
"GROSS ACRE" refers to an acre in which a working interest is owned.
"GROSS WELL" refers to a well in which a working interest is owned.
"MCF" refers to one thousand cubic feet of natural gas. Expressed, where
gas sales contracts are in effect, in terms of contractual temperature and
pressure bases and, where contracts are nonexistent, at 607F and 14.65 psi.
"MBBLS" means one thousand barrels.
"MBOE" means one thousand barrels of oil equivalent.
"MMCF" means one million cubic feet of natural gas, expressed on the same
basis as a Mcf of gas.
"NET ACRES OR NET WELLS" means the sum of the fractional working
interests owned in gross acres or gross wells.
"NET REVENUE INTEREST" means the percentage of production to which the
owner of a working interest is entitled. For example, the owner of a 100%
working interest in a well burdened only by a landowner's royalty of 20% would
have an 80% net revenue interest in that well.
"OIL" refers to crude oil and condensate.
"OVERRIDING ROYALTY INTEREST" refers to a royalty or percentage of the
gross income from production deducted from the working interest.
"PRODUCTION COSTS" means lease operating expenses and taxes on oil and
natural gas production.
"PROSPECT" means a geographic area believed by the Company to encompass
one or more subsurface features which the Company believes may be productive of
oil or natural gas if drilled. In order for a prospect to be drilled, it is
typically necessary for the operator of the prospect to obtain oil and gas
leases covering the prospect from multiple owners of the mineral interests
underlying the prospect. References in this Annual Report to "prospect areas"
or "prospects" mean geographic areas of exploratory interest that may be
entirely unleased or in various stages of leasing and should not be understood
to imply that all oil and gas leases necessary for drilling of the prospects are
owned by the operator of the prospect or the Company, as the case may be.
"PROVED DEVELOPED RESERVES" means oil or gas reserves that are expected
to be recovered from existing wells (including reserves behind pipe). Improved
recovery reserves are considered developed only after the necessary equipment
has been installed, or when the costs to do so are relatively minor. Proved
developed reserves may be subcategorized as producing or non-producing.
"PROVED RESERVES" means oil or gas reserves that can be estimated with
reasonable certainty to be recoverable under current economic conditions.
Current economic conditions include prices and costs prevailing at the time of
the estimate. Proved reserves may be developed or undeveloped. In general,
reserves are considered proved if commercial producibility of the reservoir is
supported by actual production or formation tests. Proved reserves must have
facilities to process and transport those reserves to market that are
operational at the time of the estimate or a commitment or reasonable
expectation to install such facilities in the future.
"PROVED UNDEVELOPED RESERVES" means oil or gas reserves that are expected
to be recovered: (i) from new wells on undrilled acreage, (ii) from deepening
existing wells to a different reservoir, or (iii) where a relatively large
expenditure is required to (a) recomplete an existing well or (b) install
production or transportation facilities for primary or improved recovery
projects.
"RECOMPLETION" refers to the completion of an existing well for
production from a formation that exists behind the casing of the well.
18
<PAGE>
"SUBSURFACE CONTROL" refers to the data provided by wells previously
drilled in the area of an exploratory prospect. Such existing subsurface data in
the form of logs and cores provide a geologist with a valuable starting point in
generating a prospect and serve to "control" or limit the geologist's
interpretation of the subsurface strata by providing a factual starting point.
"3-D SEISMIC" means the application of powerful computer workstations and
sophisticated software applied to seismic data acquired from a dense pattern of
shot points to create three-dimensional displays of sub-surface formations.
Extensive arrays of listening devices gather thousands of times more detail than
regular seismic surveys.
"UNDEVELOPED ACREAGE" means lease acreage on which wells have not been
drilled or completed to a point that would permit the production of commercial
quantities of oil and gas regardless of whether such acreage contains proved
reserves.
"WORKING INTEREST" means the operating interest under an oil and gas
lease which gives the owner the right to drill, produce and conduct operating
activities on the property and a share of production, subject to all royalties,
overriding royalties and other burdens and also subject to all costs of
exploration, development and operations and risks associated therewith.
ITEM 3. LEGAL PROCEEDINGS
Texoil is involved in litigation incidental to the conduct of its business,
none of which management believes is, individually or in the aggregate, material
to the Company's consolidated financial condition of results of operations. A
summary of such legal proceedings is as follows:
(1) Cause No. 94-7447-278-06; Earnest H. Cannon, et al v. J. R. Parten, et
al in the 278th Judicial District Court of Madison County, Texas. The Plantiffs
sued former Lessees and an affiliated pipeline company and subsequently included
AMF Production Company (now known as Cliffwood Production Co.) and the Madison
County Energy Limited Partnership for breach of express and implied covenants in
the lease, mineral trespass, surface trespass, trespass damage to the mineral
estate, trespass injury to the surface estate, non-payment of royalty, suit to
quiet title, lease cancellation and suit to void pipeline rights-of-way.
Cliffwood Production Co., which is a wholly-owned subsidiary of Cliffwood Oil &
Gas Corp., entered into a settlement agreement with the Plantiffs in July, 1996.
Cliffwood believes it has completed the work required pursuant to the settlement
agreement and has requested a dismissal from Plantiffs. However, since the
settlement agreement, Plantiff made certain complaints about damages to the
surface of the property and Cliffwood has recently addressed those complaints.
(2) Cause No, 98-06212; Cliffwood-Blue Moon Joint Venture, Inc. v. APTech
Resources, Inc., in the 189th Judicial District Court of Harris County, Texas.
Plantiff is a corporate Joint Venture between a wholly-owned subsidiary of the
Company and Bechtel Exploration Company. Plantiff sued APTech Resources, Inc.
("APTech") seeking a declaratory judgment that APTech is not entitled to
participate for a 12 1/2% working interest in drilling prospects generated by
the Joint Venture, through December 31, 1998, unless APTech independently and
successfully secured financing acceptable to the Joint Venture. The Company has
recently commenced settlement discussions with representatives of APTech.
There can be no assurance that legal proceedings will be disposed of or
settled in a manner satisfactory to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on November 12,
1997. The items of business noticed and transacted at the Meeting were: (1) to
elect a Board of seven Directors to serve until the next annual Meeting of
Stockholders and until their successors are elected and qualified; and (ii) to
consider and act upon such other business as may properly be presented to the
meeting or any adjournment thereof. A total of 4,574,923 shares of the Company's
Common Stock, par value $.01 per share, and 23,000 shares of Series A Preferred
Stock, par value $.01 per share, were issued and outstanding as of September 23,
1997, the record date for determining the stockholders entitled to notice of,
and the number of shares entitled to vote at the Meeting as one class. The
holders of 4,171,336 shares of Common Stock
19
<PAGE>
and no shares of Series A Preferred Stock were represented at the Meeting in
person or by proxy. These shares were voted as follows:
PRESENT SHARES
FOR WITHHELD NOT VOTING
----------- -------- --------------
DIRECTORS:
T. W. Hoehn, Jr...................... 4,071,103 100,233 --
Ruben Medrano........................ 4,071,103 100,233 --
T. W. Hoehn, III..................... 4,071,103 100,233 --
Gary J. Milavec...................... 4,166,469 4,867 --
Joe C. Richardson, Jr................ 3,562,163 609,173 --
William F. Seagle.................... 3,562,163 609,173 --
Walter L. Williams................... 4,154,969 16,367 --
As a result of voting at the Meeting, all seven director nominees were
elected. Subsequently, T.W. Hoehn, Jr., Ruben Medrano, Joe C. Richardson, Jr.,
William F. Seagle, and Walter L. Williams resigned and were replaced by
Cliffwood designees. See "Item 1. Description of Business -- Recent
Developments."
20
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table lists high and low sales prices for the years 1996,
1997 and first quarter 1998 of the Common Stock, Class A Warrants and Class B
Warrants, each of which trade publicly in the NASDAQ Small-Cap Market under the
symbols "TXLI", "TXLIW" and "TXLIZ", respectively.
<TABLE>
<CAPTION>
TXLI TXLIW TXLIZ
------------ ------------ ------------
HIGH LOW HIGH LOW HIGH LOW
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
1996
First Quarter...................... 1 11/16 1 3/16 9/16 3/8 5/16 1/4
Second Quarter..................... 1 7/16 7/8 3/8 3/16 3/8 1/8
Third Quarter...................... 1 7/8 1 1/2 5/32 1/4 1/8
Fourth Quarter..................... 1 7/8 1 1/16 5/8 3/8 3/8 5/32
1997
First Quarter...................... 1 7/8 1 1/16 1/2 1/4 1/8 1/32
Second Quarter..................... 2 1/16 1 5/16 1/2 3/8 1/32 1/32
Third Quarter...................... 1 11/16 1 5/16 1/4 1/4 1/32 1/32
Fourth Quarter..................... 1 9/16 31/32 15/32 3/16 1/16 1/32
1998
First Quarter...................... 1 3/8 15/16 3/16 1/32 1/32 1/32
</TABLE>
As of March 31, 1998, the Company's Common Stock, Class A Warrants and
Class B Warrants were held by approximately 890, 18 and 19 holders of record
respectively.
DIVIDEND POLICY
The Company has never paid dividends on its Common Stock and does not
intend to pay a dividend in the foreseeable future. The terms of Comerica Bank
Credit facility and the RIMCO Agreement also prohibit the payment of dividends.
The payment of future dividends on Common Stock, if any, will be reviewed
periodically by the Company's Board of Directors and will depend upon, among
other things, the Company's financial condition, funds available from
operations, the amount of anticipated capital and other expenditures, the
Company's future business prospects and any restrictions imposed by the
Company's present or future bank credit arrangements, subordinated notes or any
series of preferred stock.
RECENT SALES OF UNREGISTERED SECURITIES
Pursuant to the Merger Agreement, on December 31, 1997, the Company issued
25,632,159 shares of Common Stock to former Cliffwood shareholders and warrants
and options to issue up to 9,203,470 shares of Common Stock to former Cliffwood
warrant and option holders in exchange for all of the outstanding shares,
warrants and options of Cliffwood. This issuance was made in reliance on Section
4(2) of the Securities Act of 1933, as amended (the "Securities Act") and
Regulation D of the Securities and Exchange Commission.
Also pursuant to the Merger Agreement, on December 31, 1997, the Company
sold 7.875% Convertible Subordinated General Obligation Notes in the principal
amount of $10.0 million to the RIMCO Lenders. This sale was made in reliance on
Section 4(2) of the Securities Act. These notes are convertible into Common
Stock under the terms of the RIMCO Agreement. See "Item 1. Description of
Business -- Recent Developments -- New RIMCO Financing".
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and related Notes thereto reflected in the
Index to Consolidated Financial Statements commencing on page F-1.
21
<PAGE>
MERGER
As discussed in Item 1, "Description of Business -- Recent
Developments -- Cliffwood Merger" and the Notes to the Consolidated Financial
Statements included in this annual report, the Company underwent a substantial
change in ownership, management, assets and business strategy, all effective
December 31, 1997. These significant changes occurred as a result of the
acquisition of Cliffwood (via the Merger) and certain related transactions,
pursuant to a definitive Plan and Agreement of Merger. For financial reporting
purposes, the Merger is accounted for as a reverse acquisition of Texoil by
Cliffwood. The historical Consolidated Financial Statements listed in the index
on page F-1 are those of Cliffwood and management's discussion and analysis of
financial condition and results of operations presented herein relate to
Cliffwood, both reflecting the acquisition of the Texoil net assets (existing
immediately prior to the Merger) at fair value, using purchase accounting, on
December 31, 1997, as required by generally accepted accounting principles.
A predecessor company to Cliffwood was initially incorporated in September,
1993 but significant operations did not commence until February, 1996.
GENERAL
The Company uses the full cost method of accounting for its investment in
oil and gas properties. Under the full cost method, all costs of acquisition,
exploration and development of oil and natural gas reserves are capitalized
separately for each cost center (generally defined as a country). Capitalized
balances are referred to as the "Full Cost Pool" and may further be classified
as evaluated or unevaluated. Evaluated costs are those where proved reserves
have been determined or where the property has been abandoned. Such costs are
subject to depletion, depreciation and amortization expense. Unevaluated costs
are not subject to depletion, depreciation and amortization and generally
require additional geological, geophysical and/or engineering evaluation prior
to management's decision to drill, develop or abandon such properties. When such
properties are fully evaluated, capitalized balances will be included in the
calculation of depletion, depreciation and amortization expense. Depletion
expense is calculated using the units of production method based on the ratio of
current production to total proved recoverable oil and natural gas reserves.
Under the full cost method, to the extent that capitalized costs (net of
depletion, depreciation and amortization) exceed the discounted future net
revenues of estimated proved oil and natural gas reserves on an after-tax basis,
such excess costs are charged to operations as additional depletion,
depreciation and amortization expense.
At December 31, 1997, the Company's estimated discounted future net
revenues from estimated proved reserves on an after-tax basis exceed net
evaluated capitalized costs by approximately $4,889,000. Net capitalized costs
could exceed discounted future net revenues due to downward revisions to
estimates of proved reserve quantities, declines in oil and gas prices,
increases in operating costs, unsuccessful exploration and development
activities or other factors which cannot be reasonably predicted by the Company.
Once incurred, a writedown of oil and gas properties cannot be reversed at a
later date even if estimated reserve quantities or oil and gas prices
subsequently increase.
At December 31, 1997, approximately $4,618,000 of acquisition costs were
assigned to unevaluated properties, including $1,685,000 for proprietary 3-D
seismic costs and $1,296,000 for undeveloped leases, both related to Texoil
prospects existing prior to the Merger. In addition, approximately $976,000
relates to developmental and exploratory potential associated with Cliffwood
acquired properties and $661,000 relates to Cliffwood's undeveloped prospect
inventory.
For the year ended December 31, 1997, the average prices received by the
Company for its oil and gas production was $18.50 per barrel of oil and $2.11
per Mcf of gas. This results in a weighted average price per barrel of oil
equivalent ("BOE") of $16.66, which is a decrease of approximately $1.83 per
BOE, or 9.8%, from the year end 1996 level.
22
<PAGE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
The Company recorded net income of $638,000 and $368,000 in the years ended
December 31, 1997 and 1996, respectively. The $270,000 increase in the Company's
comparative net income resulted from the following factors:
NET AMOUNT CONTRIBUTING
TO INCREASE (DECREASE)
IN NET INCOME
-----------------------
(000'S)
Oil and gas production income
(revenues less lease operating
expenses and production taxes)..... $ 2,233
Depletion, depreciation and
amortization expense............... (1,067)
Net general and administrative
expenses............................. (240)
Interest expense..................... (270)
Other income -- net.................. (188)
Provision for income taxes........... (198)
-----------------------
$ 270
=======================
The $2,233,000 increase in net oil and gas production income is primarily
attributable to the increase in production volumes resulting from the
acquisition and development of producing properties. Oil and gas sales increased
by $4,906,000 resulting from increases in production volumes offset, in part, by
an overall decrease in realized prices in 1997 from 1996. The significant
increase in revenues of 338% was offset by directly related increases in lease
operating and workover expenses and production taxes. Those combined expenses
increased $2,673,000 or 356% over the prior year. Management believes that
certain of the increased expenses are associated with non-recurring
expenditures. Refer to Item 2, "Description of Property -- Producing
Properties" for additional information related to the Company's properties.
The $1,067,000 increase in depletion, depreciation and amortization
("DD&A") expenses is primarily due to the increase of oil and gas production
volumes, reserves and capitalized balances subject to DD&A resulting from the
acquisition and development of producing properties. Gross capitalized costs
included in the Full Cost Pool and subject to DD&A were $16,021,000 and
$5,507,000 at December 31, 1997 and 1996, respectively. In addition, estimated
future development costs associated with proved undeveloped reserves in the
amount of $5,337,800 and $261,400 at December 31, 1997 and 1996, respectively,
were included in depletion calculations.
The $240,000 increase in net general and administrative expenses is
comprised primarily of increases in technical and administrative staffing
associated with the Company's growth. The Company is the operator of the
majority of its properties and, accordingly, must attract and retain competent
technical and administrative personnel to fulfill its contractual obligations.
Although the operator is allowed certain "overhead reimbursements" pursuant to
the terms of applicable operating agreements (reflected as "operator and
management fees" in the Consolidated Statements of Income), such reimbursements
may not recover the full amount of Company expenditures.
Interest expense increased by $270,000 primarily due to the increased
long-term debt used to finance acquisitions.
Other income decreased in 1997 principally due to reduced management fee
income associated with discontinued activities offset by increased
administrative overhead reimbursements on operated properties. In 1996, the
Company provided certain consulting engineering and administrative services to a
non-affiliated third party for a fee and recognized revenues in the amount of
$149,000. No similar consulting services were provided in 1997.
23
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Prior to the Merger, Texoil suffered recurring operating losses and had
working capital deficits that caused doubt about its ability to meet future
expenditure obligations necessary to fully evaluate and develop its oil and gas
properties and to continue as a going concern. The prior inability of Texoil to
generate significant cash flow from operations and sustain activities through
the complete development of its prospect interests caused it to seek incremental
financing in late 1997 and/or strategic alternatives to continue as a going
concern. The Merger generally brought incremental cash flow to the Company along
with a new management team experienced in capital formation and oil and gas
activities. Some of the conditions to closing the Merger were the closing of a
financing arrangement with RIMCO whereby the Company issued $10.0 million of
subordinated convertible notes and the conversion to common equity of
approximately $5.1 million of pre-existing convertible notes and $2.3 million of
Texoil Series A Preferred Stock.
CASH FLOW FROM OPERATIONS
The Company's net cash flow from operations increased to $2,677,000 from
$1,100,000 for the years ended December 31, 1997 and 1996, respectively. The
increase in cash flows from operating activities of $1,577,000 or 144% is
directly attributable to the acquisition of producing properties in 1997 and the
results of capital expenditures associated with re-engineering and development
operations conducted on properties acquired in both 1997 and 1996.
CASH FLOW FROM FINANCING
PRIOR RIMCO FINANCING
Prior to the Merger, the Company had existing financing arrangements with
affiliates of RIMCO and with certain of its directors or affiliates ("Prior
Financing"). All of the outstanding principal and accrued and unpaid interest
under the Prior Financing was either paid in full or exchanged for the common
stock of the Company as part of the Merger. All unfunded commitments to lend or
sell notes under the Prior Financing were canceled or terminated.
CURRENT RIMCO FINANCING
On December 31, 1997, Texoil entered into the RIMCO Agreement which
provided $10,000,000 in new financing. Accordingly, Texoil issued 7.875%
Convertible Subordinated General Obligation Notes in the principal amount of
$10,000,000 to the RIMCO Lenders ("Convertible Notes"), which will mature
December 1, 1999, or upon a change in control, subject to certain extensions
pursuant to the terms of the RIMCO Agreement. At any time prior to the maturity
date, outstanding indebtedness 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 equals or exceeds 130% of the conversion price.
If on December 1, 1999, cash availability of the Company and its
subsidiaries, as defined in the RIMCO Agreement, 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 another lender), Cliffwood Oil & Gas Corp., Cliffwood
Energy Company, and Cliffwood Production Co., whereby 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
24
<PAGE>
do not affect the ability to convert indebtedness under the RIMCO Agreement into
Common Stock of Texoil.
CAPITAL EXPENDITURES
The Company's net oil & gas capital expenditures totaled approximately
$15,132,000 in the year ended December 31, 1997. Certain of these capital
expenditures were financed by the direct issuance of common stock and/or
warrants for acquired property interests. A summary of 1997 capital expenditures
is as follows:
CAPITAL
EXPENDITURES
------------
($000'S)
Cliffwood oil & gas assets
Evaluated properties............ $ 7,970
Unevaluated properties.......... 1,636
Development costs............... 906
------------
$ 10,512
Texoil oil & gas assets
Proved properties............... $ 1,639
Seismic data.................... 1,685
Unevaluated leases.............. 1,296
------------
$ 4,620
------------
Total...................... $ 15,132
============
Capital expenditures for 1998 cannot be estimated with precision as many
expenditures are discretionary and can be deferred; however, the Company expects
to incur $3,375,000 of development expenditures associated with proved
properties owned as of December 31, 1997. In addition, the Company expects to
incur capital expenditures during 1998 to complete the interpretation of 3-D
seismic data in its Raceland, Greens Lake and Laurel Grove prospects, to
maintain and acquire additional leases and to drill wells on the prospects.
Together these capital costs are estimated to total approximately $2,740,000
million in 1998.
The Company also expects to make capital expenditures in 1998 in connection
with its Joint Venture with Bechtel Exploration Company. Commitments include
geological, geophysical and drilling costs for an estimated eight (8) drillable
prospects. The Company estimates the capital expenditures of $2,939,000 million
for a 12 1/2-20% retained interest in each of the prospects. Pending incremental
cash flows or financing, the Company may retain additional interests or elect to
drill additional prospects.
The Company cannot predict with any accuracy the level of capital
expenditures it may incur in connection with purchasing producing properties.
However, management has set a goal of acquiring at least $10.0 million of proved
producing properties in 1998.
CHANGING PRICES
Texoil's revenues and the carrying value of its oil and natural gas
properties are affected by changes in oil and natural gas prices. Moreover,
Texoil's ability to obtain additional capital on attractive terms may also
depend upon oil and natural gas prices. Oil and natural gas prices are subject
to substantial seasonal, political and other fluctuations which are beyond the
ability of Texoil to control or accurately predict.
TAX NET OPERATING LOSS CARRYFORWARDS
Prior to the Merger, Texoil had approximately $11,918,000 of tax net
operating loss ("NOL") carryforwards at December 31, 1997 which begin to
expire in the year 2000. Additionally, approximately $2,394,000 in depletion
carryforwards and $52,000 of investment tax credit ("ITC") carryforwards
remain at December 31, 1997. Section 382 of the Internal Revenue Code of 1986,
as amended, limits the availability of the NOL and ITC carryforwards if there is
a change of ownership of more than 50% of the Company within a retroactive three
year period. Due to the Merger and change in ownership, the Company
25
<PAGE>
will be limited in its future utilization of the NOL and ITC carryforwards to an
amount equal to the product of the federal long-term tax-exempt bond rate
prescribed by the Internal Revenue Service and the fair market value of the
Company immediately prior to the time of the ownership change.
YEAR 2000 COMPLIANCE
The Company is in the process of identifying its software applications that
are not Year 2000 compliant. Given the information known at this time about the
Company's systems, coupled with the Company's ongoing efforts to upgrade or
replace critical business systems as necessary, it is currently not anticipated
that these Year 2000 compliance costs will have a material adverse effect on the
Company's business, financial condition and results of operations. However, the
Company is still analyzing its software applications and, to the extent they are
not fully Year 2000 compliant, there can be no assurance that the costs
necessary to update software or potential systems interruptions would not have a
material adverse effect on the Company's business, financial condition and
results of operations.
Although the Company does not expect Year 2000 compliance to have a
material effect on its internal operations, it is possible that Year 2000
compliance could have a material adverse effect on (i) the Company's suppliers
and their ability to service the Company, accurately invoice for services
rendered and accurately process payments received; and (ii) the Company's
customers and their ability to continue to accurately measure and pay for oil
and gas deliveries made by the Company. The cumulative effect of such problems,
if they occur, could have a material adverse effect on the Company and the value
of the Company's Common Stock and its other securities.
ITEM 7. FINANCIAL STATEMENTS
See page F-1 for Index to Consolidated Financial Statements.
26
<PAGE>
ITEM 8. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANTS
PREVIOUS INDEPENDENT ACCOUNTANTS
Texoil, Inc. (the "Company") dismissed BDO Seidman LLP ("BDO") as its
principal independent accountant on March 4, 1998.
The reports of BDO on the Company's financial statements for the last two
fiscal years did not contain an adverse opinion or a disclaimer of opinion, nor
was such opinion qualified or modified as to uncertainty, audit scope, or
accounting principles, except that it was modified as to uncertainty as follows:
"The Company has suffered recurring operating losses and has a working
capital deficit that raise substantial doubt about its ability to meet future
expenditure obligations necessary to fully evaluate and develop its oil and gas
properties and to continue as a going concern. The consolidated financial
statements do not reflect any adjustments that might result from the outcome of
these uncertainties. In this regard the Company entered into the financing
arrangement described in NOTE 4 in order to meet its working capital
requirements and to pursue its exploration opportunities. Despite the Company's
successful efforts to obtain initial financing for its 1997 exploratory drilling
program there can be no assurance that such financing will be sufficient to
fully fund the drilling program or that the results of drilling operations will
be successful."
The decision to change accountants was approved by the Company's Audit
Committee.
In connection with its audits for the two most recent fiscal years and
subsequent interim period preceding the replacement of BDO, the Company had no
disagreements with BDO on any matter of accounting principles or practices,
financial statement disclosure, or audit scope or procedure, which disagreements
if not resolved to the satisfaction of BDO would have caused them to make
reference thereto in their report on the financial statements for such years.
NEW INDEPENDENT ACCOUNTANTS
The Company has engaged Arthur Andersen LLP as its independent accountants
as of March 4, 1998. The Company did not consult Arthur Andersen LLP on any
accounting, audit or financial reporting issue during its two most recent fiscal
years or through March 4, 1998.
27
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names, ages and positions of the directors and
executive officers of the Company. All directors are elected for a term of one
year and serve until their successors are elected and qualified. All executive
officers hold office until their successors are elected and qualified.
NAME AGE POSITION WITH THE COMPANY
- -------------------------------- --- ----------------------------------------
Frank A. Lodzinski (1).......... 48 Chairman of the Board, President, Chief
Executive
Officer and Director
Jerry M. Crews (1).............. 47 Executive Vice President, Secretary and
Director
T.W. Hoehn, III................. 47 Director
Robert E. LaJoie (1), (2), (3).. 72 Director
Gary J. Milavec (2)............. 36 Director
Thomas Reiser (2), (3).......... 46 Director
Michael A. Vlasic (1)........... 38 Director
- ------------
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee
FRANK A. LODZINSKI has been Chairman of the Board, President, Chief
Executive Officer, and a Director of the Company since the Merger. He has been
President and a Director of Cliffwood since he founded a predecessor entity and
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 has been an Officer and Director of the Company since the
Merger and was an Officer and Director of Cliffwood since 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 operations 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.
ROBERT E. LAJOIE has been a Director of the Company since the Merger and
was a Director of Cliffwood since July 1996. Mr. LaJoie retired in 1977 and is a
private investor with more than forty years experience in the oil and natural
gas, real-estate and food services industries. He is a graduate of the
University of Michigan.
GARY J. MILAVEC has been a Director of the Company since September 1996 and
served as its Secretary from October 1996 until December 31, 1997. He is a
Managing Director of RIMCO, Inc., and has been active in its investment
management and corporate finance activities since October 1990. 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.
He is also a Director of Universal Seismic Associates, Inc. and Brigham
Exploration Company.
THOMAS A. REISER has been a Director the Company since the Merger and was a
Director of Cliffwood since April 1996. For more than the past five years he has
served as Chairman and President of Technical
28
<PAGE>
Risks, Inc., a private insurance brokerage firm which he founded. He is a
graduate of the College of William and Mary.
MICHAEL A. VLASIC has been a Director of the Company since the Merger and
was 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.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company under Rule 16a-3(d) during 1997 and Forms 5 and
amendments thereto furnished to the Company with respect to 1997, the Company is
not aware of any director, officer, or beneficial owner of more than 10% of any
class of equity securities of the Company registered pursuant to Section 12 of
the Securities Exchange Act of 1934 that failed to file on a timely basis, as
disclosed in the above forms, reports required by Section 16(a) of the Exchange
Act during such year, except for the following. On October 31, 1997, T.W. Hoehn,
Jr. filed Form 4s reporting transactions occurring in April and September 1997.
In addition, the Form 4 for T. W. Hoehn, III for December 1996 was filed three
days late and the Form 4s for Ruben Medrano and Walter L. Williams for March
1997 were filed four days late.
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table reflects all forms of compensation for each of the
years ended December 31, 1997, 1996, and 1995 for Ruben Medrano. No executive
officer had salary and bonus which in 1997 exceeded $100,000.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------------
ANNUAL COMPENSATION AWARDS SECURITIES PAYOUTS
---------------------------------------------- ------------ UNDERLYING -------
OTHER ANNUAL RESTRICTED OPTIONS/ LTIP
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION STOCK AWARDS SARS(#) PAYOUTS
- ------------------------------------- --------- --------- --------- ------------ ------------ ---------- -------
<S> <C>
Frank A. Lodzinski................... 1997 -- -- -- -- -- --
Chairman of the Board,
President and Chief Executive
Officer (1)
Ruben Medrano........................ 1997 $ 72,940 $ 10,000 $ 18,235(3) -- -- --
Former President and 1996 $ 67,700 -- $ 28,800(3) -- -- --
Chief Executive Officer (2) 1995 $ 74,400 -- $ 21,600(3) -- 30,000(4) --
</TABLE>
ALL OTHER
NAME AND PRINCIPAL POSITION COMPENSATION
- ------------------------------------- ------------
Frank A. Lodzinski................... --
Chairman of the Board,
President and Chief Executive
Officer (1)
Ruben Medrano........................ --
Former President and --
Chief Executive Officer (2) --
- ------------
(1) Mr. Lodzinski became Chairman of the Board, President and Chief Executive
Officer on December 31, 1997. Mr. Lodzinski received no compensation from
Texoil in 1997. Mr. Lodzinski's current salary is $90,000 per year.
(2) Mr. Medrano resigned as President and Chief Executive Officer effective
December 31, 1997.
(3) See "-- 1995 Stock Compensation Plan" and "-- Amended and Restated 1996
Stock Compensation Plan."
(4) See "-- Option Exercises and Year End Values" below.
1995 STOCK COMPENSATION PLAN
In July 1995, the Company's stockholders approved the 1995 Stock
Compensation Plan, which provides for the issuance of shares of Common Stock to
certain employees and consultants whose cash compensation was reduced by 30%
effective April 1, 1995. Pursuant to the 1995 Stock Compensation Plan, shares of
Common Stock were issued to such individuals on recognition of their reduced
cash compensation in 1995 and for the months of January through February, 1996.
29
<PAGE>
AMENDED AND RESTATED 1996 STOCK COMPENSATION PLAN
By consent dated June 10, 1996, the Company's Board of Directors adopted
the 1996 Stock Compensation Plan after the 1995 Stock Compensation Plan expired
March 31, 1996 with an insufficient number of shares of Common Stock reserved
for issuance thereunder remaining to cover issuances which otherwise would have
been made after February 1996. The 1996 Stock Compensation Plan required
shareholder approval thereof before shares could be issued thereunder.
Shareholder approval was a requirement of Rule 16b-3 promulgated under Section
16 of the Securities Exchange Act of 1934, as amended (the "1934 Act"). After
the Board's adoption of the 1996 Stock Compensation Plan, Rule 16b-3 was amended
and shareholder approval was no longer mandatory thereunder. Since the 1996
Stock Compensation Plan had not been implemented and no common stock issued
thereunder, the Company's Board of Directors amended and restated the 1996 Stock
Compensation Plan to make it more consistent with amended Rule 16b-3.
Accordingly, the Amended and Restated 1996 Stock Compensation Plan (the "1996
Plan") superseded the 1996 Stock Compensation Plan in its entirety. Pursuant to
the 1996 Plan, shares of common stock were issued to certain individuals in
recognition of their reduced cash compensation for the months of January through
August, 1997 and for services rendered and reimbursement of expenses incurred.
The Company recognized compensation expense in the amount of $18,235 for the
1996 Plan representing the fair market value of such shares issued in lieu of
reduced cash compensation for the months of January through August 1997.
CLIFFWOOD OPTIONS
Prior to the Merger, Cliffwood Oil & Gas Corp. had options to purchase
573,000 shares of Cliffwood Class A common stock issued under the Cliffwood Oil
& Gas Corp. 1997 Stock Option Plan and the Cliffwood Oil & Gas Non-Employee
Director Stock Option Plan. Pursuant to the Merger Agreement, these options were
canceled and replaced by options to purchase 6.74 shares of Common Stock for
every share that could have been bought under the old Cliffwood options.
Therefore, following the Merger, Texoil issued options to purchase 3,862,020
shares of Common Stock to former Cliffwood option holders.
OPTION GRANTS
Certain options were granted to current executive officers of the Company,
following the Merger as a result of the conversion of Cliffwood options as
described in "Cliffwood Options." The following table sets forth additional
information with respect to these stock option grants.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL NUMBER OF
CLIFFWOOD OPTIONS/SARS TEXOIL
SHARES EXERCISE GRANTED TO SHARES EXERCISE
UNDERLYING OR BASE EMPLOYEES IN UNDERLYING OR BASE
OPTIONS PRICE FISCAL YEAR OPTIONS PRICE
NAME GRANTED(#) ($/SHARE) 1997 GRANTED(#) ($/SHARE) EXPIRATION DATE
- ------------------------------------- ---------- --------- ------------- ----------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Frank A. Lodzinski................... 100,000 $3.50 21.1% 674,000 $ .52 December 31, 1999
Francis M. Mury...................... 90,000 $3.50 18.9% 606,600 $ .52 December 31, 1999
Jerry M. Crews....................... 90,000 $3.50 18.9% 606,600 $ .52 December 31, 1999
Peggy C. Simpson..................... 35,000 $3.50 7.4% 235,900 $ .52 December 31, 1999
Mandel C. Selber..................... 27,000 $3.50 5.7% 181,980 $ .52 December 31, 1999
Ralph D. Hollingshead................ 22,000 $3.50 4.6% 148,280 $ .52 December 31, 1999
</TABLE>
- ------------
(1) Represents options previously granted by Cliffwood that were replaced by
options to purchase Texoil Common Stock.
30
<PAGE>
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth information regarding two unexercised
options to purchase 20,000 shares of Common Stock at $3.00 per share and 30,000
shares of Common Stock at $1.3125 per share that were granted to Mr. Medrano on
July 26, 1994 and May 2, 1996, respectively. Mr. Medrano did not exercise any
Common Stock options during 1997. In addition, information on the options issued
to Cliffwood employee option holders is presented in the following table.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SARS AT OPTIONS/SARS AT
DECEMBER 31, 1997 DECEMBER 31, 1997(1)
-------------------------------- --------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Ruben Medrano........................ 20,000 0 $ 0 $ 0
Ruben Medrano........................ 30,000 0 $ 0 $ 0
Frank A. Lodzinski................... 222,420 451,580 $162,367 $329,563
Francis M. Mury...................... 200,178 406,422 $146,130 $296,688
Jerry M. Crews....................... 200,178 406,422 $146,130 $296,688
Peggy Simpson........................ 77,847 158,053 $ 56,828 $115,379
Mandel Selber........................ 60,053 121,927 $ 43,839 $ 89,027
Ralph Hollingshead................... 48,932 99,348 $ 35,720 $ 75,524
</TABLE>
- ------------
(1) Based upon the last sales price of $1.25 per share on December 31, 1997 as
reported in the consolidated reporting system for the NASDAQ Small Cap
Issues, Mr. Medrano's options were not in-the-money.
EMPLOYMENT AGREEMENT
Pursuant to the Merger, Mr. Lodzinski is employed under an agreement
pursuant to which he receives an annual salary of $90,000, subject to increases
at the discretion of the Board of Directors, and a bonus at the sole discretion
of the Board of Directors. The employment agreement also provides for the grant
of options to purchase Common Stock. This employment agreement expires January
1, 2001.
DIRECTOR COMPENSATION
Directors who are not employed by the Company are authorized to be paid a
fee of $1,000 for each meeting of the Board of Directors attended (including
committee meetings, if any, held in conjunction therewith). The Company
reimburses each director for his actual and necessary expenses reasonably
incurred in connection with attending meetings of the Board and its committees.
31
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 1998 the number of shares
of the Company's equity securities owned by (i) each person known by the Company
(based on publicly-available filings with the Commission) to be the holder of
more than five percent of its voting securities, (ii) each director and each
executive officer of the Company, whose total annual salary and bonus exceeded
$100,000, and (iii) all of the Company's directors and executive officers as a
group. Unless otherwise indicated, each holder has sole voting and investment
power with respect to the shares of capital stock owned by such holder.
NAME OF BENEFICAL OWNER
(ADDRESS INDICATED IF NOT A DIRECTOR AMOUNT AND NATURE OF
OR AN OFFICER) BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------------------------- -------------------- ----------------
CLASS A COMMON STOCK:
Michael A. Vlasic, Director 8,323,900(1) 22.4%
Frank A. Lodzinski, Director,
President and Chief Executive
Officer............................ 8,701,811(2) 23.3%
Jerry M. Crews, Director, Executive
Vice President and Secretary....... 1,649,413(3) 5.0%
Robert E. LaJoie, Director........... 909,226(4) 2.5%
T. W. Hoehn III, Director............ 604,429 1.6%
Thomas A. Reiser, Director........... 345,425(5) *
Ruben Medrano, Former Director,
President and Chief Executive
Officer............................ 93,124(6) *
All Directors and Executive Officers
as a group (7 persons)............. 12,359,033(7) 32.8%
RIMCO................................ 10,534,303(8) 24.8%
600 Travis Street, Suite No. 6875
Houston, Texas 77002
The Lincoln National Life Insurance
Company............................ 5,282,485(9) 13.7%
200 East Berry Street
Ft. Wayne, Indiana 46802
First Union Capital Partners, Inc.... 3,375,621(10) 8.9%
1001 Fannin, Suite 2255
Houston, Texas 77002
V&C Energy Limited Partnership....... 8,268,295(11) 22.3%
710 Woodward
Bloomfield Hills, Michigan 45304
Vlasic Investments, L.L.C............ 8,323,900(12) 22.4%
710 Woodward
Bloomfield Hills, Michigan 45304
- ------------
* Indicates less than one percent.
(1) Includes 7,931,295 shares of Common Stock and 337,000 shares of Common
Stock underlying presently exercisable warrants beneficially owned through
V&C Energy Limited Partnership, of which Vlasic Investments L.L.C.
("Vlasic Investments") is the limited partner. Mr. Vlasic is the Managing
Director of Vlasic Investments. Mr. Vlasic disclaims any beneficial
ownership of shares held by V&C Energy Limited Partnership. Includes 55,605
shares of Common Stock underlying presently exercisable options assigned by
Mr. Vlasic to Vlasic Investments. Excludes 112,895 shares of Common Stock
underlying options assigned by Mr. Vlasic to Vlasic Investments that are
not presently exercisable.
(2) Includes 7,931,295 shares of Common Stock and 337,000 shares of Common
Stock underlying presently exercisable warrants beneficially owned through
V&C Energy Limited Partnership, of which Energy Resource Associates, Inc.
("ERA"), a Texas corporation owned by and controlled by Mr. Lodzinski, is
a general partner. Mr. Lodzinski disclaims any beneficial ownership of
shares held by V&C Energy Limited Partnership. Includes 222,420 shares of
Common Stock underlying presently exercisable options owned by Mr.
Lodzinski. Excludes 451,580 shares of Common Stock underlying options owned
by Mr. Lodzinski that are not presently exercisable.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
32
<PAGE>
(3) Includes 200,178 shares of Common Stock underlying presently exercisable
options owned by Mr. Crews. Excludes 406,422 shares of Common Stock
underlying options owned by Mr. Crews that are not presently exercisable.
(4) Includes 842,500 shares held by Robert E. LaJoie, as General Partner to a
family limited partnership, and 66,726 shares underlying presently
exercisable options owned by Mr. LaJoie. Excludes 135,474 shares of Common
Stock underlying options owned by Mr. LaJoie that are not presently
exercisable.
(5) Includes 55,605 shares of Common Stock underlying presently exercisable
options owned by Mr. Reiser. Excludes 112,895 shares underlying options
owned by Mr. Reiser that are not presently exercisable.
(6) Includes 50,000 shares of Common Stock underlying options owned by Mr.
Medrano.
(7) Excludes Gary J. Milavec, who has been a director of Texoil since September
1996. Although Mr. Milavec does not own any Common Stock, he is a Managing
Director of RIMCO Inc., and a vice-president of RIMCO Associates, Inc.,
which is the General Partner to certain Limited Partnerships and the
indirect holder of 4,820,017 shares of Common Stock and debt presently
convertible into 5,714,286 shares of Common Stock. Mr. Milavec disclaims
any beneficial ownership of said shares.
(8) Includes 5,714,286 shares of Common Stock underlying presently convertible
notes.
(9) Includes 1,760,825 shares of Common Stock underlying presently exercisable
warrants.
(10) Includes 1,128,950 shares of Common Stock underlying presently exercisable
warrants.
(11) Includes 337,000 shares of Common Stock underlying presently exercisable
warrants.
(12) Includes 7,931,295 shares of Common Stock and 337,000 shares of Common
Stock underlying presently exercisable warrants beneficially owned through
V&C Energy Limited Partnership, of which Vlasic Investments is the limited
partner. Mr. Vlasic is the Managing Director of Vlasic Investments. Mr.
Vlasic disclaims any beneficial ownership of shares held by V&C Energy
Limited Partnership. Includes 55,605 shares of Common Stock underlying
presently exercisable options assigned by Mr. Vlasic to Vlasic Investments.
Excludes 112,895 shares of Common Stock underlying options assigned by Mr.
Vlasic to Vlasic Investments that are not presently exercisable.
CHANGE IN CONTROL
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. LaJoie and
Thomas A. Reiser, all of whom have been directors of Cliffwood, and Gary J.
Milavec and T. W. Hoehn, III, both formerly directors of Texoil. Upon closing
the Merger, 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 and Executive Vice President of Texoil.
33
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In conjunction with the Merger, the Company repaid $1,050,000 in
non-convertible notes to T. W. Hoehn, Jr., a Director of the Company until
December 31, 1997, and Opal Air, Inc., and affiliate of T. W. Hoehn, Jr. Also
pursuant to the Merger Agreement, $5.1 million in convertible notes were
converted into 5.5 million shares of Common Stock. The holders of these notes
were Directors and affiliates of Directors of the Company. The conversions are
set forth in the table below.
NAME OF HOLDER AMOUNT SHARES ISSUED
- ---------------------------------------- ------------ -------------
T. W. Hoehn, Jr......................... $ 295,720 369,650
T. W. Hoehn, III........................ $ 265,128 331,410
William F. Seagle....................... $ 50,986 63,732
RIMCO(1)................................ $ 4,570,278 4,826,018
- ------------
(1) Gary J. Milavec, a Director of the Company, is a Vice President of RIMCO
Associates, Inc.
In addition, the Company and RIMCO entered into a Note Purchase Agreement
on December 31, 1997, pursuant to which the RIMCO Lenders provided the Company
with $10.0 million in new financing. See Item 1. "Description of
Business -- Recent Developments" and Item 6. "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Current RIMCO Financing."
The Company is the operator for certain properties and prospects where
RIMCO or affiliates have a direct or indirect interest as follows:
(1) The Company is the operator and direct owner of a 35% working
interest in the Daniel Ranch prospect in Victoria County, Texas. A 50%
working interest is owned by a subsidiary of Universal Seismic Associates,
Inc. Mr. Milavec serves as a Director of Universal Seismic Associates, Inc.
(2) The Company is the operator and direct owner of a 12% working
interest in the East and West Refugio prospects located in Refugio County,
Texas. Certain affiliates of RIMCO also have direct working interests in
these prospects.
(3) The Company is providing certain operating and administrative
services, for a monthly fee, to an affiliate of RIMCO related to the
operation of certain fields located in Montana and North Dakota.
All operating and management fees charged by the Company to related parties
are arms-length and based on rates for comparable services prevailing in the
industry.
34
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
2.1 -- Agreement and Plan of Merger, by and between Comet
Entertainment, Inc., Comet Acquisition Subsidiary, Inc.,
and Texoil Company, dated as of November 4, 1992
(filed herewith).
2.2 -- Agreement and Plan of Merger, dated December 31, 1997,
by and among Texoil, Inc., Texoil Acquisition, Inc., and
Cliffwood Oil & Gas Corp. (incorporated by reference to
Exhibit 2.1 to Item 7 of Form 8-K filed on January 8,
1998).
3.1 -- Restated Articles of Incorporation of Texoil, Inc., as
amended (incorporated by reference to Exhibit 3.1 to
Form 8-K, dated September 6, 1996, reporting the RIMCO
Financing).
3.2 -- Amended and Restated Bylaws of Texoil, Inc., as amended
(filed herewith).
4.1 -- Form of Warrant Agreement between Texoil, Inc., as
Issuer and First Interstate Bank of Texas, N.A. as
Warrant Agent, dated May 26, 1994 (filed herewith).
4.2 -- Specimen certificate for Class A Warrant (filed
herewith).
4.3 -- Specimen certificate for Class B Warrant (filed
herewith).
4.4 -- Specimen certificate for Underwriters Class A Warrant
(filed herewith).
4.5 -- Specimen certificate for Underwriters Class B Warrant
(filed herewith).
4.6 -- Specimen certificate for shares of Common Stock, par
value $.01 per share (filed herewith).
4.7 -- Note Purchase Agreement, dated December 31, 1997, by and
among Texoil, Inc. and Resource Investors Management
Company (incorporated by reference to Exhibit 5.1 to
Form 8-K filed on January 8, 1998).
4.8 -- Form of the Texoil, Inc., 7.875% Convertible
Subordinated General Obligation Note (incorporated by
reference to Exhibit 5.2 to Form 8-K filed on January 8,
1998).
4.9 -- 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
(incorporated by reference to Exhibit 5.5 to Form 8-K
filed on January 8, 1998).
4.10 -- 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, (incorporated by reference to
Exhibit 5.3 to Form 8-K filed on January 8, 1998).
4.11 -- 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 (incorporated by reference to Exhibit 5.4 to
Form 8-K filed on January 8, 1998).
4.12 -- Amended and Restated Credit Agreement, by and among
Cliffwood Oil & Gas Corp., Cliffwood Energy Company,
Cliffwood Production Co., Comerica Bank-Texas, as
Agent, et al., dated as of August 1, 1997 (filed
herewith).
10.1 -- Agreement dated as of December 31, 1992 by and between
Texas Meridian Resources Exploration, Inc., and Texoil
Company (filed herewith).
10.2 -- Form of Non-Qualified Stock Option Agreement entered
into by and between Texoil, Inc., and each of John L.
Graves and Joe C. Richardson, Jr. dated April 16, 1993
(filed herewith).
10.3 -- Sublease Agreement between Presidio Exploration, Inc.,
and Texoil Company dated as of January 1, 1990 (filed
herewith).
10.4 -- Agreement, dated September 20, 1994, between Texoil
Company and 3DX Technologies, Inc., (filed herewith).
10.5 -- 1994 Stock Option Plan, dated July 25, 1994 (filed
herewith).
10.6 -- Non-Qualified Stock Option Agreement, dated July 26,
1994, between Texoil, Inc., and Walter L. Williams
(filed herewith).
35
<PAGE>
10.7 -- Non-Qualified Stock Option Agreement, dated July 26,
1994, between Texoil, Inc., and Ruben Medrano (filed
herewith).
10.8 -- Lease Agreement between 1600 Smith Street Venture
(Landlord) and Texoil, Inc., (Tenant), dated June 1,
1995 (filed herewith).
10.9 -- 1995 Stock Compensation Plan (incorporated by reference
to Exhibit 10.5 to Form 10-QSB filed on November 14,
1995).
10.10 -- 1995 Stock Compensation Plan Participation Agreement,
dated April 1, 1995 between Texoil, Inc., and Walter L.
Williams (incorporated by reference to Exhibit 10.6 to
Form 10-QSB filed on November 14, 1995).
10.11 -- 1995 Stock Compensation Plan Participation Agreement,
dated April 1, 1995 between Texoil, Inc., and Ruben
Medrano (incorporated by reference to Exhibit 10.8 to
Form 10-QSB filed on November 14, 1995).
10.12 -- Non-Qualified Stock Option Agreement dated May 2, 1996
between Texoil, Inc., and Ruben Medrano (incorporated by
reference to Exhibit 10.20 to Form 10-KSB filed on March
31, 1997).
10.13 -- Non-Qualified Stock Option Agreement dated June 20, 1996
between Texoil, Inc., and William F. Seagle
(incorporated by reference to Exhibit 10.21 to Form
10-KSB filed on March 31, 1997).
10.14 -- Amended and Restated 1996 Stock Compensation Plan
Participation Agreement, dated January 3, 1997 between
Texoil, Inc., and Walter L. Williams (incorporated by
reference to Exhibit 10.24 to Form 10-KSB filed on
March 31, 1997).
10.15 -- Amended and Restated 1996 Stock Compensation Plan
Participation Agreement, dated January 3, 1997 between
Texoil, Inc., and Ruben Medrano (incorporated by
reference to Exhibit 10.26 to Form 10-KSB filed on
March 31, 1997).
10.16 -- Stock Purchase Agreement, dated as of February 28, 1996,
among Oxford Consolidated, Inc., AMF Production Company,
and Cliffwood Energy Company (filed herewith).
10.17 -- Standard Office Building Lease Agreement, dated January
14, 1997, between Radler Enterprises Texas, Inc.,
and Cliffwood Oil & Gas Corp. (filed herewith).
10.18 -- First Amendment of Standard Office Building Lease
Agreement, dated January 14, 1997, between Radler
Enterprises Texas, Inc., and Cliffwood Oil & Gas Corp.
(filed herewith).
10.19 -- Purchase and Sale Agreement, dated as of April 1, 1997,
between Belleview 1992 Income Fund, L.P., and Cliffwood
Oil & Gas Corp. (filed herewith).
10.20 -- Common Stock and Warrant Purchase Agreement between
Cliffwood Oil & Gas Corp., and Belleview 1992 Income
Fund, L.P., dated as of August 4, 1997 (filed herewith).
10.21 -- Stock Purchase Warrant for 13,750 shares of Cliffwood
Class A Common Stock to Michael J. Foy. (filed
herewith).
10.22 -- Stock Purchase Warrant for 261,250 shares of Cliffwood
Class A Common Stock to Lincoln National Life Insurance
Company (filed herewith).
10.23 -- Agreement of Limited Partnership for Cliffwood
Acquisition -- 1996 Limited Partnership, dated September
27, 1996 (filed herewith).
10.24 -- Guaranty and Support Agreement, dated September 27,
1996, by Cliffwood Oil Gas Corp., to Partnership and
Limited Partners (filed herewith).
10.25 -- Investment Agreement, dated September 27, 1996, by and
among Cliffwood Oil & Gas Corp., Energy Capital
Investment Company, and EnCap Equity 1996 Limited
Partnership (filed herewith).
10.26 -- Stock Purchase Warrant for 225,000 shares of Cliffwood
Common Stock to EnCap Equity 1996 Limited Partnership
(filed herewith).
10.27 -- Stock Purchase Warrant for 75,000 shares of Cliffwood
Common Stock to Energy Capital Investment Company (filed
herewith).
10.28 -- Letter Agreement, dated July 21, 1997, between Cliffwood
Oil & Gas Corp. and Energy Resource Associates, Inc., as
general partner of V&C Energy Limited Partnership (filed
herewith).
36
<PAGE>
10.29 -- Stock Purchase Warrant for 50,000 shares of Cliffwood
Class A Common Stock to V&C Energy Limited (filed
herewith).
10.30 -- Common Stock and Warrant Purchase Agreement between
Cliffwood Oil & Gas Corp. and First Union Capital
Partners, Inc., dated as of May 30, 1997 (filed
herewith).
10.31 -- Stock Purchase Warrant for 167,500 shares of Cliffwood
Class B Common Stock to First Union Capital Partners,
Inc., (filed herewith).
10.32 -- Agreement by and among Cliffwood Exploration Company,
Cliffwood Production Co., Bechtel Exploration Company
and Blue Moon Exploration Company, dated as of June 30,
1997 (filed herewith).
10.33 -- Executive Employment Agreement, dated January 1, 1998,
by and among Texoil, Inc., and Frank A. Lodzinski
(incorporated by reference to Exhibit 2.2 to Form 8-K
filed on January 8, 1998).
10.34 -- Cliffwood Oil & Gas Corp., 1997 Stock Option Plan
(filed herewith).
10.35 -- Form of Incentive Stock Option Plan Agreement (filed
herewith).
10.36 -- Cliffwood Oil & Gas Corp., 1997 Non-Employee Director
Stock Option Plan (filed herewith).
10.37 -- Form of Non-Employee Director Stock Option Agreements
(filed herewith).
10.38 -- Cliffwood Oil & Gas Corp., Shareholders' Agreement by
and among Cliffwood Oil & Gas Corp., and shareholders,
dated May 21, 1996 (filed herewith).
10.39 -- Cliffwood Oil & Gas Corp., First Amendment to
Shareholders' Agreement dated May 30, 1997 (filed
herewith).
16.1 -- Letter dated March 9, 1998, from BDO Seidman LLP to the
Commission (incorporated by reference to Exhibit
16.1 to Form 8-K filed on March 9, 1998).
21.1 -- Following are the Company's subsidiaries:
<TABLE>
<CAPTION>
OTHER NAME UNDER WHICH JURISDICTION OF
NAME OF SUBSIDIARY SUBSIDIARY CONDUCTS BUSINESS INCORPORATION/ORGANIZATION
- ---------------------------------------- ---------------------------- --------------------------
<S> <C> <C>
Cliffwood Oil & Gas Corp................ None Texas
Cliffwood Production Co................. None Texas
New Cliffwood Company................... None Texas
Cliffwood Exploration Company........... None Texas
Cliffwood Acquisition --
1996 Limited Partnership(1)........... None Texas
Cliffwood-Blue Moon Joint
Venture, Inc.......................... None Texas
Texoil Company.......................... None Tennessee
Texoil de Argentina, S. A............... None Nevada
</TABLE>
(1) Cliffwood Energy Company is the General Partner
23.1 -- Consent of Arthur Andersen LLP (filed herewith).
23.2 -- Consent of T. J. Smith & Company, Inc. (filed herewith).
27.1 -- Financial Data Schedule (filed herewith).
(B) REPORTS ON FORM 8-K
On November 26, 1997, the Company filed a report on Form 8-K reporting that
it had entered into a letter of intent for the Merger with Cliffwood Oil & Gas
Corp. The Merger was closed on December 31, 1997. A report on Form 8-K reporting
the closing of the Merger was filed on January 9, 1998.
37
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TEXOIL, INC.
/s/ FRANK A. LODZINSKI
FRANK A. LODZINSKI
PRESIDENT
Date: April 9, 1998
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
- ---------------------------------------------------- -------------------------------------- ---------------
<S> <C> <C>
/s/FRANK A. LODZINSKI Chief Executive April 9, 1998
FRANK A. LODZINSKI Officer, President, Chairman of The
Board and Director
(Principal Executive Officer)
/s/JERRY M. CREWS Executive Vice President April 9, 1998
JERRY M. CREWS Secretary and Director
/s/T. W. HOEHN III Director April 9, 1998
T. W. HOEHN III
/s/ROBERT E. LAJOIE Director April 9, 1998
ROBERT E. LAJOIE
/s/GARY J. MILAVEC Director April 9, 1998
GARY J. MILAVEC
/s/THOMAS A. REISER Director April 9, 1998
THOMAS A. REISER
/s/MICHAEL A. VLASIC Director April 9, 1998
MICHAEL A. VLASIC
</TABLE>
38
<PAGE>
TEXOIL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
-----
Report of Independent Public
Accountants........................ F-2
Consolidated Balance Sheets as of
December 31, 1997 and December 31,
1996............................... F-3
Consolidated Statements of Income for
the years ended December 31, 1997
and 1996........................... F-4
Consolidated Statement of
Stockholders' Equity for the years
ended December 31, 1997 and 1996... F-5
Consolidated Statements of Cash Flows
for the years ended December 31,
1997 and 1996...................... F-6
Notes to Consolidated Financial
Statements......................... F-7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Texoil, Inc.:
We have audited the accompanying consolidated balance sheets of Texoil,
Inc. (a Nevada corporation) and subsidiaries, as of December 31, 1997 and 1996,
and the related consolidated statements of income, stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Texoil, Inc.
and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 31, 1998
F-2
<PAGE>
TEXOIL, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
1997 1996
--------- ---------
Assets
Current Assets:
Cash and cash equivalents....... $ 4,059 $ 287
Accounts receivable and other... 3,444 1,792
Accounts receivable-related
party.......................... 60 186
Other current assets............ 65 --
--------- ---------
Total current assets....... 7,628 2,265
Property, plant and equipment, at
cost:
Oil and natural gas properties
(full-cost method)
Evaluated properties....... 16,021 5,507
Unevaluated properties..... 4,618 --
Office and other equipment........... 424 181
--------- ---------
21,063 5,688
Less -- accumulated depreciation,
depletion and amortization........... (1,370) (182)
--------- ---------
Net property, plant and equipment.... 19,693 5,506
--------- ---------
Other assets......................... 463 29
--------- ---------
Total assets............... $ 27,784 $ 7,800
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued
liabilities..................... $ 4,207 $ 901
Accounts payable -- related
party........................... -- 192
Revenue royalties payable....... 1,887 1,312
--------- ---------
Total current
liabilities.................. 6,094 2,405
--------- ---------
Long-term debt....................... 10,058 2,629
--------- ---------
Deferred income taxes................ 215 152
--------- ---------
Commitments and contingencies (Note
9)
Stockholders' equity:
Series A preferred stock--$.01
par value with liquidation
preference of $100 per share,
10,000,000 shares authorized,
none issued and outstanding at
December 31, 1997 and 1996,
respectively................... -- --
Common stock -- $.01 par value;
50,000,000 shares authorized;
36,587,000 and 15,219,000
shares issued and outstanding
at December 31, 1997 and 1996,
respectively................... 367 23
Additional paid-in capital........... 10,044 2,223
Retained earnings.................... 1,006 368
--------- ---------
Total stockholders' equity...... 11,417 2,614
--------- ---------
Total liabilities and
stockholders' equity............ $ 27,784 $ 7,800
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
TEXOIL, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
1997 1996
-------------- ------------
Revenues
Oil and gas sales............... $ 6,367 $ 1,461
Operator and management fees.... 683 724
Interest and other.............. 73 220
-------------- ------------
Total revenues............. 7,123 2,405
-------------- ------------
Costs and Expenses
Lease operating................. 2,809 545
Workover........................ 294 128
Production taxes................ 321 78
General and administrative...... 1,056 816
Depreciation, depletion and
amortization................... 1,249 182
Interest........................ 368 98
-------------- ------------
Total expenses.................. 6,097 1,847
-------------- ------------
Income before income taxes...... 1,026 558
Provision for income taxes
Current.................... -- (38)
Deferred................... (388) (152)
-------------- ------------
Total provision for income
taxes.......................... (388) (190)
-------------- ------------
Net income........................... $ 638 $ 368
============== ============
Basic net income per share........... $ .04 $ .08
============== ============
Basic weighted average shares........ 17,975,930 4,718,492
============== ============
Diluted net income per share......... $ .03 $ .08
============== ============
Diluted weighted average shares...... 19,392,259 4,732,579
============== ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
TEXOIL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL
COMMON STOCK COMMON STOCK PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ------ ------ ---------- --------- -------
<S> <C> <C> <C> <C>
Balance at December 31, 1995......... 7 $ 1 -- $-- $ 149 $ -- $ 150
Issuance of shares................... 15,212 151 -- -- 1,549 -- 1,700
Issuance of warrants................. -- -- -- -- 396 -- 396
Net income........................... -- -- -- -- -- 368 368
------ ------ ------ ------ ---------- --------- -------
Balance at December 31, 1996......... 15,219 $ 152 -- $-- $ 2,094 $ 368 $ 2,614
Issuance of shares................... 8,047 80 2,246 22 4,813 -- 4,915
Issuance of warrants................. -- -- -- -- 119 -- 119
Conversion of Class B common stock to
Class A common stock............... 2,246 22 (2,246) (22 ) -- -- --
Issuance of Texoil, Inc. shares to
effect the business combination.... 11,075 112 -- -- 3,019 -- 3,131
Net income........................... -- -- -- -- -- 638 638
------ ------ ------ ------ ---------- --------- -------
Balance at December 31, 1997......... 36,587 $ 366 -- $-- $ 10,045 $ 1,006 $11,417
====== ====== ====== ====== ========== ========= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
TEXOIL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
1997 1996
---------- ---------
Cash flows from operating activities:
Net income........................... $ 638 $ 368
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, depletion and
amortization................... 1,249 182
Deferred income taxes........... 388 152
Accounts receivable............. (1,120) (1,792)
Accounts receivable -- related
party........................... 126 (186)
Other assets.................... (499) (29)
Accounts payable and accrued
liabilities..................... 1,725 901
Accounts payable -- related
party........................... (192) 192
Revenue royalties payable....... 326 1,312
---------- ---------
Net cash provided by
operating activities.... 2,641 1,100
---------- ---------
Cash flows from investing activities:
Additions to oil and gas
properties...................... (7,619) (5,132)
Other equipment additions....... (243) (181)
---------- ---------
Net cash used in investing
activities................... (7,862) (5,313)
---------- ---------
Cash flows from financing activities:
Proceeds from issuance of common
stock........................... 2,614 1,871
Proceeds from long-term debt and
other........................... 19,200 2,629
Repayments of long-term debt.... (12,821) --
---------- ---------
Net cash provided by
financing activities.... 8,993 4,500
---------- ---------
Net increase in cash and cash
equivalents.................... 3,772 287
Cash and cash
equivalents -- beginning of
period......................... 287 --
---------- ---------
Cash and cash equivalents -- end
of year........................ $ 4,059 $ 287
========== =========
Supplemental disclosure of cash flow
information:
Cash paid during year for:
Interest................... $ 404 $ 76
========== =========
Income taxes............... $ 28 $ 3
========== =========
Oil and gas properties purchased
by issuance of Class A common
stock.......................... $ 2,300 $ --
========== =========
Texoil net assets purchased by
conversion of Class A common
stock.......................... $ 3,131 $ --
========== =========
Conversion of Texoil Convertible
debt into Texoil common
stock.......................... $ 5,100 $ --
========== =========
Oil and gas properties purchased
by issuance of warrants......... $ 119 $ 375
========== =========
Warrants issued for stock
issuance services provided..... $ 70 $ --
========== =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
TEXOIL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
BUSINESS COMBINATION
On December 31, 1997, pursuant to the terms of a definitive plan of merger
("Merger Agreement" or "Merger") and a new financing arrangement, Texoil,
Inc. ("Texoil" or the "Company") a Nevada corporation, formed a wholly owned
subsidiary, Texoil Acquisition, Inc. , which acquired all of the outstanding
common shares of Cliffwood Oil & Gas Corp. ("Cliffwood"), a Texas corporation.
Immediately before the Merger, Cliffwood had approximately 3,785,000 shares of
common stock outstanding. Texoil issued 6.74 previously authorized but unissued
common shares for each outstanding share of Cliffwood stock, for a total
issuance of approximately 25,512,000 shares. As a result, Cliffwood became a
wholly owned subsidiary of Texoil. Throughout the accompanying consolidated
financial statements all Cliffwood historical shares of common stock, stock
options and stock warrants have been retroactively restated to reflect this 6.74
to 1 exchange ratio.
As a result of the Merger, the former stockholders of Cliffwood acquired,
as of December 31, 1997, 70% of Texoil outstanding common stock and thus voting
control, while the existing stockholders of Texoil own approximately 11,075,000
shares, or 30% of such common stock. Accordingly, for financial reporting
purposes, the Merger is accounted for as a reverse acquisition of Texoil by
Cliffwood. Because the former Cliffwood stockholders control 70% of the
outstanding common stock of Texoil, Cliffwood is treated as the accounting
acquiror, while Texoil is the legal acquiror.
The acquired Texoil assets ("Texoil Net Assets") are recorded at fair
value using the purchase method of accounting, as required by generally accepted
accounting principles. Such assets consisted of cash, oil and gas properties,
certain mineral leases, options and 3-D seismic data with an estimated fair
value of approximately $3,131,000. Management believes the recorded basis of the
Texoil Net Assets included in the Consolidated Financial Statements is
appropriate because (1) the fair value of underlying net assets acquired can be
readily determined, with reasonable precision, using valuation procedures common
in the oil and gas industry, (2) there is limited trading activity in Company
shares, (3) common stock issued to effect the business combination and
recapitalization substantially exceeds the trading volume of shares in the
marketplace and the number of shares outstanding prior to the business
combination, (4) shares issued are restricted in their marketability, (5)
limitations on capitalized costs exist for proved oil and gas properties
pursuant to regulations of the Securities and Exchange Commission, and (6) costs
allocated to unproved properties should not exceed their fair value. See note 2
for unaudited proforma financial information related to the Merger.
BASIS OF PRESENTATION
ORGANIZATION: Texoil is engaged in the acquisition, development and
production of, and exploration for, crude oil, natural gas and related products
primarily in Texas and Louisiana. The accompanying consolidated financial
statements include the historical accounts of Cliffwood and its wholly-owned
subsidiaries, Cliffwood Energy Company ("CEC"), Cliffwood Production Co.
(CPC), and Cliffwood Exploration Co. ("CEXCO"), as of and for the years ended
December 31, 1997 and 1996. A predecessor company to Cliffwood was incorporated
in 1993 and was solely owned by the president of Cliffwood. No significant
operations commenced until February 1996, with the acquisition of CEC and,
effective May 1, 1996, the predecessor entity was recapitalized and changed its
name to Cliffwood Oil and Gas Corp. The Cliffwood wholly-owned
subsidiaries are all collectively referred to herein as "Texoil" or "The
Company", unless otherwise specified. All events described or referred to as
prior to December 31, 1997 relate to Cliffwood, as the accounting
acquiror.
F-7
<PAGE>
TEXOIL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BALANCE SHEETS: The acquired Texoil Net Assets are included at fair value
in the accompanying December 31, 1997 consolidated balance sheet as of the
effective date of the Merger (December 31, 1997). All other consolidated
financial statement amounts represent the historical consolidated balance sheet
of Cliffwood. The only change to the historical 1996 Cliffwood consolidated
balance sheet is to retroactively restate the common stock outstanding to
reflect the exchange ratio reflected in the Merger Agreement.
STATEMENTS OF INCOME: The 1997 and 1996 consolidated statements of income
are the historical consolidated statements of income for Cliffwood. Earnings per
share has been retroactively restated to reflect the exchange ratio reflected in
the Merger Agreement. As the Merger was effective as of December 31, 1997, there
is no net income or net loss related to the acquired Texoil Net Assets included
in the accompanying consolidated statements of income. There is not a
consolidated statement of income presented for periods prior to 1996, as
Cliffwood, the surviving reporting entity, did not have significant operations
prior to 1996.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. Intercompany accounts and transactions have
been eliminated. The Company accounts for its investment in an associated oil
and gas partnership (See Note 10) using the proportionate consolidation method,
whereby the Company's proportionate share of the partnership's assets,
liabilities, revenues and expenses is included in the appropriate
classifications in the accompanying consolidated financial statements.
PRIOR YEAR RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current presentation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of demand deposits and funds invested in
highly liquid instruments with an original maturity of three months or less.
OIL AND NATURAL GAS PROPERTIES
The Company follows the full-cost method of accounting whereby all costs
associated with property acquisition, exploration and development activities are
capitalized. Included in capitalized costs for 1997 are $340,000 of payroll and
related costs of technical personnel which are directly attributable to the
Company's oil and gas acquisition, exploration and development activities. The
amount of similar costs capitalized in 1996 was not significant. Costs
associated with evaluated properties or projects are amortized using the
units-of-production method based on petroleum engineers' estimates of
unrecovered proved oil and natural gas reserves. The costs of unevaluated
properties are excluded from amortization until the properties are fully
evaluated. Interest is capitalized on oil and natural gas properties which are
not subject to amortization and are in the process of being evaluated. Included
in capitalized costs for 1997 are interest costs of $70,000; none were
capitalized in 1996. Proceeds from the sale of properties are accounted for as
reductions to capitalized costs unless such sales result in a significant change
in the relationship between capitalized costs and proved reserves, in which case
a gain or loss is recognized.
Impairment of capitalized costs of oil and gas properties is assessed for
each cost center, determined on a country-by-country basis. The Company's only
active cost center since inception has been the United States of America. To the
extent that capitalized costs of oil and gas properties, net of accumulated
depreciation, depletion and amortization and related deferred income taxes,
exceed the discounted future net revenues of estimated proved oil and gas
reserves plus the lower of cost or fair value of unevaluated
F-8
<PAGE>
TEXOIL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
properties, net of income tax effects, such excess is charged to operations as
an impairment of oil and gas properties. No such write-downs were required
during 1997 or 1996.
OFFICE AND OTHER PROPERTY
Acquisitions, renewals, and improvements of office and other property are
capitalized; maintenance and repairs are expensed. Depreciation deductions are
calculated using the straight-line method over the assets' estimated useful
lives of five years.
NET INCOME PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share",
effective for interim and annual reporting periods ending after December 15,
1997. This statement replaces primary net income per common share with a newly
defined basic net income per common share and modifies the computation of
diluted net income per common share. The Company adopted this statement
effective for the fiscal year ending December 31, 1997. All prior period net
income per common share amounts have been restated.
Basic net income per common share is computed based on the weighted average
shares of common stock outstanding. Net income per share computations to
reconcile basic and diluted net income for the years 1997 and 1996 consist of
the following (in thousands except share and per share data):
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996
-------------- ------------
Net Income.............................. $ 638 $ 368
Basic weighted average shares........... 17,975,930 4,718,492
Effect of dilutive securities(1):
Warrants........................... 1,084,810 14,087
Options............................ 133,883 --
Awards............................. 181,980 --
Convertible notes.................. 15,656 --
Diluted weighted average shares......... 19,392,259 4,732,579
Per common share net income:
Basic.............................. $ .04 $ .08
Diluted............................ $ .03 $ .08
- ------------
(1) A weighted average year-to-date number of warrants to purchase 231,372
shares of common stock was outstanding during 1997, which were not included
in the computation of diluted per common share net income because the
warrants' exercise prices were greater than the average market price of the
common shares.
STOCK-BASED COMPENSATION
The Company accounts for employee stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees." Reference is made to Note
3, "Stock Options, Performance Awards and Stock Warrants," for a summary of
the pro forma effects of SFAS No. 123, "Accounting for Stock Based
Compensation" on the Company's results of operations for 1997.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accounts receivable and
payable and revenue royalties payable are estimated to approximate their fair
values due to the short maturities of these instruments. All of the Company's
long-term debt obligations bear interest at floating market rates, so carrying
amounts and fair values are approximately the same.
F-9
<PAGE>
TEXOIL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
The Company provides for income taxes using the asset and liability method,
under which a deferred income tax liability or asset is recognized by applying
the enacted statutory rates to differences between the financial reporting basis
and the tax basis of assets and liabilities. The effect on deferred income taxes
of a change in tax laws or tax rates is recognized during the period of
enactment.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities, if any, at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. Oil and
gas reserve estimates, which are the basis for units-of-production depletion and
limitations on capitalized costs, are inherently imprecise and are expected to
change as future information becomes available.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." This statement requires the reporting of
comprehensive income which includes net income plus all other non-owner changes
in equity during the period. This statement is required to be adopted for fiscal
years beginning after December 15, 1997. The Company intends to adopt this
statement during its fiscal year ending December 31, 1998. The Company does not
believe the adoption of this statement will have a material effect on its
consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information." This
statement requires the reporting of expanded information of a company's
operating segments. It also expands the definition of what constitutes an
entity's operating segments. This statement is required to be adopted for fiscal
years beginning after December 15, 1997. The Company intends to adopt this
statement during its fiscal year ending December 31, 1998. The Company does not
believe the adoption of this statement will have a material effect on its
consolidated financial statements.
NOTE 2: UNAUDITED PRO FORMA FINANCIAL INFORMATION
Selected results of operations on a pro forma basis giving effect to the
Merger, as if it took place on January 1, 1997, are as follows (in thousands,
except per share data):
FOR THE YEAR ENDED
DECEMBER 31, 1997
-------------------
Revenues............................. $ 8,410
========
Net income........................... $ 807
========
Basic income per share............... $ 0.02
========
Basic weighted average shares
outstanding........................ 36,526
========
Diluted income per share............. $ 0.02
========
Diluted weighted average shares
outstanding........................ 40,772
========
Adjustments to the historical results to estimate the above pro forma
results of operations for the year ended December 31, 1997 include adjustments
to 1) reduce general and administrative expenses for the effects of actual
personnel reductions implemented subsequent to the Merger, 2) recalculate
depreciation, depletion and amortization based on the combined reserves and
production of Texoil and Cliffwood and to
F-10
<PAGE>
TEXOIL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
eliminate the historical provision for impairment of oil and gas properties
recorded in 1997 by Texoil, 3) adjust interest expense related to debt issued in
connection with the Merger, 4) eliminate interest expense on convertible debt
which was converted as a result of the Merger, 5) eliminate preferred dividends
on securities converted to common stock as a condition of the Merger (no
preferred stock dividends by Texoil were declared subsequent to June 30, 1996)
and 6) recalculate the provision for income taxes.
The unaudited proforma amounts do not purport to be indicative of the
results of operations that would have been reported had the reverse acquisition
occurred as of January 1, 1997 or that may be reported in the future.
NOTE 3: CREDIT AGREEMENT
In September 1996, the Company entered into a revolving credit agreement
(Credit Agreement) with a bank to finance property acquisitions and for
temporary working capital requirements. The Credit Agreement, as amended,
provides up to $25,000,000 in available borrowings, limited by a borrowing base
(as defined in the Credit Agreement) which was $10,000,000 and $3,750,000 at
December 31, 1997 and 1996, respectively. As of December 31, 1997 and 1996,
borrowings outstanding under the Credit Agreement were $50,000 and $2,600,000,
respectively. The borrowing base is redetermined annually (or more frequently at
the option of the Company) and is reduced over a five-year period on a
straight-line basis.
The Credit Agreement provides for an annual facility fee of 1/4% of the
initial borrowing base and on any increases thereto, and it also provides for
monthly interest payments at the lender's prime rate plus 1/2%. The average
interest rate paid to the lender was 9% in 1997 and 1996. The Company has
granted first mortgages, assignments of production, security agreements and
other encumbrances on its oil and gas properties to the lender, as collateral,
pursuant to the Credit Agreement.
Under the terms of the Credit Agreement, up to $500,000 is available under
the borrowing base for the issuance of letters of credit. At December 31, 1997,
$124,955 was reserved for the issuance of letters of credit. No amounts were
reserved for the issuance of letters of credit at December 31, 1996.
The Credit Agreement contains covenants which, among other things, restrict
the payment of dividends on any security, limit the amount of consolidated debt,
limit the Company's ability to make certain loans and investments, and require
that the Company remain in compliance with certain covenants of the Credit
Agreement.
Estimated maturities of long-term debt, assuming the present borrowing base
is unchanged, as of December 31, 1997, are $-0- in 1998 through 2001, and
$50,000 in 2002.
NOTE 4: CONVERTIBLE SUBORDINATED NOTES
On December 31, 1997, the Company 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 agreed to provide $10,000,000 in financing and Texoil issued
7.875% Convertible Subordinated General Obligation Notes in the principal amount
of $10,000,000 (the "Convertible Notes") which will mature December 31, 1999
("Maturity Date"), subject to extension pursuant to the terms of the RIMCO
Agreement. Interest is payable on the first day of each month beginning February
1, 1998. All outstanding principal, plus all accrued and unpaid interest are 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 if the average closing price per share
during a period of 20
F-11
<PAGE>
TEXOIL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
consecutive trading days equals or exceeds 130% of the conversion. If, on
December 31, 1999, cash availability, as defined in the RIMCO Agreement 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 Convertible Notes have been included on an "as if converted" basis within
the diluted net income per common share calculation, as these notes may be
converted at any time at the option of the holder.
The indebtedness under the RIMCO Agreement is subject to the terms of the
subordination agreement among the RIMCO Lenders, Comerica Bank -- Texas, N.A.
(as agent for itself and certain other lenders), Texoil, Inc., 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 do not affect
the ability to convert indebtedness under the RIMCO Agreement into Common Stock
of Texoil. 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.
NOTE 5: STOCK OPTIONS, PERFORMANCE AWARDS AND STOCK WARRANTS
Pursuant to the terms and conditions of the Merger Agreement, the Company
assumed obligations associated with Cliffwood's 1997 Stock Option Plan and for
outstanding warrants to purchase Common Stock, based on the same exchange ratio
(6.74 for 1) as Texoil shares issued for Cliffwood shares. Accordingly, the
disclosures set forth below for Cliffwood options and warrants are converted to
post-merger amounts outstanding.
STOCK OPTIONS AND PERFORMANCE AWARDS
During 1997, Cliffwood adopted an Incentive Stock Option Plan and a
Non-employee Director Stock Option Plan. On August 12, 1997, pursuant to these
plans, the Cliffwood Board granted to certain employees and non-employee
directors of Cliffwood options for 2,884,720 and 842,500 shares of Common Stock,
respectively. On December 8, 1997, the Cliffwood Board granted to an employee of
Cliffwood options for 67,400 shares of Class A Common Stock. All options granted
during 1997 have an exercise price of $.52 and vest over a three-year period
beginning January 1, 1997. In addition, pursuant to the Incentive Stock Option
Plan, in August of 1997, the Cliffwood Board granted to certain employees of
Cliffwood, 178,610 performance awards for Class A Common Stock. Each award vests
over a three-year period beginning January 1, 1997. There were no employee stock
options granted or outstanding during 1996.
F-12
<PAGE>
TEXOIL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes information with regard to the stock option plans
for the year ended December 31, 1997 (shares in thousands):
1997
------------------
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
------ --------
Outstanding at beginning of year
Granted............................ 3,977 .50
Exercised.......................... -- --
Forfeited.......................... -- --
------ ---
Outstanding at end of year.............. 3,977 .50
====== ===
Options exercisable at end of year...... 1,328 .50
The following table summarizes information for the options outstanding at
December 31, 1997 (shares in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- ----------------------
NUMBER OF WEIGHTED WEIGHTED NUMBER OF WEIGHTED
OPTIONS AVERAGE AVERAGE OPTIONS AVERAGE
OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICES AT 12/31/97 LIFE IN YEARS PRICE AT 12/31/97 PRICE
- ---------------------------------------- ----------- ------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.00 - $.52............................ 3,977 3 .50 1,328 .50
</TABLE>
The Company applies APB Opinion 25 and related interpretations in
accounting for its stock-based compensation plans. APB Opinion 25 generally does
not require compensation costs to be recorded on options which have exercise
prices at least equal to the fair value of the underlying common stock on the
date of grant. The 178,610 performance awards granted are compensatory under APB
25. Therefore, the Company will recognize approximately $93,000 of compensation
expense related to these options, $31,000 of which was recognized in 1997. No
such performance awards were granted or outstanding during 1996.
Had compensation costs for the Company's stock-based compensation plans
been determined based on the fair value at the grant dates for awards under
those plans, consistent with the optional accounting method prescribed by SFAS
No. 123, "Accounting for Stock-Based Compensation," the Company's $638,000
reported net income would have been reduced to approximately $522,000 and
earnings per share would have been reduced to the pro forma amounts indicated
below (in thousands, except per share data):
1997
---------
Net income.............................. As reported $ 638
Pro forma 522
Basic earnings per share................ As reported $ .04
Pro forma .03
Diluted earnings per share.............. As reported $ .03
Pro forma .03
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions for
1997: risk-free interest rates ranging from 5.9% to 6.1%; dividend yield of 0%;
0% stock price volatility due to the non-public status of the Company during
1997; and an expected option life of three years. The weighted-average fair
value of options granted during 1997 was $.54 per option, for options granted at
fair market value.
F-13
<PAGE>
TEXOIL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK WARRANTS
In connection with the formation of Cliffwood Acquisition 1996 Limited
Partnership ("CALP 96" or the "Partnership"; see Note 7), and concurrent
with the joint acquisition of certain oil and gas properties, on September 27,
1996 the Company issued warrants to certain limited partners of CALP 96 for the
purchase of 2,022,000 shares of Cliffwood Common Stock, at an exercise price of
$.19 per share. The fair value of the warrants was estimated by management to be
$396,000, based on a valuation of partnership reversionary interests and further
corroborated by a valuation of the Company's common stock, immediately before
and after the subject transaction, with each such valuation calculated by
management using common industry methodologies. This warrant value is reflected
as an addition to proved oil and natural gas properties and additional paid-in
capital in the accompanying consolidated financial statements.
Cliffwood issued warrants to purchase common stock in connection with
certain financing activities and purchases of assets consummated in 1997. The
table set forth below lists such warrants, the exercise prices and the dates of
issuance. All warrants issued and outstanding expire five years after the date
of issuance.
<TABLE>
<CAPTION>
EXERCISE DATE OF FMV AT DATE
WARRANTS PRICE ISSUANCE OF GRANT
------------ -------- --------------- -----------
<S> <C> <C> <C> <C>
First Union Capital Markets, Inc. ... 1,128,950 $.63 June 1, 1997 .0623
Lincoln National Life Insurance
Co. ............................... 1,760,825 $.63 August 4, 1997 .0534
V & C Energy Limited Partnership..... 337,000 $.67 August 5, 1997 .0534
Belleview Capital Corp. ............. 92,675 $.63 August 4, 1997 .0534
</TABLE>
The fair value of each warrant grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions for
1997: risk-free interest rates ranging from 6.1% to 6.5%; dividend yield of 0%;
0% stock price volatility due to the non-public status of the Company during
1997; and an expected warrant life of five years. The weighted-average fair
value of warrants granted during 1997 was $3.62 per option, for warrants granted
at fair market value. Such values are reflected as an addition to evaluated oil
and natural gas properties and additional paid-in capital in the accompanying
consolidated financial statements.
No stock options, performance awards or warrants were exercised during 1997
or 1996.
NOTE 6: STOCKHOLDERS' EQUITY
Under the terms of the Merger Agreement, Texoil issued 6.74 shares of
common stock, par value $.01 per share ("Common Stock") for every share of
issued and outstanding Cliffwood Class A common stock and Class B common stock,
resulting in the issuance of approximately 25,512,000 shares of Texoil Common
Stock, or 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 9,203,470 shares of
Texoil Common Stock.
The "Issuance of Texoil, Inc. shares to effect the business combination"
caption included in the accompanying consolidated statement of stockholders'
equity represents the common shares issued to the existing stockholders of
Texoil. The fair value of the net assets acquired from such former stockholders
was approximately $3,131,000.
F-14
<PAGE>
TEXOIL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7: INCOME TAXES
The following table shows the components of the Company's income tax
provision (in thousands):
AS OF DECEMBER 31
--------------------
1997 1996
--------- ---------
Current:
Federal......................... $ -- $ --
State........................... -- 38
--------- ---------
-- 38
--------- ---------
Deferred:
Federal......................... 358 152
State........................... 30 --
--------- ---------
$ 388 $ 190
========= =========
A reconciliation of taxes computed at the corporate federal income tax rate
to the reported income tax provision is as follows (in thousands):
AS OF DECEMBER 31
--------------------
1997 1996
--------- ---------
Statutory federal income tax
provision............................ $ 358 $ 190
State income tax provision........... 30 --
--------- ---------
Income taxes as reported............. $ 388 $ 190
========= =========
The following table shows the components of the Company's net deferred tax
liability (in thousands):
AS OF DECEMBER 31
--------------------
1997 1996
--------- ---------
Deferred tax liabilities:
Tax over book depreciation...... $ 215 $ 95
Oil and gas property costs
expensed, but capitalized for
financial statements.......... 100 57
--------- ---------
Deferred tax liability..... 315 152
--------- ---------
Deferred tax asset:
Net operating loss
carryforward.................... 4,052 --
Credit carryforwards............ 52 --
Statutory depletion
carryforwards................... 813 --
Valuation allowance............. (4,817) --
--------- ---------
Deferred tax asset......... 100 --
--------- ---------
Net deferred tax liability...... $ 215 $ 152
========= =========
Approximately $325,000 of deferred tax assets has reduced the net deferred
tax liabilities and the allocable value of the oil and gas properties acquired
from Texoil in the Merger.
Prior to the Merger Agreement, Texoil had approximately $11,918,000 of tax
net operating loss ("NOL") carryforwards at December 31, 1997, which begin to
expire in 2000. Additionally, approximately $2,394,000 in depletion
carryforwards and $52,000 of investment tax credit ("ITC") carryforwards
remain at December 31, 1997. Section 382 of the Internal Revenue Code of 1986,
as amended, limits the availability of the NOL and ITC carryforwards if there is
a change of ownership of more than 50% of the Company within a retroactive three
year period. Due to the Merger Agreement and change in ownership,
F-15
<PAGE>
TEXOIL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company will be limited in its future utilization of the NOL and ITC
carryforwards to an amount equal to the product of the federal long-term
tax-exempt bond rate prescribed by the Internal Revenue Service and the fair
market value of the Company immediately prior to the time of the ownership
change. Therefore, the Company has recorded a valuation allowance against its
deferred tax assets to reflect the estimated portion for which realization is
uncertain.
NOTE 8: CONCENTRATIONS OF CREDIT RISK
Credit risk represents the accounting loss which the Company would record
if its customers failed to perform pursuant to the contractual terms. The
Company's two largest customers consist of large multinational companies. In
addition, the Company transacts business with independent oil producers, crude
oil trading companies and a variety of other entities. The Company's credit
policy and the relatively short duration of receivables mitigate the risk of
uncollected receivables.
Accounts receivable for oil and natural gas sales from five and four
customers amounted to 58% and 58% of the outstanding balance at December 31,
1997 and 1996, respectively. Sales to three and four customers accounted for 50%
and 63% of oil and natural gas revenues for 1997 and 1996, respectively. No
other purchaser of the Company's products accounted for as much as 10% of total
sales during 1997 or 1996.
NOTE 9: COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Minimum commitments in connection with Texoil office leases are $122,540 in
1998 and 1999, and $91,905 in 2000. Texoil has an option to terminate the lease
in October 1998, by paying a penalty of $33,403. Minimum future lease
commitments in connection with office space and equipment leased by Cliffwood
are: $69,432 in 1998, $69,432 in 1999, $5,786 in 2000, and zero thereafter.
Rental payments made under the terms of agreements totaled $61,945 and $22,035
in 1997 and 1996, respectively. The Company intends to sub-lease the Texoil
office space. The Company has entered into various commitments and operating
agreements related to substantially all of its oil and natural gas properties.
It is management's belief that such commitments will be met without a
significant adverse impact on the Company's financial position or results of
operations.
CONTINGENCIES
No legal proceedings are pending against the Company and the Company is
unaware of any potential claims or lawsuits involving environmental, operating
or corporate matters which are expected to have a material effect on the
Company's financial position or results of operations.
NOTE 10: RELATED-PARTY TRANSACTIONS
INVESTMENT IN PARTNERSHIP
In September 1996, in connection with the acquisition of certain
properties, CEC became the General Partner of CALP 96. The Partnership is a
limited partnership formed to acquire interests in oil and gas properties.
Generally, CEC funds ten percent (10%) of the Partnership's capital requirements
and may earn up to seventy percent (70%) of Partnership cash flows, predicated
upon achieving the recovery of invested funds and a specified rate of return for
the limited partners. In accordance with certain agreements, the Company must
offer the Partnership 25% of future acquisitions sponsored by the Company, up to
the Partnership capital limit of $10.0 million. The Company uses the
proportionate consolidation method of accounting to account for this investment.
At December 31, 1997 and 1996, this investment balance was $537,756 and
$354,308, respectively and is included in evaluated property, plant and
equipment.
F-16
<PAGE>
TEXOIL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company, through Cliffwood Production Co., operates properties for CALP
96. Accordingly, amounts reflected in the accompanying financial statements as
accounts receivable or accounts payable, to or from related parties, represent
amounts associated with well operations for such entities.
MANAGEMENT
The Company entered into certain transactions with management, including
Frank A. Lodzinski, President, and Jerry M. Crews, Executive Vice President. A
summary of related-party transactions is as follows:
Energy Resource Associates, Inc. ("ERA"), a Texas corporation, is
solely owned and controlled by Mr. Lodzinski. ERA is also the General
Partner of the V & C Energy Limited Partnership ("V&C") which has
participated with Cliffwood in several of its acquisitions, at cost. In
September 1997, V & C sold certain oil & gas properties to the Company for
$2.5 million in cash, 100,000 shares of Cliffwood stock and 50,000 warrants
to purchase Cliffwood common stock at a price of $4.50 per share.
In 1996, Mr. Lodzinski was paid a cash fee of $40,250 upon closing of
certain acquisitions for the Company.
In 1996, the Company had an agreement with Mr. Crews that he would
earn a certain amount of Company common stock shares based on his agreement
to provide services without compensation for a period of about six months.
Mr. Crews also earned a fee of $57,250 based on his success in generating
and closing acquisitions. In addition, he was issued 55,000 common shares
for his contribution of cash and certain equipment to the Company.
In 1996, Mr. Selber was paid a cash fee in the amount of $23,800, as a
commission for referral of the New Diana Field (Upshur County, Texas). The
fee was negotiated with Mr. Selber prior to his employment with the
Company.
INVESTMENT IN JOINT VENTURE
The Company maintains a majority interest in Cliffwood-Blue Moon Joint
Venture, Inc. (CBJV). The objective of the Joint Venture is to generate and
lease exploratory, exploitation and development prospects, using fully
integrated 3-D seismic data along with well control, engineering and other data,
thereby reducing drilling risk. Of these prospects, the Company generally
intends to retain a 12 1/2-25% interest in all prospects and sell the rest to
industry or other partners.
RESOURCE INVESTORS MANAGEMENT COMPANY (RIMCO)
Gary J. Milavec, Vice President of RIMCO, is a member of the Company's
Board of Directors. In connection with the merger, RIMCO provided $10,000,000 of
financing to the Company as described in Note 3 to these financial statements.
F-17
<PAGE>
TEXOIL, INC.
SUPPLEMENTARY OIL & GAS INFORMATION
COSTS INCURRED IN OIL & GAS PROPERTY ACQUISITION,
EXPLORATION AND DEVELOPMENT ACTIVITIES
YEARS ENDED DECEMBER 31, 1997 AND 1996
(UNAUDITED)
1997 1996
--------- ---------
(000'S)
Acquisition of properties:
Evaluated....................... $ 9,608 $ 5,507
Unevaluated..................... 4,618 --
Exploration costs.................... -- --
Development costs.................... 906 --
--------- ---------
Total costs incurred............ $ 15,132 $ 5,507
========= =========
CAPITALIZED COSTS RELATING TO OIL & GAS PRODUCING ACTIVITIES
DECEMBER 31, 1997 AND 1996
(UNAUDITED)
1997 1996
--------- ---------
(000'S)
Evaluated properties................. $ 16,021 $ 5,507
Unevaluated properties............... 4,618 --
--------- ---------
20,639 5,507
Less: Accumulated depreciation,
depletion and Amortization......... 1,292 164
--------- ---------
Net capitalized costs........... $ 19,347 $ 5,343
========= =========
The projects represented by unevaluated properties and associated costs
were undergoing exploration or development activities or are projects in which
the Company intends to commence such activities in the future. The Company will
begin to amortize these costs when proved reserves are established or an
impairment is determined. The Company believes this determination will occur in
24 to 36 months.
The amortization per physical unit of production (barrel of oil equivalent)
was $3.35 and $2.30 for 1997 and 1996, respectively.
See accompanying notes to supplementary information.
F-18
<PAGE>
TEXOIL, INC.
SUPPLEMENTARY OIL & GAS INFORMATION
RESERVE QUANTITY INFORMATION
YEARS ENDED DECEMBER 31, 1997 AND 1996
(UNAUDITED)
1997 1996
--------------- ----------------
OIL GAS OIL GAS
MBBL MMCF MBBL MMCF
----- ------ ------- -----
Proved reserves:
Beginning of year.................. 1,684 4,622 -- --
Acquisitions.................... 2,798 7,538 1,731 4,815
Extensions, discoveries and
improved recovery............. 136 302 -- --
Revisions of previous
estimates..................... 340 (133) -- --
Production...................... (255) (707) (47) (193)
----- ------ ------- -----
End of year........................ 4,703 11,622 1,684 4,622
===== ====== ======= =====
Proved developed reserves
End of year........................ 4,138 7,294 1,684 4,622
===== ====== ======= =====
STANDARDIZED MEASURE OF DISCOUNTED FUTURE
NET CASH FLOW RELATING TO PROVED OIL & GAS RESERVES
DECEMBER 31, 1997 AND 1996
(UNAUDITED)
1997 1996
---------- ---------
($000'S)
Future cash inflows.................. $ 105,530 $ 56,038
Future production and development
costs
Production costs and taxes...... 53,940 27,420
Development and abandonment..... 5,338 208
Future income tax expenses........... 10,909 7,963
---------- ---------
Future net cash flows................ 35,343 20,447
Discount at 10% per annum............ 14,823 7,688
---------- ---------
Standardized measure of discounted
future net cash flow............... $ 20,520 $ 12,759
========== =========
Standardized measure before
income taxes................... $ 27,116 $ 17,743
========== =========
See accompanying notes to supplementary information.
F-19
<PAGE>
TEXOIL, INC.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE
NET CASH FLOWS AND CHANGES THEREIN RELATING
TO PROVED OIL AND GAS RESERVES
YEARS ENDED DECEMBER 31, 1997 AND 1996
(UNAUDITED)
The following are the principal sources of change in the standardized
measure of discounted future net cash flows during 1997 and 1996:
YEAR ENDED DECEMBER
31,
--------------------
1997 1996
--------- ---------
($000)
Standardized measure of discounted
future net cash flows, beginning
of year............................... $ 12,759 $ --
Purchases of reserves................... 14,828 13,469
Extensions, discoveries and improved
recovery, net of costs................ 1,095 --
Revisions of previous quantity
estimates............................. 2,575 --
Net changes in prices and production
costs................................. (7,228) --
Changes in estimated future development
costs................................. (228) --
Development costs incurred during period
that reduced future
development costs..................... 208 --
Sales of oil and gas produced during
period, net of production costs....... (2,874) (710)
Net change in income taxes.............. (1,613) --
Accretion of discount................... 1,774 --
Other (changes in production rates,
timing and other)..................... (776) --
--------- ---------
Standardized measure of discounted
future net cash flows, end of year.... $ 20,520 $ 12,759
========= =========
See accompanying notes to supplementary information.
F-20
<PAGE>
TEXOIL, INC.
NOTES TO SUPPLEMENTARY OIL & GAS INFORMATION
(UNAUDITED)
1. PRESENTATION OF RESERVE DISCLOSURE INFORMATION
Reserve disclosure information is presented in accordance with the
provisions of Statement of Financial Accounting Standards No. 69 ("SFAS 69"),
Disclosures About Oil and Gas Producing Activities.
2. DETERMINATION OF PROVED RESERVES
The estimate of the Company's proved reserves was determined by an
independent petroleum engineer in accordance with the provisions of SFAS 69 and
applicable rules of the Securities and Exchange Commission. The estimates of
proved reserves are inherently imprecise and are continually subject to revision
based on production history, results of additional exploration and development
and other factors. Estimated future cash flows were computed by applying prices
of oil and gas received by the Company at the end of the indicated periods to
estimated future production of proved reserves, less estimated future
development and production costs, which were estimated based on current costs.
3. STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND CHANGES THEREIN
RELATING TO PROVED OIL AND GAS RESERVES
The standardized measure of discounted future net cash flows relating to
proved oil and gas reserves and the changes in standardized measure of
discounted future net cash flows relating to proved oil and gas reserves were
prepared in accordance with the provisions of SFAS 69. Future cash inflows are
computed as described in Note 2 above by applying current prices to year-end
quantities of proved reserves. Future production and development costs are
computed estimating the expenditures to be incurred in developing and producing
the oil and gas reserves at year-end, based on year-end costs and assuming
continuation of existing economic conditions.
Future income tax expenses are calculated by applying the year-end U.S. tax
rate to future pre-tax cash inflows relating to proved oil and gas reserves,
less the tax basis (including any applicable net operating loss carryforwards)
of oil and gas properties involved. Future income tax expenses give effect to
permanent differences and tax credits and allowances relating to the proved oil
and gas reserves.
Future net cash flows are discounted at a rate of 10% annually to derive
the standardized measure of discounted future net cash flows. This calculation
does not necessarily represent an estimate of fair value or the present value of
such cash flows since future prices and costs can vary substantially from
year-end and the use of a 10% discount figure is arbitrary.
F-21
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
COMET ENTERTAINMENT, INC.
COMET ACQUISITION SUBSIDIARY, INC.
AND
TEXOIL COMPANY
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1. THE MERGER.....................................................2
1.1. Filing of the Agreement of Merger..............................2
1.2. Merger.........................................................2
1.3. Corporate Documents............................................2
1.4. Terms of Merger................................................2
SECTION 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF
COMET..........................................................3
2.1. Organization. etc..............................................3
2.2. Capital Stock of Comet.........................................3
2.3. Disclosure of Comet............................................3
2.4. Financial Statements...........................................3
2.5. Names, Patents, Trademarks, etc................................3
2.6. Tax and Other Returns and Reports..............................4
2.7. Agreements, Contacts and Commitments...........................4
2.8. Title to Properties: Liens and Encumbrances....................5
2.9. No Breach of Statute or Contract; Governmental Authorizations;
Required Consents..............................................5
2.10. Litigation.....................................................6
2.11. Authorization of Agreement.....................................6
2.12. Status of Comet Common Stock and Comet Preferred Stock.........7
2.13. Brokers' or Finders' Fees, etc.................................7
2.14. Indemnification................................................7
2.15. Liens..........................................................7
2.16. Compliance with Laws...........................................8
2.17. Insurance......................................................8
2.18. SEC Reports....................................................8
2.19. Absence of Undisclosed Liabilities; Adverse Changes in Condition8
SECTION 3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF
TEXOIL.........................................................9
3.1. Organization, etc..............................................9
3.2. Capital, Stock of Texoil.......................................9
3.3. Disclosure of Texoil...........................................9
3.4. Financial Statements; Reserve Report...........................9
3.5. Tax and Other Returns and Reports..............................9
3.7 Agreements, Contracts and Commitments.........................10
3.8 No Breach of Statute or Contract; Governmental Authorizations;
Required Consents.............................................11
i
<PAGE>
3.9 Litigation....................................................12
3.10 Authorization of Agreement....................................12
3.11 Liens.........................................................12
3.12 Brokers' or Finders' Fees, etc................................12
3.13 Indemnification...............................................12
3.14 Names, Patents, Trademarks, etc...............................13
3.16 Insurance.....................................................13
3.17 Absence of Undisclosed Liabilities; Adverse Changes in
Condition.....................................................14
SECTION 4. CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE
DATE..........................................................14
4.1. Investigations; Operation of Business of Texoil and Comet.....14
4.2. Stockholder Approval..........................................18
SECTION 5. CONDITIONS TO MERGER..........................................18
5.1. Conditions to Obligation of Comet.............................18
5.2. Conditions to Obligation of Texoil........................20
SECTION 6. CERTAIN UNDERSTANDINGS AND AGREEMENTS.........................23
6.1. Shareholders' Meeting.........................................23
6.2. Reservation of Stock..........................................23
6.3. Employment Agreements.........................................23
6.4. Board of Directors Following Merger...........................23
6.5. William F. Coffin Corporation Consulting Contract.............23
6.6. Filing of Form 8-K; NASDAQ Listing; Registration on Form S-1;
"Lock-Up" of Shares...........................................24
6.7. Amendments to Articles........................................24
6.8. Conduct of Business...........................................24
SECTION 7. TERMINATION OF OBLIGATIONS AND WAIVERS OF CONDITIONS;
PAYMENT OF EXPENSES...........................................24
7.1. Termination of Agreement and Abandonment of Merger............24
7.2. Payment of Expenses; Waiver of Conditions.....................24
SECTION 8. GENERAL.......................................................25
8.1. Amendments....................................................25
8.2. No Assignment.................................................25
8.3. No Survival of Representations and Warranties.................25
8.4. Governing Law.................................................25
8.5. Notices.......................................................25
8.6. Headings......................................................26
8.7. Counterparts..................................................26
8.8. Reliance Upon Representations and Warranties..................26
ii
<PAGE>
8.9. Waiver........................................................26
8.10. Entire Agreement..............................................26
8.11. No Partnership................................................27
8.12. Partial Invalidity............................................27
8.13. Joint Preparation.............................................27
8.14. Arbitration...................................................27
SCHEDULE 2.1 Comet Qualification as Foreign Corporation....................28
SCHEDULE 2.2 Outstanding Comet Options, Warrants and Subscription Rights...29
SCHEDULE 2.6 Comet Tax and Other Returns and Reports.......................30
SCHEDULE 2.7 Comet Agreements, Contracts, and Commitments..................31
SCHEDULE 2.8 Comet Leases, Title to Properties, Liens and Encumbrances.....32
SCHEDULE 2.9 Comet Breaches of Statute or Contract.........................33
SCHEDULE 2.16 Comet Liens on Real and Personal Property.....................34
SCHEDULE 2.18 Comet Insurance...............................................35
SCHEDULE 3.1 Texoil Qualification as Foreign Corporation...................36
SCHEDULE 3.2 Outstanding Texoil Options, Warrants and Subscription Rights..37
SCHEDULE 3.5 Texoil Tax and Other Returns and Reports......................38
SCHEDULE 3.6 Texoil Leases, Title to Properties, Liens and Encumbrances....39
SCHEDULE 3.7 Texoil Agreements, Contracts, and Commitments.................40
SCHEDULE 3.8 Texoil Breaches of Statute or Contract........................41
SCHEDULE 3.9 Texoil Litigation (Actual, Pending, or Threatened)............42
SCHEDULE 3.11 Texoil Liens on Real and Personal Property....................43
SCHEDULE 3.8 Texoil Names, Patents, Trademarks, Etc........................44
SCHEDULE 3.17 Texoil Insurance..............................................45
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SCHEDULE 5.1 Post-Merger Comet Board of Directors..........................46
EXHIBIT A ARTICLES OF MERGER............................................47
EXHIBIT B AMENDMENT TO EMPLOYMENT AGREEMENT.............................49
EXHIBIT C...................................................................51
EXHIBIT D...................................................................56
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") dated as of November
4, 1992 is entered into by and between Texoil Company, a Tennessee corporation
("Texoil"), Comet Entertainment, Inc., a Nevada corporation ("Comet"), and Comet
Acquisition Subsidiary, Inc. ("Subsidiary"), a Nevada corporation which is a
wholly owned subsidiary of Comet.
RECITALS
A. The Boards of Directors of Comet and Texoil, respectively, deem it to
be in the best interests of Comet and Texoil and their respective shareholders
that Subsidiary merge with and into Texoil pursuant to this Agreement and an
agreement of merger (the "Agreement or Merger") substantially in the form of
Exhibit A attached hereto.
B. Comet, Subsidiary, and Texoil propose to enter into the Agreement of
Merger which provides, among other things, for the merger of Subsidiary with and
into Texoil (the "Merger"). The Agreement of Merger also provides for the
conversion of each share of Texoil Common Stock ("Texoil Common Stock"),
adjusted for full dilution, into 9.2194 shares of Comet Common Stock, after
Comet gives effect to a 28 to 1 reverse split up and conversion of each of its
outstanding shares of Comet $.001 par value common stock ("Comet Common Stock"),
resulting in 432,994 shares issued and outstanding. Additionally, each of the
outstanding shares of Texoil $100 par value preferred stock ("Texoil Preferred
Stock") to be issued shall be converted into one (1) share of Comet $.01 par
value Series A preferred stock ("Comet Preferred Stock"). Each share of Comet
Preferred Stock will be voting; redeemable; convertible into the number of
shares determined by dividing the liquidation value ($100) of a share of Comet
Preferred Stock by the price per share to the public in the first public
offering of Comet Common Stock subsequent to the merger; convertible into Comet
Common Stock at any time no later than five (5) days prior to redemption, but in
no event prior to any public offering of Comet Common Stock registered with the
Securities and Exchange Commission; pays cumulative quarterly dividends at the
annual rate of $12.00 per share; and have a liquidation preference of $100 plus
cumulative accrued unpaid dividends. At the Effective Date (defined in Section
1.1 below), Comet shall have issued a number of shares of Comet Common Stock to
the shareholders or Texoil, in exchange for all of the then issued and
outstanding shares of Texoil Common Stock, equal to 95.0% of Comet Common Stock
after giving effect to such issuance, but adjusted for the full dilution of both
Comet Common Stock and Texoil Common Stock for outstanding options, warrants,
other purchase rights or securities convertible into common stocks if any, as
described in Schedules 2.2 and 3.2; and Comet shall have issued 23,000 shares of
Comet Preferred Stock in exchange for all of the then issued and outstanding
shares of Texoil Preferred Stock.
C. The Boards of Directors of Comet, Subsidiary, and Texoil, respectively,
have approved and adopted this Agreement and the Agreement of Merger as a plan
of reorganization
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within the provisions of ss.338(a)(1)(A) of the Internal Revenue Code of 1986,
as amended (the "Code"), pursuant to ss. 368(a)(2)(E).
NOW, THEREFORE the parties hereto agree as follows:
SECTION 1. THE MERGER
1.1. FILING OF THE AGREEMENT OF MERGER. Subject to Sections 4 and 5 of
this Agreement, the Agreement of Merger shall be executed by each of the parties
hereto and delivered to the Secretary of State of Nevada, for filing as provided
in ss. 78.470 of the Nevada Revised Statutes ("NRS") as soon as practicable
following the time when the last of the conditions of the Merger shall have been
fulfilled or waived as provided herein or such earlier or later date as may be
mutually agreed upon by Comet, Subsidiary, and Texoil. Cornet, Subsidiary, and
Texoil shall also execute, acknowledge and deliver such other documents or
certificates as may be required to effect the Merger (such other documents and
this Agreement and the Agreement of Merger is herein collectively referred to as
the "Merger Documents"). The day and time of the filing of the Agreement of
Merger with the Secretary of State of Nevada pursuant to this paragraph is
herein referred to as the "Effective Date." Comet, Subsidiary, and Texoil agree
to use their best efforts to consummate the Merger by December 1, 1992.
1.2. MERGER. Subsidiary shall be merged with and into Texoil, and the
separate existence of Subsidiary shall cease. Texoil shall be the surviving
corporation. Comet shall subsequently file an amendment to its Article of
Incorporation to change its name to Texoil, Inc. or some other appropriate name.
1.3. CORPORATE DOCUMENTS. The amended and restated Articles of
Incorporation and Bylaws of comet as in effect on the Effective Date shall
thereafter remain in full force and effect until amended or an appeal is
provided by law.
1.4. TERMS OF MERGER. Comet agrees as of the Effective Date of the Merger
to issue certificates representing shares of Comet Common Stock and Comet
preferred Stock to the extent set forth herein, and in accordance with the terms
of the Agreement of Merger. The exchange ratio of Comet Common Stock for each
share of Texoil Common Stock, and of Comet Preferred Stock for each share of
Texoil Preferred Stock, issued and outstanding immediately prior to the
Effective Date shall be as set forth in the Agreement of Merger and shall be
subject to adjustment as follows: in the event that, subsequent to the date of
this Agreement but prior to the Effective Date, the outstanding shares of Comet
Common Stock and Comet Preferred Stock or Texoil Common Stock and Texoil
Preferred Stock shall, without adequate consideration, have been increased,
decreased, changed into or exchanged for a different number or kind of shares or
securities through reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split, or other like changes in Comet or
Texoil capitalization, then an appropriate and proportionate adjustment shall be
made in the number and kind of shares or securities to be thereafter delivered
to the holders of Texoil Common Stock and Texoil Preferred Stock in the Merger.
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SECTION 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF COMET
Comet, on behalf of itself and subsidiary, represents, warrants and
covenants, as of the date of this Agreement and as of the Effective Date, as
follows (unless otherwise required by the context thereof, all references to
Comet in this Section 2 include Subsidiary):
2.1. ORGANIZATION. ETC. Comet is a corporation duly organized, validly
existing and in good standing under the laws of Nevada. Comet has the corporate
power to own its property and to carry on its business as now being conducted
and execute and deliver this Agreement and the Agreement of Merger and
consummate the transactions contemplated hereby and thereby. Comet is duly
qualified to do business and is in good standing as a foreign corporation in
each state where it conducts business as set forth in Schedule 2.1, constituting
each state in which such qualification is required in order to do business,
except for states in which the failure to be so qualified will not materially
and adversely affect Comet.
2.2. CAPITAL STOCK OF COMET. As of the date hereof, the authorized capital
stock of Comet consists of 50,000,000 shares of Common Stock, par value $.001,
of which 12,123,837 shares are issued and outstanding; and 10,000,000 shares of
preferred stock of $.01 par value are authorized, none of which are issued and
outstanding. As of the date of this Agreement, and except as set forth in
Schedule 2.2 attached hereto, there are no outstanding options, warrants or
other rights to subscribe for or purchase from Comet any capital stock of Comet
or securities convertible into or exchangeable for capital stock of Comet. Such
issued shares of Comet are duly authorized, validly issued, fully paid and
non-assessable, and have not been issued in violation of any preemptive rights.
Comet has only one wholly-owned subsidiary (Subsidiary), and does not own stock
or equity of any other corporation.
2.3. DISCLOSURE OF COMET. Comet has delivered to Texoil its disclosure
schedules which contained true and correct copies of its respective Articles of
Incorporation, Bylaws, and Minutes certified by its secretary as well as
schedules of current officers and directors and shareholder lists.
2.4. FINANCIAL STATEMENTS. Comet has previously furnished Texoil a true
and complete copy of Comet's audited balance sheet as of June 30, 1990, and June
30, 1991, and June 30, 1992, and the related statements of operations,
shareholders' equity and cash flows of Comet as of June 30, 1990, June 30, 1991
and June 30, 1992, together with related notes and supplementary information
(the "Comet Financial Statements"), and the unaudited balance sheet at September
30, 1992, the unaudited statement of operations and statement of retained
earnings for the three (3) months then ended.
2.5. NAMES, PATENTS, TRADEMARKS, ETC. Comet neither owns, licenses, or
possesses any copyrights, patents, trademarks and trade names, federal; state or
provincial, domestic or foreign. Comet has not received any notice with respect
to any claim of alleged infringement or unlawful or improper use of any
copyright, patent, trademark, trade name, process, invention, formula or other
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intangible property right owned or alleged to be owned by others, which claim,
if decided adversely, could have a material adverse effect on the business or
operations of Comet.
2.6. TAX AND OTHER RETURNS AND REPORTS. Except as set forth in Schedule
2.6 attached hereto:
(a) All federal, state, local and foreign tax returns and tax
reports, domestic or foreign, required to be filed by Comet have been
filed on a timely basis with the appropriate governmental agencies in all
jurisdictions in which such returns and reports are required to be filed
and where failure to file would materially and adversely effect Comet.
Comet has not extended the time to file any required tax returns or tax
reports.
(b) All significant federal, state, local and foreign income,
franchise, property and other taxes (including interest and penalties) due
from Comet have been fully paid or adequately provided for on the books
and financial statements of Comet and fully paid.
(c) No issues have been raised or are currently pending by the IRS
or any other taxing authority in connection with any of the returns and
reports which, individually or in the aggregate, might have a material
adverse effect on Comet, nor does Comet have any knowledge of
circumstances under which such a claim could be made. Comet has not filed
any tax returns on a unitary or consolidated basis with any other entity
and has not entered into any tax-sharing agreement.
(d) All taxes, levies and other assessments which comet is required
by law to withhold or to collect have been duly withheld and collected and
have been paid over to the proper governmental authorities or held by
Comet for such payment.
(e) The amounts reserved for taxes on the interim financial balance
sheets will be sufficient for the payment of all respective federal,
state, provincial, county and local taxes, domestic or foreign of any kind
of Comet including interest and penalties in respect thereof whether
disputed or not and whether accrued, due, absolute, contingent or
otherwise payable by Comet attributable to all periods ended on or before
the Effective Date.
2.7. AGREEMENTS, CONTACTS AND COMMITMENTS. There are no agreements,
contract and leases to which Comet is a party and which are material to the
condition (financial or other), business, prospects or operations of Comet,
excepting only such agreements, contracts and leases that incur or cause less
than 10% of annual revenues or financial obligations to Comet. Except as
indicated on Schedule 2.7, Comet does not have in effect and has no liability
under and has no liability under:
(i) any collective bargaining agreement;
(ii) any bonus, deferred compensation, pension,
profit-sharing, restricted stock or employee stock
purchase plans;
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(iii) any employment or consulting agreement, contract or
commitment with an employee or consultant having more
than one year to run from the date hereof or containing
an obligation to pay or accrue more than $5,000 per
annum, except as otherwise provided in exhibit in
Schedule 2.7.
(iv) any lease which involves a potential liability to Comet
as lessee of more than $5,000 or any agreement of
guarantee or indemnification running to any person or
entity which involves, singly or in the aggregate, a
potential liability of more than $5,000;
(v) any agreement or contract relating to capital
expenditures which obligates Comet to make future
payments which, together with future payments under all
other agreements and contracts relating to the same
capital project, exceed $5,000; or
(vi) any agreement or contract relating to the disposition or
acquisition of assets or any interest in any business
enterprise with a book value of or for a price of $5,000
or more, except as contemplated hereby.
2.8. TITLE TO PROPERTIES: LIENS AND ENCUMBRANCES. Comet has good and
marketable title to the assets and properties (real and personal, tangible and
intangible) which it owns and on which operations are conducted and which are
used in its business, other than property sold or otherwise disposed of in the
ordinary course of business subsequent to the Effective Date, free and clear of
all mortgages, security interests, liens, charges or encumbrances of any nature
whatsoever, except for taxes not yet due and payable, none of which materially
impairs the present use and occupation of the premises. All such assets and
properties, each of which is listed on Schedule 2.8 are in good and serviceable
condition, ordinary wear and tear excepted. Comet is not a party to any lease of
real property nor does Comet own any real property.
2.9. NO BREACH OF STATUTE OR CONTRACT; GOVERNMENTAL AUTHORIZATIONS;
REQUIRED CONSENTS. Neither the execution and delivery of this Agreement or the
Agreement of Merger by Comet nor consummation of the transactions contemplated
hereby or thereby by Comet (including the issuance of Shares of Comet Common
Stock to shareholders of Texoil) will conflict with or result in a breach of any
of the terms, conditions or provisions or the Articles of Incorporation or
Bylaws of Comet or any judgment, order, injunction or decree of any court or
governmental authority, to which Comet is subject or any agreement or contract
to which Comet is a party and which is material to the financial condition or
the conduct of the businesses of Comet, or constitute a material default
thereunder.
(a) To the best knowledge of Comet after due inquiry, Comet is not
in violation of any applicable law, statute, order, rule or regulation
promulgated by any federal, state,
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local or foreign governmental authority relating to the operation, conduct
or ownership of the property or business of Comet, which violation might
have a material adverse effect on Comet.
(b) Neither the execution and delivery of this Agreement or the
Agreement of Merger, nor the consummation of the Merger contemplated
hereby, are events which of themselves or with the giving of notice or the
passage of time or both, would constitute a violation of or conflict with
or result in any breach of, or default under the terms, conditions or
provisions of, any judgment, law or regulation, or Comet's Articles of
Incorporation or Bylaws, or any lease, contract, mortgage, deed of trust,
indenture, agreement or instrument to which Comet is a party or by which
it is bound, or would result in the creation or imposition of any lien,
charge or encumbrance of any nature whatsoever on the property or assets
of Comet and no such event of itself or with the giving of notice or the
passage of time or both will result in the acceleration of the due date of
any obligation to which Comet is bound.
(c) Comet is not party to any action, suit, claim, proceeding or
investigation either pending or, to the best knowledge of its officers and
directors, threatened against, respectively, Comet or any of its officers
or directors in their capacities as such, at law or in equity, or by or
before any federal, state, provincial, municipal or other governmental
department, commission, board, agency or subject of any outstanding
judgment, or operating under, subject to, or in default with respect to,
any order, writ, injunction or decree of any court or federal, state,
provincial, municipal or other governmental department, commission, board,
agency or instrumentality, domestic or foreign, which impairs or could
impair the conduct of its business in any material way.
2.10. LITIGATION. Comet is not party to any action, suit, claim,
proceeding or investigation either pending or, to the best knowledge of its
officers and directors, threatened against, respectively, Comet or any of its
officers or directors in their capacities as such, at law or in equity, or by or
before any federal, state, provincial, municipal or other governmental
department, commission, board, agency or instrumentality, domestic or foreign.
Comet is not the subject of any outstanding judgment, or operating under,
subject to, or in default with respect to, any order, writ, injunction or decree
of any court or federal, state, provincial, municipal or other governmental
department, commission, board, agency or instrumentality, domestic or foreign,
which impairs or could impair the conduct of its business in any material way.
2.11. AUTHORIZATION OF AGREEMENT. The execution and delivery and the
performance of this Agreement and the Agreement of Merger by Comet have been
duly and validly authorized and approved by the Board of Directors of Comet and
subsidiary, and Comet and Subsidiary have taken all action required by law,
their Articles of Incorporation and Bylaws to authorize the execution, delivery
and performance of the Merger Documents.
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2.12. STATUS OF COMET COMMON STOCK AND COMET PREFERRED STOCK. The shares
of Comet Common Stock and Comet Preferred Stock to be issued to shareholders of
Texoil pursuant to this Agreement and the Agreement of Merger, when so issued,
will be duly and validly authorized and issued, fully paid and nonassessable.
2.13. BROKERS' OR FINDERS' FEES, ETC.. No agent, broker investment banker,
person or firm acting on behalf of Comet is or will be entitled to any brokers'
or finders' fee or any other commission or similar fee directly or indirectly
from Comet in connection with any of the transactions contemplated herein.
2.14. INDEMNIFICATION. Comet hereby agrees to indemnify and hold harmless
Texoil, and each director, officer and shareholder thereof, from and against any
and all losses, claims, damages, expenses or liabilities, joint or several, to
which they or any of them may become subject under the Securities Act or any
other statute or at common law or otherwise and, except as provided below, shall
reimburse Texoil and each such director, officer or shareholder for any legal or
other expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions result from a breach or alleged breach of the representations,
warranties or covenants contained in this Agreement, or arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in this Agreement, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but only insofar as
the untrue statement or omission or alleged untrue statement or omission was
made with respect to the description of Comet.
Promptly after receipt by a party to be indemnified pursuant to this
Section 2.14 of notice of a statement of claim, demand or commencement of any
action in respect of which indemnity may be sought against Comet hereunder, the
indemnified party will notify Comet in writing thereof, and Comet shall, subject
to the provisions stated below, assume the defense of such claim or action
(including the employment of counsel, who shall be counsel reasonably
satisfactory to Texoil and shall not be counsel otherwise employed by Comet),
and the payment of expenses insofar as such claim or action shall relate to any
alleged liability in respect of which indemnity may be sought against Comet. The
indemnified party or parties shall have the right to employ separate counsel in
any action and to participate in the defense thereof, but the fees and expenses
of their counsel shall not be at the expense of Comet unless the employment of
that counsel has been specifically authorized by Comet. Comet shall not be
liable to indemnify any person for any settlement of any action effected without
Comet's consent. Notwithstanding any provision in this Agreement or in the
Agreement of Merger to the contrary, the obligations of Comet under this Section
2.14 shall survive consummation of the transactions contemplated by this
Agreement and the other Merger Documents.
2.15. LIENS. All of the real and personal property of Comet is free and
clear of all liens, security interests and encumbrances.
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2.16. COMPLIANCE WITH LAWS. Comet is not in violation of any term or
provision of its Articles of Incorporation or Bylaws, or of any term or
provision of any judgment, decree, order, statute, injunction. rule, ordinance
or governmental regulation (including building, zoning, or environmental)
applicable to its properties, or of any agreement or instrument applicable to
it; Comet has maintained in full force and effect any license or permit material
to the conduct of its business, and has not received any notification that any
revocation or limitation thereof is threatened or pending.
2.17. INSURANCE. Comet has no insurance policies of any kind.
2.18. SEC REPORTS. Comet represents and warrants that, to the best of its
knowledge after due inquiry, Comet has duly filed all applications and reports
required to be filed by it with the SEC under the Securities Act of 1934 as
amended. Comet has previously delivered to Texoil complete and correct copies of
all such SEC applications and reports filed during the period from July 1987 to
the date hereof. All of such applications and reports have been in compliance
with applicable law.
2.19. ABSENCE OF UNDISCLOSED LIABILITIES; ADVERSE CHANGES IN CONDITION.
(a) Comet has no liabilities or obligations which, individually or
in the aggregate, are material to Comet and which have not been:
(i) reflected in the consolidated balance sheet of Comet as
of June 30, 1992 referred to in Section 2.4 (the "Comet
Balance Sheet") or the unaudited balance sheet as of
September 30, 1992; or
(ii) incurred in the ordinary course of business since
September 30, 1992.
(b) Except as set forth in Section 2.4, since September 30, 1991,
whether or not in the ordinary course of business, there has not been,
occurred or arisen:
(i) any material adverse change in the consolidated
financial condition or in the operations of the business
of Comet from that shown on the Comet Balance Sheet; or
(ii) any damage or destruction in the nature of a casualty
loss, whether covered by insurance or not, materially
and adversely affecting any property or business of
comet which is material to the financial condition of
the operations of the business of Comet; or
(iii) any actual or, to the knowledge of Comet, threatened,
strike or other labor trouble or dispute which
materially adversely affects, or which insofar as Comet
knows might materially adversely affect the business or
prospects of Comet.
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SECTION 3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF TEXOIL
Texoil represents, warrants and covenants, as of the date of this
Agreement, and as of the Effective Date, as follows:
3.1. ORGANIZATION, ETC. Texoil is a corporation duly organized, validly
existing and in good standing under the laws of its State of Incorporation.
Texoil has the corporate power to own its properties and carry on its business
as now being conducted, execute and deliver this Agreement and the Agreement of
Merger and consummate the transactions contemplated hereby and thereby. Texoil
is duly qualified to do business and is in good standing as a foreign
corporation in each state where it conducts business as set forth in Schedule
3.1, constituting each state in which such qualification is required in order to
do business, except for states in which the failure to be so qualified will not
materially and adversely affect Texoil.
3.2. CAPITAL, STOCK OF TEXOIL. As of the date hereof, the authorized
capital stock of Texoil consists of 1,000,000 shares of common stock, $.10 par
value, of which 713,877 shares are issued and outstanding and 25,000 shares of
preferred stock, $100 par value, are authorized, 23,000 of which are issued and
outstanding; and no other classes of stock are authorized, issued or
outstanding. Other than as set forth in Schedule 3.2, there are no outstanding
options, warrants or other rights to subscribe for or purchase from Texoil any
capital stock of Texoil or securities convertible into or exchangeable for
capital stock of Texoil. All issued shares of Texoil Common Stock are duly
authorized, validly issued, fully paid and nonassessable and have not been
issued in violation of any preemptive rights. Texoil has one wholly owned
subsidiary, Texoil Exploration De Argentina, S.A., a Nevada Corporation, and
does not own 50% or more of the issued and outstanding stock of any other
corporation.
3.3. DISCLOSURE OF TEXOIL. Texoil has delivered to Comet its disclosure
schedule which contained true and correct copies of its Charter, Bylaws, and
Minutes certified by its secretary as well as its schedule of current officers
and directors and its shareholder list.
3.4. FINANCIAL STATEMENTS; RESERVE REPORT. Texoil has previously furnished
a true and complete copy of its audited balance sheet as of December 31, 1989,
1990, 1991, and the audited statements of operations, shareholders' equity and
cash flows for the years ended December 31, 1989, 1990 and 1991, together with
related notes and supplementary information (the "Texoil Financial Statements"),
and the unaudited balance sheet at June 30, 1992, the unaudited consolidated
statement of operations for the nine months then ended. Also, Texoil has
previously furnished a true and complete copy of its oil and gas reserve report
as of November 1, 1992.
3.5. TAX AND OTHER RETURNS AND REPORTS. Except as set forth in Schedule
3.5 attached hereto:
(a) All federal, state, local and foreign tax returns and tax
reports, domestic or foreign, required to be filed by Texoil have been
filed on a timely basis with the appropriate
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governmental agencies in all jurisdictions in which such returns and
reports are required to be filed where failure to file would materially
and adversely effect Texoil.
(b) All significant federal, state, local and foreign income,
franchise, property and other taxes (including interest and penalties) due
from Texoil have been fully paid or adequately provided for on the books
and financial statements of Texoil.
(c) No issues have been raised or are currently pending by the IRS
or any other taxing authority in connection with any of the returns and
reports referred to in the foregoing clause which, individually or in the
aggregate, might have a material adverse effect on Texoil, nor does Texoil
have any knowledge of circumstances under which such a claim could be
made. Texoil has not filed any tax returns on a unitary basis or
consolidated basis with another entity and has not entered into any other
tax-sharing agreement.
3.7 AGREEMENTS, CONTRACTS AND COMMITMENTS.
(a) Schedule 3.7 attached hereto contains an accurate and complete
list of all agreements, contracts and leases to which Texoil is a party
and which are material to the condition (financial or other) business,
prospects or operations of Texoil, excepting only such agreements,
contracts and leases that incur or cause less than 10% of annual revenues
or financial obligations to Texoil. Except as set forth in Schedule 3.7,
Texoil does not have in effect.
(i) any collective bargaining agreements;
(ii) any bonus, deterred compensation, pension,
profit-sharing, restricted stock or employee stock
purchase plans;
(iii) any employment or consulting agreement, contract or
Commitment with an employee or consultant having more
than one year to run from the date hereof or containing
an obligation to pay or accrue more than $5,000 per
annum;
(iv) any lease which involves a potential liability to Texoil
as lessee of more than $5,000 or any agreement of
guarantee or indemnification running to any person or
entity which involves, singly or in the aggregate, a
potential liability of more than $5,000;
(v) any agreement or contract relating to capital
expenditures which obligates Texoil to make future
payments which, together with future payments under all
other agreements and contracts relating to the same
capital project, exceed $5,000; or
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(vi) any agreement or contract relating to the disposition or
acquisition of assets or any interest in any business
enterprise with a book value of or for a price of $5,000
or more, except as contemplated hereby.
(b) Except as set forth in Schedule 3.7, Texoil has not breached
any of the terms or conditions of (i) any agreement or contract set forth
in Schedule 3.7 in such a manner as would permit any other party to cancel
or terminate the same or (ii) any agreement or contract (including those
referred to in clause (i) if any such breach or breaches singly or in the
aggregate would require the payment of an amount in excess of $5,000.
3.8 NO BREACH OF STATUTE OR CONTRACT; GOVERNMENTAL AUTHORIZATIONS;
REQUIRED CONSENTS.
(a) Except as set forth in Schedule 3.8, neither the execution and
delivery of this Agreement or the Agreement of Merger by Texoil nor
consummation of the transactions contemplated hereby or thereby by Texoil
will:
(i) conflict with or result in a breach of any of the terms,
conditions or provisions of the Articles of
Incorporation, bylaws or other governing instruments of
Texoil or any judgment, order, injunction or decree of
any court or governmental authority to which Texoil is
subject or of any agreement or contract listed on
Schedule 3.7, or constitute a material default
thereunder; or
(ii) except as provided in section 4.2. hereof, require the
consent or approval of any person.
(b) Except as set forth in Schedule 3.8; to the best knowledge of
Texoil after due inquiry, Texoil is not in violation of any applicable
law, statute, order, rule or regulation promulgated by any federal, state,
local or foreign governmental authority relating to the operation, conduct
or ownership of the property or business or Texoil.
(c) Except as set forth in Schedule 3.8, neither the execution and
delivery of this Agreement or the Agreement of Merger, nor the
consummation of the Merger contemplated hereby, are events which of
themselves or with the giving or notice or the passage of time or both,
would constitute a violation of or conflict with or result in any breach
of, or default under the terms, conditions or provisions of, any judgment,
law or regulation, or Texoil's Articles of Incorporation or Bylaws of any
lease, contract, mortgage, deed of trust, indenture, agreement or
instrument to which Texoil is a party or by which it is bound, or would
result in the creation or imposition of any lien, charge or encumbrance of
any nature whatsoever on the property or assets of Texoil and no such
event of itself or with the giving of notice or the passage of time or
both will result in the acceleration or the due date of any obligation to
which Texoil is bound.
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3.9 LITIGATION. Except as set forth in Schedule 3.9, Texoil is not party
to any action, suit, claim, proceeding or investigation either pending or, to
the best knowledge of its officers and directors, threatened against,
respectively, Texoil or any of its officers or directors in their capacities as
such, at law or in equity, or by or before any federal, state, provincial,
municipal or other governmental department, commission, board, agency or
instrumentality, domestic or foreign. Except as set forth in Schedule 3.9,
Texoil is not the subject of any outstanding judgment, or operating under,
subject to, or in default with respect to, any order, writ, injunction or decree
of any court or federal, state, provincial, municipal or other governmental
department, commission, board, agency or instrumentality, domestic or foreign,
which impairs or could impair the conduct of its business in any material way.
3.10 AUTHORIZATION OF AGREEMENT. The execution, delivery and performance
of this Agreement and the Agreement of Merger by Texoil have been duly and
validly authorized and approved by the board of directors of Texoil. Texoil has
taken all action required by law, its Articles of Incorporation and Bylaws to
authorize the execution, delivery and performance of the Merger Documents except
for the shareholder approval described in Section 6.1 hereof.
3.11 LIENS. Other than as set forth on Schedule 3.11 hereof, all of the
real and personal property of Texoil is free and clear of all liens, security
interests and encumbrances.
3.12 BROKERS' OR FINDERS' FEES, ETC. No agent, broker, investment banker,
person or firm acting on behalf of Texoil or under its authority is or will be
entitled to any broker's or finder's fee or any other commission or similar fee
directly or indirectly from Texoil in connection with any of the transactions
contemplated herein.
3.13 INDEMNIFICATION. Texoil hereby agrees to indemnify and hold harmless
Comet and each of its directors, each of its officers who signs the Registration
Statement, and each person, if any, who controls Comet within the meaning of
Section 15 of the Securities Act, from and against any and all losses, claims,
damages, expenses or liabilities, joint or several, to which they or any of them
may become subject under the Securities Act or any other statute or at common
law or otherwise, and, except as provided below, shall reimburse Comet and each
such director, officer or controlling person for any legal or other expenses
reasonably incurred by them or any of them in connection with investigating or
defending any actions whether or not resulting in any liability, insofar as such
losses, claims, damages, expenses, liabilities or actions result from a breach
or alleged breach of any of the warranties contained in this Agreement, or arise
out of or are based upon any untrue statement of alleged untrue statement of a
material fact contained in this Agreement, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, but
only insofar as any such untrue statement or omission or alleged untrue
statement or omission was made with respect to the description of Texoil.
Promptly after receipt by a party to be indemnified pursuant to this
Section 3.13 of notice of the commencement of any action in respect of which
indemnity may be sought against Texoil
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hereunder, the indemnified party will notify Texoil in writing of the
commencement thereof, and Texoil shall, subject to the provisions stated below,
assume the defense of the action (including the employment of counsel, who shall
be counsel reasonably satisfactory to Comet and shall not be counsel otherwise
employed by Texoil) and the payment of expenses insofar as such action shall
relate to any alleged liability in respect of which indemnity may be sought
against Texoil. The indemnified party or parties shall have the right to employ
separate counsel in any action and to participate in the defense thereof, but
the fees and expenses of their counsel shall not be at the expense of Texoil
unless the employment of that counsel has been specifically authorized by
Texoil. Texoil shall not be liable to indemnify any person for any settlement of
any action effected without Texoil's consent. Notwithstanding any provision in
this Agreement or in the Agreement of Merger to the contrary, the obligations or
Texoil under this Section 3.13 shall survive consummation of the transactions
contemplated by this Agreement and the other Merger Documents.
3.14 NAMES, PATENTS, TRADEMARKS, ETC. Schedule 3.14 sets forth all
copyrights, patents, trademarks and trade names, federal, state or provincial,
domestic or foreign registration of which has been obtained or applied for by
Texoil, all of which are valid, in good standing, and uncontested. Texoil
possesses all rights, licenses, or other authority to use all such copyrights,
patents, inventions, formulas, processes (secret or otherwise), trademarks and
trade names necessary to conduct its businesses as presently conducted or
presently proposed to be conducted. Texoil has not received any notice with
respect to any claim of alleged infringement or unlawful or improper use of any
copyright, patent trademark, trade name, process, invention, formula or other
intangible property right owned or alleged to be owned by others, which claim,
if decided adversely, could have a material adverse effect on the business or
operation of Texoil.
Texoil is not in violation of any term or provision of its Articles of
Incorporation or Bylaws, or of any term or provision of any judgment, decree,
order, statute, injunction, rule, ordinance or governmental regulation including
building, zoning, or environmental) applicable to it, its properties, or of any
agreement or instrument applicable to it; Texoil has maintained in full force
and effect any license or permit material to the conduct of its business, and
has not received any notification that any revocation or limitation thereof is
threatened or pending.
3.16 INSURANCE. Schedule 3.16 contains a true, correct and complete
description of all policies of fire, casualty and extended coverage, public
liability, worker's compensation, life and other forms of insurance owned or
held, respectively, by Texoil. All such policies are in full force and effect
and will remain so through the Effective Date. All buildings, plants and
properties, including but not limited to leasehold interests, machinery,
equipment, billboards and inventories of Texoil are adequately insured against
loss or damage by fire and all other hazards and risks of the character usually
insured against by persons operating similar properties in the localities where
such properties are located (including use and occupancy insurance) under valid
and enforceable policies issued by insurers of recognized responsibility. Such
insurance coverage will be continued in full force and effect through the
Effective Date.
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3.17 ABSENCE OF UNDISCLOSED LIABILITIES; ADVERSE CHANGES IN CONDITION.
(a) Texoil has no liabilities or obligations which, individually or
in the aggregate, are material to Texoil and which have not been:
(i) reflected in the consolidated balance sheet of Texoil as
of December 31, 1991 referred to in Section 3.4 (the
"Texoil Balance Sheet") or the unaudited balance sheet
as of June 30, 1992; or
(ii) incurred in the ordinary course of business since
September 30, 1992.
(b) Except as set forth in Section 3.4, since September 30, 1992,
whether or not in the ordinary course of business, there has not been,
occurred or arisen:
(i) any material adverse change in the consolidated
financial condition or in the operations of the business
of Texoil from that shown on the Texoil Balance Sheet;
or
(ii) any damage or destruction in the nature of a casualty
loss, whether covered by insurance or not, materially
and adversely affecting any property or business of
Texoil which is material to the financial condition of
the operations of the business of Texoil or Subsidiary;
or
(iii) any actual or, to the knowledge of Texoil, threatened,
strike or other labor trouble or dispute which
materially adversely affects, or which insofar as Texoil
knows might materially adversely affect the business or
prospects of Texoil.
SECTION 4. CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE DATE
4.1. INVESTIGATIONS; OPERATION OF BUSINESS OF TEXOIL AND COMET. Between
the date of this agreement and the Effective Date:
(a) Texoil and Comet each agree to use its best efforts to give to
the other and their respective representatives and agents full access to
all the premises and books and records of it, and to cause its officers
and independent auditors to furnish the other such financial operations
data and other information with respect to the business and properties of
it as the other shall from time to time reasonably request; provided,
however, that any such investigation (i) shall be conducted in such manner
as not to interfere unreasonably with the operation of the business of
Texoil or Comet, as the case may be, and (ii) shall not affect any of the
representations and warranties hereunder. All information obtained by one
party from the other hereunder shall be kept confidential and shall be
revealed only to those persons,
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including counsel, accountants and investment bankers, who have a need for
such information in the performance of their duties for their respective
principals, unless disclosure of such material is compelled by a judicial
or administrative process, or, in the opinion of their respective counsel,
by other requirements of law. The foregoing shall not apply to information
(w) ascertainable or obtained from public information; (x) received from a
third party not known to the recipient to be under a duty to keep it
confidential; (y) which becomes known to the public (other than through a
breach of this Agreement; or (z) which was independently developed by (or
in the possession of prior to its disclosure to) the party other than the
one to which it relates. It is understood that each party shall be deemed
to have satisfied its obligation to hold such information confidential if
it exercises the same care as it takes to preserve confidentiality for its
own similar information. In the event of termination of this Agreement,
each party will return all documents, work papers and other material
obtained from the other party in connection with the transactions
contemplated hereby.
(b) Each party will use its best efforts to preserve substantially
intact their business organizations, to keep available the services of
their present officers and employees, and to preserve their present
relationships with persons having significant business relations
therewith.
(c) Texoil shall conduct its business only in the ordinary course,
and, by way of amplification and not limitation, will not without the
prior written consent of Comet:
(i) issue, sell, purchase or redeem, or grant or commit to
issue any Texoil capital stock, other than upon the
exercise of outstanding stock options, warrants or stock
purchase rights described in Schedule 3.2;
(ii) grant or commit to grant any options, warrants, or other
rights to subscribe for or purchase or otherwise acquire
any shares of its capital stock or issue or commit to
issue any securities convertible into or exchangeable
for shares of Texoil capital stock;
(iii) declare, set aside, or pay any dividend or distribution
with respect to Texoil capital;
(iv) directly or indirectly redeem, purchase or otherwise
acquire or commit to acquire any Texoil capital stock;
(v) dispose of any assets or incur any liability except in
the ordinary course of business;
(vi) effect a split or reclassification of any capital stock
of Texoil or a recapitalization of Texoil; or
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(vii) engage in any transaction which would result in the
merger, reorganization, consolidation or division of
Texoil or any other transaction having similar effect;
(viii)change the Charter Bylaws or other governing instruments
or Texoil;
(ix) acquire or agree to acquire the stock or assets of any
other business.
(x) take any action after the date hereof that would cause
any representation or warranty contained in this
Agreement to become untrue in any material respect;
(xi) pay any obligation or liability, other than (1)
obligations or liabilities reflected in Texoil's balance
sheet when due, (2) liabilities incurred since the date
of such Balance Sheets in the ordinary course of
business, and (3) obligations under any franchise
agreements, lease agreements, pension, bonus,
profit-sharing, employee stock ownership, stock option
and warrant agreements, and the other agreements set
forth in the exhibits;
(xii) make or become obligated to make any payment or
distribution including, without limitation, dividends)
to its stockholders (in their capacity as stockholders);
(xiii)do any act or omit to do any act, or permit any act or
omission to act, which will cause it to breach any
contract or commitment to which it is a party;
(xiv) solicit from any other person or entity an offer or
expression of interest in or with respect to an offer
for an acquisition, combination, or similar transaction
involving it or substantially all of its assets or
securities except as described herein and Texoil will
promptly inform Comet of the existence of any
unsolicited offer or expression of interest; or
(xv) waive the provisions of any statute of limitations as
such provisions may apply to the assessment of federal,
state or foreign income taxes payable by it for any
taxable year or period or portion thereof prior to the
Effective Date.
(d) Comet shall conduct its business only in the ordinary course
and, by way of amplification and not limitation, Comet shall not, without
prior written consent of Texoil:
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(i) issue, sell, purchase cr redeem or grant or commit to
issue any Comet capital stock, other than upon the
exercise of outstanding stock options, warrants or stock
purchase rights described in Schedule 2.2;
(ii) grant or commit to grant any options, warrants or other
rights to subscribe for a purchase or otherwise acquire
any shares of its capital stock or issue or commit to
issue any securities convertible into or exchangeable
for shares of Common Stock of Comet;
(iii) declare, set aside, or pay any dividend or distribution
with respect to the capital stock or other ownership
interest to Comet;
(iv) directly or indirectly redeem, purchase or otherwise
acquire or commit to acquire any capital stock of Comet;
(v) transfer any assets or. incur any liability except in
the ordinary course of business;
(vi) effect a split or reclassification of any capital stock
of Comet or a recapitalization of Comet reverse split;
(vii) engage in any transaction which would result in the
merger, reorganization, consolidation or division of
Comet or any other transaction having similar effect;
(viii)change the Articles of Incorporation, By-Laws or other
governing instrument of comet;
(ix) acquire or agree to acquire the stock or assets of any
other business;
(x) take any action after the date hereof that would cause
any representation or warranty contained in this
Agreement to become untrue in any material respect;
(xi) pay any obligation or liability, other than (1)
obligations or liabilities reflected in Comet's balance
sheet when due (2) liabilities incurred since the date
of such Balance Sheets in the ordinary course of
business, and (3) obligations under any franchise
agreements, lease agreements, pension, bonus, profit
sharing, employee stock ownership, stock option and
warrant agreements, and the other agreements set forth
in the exhibits;
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(xii) make or become obligated to make any payment or
distribution (including, without limitation, dividends)
to its stockholders (in their capacity as stockholders);
(xiii)do any act or omit to do any act, or permit any act or
omission to act, which will cause it to breach any
contract or commitment to which it is a party;
(xiv) solicit from any other person or entity an offer or
expression of interest in or with respect to an offer
for an acquisition, combination, or similar transaction
involving it or substantially all of its assets or
securities except as described herein and Comet will
promptly inform Texoil of the existence of any,
unsolicited offer or expression of interest; or
(xv) waive the provisions of any statute of limitations as
such provisions may apply to the assessment of federal,
state or foreign income taxes payable by it for any
taxable year or period or portion thereof prior to the
Effective Date.
4.2. STOCKHOLDER APPROVAL. Texoil shall submit and recommend this
Agreement to its stockholders for approval at meeting of the Texoil stockholders
to be held at the earliest practicable date for the purpose of considering and
voting upon a proposal to approve and adopt the Plan of Merger.
SECTION 5. CONDITIONS TO MERGER
5.1. CONDITIONS TO OBLIGATION OF COMET. The obligation of Comet to effect
the Merger shall be subject to each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES OF TEXOIL TO BE TRUE. The
representations and warranties of Texoil herein contained shall be true in
all material respects at the Effective Date with the same effect as though
made at such time, except to the extent waived hereunder or affected by
the schedules delivered hereunder; Texoil shall have performed in all
material respects all obligations and complied in all material respects
with all covenants and conditions required by this Agreement to be
performed or complied with by it at or prior to the Effective Date; and
Texoil shall have delivered to Comet a certificate of Texoil in form and
substance satisfactory to Comet dated the Effective Date and signed by its
principal financial officer to all such effects.
(b) SHAREHOLDER APPROVAL. The shareholders of Texoil shall have
approved this Agreement and the Agreement of Merger.
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(c) NO LEGAL PROCEEDINGS. No injunction or restraining order shall
be in effect prohibiting the Merger, and no action or proceeding shall
have been instituted and, at what would otherwise have been the Effective
Date, remain pending before a court to restrain or prohibit the
transactions contemplated by this Agreement or the Agreement of Merger.
(d) STATUTORY REQUIREMENTS. All statutory requirements for the
valid consummation by Texoil of the transactions contemplated by this
Agreement and the Agreement of Merger shall have been fulfilled, including
the Shareholder approval described in Section 4.2; all authorizations
consents and approvals of all federal, state and local governmental
agencies and authorities required to be obtained in order to permit
consummation by Texoil of the transactions contemplated by this Agreement
and the Agreement of Merger, and to permit the businesses presently
carried on by Comet and Texoil to continue, unimpaired in all material
respects immediately following the Effective Date shall have been
obtained.
(e) OPINION OF COUNSEL FOR TEXOIL. Comet shall have received from
counsel to Texoil, an opinion dated the Effective Date, in form and
substance satisfactory to Comet's counsel, substantially to the effect
that:
(i) Texoil is a corporation duly incorporated and validly
existing and in good standing under the laws of the
State of the Tennessee;
(ii) Texoil is duly qualified to do business as a foreign
corporation and in good standing in each state set forth
in Schedule 3.1;
(iii) Texoil has the corporate power to carry on its existing
business;
(iv) the authorized capital stock of Texoil consists of
1,000,000 shares of common stock, $.10 par value and
25,000 shares of $100 par value preferred stock, and the
number of issued and outstanding shares of capital stock
of Texoil is 713,877 common shares and 23,000 preferred
shares;
(v) each of this Agreement, the Agreement of Merger and the
Merger Documents has been duly authorized, executed and
delivered by Texoil and is the valid and binding
obligation of Texoil. All corporate action by Texoil and
its shareholders required to authorize the Merger has
been taken and Texoil has the corporate power to affect
the Merger provided for in this Agreement and the
Agreement of Merger;
(vi) all authorizations, consents and approvals of all
governmental agencies and authorities, including state
securities or "blue sky" authorities, required in order
to permit consummation by Texoil of the
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transactions contemplated by this Agreement and the
Agreement of Merger have been obtained;
(vii) all of the outstanding capital stock of Texoil has been
duly and validly authorized and issued, is fully paid
and nonassessable and is as described in Schedule 3.2
hereof;. and
(viii)to the best knowledge of such counsel, neither the
execution and delivery by Texoil of this Agreement or
the Agreement of Merger, nor consummation of the
transactions contemplated hereby or thereby, will
conflict with or result in a breach of any of the terms
conditions or provisions of any judgment, order,
injunction, decree, regulation or ruling of any court or
governmental authority, domestic or foreign, to which
Texoil is subject, or constitute a material default
thereunder.
In rendering such opinion such counsel may rely, to the extent such
counsel deems such reliance necessary or appropriate, upon opinions of
local counsel as to matters of law and, as to matters of fact, upon
certificates of public officials and of officers of Texoil.
(f) REQUIRED CONSENTS. Comet and Texoil shall have obtained the
consents or approvals of each person and governmental agency whose
consents or approval is required in connection with the execution delivery
and performance of this Agreement and the Agreement of Merger except for
such consents or approvals the failure of which to obtain would not in the
aggregate have a material adverse effect on Comet, Subsidiary, or Texoil.
5.2. CONDITIONS TO OBLIGATION OF TEXOIL. The obligations of Texoil to
effect the Merger shall be subject to the following conditions:
(a) REPRESENTATIONS AND WARRANTIES OF COMMENT TO BE TRUE. The
representations and warranties of Comet and subsidiary herein contained
shall be true in all material respects at the Effective Date with the same
effect as though made at such time, except to the extent waived hereunder
or affected by the transactions contemplated herein; Comet and subsidiary
shall have performed in all material respects all obligations and complied
in all material respects with all covenants and conditions required by
this Agreement to be performed or complied with by it prior to the
Effective Date; and Comet shall have delivered to Texoil a certificate of
Comet in form and substance satisfactory to Comet, dated the Effective
Date and signed by its principal executive officer and principal financial
officer to all such effects.
(b) SHAREHOLDER APPROVAL. Amendments to Comet's Articles of
Incorporation effecting a 28 to 1 reverse split up of Comet's outstanding
Common Stock and changing Comet's name to Texoil, Inc. or some other
appropriate name shall have been approved by the shareholders of Comet.
Additionally, the above said 28 to 1 reverse split of Comet's
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outstanding Common Stock shall have been filed with and approved by the
Nevada Secretary of State.
(c) NO LEGAL PROCEEDINGS. No injunction or restraining order shall
be in effect prohibiting the Merger and no action or proceeding shall have
been instituted and, at what would otherwise have been the Effective Date,
remain pending before a court to restrain or prohibit the transactions
contemplated by this Agreement or the Agreement of Merger.
(d) STATUTORV REQUIREMENTS. All statutory requirements for the
valid consummation by Comet and Texoil of the transactions contemplated by
this Agreement and the Agreement of Merger shall have been fulfilled; all
authorizations, consents and approvals of each person and all federal,
state and local governmental agencies and authorities required to be
obtained in order to permit consummation by Comet and Texoil of the
transaction Contemplated by this Agreement and the Agreement of Merger,
and to permit the businesses presently carried on by Comet and Texoil to
continue unimpaired in all material respects immediately following the
Effective Date shall have been obtained.
(e) OPINION OF COUNSEL FOR COMET. Texoil shall have received from
counsel for Comet and subsidiary an opinion, dated the Effective Date, in
form and substance satisfactory to Texoil's counsel substantially to the
effect that:
(i) Comet and Subsidiary are corporations duly incorporated,
validly existing and in good standing under the
respective laws of Nevada;
(ii) Comet is duly qualified to do business as a foreign
corporation and in goad standing in each state set forth
in Schedule 2.l.
(iii) Comet has the corporate power to carry on its business;
(iv) the authorized capital stock of Comet consists of
50,000,000 shares of common stock, $.001 par value and
10,000,000 shares of preferred stock of $.001 par value;
and the number of issued and outstanding shares of Comet
Common Stock is 12,123,837, and no preferred stock is
issued and outstanding;
(v) the shares of Comet Common Stock and Comet Preferred
Stock to be issued in exchange for shares of Texoil
Common Stock and Texoil Preferred Stock pursuant to the
Agreement of Merger have been duly authorized and,
immediately after the Effective Date, will be duly and
validly issued, fully paid and nonassessable;
(vi) each of this Agreement, the Agreement of Merger and the
Merger Documents has been duly authorized, executed and
delivered by
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Comet and is the valid and binding obligation of Comet.
All corporate action by Comet and its shareholders
required to authorize the Merger has been taken and
Comet has the corporate power to effect the Merger
provided for in this Agreement and the Agreement of
Merger;
(vii) all authorizations, consents, approvals, and permits
required under state securities or "blue sky" laws, and
all authorizations, Consents and approvals of all
governmental agencies and authorities of the United
States and the State of Nevada required in each case in
order to permit consummation by Comet of the
transactions contemplated by this Agreement and the
Agreement of Merger have been obtained;
(viii)All of the outstanding capital stock of Comet has been
duly and validly authorized and issued, is fully paid
and nonassessable and is as described in Schedule 2.2
hereof; and
(ix) to the best knowledge of such counsel, neither the
execution and delivery by Comet of this Agreement or the
Agreement of Merger, nor consummation of the
transactions contemplated hereby or thereby, will
conflict with or result in a breach of any or the terms,
conditions or provisions of any judgment, order,
injunction decree, regulation or ruling of any court or
governmental authority, domestic or foreign, to which
Comet is subject, or constitute a material default
thereunder.
In rendering such opinion, counsel may rely, to the extent such
counsel deems such reliance necessary or appropriate, upon opinions of
local counsel as to matters of law and, as to matters of fact, upon
certificates of public officials and officers of comet or Subsidiaries.
(f) TAX OPINION. Texoil and its shareholders shall have received an
opinion of counsel from the Law Offices of Gary L. Blum in a form
satisfactory to counsel to Comet, and to Texoil, to the effect that for
federal and state income tax purposes no gain or loss will be recognized
by Texoil or Comet as a result of the transactions herein contemplated;
and that no gain or loss will be recognized by the holders of Texoil
Common Stock or Texoil Preferred Stock upon the conversion of their Texoil
Common Stock or Texoil Preferred Stock into Comet Common Stock or Comet
Preferred Stock in accordance with the provision of this Agreement and
covering such other matters as counsel to Comet or counsel to Texoil may
reasonably request.
(g) COMET COMMON STOCK AND COMET PREFERRED STOCK. At the Effective
Date, Comet shall have issued a number of shares of Comet Common Stock to
the shareholders of Texoil, in exchange for all of the then issued and
outstanding shares of Texoil Common Stock, equal to 95.0% of Comet Common
Stock after giving effect to such issuance but adjusted for the full
dilution of both Comet Common Stock and Texoil Common Stock for
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outstanding options, warrants, or other purchase rights. as described in
Schedules 2.2 and 3.2; and Comet shall have issued 23,000 shares of Comet
Preferred Stock in exchange for all of the 23,000 then issued and
outstanding shares of Texoil Preferred Stock.
(h) ELECTION OF DIRECTORS. At the Effective Date, the persons
identified in Schedule 5.1 shall be elected or appointed to the Board of
Directors of Comet, as more specifically described in Section 6.4 hereof.
SECTION 6. CERTAIN UNDERSTANDINGS AND AGREEMENTS
6.1. SHAREHOLDERS' MEETING. Texoil will cause a shareholders' meeting to
be held as soon as possible after execution of this Agreement, and at such
meeting Texoil will request a vote of its respective shareholders for the
purpose of adopting the Agreement of Merger and this Agreement and approving and
ratifying the consummation of the transactions contemplated hereby.
6.2. RESERVATION OF STOCK. The Board of Directors of Comet prior to the
Effective Date will reserve sufficient shares of Comet Common Stock and Comet
Preferred Stock for issuance pursuant to the terms of this Agreement and Plan of
Merger and take such other action as is necessary in connection therewith.
6.3. EMPLOYMENT AGREEMENTS. Upon consummation of the Merger Comet shall
assume all existing Texoil employment agreements.
6.4. BOARD OF DIRECTORS FOLLOWING MERGER. Upon consummation of the Merger,
the Board of Directors of Comet shall be the seven (7) directors identified on
Schedule 5.1, who shall be elected by consent in lieu of a special meeting of
shareholders. The Board of Directors of Comet shall prior to the Effective Date,
appropriately adjust the number of seats on the board in the Comet bylaws, if
necessary.
6.5. WILLIAM F. COFFIN CORPORATION CONSULTING CONTRACT. William F. Coffin
Corporation agrees to provide continuing consulting service. to Texoil in the
areas of regulatory compliance, assisting in filing SEC registrations,
statements, and corporate finance. In return Texoil agrees to extend the
existing employment agreement and fulfill the obligations of Comet therein
commencing November 1, 1992 and expiring on January 31, 1994. An Amendment to
Employment Agreement extending the existing consulting agreement is attached
hereto as Exhibit B.
6.6. FILING OF FORM 8-K; NASDAQ LISTING; REGISTRATION ON FORM S-1;
"LOCK-UP" OF SHARES. Upon consummation of the Merger, shall use its best efforts
to file an application for listing on the. NASDAQ system upon achieving all
appropriate listing conditions; and shall immediately file a registration
statement on Form S-1 to raise equity capital in an amount to be determined by
the Board of Directors. Unless authorized by the Board of Directors, each of the
affiliates of Comet and Texoil prior to the Merger shall agree not to sell, make
any short sale of, loan grant an option for the
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purchase of or otherwise dispose of any of the Comet shares at any time during
the period commencing with the Effective Date and ending 180 days thereafter, or
ninety (90) days following the conclusion of the Public Offering, whichever is
earlier.
6.7. AMENDMENTS TO ARTICLES In connection with the merger Comet shall
effect by consent in lieu of a special meeting of shareholders, amendments to
Comet's Articles of Incorporation implementing a one for twenty-eight reverse
split up of its common shares, and a change of Comet's name to Texoil, Inc. or
such other name as the Board of Directors may determine.
6.8. CONDUCT OF BUSINESS. Following the Merger each officer of Texoil
immediately prior to the time the Merger becomes effective shall be an initial
officer of Comet in the same capacity, until such officer as successor is duly
elected and qualified.
SECTION 7. TERMINATION OF OBLIGATIONS AND WAIVERS OF CONDITIONS;
PAYMENT OF EXPENSES
7.1. TERMINATION OF AGREEMENT AND ABANDONMENT OF MERGER. Anything herein
to the contrary notwithstanding this Agreement, the Agreement of Merger and the
Merger contemplated hereby may be terminated at any time before the Effective
Date, whether before or after approval of this Agreement by the shareholders of
Comet and/or Texoil, as follows, and in no other manner:
(a) MUTUAL CONSENT. By mutual consent of the Boards of Directors of
Comet and Texoil.
(b) EXPIRATION DATE. By the Board of Directors of either Texoil or
Comet if the Merger shall not have become effective by December 1, 1992,
which date may be extended by mutual agreement of the Boards of Directors
of Texoil and Comet.
7.2. PAYMENT OF EXPENSES; WAIVER OF CONDITIONS. In the event that this
Agreement shall be terminated pursuant to Section 7.1, all obligations of the
parties under this Agreement shall terminate and there shall be no liability of
any party to the other. Each party hereto will pay all costs and expenses
incident to its negotiation and preparation of this Agreement and the Agreement
of Merger and to its performance of and compliance with all agreements and
conditions contained herein or therein on its part to be performed or complied
with, including the fees, expenses and disbursements of its counsel; provided
that the obligations of Texoil and Comet contained in Sections 2.14 and 3.13
hereof, and the confidentiality obligations of the parties contained in Section
4.1(a) hereof, shall survive any such termination. If any of the conditions
specified in Section 5.1 hereof has not been satisfied, Comet may nevertheless
at its election proceed with the transactions contemplated hereby and if any of
the conditions specified in Section 5.2 hereof has not been satisfied, Texoil
may nevertheless at its election proceed with the transactions contemplated
hereby. Any such election to proceed shall be evidenced by a certificate
executed on behalf of the electing party by an authorized officer. In the event
that the Merger shall be consummated each party hereto will pay all of its own
costs and expenses in connection therewith.
24
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SECTION 8. GENERAL
8.1. AMENDMENTS. Subject to applicable law, this Agreement and any
schedule, list or exhibit attached hereto may be amended only by an instrument
in writing signed by an officer of each of the parties hereto upon authorization
by the Boards of Directors of the parties hereto before or after the meeting of
shareholders referred to in Section 6.1 hereof at any time prior to the
Effective Date, except that no such amendment shall affect the rate of exchange
provided for in the Agreement of Merger.
8.2. NO ASSIGNMENT. Neither this Agreement nor the Agreement of Merger may
be assigned by either party, by operation of law or otherwise.
8.3. NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except as provided in
Section 2.14, and 3.13 hereof, the respective representations and warranties of
Comet and Texoil contained herein shall expire and be terminated and
extinguished at the Effective Date or the termination hereof, as the case may
be.
8.4. GOVERNING LAW. Except where the laws of another jurisdiction are
mandatorily applicable, this Agreement and the legal relations among the parties
hereto shall be governed by and construed in accordance with the laws (except
for conflict of laws provisions) of the State of Nevada.
8.5. NOTICES. Any notice or other communications required or permitted
hereunder shall be sufficiently given if sent by registered mail or certified
mail, postage prepaid and addressed as follows:
If to CometE.W. Baumgardner, Chairman
Comet Entertainment, Inc
2841 E. Las Palmas Avenue,
Anaheim, California 92806
If to TexoiWalter Williams, President
Texoil Company
1600 Smith Street, #4000
Houston, Texas 77002
with copies Gary L. Blum, Esq.
Law Offices of Gary L. Blum
15300 Ventura Boulevard, Suite 500
Sherman Oaks, California 91403
David Snyder, Esq.
Luce, Forward, Hamilton & Scripps
600 W. Broadway, Suite 2600
25
<PAGE>
San Diego, California 92101
8.6. HEADINGS. The descriptive headings of the sections and subsections of
this Agreement are inserted for convenience only and do not constitute a part of
this Agreement.
8.7. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement.
8.8. RELIANCE UPON REPRESENTATIONS AND WARRANTIES. Notwithstanding any
right or any party hereto to fully investigate the affairs of any other party,
the parties hereto may rely upon the representations, warranties and covenants
made to it in this Agreement and on the accuracy of any certificate, any
schedule attached hereto (collectively the "Disclosure Schedules"), exhibit or
other document given or delivered to it pursuant to this Agreement. Further,
knowledge by an agent of any party hereto of any facts not otherwise disclosed
in this Agreement, the Disclosure Schedules or any other Merger Document, shall
not constitute a defense to any claim for misrepresentation, breach of any
warranty, agreement, or covenant under this Agreement, the Disclosure Schedules
or any other Merger Document. No representations or warranties have been made by
or on behalf of any person to induce any party to enter into this Agreement or
to abide by or consummate the transactions contemplated by this Agreement,
except representations and warranties expressly set forth herein, in the
Disclosure Schedules or in any other Merger Document.
8.9. WAIVER. No purported waiver by any party of any default by any other
party of any term, covenant or condition Contained herein shall be deemed to be
a waiver or such term, covenant or condition unless the waiver is in writing and
signed by the waiving party. No such waiver shall in any event be deemed a
waiver of any subsequent default under the same or any other term, covenant or
condition contained herein.
8.10. ENTIRE AGREEMENT. This Agreement, together with the schedules
attached hereto and any certificate, exhibit or other document given or
delivered pursuant hereto, sets forth the entire understanding among the parties
concerning the subject matter of this Agreement and incorporates all prior
negotiations and understandings. There are no covenants, promises, agreements,
conditions or understandings, either oral or written, between them relating to
the subject matter of this Agreement other than those set forth herein. No
alteration, amendment, change or addition to this Agreement shall be binding
upon any party unless in writing and signed by the party to be charged.
8.11. NO PARTNERSHIP. Nothing contained in this Agreement will be deemed
or construed by the parties hereto or by any third person to create the
relationship of principal and agent or partnership or joint venture.
8.12. PARTIAL INVALIDITY. If any term, Covenant or condition in this
Agreement or the application thereof to any person, party or circumstance shall
be invalid or unenforceable, the remainder of this Agreement or the application
of such term, covenant or condition to persons or circumstances, other than
those as to which it is held invalid, shall be unaffected thereby and each
26
<PAGE>
term, covenant or condition of this Agreement shall be valid and enforced to the
fullest extent permitted by law.
8.13. JOINT PREPARATION. This Agreement is to be deemed to have been
prepared jointly by the parties hereto and any uncertainty or ambiguity existing
herein, if any shall not be interpreted against any party, but shall be
interpreted according to the application of the rules of interpretation for
arm's length agreements.
8.14. ARBITRATION. Any controversy or claim arising out of, or relating
to, this contract or the breach thereof, shall be settled by arbitration (if
permissible under applicable law) in accordance with the rules of the American
Arbitration Association, and Judgment upon the award rendered may be entered in
any court having jurisdiction thereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their authorized officers as of the date and year first above
written.
Texoil Company Comet Entertainment, Inc.
By: /S/ W.T. HOEHN, JR. By: /S/ WILLIAM F. COFFIN
W. T. Hoehn, Jr., Chairman William F. Coffin, Secretary
Comet Acquisition Subsidiary, Inc.
By: /S/ WILLIAM F. COFFIN
William F. Coffin, President
27
<PAGE>
SCHEDULE 2.1
COMET QUALIFICATION AS FOREIGN CORPORATION
NOT APPLICABLE
28
<PAGE>
SCHEDULE 2.2
OUTSTANDING COMET OPTIONS, WARRANTS AND SUBSCRIPTION RIGHTS
NONE
29
<PAGE>
SCHEDULE 2.6
COMET TAX AND OTHER RETURNS AND REPORTS
NONE
30
<PAGE>
SCHEDULE 2.7
COMET AGREEMENTS, CONTRACTS, AND COMMITMENTS
1. William F. Coffin Corporation Employment Agreement expiring December 31,
1992.
31
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SCHEDULE 2.8
COMET LEASES, TITLE TO PROPERTIES, LIENS AND ENCUMBRANCES
NONE
32
<PAGE>
SCHEDULE 2.9
COMET BREACHES OF STATUTE OR CONTRACT
NONE
33
<PAGE>
SCHEDULE 2.16
COMET LIENS ON REAL AND PERSONAL PROPERTY
NONE
34
<PAGE>
SCHEDULE 2.18
COMET INSURANCE
NONE
35
<PAGE>
SCHEDULE 3.1
TEXOIL QUALIFICATION AS FOREIGN CORPORATION
1. Texas
2. Louisiana
36
<PAGE>
SCHEDULE 3.2
OUTSTANDING TEXOIL OPTIONS, WARRANTS AND SUBSCRIPTION RIGHTS
1. Joe C. Richardson, Jr., April 2, 1992 grant of non-qualified option to
purchase 89,235 shares of Texoil common stock at an exercise price of
$2.00 per share, expiring at 12-31-99 subject to adjustment as set out in
Paragraph 5 of the Option Agreement.
2. John L. Graves, April 2, 1992 grant of non-qualified option to purchase
89,235 shares of Texoil common stock at an exercise price of $2.00 per
share, expiring at 12-31-99 subject to adjustment as set out in Paragraph
5 of the Option Agreement.
37
<PAGE>
SCHEDULE 3.5
TEXOIL TAX AND OTHER RETURNS AND REPORTS
NONE
38
<PAGE>
SCHEDULE 3.6
TEXOIL LEASES, TITLE TO PROPERTIES, LIENS AND ENCUMBRANCES
None
39
<PAGE>
SCHEDULE 3.7
TEXOIL AGREEMENTS, CONTRACTS, AND COMMITMENTS
1. George Murrell et al Oil, Gas and Mineral Lease dated August 1, 1984 (over
10% of revenues) recorded in Iberville Parish, LA. C.O.B. 365 Entry 36.
2. Prospect Reservation Agreements of Texoil: (a) Michael F. Murray dated
November 27, 1991, and (b) George L. Parker dated November 27, 1991.
3. Sublease Agreement dated January 1, 1990 (expiring May 31, 1995) for
Texoil Office at 1600 Smith Street (9,077 square feet).
4. First Interstate Bank of Texas Production Loan Agreement dated August 24,
1989 as amended July 8, 1992 (personally guaranteed by W. Williams and
T.W. Hoehn, Jr.).
5. Agreement to Purchase Interest at MP Block 3.
6. Agreement to Farm-In Interest at MP Block 4.
7. Agreement to pay Heritage Marketing 10,000 shares of Texoil Common Stock
in lieu of payment of $20,000 in services.
8. Marketing Agreement with the Antry Group dated September 24, 1992,
included herein as Exhibit "C".
9. Agreement for services with D. Hughes Walter dated October 27, 1992,
included herein as Exhibit "D".
40
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SCHEDULE 3.8
TEXOIL BREACHES OF STATUTE OR CONTRACT
1. The merger between Texoil and Comet described herein may violate certain
covenants of the Loan Agreement with First Interstate Bank of Texas which
is listed in schedule 3.7 as item 4. A waiver of these covenants has been
requested from the Bank as of this date, November 4, 1992.
41
<PAGE>
SCHEDULE 3.9
TEXOIL LITIGATION (ACTUAL, PENDING, OR THREATENED)
None
42
<PAGE>
SCHEDULE 3.11
TEXOIL LIENS ON REAL AND PERSONAL PROPERTY
1. General lien on Texoil producing oil and gas properties by First
Interstate Bank of Texas pursuant to Production Loan Agreement dated
August 24, 1989, as amended July 8, 1992.
43
<PAGE>
SCHEDULE 3.8
TEXOIL NAMES, PATENTS, TRADEMARKS, ETC.
None
44
<PAGE>
SCHEDULE 3.17
TEXOIL INSURANCE
(SEE CERTIFICATE OF INSURANCE)
45
<PAGE>
SCHEDULE 5.1
POST-MERGER COMET BOARD OF DIRECTORS
1. T.W. Hoehn, Jr.
2. T.W. Hoehn, III
3. Walter L. Williams
4. John L. Graves
5. W.F. Seagle
6. Joe C. Richardson
7. William F. Coffin
46
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EXHIBIT A
ARTICLES OF MERGER
(AGREEMENT OF MERGER)
The undersigned, pursuant to NRS 78.458, does hereby present and certify
these Articles of Merger, dated as of November 4, 1992, for the merger
("Merger") of Texoil Company, a Tennessee corporation ("Texoil") and Comet
Acquisition Subsidiary, Inc. ("Subsidiary"), a Nevada corporation. Subsidiary
and Texoil are collectively referred to as the "Constituent Corporations."
Texoil is sometimes hereinafter referred to as the "Surviving Corporation.
A. Subsidiary is a Nevada corporation authorized to issue 25,000 shares of
common stock, without par value, of which 25,000 shares are issued and
outstanding at the date hereof; and no shares of preferred stock.
B. Texoil is a Tennessee corporation authorized to issue 1,000,000 shares
of common stock, $.10 par value (the "Texoil Common Stock") of which 713,677
shares are outstanding, and 25,000 shares of Preferred Stock, $100 par value, of
which 23,000 shares are outstanding.
C. Texoil and Subsidiary have entered into a certain Agreement and Plan of
Merger dated as of November 4, 1992, as amended (the "Plan"), providing among
other things for the execution, acknowledgment and filing of this Articles of
Merger and the merger of Subsidiary with and into Texoil, with Texoil being the
Surviving Corporation.
D. The respective Boards of Directors of each of the Constituent
Corporations deem it advisable and in the best interests of the respective
corporations and their respective shareholders that Subsidiary be merged with
and into Texoil on the terms and conditions hereinafter set forth in accordance
with the relevant provisions of the Nevada Revised Statutes.
E. The Plan was approved by unanimous consent by the stockholders of both
of the Constituent Corporations.
F. The articles of incorporation of the Surviving Corporation are not
amended by the Plan.
G. The complete executed Plan is on file at the registered office of the
Surviving Corporation at 530 Gay Street Knoxville, Tennessee 37902.
H. A copy of the Plan will be furnished by the Surviving Corporation, on
request and without cost, to any stockholder of any corporation which is a party
to the Merger.
47
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I. The Merger shall become effective upon the filing or a copy of these
Articles of Merger with the Secretary of State of Nevada as required by the
Nevada Revised Statutes.
Texoil Company, a Tennessee corporation
By:
Walter Williams
President
And:
Secretary
STATE OF COUNTY OF }
} ss.
COUNTY OF }
On ______________, 19___, before me, the undersigned, a Notary Public in
and for said County and State, personally appeared Walter Williams and
____________, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the persons who executed the within instrument as
the President and Secretary, respectively, of Texoil Company, the corporation
therein named, and acknowledged to me that such corporation executed the within
instrument pursuant to its bylaws or a resolution of its board of directors.
WITNESS my hand and official seal.
[Seal]
48
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EXHIBIT B
AMENDMENT TO EMPLOYMENT AGREEMENT
WHEREAS Comet Entertainment Inc., a Nevada corporation ("Comet") and
William F. Coffin Corporation, a California corporation ("Employee") entered
into an employment agreement (the "Agreement") on and as of July 1, 1992 (See
Attachment A, attached hereto and incorporated by reference herein);
And WHEREAS, Employee has satisfactorily performed each and all of the
services called for in the Agreement described in Attachment A and Employee has
received Comet common stock as complete and full satisfaction for any
compensation due Employee through October 30, 1992 from Comet pursuant to the
Agreement;
And WHEREBY, Comet will, as of approximately October 22, 1992, entered
into an Agreement and Plan of Merger with Texoil Company ("Texoil");
And WHEREBY, Comet would like to continue the services of now, therefore,
the parties hereto agree as follows:
(1) Comet hereby agrees to accept each and all of the terms of the
Agreement dated July 1, 1991 except that;
(a) The term shall be extended from January 31, 1992 through March
31, 1994.
(b) Employee's monthly compensation pursuant to the Agreement
shall commence effective as of November 1, 1992.
(2) Comet represents and warrants that:
(a) This Agreement has been approved by Comet's Board of Directors
and is binding on Comet;
(b) this Agreement will not violate the corporate charter or
By-Laws of Comet or any Comet affiliate, or any covenants
hereof are made by Comet and/or any Comet affiliate; and
(c) that Comet and its affiliates agree not to hereafter enter
into any covenants or undertake any other acts which conflict
with this Agreement.
49
<PAGE>
In witness WHEREOF, the parties hereto have hereunto set their hands as of
this __________, 1992.
Comet Entertainment, Inc. William F. Coffin Corp.
By: By:
William F. Coffin,
President
Its:
50
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EXHIBIT C
September 24, 1992
M r. Joe Richardson
TEXOIL Company
P.O. Box 8246
Amarillo, TX 79114
Re: Marketing Agreement
Dear Joe:
The following revised agreement, as well as Exhibit A will detail our
formal agreement for services to be provided and compensation needed to raise
approximately $10 million for TEXOIL and establish a market for TEXOIL common
stock.
I. The Antry Group will act as an independent contractor commencing 12/1/92
for a twelve month period at a rate of $10,000 per month. This monthly fee
will be used for staff salaries to provide for services including, but not
limited to, the following: coordination with legal counsel (all applicable
securities and blue sky laws), facilitating necessary banking and escrow
services, payment of commissions, coordination of prospectus preparation
and printing, utilization of Broker/Dealer database to the benefit of
TEXOIL, setting up road shows during offering period and on-going stock
promotion and tracking all marketing materials sent out to brokers. The
Antry Group would establish and promote an ongoing relationship for TEXOIL
with brokers, investors and the media through telemarketing efforts and
other forms of proactive contacts.
II. COMMON STOCK
A. Three percent (3%) of the TEXOIL common stock, based on number of
shares issued prior to initial public offering, will be issued to
the Antry Group.
B. As an additional incentive the Antry Group will receive up to
50,000 options to be granted with immediate vesting at the market
price on the closing of the offering. These options will be
prorated in direct proportion to the amount raised in excess of the
original $10 million and will be known as the second $10 million
incentive. For example, if an additional $5 million is raised over
the original $10 million, then the Antry Group would receive 25,000
options.
51
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III. COMMISSIONS
A. Retail: A 6% - 7 1/2% retail commission will be paid to NASD
broker/dealers.
B. Wholesale: A network of financial wholesalers across the country
will be assembled by the Antry Group and will be paid a 3% fee on
gross sales. See attached Exhibit A detailing commission payments.
The combined commission paid to all parties would not exceed 10.5%.
IV. EXPENSES
Direct expenses related to the offering and promotion of TEXOIL will be
reimbursed by TEXOIL. This will include approved expenses such as
printing, postage, travel and entertainment.
V. STOCK OPTION
A 500,000 share stock option plan will be put in place by TEXOXL.
Approximately 200.000 share will be used as an incentive for key brokers
and wholesalers during the offering period and ongoing promotion of the
public company. All granting of options will be approved by TEXOIL with
specific criteria for performance and responsibilities for financial
connultants established and reviewed by (quarterly, semi-annually or
annually) TEXOIL management. The option plan will be on a 3 year vesting
or exercise schedule, and will be determined at a later point. The
remaining 300,000 options could be used sometime in the future for other
offerings and to attract key employees to TEXOIL.
VI. FIELD TRIP
In order to lend a more "hands on" feel to the promotion of TEXOIL, a
Argentine field trip scheduled during the filming of the documentary would
be paid for by TEXOIL for one member of the Antry Group.
If this Marketing Agreement and attached Exhibit A meet with your
approval, please execute both copies and return one to me at your earliest
convenience.
AGREED AND ACCEPTED ON SEPTEMBER 28, 1992
By: By:
TEXOIL STEVE ANTRY
52
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r. Joe C. Richardson, Jr.
August 20, 1992
Page two
EXHIBIT A
To Marketing Agreement
Dated September 24, 1992
THE ANTRY GROUP
Post Office Box 8505
Newport Beach, CA 92660
(714) 721-4245
August 20, 1992
Mr. Joe C. Richardson, Jr.
TEXOIL Company
Amarillo, TX 79114
Re: MARKETING AGREEMENT
Dear Joe:
I recently sent to you a draft of a letter agreement, dated August 12,
regarding the anticipated marketing relationship between TEXOIL and my group. It
contained key components of the compensation package and various other related
terms.
I would now like to outline for you some noncompensatory provisions that
we should include in our marketing arrangement:
1. MARKETING EXCLUSIVITY. In order for the Antry Group to be able to
properly fulfill its responsibilities and perform its obligation. under the
marketing agreement, it is necessary that TEXOIL deal exclusively with The Antry
Group for all marketing services involving TEXOIL securities during the term of
the relationship. TEXOIL will work solely with The Antry Group in this respect
and will not take any actions which would contravene or hinder the ability of
The Antry Group to exclusively market the TEXOIL securities. The Antry Group
will be the sole supplier of the services included within the marketing
agreement and will be the sole provider and Organizer of the network of
wholesalers, brokers and dealers for the sale of the TEXOIL securities.
2. CONFIDENTIALITY. The terms of the marketing agreement between us will
be kept confidential by both of us, and will not be disclosed to any third
parties except as might be required by law or as might otherwise be necessary
and appropriate for business, tax, accounting, legal or similar purposes. Any
and all confidential information that either of us might acquire ro learn about
53
<PAGE>
r. Joe C. Richardson, Jr.
August 20, 1992
Page two
the other will be kept confidential so long as such information does not
otherwise become nonconfidential.
3. COMMISSION PAYMENTS. TEXOIL will not make any arrangements with (or pay
any commissions or other compensation to) any underwriters, wholesalers,
brokers, dealers or others, except through the Antry Group. The payment of
commissions and other compensation for the sale of the TEXOIL securities (and
the reporting of such compensation for tax, securities and other purposes) will
be made or done in a manner to be determined by The Antry Group in its
reasonable discretion a(and in compliance with all applicable laws). For
example, The Antry Group might decide that it would be best to pay retail
commissions from TEXOIL directly to the brokers or dealers or it might choose to
have these commissions paid to The Antry Group and then disbursed by it to the
broker or dealer.
4. BEST EFFORTS. the Antry Group will use its best efforts in rendering
the marketing services. The Antry Group will not be excluded from rendering
securities or other marketing services to persons or entities other than TEXOIL
during and after the term of this agreement, provided that The Antry Group will
not undertake any such third party arrangements if doing so has a significant
adverse impact on its ability to perform satisfactorily its services to TEXOIL.
5. INDEMNITY. TEXOIL and The Antry Group will each (the "indemnitor")
indemnify, defend and hold harmless the other (the "indemnitee") from any and
all claims, damages, obligations and costs (including attorney fees and legal
costs) incurred or suffered by the indemnitee as a result of actions or
omissions of the indemnitor. To the extent that the actions or omissions of both
parties contributed to such claims, etc., this indemnity obligations all be
apportioned according to the relative contributions of each.
Very truly yours,
Steve A. Antry
54
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r. Walter L. Williams
October 26, 1992
Page 2
EXHIBIT D
D. HUGHES WALTER, JR.
1901 LOUISIANA, SUITE 2900
HOUSTON, TEXAS 77002-5676
(713) 655-3187
October 26, 1992
Mr. Walter L. Williams, President
Texoil Company
1600 Smith Street, Suite 4000
Houston, Texas 77002
Dear Walter:
I certainly enjoyed to trip to San Diego with you last week and the opportunity
to meet Bill Hoehn and Joe Richardson. Needless to say, I was very impressed
with the thoroughness of all of your plans and am excited about the prospect of
joining the Texoil team. This letter will serve to document our discussions
regarding my proposed employment.
RESPONSIBILITIES
As your chief financial officer, I will have overall responsibilities for the
Company's ongoing financial and accounting operations. In addition to the duties
normally associated with such a position, it is recognized that in November
1992, Texoil plans to merge with Comet Entertainment, Inc., a public company,
and then subsequently sale to the public approximately 30% of the Company's
voting common stock.
In conjunction with the filing of the registration statement referred to above,
I will be responsible for coordinating the gathering of information and
presentation of the disclosures required to be made therein. Such coordination
will include, but not necessarily be limited to, interface with the following
individuals and/or groups engaged by the Company: (a) attorneys; (b) auditors;
(c) reserve engineers; (d) investor relations (e.g., Steve Antry); (e) printers;
and (f) public relations (e.g., Charlie Bird). I will, of course, also
coordinate the efforts of the company and the above-named groups with the
activities of the underwriters, if any, although it is acknowledged that Joe
Richardson will be primarily responsible for contracts with the underwriters.
COMPENSATION
55
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r. Walter L. Williams
October 26, 1992
Page 2
In consideration for devoting my full-time efforts to the performance of the
above-described duties, Ill be compensated at the rate of $6,500 per month,
payable at the end of each month. In addition, I will be entitled to whatever
benefits are normally accorded to the officers of the company. In recognition of
the fact that the Company does not currently provide medical insurance to its
employees, I will be paid an additional allowance of $500 per month in order to
secure such converge for myself and my family, so long as the Company does not
offer a group medical insurance plan.
Upon the expiration of either six months, or the successful completion of the
public offering, whichever occurs later, I will be entitled to have my
compensation adjusted to an amount that is determined by the Board of Directors
to be reasonable compensation for the chief financial officer of a similarly
situated public oil and gas company.
TIMING
My current plans are to resign from Price Waterhouse effective at the end of
this month. Therefore, Ill be available to begin my new duties at Texoil in
November. I am looking forward to a mutually beneficial relationship with you,
Bill and Joe and everyone else who has worked so hard to make your company the
success that is now and that I believe it can further become in the future.
* * * * * *
If the foregoing meets with your approval, I ask that you sign both of the
enclosed originals of this letter, retain one for the Company's records and
return one to me.
Sincerely,
D. Hughes Walter, Jr.
ACCEPTED:
By: Date:
56
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EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
TEXOIL, INC.
ARTICLE I
STOCKHOLDERS
Section 1.1 ANNUAL MEETING. An annual meeting of corporation's
stockholders shall be held for the election of directors at such date, time and
place, either within or without the State of Nevada, as designated by resolution
adopted from time to time by the corporation's Board of Directors. Any other
proper business may be transacted at the annual meeting.
Section 1.2 SPECIAL MEETINGS.
(a) Special meetings of the stockholders for any purpose or
purposes, unless otherwise prescribed by statute or by the Articles of
Incorporation, may be called by the chairman, the president or the Board of
Directors and shall be called by the chairman, the president or the Board of
Directors at the written request of the holders of not less than ten percent
(10%) of the voting power of all the outstanding shares of the corporation
entitled to vote at such meeting.
(b) Business transacted at all special meetings shall be confined to
the purpose or purposes stated in the notice of the meeting, unless one of the
conditions for the holding of a meeting without notice set forth in Section 1.5
shall be satisfied, in which case any business may be transacted and the meeting
shall be valid for all purposes.
Section 1.3 PLACE OF MEETINGS. Any meeting of the stockholders of the
corporation may be held at its registered office in the State of Nevada, its
principal office in the State of Texas or at such other place in or out of the
United States as the Board of Directors may designate in a notice of meeting.
Section 1.4 NOTICE OF MEETINGS.
(a) The president, a vice president, the secretary, an assistant
secretary or any other individual designated by the Board of Directors shall
sign and deliver written notice of any meeting to each stockholder of record
entitled to vote at such meeting not less than ten (10) days, nor more than
sixty (60) days, before the date of such meeting. The notice shall state the
place, date and time of the meeting and the purpose or purposes for which the
meeting is called. Notice of a
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special meeting shall also state the purpose or purposes for which the meeting
is called and the person or persons calling the meeting.
(b) A copy of the notice shall be delivered personally or mailed
postage prepaid to each stockholder of record entitled to vote at the meeting at
the address appearing on the records of the corporation, and the notice shall be
deemed effective when mailed the date the same is correctly addressed and
deposited in the United States mail for transmission to such stockholder.
Personal delivery of any such notice to any officer of a corporation or
association, or to any member of a partnership, constitutes delivery of the
notice to the corporation, association or partnership.
(c) The written certificate of the individual signing a notice of
meeting, setting forth the substance of the notice or having a copy thereof
attached, the date the notice was mailed or personally delivered to the
stockholders and the addresses to which the notice was mailed, shall be prima
facie evidence of the manner and fact of giving such notice.
(d) Any stockholder may waive notice of any meeting by a signed
writing, either before or after the meeting. Neither the business to be
transacted at nor the purpose of any regular or special meeting of stockholders
need be specified in any written waiver of notice or consent, except as
otherwise provided in Section 1.4(a) of these Bylaws. All such waivers shall be
filed with the minutes or other corporation records.
(e) Unless otherwise provided in the Articles of Incorporation or,
whenever notice is required to be given, under any provision of the laws of the
State of Nevada, the Articles of Incorporation or these Bylaws, to any
stockholder to whom:
(i) Notice of two consecutive annual meetings, and all
notices of meetings or the taking of action by written
consent without a meeting to him during the period
between those two consecutive annual meetings; or
(ii) All, and at least two, payments sent by first class mail
of dividends or interest on securities during a 12-month
period,
have been mailed addressed to him at his address as shown on the records of the
corporation and have been returned undeliverable, the giving of further notices
to him is not required. Any action or meeting taken or held without notice to
such stockholder has the same effect as if the notice had been given. If any
such stockholder delivers to the corporation written notice setting forth his
current address, the requirement that notice be given to him is reinstated. If
the action taken by the corporation is such as to require the filing of a
certificate as required under the laws of the State of Nevada, the certificate
need not state that notice was not given to persons to whom notice was not
required to be given.
(f) Notice delivered or mailed to stockholder in accordance with the
provisions of this Section 1.4 and the provisions, if any, of the Articles of
Incorporation, or an amendment thereof, is sufficient, and in the event of
transfer of his stock after such delivery or mailing and before the holding of
the meeting it is not necessary to deliver or mail notice of the meeting to the
transferee.
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(g) Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person objects at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters not properly included in the
notice if such objection is expressly made at the time any such matters are
presented at the meeting.
Section 1.5 MEETING WITHOUT NOTICE.
(a) Whenever all persons entitled to vote at any meeting of
stockholders consent, either by:
(i) A writing on the records of the meeting or filed with
the secretary; or
(ii) Presence at such meeting and oral consent entered on the
minutes; or
(iii) Taking part in the deliberations at such meeting without
objection;
the actions taken at such meeting shall be as valid as if such had occurred at a
meeting regularly called and noticed.
(b) At such meeting any business may be transacted that is not
excepted from the written consent or to the consideration of which no objection
for want of notice is made at the time.
(c) If any meeting be irregular for want of notice or of such
consent, provided a quorum was present at such meeting, the proceedings of the
meeting may be ratified and approved and rendered likewise valid and the
irregularity or defect therein waived by a writing signed by all parties having
the right to vote at such meeting.
(d) Such consent or approval may be by proxy or attorney, but all
such proxies and powers of attorney must be in writing.
Section 1.6 DETERMINATION OF STOCKHOLDERS OF RECORD.
(a) For the purpose of determining the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof
or for the purpose of determining stockholders entitled to receive payment of
any distribution or the allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion, or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date for the determination of such stockholders, which shall not be
more than sixty (60) days nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
(b) If no record date is fixed for the purposes set forth in Section
1.6(a), the record date for determining stockholders: (i) entitled to notice of
or to vote at a meeting of
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stockholders shall be at the close of business on the business day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business day next preceding the date on which the
meeting is held; and (ii) for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto. A determination of stockholders of record entitled to notice
of or to vote at any meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
(c) The Board of Directors may adopt a resolution prescribing a date
upon which the stockholders of record are entitled to give written consent
pursuant to Section 1.9. The date prescribed by the Board of Directors may not
precede nor be more than 10 days after the date the resolution is adopted by the
Board of Directors. If the Board of Directors does not adopt a resolution
prescribing a date upon which the stockholders of record are entitled to give
written consent pursuant to Section 1.9 and:
(i) no prior action by the Board of Directors is required,
the date is the first date on which a valid written
consent is delivered in accordance with the provisions
of Section 1.9.
(ii) prior action by the Board of Directors is required, the
date is at the close of business on the day on which the
Board of Directors adopt the resolution taking the
required action.
Section 1.7 QUORUM; ADJOURNED MEETINGS.
(a) Unless the Articles of Incorporation provide for a different
proportion, stockholders holding a majority of the voting power of the
corporation's stock issued and outstanding and entitled to vote, represented in
person or by proxy, are necessary to constitute a quorum for the transaction of
business at any meeting. If, on any issue, voting by classes is required by the
laws of the State of Nevada, the Articles of Incorporation or these Bylaws, at
least a majority of the voting power within each such class is necessary to
constitute a quorum of each such class.
(b) If a quorum is not present or represented by proxy, a majority
of the voting power so represented may adjourn the meeting from time to time
until holders of the voting power required to constitute a quorum shall be
represented. At any such adjourned meeting at which a quorum shall be
represented, any business may be transacted which might have been transacted as
originally called. When a stockholders' meeting is adjourned to another time or
place hereunder, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. The stockholders present at a duly convened meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum of the voting power.
(c) With respect to shares outstanding in the name of another
corporation, partnership, limited liability company or other legal entity on the
record date, votes may be cast: (i)
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in the case of a corporation, by such individual as the bylaws of such other
corporation prescribe, by such individual as may be appointed by resolution of
the board of directors of such other corporation or by such individual
(including the officer making the authorization) authorized in writing to do so
by the chairman of the board of directors, president or any vice-president of
such corporation and (ii) in the case of a partnership, limited liability
company or other legal entity, by an individual representing such stockholder
upon presentation to the corporation of satisfactory evidence of his authority
to do so.
(d) Notwithstanding anything to the contrary herein contained, no
votes may be cast for shares owned by this corporation or its subsidiaries, if
any. If shares are held by this corporation or its wholly-owned subsidiaries, if
any, in a fiduciary capacity, no votes shall be cast with respect thereto on any
matter except to the extent that the beneficial owner thereof possesses and
exercises either a right to vote or to give the corporation holding the same
binding instructions on how to vote.
(e) With respect to shares standing in the name of two or more
persons, whether fiduciaries, members of a partnership, joint tenants, tenants
in common, husband and wife as community property, tenants by the entirety,
voting trustees, persons entitled to vote under a stockholder voting agreement
or otherwise and shares held by two or more persons (including proxy holders)
having the same fiduciary relationship in respect to the same shares, votes may
be cast in the following manner:
(i) If only one person votes, the vote of such person binds
all.
(ii) If more than one person casts votes, the act of the
majority so voting binds all.
(iii) If more than one person casts votes, but the vote is
evenly split on a particular matter, the votes shall be
deemed cast proportionately, as split.
(f) Except as otherwise required by law, the Articles of
Incorporation or these Bylaws, and except with respect to the election of
directors, if a quorum is present, the affirmative vote of holders of at least a
majority of the voting power represented at the meeting and entitled to vote
shall be the act of the stockholders, unless voting by classes is required for
any action of the stockholders by the laws of the State of Nevada, the Articles
of Incorporation or these Bylaws in which case the affirmative vote of holders
of at least a majority of the voting power of each such class shall be required.
Directors shall be elected by a plurality of the votes cast by the holders of
shares entitled to vote in the election of directors at a meeting of
stockholders at which a quorum is present.
Section 1.8 PROXIES.
(a) At any meeting of stockholders, any holder of shares entitled to
vote may designate, in a manner permitted by the laws of the State of Nevada,
another person or persons to
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act as proxy or proxies. No proxy is valid after the expiration of six (6)
months from the date of its creation, unless it is coupled with an interest or
unless otherwise specified in the proxy. In no event shall the term of a proxy
exceed seven (7) years from the date of its creation. Subject to these
restrictions, every proxy properly created is not revoked and shall continue in
full force and effect until another instrument or transmission revoking it or a
properly created proxy bearing a later date is filed with or transmitted to the
secretary of the corporation or another person or persons appointed by the
corporation to count the votes of stockholders and determine the validity of
proxies and ballots.
(b) Without limiting the manner in which a stockholder may authorize
another person or persons to act for him as proxy pursuant to Section 1.8(a),
the following constitute valid means by which a stockholder may grant such
authority:
(i) a stockholder may execute a writing authorizing another
person or persons to act for him as proxy. Execution may
be accomplished by the signing of the writing by the
stockholder or his authorized officer, director,
employee or agent or by causing the signature of the
stockholder to be affixed to the writing by any
reasonable means, including, but not limited to, a
facsimile signature.
(ii) A stockholder may authorize another person or persons to
act for him as proxy by transmitting or authorizing the
transmission of a telegram, cablegram or other means of
electronic transmission to the person who will be the
holder of the proxy or to a firm which solicits proxies
or like agent who is authorized by the person who will
be the holder of the proxy to receive the transmission.
Any such telegram, cablegram or other means of
electronic transmission must either set forth or be
submitted with information from which it can be
determined that the telegram, cablegram or other
electronic transmission was authorized by the
stockholder. If it is determined that the telegram,
cablegram or other electronic transmission is valid, the
persons appointed by the corporation to count the votes
of stockholders and determine the validity of proxies
and ballots or other persons making those determinations
must specify the information upon which they relied.
(c) Any copy, communication by telecopier, or other reliable
reproduction of the writing or transmission created pursuant to subparagraph
(b), may be substituted for the original writing or transmission for any
purposes for which the original writing or transmission could be used, if the
copy, communication by telecopier, or other reproduction is a complete
reproduction of the entire original writing or transmission.
Section 1.9 ACTION WITHOUT MEETING.
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(a) Any action required or permitted to be taken at a meeting of the
stockholders may be taken without a meeting if a written consent thereto is
signed by the holders of the voting power of the corporation that would be
required at a meeting to constitute the act of the stockholders. Whenever action
is taken by written consent, a meeting of stockholders need not be called or
notice given. The written consent may be signed in counterparts and must be
filed with the minutes of the proceedings of the stockholders.
(b) A written consent is not valid unless it is:
(i) Signed by the stockholder;
(ii) Dated, as to the date of the stockholder's signature;
(iii) Delivered to the corporation, in the manner prescribed
herein, within 60 days after the earliest date that the
stockholder signed the written consent. Delivery of a
written consent must be made personally or by certified
or registered mail, return receipt requested, to the
corporation's principal place of business. If any action
is taken that was authorized by written consent, prompt
notice of the action must be given to any stockholders
who did not consent in writing. Any certificate required
to be filed must state that written consent and notice
has been given in accordance with the provisions of the
laws of the State of Nevada.
ARTICLE II
DIRECTORS
Section 2.1 NUMBER, TENURE, AND QUALIFICATION. Unless a larger number is
required by the laws of the State of Nevada or the Articles of Incorporation or
until changed in the manner provided herein, the Board of Directors of the
corporation shall consist of no less than three nor more than nine individuals
who, unless elected in accordance with Section 1.9, shall be elected at the
annual meeting of the stockholders of the corporation and who shall hold office
for one (1) year or until his or her successor or successors are elected and
qualify. A director need not be a stockholder of the corporation.
Section 2.2 CHANGE IN NUMBER. Subject to any limitations in the laws of
the State of Nevada, the Articles of Incorporation or these Bylaws, the number
of directors may be changed from time to time by resolution adopted by the Board
of Directors or the stockholders.
Section 2.3 REDUCTION IN NUMBER. No reduction of the number of directors
shall have the effect of removing any director prior to the expiration of his
term of office.
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Section 2.4 RESIGNATION. Any director may resign effective immediately or
at a future date upon giving written notice to the Board of Directors. A
majority of the remaining directors, though less than a quorum, may appoint a
successor to take office when the resignation becomes effective, each director
so appointed to hold office during the remainder of the term of office of the
resigning director.
Section 2.5 REMOVAL. Any director may be removed from office with or
without cause by the vote or written consent of stockholders representing not
less than two-thirds of the voting power of the issued and outstanding stock
entitled to vote, except that if the corporation's Articles of Incorporation
provide for the election of directors by cumulative voting, no director may be
removed from office except upon the vote of stockholders owning sufficient
shares to have prevented such director's election to office in the first
instance.
Section 2.6 VACANCIES. All vacancies, including those caused by an
increase in the number of directors, may be filled by a majority of the
remaining directors, though less than a quorum, unless it is otherwise provided
in the Articles of Incorporation and unless, in the case of removal of a
director, the stockholders by a majority of voting power shall have appointed a
successor to the removed director. In the case of the replacement of a director,
the appointed director shall hold office during the remainder of the term of
office of the replaced director, and in the case of an increase in the number of
directors, the appointed director shall hold office until the next meeting of
stockholders at which directors are elected.
Section 2.7 ANNUAL AND REGULAR MEETINGS. Immediately following the
adjournment of, and at the same place as, the annual or any special meeting of
the stockholders at which directors are elected other than pursuant to Section
2.6 of this Article, the Board of Directors, including newly elected directors,
shall hold its annual meeting without notice, other than this provision, to
elect officers and to transact such further business as may be necessary or
appropriate. The Board of Directors may provide by resolution the place, date,
and hour for holding regular meetings between annual meetings.
Section 2.8 SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the chairman or the president, and shall be called by the
chairman, the president or the secretary upon the request of any two (2)
directors. If the chairman refuses or, if there is no chairman, if both the
president and secretary refuse or neglect to call such special meeting within
five (5) business days of the request, a special meeting may be called by notice
signed by any two (2) directors.
Section 2.9 PLACE OF MEETINGS Any regular or special meeting of the
directors of the corporation may be held at such place as the Board of Directors
may designate or, in the absence of such designation, at the place designated in
the notice calling the meeting.
Section 2.10NOTICE OF MEETINGS.
(a) Except as otherwise provided in Section 2.7, there shall be
delivered to all directors, at least forty-eight (48) hours before the time of a
meeting, a copy of a written notice of
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the meeting, by delivery of such notice personally, by mailing such notice
postage prepaid, or by telegraph or telecopier. Such notice shall be addressed
to each director at the address appearing on the records of the corporation. If
mailed, the notice shall be deemed delivered on the date the same is deposited
in the United States mail, postage prepaid. Any director may waive notice of any
meeting, and the attendance of a director at a meeting and oral consent entered
on the minutes of the meeting or taking part in deliberations of the meeting
without objection shall constitute a waiver of notice of such meeting.
Attendance for the express purpose of objecting to the transaction of business
thereat because the meeting is not properly called or convenient shall not
constitute presence nor a waiver of notice for purposes hereof.
(b) Whenever all persons entitled to vote at any meeting of
directors consent, either by:
(i) A writing on the records of the meeting or filed with
the secretary; or
(ii) Presence at such meeting and oral consent entered on the
minutes; or
(iii) Taking part in the deliberations at such meeting without
objection;
the actions taken at such meeting shall be as valid as if such had occurred at a
meeting regularly called and noticed.
(c) At such meeting any business may be transacted that is not
excepted from the written consent or to the consideration of which no objection
for want of notice is made at the time.
(d) If any meeting be irregular for want of notice or of such
consent, provided a quorum was present at such meeting, the proceedings of the
meeting may be ratified and approved and rendered likewise valid and the
irregularity or defect therein waived by a writing signed by all parties having
the right to vote at such meeting.
(e) Such consent or approval may be by proxy or attorney, but all
such proxies and powers of attorney must be in writing.
Section 2.11QUORUM; ADJOURNED MEETINGS.
(a) A majority of the directors in office, at a meeting duly
assembled, is necessary to constitute a quorum for the transaction of business.
(b) At any meeting of the Board of Directors where a quorum is not
present, a majority of those present may adjourn the meeting, from time to time,
until a quorum is present, and no notice of such adjournment shall be required.
At any adjourned meeting where a quorum is present, any business may be
transacted which could have been transacted at the meeting originally called.
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Section 2.12BOARD OF DIRECTORS' DECISIONS. The affirmative vote of a
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
Section 2.13TELEPHONIC MEETINGS. Members of the Board of Directors or of
any committee designated by the Board of Directors may participate in a meeting
of the Board of Directors or committee by means of a telephone conference or
similar method of communication by which all persons participating in such
meeting can hear each other. Participation in a meeting pursuant to this Section
2.13 constitutes presence in person at the meeting.
Section 2.14ACTION WITHOUT MEETING. Any action required or permitted to be
taken at a meeting of the Board of Directors or of a committee thereof may be
taken without meeting if, before or after the action, a written consent thereto
is signed by all of the members of the Board of Directors or the committee. The
written consent may be signed in counterparts and must be filed with the minutes
of the proceedings of the Board of Directors or committee. A telegram, telex,
cablegram, or similar transmission by a director or member of a committee, or a
photographic, photostatic, facsimile, or similar reproduction of a writing
signed by a director or member of a committee, shall be regarded as signed by
the director or member of a committee for purposes of this section.
Section 2.15POWERS AND DUTIES. Except as otherwise restricted by Nevada
law or the Articles of Incorporation, the Board of Directors shall have full
control over the affairs of the corporation. The Board of Directors may delegate
any of its authority to manage, control or conduct the business of the
corporation to any standing or special committee or to any officer or agent and
to appoint any persons to be agents of the corporation with such powers,
including the power to subdelegate, and upon such terms as may be deemed fit.
Section 2.16COMPENSATION. The directors and members of committees shall be
allowed and paid all necessary expenses incurred in attending any meetings of
the Board of Directors or committees. Unless otherwise provided in the Articles
of Incorporation, the Board of Directors may fix by resolution the Compensation
of directors for services in any capacity.
Section 2.17BOARD OF DIRECTORS' OFFICERS.
(a) At its annual meeting, the Board of Directors may elect from
among its members, a chairman who shall preside at meetings of the Board of
Directors and may preside at meetings of the stockholders. The Board of
Directors may also elect such other officers of the Board of Directors and for
such terms as it may from time to time deem advisable.
(b) Any vacancy in any office of the Board of Directors because of
death, resignation, removal or otherwise may be filled by the Board of Directors
for the unexpired portion of the term of such office.
Section 2.18COMMITTEES OF DIRECTORS; CONDUCT OF BUSINESS.
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(a) The Board of Directors may, by resolution or resolutions passed
by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation, which,
to the extent provided in said resolution or resolutions, shall have and may
exercise the powers of the Board of Directors in the management of the business
and affairs of the corporation, and shall have power to authorize the seal of
the corporation to be affixed to all papers which may require it. Such committee
or committees shall have such name or names as may be determined from time to
time by resolution adopted by the Board of Directors.
(b) Each committee may determine the procedural rules for meeting
and conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by the laws of the State of Nevada.
Adequate provisions shall be made for notice to members of all meetings and all
matters shall be determined by a majority vote of the members present.
ARTICLE III
OFFICERS
Section 3.1 ELECTION. The Board of Directors, at its annual meeting, shall
elect a chairman of the board, a president and chief executive officer, a
secretary and a treasurer to hold office for a term of one (1) year or until
their successors are chosen and qualify. Any individual may hold two or more
offices. The Board of Directors may, from time to time, by resolution, elect one
or more vice-presidents, assistant secretaries and assistant treasurers and
appoint agents of the corporation, prescribe their duties and fix their
compensation.
Section 3.2 REMOVAL; RESIGNATION. Any officer or agent elected or
appointed by the Board of Directors may be removed by it with or without cause.
Any officer may resign at any time upon written notice to the corporation. Any
such removal or resignation shall be subject to the rights, if any, of the
respective parties under any contract between the corporation and such officer
or agent.
Section 3.3 VACANCIES. Any vacancy in any office because of death,
resignation, removal or otherwise may be filled by the Board of Directors for
the unexpired portion of the term of such office.
Section 3.4 CHAIRMAN OF THE BOARD. The chairman of the board shall, in the
absence of the president, preside at all meetings of the stockholders and of the
Board of Directors. The chairman of the board shall have the authority to agree
upon and execute all leases, contracts, evidences of indebtedness and other
obligations in the name of the corporation; and the chairman of the board shall
have such other powers and duties as designated in accordance with these Bylaws
and as from time to time may be assigned to the chairman of the board by the
Board of' Directors.
Section 3.5 PRESIDENT.
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(a) The president shall be the chief executive of the corporation
(and, in his discretion, may use either title), subject to the supervision and
control of the Board of Directors, and shall have general executive charge,
management and control over the properties, business and operations of the
corporation with all such powers as may be reasonably incident to such
responsibilities. The president may agree upon and execute all leases,
contracts, evidences of indebtedness and other obligations in the name of the
corporation and may sign all certificates for shares of stock of the
corporation; and shall have such other powers and duties as designated in
accordance with these Bylaws and as from time to time may be assigned to the
president by the Board of Directors.
(b) The president shall have full power and authority on behalf of
the corporation to attend and to act and to vote, or designate such other
officer or agent of the corporation to attend and to act and to vote, at any
meetings of the stockholders of any corporation in which the corporation may
hold stock and, at any such meetings, shall possess and may exercise any and all
rights and powers incident to the ownership of such stock. The Board of
Directors, by resolution from time to time, may confer like powers on any person
or persons in place of the president to exercise such powers for these purposes.
Section 3.6 VICE-PRESIDENTS. Each vice-president shall at all times
possess power to sign all certificates, contracts and other instruments of the
corporation, except as otherwise limited in writing by the Board of Directors or
the president of the corporation. Each vice-president shall have such other
powers and duties as from time to time may be assigned to such vice-president by
the Board of Directors or the president.
Section 3.7 SECRETARY. The secretary shall keep the minutes of all
meetings of the Board of Directors, committees of the Board of Directors and the
stockholders, in books provided for that purpose; shall attend to the giving and
serving of all notices; may in the name of the corporation affix the seal of the
corporation to all contracts and attest to the affixation of the seal of the
corporation thereto; may sign with the other appointed officers all certificates
for shares of stock of the corporation; shall have charge of the certificate
books, transfer books and stock ledgers, and such other books and papers as the
Board of Directors may direct, all of which shall at all reasonable times be
open to inspection of any director at the office of the corporation during
business hours; shall have such other powers and duties as designated in these
Bylaws and as from time to time may be assigned to the secretary by the Board of
Directors or the president; and shall in general perform all acts incident to
the office of secretary, subject to the control of the Board of Directors or the
president.
Section 3.8 ASSISTANT SECRETARIES. Each assistant secretary shall have the
usual powers and duties pertaining to such offices, together with such other
powers and duties as designated in these Bylaws and as from time to time may be
assigned to an assistant secretary by the Board of Directors, the president or
the secretary. The assistant secretaries shall exercise the powers of the
secretary during that officer's absence or inability or refusal to act.
Section 3.9 TREASURER.
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(a) The treasurer shall be the chief financial officer of the
corporation (and, in his discretion, may use either title), subject to the
supervision and control of the Board of Directors, and shall have custody of all
the funds and securities of the corporation. When necessary or proper, the
treasurer shall endorse on behalf of the corporation for collection checks,
notes, and other obligations, and shall deposit all monies to the credit of the
corporation in such bank or banks or other depository as the Board of Directors
may designate, and shall sign all receipts and vouchers for payments made by the
corporation. Unless otherwise specified by the Board of Directors, the treasurer
may sign with the president all bills of exchange and promissory notes of the
corporation, shall also have the care and custody of the stocks, bonds,
certificates, vouchers, evidence of debts, securities, and such other property
belonging to the corporation as the Board of Directors shall designate, and
shall sign all papers required by law, by these Bylaws, or by the Board of
Directors to be signed by the treasurer. The treasurer shall enter, or cause to
be entered, regularly in the financial records of the corporation, to be kept
for that purpose, full and accurate accounts of all monies received and paid on
account of the corporation and, whenever required by the Board of Directors, the
treasurer shall render a statement of any or all accounts. The treasurer shall
at all reasonable times exhibit the books of account to any director of the
corporation and shall perform all acts incident to the position of treasurer
subject to the control of the Board of Directors.
(b) The treasurer shall, if required by the Board of Directors, give
bond to the corporation in such sum and with such security as shall be approved
by the Board of Directors for the faithful performance of all the duties of
treasurer and for restoration to the corporation, in the event of the
treasurer's death, resignation, retirement or removal from office, of all books,
records, papers, vouchers, money and other property in the treasurer's custody
or control and belonging to the corporation. The expense of such bond shall be
borne by the corporation.
Section 3.10ASSISTANT TREASURERS. The Board of Directors may appoint one
or more assistant treasurers who shall have such powers and perform such duties
as may be prescribed by the Board of Directors or the treasurer. The Board of
Directors may require an assistant treasurer to give a bond to the corporation
in such sum and with such security as it may approve, for the faithful
performance of the duties of assistant treasurer, and for restoration to the
corporation, in the event of the assistant treasurer's death, resignation,
retirement or removal from office, of all books, records, papers, vouchers,
money and other property in the assistant treasurer's custody or control and
belonging to the corporation. The expense of such bond shall be borne by the
corporation.
Section 3.11COMPENSATION. The Board of Directors shall have the power to
fix the compensation of officers directly or by delegation of such authority
which may be either general or specific.
ARTICLE IV
CAPITAL STOCK
Section 4.1 ISSUANCE. Shares of the corporation's authorized stock shall,
subject to any provisions or limitations of the laws of the State of Nevada, the
Articles of Incorporation or any contracts or agreements to which the
corporation may be a party, be issued in such manner, at such
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times, upon such conditions and for such consideration as shall be prescribed by
the Board of Directors.
Section 4.2 CERTIFICATES. Ownership in the corporation shall be evidenced
by certificates for shares of stock in such form as shall be prescribed by the
Board of Directors, shall be under the seal of the corporation and shall be
manually signed by the president or a vice-president and also by the secretary
or an assistant secretary, provided, however, whenever any certificate is
countersigned or otherwise authenticated by a transfer agent or transfer clerk,
and by a registrar, then a facsimile of the signatures of said officers of the
corporation may be printed or lithographed upon the certificate in lieu of the
actual signatures. If the corporation uses facsimile signatures of its officers
on its stock certificates, it shall not act as registrar of its own stock, but
its transfer agent and registrar may be identical if the institution acting in
those dual capacities countersigns any stock certificates in both capacities.
Each certificate shall contain the name of the record holder, the number,
designation, if any, class or series of shares represented, a statement or
summary of any applicable rights, preferences, privileges or restrictions
thereon, and a statement, if applicable, that the shares are assessable. All
certificates shall be consecutively numbered. If provided by the stockholder,
the name, address and federal tax identification number of the stockholder, the
number of shares, and the date of issue shall be entered in the stock transfer
records of the corporation.
Section 4.3 SURRENDERED, LOST OR DESTROYED CERTIFICATES. All certificates
surrendered to the corporation, except those representing shares of treasury
stock, shall be canceled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been canceled, except that in
case of a lost, stolen, destroyed or mutilated certificate, a new one may be
issued therefor. However, any stockholder applying for the issuance of a stock
certificate in lieu of one alleged to have been lost, stolen, destroyed or
mutilated shall, prior to the issuance of a replacement, provide the corporation
with the stockholder's affidavit of the facts surrounding the loss, theft,
destruction or mutilation and, if required by the Board of Directors, an
indemnity bond in an amount not less than twice the current market value of the
stock, and upon such terms as the treasurer or the Board of Directors shall
require, to indemnify the corporation against any loss, damage, cost or
inconvenience arising as a consequence of the issuance of a replacement
certificate.
Section 4.4 REPLACEMENT CERTIFICATE. When the Articles of Incorporation
are amended in any way affecting the statements contained in the certificates
for outstanding shares of capital stock of the corporation or it becomes
desirable for any reason, in the discretion of the Board of Directors,
including, without limitation, the merger of the corporation with another
corporation or the reorganization of the corporation, to cancel any outstanding
certificate for shares and issue a new certificate therefor conforming to the
rights of the holder, the Board of Directors may order any holders of
outstanding certificates for shares to surrender and exchange the same for new
certificates within a reasonable time to be fixed by the Board of Directors. The
order may provide that a holder of any certificate(s) ordered to be surrendered
shall not be entitled to vote, receive distributions or exercise any other
rights of stockholders of record until the holder has complied with the order,
but the order operates to suspend such rights only after notice and until
compliance.
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Section 4.5 TRANSFER OF SHARES. No transfer of stock shall be valid as
against the corporation except on surrender and cancellation of the certificates
therefor accompanied by an assignment or transfer by the registered owner made
either in person or under assignment. Whenever any transfer shall be expressly
made for collateral security and not absolutely, the collateral nature of the
transfer shall be reflected in the entry of transfer in the records of the
corporation.
Section 4.6 TRANSFER AGENT; REGISTRARS. The Board of Directors may appoint
one or more transfer agents, transfer clerks and registrars of transfer and may
require all certificates for shares of stock to bear the signature of such
transfer agent, transfer clerk and/or registrar of transfer.
Section 4.7 MISCELLANEOUS. The Board of Directors shall have the power and
authority to make such rules and regulations not inconsistent herewith as it may
deem expedient concerning the issue, transfer, and registration of certificates
for shares of the corporation's stock.
ARTICLE V
DISTRIBUTIONS
Section 5.1 Distributions may be declared, subject to the provisions of
the laws of the State of Nevada and the Articles of Incorporation, by the Board
of Directors at any regular or special meeting and may be paid in cash,
property, shares of corporate stock, or any other medium. The Board of Directors
may fix in advance of a record date, as provided in Section 1.6, prior to the
distribution for the purpose of determining stockholders entitled to receive any
distribution.
ARTICLE VI
RECORDS; REPORTS; SEAL; AND FINANCIAL MATTERS
Section 6.1 RECORDS. All original records of the corporation shall be kept
by or under the direction of the secretary or at such places as may be
prescribed by the Board of Directors.
Section 6.2 DIRECTORS' AND OFFICERS' RIGHT OF INSPECTION. Every director
and officer shall have the absolute right at any reasonable time for a purpose
reasonably related to the exercise of such individual's duties to inspect and
copy all of the corporation's books, records, and documents of every kind and to
inspect the physical properties of the corporation and its subsidiary
corporations.
Such inspection may be made in person or by agent or attorney.
Section 6.3 CORPORATE SEAL. The Board of Directors may, by resolution,
authorize a seal, and the seal may be used by causing it, or a facsimile, to be
impressed or affixed or reproduced or otherwise. Use or non-use of a seal shall
not in any way affect the legality of any document.
Section 6.4 FISCAL YEAR-END. The fiscal year-end of the corporation shall
be such date as may be fixed from time to time by resolution of the Board of
Directors.
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Section 6.5 RESERVES. The Board of Directors may create, by resolution,
such reserves as the directors may, from time to time, in their discretion,
think proper to provide for contingencies, or to equalize distributions or to
repair or maintain any property of the corporation, or for such other purpose as
the Board of Directors may deem beneficial to the corporation, and the directors
may modify or abolish any such reserves in the manner in which they were
created.
ARTICLE VII
INDEMNIFICATION, INSURANCE AND OTHER FINANCIAL ARRANGEMENTS
Section 7.1 INDEMNIFICATION.
(a) The corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, except an action by or in the right of the corporation, by reason
of the fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with the action, suit or proceeding if he acted in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, has no reasonable cause to believe his conduct was unlawful.
(b) The corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses,
including amounts paid in settlement and attorneys' fees actually and reasonably
incurred by him in connection with the defense or settlement of the action or
suit if he acted in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the corporation.
(c) The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, does not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and that, with respect to any
criminal action or proceeding, he had reasonable cause to believe that his
conduct was unlawful.
(d) Indemnification may not be made for any claim, issue or matter
as to which such a person has been adjudged by a court of competent jurisdiction
after exhaustion of all appeals therefrom, to be liable to the corporation or
for amounts paid in settlement to the corporation, unless and only to the extent
that the court in which the action or suit was brought or other court of
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competent jurisdiction determines upon application that in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
(e) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
Section 7.1, or in defense of any claim, issue or matter therein, he must be
indemnified by the corporation against expenses, including attorneys' fees,
actually and reasonably incurred by him in connection with the defense.
(f) Any indemnification under subsections (a) and (b) of this
Section 7.1, unless ordered by a court or advanced pursuant to subsection (g) of
this Section 7.1, must be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances. The determination
must be made:
(i) By the stockholders;
(ii) By the Board of Directors by majority vote of a quorum
consisting of directors who were not parties to the act,
suit or proceeding;
(iii) If a majority vote of a quorum consisting of directors
who were not parties to the act, suit or proceeding so
orders, by independent legal counsel in a written
opinion; or
(iv) If a quorum consisting of directors who were not parties
to the act, suit or proceeding cannot be obtained, by
independent legal counsel in a written opinion.
(g) The expenses of officers and directors incurred in defending a
civil or criminal action, suit or proceeding must be paid by the corporation as
they are incurred and in advance of the final disposition of the action, suit or
proceeding, upon receipt of an undertaking by or on behalf of the director or
officer to repay the amount if it is ultimately determined by a court of
competent jurisdiction that he is not entitled to be indemnified by the
corporation. The provisions of this subsection do not affect any rights to
advancement of expenses to which corporate personnel other than directors or
officers may be entitled under any contract or otherwise by law.
(h) The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to this Section 7.1:
(i) Does not exclude any other rights to which a person
seeking indemnification or advancement of expenses may
be entitled under the Articles of Incorporation or any
Bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, for either an action in his
official capacity or an action in another capacity while
holding his office, except that indemnification, unless
ordered by a
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court pursuant to subsection (b) of this Section 7.1 or
for the advancement of expenses made pursuant to
subsection (g) of this Section 7.1, may not be made to
or on behalf of any director or officer if a final
adjudication establishes that his acts or omissions
involved intentional misconduct, fraud or a knowing
violation of the law and was material to the cause of
action.
(ii) Continues for a person who has ceased to be a director,
officer, employee or agent and inures to the benefit of
the heirs, executors and administrators of such a
person.
Section 7.2 INSURANCE. The corporation may purchase and maintain insurance
or make other financial arrangements on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise for
any liability asserted against him and liability and expenses incurred by him in
his capacity as a director, officer, employee or agent, or arising out of his
status as such, whether or not the corporation has the authority to indemnify
him against such liability and expenses.
Section 7.3 OTHER FINANCIAL ARRANGEMENTS.
(a) The other financial arrangements which may be made by the
corporation pursuant to Section 7.2 may include, but are not limited to, the
following:
(i) The creation of a trust fund.
(ii) The establishment of a program of self-insurance.
(iii) The securing of its obligation of indemnification by
granting a security interest or other lien on any assets
of the corporation.
(iv) The establishment of a letter of credit, guaranty or
surety.
(b) No financial arrangement made pursuant to this Section 7.3 may
provide protection for a person adjudged by a court of competent jurisdiction,
after exhaustion of all appeals therefrom, to be liable for intentional
misconduct, fraud or a knowing violation of law, except with respect to the
advancement of expenses or indemnification ordered by a court.
(c) Any insurance or other financial arrangement made on behalf of a
person pursuant to this section may be provided by the corporation or any other
person approved by the board of directors, even if all or part of the other
person's stock or other securities is owned by the corporation.
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Section 7.4 GENERAL. In the absence of intentional misconduct, fraud or a
knowing violation of law:
(a) The decision of the Board of Directors as to the propriety of
the terms and conditions of any insurance or other financial arrangement made
pursuant to Sections 7.2 or 7.3 and the choice of the person to provide the
insurance or other financial arrangement is conclusive; and
(b) The insurance or other financial arrangement:
(i) Is not void or voidable; and
(ii) Does not subject any director approving it to personal
liability for his action, even if a director approving
the insurance or other financial arrangement is a
beneficiary of the insurance or other financial
arrangement.
ARTICLE VIII
AMENDMENT OR REPEAL
Section 8.1 AMENDMENT. Except as otherwise restricted in the Articles of
Incorporation or these Bylaws:
(a) Any provision of these Bylaws may be altered, amended or
repealed at the annual or any regular meeting of the Board of Directors without
prior notice, or at any special meeting of the Board of Directors if notice of
such alteration, amendment or repeal is contained in the notice of such special
meeting.
(b) These Bylaws may also be altered, amended, or repealed at a duly
convened meeting of the stockholders by the affirmative vote of the holders of a
majority percent of the voting power of the corporation issued and outstanding
and entitled to vote.
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CERTIFICATION
The undersigned duly elected secretary of the corporation does hereby
certify that the foregoing Bylaws were adopted by the Board of Directors on the
____ day of ________, 1993.
____________________, Secretary
of Texoil, Inc.
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EXHIBIT 4.1
TEXOIL, INC.
as Issuer
AND
FIRST INTERSTATE BANK OF TEXAS, N.A.
as Warrant Agent
WARRANT AGREEMENT
Dated as of May 26, 1994
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TABLE OF CONTENTS*
PAGE
SECTION 1. Appointment of Warrant Agent.....................................2
SECTION 2. Warrant Certificates.............................................2
SECTION 3. Execution of Warrant Certificates................................2
SECTION 4. Registration and Countersignature................................2
SECTION 5. Registration of Transfers and Exchanges..........................3
SECTION 6. Right to Exercise Warrants.......................................3
SECTION 7. Payment of Taxes.................................................5
SECTION 8. Mutilated or Missing Warrant Certificates........................5
SECTION 9. Reservation of Shares............................................5
SECTION 10. Obtaining of Governmental Approvals.............................6
SECTION 11. Adjustment of Exercise Price and Number of Shares Purchasable...6
SECTION 12. Fractional Shares..............................................11
SECTION 13. Notices to Warrantholders......................................12
SECTION 14. Merger, Consolidation, or Change of Name of Warrant Agent......13
SECTION 15. Warrant Agent..................................................13
SECTION 16. Change of Warrant Agent........................................15
SECTION 17. Right of Redemption............................................16
SECTION 18. Merger or Consolidation of the Company.........................17
- --------
* This Table of Contents does not constitute a part of this Agreement
or have any bearing upon the interpretation of any of its terms or
provisions.
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SECTION 19. Notices to Company and Warrant Agent...........................17
SECTION 20. Tax Matters....................................................18
SECTION 21. Supplements and Amendments.....................................18
SECTION 22. Successors.....................................................18
SECTION 23. Termination....................................................18
SECTION 24. Governing Law..................................................18
SECTION 25. Benefits of This Agreement.....................................18
SECTION 26. Counterparts...................................................19
Exhibit A Form of Class A Warranty.......................................A-1
Exhibit B Form of Class B Warrant Certificate............................B-1
Exhibit C Form of Underwriters' Class A Warrant Certificate..............C-1
Exhibit D Form of Underwriters' Class B Warrant Certificate..............D-1
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WARRANT AGREEMENT
WARRANT AGREEMENT dated as of May 26, 1994, between Texoil, Inc., a Nevada
corporation (the "Company"), and First Interstate Bank of Texas, N.A. (the
"Warrant Agent").
R E C I T A L S
WHEREAS, the Company has proposed to make a public offering (the
"OFFERING") of Units. each Unit consisting of two shares of the Company's common
stock, par value $.0l per share (the "COMMON STOCK"), and a warrant (the "CLASS
A WARRANT") to purchase one share of Common Stock and a second warrant (the
"CLASS B WARRANT") to purchase one share of Common Stock, pursuant to an
Underwriting Agreement of even date herewith (the "UNDERWRITING AGREEMENT")
between the Company and Toluca Pacific Securities Corporation, as representative
(the "REPRESENTATIVE") of the several underwriters (the "UNDERWRITERS") named on
Schedule A to the Underwriting Agreement; and
WHEREAS, the Underwriting Agreement contemplates that the Company will
issue and sell to the Underwriters for distribution to the public (i) 750,000
Units (the "FIRM UNITS") and (ii) up to an additional 112.500 Units (the
"ADDITIONAL UNITS") to cover over-allotments, if any (the Firm Units and the
Additional Units are referred to herein collectively as the "PUBLIC UNITS"); and
WHEREAS, the Company has also agreed to issue and sell to the Underwriters
Warrants (the "UNDERWRITERS' WARRANTS") to purchase up to 75,000 Units (the
"UNDERWRITERS' UNITS") (the Public Units and the Underwriters' Units are
referred to herein collectively as the "UNITS"); and
WHEREAS, the issuance of the Units, the shares of Common Stock and Class A
and Class B Warrants included in the Units, the shares of Common Stock issuable
on the exercise of the Class A and Class B Warrants (the "SHARES"), and the
Underwriters' Warrants, has been registered under the Securities Act of 1933, as
amended (the "ACT"), pursuant to a Form SB-2 Registration Statement
(No.33-72082), as amended (the "REGISTRATION STATEMENT"), which Registration
Statement was declared effective by the Securities and Exchange Commission on
May 26, 1994; and
WHEREAS, the Company desires to engage the Warrant Agent to act in the
Company's behalf, and the Warrant Agent is willing to act, in connection with
the issuance, registration, division, transfer, exchange and redemption of the
Warrants, the issuance of certificates representing the Warrants, and the rights
of the registered owners thereof.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree as follows:
SECTION 1. APPOINTMENT OF WARRANT AGENT. The Company hereby appoints the
Warrant Agent to act as agent for the Company in accordance with the
instructions set forth hereinafter in this Agreement, and the Warrant Agent
hereby accepts such appointment.
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SECTION 2. WARRANT CERTIFICATES. The certificates representing the Class A
and the Class B Warrants (the "WARRANT CERTIFICATES") shall be in registered
form only and, in the case of the Warrants included in the Public Units, shall
be substantially in the form set forth in EXHIBIT A and EXHIBIT B attached
hereto, and, in the case of the Warrants included in the Underwriters' Units,
shall be substantially in the form set forth in EXHIBIT C and EXHIBIT D attached
hereto, respectively, with such appropriate insertions, omissions,
substitutions, and other variations as are required or permitted by this
Agreement.
SECTION 3. EXECUTION OF WARRANT CERTIFICATES. Warrant Certificates shall
be executed on behalf of the Company by its chairman of the board, its
president, any executive vice president, any senior vice president or any vice
president under its corporate seal reproduced thereon attested by its corporate
secretary or one of its assistant secretaries. Each such signature upon the
Warrant Certificate may be in the form of a facsimile signature of the present
or any future chairman of the board, president, executive vice president, senior
vice president, vice president, corporate secretary, or assistant secretary and
may be imprinted or otherwise reproduced on the Warrant Certificates and for
that purpose the Company may adopt and use the facsimile signature of any person
who shall have been chairman of the board, president, executive vice president,
senior vice president, vice president, corporate secretary, or assistant
secretary, notwithstanding the fact that at the time the Warrant Certificates
shall be countersigned and delivered or disposed of he shall have ceased to hold
such office.
In case any officer of the Company who shall have signed any of the
Warrant Certificates shall cease to be such officer before the Warrant
Certificates so signed shall have been countersigned by the Warrant Agent or
disposed of by the Company, such Warrant Certificates nevertheless may be
countersigned and delivered or disposed of as though such person had not ceased
to be such officer of the Company; and any Warrant Certificate may be signed on
behalf of the Company by any person who, at the actual date of the execution of
such Warrant Certificate, shall be a proper officer of the Company to sign such
Warrant Certificate, although at the date of the execution of this Warrant
Agreement any such person was not such officer.
Warrant Certificates shall be dated the date of countersignature by the
Warrant Agent.
SECTION 4. REGISTRATION AND COUNTERSIGNATURE. Warrant Certificates
distributed as provided in Section 11 shall be registered in the names of the
record holders of the Warrant Certificates to whom they are to be distributed.
Warrant Certificates shall be manually countersigned by the Warrant Agent
and shall not be valid for any purpose unless so countersigned.
The Company and the Warrant Agent may deem and treat the registered
holder(s) of the Warrant Certificates as the absolute owner(s) thereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone), for the purpose of any exercise thereof or any distribution
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to the holder thereof and for all other purposes, and neither the Company nor
the Warrant Agent shall be affected by any notice to the contrary.
SECTION 5. REGISTRATION OF TRANSFERS AND EXCHANGES. The shares of Common
Stock and the Class A and Class B Warrants included in the Units will be
separately transferable upon issuance. The Warrant Agent shall from time to time
register the transfer of any outstanding Warrant Certificates upon the records
to be maintained by it for that purpose upon surrender thereof, duly endorsed,
or accompanied by a written instrument or instruments of transfer in form
satisfactory to the Warrant Agent duly executed, by the registered holder
thereof or by the duly appointed legal representative thereof. Upon any such
registration of transfer, a new Warrant Certificate shall be issued to the
transferee and the surrendered Warrant Certificate shall be cancelled by the
Warrant Agent. Cancelled Warrant Certificates shall thereafter be disposed of in
a manner satisfactory to the Company.
Warrant Certificates may be exchanged at the option of the holder thereof.
when surrendered to the Warrant Agent at its offices maintained for that purpose
in Houston, Texas, for another Warrant Certificate or Certificates of like tenor
and representing in the aggregate a like number of Warrants. Warrant
Certificates surrendered for exchange shall be cancelled by the Warrant Agent.
Such cancelled Warrant Certificates shall then be disposed of by the Warrant
Agent in a manner satisfactory to the Company.
The Warrant Agent is hereby authorized to countersign, in accordance with
the provisions of this Section 5 and of Section 4, the new Warrant Certificates
required pursuant to the provisions of this Section, and for the purpose of any
distribution of Warrant Certificates contemplated by Section 11.
SECTION 6. RIGHT TO EXERCISE WARRANTS. Subject to prior redemption
pursuant to Section 17, each Warrant may be exercised, on any business day on or
after issuance (except that the Warrants included in the Underwriters' Units may
not be exercised until the Underwriters' Warrants have been exercised) and on or
before 5:00 p.m., Houston, Texas time on May 26, 1999 (the "EXPIRATION DATE").
The term of the Warrants may be extended in the sole discretion of the Company
beyond May 26, 1999, upon written notice to the Warrant Agent at least five days
prior to the date on which the Warrants were to have expired absent such an
extension to a date determined by the Company, which date shall thereupon become
the Expiration Date referred to above unless and until another date is
substituted in accordance with this Section. Each Warrant not exercised on or
before May 26, 1999, or any later Expiration Date shall thereupon expire.
Subject to the provisions of this Agreement, including Section 11, the
holder of either a Class A or Class B Warrant shall have the right to purchase
from the Company (and the Company shall issue and sell to such holder(s) of a
Class A or Class B Warrant) one fully paid and non-assessable share of Common
Stock at the price of $3.50 or $4.50 per share, respectively (the exercise price
of the Class A and Class B Warrants is hereinafter referred to as the "EXERCISE
PRICE"). The Company may from time-to-time lower the Exercise Price of either
the Class A or Class B Warrants,
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or both, for periods of at least 20 days upon ten day's prior written notice to
the record holders of Warrants and the Warrant Agent. Each such Warrant shall be
exercisable upon surrender to the Warrant Agent, at its office maintained for
that purpose in Houston, Texas, of the Warrant Certificate evidencing such
Warrant, with the form of election to purchase on the reverse thereof duly
completed and signed, and upon payment to the Warrant Agent of the Exercise
Price. Payment of the Exercise Price may be by cash or certified or official
bank check payable to the order of the Warrant Agent. The Warrant Agent shall
deposit all funds received on account of the exercise of any Warrant in an
investment vehicle to be designated by Texoil and maintained in a trust account
with the Warrant Agent. Except as expressly provided to the contrary in Section
11(f) hereof. no adjustments shall be made for any cash dividends or other cash
distributions on Shares issuable upon the exercise of a Warrant.
Upon such surrender of a Warrant Certificate and payment of the Exercise
Price, the Warrant Agent shall give next-day notice of exercise (which need not
be in writing, but if not in writing, confirmed in writing within one day of
such surrender) to the Company, and 10 days following such surrender shall
(subject to Section 7) cause to be issued and delivered to the registered holder
thereof, or upon the written order of the registered holder of such Warrant
Certificate in such name or names as such registered holder may designate, a
certificate for the Common Stock issuable upon the exercise of the Warrant. Such
certificate shall be deemed to have been issued and any person so designated to
be named therein shall be deemed to have become the holder of record of such
Common Stock as of the date of the surrender of such Warrant Certificate and
payment of the Exercise Price. The Warrants evidenced by a Warrant Certificate
shall be exercisable, at the election of the registered holder thereof. either
as an entirety or from time to time for pan only of the number of Warrants
specified in the Warrant Certificate. In the event that less than all of the
Warrants evidenced by a Warrant Certificate are exercised at any time prior to
the date of expiration of the Warrants. a new Warrant Certificate or
Certificates shall be issued for the remaining number of Warrants evidenced by
the Warrant Certificate so surrendered, and the Warrant Agent is hereby
irrevocably authorized to countersign and to deliver the required new Warrant
Certificate or Certificates pursuant to the provisions of this Section, and the
Company, whenever required by the Warrant Agent, shall supply the Warrant Agent
with Warrant Certificates duly executed on behalf of the Company for such
purpose.
All Warrant Certificates surrendered upon exercise of Warrants shall be
cancelled by the Warrant Agent. Such cancelled Warrant Certificates shall then
be disposed of by such Warrant Agent in a manner satisfactory to the Company.
Subject to the provisions of Section 20 hereof, the Warrant Agent shall
disburse all funds received on account of the exercise of any Warrant plus any
interest thereon to the Company as soon as practicable after surrender of the
Warrant Certificate and payment of the Exercise Price by the holder(s) with
respect to such exercise, unless the Warrant Agent and the Company agree
otherwise in writing to disburse such amounts in a different manner.
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SECTION 7. PAYMENT OF TAXES. The Company will pay any documentary stamp
taxes attributable to the initial issuance of Shares upon the exercise of
Warrants; PROVIDED, HOWEVER, that the Company shall not be required to pay any
tax or taxes which may be payable in respect of any transfer involved in the
issue of any Warrant Certificates or Shares in a name other than that of the
registered holder of a Warrant Certificate surrendered upon the exercise of a
Warrant.
SECTION 8. MUTILATED OR MISSING WARRANT CERTIFICATES. In case any of the
Warrant Certificates shall be mutilated, lost, stolen, or destroyed, the Company
shall issue, and the Warrant Agent shall countersign and deliver, in exchange
and substitution for and upon cancellation of the mutilated Warrant Certificate,
or in lieu of and substitution for the Warrant Certificate lost, stolen, or
destroyed, a new Warrant Certificate of like tenor and representing an
equivalent right or interest, but only upon receipt of evidence satisfactory to
the Company and the Warrant Agent of such loss, theft, or destruction of such
Warrant Certificate and indemnity, if requested, also satisfactory to them.
Applicants for such substitute Warrant Certificates shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Company or the Warrant Agent may prescribe.
SECTION 9. RESERVATION OF SHARES. The Company will at all times reserve
and keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued shares of Common Stock or its authorized and issued
shares of Common Stock held in its treasury, for the purpose of enabling it to
satisfy any obligation to issue Shares upon exercise of Warrants, the full
number of shares of Common Stock deliverable upon the exercise of all
outstanding Warrants.
Before taking any action which would cause an adjustment pursuant to
Section 11 reducing the Exercise Price below the then par value (if any) of the
Shares issuable upon exercise of the Warrants, the Company will take any
corporate action which, in the opinion of its counsel (which may be counsel
employed by the Company), may be necessary in order that the Company may validly
and legally issue fully paid and non-assessable shares of Common Stock at the
Exercise Price as so adjusted.
The Company covenants that all Shares which may be issued upon exercise of
Warrants will be validly issued, fully paid, and non-assessable.
The Warrant Agent is hereby authorized to requisition from time to time
from the transfer agent of the Common Stock, and any subsequent transfer agent
of any shares of the Company's capital stock issuable upon the exercise of the
Warrants, stock certificates required to honor the exercise of outstanding
Warrants. The Company will authorize its present and any future transfer agent
to comply with all such requests. The Company will supply such transfer agent
with duly executed stock certificates for such purpose and will itself provide
or otherwise make available any cash which may be payable as provided in Section
12.
SECTION 10. OBTAINING OF GOVERNMENTAL APPROVALS. The Company will at all
times use commercially reasonable efforts to cause the Registration Statement
registering the issuance of the
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Shares upon exercise of the Warrants to be effective under the Act, and will use
commercially reasonable efforts to maintain a current prospectus satisfying the
requirements of Section 10(a)(3) of the Act so long as any of the Warrants are
outstanding and remain exercisable. The Company will from time to time use
commercially reasonable efforts to take all action which may be necessary to
obtain and keep effective any and all permits, consents, and approvals of
governmental agencies and authorities and securities acts filings under federal
and state laws which may be or become requisite in connection with the issuance,
sale, transfer, and delivery of the Warrant Certificates, the exercise of the
Warrants, and the issuance, sale, transfer, and delivery of the Shares issued
upon exercise of the Warrants.
SECTION 11. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES PURCHASABLE.
The Exercise Price and the number of Shares purchasable upon the exercise of
each Warrant are subject to adjustment from time to time as set forth in this
Section 11.
(a) In case the Company shall at any time after the date of this
Agreement (i) declare a dividend on the Common Stock in shares of its capital
stock, (ii) subdivide the outstanding Common Stock, (iii) combine the
outstanding Common Stock into a smaller number of shares of Common Stock, or
(iv) issue any shares of its capital stock by reclassification of the Common
Stock (including any such reclassification in connection with a consolidation or
merger in which the Company is the surviving corporation), then in each case the
Exercise Price, in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination. or reclassification shall
be adjusted so that the holder of any Warrant exercised after such time shall be
entitled to receive the number of shares of Common Stock or other capital stock
of the Company which, if such Warrant had been exercised immediately prior to
such time, he would have owned upon such exercise and been entitled to receive
by virtue of such dividend, subdivision, combination, or reclassification. Such
adjustment shall be made successively whenever any event listed above shall
occur. If as a result of an adjustment made pursuant to this Section 11(a), the
holder of any Warrant thereafter exercised shall become entitled to receive
shares of two or more classes of capital stock or shares of Common Stock and
other capital stock of the Company, the Board of Directors of the Company (whose
determination shall be conclusive and shall be described in a written statement
delivered to the Warrant Agent and transfer agent for the Common Stock) shall
determine the allocation of the adjusted Exercise Price between or among shares
of such classes of capital stock or shares of Common Stock and other capital
stock.
(b) In case the Company shall issue rights, options, or warrants to
all holders of Common Stock entitling them (for a period expiring within 45 days
after the record date for the determination of stockholders entitled to receive
such rights or warrants) to subscribe for or purchase Common Stock (or
securities convertible into or exchangeable for Common Stock) at a price per
share of Common Stock (or having a conversion price per share of Common Stock,
if a security convertible into or exchangeable for Common Stock) less than the
"current market price" per share of Common Stock (as defined in subsection (g)
of this Section 11) on such record date, then in each case the Exercise Price
shall be adjusted by multiplying the Exercise Price in effect immediately prior
to such record date by a fraction, of which the numerator shall be the number of
shares of Common
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Stock outstanding on such record date plus the number of shares of Common Stock
which the aggregate offering price of the total number of shares of Common Stock
so to be offered (or the aggregate initial conversion price of the convertible
securities so to be offered) would purchase at such "current market price" and
of which the denominator shall be the number of shares of Common Stock
outstanding on such record date plus the number of additional shares of Common
Stock to be offered for subscription or purchase (or into which the convertible
or exchangeable securities so to be offered are initially convertible or
exchangeable). Such adjustment shall become effective at the close of business
on such record date; however, to the extent the shares of Common Stock (or
securities convertible into or exchangeable for shares of Common Stock) are not
delivered, the Exercise Price shall be readjusted (but only with respect to
Warrants exercised after such expiration) after the expiration of such rights,
options, or warrants, to the Exercise Price which would then be in effect had
the adjustments made upon the issuance of such rights or warrants been made upon
the basis of delivery of only the number of shares of Common Stock (or
securities convertible into or exchangeable for shares of Common Stock) actually
issued. In case any subscription price may be paid in a consideration part or
all of which shall be in a form other than cash, the value of such consideration
shall be as determined by the board of directors of the Company, whose
determination shall be conclusive, and shall be described in a statement filed
with the Warrant Agent. Shares of Common Stock owned by or held for the account
of the Company or any majority-owned subsidiary shall not be deemed outstanding
for the purpose of any such computation.
(c) In case the Company shall distribute to all holders of shares of
Common Stock (including any such distribution made to the stockholders of the
Company in connection with a consolidation or merger in which the Company is the
surviving corporation) evidences of its indebtedness or assets (other than cash
dividends or distributions and dividends payable in shares of Common Stock), or
subscription rights. options, or warrants, or convertible or exchangeable
securities containing the right to subscribe for or purchase Common Stock
(excluding those referred to in subsection (b) of this Section 11), then in each
case the Exercise Price shall be adjusted by multiplying the Exercise Price in
effect immediately prior to the record date for the determination of
stockholders entitled to receive such distribution by a fraction, of which the
numerator shall be the "current market price" per share of Common Stock on such
record date, less the fair market value (as determined by the board of directors
of the Company, whose reasonable determination shall be conclusive, and shall be
described in a statement filed with the Warrant Agent) of the portion of the
evidences of indebtedness or assets so to be distributed, or of such
subscription rights, options, or warrants, or convertible or exchangeable
securities containing the right to subscribe for or purchase shares of Common
Stock, applicable to one share of Common Stock and of which the denominator
shall be such "current market price" per share of Common Stock. Such adjustment
shall be made whenever any such distribution is made, and shall become effective
on the date of such distribution retroactive to the record date for the
determination of shareholders entitled to receive such distribution.
(d) In case the Company shall issue shares of Common Stock or
rights, options, warrants to subscribe for or purchase shares of Common Stock,
or convertible or exchangeable securities containing the right to subscribe for,
or to convert into or purchase shares of Common
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Stock (which for purposes of this subsection (d) shall exclude shares of Common
Stock, rights, options, warrants. or convertible or exchangeable securities
issued or issuable (i) in any of the transactions described in paragraphs (a),
(b), or (c) above, (ii) pursuant to the Company's stock option, stock purchase,
stock bonus and/or thrift and retirement plans in existence on the date hereof
and any similar future plans which shall have been adopted or approved by the
stockholders of the Company, (iii) upon exercise of the Class A or Class B
Warrants or any other warrants to purchase Common Stock outstanding on the date
of this Agreement, (iv) pursuant to any private placement or firm commitment
underwritten public offering for cash, provided the gross proceeds per share of
Common Stock received or receivable upon issuance of the shares of Common Stock
shall be at least 90% of the "current market price" for the shares of Common
Stock at the date such securities shall have been contracted for sale, and (v)
pursuant to the anti-dilution provisions of any other security at a price per
share of Common Stock [determined, in the case of such rights, options,
warrants, or convertible or exchangeable securities, by dividing (x) the total
amount received or receivable by the Company in consideration of the sale and
issuance of such rights, options, warrants, or convertible or exchangeable
securities, plus the minimum aggregate consideration payable to the Company upon
exercise, conversion, or exchange thereof, by (y) the maximum number of shares
of Common Stock covered by such rights, options, warrants, or convertible or
exchangeable securities] lower than the "current market price" per share of
Common Stock in effect immediately prior to such issuance, then the Exercise
Price shall be adjusted on the date of such issuance to a price (calculated to
the nearest cent) determined by multiplying the Exercise Price in effect
immediately prior to the earlier of the date of such issuance or the date at
which the Company shall publicly announce the economic terms of such issuance.
by a fraction, of which the numerator shall be the "adjusted market price" per
share of Common Stock (as defined in subsection (g) of this Section 11) on the
earlier of such dates and of which the denominator shall be the "current market
price" per share of Common Stock on the earlier of such dates. For the purposes
of such adjustment, the maximum number of shares of Common Stock which the
holders of any such rights, options, warrants, or convertible or exchangeable
securities shall be entitled to initially subscribe for or purchase shall be
deemed to be issued and outstanding as of the date of such issuance, and the
consideration received by the Company therefor shall be deemed to be the
consideration received by the Company for such rights, options, warrants, or
convertible or rights, options, warrants, or convertible or exchangeable
securities, plus the minimum aggregate consideration or premiums stated in such
rights, options, warrants, or convertible or exchangeable securities to be paid
for the shares of Common Stock covered thereby. In case the Company shall issue
shares of Common Stock or rights, options, warrants, or convertible or
exchangeable securities containing the right to subscribe for or purchase shares
of Common Stock, for a consideration consisting, in whole or in part of property
other than cash or its equivalent. then the "price per share of Common Stock"
and the "consideration received by the Company" for purposes of the first
sentence of this subsection (d), shall be as determined by the board of
directors of the Company, whose determination shall be conclusive, and shall be
described in a statement filed with the Warrant Agent.
(e) In case the Company shall purchase or redeem shares of Common
Stock or convertible or exchangeable securities containing the right to convert
into or exchange for shares of Common Stock at a price per share of Common Stock
[determined, in the case of such convertible
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or exchangeable securities, by dividing (x) the total amount paid or payable by
the Company in consideration of the purchase or redemption of such convertible
or exchangeable securities, by (y) the maximum number of shares of Common Stock
covered by such convertible or exchangeable securities] higher than 110% of the
"current market price" per share of Common Stock in effect immediately prior to
such purchase or redemption, then the Exercise Price shall be adjusted on the
date of such purchase or redemption to a price (calculated to the nearest cent)
determined by multiplying the Exercise Price in effect immediately prior to the
earlier of the date of such purchase or redemption or the date at which the
Company shall publicly announce the economic terms of such purchase or
redemption, by a fraction, of which the numerator shall be the "adjusted market
price" per share of Common Stock on the earlier of such dates and of which the
denominator shall be the "current market price" per share of Common Stock on the
earlier of such dates; PROVIDED, HOWEVER, there shall be excluded from the
operation of this subsection (e) the purchase or redemption of any such
convertible or exchangeable securities at par or liquidation amount or aggregate
principal amount, as the case may be, plus any premium specified in the
Company's certificate of incorporation, indenture or other constituent
instruments governing such securities and pursuant to which the same were
issued. In case the Company shall purchase or redeem shares of Common Stock or
convertible or exchangeable securities containing the right to subscribe for or
purchase shares of Common Stock, for a consideration consisting, in whole or in
part of property other than cash or its equivalent, then the "price per share of
Common Stock" and the "consideration paid or payable by the Company" for
purposes of the first sentence of this subsection (e), shall be as determined by
the board of directors of the Company, whose reasonable determination shall be
conclusive, and shall be described in a statement filed with the Warrant Agent.
(f) In case the Company shall distribute during any period of 12
consecutive months to all holders of shares of Common Stock, cash dividends or
distributions (including normal quarterly cash dividends) in per share amounts
aggregating more than 25% of the "current market price" per share of Common
Stock at the earlier of the record date for the latest such cash dividend or
distribution or the date at which the Company shall publicly announce such
dividend or distribution, then the Exercise Price shall be adjusted on the date
of such dividend or distribution to a price determined by multiplying the
Exercise Price in effect immediately prior to the earlier of such dates by a
fraction, of which the numerator shall be the "adjusted market price" per share
of Common Stock on the earlier of such dates and of which the denominator shall
be the "current market price" per share of Common Stock on the earlier of such
dates.
(g) For the purpose of any computation under subsections (b) through
(e) of this Section 11, the "current market price" per share of Common Stock on
any date shall be deemed to be the "closing price" for the last trading day
immediately preceding such date. The "closing price" for each day shall be the
last reported sales price regular way or, in case no such reported sale takes
place on such day, the average of the closing bid and asked prices regular way,
in either case on the New York Stock Exchange, or if the Common Stock is not
listed or admitted to trading on the New York Stock Exchange, on the principal
national securities exchange in the United States on which the Common Stock is
listed or admitted to trading, or if the Common Stock is not listed or admitted
to trading on any such national securities exchange, the average of the highest
reported bid and
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lowest reported asked price as furnished by the National Association of
Securities Dealers, Inc. through NASDAQ or a similar organization if NASDAQ is
no longer reporting such information. If on any such date the Common Stock is
not quoted by any such organization, the fair value of Common Stock on such
date, as determined by the board of directors of the Company, whose
determination shall be conclusive, shall be used and described in a statement
filed with the Warrant Agent. For the purpose of any computation under
subsection (d) of this Section 11, the "adjusted market price" per share of
Common Stock on any date shall be determined (to the nearest cent) by dividing
(i) the sum of (x) the product obtained by multiplying the "current market
price" on such date by the number of shares of Common Stock outstanding
immediately prior to the issuance which is the subject of an adjustment required
by subsection (d) (including any non-dilative Common Stock equivalents), plus
(y) the aggregate net proceeds received or receivable by the Company as a result
of such issuance, by (ii) the number of shares of Common Stock outstanding
immediately after such issuance (including any non-dilative Common Stock
equivalents). For the purpose of any computation under subsection (e) of this
Section 11, the "adjusted market price" per share of Common Stock on any date
shall be determined (to the nearest cent) by dividing (i) the difference between
(x) the product obtained by multiplying the "current market price" on such date
by the number of shares of Common Stock outstanding immediately prior to the
purchase or redemption which is the subject of an adjustment required by
subsection (e) (including any non-dilative Common Stock equivalents), minus (y)
the aggregate amount paid or payable by the Company as a result of such purchase
or redemption, by (ii) the number of shares of Common Stock outstanding
immediately after such issuance (including any non-dilative Common Stock
equivalents). For the purpose of any computation under subsection (f) of this
Section 11, the "adjusted market price" per share of Common Stock on any date
shall be determined (to the nearest cent) by dividing (i) an amount ascertained
from the difference between (x) the product obtained by multiplying the "current
market price" on such date by the number of shares of Common Stock outstanding
immediately prior to the dividend or other distribution which is the subject of
any adjustment required by subsection (f) (including any non-dilative Common
Stock equivalents), minus (y) the aggregate amount of the dividend or other
distribution, by (ii) the number of shares of Common Stock outstanding
immediately after such dividend or distribution (including any non-dilative
Common Stock equivalents).
(h) No adjustment in the Exercise Price shall be required if such
adjustment is less than $.05; PROVIDED, HOWEVER, that any adjustments which by
reason of this subsection (h) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 11 shall be made to the nearest cent or to the nearest
one-thousandth of a share, as the case may be.
(i) Upon each adjustment of the Exercise Price as a result of the
calculations made in any of subsections (a) through (c) and (f) of this Section
11, each Warrant outstanding prior to the making of the adjustment in the
Exercise Price shall thereafter evidence the right to purchase, at the adjusted
Exercise Price, that number of Shares (calculated to the nearest hundredth)
obtained by (A) multiplying the number of Shares purchasable upon exercise of a
Warrant immediately prior to adjustment of the number of Shares by the Exercise
Price in effect prior to adjustment of the Exercise
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Price and (B) dividing the product so obtained by the Exercise Price in effect
immediately after such adjustment of the Exercise Price.
(j) In case of any capital reorganization of the Company, or of any
reclassification of the Common Stock (other than a reclassification of the
Common Stock referred to in subsection (a) of this Section 11), or in the case
of the consolidation of the Company with or the merger of the Company into any
other corporation or of the sale or transfer of the properties and assets of the
Company as, or substantially as, an entirety to any other corporation, each
Warrant shall after such capital reorganization, reclassification of the Common
Stock, consolidation, merger, sale or transfer be exercisable, upon the terms
and conditions specified in this Agreement, for the number of shares of stock or
other securities, assets, or cash to which a holder of the number of shares of
Common Stock purchasable (at the time of such capital reorganization,
reclassification of shares, consolidation, merger, sale or transfer) upon
exercise of such Warrant would have been entitled upon such capital
reorganization, reclassification of the Common Stock, consolidation, merger,
sale or transfer; and in any such case, if necessary, the provisions set forth
in this Section 11 with respect to the rights and interests thereafter of the
holders of the Warrants shall be appropriately adjusted so as to be applicable,
as nearly as may reasonably be, to any shares of stock or other securities,
assets, or cash thereafter deliverable upon the exercise of the Warrants. The
subdivision or combination of the Common Stock at any time outstanding into a
greater or lesser number of shares shall not be deemed to be a reclassification
of the Common Stock for the purposes of this paragraph. The Company shall not
effect any such consolidation, merger, transfer, or sale, unless prior to or
simultaneously with the consummation thereof, the successor corporation (if
other than the Company) resulting from such consolidation or merger or the
corporation purchasing or receiving, such assets or other appropriate
corporation or entity shall assume, by written instrument executed and delivered
to the Warrant Agent, the obligation to deliver to the holder of each Warrant
such shares of stock, securities, or assets as, in accordance with the foregoing
provisions, such holders may be entitled to purchase. and to perform the other
obligations of the Company under this Warrant Agreement. This subsection (j)
shall not apply to any sale, transfer or lease as an entirety, or substantially
as an entirety, of the properties and assets of the Company as collateral
security for obligations of the Company.
SECTION 12. FRACTIONAL SHARES. If the number of Shares purchasable upon
the exercise of each Warrant is adjusted pursuant to subsection (i) of Section
11, the Company shall nonetheless not be required to issue fractions of shares
of Common Stock upon exercise of the Warrants or to distribute certificates
which evidence fractional shares of Common Stock. In lieu of fractional shares
of Common Stock, there shall be paid to the registered holders of Warrant
Certificates at the time such Warrants are exercised as herein provided an
amount in cash equal to the same fraction of the current market value of a
Share. For purposes of this Section 12, the current market value of a Share
shall be the closing price of a Share as determined pursuant to the second and
third sentences of Section 11(g) for the last trading day immediately prior to
the date of such exercise.
SECTION 13. NOTICES TO WARRANTHOLDERS. Upon any adjustment of the Exercise
Price pursuant to Section 11, the Company within 20 days thereafter shall (i)
cause to be filed with the Warrant Agent a certificate setting forth the
Exercise Price after such adjustment and setting forth
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in reasonable detail the method of calculation and the facts upon which such
calculations are based and setting forth the number of Shares (if adjustment
thereof is required under Section 11) purchasable upon exercise of a Warrant
after such adjustment in the Exercise Price, which certificate shall be
conclusive evidence of the correctness of the matters set forth therein, and
(ii) cause to be given to each of the registered holders of the Warrant
Certificates at his address appearing on the Warrant register written notice of
such adjustment by first-class mail, postage prepaid. Where appropriate, such
notice may be given in advance and included as a part of the notice required to
be mailed under the other provisions of this Section 13.
In case:
(a) the Company shall authorize the issuance to all holders of
Common Stock of rights, options, or warrants to subscribe for or purchase Common
Stock or of any other subscription rights or warrants or of securities
convertible into or exchangeable for Common Stock; or
(b) the Company shall authorize the distribution to all holders of
Common Stock of evidences of its indebtedness or assets (other than cash
dividends or distributions or dividends payable in Common Stock); or
(c) of any consolidation or merger to which the Company is a party
and for which approval of any stockholders of the Company is required. or of the
conveyance or transfer of the properties and assets of the Company as, or
substantially as, an entirety (other than as collateral security), or of any
reclassification or change of outstanding Common Stock issuable upon exercise of
the Warrants (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination); or
(d) of the voluntary or involuntary dissolution, liquidation, or
winding up of the Company; or
(e) the Company proposes to take any other action (other than
actions of the character described in Section 11 hereof) which would require an
adjustment of the Exercise Price pursuant to Section 11, then the Company shall
cause to be filed with the Warrant Agent and shall cause to be given to each of
the registered holders of the Warrant Certificates at his address appearing on
the Warrant register, at least 20 days prior to the applicable record date
hereinafter specified, by first-class mail. postage prepaid. a written notice
stating (i) the date as of which the holders of record of Common Stock to be
entitled to receive any such rights, options, warrants, convertible or
exchangeable securities, or distribution are to be determined, (ii) the date on
which any such consolidation, merger, conveyance, transfer, dissolution,
liquidation, or winding up is expected to become effective, and the date as of
which it is expected that holders of record of Common Stock shall be entitled to
exchange their Common Stock for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger, conveyance,
transfer, dissolution, liquidation, or winding up, or (iii) the date of any
other action which would require an adjustment of the Exercise Price pursuant to
Section 11, together with a brief description thereof and the amount of such
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adjustment. The failure to give the notice required by this Section 13 or any
defect therein shall not affect the legality or validity of any distribution,
right, warrant, consolidation, merger, conveyance, transfer, dissolution,
liquidation, or winding up, or the vote upon any action.
Nothing contained in this Agreement or in any of the Warrant Certificates
shall be construed as conferring upon the holders thereof the right to vote or
to consent or to receive notice as stockholders in respect of the meetings of
stockholders or the election of directors of the Company or any other matter or
any rights whatsoever as stockholders of the Company.
SECTION 14. MERGER, CONSOLIDATION, OR CHANGE OF NAME OF WARRANT AGENT. Any
corporation into which the Warrant Agent may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion, or consolidation to which the Warrant Agent shall be a party, or any
corporation succeeding to the corporate trust or stock transfer business of the
Warrant Agent. shall be the successor to the Warrant Agent hereunder without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, provided that such corporation would be eligible for appointment
as a successor Warrant Agent under the provisions of Section 15.
SECTION 15. WARRANT AGENT. The Warrant Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions,
by all of which the Company and the holders of Warrants, by their acceptance
thereof, shall be bound:
(a) The statements contained herein and in the Warrant Certificates
shall be taken as statements of the Company and the Warrant Agent assumes no
responsibility for the correctness of any of the same except such as describe
the Warrant Agent or action taken or to be taken by it. The Warrant Agent
assumes no responsibility with respect to the distribution of the Warrant
Certificates except as herein otherwise provided.
(b) The Warrant Agent shall not be responsible for any failure of
the Company to comply with any of the covenants contained in this Agreement or
in the Warrant Certificates to be complied with by the Company.
(c) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant Agent
shall incur no liability or responsibility to the Company or to any holder of
any Warrant Certificate in respect of any action taken, suffered, or omitted by
it hereunder in good faith and in accordance with the opinion or the advice of
such counsel.
(d) Whenever in the performance of its duties under this Agreement
the Warrant Agent shall deem it necessary or desirable that any fact or matter
be proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by its chairman of the board, its president.
any executive vice
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president, or any senior vice president, or any vice president under its
corporate seal reproduced thereon attested by its corporate secretary or
assistant secretary of the Company and delivered to the Warrant Agent; and such
certificate shall be full authorization to the Warrant Agent for any action
taken or suffered in good faith by it under the provisions of this Agreement in
reliance upon such certificate.
(e) The Warrant Agent shall incur no liability or responsibility to
the Company or to any holder of any Warrant Certificate for any action taken in
reliance upon any Warrant Certificate, certificate of Shares, notice,
resolution, waiver, consent, order, certificate, or other paper, document or
instrument believed by it to be genuine and to have been signed, sent, or
presented by the proper party or parties.
(f) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the execution of
this Agreement, to reimburse the Warrant Agent for all expenses, disbursements,
and advances incurred or made by the Warrant Agent in accordance with any
provision of this Agreement, and to indemnify the Warrant Agent and save it
harmless against any and all liabilities, including judgments, costs, and
counsel fees, for anything done or omitted by the Warrant Agent in the execution
of this Agreement except as a result of its negligence or bad faith.
(g) The Warrant Agent shall be under no obligation to institute any
action, suit, or legal proceeding or to take any other action likely to involve
expense unless the Company or one or more registered holders of Warrant
Certificates shall furnish the Warrant Agent with reasonable security and
indemnity for any costs and expenses which may be incurred, but this provision
shall not affect the power of the Warrant Agent to take such action as it may
consider proper, whether with or without any such security or indemnity. All
rights of action under this Agreement or under any of the Warrants may be
enforced by the Warrant Agent without the possession of any of the Warrant
Certificates or the production thereof at any trial or other proceeding relative
thereto, and any such action, suit, or proceeding instituted by the Warrant
Agent shall be brought in its name as Warrant Agent, and any recovery of
judgment shall be for the ratable benefit of the registered holders of the
Warrants, as their respective rights or interests may appear.
(h) Except as otherwise provided by law, the Warrant Agent, and any
stockholder, director, officer, or employee of the Warrant Agent, may buy, sell,
or deal in any of the Warrants or other securities of the Company or become
pecuniarily interested in any transaction in which the Company may be
interested, or contract with or lend money to the Company, or otherwise act as
fully and freely as though they were not the Warrant Agent under this Agreement,
or a stockholder, director, officer, or employee of the Warrant Agent, as the
case may be. Nothing herein shall preclude the Warrant Agent from acting in any
other capacity for the Company or for any other legal entity.
(i) The Warrant Agent shall act hereunder solely as agent for the
Company (except as provided in Section 6 hereof), and its duties shall be
determined solely by the provisions
14
<PAGE>
hereof. The Warrant Agent shall not be liable for anything which it may do or
refrain from doing in connection with this Agreement except for its own gross
negligence, intentional misconduct or bad faith.
(j) The Warrant Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one or more of the persons designated in the incumbency certificate issued by
the Company from time to time to the Warrant Agent, and to apply to any of such
persons for advice or instructions in connection with the Warrant Agent's
duties, and it shall not be liable for any action taken or suffered or omitted
by it in good faith in accordance with instructions of any such officer.
(k) The Warrant Agent shall not at any tune be under any duty or
responsibility to any holder of any Warrant Certificate to make or cause to be
made any adjustment of the number of Warrants or the Exercise Price thereof or
in the number of Shares deliverable as provided in this Agreement, or to
determine whether any facts exist which may require any of such adjustments, or
with respect to the nature or extent of any such adjustments, when made, or with
respect to the method employed in making the same. The Warrant Agent shall not
be accountable with respect to the validity or value or the kind or amount of
any Shares which may at any time be issued or delivered upon the exercise of any
Warrant or with respect to whether any such Shares will, when issued, be validly
issued and fully paid and non-assessable, and makes no representation with
respect thereto.
SECTION 16. CHANGE OF WARRANT AGENT. If the Warrant Agent shall become
incapable of acting as Warrant Agent, or if the Warrant Agent shall resign as
Warrant Agent upon 30 days' prior written notice to the Company, the Company
shall appoint a successor to the Warrant Agent. If the Company shall fail to
make such appointment within a period of 30 days after it has been notified in
writing of such incapacity by the Warrant Agent or by a registered holder of a
Warrant Certificate, then any registered holder of any Warrant Certificate may
apply to any court of competent jurisdiction for the appointment of a successor
to the Warrant Agent. Pending appointment of a successor to the Warrant Agent,
either by the Company or by such a court, the duties of the Warrant Agent shall
be carried out by the Company. After appointment, the successor Warrant Agent
shall be vested with the same powers, rights, duties, and responsibilities as if
it had been originally named as Warrant Agent without further act or deed; but
the former Warrant Agent shall deliver and transfer to the successor Warrant
Agent any property at the time held by it hereunder and execute and deliver any
further assurance, conveyance, act, or deed necessary for the purpose. Failure
to give any notice provided for in this Section 16, however, or any defect
therein, shall not affect the legality or validity of the appointment of a
successor Warrant Agent.
15
<PAGE>
SECTION 17. RIGHT OF REDEMPTION.
(a) The Warrants (other than the Warrants included in the
Underwriters' Units which are non-redeemable) may be redeemed at the election of
the Company, as a whole and not in part, at a redemption price of $.01 per
Warrant, subject to adjustment, (the "REDEMPTION PRICE"), if the closing price
per share of Common Stock, as determined pursuant to the second and third
sentences of Section 11(g), equals or exceeds $5.25 per share for redemption of
the Class A Warrant and $6.75 for redemption of the Class B Warrant, subject to
adjustment (in each case, the "REDEMPTION TRIGGER PRICE"), for a period of 10
consecutive trading days (the "PRICING PERIOD"); provided, that notice of
redemption in the form and substance required by Section 17(b) shall be mailed
to all registered holders of Warrants within the l0-day period following the end
of the Pricing Period. Upon each adjustment of the Exercise Price, the
Redemption Trigger Price shall be adjusted by multiplying such price as in
effect prior to such adjustment by a fraction, the numerator of which shall be
the Exercise Price subsequent to adjustment and the denominator of which shall
be the Exercise Price prior to such adjustment. All calculations hereunder shall
be made to the nearest cent.
(b) Notice of redemption shall be given by first-class mail, postage
prepaid. mailed not less than 30 nor more than 60 days prior to the date
specified in such notice on which the Warrants are to be redeemed (the
"REDEMPTION DATE"), to each holder of Warrants, at his address appearing in the
records of the Warrant Agent.
All notices of redemption shall state:
(1) the Redemption,
(2) the Redemption Price,
(3) the Exercise Price, the date on which the right to exercise
the Warrants to be redeemed will terminate and the place or
places where such Warrants may be surrendered for exercise,
and
(4) the place or places where such Warrants are to be surrendered
for payment of the Redemption Price.
Notice of redemption of the Warrants at the election of the Company shall be
given by the Company or, at the Company's request, by the Warrant Agent in the
name and at the expense of the Company.
(c) Prior to any Redemption Date, the Company shall deposit with the
Warrant Agent or with a paying agent (or, if the Company is acting as its own
paying agent, segregate and hold in trust) an amount of money sufficient to pay
the Redemption Price of the Warrants other than any Warrants called for
redemption on that date which have been converted prior to the date of such
deposit. If the money representing the Redemption Price of the Warrants is
deposited with the Warrant Agent or with any paying agent, such money shall be
deposited in an investment vehicle to
16
<PAGE>
be designated by Texoil and maintained in a trust account with the Warrant
Agent, or in the case of money deposited with the paying agent at such other
financial institution with deposit insurance provided by the Federal Deposit
Insurance Corporation. If any Warrant called for redemption is exercised, any
money deposited with the Warrant Agent or with any paying agent or so segregated
and held in trust for the redemption of such Warrant shall be paid to the
Company upon request or, if then held by the Company, shall be discharged from
such trust.
(d) Notice of redemption having been given as aforesaid, the
Warrants so to be redeemed shall, on the Redemption Date, become due and payable
at the Redemption Price therein specified. Upon surrender of any such Warrant
for redemption in accordance with said notice, such Warrant shall be paid by the
Company, the Warrant Agent or paying agent, as the case may be, at the
Redemption Price. Subject to the provisions of Section 20 hereof, any money
remaining on deposit with the Warrant Agent or with any paying agent under this
Section 17 after full payment of the Redemption Price shall be paid to the
Company upon request. unless the Company and the Warrant Agent or the paying
agent, as the case may be, agree otherwise in writing to pay such amounts in a
different manner.
SECTION 18. MERGER OR CONSOLIDATION OF THE COMPANY. The Company will not
merge or consolidate with or into, or sell, transfer or lease all or
substantially all of its property to, any other corporation unless the successor
or purchasing corporation. as the case may be (if not the Company), shall
expressly assume, by supplemental agreement satisfactory in form to the Warrant
Agent and executed and delivered to the Warrant Agent, the due and punctual
performance and observance of each and every covenant and condition of this
Agreement to be performed and observed by the Company. This Section shall not
apply to the sale, transfer or lease of all or substantially all of the
Company's assets as collateral security for the Company's obligations.
SECTION 19. NOTICES TO COMPANY AND WARRANT AGENT. Any notice or demand
authorized by this Agreement to be given or made by the Warrant Agent or by any
registered holder of any Warrant Certificate to or on the Company shall be
sufficiently given or made if sent by mail, first-class or registered, postage
prepaid, addressed (until another address is filed in writing by the Company
with the Warrant Agent) to the Company as follows:
Texoil, Inc.
1600 Smith Street, Suite 4000
Houston, Texas 77002
Attention: D. Hughes Watler. Jr.,
Chief Financial Officer
In case the Company shall fall to maintain such office or agency or shall
fail to give such notice of any change in the location thereof, presentations
may be made and notices and demands may be served at the principal office of the
Warrant Agent.
17
<PAGE>
Any notice pursuant to this Agreement to be given by the Company or by any
registered holder of any Warrant Certificate to the Warrant Agent shall be
sufficiently given if sent by first-class mail, postage prepaid, address (until
another address is filed in writing by the Warrant Agent with the Company) to
the Warrant Agent as follows:
First Interstate Bank of Texas, N.A.
1000 Louisiana, 7th Floor
Houston, Texas 77002
Attention: Corporate Trust Department
SECTION 20. TAX MATTERS. The Company shall provide Warrant Agent with its
taxpayer identification number documented by an appropriate Internal Revenue
Service Form W-9 within thirty (30) days after the date of this Agreement.
Failure to provide such form may prevent or delay distribution of the funds to
the Company under Sections 11 and 17 hereof and may cause the Company to incur a
penalty and may require the Warrant Agent (and/or the paying agent) to withhold
tax on any interest payable to the Company hereunder. Any payments of income
hereunder shall be subject to applicable United States withholding and reporting
regulations then in force. All interest earned on money deposited with the
Warrant Agent (and/or the paying agent) pursuant to Sections 11 and 17 hereof
shall be reported on the taxpayer identification number of the Company.
SECTION 21. SUPPLEMENTS AND AMENDMENTS. The Company and the Warrant Agent
may from time to time supplement or amend this Agreement without the approval of
any holders of Warrant Certificates in order to comply with applicable law, to
cure any ambiguity, to correct or supplement any provision contained herein
which may be defective or inconsistent with any provisions herein. or to make
any other provisions in regard to matters or questions arising hereunder which
the Company and the Warrant Agent may deem necessary or desirable and which
shall not adversely affect the interests of the holders of Warrant Certificates.
SECTION 22. SUCCESSORS. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Warrant Agent shall bind and inure
to the benefit of their respective successors and assigns hereunder.
SECTION 23. TERMINATION. This Agreement shall terminate at the close of
business on the Expiration Date. Notwithstanding the foregoing, this Agreement
will terminate on any earlier date when all Warrants have been exercised. The
provisions of Section 14 shall survive such termination.
SECTION 24. GOVERNING LAW. This Agreement and each Warrant Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of Texas and for all purposes shall be construed in accordance with the
laws of said State.
SECTION 25. BENEFITS OF THIS AGREEMENT. Except as provided to the contrary
in the Underwriters' Warrants, nothing in this Agreement shall be construed to
give to any person or
18
<PAGE>
corporation other than the Company, the Warrant Agent and the registered holders
of the Warrant Certificates any legal or equitable right, remedy or claim under
this Agreement, and except as provided to the contrary in the Underwriters'
Warrants, this Agreement shall be for the sole and exclusive benefit of the
Company, the Warrant Agent, and the registered holders of the Warrant
Certificates.
SECTION 26. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto as of the day and year first above
written, have caused this Agreement to be duly executed.
TEXOIL. INC.
By: /S/ WALTER L. WILLIAMS
Walter L. Williams, President
and Chief Executive Officer
FIRST INTERSTATE BANK OF TEXAS, N.A.
By:
Vice President
19
EXHIBIT 4.2
[FORM OF CLASS A WARRANT CERTIFICATE]
[FACE]
EXERCISE ON OR BEFORE
5:00 P.M. HOUSTON, TEXAS TIME, MAY 26, 1999
No. W- ______ Warrants
This Certificate is transferable in
Houston, Texas
CUSIP NO. _____________
CLASS A WARRANT CERTIFICATE
TEXOIL, INC.
This Warrant Certificate certifies that _____________________ or
registered assigns, is the registered holder of ______ Class A Warrants (the
"Class A Warrants") expiring May 26, 1999, to purchase one share of common
stock, par value $.0l per share (the "Common Stock"), of Texoil, Inc., a Nevada
corporation (the "Company"). Subject to earlier redemption by the Company and
other conditions set forth herein and in the Warrant Agreement, each Class A
Warrant entitles the holder to purchase from the Company on or before 5:00 P.M.,
Houston, Texas time, on May 26, 1999 (subject to extension in the sole
discretion of the Company) (the "Expiration Date") one fully paid and
non-assessable share of Common Stock of the Company at the initial exercise
price (subject to adjustment in certain events, the "Exercise Price"), of $3.50
upon surrender of this Warrant Certificate and payment of the Exercise Price at
the office or agency of the Warrant Agent in Houston, Texas. Payment of the
Exercise Price may be made by certified or official bank check payable to the
order of the Company. As used herein, "Shares" refers to the Common Stock of the
Company issuable on the exercise of this Class A Warrant and. where appropriate,
to the other securities or property issuable upon exercise of a Class A Warrant
as provided for in the Warrant Agreement upon the happening of certain events.
The Exercise Price and (in certain more limited instances) the number of Shares
purchasable upon exercise of the Class A Warrants are subject to adjustment upon
the occurrence of certain events set forth in the Warrant Agreement.
This Class A Warrant may be redeemed by the Company for $.01 per Class A
Warrant if the average of the closing prices for the Common Stock equals or
exceeds $5.25 per share, subject to adjustment, for a period of 10 consecutive
trading days (the "Pricing Period"); provided that not less
<PAGE>
than 30 nor more than 60 days' notice of redemption is mailed to the registered
holder of this Class A Warrant not later than 10 days after the end of the
Pricing Period.
No Class A Warrant may be exercised or exchanged after 5:00 P.M., Houston,
Texas time, on the Expiration Date. All Class A Warrants evidenced hereby shall
thereafter be void.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse hereof and such further provisions shall
for all purposes have the same effect as though fully set forth at this place.
This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated: TEXOIL, INC.
Attest:
By:
Secretary President
[CORPORATE SEAL]
Countersigned:
FIRST INTERSTATE BANK OF TEXAS, N.A.
Warrant Agent
By:
Authorized Signature
<PAGE>
[FORM OF CLASS A WARRANT CERTIFICATE]
[REVERSE]
TEXOIL, INC.
The Class A Warrants evidenced by this Warrant Certificate are part of a
duly authorized issue of Class A Warrants issued pursuant to a Warrant Agreement
dated as of May 26, 1994 (the "Warrant Agreement"), duly executed and delivered
by the Company to First Interstate Bank of Texas, N.A. (the "Warrant Agent"),
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Warrant Agent, the Company and the holders (the words "holders" or "holder"
meaning the registered holders or registered holder) of the Class A Warrants.
Each Class A Warrant may be exercised to purchase one share of the
Company's Common Stock from the Company on or before May 26, 1999, at the
Exercise Price set forth on the face hereof, subject to adjustment as
hereinafter referred to. The holder of Class A Warrants evidenced by this
Warrant Certificate may exercise them by surrendering the Warrant Certificate,
with the form of election to purchase set forth hereon properly completed and
executed, together with payment of the Exercise Price and any applicable
transfer taxes at the offices of the Warrant Agent in Houston, Texas. In the
event that upon any exercise of Class A Warrants evidenced hereby, the number of
Class A Warrants exercised shall be less than the total number of Class A
Warrants evidenced hereby, there shall be issued to the holder hereof or his
assignee a new Warrant Certificate evidencing the number of Class A Warrants not
exercised. No adjustment shall be made for any cash dividends or other cash
distributions on any Shares issuable upon exercise of this Class A Warrant.
The Warrant Agreement also provides that upon the occurrence of certain
events, the Exercise Price set forth on the face hereof may, subject to certain
conditions, be adjusted. If the Exercise Price is adjusted, the Warrant
Agreement provides that in certain instances the number of Shares purchasable
upon the exercise of each Class A Warrant shall be adjusted. No fractions of a
Warrant will be issued upon any such adjustment but the persons entitled to such
fractional interest will be paid, as provided in the Warrant Agreement, an
amount in cash equal to the current market value of such fractional Class A
Warrant.
Upon due presentment for registration of transfer of this Warrant
Certificate at the offices of the Warrant Agent in Houston, Texas, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Class A Warrants shall be issued to the transferee(s)
in exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without charge except for any tax or taxes
which may be payable as a result of such transfer imposed in connection
therewith.
<PAGE>
The Company and the Warrant Agent may deem and treat the registered
holder(s) hereof as the absolute owner(s) of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone), for the purpose of any exercise hereof or any distribution to the
holder(s) hereof, and for all other purposes. and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
[FORM OF ELECTION TO PURCHASE]
(To be executed upon exercise of Class A Warrant.)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ____ shares of the
Company's Common Stock and herewith tenders in payment for such shares a
certified or official bank check payable to the order of Texoil, Inc. in the
amount of $___________, all in accordance with the terms hereof. The undersigned
requests that a certificate for such Shares be registered in the name of
_______________________________ whose address is
______________________________________ and that such Certificate (or any payment
in lieu thereof) be delivered to ___________________________________ whose
address is _______________________________________.
Dated:_________________
(Signature must conform in all respect to
name of holder as specified on the face of
the Warrant Certificate.)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder desires to
transfer the Warrant Certificate.)
FOR VALUE RECEIVED ____________________________ hereby sells, assigns and
transfers unto _________________________________ this Warrant Certificate.
together with all right, title and interest therein, and does hereby irrevocably
constitute and appoint Attorney, to transfer the within Warrant Certificate on
the books of the within-named Company, with full power of substitution.
Dated: ____________________________________________
(Signature must conform in all respect to
name of holder as specified on the face of
the Warrant Certificate.)
If said number of Shares is less than all of the Shares purchasable
hereunder, the undersigned requests that a new Warrant Certificate representing
the remaining balance of the Shares be registered in the name of
_______________________ whose address is and that such Certificate be delivered
to ___________________________ whose address is _____________________________.
Signature Guaranteed:
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM) PURSUANT TO S.E.C. RULE 17
Ad-15.
EXHIBIT 4.3
[FORM OF CLASS B WARRANT CERTIFICATE]
[FACE]
EXERCISE ON OR BEFORE
5:00 P.M. HOUSTON, TEXAS TIME, MAY 26, 1999
No. W- _________ Warrants
This Certificate is transferable in
Houston, Texas
CUSIP NO. ___________
CLASS B WARRANT CERTIFICATE
TEXOIL, INC.
This Warrant Certificate certifies that ______________________, or
registered assigns, is the registered holder of ______ Class B Warrants (the
"Class B Warrants") expiring May 26, 1999, to purchase common stock, par value
$.01 per share (the "Common Stock"), of Texoil, Inc., a Nevada corporation (the
"Company"). Subject to earlier redemption by the Company and other conditions
set forth herein and in the Warrant Agreement, each Class B Warrant entitles the
holder to purchase from the Company on or before 5:00 P.M., Houston, Texas time,
on May 26,1999 (subject to extension in the sole discretion of the Company) (the
"Expiration Date") one fully paid and non-assessable share of Common Stock of
the Company at the initial exercise price (subject to adjustment in certain
events, the "Exercise Price"), of $4.50 upon surrender of this Warrant
Certificate and payment of the Exercise Price at the office or agency of the
Warrant Agent in Houston, Texas. Payment of the Exercise Price may be made by
certified or official bank check payable to the order of the Company. As used
herein, "Shares" refers to the Common Stock of the Company issuable on the
exercise of this Class B Warrant and. where appropriate. to the other securities
or property issuable upon exercise of a Class B Warrant as provided for in the
Warrant Agreement upon the happening of certain events. The Exercise Price and
the number of Shares purchasable upon exercise of the Class B Warrants are
subject to adjustment upon the occurrence of certain events set forth in the
Warrant Agreement.
This Class B Warrant may be redeemed by the Company for $.0l per Class B
Warrant if the average of the closing prices for the Common Stock equals or
exceeds $6.75 per share, subject to adjustment, for a period of 10 consecutive
trading days (the "Pricing Period"); provided that not less than 30 nor more
than 60 days' notice of redemption is mailed to the registered holder of this
Class B Warrant not later than 10 days after the end of the Pricing Period.
<PAGE>
No Class B Warrant may be exercised or exchanged after 5:00 P.M., Houston,
Texas time, on the Expiration Date. All Class B Warrants evidenced hereby shall
thereafter be void.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse hereof and such further provisions shall
for all purposes have the same effect as though fully set forth at this place.
This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated: TEXOIL, INC.
Attest:
_____________________________ By: ________________________________
Secretary President
[CORPORATE SEAL]
Countersigned:
FIRST INTERSTATE BANK OF TEXAS, N.A.
Warrant Agent
By: __________________________
Authorized Signature
<PAGE>
[FORM OF CLASS B WARRANT CERTIFICATE]
[REVERSE]
TEXOIL, INC.
The Class B Warrants evidenced by this Warrant Certificate are part of a
duly authorized issue of Class B Warrants issued pursuant to a Warrant Agreement
dated as of May 26, 1994 (the "Warrant Agreement"), duly executed and delivered
by the Company to First Interstate Bank of Texas, N.A. (the "Warrant Agent"),
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Warrant Agent, the Company and the holders (the words "holders" or "holder"
meaning the registered holders or registered holder) of the Class B Warrants.
Each Class B Warrant may be exercised to purchase one share of the
Company's Common Stock from the Company on or before May 26, 1999, at the
Exercise Price set forth on the face hereof, subject to adjustment as
hereinafter referred to. The holder of Class B Warrants evidenced by this
Warrant Certificate may exercise them by surrendering the Warrant Certificate,
with the form of election to purchase set forth hereon properly completed and
executed, together with payment of the Exercise Price and any applicable
transfer taxes at the offices of the Warrant Agent in Houston, Texas. In the
event that upon any exercise of Class B Warrants evidenced hereby, the number of
Class B Warrants exercised shall be less than the total number of Class B
Warrants evidenced hereby, there shall be issued to the holder hereof or his
assignee a new Warrant Certificate evidencing the number of Class B Warrants not
exercised. No adjustment shall be made for any cash dividends or other cash
distributions on any Shares issuable upon exercise of this Class B Warrant.
The Warrant Agreement also provides that upon the occurrence of certain
events, the Exercise Price set forth on the face hereof may, subject to certain
conditions, be adjusted. If the Exercise Price is adjusted, the Warrant
Agreement provides that in certain instances the number of Shares purchasable
upon the exercise of each Warrant shall be adjusted. No fractions of a Class B
Warrant will be issued upon any such adjustment but the persons entitled to such
fractional interest will be paid. as provided in the Warrant Agreement, an
amount in cash equal to the current market value of such fractional Class B
Warrant.
Upon due presentment for registration of transfer of this Warrant
Certificate at the offices of the Warrant Agent in Houston. Texas. a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Class B Warrants shall be issued to the transferee(s)
in exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without charge except for any tax or taxes
which may be payable as a result of such transfer imposed in connection
therewith.
<PAGE>
The Company and the Warrant Agent may deem and treat the registered
holder(s) hereof as the absolute owner(s) of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone), for the purpose of any exercise hereof or any distribution to the
holder(s) hereof, and for all other purposes. and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
[FORM OF ELECTION TO PURCHASE]
(To be executed upon exercise of Class B Warrant.)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ____ shares of the
Company's Common Stock and herewith tenders in payment for such shares a
certified or official bank check payable to the order of Texoil, Inc. in the
amount of $_________, all in accordance with the terms hereof. The undersigned
requests that a certificate for such Shares be registered in the name of
________________________________ whose address is______________________________
and that such Certificate (or any payment in lieu thereof) be delivered to
_______________________ whose address is .
Dated:_________________ ______________________________________________
(Signature must conform in all respects to
name of holder as specified on the face of the
Warrant Certificate.)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder desires to
transfer the Warrant Certificate.)
FOR VALUE RECEIVED ____________________________ hereby sells. assigns and
transfers unto _________________________this Warrant Certificate, together with
all right, title and interest therein, and does hereby irrevocably constitute
and appoint
Attorney, to transfer the within Warrant Certificate on the books of the
within-named Company, with full power of substitution.
Dated:__________________ ______________________________________________
(Signature must conform in all respects to
name of holder as specified on the face of the
Warrant Certificate.)
If said number of Shares is less than all of the Shares purchasable
hereunder, the undersigned requests that a new Warrant Certificate representing
the remaining balance of the Shares be registered in the name of
____________________________ whose address is __________________________________
and that such Certificate be delivered to ____________________________________
whose address is ______________________________________ .
Signature Guaranteed:
__________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM) PURSUANT TO S.E.C. RULE 17
Ad-15.
EXHIBIT 4.4
[FORM OF UNDERWRITERS' CLASS A WARRANT CERTIFICATE]
[FACE]
EXERCISE ON OR BEFORE
5:00 P.M. HOUSTON, TEXAS TIME, MAY 26, 1999
No. W- ______ Warrants
This Certificate is transferable in
Houston, Texas
CUSIP NO. ________
CLASS A WARRANT CERTIFICATE
TEXOIL, INC.
This Warrant Certificate certifies that _____________________, or
registered assigns, is the registered holder of _____ Class A Warrants (the
"Class A Warrants") expiring May 26, 1999, to purchase one share of common
stock, par value $.01 per share (the "Common Stock"), of Texoil, Inc., a Nevada
corporation (the "Company"). Subject to other conditions set forth herein and in
the Warrant Agreement, each Class A Warrant entitles the holder to purchase from
the Company on or before 5:00 P.M., Houston, Texas time, on May 26, 1999
(subject to extension in the sole discretion of the Company) (the "Expiration
Date") one fully paid and non-assessable share of Common Stock of the Company at
the initial exercise price (subject to adjustment in certain events, the
"Exercise Price"), of $3.50 upon surrender of this Warrant Certificate and
payment of the Exercise Price at the office or agency of the Warrant Agent in
Houston, Texas. Payment of the Exercise Price may be made by certified or
official bank check payable to the order of the Company. As used herein,
"Shares" refers to the Common Stock of the Company issuable on the exercise of
this Class A Warrant and, where appropriate. to the other securities or property
issuable upon exercise of a Class A Warrant as provided for in the Warrant
Agreement upon the happening of certain events. The Exercise Price and (in
certain more limited instances) the number of Shares purchasable upon exercise
of the Class A Warrants are subject to adjustment upon the occurrence of certain
events set forth in the Warrant Agreement.
No Class A Warrant may be exercised or exchanged after 5:00 P.M., Houston,
Texas time, on the Expiration Date. All Class A Warrants evidenced hereby shall
thereafter be void.
<PAGE>
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse hereof and such further provisions shall
for all purposes have the same effect as though fully set forth at this place.
This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated: TEXOIL. INC.
Attest:
_____________________________ By: ________________________________
Secretary President
[CORPORATE SEAL]
Countersigned:
FIRST INTERSTATE BANK OF TEXAS, N.A.
Warrant Agent
By: ___________________________
Authorized Signature
<PAGE>
[FORM OF UNDERWRITERS' CLASS A WARRANT CERTIFICATE]
[REVERSE]
TEXOIL, INC.
The Class A Warrants evidenced by this Warrant Certificate are part
of a duly authorized issue of Class A Warrants issued pursuant to a Warrant
Agreement dated as of May 26, 1994 (the "Warrant Agreement"), duly executed and
delivered by the Company to First Interstate Bank of Texas, N.A. (the "Warrant
Agent"), which Warrant Agreement is hereby incorporated by reference in and made
a part of this instrument and is hereby referred to for a description of the
rights, limitation of rights, obligations, duties and immunities thereunder of
the Warrant Agent, the Company and the holders (the words "holders" or "holder"
meaning the registered holders or registered holder) of the Class A Warrants.
Each Class A Warrant may be exercised to purchase one share of the
Company's Common Stock from the Company on or before May 26, 1999, at the
Exercise Price set forth on the face hereof, subject to adjustment as
hereinafter referred to. The holder of Class A Warrants evidenced by this
Warrant Certificate may exercise them by surrendering the Warrant Certificate,
with the form of election to purchase set forth hereon properly completed and
executed, together with payment of the Exercise Price and any applicable
transfer taxes at the offices of the Warrant Agent in Houston, Texas. In the
event that upon any exercise of Class A Warrants evidenced hereby, the number of
Class A Warrants exercised shall be less than the total number of Class A
Warrants evidenced hereby, there shall be issued to the holder hereof or his
assignee a new Warrant Certificate evidencing the number of Class A Warrants not
exercised. No adjustment shall be made for any cash dividends or other cash
distributions on any Shares issuable upon exercise of this Class A Warrant.
The Warrant Agreement also provides that upon the occurrence of certain
events, the Exercise Price set forth on the face hereof may, subject to certain
conditions, be adjusted. If the Exercise Price is adjusted, the Warrant
Agreement provides that in certain instances the number of Shares purchasable
upon the exercise of each Class A Warrant shall be adjusted. No fractions of a
Warrant will be issued upon any such adjustment but the persons entitled to such
fractional interest will be paid, as provided in the Warrant Agreement, an
amount in cash equal to the current market value of such fractional Class A
Warrant.
Upon due presentment for registration of transfer of this Warrant
Certificate at the offices of the Warrant Agent in Houston, Texas, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Class A Warrants shall be issued to the transferee(s)
in exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without charge except for any tax or taxes
which may be payable as a result of such transfer imposed in connection
therewith.
<PAGE>
The Company and the Warrant Agent may deem and treat the registered
holder(s) hereof as the absolute owner(s) of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone). for the purpose of any exercise hereof or any distribution to the
holder(s) hereof. and for all other purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
[FORM OF ELECTION TO PURCHASE]
(To be executed Upon exercise of Underwriters' Class A Warrant.)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ______ shares of the
Company's Common Stock and herewith tenders in payment for such shares a
certified or official bank check payable to the order of Texoil, Inc. in the
amount of $_______, all in accordance with the terms hereof. The undersigned
requests that a certificate for such Shares be registered in the name of
_______________________________ whose address is ______________________________
and that such Certificate (or any payment in lieu thereof) be delivered to
________________________________________ whose address is ____________________
__________________________.
Dated:______________________ ______________________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder desires to
transfer the Warrant Certificate.)
FOR VALUE RECEIVED ____________________________ hereby sells, assigns and
transfers unto _________________________________ this Warrant Certificate,
together with all right, title and interest therein, and does hereby irrevocably
constitute and appoint ____________________________________________________
Attorney, to transfer the within Warrant Certificate on the books of the within-
named Company, with full power of substitution.
Dated:____________________ ____________________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
If said number of Shares is less than all of the Shares purchasable
hereunder, the undersigned requests that a new Warrant Certificate representing
the remaining balance of the Shares be registered in the name of ______________
__________________________ whose address is __________________________________
and that such Certificate be delivered to ____________________________________
whose address is ________________________________.
Signature Guaranteed:
______________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM) PURSUANT TO S.E.C. RULE 17
Ad-15.
EXHIBIT 4.5
[FORM OF UNDERWRITERS' CLASS B WARRANT CERTIFICATE]
[FACE]
EXERCISE ON OR BEFORE
5:00 P.M. HOUSTON, TEXAS TIME, MAY 26, 1999
No. W- _______ Warrants
This Certificate is transferable in
Houston, Texas
CUSIP NO._________
CLASS B WARRANT CERTIFICATE
TEXOIL, INC.
This Warrant Certificate certifies that ______________________, or
registered assigns, is the registered holder of _______ Class B Warrants (the
"Class B Warrants") expiring May 26, 1999, to purchase common stock, par value
$.01 per share (the "Common Stock"), of Texoil, Inc., a Nevada corporation (the
"Company"). Subject to conditions set forth herein and in the Warrant Agreement,
each Class B Warrant entitles the holder to purchase from the Company on or
before 5:00 P.M., Houston, Texas time, on May 26, 1999 (subject to extension in
the sole discretion of the Company) (the "Expiration Date") one fully paid and
non-assessable share of Common Stock of the Company at the initial exercise
price (subject to adjustment in certain events, the "Exercise Price"), of $4.50
upon surrender of this Warrant Certificate and payment of the Exercise Price at
the office or agency of the Warrant Agent in Houston, Texas. Payment of the
Exercise Price may be made by certified or official bank check payable to the
order of the Company. As used herein. "Shares" refers to the Common Stock of the
Company issuable on the exercise of this Class B Warrant and, where appropriate,
to the other securities or property issuable upon exercise of a Class B Warrant
as provided for in the Warrant Agreement upon the happening of certain events.
The Exercise Price and the number of Shares purchasable upon exercise of the
Class B Warrants are subject to adjustment upon the occurrence of certain events
set forth in the Warrant Agreement.
No Class B Warrant may be exercised or exchanged after 5:00 P.M., Houston,
Texas time, on the Expiration Date. All Class B Warrants evidenced hereby shall
thereafter be void.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse hereof and such further provisions shall
for all purposes have the same effect as though fully set forth at this place.
<PAGE>
This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated: TEXOIL. INC.
Attest:
______________________________ By: ________________________________
Secretary President
[CORPORATE SEAL]
Countersigned:
FIRST INTERSTATE BANK OF TEXAS, N.A.
Warrant Agent
By: __________________________
Authorized Signature
<PAGE>
[FORM OF UNDERWRITERS' CLASS B WARRANT CERTIFICATE]
[REVERSE]
TEXOIL, INC.
The Class B Warrants evidenced by this Warrant Certificate are part
of a duly authorized issue of Class A Warrants issued pursuant to a Warrant
Agreement dated as of May 26, 1994 (the "Warrant Agreement"), duly executed and
delivered by the Company to First Interstate Bank of Texas, N.A. (the "Warrant
Agent"), which Warrant Agreement is hereby incorporated by reference in and made
a part of this instrument and is hereby referred to for a description of the
rights, limitation of rights, obligations, duties and immunities thereunder of
the Warrant Agent, the Company and the holders (the words "holders" or "holder"
meaning the registered holders or registered holder) of the Class B Warrants.
Each Class B Warrant may be exercised to purchase one share of the
Company's Common Stock from the Company on or before May 26, 1999, at the
Exercise Price set forth on the face hereof, subject to adjustment as
hereinafter referred to. The holder of Class B Warrants evidenced by this
Warrant Certificate may exercise them by surrendering the Warrant Certificate,
with the form of election to purchase set forth hereon properly completed and
executed, together with payment of the Exercise Price and any applicable
transfer taxes at the offices of the Warrant Agent in Houston, Texas. In the
event that upon any exercise of Class B Warrants evidenced hereby, the number of
Class B Warrants exercised shall be less than the total number of Class B
Warrants evidenced hereby, there shall be issued to the holder hereof or his
assignee a new Warrant Certificate evidencing the number of Class B Warrants not
exercised. No adjustment shall be made for any cash dividends or other cash
distributions on any Shares issuable upon exercise of this Class B Warrant.
The Warrant Agreement also provides that upon the occurrence of certain
events, the Exercise Price set forth on the face hereof may, subject to certain
conditions, be adjusted. If the Exercise Price is adjusted, the Warrant
Agreement provides that in certain instances the number of Shares purchasable
upon the exercise of each Class B Warrant shall be adjusted. No fractions of a
Class B Warrant will be issued upon any such adjustment but the persons entitled
to such fractional interest will be paid, as provided in the Warrant Agreement,
an amount in cash equal to the current market value of such fractional Class B
Warrant.
Upon due presentment for registration of transfer of this Warrant
Certificate at the offices of the Warrant Agent in Houston, Texas, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Class B Warrants shall be issued to the transferee(s)
in exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without charge except for any tax or taxes
which may be payable as a result of such transfer imposed in connection
therewith.
<PAGE>
The Company and the Warrant Agent may deem and treat the registered
holder(s) hereof as the absolute owner(s) of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone). for the purpose of any exercise hereof or any distribution to the
holder(s) hereof, and for all other purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
[FORM OF ELECTION TO PURCHASE]
(To be executed Upon exercise of Underwriters' Class B Warrant.)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ______ shares of the
Company's Common Stock and herewith tenders in payment for such shares a
certified or official bank check payable to the order of Texoil, Inc. in the
amount of $_______, all in accordance with the terms hereof. The undersigned
requests that a certificate for such Shares be registered in the name of
_______________________________ whose address is ____________________________
____________________________________ and that such Certificate (or any payment
in lieu thereof) be delivered to ________________________________________ whose
address is ________________________________.
Dated:______________________ ______________________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder desires to
transfer the Warrant Certificate.)
FOR VALUE RECEIVED ____________________________ hereby sells, assigns and
transfers unto _________________________________ this Warrant Certificate,
together with all right, title and interest therein, and does hereby irrevocably
constitute and appoint_________________________________________________________
Attorney, to transfer the within Warrant Certificate on the books of the within-
named Company, with full power of substitution.
Dated:____________________ ______________________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
If said number of Shares is less than all of the Shares purchasable
hereunder, the undersigned requests that a new Warrant Certificate representing
the remaining balance of the Shares be registered in the name of
__________________________ whose address is__________________________________
and that such Certificate be delivered to _____________________________________
whose address is ___________________________________.
Signature Guaranteed:
________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM) PURSUANT TO S.E.C. RULE 17
Ad-15.
EXHIBIT 4.6
[FORM OF COMMON STOCK CERTIFICATE]
[FACE]
No. W- _______ Warrants
This Certificate is transferable in
Houston, Texas
Incorporated under the laws CUSIP NO._________
of the state of Nevada See reverse for certain
definitions and information
TEXOIL, INC.
This Warrant Certificate certifies that ______________________, is the
owner of shares of the common stock of the par value of one cent ($0.01) per
share of Texoil, Inc. transferable only on the books of the Corporation by the
holder hereof in person or by attorney upon surrender of this certificate
properly endorsed. This certificate is not valid until countersigned by the
Transfer Agent and registered by the Registrar.
IN WITNESS WHEREOF, the Corporation has caused the facsimile signatures of
its duly authorized officers and its facsimile seal to be fixed hereto.
Dated: TEXOIL. INC.
Attest:
_______________________________ By: _________________________________
Secretary President
[CORPORATE SEAL]
Countersigned:
FIRST INTERSTATE BANK OF TEXAS, N.A.
Transfer Agent and Registrar
By: ___________________________
Authorized Signature
<PAGE>
[FORM OF COMMON STOCK CERTIFICATE]
[REVERSE]
TEXOIL, INC.
The articles of incorporation of this corporation deny preemptive rights to its
stockholders. A full statement of such limitation is set forth in the articles
of incorporation on file in the office of the secretary of state of the state of
Nevada.
A full statement of the voting powers, designations, preferences, limitations,
restrictions and relative rights of the various classes of stock or series
thereof which the articles of incorporation of this corporation authorize it to
issue and the qualifications, limitations or restrictions of such rights is set
forth in the articles of incorporation on file in the office of the secretary of
state of the state of Nevada. The corporation will furnish a copy of such
statement to the record holder of the certificate without charge on request to
the corporation at its principal place of business or registered office.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as through they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common Unif Gift Min Act ______ Custodian _____
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors Act
survivorship and not as tenants _______________________
in common (State)
Additional abbreviations may also be used though not in the above list.
For Value Received, ________________________________ hereby sell, assign and
transfer unto
Please insert social security or other identifying number of assignee __________
________________________________________________________________________________
please print or typewrite name and address including postal zip code and
telephone number of assignee ___________________________________________________
________________________________________________________________________________
__________________________________________________________________ Shares
of the Capital Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
________________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
<PAGE>
Dated:______________________ ______________________________________
Notice: The signature to this
assignment must correspond with the
mane as written upon the face of the
Certificate, in every particular,
without alteration or enlargement, or
any change whatever.
Signature Guaranteed:
__________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM) PURSUANT TO S.E.C. RULE 17
Ad-15.
EXHIBIT 4.12
AMENDED AND RESTATED CREDIT AGREEMENT
This AMENDED AND RESTATED CREDIT AGREEMENT is made and entered into
as of August 1, 1997, by and among CLIFFWOOD OIL & GAS CORP., a Texas
corporation, CLIFFWOOD ENERGY COMPANY, a California corporation, CLIFFWOOD
PRODUCTION CO., a Texas corporation (each individually, a "Borrower" and
collectively, the "Borrowers"), each of the banks or other financial
institutions which is or which may from time to time become a signatory hereto
or any successor or assignee thereof (each individually a "Lender" and
collectively, the "Lenders"), and COMERICA BANK - TEXAS, a Texas banking
association, as agent for itself and the other Lenders (in such capacity,
together with its successors and assigns in such capacity, the "Agent").
W I T N E S S E T H:
In consideration of the mutual covenants and agreements herein
contained, the Borrowers, jointly and severally, and the Lender hereby agree as
follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
1 TERMS DEFINED ABOVE. As used in this Credit Agreement, the terms
"AGENT," "BORROWER," "BORROWERS," "LENDER," and "LENDERS," shall have the
meaning assigned to them hereinabove.
2 ADDITIONAL DEFINED TERMS. As used in this Credit Agreement, each
of the following terms shall have the meaning assigned thereto in this Section,
unless the context otherwise requires:
"AFFILIATE" shall mean any Person directly or indirectly
controlling, or under common control with, any Borrower and includes any
"affiliate" of any Borrower within the meaning of Reg. ss.240.12b-2 of the
Securities Exchange Act of 1934, as amended, with "control," as used in
this definition, meaning possession, directly or indirectly, of the power
to direct or cause the direction of management, policies or action through
ownership of voting securities, contract, voting trust, or membership in
management or in the group appointing or electing management or otherwise
through formal or informal arrangements or business relationships.
"AGREEMENT" shall mean this Amended and Restated Credit Agreement,
as it may be amended, supplemented, or restated from time to time.
"APPLICABLE LAWS" has the meaning assigned to it in Section 2.17(a)
hereof.
a\credit.agr
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<PAGE>
"APPLICABLE LENDING OFFICE" means for each Lender, the Lending
Office of such Lender (or of an Affiliate of such Lender) designated below
its name on the signature pages hereof or such other office of such Lender
(or of an Affiliate of such Lender) as such Lender may from time to time
specify to the Borrowers and the Agent as the office by which its Loans
are to be made and maintained.
"ASSIGNEE" has the meaning assigned to it in Section 9.1(b) hereof.
"ASSIGNING LENDER" has the meaning assigned to it in Section 9.1(b)
hereof.
"ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance
entered into by an Assigning Lender and its Assignee and accepted by the
Agent pursuant to Section 9.1(b), in substantially the form of Exhibit VI
hereto, or such other form as to which all of the parties hereto shall
consent in writing.
"AVAILABLE COMMITMENT" shall mean, at any time, an amount equal to
the remainder, if any, of (a) the lesser of the Commitment Amounts of all
Lenders or the Borrowing Base in effect at such time MINUS (b) the Loan
Balance at such time PLUS the L/C Exposure at such time.
"BASE RATE" shall mean the interest rate announced or published by
the Agent from time to time as its prime rate of interest, which Base Rate
shall change upon any change in such announced or published general
reference interest rate and which Base Rate may not be the lowest interest
rate charged by the Agent or equal or similar to any interest rate charged
by any other lender.
"BELLEVIEW ACQUISITION" shall mean the acquisition described in Part
One of Exhibit V.
"BORROWING BASE" shall mean, at any time, the amount most recently
determined by the Agent with the concurrence of the Lenders in accordance
with Section 2.8 and then in effect.
"BUSINESS DAY" shall mean a day other than a Saturday, Sunday, legal
holiday for commercial banks under the laws of the State of Texas, or any
other day when banking is suspended in the State of Texas.
"CASH FLOW" shall mean, for any period, Net Income of the Borrowers
for such period, plus depreciation, amortization, depletion, and other
non-cash expenses of the Borrowers for such period.
"CAUSE" shall mean (1) gross negligence, (2) willful misconduct, (3)
failure to substantially perform the duties of the corporate position or
positions held or (4) death.
"CLOSING DATE" shall mean the effective date of this Agreement.
a\credit.agr
-2-
<PAGE>
"CODE" shall mean the United States Internal Revenue Code of 1986,
as amended from time to time.
"COLLATERAL" shall mean the Mortgaged Properties and any other
Property now or at any time assigned as collateral security for the
payment or performance of all or any portion of the Obligations.
"COMERICA" shall mean Comerica Bank-Texas, a Texas banking
association.
"COMMITMENT" shall mean the obligation of a Lender, subject to
applicable provisions of the Agreement, to make Loans to or for the
benefit of Borrowers pursuant to Section 2.1 and to issue or acquire an
interest in Letters of Credit pursuant to Section 2.4.
"COMMITMENT AMOUNT" shall mean (i) as to all Lenders, the lesser of
initial amount of $13,500,000 or (b) subject to Section 2.10 of this
Agreement, the amount irrevocably designated by the Borrowers in a writing
received by the Agent as the Borrowers' desired Commitment Amount and (ii)
as to each Lender, the lesser of (a) the initial amount set forth beside
its name on the signature pages hereof under the heading "Commitment
Amount," or (b) its pro rata share of the amount irrevocably designated by
the Borrowers in writing to the Agent as their desired Commitment Amount.
"COMMITMENT FEE" shall mean each fee payable to the Agent for the
benefit of Lenders by the Borrowers pursuant to Section 2.11.
"COMMITMENT PERIOD" shall mean the period from and including the
Closing Date to but not including the Commitment Termination Date.
"COMMITMENT REDUCTION SCHEDULE" shall have the meaning assigned to
it in Section 2.8 hereof.
"COMMITMENT TERMINATION DATE" shall mean August 4, 2000.
"COMMONLY CONTROLLED ENTITY" shall mean any Person which is under
common control with any of the Borrowers within the meaning of Section
4001 of ERISA.
"COMPLIANCE CERTIFICATE" shall mean each certificate, substantially
in the form attached hereto as Exhibit II, executed by a Responsible
Officer of each Borrower and furnished to the Agent and the Lenders from
time to time in accordance with Sections 5.2 and 5.3.
"CONTINGENT OBLIGATION" shall mean, as to any Person, any obligation
of such Person guaranteeing or in effect guaranteeing any Indebtedness,
leases, dividends, or other obligations of any other Person (for purposes
of this definition, a "PRIMARY
a\credit.agr
-3-
<PAGE>
OBLIGATION") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, regardless of whether
such obligation is contingent, (a) to purchase any primary obligation or
any Property constituting direct or indirect security therefor, (b) to
advance or supply funds (i) for the purchase or payment of any primary
obligation, or (ii) to maintain working or equity capital of any other
Person in respect of any primary obligation, or otherwise to maintain the
net worth or solvency of any other Person, (c) to purchase Property,
securities or services primarily for the purpose of assuring the owner of
any primary obligation of the ability of the Person primarily liable for
such primary obligation to make payment thereof, or (d) otherwise to
assure or hold harmless the owner of any such primary obligation against
loss in respect thereof, with the amount of any Contingent Obligation
being deemed to be equal to the stated or determinable amount of such
Contingent Obligation or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof as determined by such
Person in good faith.
"CURRENT ASSETS" shall mean (a) all assets which would, in
accordance with GAAP, be included as current assets on a combined balance
sheet of the Borrowers after eliminating any intercompany items in
accordance with GAAP, as of the date of calculation, after deducting
adequate reserves in each case in which a reserve is proper in accordance
with GAAP plus (b) an amount equal to the Available Commitment.
"CURRENT LIABILITIES" shall mean all liabilities which would, in
accordance with GAAP, be included as current liabilities on a combined
balance sheet of the Borrowers after eliminating any intercompany items in
accordance with GAAP, as of the date of calculation, but excluding current
maturities in respect of the Notes, both principal and interest.
"DEFAULT" shall mean any event or occurrence which with the lapse of
time or the giving of notice or both would become an Event of Default.
"DEFAULT RATE" shall mean a per annum interest rate equal to the
Base Rate plus five percent, but in no event exceeding the Highest Lawful
Rate.
"DOLLARS" and "$" shall mean dollars in lawful currency of the
United States of America.
"ELIGIBLE ASSIGNEE" means any commercial bank, savings and loan
association, savings bank, financial company, insurance company, pension
fund, mutual fund, or other financial institution (whether a corporation,
limited liability company, partnership or other entity) approved by the
Agent, which approval shall not be withheld or delayed unreasonably.
"ENGINEERING FEE" shall mean each fee payable by the Borrowers
pursuant to Section 2.12.
a\credit.agr
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<PAGE>
"ENVIRONMENTAL COMPLAINT" shall mean any written complaint, order,
directive, claim, citation, notice of environmental report or
investigation, or other notice by any Governmental Authority or any other
Person with respect to (a) air emissions, (b) spills, releases, or
discharges to soils, any improvements located thereon, surface water,
groundwater, or the sewer, septic, waste treatment, storage, or disposal
systems servicing any Property of any of the Borrowers, (c) solid or
liquid waste disposal, (d) the use, generation, storage, transportation,
or disposal of any Hazardous Substance, or (e) other environmental,
health, or safety matters affecting any Property of any of the Borrowers
or the business conducted thereon.
"ENVIRONMENTAL LAWS" shall mean (a) the following federal laws as
they may be amended from time to time: the Clean Air Act, the Clean Water
Act, the Safe Drinking Water Act, the Comprehensive Environmental
Response, Compensation and Liability Act, the Endangered Species Act, the
Occupational Safety and Health Act, the Oil Pollution Act of 1990, the
Hazardous Materials Transportation Act, the Resource Conservation and
Recovery Act of 1976, the Superfund Amendments and Reauthorization Act,
and the Toxic Substances Control Act; (b) any and all equivalent
environmental statutes of any state in which Property of any of the
Borrowers is situated, as they may be amended from time to time; (c) any
rules or regulations promulgated under or adopted pursuant to the above
federal and state laws; and (d) any other equivalent federal, state, or
local statute or any requirement, rule, regulation, code, ordinance, or
order applicable to the Borrowers adopted pursuant thereto, including,
without limitation, those relating to the generation, transportation,
treatment, storage, recycling, disposal, handling, or release of Hazardous
Substances.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations thereunder.
"EVENT OF DEFAULT" shall mean any of the events specified in Section
7.1.
"FACILITY FEE" shall mean the fee payable to the Agent for the
account of the Lenders by the Borrowers pursuant to Section 2.13.
"FINANCIAL STATEMENTS" shall mean statements of the financial
condition of any Person as at the point in time and for the period
indicated and consisting of at least a balance sheet and related
statements of operations, common stock and other stockholders' equity, and
cash flows for such Person and, when required by applicable provisions of
this Agreement to be audited, accompanied by the unqualified certification
of a nationally-recognized firm of independent certified public
accountants or other independent certified public accountants reasonably
acceptable to the Agent and footnotes to any of the foregoing, all of
which shall be prepared in accordance with GAAP consistently applied and
in comparative form with respect to the corresponding period of the
preceding fiscal period.
"FIRST UNION" shall mean First Union National Bank.
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"FLOATING RATE" shall mean an interest rate per annum equal to the
Base Rate from time to time in effect plus one-half of one percent, but in
no event exceeding the Highest Lawful Rate.
"GAAP" shall mean generally accepted accounting principles
established by the Financial Accounting Standards Board or the American
Institute of Certified Public Accountants and in effect in the United
States from time to time.
"GOVERNMENTAL AUTHORITY" shall mean any nation, country,
commonwealth, territory, government, state, county, parish, municipality,
or other political subdivision and any Person or entity exercising
executive, legislative, judicial, regulatory, or administrative functions
of or pertaining to government.
"HAZARDOUS SUBSTANCES" shall mean flammables, explosives,
radioactive materials, hazardous wastes, asbestos, or any material
containing asbestos, polychlorinated biphenyls (PCBs), toxic substances or
related materials, petroleum, petroleum products, associated oil or
natural gas exploration, production, and development wastes, or any
substances defined as "hazardous substances," "hazardous materials,"
"hazardous wastes," or "toxic substances" under the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, the
Superfund Amendments and Reauthorization Act, as amended, the Hazardous
Materials Transportation Act, as amended, the Resource Conservation and
Recovery Act, as amended, the Toxic Substances Control Act, as amended, or
any other law or regulation now or hereafter enacted or promulgated by any
Governmental Authority.
"HYDROCARBONS" shall mean all oil, gas, casinghead gas, drip
gasoline, natural gasoline, condensate, distillate, carbon-dioxide, liquid
hydrocarbons, gaseous hydrocarbons, and all other minerals and all
products obtained, refined or processed therefrom.
"HIGHEST LAWFUL RATE" shall mean the maximum non-usurious interest
rate, if any (or, if the context so requires, an amount calculated at such
rate), that at any time or from time to time may be contracted for, taken,
reserved, charged, or received under applicable laws of the State of Texas
or the United States of America, as such laws are presently in effect or,
to the extent allowed by applicable law, as such laws may hereafter be in
effect and which allow a higher maximum non-usurious interest rate than
such laws now allow.
"INDEBTEDNESS" shall mean, as to any Person, without duplication,
(a) all liabilities (excluding reserves for deferred income taxes,
deferred compensation liabilities, and other deferred liabilities and
credits) which in accordance with GAAP would be included in determining
total liabilities as shown on the liability side of a balance sheet, (b)
all obligations of such Person evidenced by bonds, debentures, promissory
notes, or similar evidences of indebtedness, (c) all other indebtedness of
such Person for borrowed money, and (d) all obligations of others, to the
extent any
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such obligation is secured by a Lien on the assets of such Person (whether
or not such Person has assumed or become liable for the obligation secured
by such Lien).
"INDEMNIFIED PARTY" has the meaning assigned to it in Section 5.19
hereof.
"INSOLVENCY PROCEEDING" shall mean an application (whether voluntary
or instituted by another Person) for or the consent to the appointment of
a receiver, trustee, conservator, custodian, or liquidator of any Person
or of all or a substantial part of the Property of such Person, or the
filing of a petition (whether voluntary or instituted by another Person)
commencing a case under Title 11 of the United States Code, seeking
liquidation, reorganization, or rearrangement or taking advantage of any
bankruptcy, insolvency, debtor's relief, or other similar law of the
United States, the State of Texas, or any other jurisdiction.
"INSOLVENT" or "INSOLVENCY" shall mean, with respect to any
Multiemployer Plan, that such Plan is insolvent within the meaning of such
term as used in Section 4245 of ERISA.
"INTELLECTUAL PROPERTY" shall mean patents, patent applications,
trademarks, tradenames, copyrights, technology, know-how, and processes.
"INVESTMENT" in any Person shall mean any stock, bond, note, or
other evidence of Indebtedness, or any other security (other than current
trade and customer accounts) of, investment or partnership interest in or
loan to, such Person.
"L/C EXPOSURE" shall mean, with respect to the Borrowers, at any
time, the aggregate maximum amount available to be drawn under outstanding
Letters of Credit at such time.
"LETTER OF CREDIT" shall mean any standby letter of credit issued by
the Agent for the account of any Borrower pursuant to Section 2.4.
"LETTER OF CREDIT APPLICATION" shall mean the standard letter of
credit application employed by the Agent from time to time in connection
with letters of credit.
"LETTER OF CREDIT FEE" shall mean each fee payable to the Agent by
the Borrowers pursuant to Section 2.14 upon or in connection with the
issuance of a Letter of Credit.
"LIEN" shall mean any interest in Property securing an obligation
owed to, or a claim by, a Person other than the owner of such Property,
whether such interest is based on common law, statute, or contract, and
including, but not limited to, the lien or security interest arising from
a mortgage, ship mortgage, encumbrance, pledge, security agreement,
conditional sale or trust receipt, or a lease, consignment, or bailment
for security purposes (other than true leases or true consignments), liens
of
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mechanics, materialmen, and artisans, maritime liens and reservations,
exceptions, encroachments, easements, rights of way, covenants,
conditions, restrictions, leases, and other title exceptions and
encumbrances affecting Property which secure an obligation owed to, or a
claim by, a Person other than the owner of such Property (for the purpose
of this Agreement, each Borrower shall be deemed to be the owner of any
Property which it has acquired or holds subject to a conditional sale
agreement, financing lease, or other arrangement pursuant to which title
to the Property has been retained by or vested in some other Person for
security purposes), and the filing or recording of any financing statement
or other security instrument in any public office.
"LIMITATION PERIOD" shall mean any period while (a) any amount
remains owing on the Notes and (b) interest on such amount, calculated at
the applicable interest rate, plus any fees or other sums otherwise
payable under any Loan Document except for the provisions of Section 2.17
and which are deemed to be interest under applicable law, would exceed the
amount of interest which would accrue at the Highest Lawful Rate.
"LOAN" shall mean any loan made by a Lender to or for the benefit of
the Borrowers or any of them pursuant to this Agreement, including any
Loan to reimburse the Agent for any draw under a Letter of Credit made
pursuant to Section 2.4(b).
"LOAN BALANCE" shall mean, at any time, the outstanding principal
balance of the Notes at such time.
"LOAN DOCUMENTS" shall mean this Agreement, the Notes, the Security
Instruments, and all other documents and instruments now or hereafter
delivered by or on behalf of the Borrowers pursuant to the terms of or in
connection with this Agreement, the Notes, the Letters of Credit, the
Letter of Credit Applications or the Security Instruments, and all
renewals and extensions of, amendments and supplements to, and
restatements of, any or all of the foregoing from time to time in effect.
"MATERIAL ADVERSE EFFECT" shall mean, with respect to a Borrower,
any material adverse effect on the business, operations, Properties,
condition (financial or otherwise), or prospects of such Borrower taken
as
a whole.
"MORTGAGED PROPERTIES" shall mean all Properties of the Borrowers
subject to a Lien in favor of the Agent for the benefit of the Lenders, as
security for the Obligations, which Liens are intended to be first
priority perfected Liens, subject only to Permitted Liens.
"MULTIEMPLOYER PLAN" shall mean a Plan which is a multiemployer plan
as defined in Section 4001(a)(3) of ERISA.
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"NET INCOME" shall mean, for any period, the net income of the
Borrowers for such period, on a combined basis, determined in accordance
with GAAP.
"NOTE" shall mean one of the Notes.
"NOTES" shall mean the master promissory notes of the Borrowers
payable to the order of the Lenders, in the form attached hereto as
Exhibit I (with the amount completed as $15,000,000 in the case of
Comerica and $10,000,000 in the case of First Union, the initial Lenders
hereunder), together with all renewals, extensions for any period,
increases, and rearrangements thereof.
"OBLIGATIONS" shall mean, without duplication, (a) all Indebtedness
evidenced by the Notes, (b) the obligation of the Borrowers for the
payment of Commitment Fees, Letter of Credit Fees, Facility Fees and
Engineering Fees, (c) Swap Obligations, (d) the obligation of the
Borrowers to provide to the Agent or to reimburse the Agent for any
amounts payable, paid, or incurred by the Agent with respect to Letters of
Credit issued on their behalf pursuant to Section 2.4, (e) the undrawn,
unexpired amount of all outstanding Letters of Credit issued on any
Borrower's behalf and (f) all other obligations and liabilities of the
Borrowers to the Agent, any Lender, the Lenders, or any combination of the
foregoing, now existing or hereafter incurred, in each case under, arising
out of or in connection with any Loan Document or Obligations, and to the
extent that any of the foregoing includes or refers to the payment of
amounts deemed or constituting interest, only so much thereof as shall
have accrued, been earned and which remains unpaid at each relevant time
of determination.
"PAYOR" shall have the meaning assigned to it in Section 2.3 hereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA or any entity
succeeding to any or all of its functions under ERISA.
"PERMITTED LIENS" shall mean (a) Liens for taxes, assessments, or
other governmental charges or levies not yet due or which (if foreclosure,
distraint, sale, or other similar proceedings shall not have been
initiated) are being contested in good faith by appropriate proceedings,
and such reserve as may be required by GAAP shall have been made therefor,
(b) Liens in connection with workers' compensation, unemployment insurance
or other social security (other than Liens created by Section 4068 of
ERISA), old-age pension, or public liability obligations which are not yet
due or which are being contested in good faith by appropriate proceedings,
if such reserve as may be required by GAAP shall have been made therefor,
(c) Liens in favor of vendors, carriers, warehousemen, repairmen,
mechanics, workmen, materialmen, construction, or similar Liens arising by
operation of law in the ordinary course of business in respect of
obligations which are not yet due or which are being contested in good
faith by appropriate proceedings, if such reserve as may be required by
GAAP shall have been made therefor, (d) Liens in favor of operators and
non-operators
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under joint operating agreements or similar contractual arrangements
arising in the ordinary course of the business of the Borrowers to secure
amounts owing, which amounts are not yet due or are being contested in
good faith by appropriate proceedings, if such reserve as may be required
by GAAP shall have been made therefor, (e) Liens under production sales
agreements, division orders, operating agreements, and other agreements
customary in the oil and gas business for processing, producing, and
selling hydrocarbons securing obligations not constituting Indebtedness
and provided that such Liens do not secure obligations to deliver
hydrocarbons at some future date without receiving full payment therefor
within 90 days of delivery, (f) easements, rights of way, restrictions,
and other similar encumbrances, and minor defects in the chain of title
which are customarily accepted in the oil and gas financing industry, none
of which interfere with the ordinary conduct of the business of the
Borrowers or materially detract from the value or use of the Property to
which they apply, and (g) Liens in favor of the Agent for the benefit of
the Lenders, or any, some or all of them, and other Liens expressly
permitted under the Security Instruments.
"PERSON" shall mean an individual, corporation, partnership, trust,
unincorporated organization, government, any agency or political
subdivision of any government, or any other form of entity.
"PLAN" shall mean, at any time, any employee benefit plan which is
covered by ERISA and in respect of which any Borrower or any Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"PRINCIPAL OFFICE" shall mean the principal office of the Agent in
Dallas, Texas, which is presently located at 1601 Elm Street, Second
Floor, or such other office or location as the Agent shall designate as
its principal office by written notice to the Borrowers.
"PROHIBITED TRANSACTION" shall have the meaning assigned to such
term in Section 406 of ERISA or Section 4975 of the Code.
"PROPERTY" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, tangible or intangible.
"REGULATION D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System, as the same may be amended or supplemented
from time to time.
"REGISTER" has the meaning assigned to it in Section 9.1(d) hereof.
"REGULATORY CHANGE" shall mean the passage, adoption, institution,
or amendment of any federal, state, local, or foreign Requirement of Law
(including, without limitation, Regulation D), or any interpretation,
directive, or request (whether
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or not having the force of law) of any Governmental Authority or monetary
authority charged with the enforcement, interpretation, or administration
thereof, occurring after the Closing Date and applying to a class of banks
including the Agent or any Lender.
"RELEASE OF HAZARDOUS SUBSTANCES" shall mean any emission, spill,
release, disposal, or discharge, except in accordance with Requirements of
Law or the terms of a valid permit, license, certificate, or approval of
the relevant Governmental Authority, of any Hazardous Substance into or
upon (a) the air, (b) soils or any improvements located thereon, (c)
surface water or groundwater, or (d) the sewer or septic system, or the
waste treatment, storage, or disposal system servicing any Property of any
Borrower.
"REORGANIZATION" shall mean, with respect to any Multiemployer Plan,
that such Plan is in reorganization within the meaning of such term in
Section 4241 of ERISA.
"REPORTABLE EVENT" shall mean any of the events set forth in Section
4043(b) of ERISA, other than those events as to which the thirty-day
notice period is waived under subsections .13, .14, .16, .18, .19 or .20
of PBGC Reg. ss.2615.
"REQUIRED LENDERS" shall mean at any time while no Loans are
outstanding, Lenders having at least 66-2/3% of the aggregate Commitment
Amount and, at any time while Loans are outstanding, Lenders holding at
least 66-2/3% of the outstanding aggregate principal amount of the Loans;
provided, however, that in the event there are only two Lenders, then
Required Lenders shall mean both of the Lenders.
"REQUIRED PAYMENT" shall have the meaning assigned to it in Section
2.3 hereof.
"REQUIREMENT OF LAW" shall mean, as to any Person, the certificate
or articles of incorporation and by-laws or other organizational or
governing documents of such Person, and any applicable law, treaty,
ordinance, order, judgment, rule, decree, regulation, or determination of
an arbitrator, court, or other Governmental Authority, including, without
limitation, rules, regulations, orders, and requirements for permits,
licenses, registrations, approvals, or authorizations, in each case as
such now exist or may be hereafter amended and are applicable to such
Person or any of its Property or to which such Person or any of its
Property is subject.
"RESERVE REPORT" shall mean each report delivered to the Lender
pursuant to Section 5.4.
"RESPONSIBLE OFFICER" shall mean, in the case of each Borrower, the
President, Chief Executive Officer, Chief Financial Officer or other
officer of such Borrower knowledgeable about the affairs of such
Borrower.
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"SECURITY INSTRUMENTS" shall mean the security instruments executed
and delivered in satisfaction of the condition set forth in Section
3.1(f), and all other documents and instruments at any time executed as
security for all or any portion of the Obligations, as such instruments
may be amended, restated, or supplemented from time to time.
"SINGLE EMPLOYER PLAN" shall mean any Plan which is covered by Title
IV of ERISA, but which is not a Multiemployer Plan.
"SUPERFUND SITE" shall mean those sites listed on the Environmental
Protection Agency National Priority List and eligible for remedial action
or any comparable state registries or list in any state of the United
States.
"SWAP OBLIGATIONS" shall mean any indebtedness, obligations and
liabilities owed by a Borrower to any Lender arising under financial
interest rate swap agreements entered into by such Borrower to lock in
interest rates payable under this Agreement or commodity swap agreements
or similar contractual arrangements intended to help hedge market price
fluctuations and interest rates applicable to this Agreement or crude oil,
natural gas or other Hydrocarbons, subject, however, to the agreements of
such Borrower set out in Section 6.14 of this Agreement.
"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in the State of Texas.
3 UNDEFINED FINANCIAL ACCOUNTING TERMS. Undefined financial
accounting terms used in this Agreement shall be defined according to GAAP at
the time in effect.
4 REFERENCES. References in this Agreement to Exhibit, Article, or
Section numbers shall be to Exhibits, Articles, or Sections of this Agreement,
unless expressly stated to the contrary. References in this Agreement to
"hereby," "herein," "hereinafter," "hereinabove," "hereinbelow," "hereof,"
"hereunder" and words of similar import shall be to this Agreement in its
entirety and not only to the particular Exhibit, Article, or Section in which
such reference appears.
5 ARTICLES AND SECTIONS. This Agreement, for convenience only, has
been divided into Articles and Sections; and it is understood that the rights
and other legal relations of the parties hereto shall be determined from this
instrument as an entirety and without regard to the aforesaid division into
Articles and Sections and without regard to headings prefixed to such Articles
or Sections.
6 NUMBER AND GENDER. Whenever the context requires, reference
herein made to the single number shall be understood to include the plural; and
likewise, the plural shall be understood to include the singular. Definitions of
terms defined in the singular or plural shall be equally applicable to the
plural or singular, as the case may be, unless otherwise indicated. Words
denoting gender shall be construed to include the masculine, feminine and
neuter, when such construction is appropriate; and the word "including" (and
with the correlative meaning "include") shall mean including, without limiting
the generality of any description preceding such term.
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7 INCORPORATION OF EXHIBITS. The exhibits attached to this
Agreement are incorporated herein and shall be considered a part of this
Agreement for all purposes.
ARTICLE II
TERMS OF FACILITY
1 REVOLVING LINE OF CREDIT. Upon the terms and conditions
(including, without limitation, the right of the Lenders to decline to make any
Loan so long as any Default or Event of Default exists) and relying on the
representations and warranties contained in this Agreement, each Lender
severally agrees, during the Commitment Period, to make Loans not to exceed such
Lender's Commitment Amount, in immediately available funds at the Principal
Office, to or for the benefit of the Borrowers, from time to time on any
Business Day designated by the Borrowers following receipt by the Agent of a
written request for such Loan; provided, however, no Loan shall exceed the
aggregate amount of the then existing Available Commitment for such Lender as
then in effect and the Borrowers agree to immediately repay any Loan amounts
outstanding in excess of the aggregate amount of the Available Commitment
(including those necessary to meet the Commitment Reduction Schedule). The
Borrowers jointly and severally agree to repay to the Lenders the Obligations
pursuant to the terms hereof.
(a) Subject to the terms of this Agreement, during the Commitment
Period, the Borrowers may borrow, repay, and reborrow. Except for prepayments
made pursuant to Section 2.9, each borrowing and prepayment of principal of
Loans shall be in an amount at least equal to $50,000 or integral multiple
thereof.
(b) The Loans shall be made and maintained at each Lender's
Applicable Lending Office and shall be evidenced by the Notes.
2 USE OF LOAN PROCEEDS AND LETTERS OF CREDIT. Proceeds of all Loans
shall be used by the Borrowers solely to acquire and develop oil and gas
properties and for working capital and related corporate purposes.
(a) Letters of Credit shall be solely to support business
operations of the Borrower in the ordinary course of business; provided,
however, no Letter of Credit may be used in lieu or in support of stay or appeal
bonds without the written consent of the Agent and the Lenders.
3 INTEREST. Subject to the terms of this Agreement (including,
without limitation, Section 2.17), interest on the Loans shall accrue and be
payable at a rate per annum equal to the Floating Rate. Interest on the Loans
shall be computed on the basis of a year of 365 or 366 days, as the case may be,
and actual days elapsed (including the first day but excluding the last day)
during the period for which payable. Notwithstanding the foregoing, interest on
past-due principal and, to the extent permitted by applicable law, past-due
interest shall accrue at the Default Rate, computed on the basis of a year of
365 or 366 days, as the case may be, and actual days elapsed (including the
first day but excluding the last day) during the period for which payable, and
shall be payable upon
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demand by the Agent at any time as to all or any portion of such interest.
Interest provided for herein shall be calculated on unpaid sums actually
advanced and outstanding pursuant to the terms of this Agreement and only for
the period from the date or dates of such advances until repayment.
4 LETTER OF CREDIT FACILITY. Upon the terms and conditions
(including, without limitation, the right of the Agent to decline to issue any
Letter of Credit so long as any Default or Event of Default exists) and relying
upon the representations and warranties contained in this Agreement, the Agent
agrees, during the Commitment Period, to issue Letters of Credit following the
receipt not less than two Business Days prior to the requested date for issuance
of the relevant Letter of Credit of a Letter of Credit Application executed by a
Borrower; provided, however, (i) no Letter of Credit shall have an expiration
date which is subsequent to the Commitment Termination Date, and (ii) the Agent
shall not be obligated to issue any Letter of Credit if (A) the face amount
thereof would exceed the Available Commitment, (B) the L/C Exposure would exceed
$500,000, or (C) after giving effect to the issuance thereof, the L/C Exposure
when added to the Loan Balance then outstanding, would exceed the lesser of the
Commitment Amount or the Borrowing Base then in effect.
(a) Should the Agent be called upon by the beneficiary of any
Letter of Credit to honor all or any portion of the commitment thereunder,
whether upon presentation of drafts or otherwise, such payment by the Agent on
account of such Letter of Credit shall be treated for all purposes as a Loan and
a Borrowing on the Notes and each Lender agrees to advance its proportionate
share thereof, and if a Default or an Event of Default then exists, the
Borrowers shall pay to the Agent for the account of the Lenders on demand the
amount of such Borrowing.
5 REPAYMENT OF LOANS AND INTEREST. Accrued and unpaid interest on
each outstanding Loan shall be due and payable monthly commencing on the first
day of September, 1997, and continuing on the first day of each calendar month
thereafter while any Loan remains outstanding, the payment in each instance to
be the amount of interest which has accrued and remains unpaid in respect of the
relevant Loan. The Loan Balance, together with all accrued and unpaid interest
thereon, shall be due and payable on the Commitment Termination Date. At the
time of making each payment hereunder or under the Notes, the Borrowers shall
specify to the Agent the Loans or other amounts payable, jointly and severally,
by the Borrowers hereunder to which such payment is to be applied. In the event
the Borrowers fail to so specify, or if an Event of Default has occurred and is
continuing, the Agent may apply such payment as it may elect in its sole
discretion.
6 OUTSTANDING AMOUNTS. The outstanding principal balance of the
Notes reflected by the notations by the Agent on its records shall be deemed
rebuttably presumptive evidence of the principal amount owing on the Notes. The
liability for payment of principal and interest evidenced by the Notes shall be
limited to principal amounts actually advanced and outstanding pursuant to this
Agreement and interest on such amounts calculated in accordance with this
Agreement.
7 TIME, PLACE, AND METHOD OF PAYMENTS. All payments required
pursuant to this Agreement or the Notes shall be made in lawful money of the
United States of America and in immediately available funds, shall be deemed
received by the Agent on the next Business Day following receipt if such receipt
is after 2:00 p.m. Central Standard or Central Daylight Savings Time,
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as the case may be, on any Business Day, and shall be made to the Agent at the
Principal Office for the account of each Lender. The Borrowers shall, at the
time of making each such payment, specify to the Agent the sums payable by the
Borrowers under this Agreement and the other Loan Documents to which such
payment is to be applied (and in the event that the Borrowers fail to so
specify, or if an Event of Default has occurred and is continuing, the Agent may
apply such payment to the Obligations in such order and manner as it may elect
in its sole discretion. Each payment received by the Agent under this Agreement
or any other Loan Document for the account of a Lender shall be paid promptly to
such Lender, in immediately available funds, for the account of such Lender at
such Lender's Applicable Lending Office. Except as provided to the contrary
herein, if the due date of any payment hereunder or under the Notes would
otherwise fall on a day which is not a Business Day, such date shall be extended
to the next succeeding Business Day, and interest shall be payable for any
principal so extended for the period of such extension.
8 BORROWING BASE DETERMINATIONS; REDUCTION OF BORROWING BASE. The
Borrowing Base as of August 4, 1997 is acknowledged by the Borrowers, the Agent
and the Lenders to be $13,500,000 (giving effect to the closing of the Belleview
Acquisition on August 4, 1997). Commencing on September 1, 1997 and continuing
thereafter on the first day of each month until the next determination of the
Borrowing Base and the amount by which the Borrowing Base shall be reduced are
orally communicated to the Borrowers pursuant to Section 2.8(c), the amount of
the Borrowing Base shall be reduced by $225,000 ("Commitment Reduction
Schedule").
(a) The Borrowing Base and the amount by which the Borrowing Base
shall be reduced shall be redetermined semi-annually, commencing on April 1,
1998 and continuing on each October 1 and April 1 thereafter, on the basis of
information supplied by the Borrowers in compliance with the provisions of this
Agreement, including, without limitation, Reserve Reports, and all other
information available to the Agent and the Lenders. In addition, the Agent
shall, in the normal course of business following a request from the Borrowers
and receipt of an Engineering Fee and a Reserve Report, together with all other
information reasonably requested by the Agent and the Lenders, redetermine the
Borrowing Base at any other time. Notwithstanding the foregoing, the Agent and
the Lenders may at their discretion redetermine the Borrowing Base and the
Commitment Reduction Schedule at any time and from time to time.
(b) Within 30 days of its receipt of the Reserve Reports, the Agent
shall provide such redetermined Borrowing Base in writing to the Lenders. Within
15 days after their receipt of such information, the Lenders shall give the
Agent written notice of whether the Lenders approve of the Agent's proposed
Borrowing Base. If, for any reason, all of the Lenders do not approve of the
proposed Borrowing Base, the Agent and the Lenders shall consult with one
another to determine the Borrowing Base that will be approved by all of the
Lenders. Upon each determination of the Borrowing Base by the Agent and approved
by the Lenders, the Agent shall notify the Borrowers orally (confirming such
notice promptly in writing) of such determination, and the Borrowing Base and
the Commitment Reduction Schedule, together with any increase in the Commitment
Amount, so communicated to the Borrowers shall become effective upon such oral
notification and shall remain in effect until the next subsequent
redetermination of the Borrowing Base and the Commitment Reduction Schedule is
orally communicated to the Borrowers.
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(c) The Borrowing Base shall represent the determination by the
Agent and the Lenders, in accordance with the applicable definitions and
provisions herein contained and their customary lending practices then in effect
for loans of this nature, of the value, for loan purposes, of the Mortgaged
Properties, subject, in the case of any increase in the Borrowing Base or the
Commitment Amount to the credit approval processes of the Lenders, which
processes shall be conducted on a basis consistent with each Lender's
engineering and credit standards and assumptions then in effect for Loans of
this type and borrowers similarly situated. The Borrowers acknowledge that no
Lender has any obligation to increase its Commitment Amount or to agree to any
increase in the Borrowing Base. Furthermore, each Borrower acknowledges that the
determination of the Borrowing Base contains an equity cushion (market value in
excess of loan value), which is acknowledged by the Borrowers to be essential
for the adequate protection of the Lenders.
9 MANDATORY PREPAYMENTS. If at any time the Loan Balance and the
L/C Exposure exceeds the lesser of the Commitment Amount or the Borrowing Base
then in effect, the Borrowers shall, jointly and severally, within 30 days of
notice from the Agent of such occurrence, (a) prepay, or make arrangements
acceptable to the Agent and the Lenders for the prepayment of, the amount of
such excess for application on the Loan Balance, (b) provide additional
collateral, of character and value satisfactory to the Agent and the Lenders in
their reasonable business judgment, to secure the Obligations by the execution
and delivery to the Agent of Security Instruments in form and substance
satisfactory to the Agent and the Lenders, or (c) effect any combination of the
alternatives described in clauses (a) and (b) of this Section and acceptable to
the Agent and the Lenders in their reasonable business judgment. In the event
that a mandatory prepayment is required under this Section and the Loan Balance
is less than the amount required to be prepaid, the Borrowers jointly and
severally shall repay the entire Loan Balance and, in accordance with the
provisions of the relevant Letter of Credit Applications executed by the
Borrowers or otherwise to the satisfaction of the Agent and the Lenders, deposit
with the Agent, as additional Collateral securing the Obligations, an amount of
cash, in immediately available funds, equal to the L/C Exposure minus the lesser
of the Commitment Amount or the Borrowing Base. Cash deposited with the Agent in
satisfaction with the requirements provided in this section may be invested by
the Agent, but only at the express direction of the Borrowers as to the
investment vehicle and maturity (which shall be no later than the last
expiration date of any then outstanding Letter of Credit), for the account of
the Borrowers in cash or cash equivalent investments offered by or through the
Agent.
10 VOLUNTARY PREPAYMENTS OF LOANS. Subject to applicable provisions
of this Agreement, the Borrowers shall have the right at any time or from time
to time to prepay Loans; provided, however, that (a) the Borrowers shall pay all
accrued and unpaid interest on the amounts prepaid, and (b) no such prepayment
shall serve to postpone the repayment when due of any Obligation. The Borrowers
shall have the right, upon notice to the Agent, at any time or from time to time
to reduce the Commitment Amount or terminate the Commitment; provided, however,
that on the date of such permanent reduction or termination the Borrowers, being
jointly and severally obligated, shall pay the amount necessary, if any, to
reduce the Loan Balance to (and as applicable provide cash collateral for L/C
Exposure that equals) an amount equal to or less than the amount specified in
such notice plus accrued but unpaid interest, if any, to the date of such
payment together with all other fees and charges then owing pursuant to this
Agreement.
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11 COMMITMENT FEE. In addition to interest on the Notes as provided
herein and the Engineering Fees, Facility Fees and Letter of Credit Fees payable
hereunder and to compensate the Lenders for maintaining funds available, the
Borrowers shall pay to the Agents for the pro rata benefit of the Lenders, in
immediately available funds, on the first day of October 1997 and on the first
day of each third calendar month thereafter during the Commitment Period, a fee
in the amount of one-quarter of one percent per annum, calculated on the basis
of a year of 360 days and for the actual days elapsed (including the first day
but excluding the last day), on the average daily amount of the Available
Commitment during the preceding quarterly period.
12 ENGINEERING FEE. The Borrowers jointly and severally agree to
pay, or reimburse the Agent, for paying, reasonable and customary fees and
expenses of the independent consulting petroleum engineers engaged by the Agent
in consultation with the Lenders, from time to time, to evaluate the Mortgaged
Properties and review the Reserve Reports.
13 FACILITY FEE. In addition to interest on the Notes as provided
herein and the Engineering Fees payable hereunder and to compensate the Agent
and the Lenders for the costs of the extension of credit hereunder, the
Borrowers jointly and severally shall pay to the Agent for the pro rata account
of the Lenders on the Closing Date, in immediately available funds, a facility
fee in the amount of $67,535; and on the date of each Borrowing Base increase
which is accompanied by a like increase in the Commitment Amount, a fee shall
be paid by the Borrowers to the Agent for the pro rata account of the Lenders in
the amount of three-fourths of one percent of the excess, if any, of the new
Borrowing Base over the highest Borrowing Base theretofore in effect.
14 LETTER OF CREDIT FEE. In addition to interest on the Notes as
provided herein, and the Commitment Fees, Engineering Fees and Facility Fees
payable hereunder, the Borrowers agree to pay to the Agent for the benefit of
the Lenders, on the date of issuance of each Letter of Credit, a fee equal to
the greater of (a) one and one-quarter percent per annum, calculated on the
basis of a year of 360 days and the actual days elapsed (including the first day
but excluding the last day), on the face amount of such Letter of Credit during
the period for which such Letter of Credit is issued, or (b) $350. In addition,
the Borrowers agree to pay to the Agent, for its own account, on the date of
issuance of each Letter of Credit, a fee equal to one-quarter of one percent per
annum, calculated on the basis of a year of 360 days and the actual days elapsed
(including the first day, but excluding the last day) on the face amount of each
such Letter of Credit for the period for which such Letter of Credit is issued
pursuant to Section 2.4. The Borrower shall also agree to pay to the Agent on
demand its customary letter of credit transactional fees, including, without
limitation, amendment fees, payable with respect to each Letter of Credit.
15 LOANS TO SATISFY OBLIGATIONS OF BORROWERS. After an Event of
Default, the Lenders may, but shall not be obligated to, make Loans for the
benefit of the Borrowers and apply proceeds thereof to the satisfaction of any
condition, warranty, representation, or covenant of the Borrowers contained in
this Agreement or any other Loan Document. Any such Loan shall be evidenced by
the Notes.
16 SECURITY INTEREST IN ACCOUNTS; RIGHT OF OFFSET. As security for
the payment and performance of the Obligations, each Borrower hereby
collaterally transfers, assigns, and pledges to the Agent and each Lender and
grants to the Agent and each Lender a security interest in all funds
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of such Borrower now or hereafter or from time to time on deposit with the Agent
or each Lender, with such interest of the Agent and each Lender to be
retransferred, reassigned, and/or released to the Borrowers, as the case may be,
at the expense of the Borrowers upon payment in full and complete performance by
the Borrowers of all Obligations. All remedies as secured party or assignee of
such funds shall be exercisable by the Agent and each Lender, as applicable,
upon the occurrence of any Event of Default, regardless of whether the exercise
of any such remedy would result in any penalty or loss of interest or profit
with respect to any withdrawal of funds deposited in a time deposit account
prior to the maturity thereof. Furthermore, each Borrower hereby grants to the
Agent and each Lender the right, exercisable at such time as any Obligation
shall mature, whether by acceleration of maturity or otherwise, of offset or
banker's lien against all funds of such Borrower now or hereafter or from time
to time on deposit with the Agent or any Lender, regardless of whether the
exercise of any such remedy would result in any penalty or loss of interest or
profit with respect to any withdrawal of funds deposited in a time deposit
account prior to the maturity thereof. Notwithstanding the foregoing, the Agent
and the Lenders acknowledge that certain accounts of the Borrowers styled as
production proceed accounts will contain funds which are subject to the rights
of Persons other than any Borrower pursuant to Section 9.319 of the Texas
Business and Commerce Code and that certain accounts of the Borrowers styled as
revenue distribution accounts will contain funds which are subject to the rights
of third parties (other than any Borrower). In connection with each such
account, the Borrowers jointly and severally agree to provide to the Agent and
each Lender, promptly upon request of the Agent or any Lender, a list of such
third parties and the monies owed to each such third party contained at that
time in such account and the Borrowers acknowledge and agree that the Agent and
the Lenders may rely and will rely on such disclosures of the Borrowers in
exercising their remedies under this Section.
17 GENERAL PROVISIONS RELATING TO INTEREST. It is the intention of
the parties hereto to comply strictly with the usury laws of the State of Texas
and the United States of America. In this connection, there shall never be
collected, charged, or received on the sums advanced hereunder interest in
excess of that which would accrue at the Highest Lawful Rate. For purposes of
Article 5069-1.04, Vernon's TEXAS CIVIL STATUTES, as amended, the Borrowers
agree that the Highest Lawful Rate shall be the "indicated (weekly) rate
ceiling" as defined in such Article, provided that each Lender may also rely,
to the extent permitted by applicable laws of the State of Texas, other States
applicable to a Lender, or the United States of America ("Applicable Laws"), on
alternative maximum rates of interest under other Applicable Laws, if greater.
(a) Notwithstanding anything herein or in the Notes to the contrary,
during any Limitation Period, the interest rate to be charged on amounts
evidenced by the Notes shall be the Highest Lawful Rate, and the obligation, if
any, of the Borrowers for the payment of fees or other charges deemed to be
interest under applicable law shall be suspended. During any period or periods
of time following a Limitation Period, to the extent permitted by Applicable
Laws, the interest rate to be charged hereunder shall remain at the Highest
Lawful Rate until such time as there has been paid to the Lenders (i) the amount
of interest in excess of that accruing at the Highest Lawful Rate that the
Lenders would have received during the Limitation Period had the interest rate
remained at the otherwise applicable rate, and (ii) all fees otherwise payable
to the Lenders but for the effect of such Limitation Period.
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(b) If, under any circumstances, the aggregate amounts paid on the
Notes or under this Agreement or any other Loan Document include amounts which
by law are deemed interest and which would exceed the amount permitted if the
Highest Lawful Rate were in effect, the Borrowers stipulate that such payment
and collection will have been and will be deemed to have been, to the extent
permitted by Applicable Laws, the result of mathematical error on the part of
the Borrowers and the Lenders; and each Lender shall promptly refund the amount
of such excess (to the extent only of such interest payments in excess of that
which would have accrued and have been payable on the basis of the Highest
Lawful Rate) upon discovery of such error by such Lender or notice thereof from
the Borrowers. In the event that the maturity of any Obligation is accelerated,
by reason of an election by the Lenders or otherwise, or in the event of any
required or permitted prepayment, then the consideration constituting interest
under applicable laws may never exceed the Highest Lawful Rate; and excess
amounts paid which by law are deemed interest, if any, shall be credited by the
Lender on the principal amount of the Obligations, or if the principal amount of
the Obligations shall have been paid in full, refunded to the Borrowers.
(c) All sums paid, or agreed to be paid, to the Lenders for the use,
forbearance and detention of the proceeds of any advance hereunder shall, to the
extent permitted by Applicable Laws, be amortized, prorated, allocated, and
spread throughout the full term hereof until paid in full so that the actual
rate of interest is uniform but does not exceed the Highest Lawful Rate
throughout the full term hereof.
18 YIELD PROTECTION. Without limiting the effect of the other
provisions of this Section (but without duplication), the Borrowers shall pay to
the Agent from time to time on request such amounts as the Agent may determine
are necessary to compensate a Lender or some or all of the Lenders for any costs
attributable to the maintenance by such Lender or Lenders, pursuant to any
Regulatory Change, of capital in respect of the Commitment, such compensation to
include, without limitation, an amount equal to any reduction of the rate of
return on assets or equity of such Lender or Lenders to a level below that which
such Lender or Lenders could have achieved but for such Regulatory Change.
(a) Determinations by such Lender for purposes of this Section of
the effect of any Regulatory Change on (i) capital maintained, (ii) its costs or
rate of return, (iii) maintaining Loans, (iv) its obligation to make Loans, or
(v) amounts receivable by it in respect of Loans or such obligations, and the
additional amounts required to compensate a Lender under this Section shall be
conclusive, absent manifest error, provided that such determinations are made on
a reasonable basis. Such Lender shall furnish the Borrowers with a certificate
setting forth in reasonable detail the basis and amount of increased costs
incurred or reduced amounts receivable as a result of any such event, and the
statements set forth therein shall be conclusive, absent manifest error,
provided that such determinations are made on a reasonable basis. The Agent
shall notify the Borrowers, as promptly as practicable after the Agent obtains
notice from such Lender of any sums payable pursuant to this Section and request
for compensation therefor. Any compensation requested by any Lender pursuant to
this Section shall be due and payable to the Agent (on account of such Lender)
within five days of delivery of any such notice by the Agent to the Borrowers.
19 LETTERS IN LIEU OF TRANSFER ORDERS. The Agent and the Lenders
agree that none of the letters in lieu of transfer or division orders provided
by the Borrowers pursuant to Section
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3.1(g)(iii) or Section 5.7 will be sent to the addressees thereof prior to the
occurrence of an Event of Default, at which time the Agent may, at its option
and in addition to the exercise of any other rights and remedies, send any or
all of such letters.
20 POWER OF ATTORNEY. Each Borrower hereby designates the Agent as
its agent and attorney-in-fact, to act in its name, place, and stead for the
purpose of completing and, upon the occurrence of an Event of Default,
delivering any and all of the letters in lieu of transfer orders delivered by
the Borrowers to the Agent pursuant to Section 3.1(g)(iii) or Section 5.7,
including, without limitation, completing any blanks contained in such letters
and attaching exhibits thereto describing the relevant Collateral. Each Borrower
hereby ratifies and confirms all that the Agent shall lawfully do or cause to be
done by virtue of this power of attorney and the rights granted with respect to
such power of attorney. This power of attorney is coupled with the interests of
the Agent in the Collateral, shall commence and be in full force and effect as
of the Closing Date and shall remain in full force and effect and shall be
irrevocable so long as any Obligation remains outstanding or unpaid or any
Commitment exists. The powers conferred on the Agent by this appointment are
solely to protect the interests of the Agent and the Lenders under the Loan
Documents and shall not impose any duty upon the Agent to exercise any such
powers. The Agent and the Lenders shall be accountable only for amounts actually
received as a result of the exercise of such powers and shall not be responsible
to the Borrowers or any other Person for any act or failure to act with respect
to such powers, except for gross negligence or willful misconduct.
21 JOINT BORROWER PROVISIONS.
(a) Any Loan made hereunder shall be made jointly to the
Borrowers and shall be charged to the Borrowers, jointly and severally.
Any payments received by the Agent for the account of the Lenders
hereunder likewise shall be credited, jointly and severally, for the
account of the Borrowers.
(b) For the purpose of implementing the joint borrower
provisions of the Loan Documents, each Borrower hereby irrevocably
appoints each other Borrower as its agent and attorney-in-fact, coupled
with an interest, for all purposes of the Loan Documents, including the
making of requests for Loans, the execution and delivery of certificates
and the receiving and allocating of disbursements from the Agent. All
Advances are to be made for the collective account of Borrowers.
(c) It is understood and agreed that the handling of the
Loans on a joint borrowing basis as set forth in this Agreement is solely
as an accommodation to the Borrowers and at their request, and that the
Agent and the Lenders shall incur no liability to the Borrowers as a
result thereof. To induce the Agent and the Lenders to do so, and in
consideration thereof, each of the Borrowers hereby agrees to indemnify
each of the Agent and the Lenders and hold each such Person harmless from
and against any and all liabilities, expenses, losses, damages or claims
of damage or injury asserted against any such Person by any of the
Borrowers or by any other Person arising form or incurred by reason of the
handling by any of the Agent or the Lenders of the financing arrangement
of the Borrowers as herein provided, reliance by any of the Agent or the
Lenders on any requests or instructions
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from any Borrower, or any other related action taken by any of the Agent
or the Lenders hereunder in the absence of gross negligence or willful
misconduct.
(d) Each Borrower represents and warrants to the Agent and
the Lenders that the request for joint handling of the Loans and other
financial accommodations to be made by the Agent and the Lenders hereunder
was made because the Borrowers are engaged in an integrated operation that
requires financing on a basis permitting the availability of credit from
time to time to each of the Borrowers. Each of the Borrowers expects to
derive benefit, directly or indirectly, from such availability because the
successful operation of the Borrowers is dependent on the continued
successful performance of the functions of the integrated group.
(e) Each of the Borrowers represents and warrants to the
Agent and the Lenders that (i) such Borrower has established adequate
means of obtaining from the other Borrowers on a continuing basis
financial and other information pertaining to the business, operations,
and condition (financial and otherwise) of the other Borrowers, and their
property, and (ii) such Borrower now is and hereafter will be completely
familiar with the business, operations and condition (financial and
otherwise) of the other Borrowers, and their Property. Each of the
Borrowers hereby waives and relinquishes any duty on the part of the
Lender to disclose to such Borrower any matter, fact or thing relating to
the business, operations or condition (financial or otherwise) of any
other Borrower, or the Property of any other Borrower, whether now or
hereafter known by any of the Agent or the Lenders during the term of this
Agreement.
(f) Each Borrower acknowledges that the obligations of such
Borrower undertaken herein might be construed to consist, at least in
part, of the guaranty of obligations of Persons or entities other than
such Borrower (including the other Borrowers) and, in full recognition of
that fact, each Borrower consents and agrees that the Agent and the
Lenders may, at any time and from time to time, without notice or demand,
except as otherwise required herein, whether before or after any actual or
purported termination, repudiation or revocation of this Agreement by any
one or more Borrowers, and without affecting the enforceability or
continuing effectiveness hereof as to each Borrower, agree with the other
Borrower to: (i) supplement, restate, modify, amend, increase, decrease,
extend, renew, accelerate or otherwise change the time for payment or the
terms of the Obligations or any part thereof, including any increase or
decrease of the rate(s) of interest thereon; (ii) supplement, restate,
modify, amend, increase, decrease or waive, or enter into or give any
agreement, approval or consent with respect to, the Obligations or any
part thereof, or any of the Loan Documents or any additional security or
guarantees, or any condition, covenant, default, remedy, right,
representation or term thereof or thereunder; (iii) accept new or
additional instruments, documents or agreements in exchange for or
relative to any of the Loan Documents or the Obligations or any part
thereof; (iv) accept partial payments on the Obligations; (v) receive and
hold additional security or guarantees for the Obligations or any part
hereof; (vi) release, reconvey, terminate, waive, abandon, fail to
perfect, subordinate, exchange, substitute, transfer or enforce any
security or guarantees, and apply any security and direct the order or
manner of the sale thereof as the Agent in its sole and absolute
discretion may determine; (vii) release any Person from any personal
liability with respect to
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the Obligations or any part thereof; (viii) settle, release on terms
satisfactory to the Agent or by operation of applicable laws or otherwise
liquidate or enforce any Obligations and any security therefor in any
manner, consent to the transfer of any security and bid and purchase at
any sale; or (ix) consent to the merger, change or any other restructuring
or termination of the corporate or partnership existence of any Borrower
or any other Person, and correspondingly restructure the Obligations, and
any such merger, change, restructuring or termination shall not affect the
liability of any Borrower or the continuing effectiveness hereof, or the
enforceability hereof with respect to all or any part of the Obligations.
(g) Upon the occurrence and during the continuance of any
Event of Default, the Agent may enforce this Agreement independently as to
each Borrower and independently of any other remedy or security the Agent
at any time may have or hold in connection with the Obligations, and it
shall not be necessary for the Agent to marshal assets in favor of any
Borrower or any other person or to proceed upon or against or exhaust any
security or remedy before proceeding to enforce this Agreement. Each
Borrower expressly waives any right to require the Agent to marshal assets
in favor of any Borrower or any other Person or to proceed against the
other Borrower or any collateral provided by any Person, and agrees that
the Agent may proceed against Borrowers or any Collateral in such order as
it shall determine in its sole and absolute discretion.
(h) The Agent and any Lender may file a separate action or
actions against any Borrower, whether such action is brought or prosecuted
with respect to any security or against any other Person, or whether any
other Person is joined in any such action or actions. Each Borrower agrees
that the Agent and any Borrower and any Affiliate of any Borrower may deal
with each other in connection with the Obligations or otherwise, or alter
any contracts or agreements now or hereafter existing between any of them,
in any manner whatsoever, all without in any way altering or affecting the
continuing efficacy of this Agreement. Each Borrower expressly waives the
benefit of any statute of limitations affecting its liability hereunder or
the enforcement of the Obligations or any rights of the Agent and the
Lenders created or granted herein.
(i) The Agent's and the Lenders' rights hereunder shall be
reinstated and revived, and the enforceability of this Agreement shall
continue, with respect to any amount at any time paid on account of the
Obligations which thereafter shall be required to be restored or returned
by any Lender, all as though such amount had not been paid. The rights of
the Agent and the Lenders created or granted herein and the enforceability
of this Agreement at all times shall remain effective to cover the full
amount of all the Obligations even though the Obligations, including any
part thereof or any other security therefor, may be or hereafter may
become invalid or otherwise unenforceable as against any Borrower and
whether or not the other Borrowers shall have any personal liability with
respect thereto.
(j) To the maximum extent permitted by applicable law, each
Borrower expressly waives any and all defenses now or hereafter arising or
asserted by reason of (i) any disability or other defense of any other
Borrower with respect to the Obligations, (ii) the unenforceability or
invalidity of any security for the Obligations or the lack of perfection
or continuing perfection or failure of priority of any security for the
Obligations, (iii) the
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cessation for any cause whatsoever of the liability of any other Borrower
(other than by reason of the full payment and performance of all
Obligations), (iv) any failure of the Agent to marshal assets in favor of
any Borrower or any other Person, (v) any failure of the Agent to give
notice of sale or other disposition of collateral to any Borrower or any
other Person or any defect in any notice that may be given in connection
with any sale or disposition of collateral, (vi) any failure of the Agent
to comply with applicable law in connection with the sale or other
disposition of any Collateral or other security for any Obligation,
including any failure of the Agent to conduct a commercially reasonable
sale or other disposition of any Collateral or other security for any
Obligation, (vii) any act or omission of or others that directly or
indirectly results in or aids the discharge or release of any of any
Borrower or the Obligations or any security therefor by operation of law
or otherwise, (viii) any failure of the Agent to file or enforce a claim
in any bankruptcy or other proceeding with respect to any Person, (ix) the
election by the Agent of the application or non-application of Section
1111(b)(2) of the Bankruptcy Code, (x) any extension of credit or the
grant of any lien under Section 364 of the Bankruptcy Code, (xi) any use
of cash collateral under Section 363 of the Bankruptcy Code, (xii) any
agreement or stipulation with respect to the provision of adequate
protection in any bankruptcy proceeding of any Person, (xiii) the
avoidance of any lien in favor of the Agent for any reason, or (xiv) any
action taken by the Agent or any Lender that is authorized by this Section
or any other provision of any Loan Document. Until such time, if any, as
all of the Obligations have been paid and performed in full and no portion
of any Commitment of the Agent and any Lender to any Borrower under any
Loan Document remains in effect, no Borrower shall have any right of
subrogation, contribution, reimbursement or indemnity, and each Borrower
expressly waives any right to enforce any remedy that the Agent or any
Lender now has or hereafter may have against any other Person and waives
the benefit of, or any right to participate in, any Collateral now or
hereafter held by the Agent. Each Borrower expressly waives all
presentments, demands for payment or performance, notices of nonpayment or
nonperformance, protests, notices of protest, notices of dishonor and all
other notices or demands of any kind or nature whatsoever with respect to
the Obligations, and all notices of acceptance of this Agreement or of the
existence, creation or incurring of new or additional Obligations.
(k) To the fullest extent permitted by applicable law, each
Borrower expressly waives any suretyship defenses to the enforcement of
this Agreement or any rights of the Agent or any Lender created or granted
hereby or to the recovery by the Agent or any Lender against any Borrower
or any other Person liable therefor of any deficiency after a judicial or
nonjudicial foreclosure or sale, even though such a foreclosure or sale
may impair the subrogation rights of the Borrowers and may preclude the
Borrowers from obtaining reimbursement or contribution from other
Borrowers. Each Borrower expressly waives any defenses or benefits that
may be derived pursuant to or from Rule 31 of the Texas Rules of Civil
Procedure, Section 17.001 of the Civil Practice and Remedies Code and
Chapter 34 of the Texas Business and Commerce Code, as amended, or
comparable provisions of the laws of any other jurisdiction, and all other
suretyship defenses it otherwise might or would have under Texas law or
other applicable law.
(l) The Borrowers and each of them warrant and agree that
each of the waivers and consents set forth herein are made after
consultation with legal counsel and with
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full knowledge of their significance and consequences, with the
understanding that events giving rise to any defense or right waived may
diminish, destroy or otherwise adversely affect rights which the Borrowers
otherwise may have against any other Borrower, the Agent, the Lenders or
others, or against the Collateral, and that, under the circumstances, the
waivers and consents herein given are reasonable and not contrary to
public policy or law. If any of the waivers or consents herein are
determined to be contrary to any applicable law or public policy, such
waivers and consents shall be effective to the maximum extent permitted by
law.
22 PRO RATA TREATMENT. Except to the extent otherwise provided herein: (a)
each Loan shall be made by the Lenders under Section 2.1, each payment of
facility fee under Section 2.11 shall be made for the account of the Lenders,
and each termination or reduction of the Commitments shall be applied to the
Commitments of the Lenders, pro rata according to the respective unused
Commitments; (b) each payment and prepayment of principal of or interest on
Loans by the Borrowers shall be made to the Agent for the account of the Lenders
holding Loans pro rata in accordance with the respective Loan Balance held by
such Lenders. Each Lender hereby agrees that it shall be liable under and
pursuant to each Letter of Credit pro rata in proportion to its Commitment
Amount of the face amount thereof to the same extent and of the same effect as
if such Lender had issued such Letter of Credit. In that regard, immediately
upon issuance by the Agent of any Letter of Credit in accordance with this
Agreement, each other Lender shall be deemed to have irrevocably and
unconditionally purchased and received from the Agent, WITHOUT RECOURSE OR
WARRANTY, an undivided interest and participation in such Letter of Credit, and
including all obligations of the Borrowers with respect thereto and any security
therefor or any guaranty relating thereto, in an amount equal to the product of
(i) the Commitment Amount of such Bank and (ii) the stated amount of such Letter
of Credit.
23 NON-RECEIPT OF FUNDS BY THE AGENT. Unless the Agent shall have been
notified by a Lender or the Borrowers (the "PAYOR") prior to the date on which
such Lender is to make payment to the Agent of the proceeds of a Loan to be made
by it hereunder or the Borrowers are to make a payment to the Agent for the
account of one or more of the Lenders, as the case may be (such payment being
herein called the "REQUIRED PAYMENT"), which notice shall be effective upon
receipt, that the Payor does not intend to make the Required Payment to the
Agent, the Agent may assume that the Required Payment has been made and may, in
reliance upon such assumption (but shall not be required to), make the amount
thereof available to the intended recipient on such date and, if the Payor has
not in fact made the Required Payment to the Agent, the recipient of such
payment shall, on demand, pay to the Agent the amount made available to it
together with interest thereon in respect of the period commencing on the date
such amount was so made available by the Agent until the date the Agent recovers
such amount at a rate per annum equal to (i) the federal funds rate for such
period in the case of a Lender and (b) the applicable rate of interest provided
for herein for such period in the case of the Borrowers.
24 WITHHOLDING TAX EXEMPTION. Each Lender that is not incorporated under
the laws of the United States of America or a state thereof agrees that it will
deliver to the Borrowers and the Agent two duly completed copies of Form 1001 or
4224, certifying in either case that such Lender is entitled to receive payments
from the Borrowers under any Loan Document without deduction or withholding of
any United States federal income taxes. Each Lender which so delivers a Form
1001 or 4224 further undertakes to deliver to Borrowers and the Agent two
additional copies of such form
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(or a successor form) on or before the date such form expires or becomes
obsolete or after the occurrence of any event requiring a change in the most
recent form so delivered by it, and such amendments thereto or extensions or
renewals thereof as may be reasonably requested by the Borrowers or the Agent,
in each case certifying that such Lender is entitled to receive payments from
the Borrower under any Loan Document without deduction or withholding of any
United States federal income taxes, unless an event (including without
limitation any change in treaty, law or regulation) has occurred prior to the
date on which any such delivery would otherwise be required which renders all
such forms inapplicable or which would prevent such Lender from duly completing
and delivering any such form with respect to it and such Lender advises the
Borrowers and the Agent that it is not capable of receiving such payments
without any deduction or withholding of United States federal income tax.
25 CERTAIN AGREEMENTS REGARDING LETTERS OF CREDIT. The Borrowers
assume all risks of acts or omissions of beneficiaries of any of the Letters of
Credit with respect to their use of the Letters of Credit. Except in the case of
gross negligence or willful misconduct on the part of the Agent, the Agent, the
Lenders or any correspondent, neither the Agent nor any Lender or correspondent
shall be liable or responsible for any of the following (including, but not
limited to, those caused by the Agent's, its correspondents' or any of the
Lenders' own negligence):
(a) The validity or genuineness of certificates or other documents
even if such certificates or documents should in fact prove to be invalid,
fraudulent or forged;
(b) Errors, omissions, interruptions or delay in transmission or
delivery of any messages, by mail, telex, facsimile or otherwise, whether
or not they be in code;
(c) Errors in the translation or for errors in interpretation of
technical terms; or
(d) Any consequences arising from causes beyond the Agent's control
or the control of its correspondents;
nor shall the Agent be responsible for any error, neglect or default by any of
its correspondents; and none of the above shall affect, impair or prevent the
vesting of any of the Agent's rights or powers hereunder or under any Letter of
Credit, all of which rights shall be cumulative. The Agent and its
correspondents may accept certificates or other documents that appear on their
face to be in order, without responsibility for further investigation. In
furtherance but not in limitation of the foregoing provisions, the Borrowers
agree that any action taken by the Agent or any of its correspondents in good
faith in connection with a Letter of Credit or any related drafts, certificates,
documents or instruments, shall be binding on the Borrowers and shall not put
the Agent or its correspondents under any resulting liability to the Borrowers;
and the Borrowers make a like agreement as to any inaction or omission, unless
in breach of good faith.
ARTICLE III
CONDITIONS
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The obligations of the Agent and the Lenders to enter into this
Agreement, the obligations of the Lenders to make the initial Loans to the
Borrowers and the obligation of the Agent to issue the initial Letters of Credit
are subject to the satisfaction of the following conditions precedent:
1 RECEIPT OF LOAN DOCUMENTS AND OTHER ITEMS. The Lenders shall have
no obligation to make any Loan under this Agreement and the Agent shall have no
obligation to issue any Letter of Credit unless and until the Agent and the
Lenders shall have received, reviewed, and approved the following documents and
other items, appropriately executed when necessary and, where applicable,
acknowledged by one or more authorized officers of the Borrowers, all in form
and substance satisfactory to the Agent and dated, where applicable, of even
date herewith or a date prior thereto and acceptable to the Agent:
(a) multiple counterparts of this Agreement, as requested by the
Agent;
(b) the Notes;
(c) copies of the Articles of Incorporation or Certificate of
Incorporation and all amendments thereto and the bylaws and all amendments
thereto of each Borrower, accompanied by a certificate issued by the
secretary or an assistant secretary of each Borrower, to the effect that
each such copy is correct and complete;
(d) certificates of incumbency and signatures of the Responsible
Officers of each Borrower who are authorized to execute Loan Documents on
behalf of such entity, each such certificate being executed by the
secretary or an assistant secretary of such entity;
(e) copies of corporate resolutions approving the Loan Documents and
authorizing the transactions contemplated herein and therein, duly adopted
by the board of directors of each Borrower, accompanied by certificates of
the secretary or an assistant secretary of each Borrower, to the effect
that such copies are true and correct copies of resolutions duly adopted
at a meeting or by unanimous written consent of the board of directors of
such Borrower, and that such resolutions constitute all the resolutions
adopted with respect to such transactions, have not been amended,
modified, or revoked in any respect, and are in full force and effect as
of the date of such certificate;
(f) multiple counterparts, as requested by the Agent, of the
following Security Instruments creating, evidencing, perfecting, and
otherwise establishing Liens in favor of the Agent in and to the
Collateral:
(i) Deed of Trust, Mortgage, Assignment of Production,
Security Agreement and Financing Statement from the Borrowers
covering the Mortgaged Properties (other than those subject to the
Pledge);
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(ii) Pledge covering the Mortgaged Properties described
therein;
(iii) Financing Statements from the Borrowers, as debtors,
constituent to the instrument described in clauses (i) and (ii)
above;
(iv) undated letters, in form and substance satisfactory to
the Agent and the Borrowers, from the relevant Borrower to each
purchaser of production and disburser of the proceeds of production
from or attributable to the Mortgaged Properties of such Borrower,
together with additional letters with the addressees left blank,
authorizing and directing the addressees to make future payments
attributable to production from the Mortgaged Properties directly to
the Agent;
(g) certificates dated as of a recent date from the Secretary of
State or other appropriate Governmental Authority evidencing the existence
or qualification and good standing of each Borrower in its jurisdiction of
incorporation and in any other jurisdictions where it does business;
(h) results of searches of the UCC Records of the Secretary of State
of the State of Texas and other states where Mortgaged Properties are
located from sources acceptable to the Agent and reflecting no Liens
against any of the Collateral as to which perfection of a Lien is
accomplished by the filing of a financing statement other than in favor of
the Agent for the benefit of the Lenders;
(i) confirmation, acceptable to the Agent and the Lenders, of the
title of the Borrowers to the Mortgaged Properties, free and clear of
Liens other than Permitted Liens;
(j) all operating, lease, sublease, royalty, sales, exchange,
processing, farmout, bidding, pooling, unitization, communitization, and
other agreements relating to the Mortgaged Properties requested by the
Agent and the Lenders;
(k) certificates evidencing the insurance coverage required pursuant
to Section 5.18; and
(l) such other agreements, documents, instruments, opinions,
certificates, waivers, consents, and evidence as the Agent may reasonably
request.
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2 EACH LOAN AND LETTER OF CREDIT. In addition to the conditions
precedent stated elsewhere herein, the Lenders shall not be obligated to make
any Loan and the Agent shall not be obligated to issue any Letter of Credit
unless:
(a) a Borrower shall have delivered to the Agent a written request
signed by a Responsible Officer of such Borrower specifying the amount of
Loan requested and the date of borrowing (which shall be a Business Day)
no later than 11:00 a.m. Central Standard or Central Daylight Savings
Time, as the case may be, on the Business Day preceding the requested
borrowing for the relevant Loan or a Letter of Credit Application at least
two Business Days prior to the requested issuance date for the relevant
Letter of Credit; and each statement or certification made in such written
request or Letter of Credit Application shall be true and correct in all
material respects on the requested date for such Loan;
(b) no Event of Default or Default shall exist or will occur as a
result of the making of the requested Loan;
(c) no event shall have occurred which could reasonably be expected
to have a Material Adverse Effect;
(d) each of the representations and warranties contained in this
Agreement shall be true and correct and shall be deemed to be repeated by
the Borrowers as if made on the requested date for such Loan;
(e) all of the Security Instruments shall be in full force and
effect and provide to the Agent for the benefit of the Lenders the
security intended thereby;
(f) the making of such Loan or issuance of such Letter of Credit
shall not contravene, violate, or conflict with any Requirement of Law;
(g) each of the Borrowers shall hold title to the Collateral pledged
by such entity in accordance with Section 4.5 and be the sole beneficial
owner thereof; and
(h) the Agent shall have received the payment of all Commitment
Fees, Engineering Fees, Facility Fees, Letter of Credit Fees and other
fees payable to the Agent or for the benefit of the Lenders for (i) all
reasonable fees and expenses of counsel to the Agent for which the
Borrowers are responsible pursuant to applicable provisions of this
Agreement and for which invoices have been presented as of or prior to the
date of the relevant Loan or Letter of Credit Application, and (ii)
estimated fees charged by filing officers and other public officials
incurred or to be incurred in connection with the filing and recordation
of any Security Instruments, for which invoices have been presented as of
or prior to the date of the requested Loan or Letter of Credit
Application.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
To induce the Agent and the Lenders to enter into this Agreement
and (in the case of the Lenders) to make the Loans and (in the case of the
Agent) to issue Letters of Credit, the Borrowers, jointly and severally,
represent and warrant to the Agent and the Lenders (which representations and
warranties shall survive the delivery of the Notes) that:
1 DUE AUTHORIZATION. The execution and delivery by the Borrowers of
this Agreement and the borrowings hereunder, the execution and delivery by the
Borrowers of the Notes, the repayment of the Notes and interest and fees
provided for in the Notes and this Agreement, the execution and delivery of the
Security Instruments by the Borrowers, and the performance of all obligations
of the Borrowers under the Loan Documents are within the corporate power of the
Borrowers, have been duly authorized by all necessary corporate action by the
Borrowers, and do not and will not (a) require the consent of any Governmental
Authority to be obtained by any of the Borrowers, (b) contravene or conflict
with any Requirement of Law applicable to the Borrowers, (c) contravene or
conflict with any material indenture, instrument, or other agreement to which
any Borrower is a party or by which any Mortgaged Property may be presently
bound or encumbered, or (d) result in or require the creation or imposition of
any Lien in, upon or of any Property of any Borrower under any such indenture,
instrument, or other agreement, other than the Loan Documents.
2 CORPORATE EXISTENCE. Each Borrower is a corporation duly
organized, legally existing, and in good standing under the laws of the state of
its incorporation and is duly qualified as a foreign corporation and is in good
standing in all jurisdictions wherein the ownership of Property or the operation
of its business necessitates same, other than those jurisdictions wherein the
failure to so qualify will not have a Material Adverse Effect.
3 VALID AND BINDING OBLIGATIONS. All Loan Documents, when duly
executed and delivered by the Borrowers, will be the legal, valid, and binding
obligations of the Borrowers, enforceable against the Borrowers in accordance
with their respective terms, subject to the effect of bankruptcy or other
similar laws and to general principles of equity.
4 SECURITY INSTRUMENTS. The provisions of each Security Instrument
are effective to create in favor of the Agent for the benefit of the Lenders, a
legal, valid, and enforceable Lien in all right, title, and interest of the
Borrowers in the Collateral described therein, which Liens, assuming the
accomplishment of recording and filing in accordance with Applicable Laws, shall
constitute fully perfected first-priority Liens (subject to Permitted Liens) on
all right, title, and interest of the Borrowers in the Collateral described
therein.
5 TITLE TO ASSETS. (a) The Borrowers have good and indefeasible
title to their respective Leases, Lands and Easements, as such terms are defined
in the Deed of Trust referred to in Section 3.1(g)(i) and all other real
Property of the Borrowers, each free and clear of all Liens except Permitted
Liens; and (b) the Borrowers have good and marketable title to their respective
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Pipelines, Contracts, and Facility, as the terms are defined in such Deed of
Trust and all other personal Property of the Borrowers, each free and clear of
all Liens except Permitted Liens.
6 SCOPE AND ACCURACY OF FINANCIAL STATEMENTS. The Financial
Statements of each Borrower as of March 31, 1997, present fairly the financial
position and results of operations and cash flows of such Borrower in accordance
with sound accounting principles as at the relevant point in time or for the
period indicated, as applicable. No event or circumstance has occurred since
March 31, 1997, which could reasonably be expected to have a Material Adverse
Effect.
7 NO MATERIAL MISSTATEMENTS. No information, exhibit, statement, or
report furnished to the Agent or any Lender by or at the direction of the
Borrowers in connection with this Agreement contains any material misstatement
of fact or omits to state a material fact or any fact necessary to make the
statements contained therein not misleading as of the date made or deemed made.
8 LIABILITIES, LITIGATION, AND RESTRICTIONS. Other than as listed
under the heading "Liabilities" on Exhibit IV attached hereto, none of the
Borrowers has any liabilities, direct or contingent, which could reasonably be
expected to have a Material Adverse Effect. Except as set forth under the
heading "Litigation" on Exhibit IV hereto, no litigation or other proceeding
affecting any Borrower is pending before any Governmental Authority or, to the
best knowledge of the Borrowers, threatened against any Borrower.
9 AUTHORIZATIONS; CONSENTS. Except as expressly contemplated by this
Agreement, no authorization, consent, approval, exemption, franchise, permit, or
license of, or filing with, any Governmental Authority or any other Person is
required to authorize or is otherwise required in connection with the valid
execution and delivery by the Borrowers of the Loan Documents, the repayment by
the Borrowers of the Notes and interest and fees provided in the Notes and this
Agreement, or the performance by the Borrowers of the Obligations.
10 COMPLIANCE WITH LAWS. Each Borrower and its Property, including,
without limitation, the Mortgaged Properties of such Borrower, are in compliance
with all applicable Requirements of Law, including, without limitation,
Environmental Laws, the Natural Gas Policy Act of 1978, as amended, and ERISA,
except to the extent non-compliance with any such Requirements of Law could not
reasonably be expected to have a Material Adverse Effect.
11 ERISA. No Reportable Event has occurred with respect to any
Single Employer Plan, and each Single Employer Plan has complied with and been
administered in all material respects in accordance with applicable provisions
of ERISA and the Code. To the best knowledge of the Borrowers, (a) no Reportable
Event has occurred with respect to any Multiemployer Plan, and (b) each
Multiemployer Plan has complied with and been administered in all material
respects with applicable provisions of ERISA and the Code. The present value of
all benefits vested under each Single Employer Plan maintained by any Borrower
or any Commonly Controlled Entity (based on the assumptions used to fund such
Plan) did not, as of the last annual valuation date applicable thereto, exceed
the value of the assets of such Plan allocable to such vested
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benefits. Neither any Borrower nor any Commonly Controlled Entity has had a
complete or partial withdrawal from any Multiemployer Plan for which there is
any withdrawal liability. As of the most recent valuation date applicable to any
Multiemployer Plan, neither any Borrower nor any Commonly Controlled Entity
would become subject to any liability under ERISA if such Borrower or such
Commonly Controlled Entity were to withdraw completely from such Multiemployer
Plan. Neither any Borrower nor any Commonly Controlled Entity has received
notice that any Multiemployer Plan is Insolvent or in Reorganization. To the
best knowledge of the Borrowers, no such Insolvency or Reorganization is
reasonably likely to occur. Based upon GAAP existing as of the date of this
Agreement and current factual circumstances, the Borrowers have no reason to
believe that the annual cost during the term of this Agreement to the Borrowers
and all Commonly Controlled Entities for post-retirement benefits to be provided
to the current and former employees of the Borrowers and all Commonly Controlled
Entities under Plans which are welfare benefit plans (as defined in Section 3(1)
of ERISA) will, in the aggregate, have a Material Adverse Effect.
12 ENVIRONMENTAL LAWS. To the best knowledge and belief of the
Borrowers after due inquiry, except as would not have a Material Adverse Effect,
or as described on Exhibit IV under the heading "Environmental Matters:"
(a) no Property of any Borrower is currently on or has ever been on,
or is adjacent to any Property which is on or has ever been on, any
federal or state list of Superfund Sites;
(b) no Hazardous Substances have been generated, transported, and/or
disposed of by any Borrower at a site which was, at the time of such
generation, transportation, and/or disposal, or has since become, a
Superfund Site;
(c) except in accordance with applicable Requirements of Law or the
terms of a valid permit, license, certificate, or approval of the relevant
Governmental Authority, no Release of Hazardous Substances by any Borrower
or from, affecting, or related to any Property of any Borrower or adjacent
to any Property of any Borrower has occurred which could (i) require
reporting to any Governmental Authority, (ii) require remediation or other
response action, or (iii) be the basis of a claim for personal injury or
property damage; and
(d) no Environmental Complaint concerning any Property or operations
of any Borrower has been received by any Borrower.
13 REFUNDS. Except as described on Exhibit IV under the heading
"Refunds," no orders of, proceedings pending before, or other requirements of,
the Federal Energy Regulatory Commission, the Texas Railroad Commission, or any
Governmental Authority exist which could result in any Borrower being required
to refund any material portion of the proceeds received or to be received from
the sale of hydrocarbons constituting part of the Mortgaged Property.
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14 GAS CONTRACTS. Except as described on Exhibit IV under the
heading "Gas Contract," or as reflected in the Reserve Reports delivered prior
to the date of this Agreement, no Borrower (a) is obligated in any material
respect by virtue of any prepayment made under any contract containing a
"take-or-pay" or "prepayment" provision or under any similar agreement to
deliver Hydrocarbons produced from or allocated to any of the Mortgaged Property
at some future date without receiving full payment therefor within 90 days of
delivery, nor (b) has produced gas, in any material amount, subject to, and no
Borrower nor any of the Mortgaged Properties is subject to, balancing rights of
third parties or subject to balancing duties under governmental requirements,
except as to such matters for which the relevant Borrower has established
monetary reserves adequate in amount in accordance with GAAP to satisfy such
obligations and has segregated such reserves on its books from other accounts.
15 INTELLECTUAL PROPERTY. Except as would not have a Material
Adverse Effect, each Borrower owns or is licensed to use all Intellectual
Property necessary to conduct all business material to its condition (financial
or otherwise), business, or operations as such business is currently conducted.
To the best knowledge and belief of the Borrowers, no claim has been asserted or
is pending by any Person with respect to the use of any such Intellectual
Property or challenging or questioning the validity or effectiveness of any such
Intellectual Property; and no Borrower knows of any valid basis for any such
claim. The use of such Intellectual Property by the Borrowers does not infringe
on the rights of any Person, except for such claims and infringements as do not,
in the aggregate, give rise to any Material Adverse Effect.
16 CASUALTIES OR TAKING OF PROPERTY. Except as would not have a
Material Adverse Effect, or as disclosed on Exhibit IV under the heading
"Casualties," since June 30, 1997, neither the business nor any Property of any
Borrower has been affected as a result of any fire, explosion, earthquake,
flood, drought, windstorm, accident, strike or other labor disturbance, embargo,
requisition or taking of Property, or cancellation of contracts, permits, or
concessions by any Governmental Authority, riot, activities of armed forces, or
acts of God.
17 LOCATIONS OF BORROWERS. The principal place of business and chief
executive office of each Borrower is located at the address of the Borrowers set
forth in Section 9.3 or at such other location as the Borrowers may have, by
proper written notice hereunder, advised the Agent, provided that such other
location is within a state in which appropriate financing statements from each
of the Borrowers in favor of the Agent for the benefit of the Lenders have been
filed.
ARTICLE V
AFFIRMATIVE COVENANTS
So long as any Obligation remains outstanding or unpaid or any
Commitment exists, each Borrower, jointly and severally, shall:
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1 MAINTENANCE AND ACCESS TO RECORDS. Keep adequate records, in
accordance with GAAP, of all its transactions, and promptly following the
reasonable request of the Agent, make such records available for inspection by
the Agent or any Lender at the Borrowers' respective offices during normal
business hours and, at the expense of such Borrower, allow the Agent and any
Lender to make and take away such copies thereof as it may reasonably request.
2 QUARTERLY FINANCIAL STATEMENTS. Deliver to the Agent and each
Lender, on or before the 45th day after the close of each of the first three
quarterly periods of each fiscal year, (a) a copy of the unaudited combined and
combining Financial Statements of the Borrowers as at the close of such
quarterly period and from the beginning of such year to the end of such period,
such Financial Statements to be certified by a Responsible Officer of each
Borrower as having been prepared in accordance with GAAP consistently applied
and as a fair presentation of the condition of the Borrowers, subject to changes
resulting from normal year-end audit adjustments, and (b) a Compliance
Certificate.
3 ANNUAL FINANCIAL STATEMENTS. Deliver to the Agent and each Lender,
on or before the 90th day after the close of each fiscal year of the Borrowers,
(a) a copy of the annual audited Financial Statements of the Borrowers and (b) a
Compliance Certificate.
4 OIL AND GAS RESERVE REPORTS. Deliver to the Agent and each Lender,
no later than April 1 of each year during the term of this Agreement,
engineering reports in form and substance satisfactory to the Agent, certified
by any nationally- or regionally-recognized independent consulting petroleum
engineers reasonably acceptable to the Agent, fairly and accurately setting
forth (i) the proven and producing, shut-in, behind-pipe, and undeveloped oil
and gas reserves (separately classified as such) attributable to the Mortgaged
Properties as of December 31 of the immediately preceding year for which such
reserve reports are furnished, (ii) the aggregate present value of the future
net income with respect to such Mortgaged Properties that are proved and
producing reserves, discounted at a stated per annum discount rate of proven and
producing reserves, (iii) projections of the annual rate of production, gross
income, and net income with respect to such proven and producing reserves, and
(iv) information with respect to the "take-or-pay," "prepayment," and
gas-balancing liabilities of the Borrowers.
(a) Deliver to the Agent and each Lender no later than October 1 of
each year during the term of this Agreement, engineering reports in form and
substance satisfactory to the Agent prepared by or under the supervision of a
qualified petroleum engineer or other Person designated by the Borrowers and
acceptable to the Agent evaluating the Mortgaged Properties as of June 30 of the
year for which such reserve reports are furnished and updating the information
provided in the reports pursuant to Section 5.4(a).
(b) Within 30 days after the end of each calendar month commencing
with the calendar month ending August 31, 1997, a written report on all Swap
Obligations, to be in a form and substance reasonably satisfactory to the Agent
and the Lenders; and
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(c) Each of the reports provided pursuant to this Section shall be
submitted to the Agent and each Lender together with additional data concerning
pricing, quantities of production from the Mortgaged Properties, volumes of
production sold, purchasers of production, gross revenues, expenses, and such
other information and engineering and geological data with respect thereto as
the Agent may reasonably request.
5 TITLE OPINIONS; TITLE DEFECTS; ETC. Promptly upon the request of
the Agent, furnish to the Agent and the Lenders title opinions, in form and
substance and by counsel reasonably satisfactory to the Agent, or other
confirmation of title acceptable to the Agent, covering Mortgaged Properties
constituting not less than 80% of the value, determined by the Agent in its sole
discretion, of the Mortgaged Properties; and promptly, but in any event within
60 days after notice by the Agent of any defect, material in the opinion of the
Agent in value, in the title of any Borrower to any of its Mortgaged Properties,
proceed diligently to clear such title defects, and, in the event any such title
defects are capable of being cured in the opinion of the Agent and not cured in
a timely manner, pay all related costs and fees incurred by the Agent to do so.
Within 10 Business Days of the date of this Agreement, furnish to the Agent and
the Lenders the opinion of Morris & Campbell in the form attached hereto as
Exhibit III, with such changes thereto as may be approved by the Agent.
6 NOTICES OF CERTAIN EVENTS. Deliver to the Agent and each Lender,
promptly and in any event within 5 Business Days upon having knowledge of the
occurrence of any of the following events or circumstances, a written statement
with respect thereto, signed by a Responsible Officer of each Borrower and
setting forth the relevant event or circumstance and the steps being taken by
the Borrowers with respect to such event or circumstance:
(a) any Default or Event of Default;
(b) any default or event of default under any contractual obligation
of any Borrower, or any litigation, investigation, or proceeding between
any Borrower and any Governmental Authority which, in either case, if not
cured or if adversely determined, as the case may be, could reasonably be
expected to have a Material Adverse Effect;
(c) any litigation or proceeding involving any Borrower as a
defendant or in which any Property of any Borrower is subject to a claim
and in which the amount involved is $100,000 or more and which is not
covered by insurance or in which injunctive or similar relief is sought;
(d) the receipt by any Borrower of any Environmental Complaint
requesting or requiring remediation of contaminated soil or ground water,
imposing fines or penalties, rejecting or revoking any license or permit,
or any other Environment Complaint which could reasonably be expected to
have a Material Adverse Effect;
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(e) any actual, proposed, or threatened testing or other
investigation by any Governmental Authority or other Person concerning the
environmental condition of, or relating to, any Property of any Borrower
or adjacent to any Property of any Borrower following any allegation of a
violation of any Requirement of Law that relates to such testing or other
investigation;
(f) any Release of Hazardous Substances by any Borrower or from,
affecting, or related to any Property of any Borrower or adjacent to any
Property of any Borrower, or the violation of any Environmental Law, or
the revocation, suspension, or forfeiture of or failure to renew, any
permit, license, registration, approval, or authorization which could, in
the case of each of the items in this clause (f), reasonably be expected
to have a Material Adverse Effect;
(g) the change in identity or address of any Person remitting to any
Borrower proceeds from the sale of Hydrocarbon production from or
attributable to any Mortgaged Property;
(h) any change in the president or chief executive officer of any
Borrower;
(i) any Reportable Event or imminently expected Reportable Event
with respect to any Plan; any withdrawal from, or the termination,
Reorganization or Insolvency of, any Multiemployer Plan; the institution
of proceedings or the taking of any other action by the PBGC, any Borrower
or any Commonly Controlled Entity or Multiemployer Plan with respect to
the withdrawal from, or the termination, Reorganization or Insolvency of,
any Single Employer Plan or Multiemployer Plan; or any Prohibited
Transaction in connection with any Plan or any trust created thereunder
and the action being taken by the Internal Revenue Service with respect
thereto; and
(j) any other event or condition which could reasonably be expected
to have a Material Adverse Effect.
7 LETTERS IN LIEU OF TRANSFER ORDERS; DIVISION ORDERS. Promptly upon
request by the Agent at any time and from time to time, and without limitation
on the rights of the Agent pursuant to Sections 2.19 and 2.20, execute such
letters in lieu of transfer orders, in addition to the letters signed by the
Borrowers and delivered to the Agent in satisfaction of the condition set forth
in Section 3.1(g)(iii) and/or division and/or transfer orders as are necessary
or appropriate to transfer and deliver to the Agent after an Event of Default
proceeds from or attributable to any Mortgaged Property.
8 ADDITIONAL INFORMATION. Furnish to the Agent, promptly upon the
request of the Agent or any Lender, such additional financial or other
information concerning the assets, liabilities, operations, and transactions of
the Borrowers as the Agent or any Lender may from time to time reasonably
request; and notify the Agent not less than 10 Business Days prior to the
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occurrence of any condition or event that may change the proper location for the
filing of any financing statement or other public notice or recording for the
purpose of perfecting a Lien in any Collateral, including, without limitation,
any change in its name or the location of its principal place of business or
chief executive office; and upon the request of the Agent, execute such
additional Security Instruments as may be necessary or appropriate in connection
therewith.
9 COMPLIANCE WITH LAWS. Except to the extent the failure to comply
or cause compliance would not have a Material Adverse Effect, comply with all
Requirements of Law applicable to the Borrowers, including, without limitation,
(a) the Natural Gas Policy Act of 1978, as amended, (b) ERISA, (c) Environmental
Laws, and (d) all permits, licenses, registrations, approvals, and
authorizations (i) issued pursuant to any such Requirements of Law, (ii)
required for the performance of the operations of any Borrower, or (iii)
applicable to the use, generation, handling, storage, treatment, transport, or
disposal of any Hazardous Substances; and cause all employees, crew members,
agents, contractors, subcontractors, and future lessees (pursuant to appropriate
lease provisions) of all Borrowers, while such Persons are acting within the
scope of their relationship with such Borrower, to comply with all such
Requirements of Law as may be necessary or appropriate to enable all Borrowers
to so comply.
10 PAYMENT OF ASSESSMENTS AND CHARGES. Pay all taxes, assessments,
governmental charges, rent, and other Indebtedness which, if unpaid, might
become a Lien against the Property of the Borrowers, except any of the foregoing
being contested in good faith and as to which adequate reserves in accordance
with GAAP have been established or unless failure to pay would not have a
Material Adverse Effect.
11 MAINTENANCE OF CORPORATE EXISTENCE AND GOOD STANDING. Maintain
its corporate existence and good standing in its jurisdictions of incorporation
and, unless the failure to do so would not have a Material Adverse Effect,
maintain its qualification and good standing in all jurisdictions wherein the
Property now owned or hereafter acquired or business now or hereafter conducted
necessitates same.
12 PAYMENT OF NOTES; PERFORMANCE OF OBLIGATIONS. Pay the Notes
according to the reading, tenor, and effect thereof, and do and perform every
act and discharge all of its other Obligations in accordance with the terms
hereof and the other Loan Documents.
13 FURTHER ASSURANCES. Promptly cure any defects in the execution
and delivery of any of the Loan Documents, and execute, acknowledge, and deliver
such other assurances and instruments as shall, in the reasonable opinion of the
Agent or any Lender, be necessary to fulfill the terms of the Loan Documents.
14 INITIAL FEES AND EXPENSES OF COUNSEL TO AGENT. Upon request by
the Agent, promptly reimburse the Agent for all reasonable fees and expenses of
Winstead Sechrest & Minick P.C., special counsel to the Agent, in connection
with the preparation of this Agreement and all documentation contemplated
hereby, the satisfaction of the conditions precedent set forth herein, the
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filing and recordation of Security Instruments, and the consummation of the
transactions contemplated in this Agreement.
15 SUBSEQUENT FEES AND EXPENSES OF AGENT AND LENDERS. Upon request
by the Agent, promptly reimburse the Agent (to the fullest extent permitted by
law) for all amounts reasonably expended, advanced, or incurred by or on behalf
of the Agent or any Lender to satisfy any obligation of the Borrowers under any
of the Loan Documents; to collect the Obligations; to ratify, amend, restate, or
prepare additional Loan Documents, as the case may be; for the filing and
recordation of Security Instruments; to enforce the rights of the Agent or any
Lender under any of the Loan Documents; and to protect the Collateral, which
amounts shall be deemed compensatory in nature and liquidated as to amount upon
notice to the Borrowers by the Agent and which amounts shall include, but not be
limited to (a) all court costs, (b) reasonable attorneys' fees, (c) reasonable
fees and expenses of auditors, accountants and petroleum engineers, incurred to
protect the interests of the Agent and the Lenders, (d) reasonable fees and
expenses incurred in connection with the participation by the Agent as a member
of the creditors' committee in a case commenced under any Insolvency Proceeding,
(e) reasonable fees and expenses incurred in connection with lifting the
automatic stay prescribed in ss.362 Title 11 of the United States Code, and (f)
fees and expenses incurred in connection with any action pursuant to ss.1129
Title 11 of the United States Code all reasonably incurred by the Agent in
connection with the collection of any sums due under the Loan Documents,
together with interest at the per annum interest rate equal to the Floating
Rate, calculated on a basis of a calendar year of 365 or 366 days, as the case
may be, counting the actual number of days elapsed, on each such amount from the
date of notification that the same was expended, advanced, or incurred by the
Agent until the date it is repaid to the Agent, with the obligations under this
Section surviving the non-assumption of this Agreement in a case commenced under
any Insolvency Proceeding and being binding upon the Borrowers and/or a trustee,
receiver, custodian, or liquidator of any Borrower appointed in any such case.
16 OPERATION OF PROPERTIES. Develop, maintain, and operate its
Properties in a prudent and workmanlike manner in accordance with industry
standards.
17 MAINTENANCE AND INSPECTION OF PROPERTIES. Maintain all of its
tangible Properties in good repair and condition, ordinary wear and tear
excepted; make all necessary replacements thereof and operate such Properties in
a good and workmanlike manner; and permit any authorized representative of the
Agent, at reasonable times on reasonable notice, to visit and inspect, at the
expense of the Lenders, any tangible Property of any Borrower.
18 MAINTENANCE OF INSURANCE. (a) Maintain insurance with respect to
its Properties and businesses against such liabilities, casualties, risks, and
contingencies as is customary in the relevant industry and sufficient to prevent
a Material Adverse Effect, all such insurance to be in amounts and from insurers
reasonably acceptable to the Agent and the Lenders, (b) within 60 days of the
Closing Date for property damage insurance covering Collateral and business
interruption insurance, if any, maintained by the Borrowers, naming the Agent as
loss payee for the benefit of the Agent and the Lenders, and (c) on the Closing
Date, upon any renewal or replacement of any such insurance, and at other times
upon reasonable request by the Agent, furnish to the Agent evidence,
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reasonably satisfactory to the Agent and the Lenders, of the maintenance of such
insurance. The Agents and the Lenders shall be named as additional assureds on
all property and liability insurance.
19 INDEMNIFICATION. INDEMNIFY AND HOLD THE AGENT AND EACH LENDER AND
THEIR RESPECTIVE SHAREHOLDERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
ATTORNEYS-IN-FACT, AND AFFILIATES AND EACH TRUSTEE FOR THE BENEFIT OF THE AGENT
AND THE LENDERS (EACH AN "INDEMNIFIED PARTY") UNDER ANY SECURITY INSTRUMENT
HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS, LOSSES, DAMAGES, LIABILITIES,
FINES, PENALTIES, CHARGES, ADMINISTRATIVE AND JUDICIAL PROCEEDINGS AND ORDERS,
JUDGMENTS, REMEDIAL ACTIONS, REQUIREMENTS, AND ENFORCEMENT ACTIONS OF ANY KIND,
AND ALL COSTS AND EXPENSES INCURRED IN CONNECTION THEREWITH (INCLUDING, WITHOUT
LIMITATION, REASONABLE ATTORNEYS' FEES AND EXPENSES), TO THE EXTENT THAT THEY
ARISE DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, FROM (A) THE PRESENCE OF ANY
HAZARDOUS SUBSTANCES ON, UNDER, OR FROM ANY PROPERTY OF ANY BORROWER, WHETHER
PRIOR TO OR DURING THE TERM HEREOF, (B) ANY ACTIVITY CARRIED ON OR UNDERTAKEN ON
OR OFF ANY PROPERTY OF ANY BORROWER, WHETHER PRIOR TO OR DURING THE TERM HEREOF,
AND WHETHER BY ANY BORROWER OR ANY PREDECESSOR IN TITLE, EMPLOYEE, AGENT,
CONTRACTOR, OR SUBCONTRACTOR OF ANY BORROWER OR ANY OTHER PERSON (OTHER THAN THE
LENDERS OR ANY PERSON ACTING ON BEHALF OF THE LENDERS) AT ANY TIME OCCUPYING OR
PRESENT ON SUCH PROPERTY, IN CONNECTION WITH THE HANDLING, TREATMENT, REMOVAL,
STORAGE, DECONTAMINATION, CLEANUP, TRANSPORTATION, OR DISPOSAL OF ANY HAZARDOUS
SUBSTANCES AT ANY TIME LOCATED OR PRESENT ON OR UNDER SUCH PROPERTY, (C) ANY
CONTAMINATION OF ANY PROPERTY OR NATURAL RESOURCES ARISING IN CONNECTION WITH
THE GENERATION, USE, HANDLING, STORAGE, TRANSPORTATION OR DISPOSAL OF ANY
HAZARDOUS SUBSTANCES BY ANY BORROWER OR ANY EMPLOYEE, AGENT, CONTRACTOR, OR
SUBCONTRACTOR OF ANY BORROWER WHILE SUCH PERSONS ARE ACTING WITHIN THE SCOPE OF
THEIR RELATIONSHIP WITH ANY BORROWER, IRRESPECTIVE OF WHETHER ANY OF SUCH
ACTIVITIES WERE OR WILL BE UNDERTAKEN IN ACCORDANCE WITH APPLICABLE REQUIREMENTS
OF LAW, OR (D) THE PERFORMANCE AND ENFORCEMENT OF ANY LOAN DOCUMENT OR ANY OTHER
ACT OR OMISSION IN CONNECTION WITH OR RELATED TO ANY LOAN DOCUMENT OR THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING, WITHOUT LIMITATION, ANY OF THE
FOREGOING IN THIS SECTION ARISING FROM NEGLIGENCE, WHETHER SOLE OR CONCURRENT,
ON THE PART OF THE AGENT OR ANY LENDER OR ANY OTHER INDEMNIFIED PARTY UNDER ANY
SECURITY INSTRUMENT, BUT EXCLUDING ANY OF THE FOREGOING ARISING FROM THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF THE AGENT OR ANY LENDER OR OTHER INDEMNIFIED
PARTY; WITH THE FOREGOING
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INDEMNITY SURVIVING SATISFACTION OF ALL OBLIGATIONS AND THE TERMINATION OF THIS
AGREEMENT.
ARTICLE VI
NEGATIVE COVENANTS
So long as any Obligation remains outstanding or unpaid or any
Commitment exists, the Borrowers jointly and severally covenant that none of
them will:
1 INDEBTEDNESS. Create, incur, assume, or suffer to exist any
Indebtedness, whether by way of loan or otherwise; provided, however, the
foregoing restriction shall not apply to (a) the Obligations, (b) unsecured
accounts payable incurred in the ordinary course of business, which are not
unpaid in excess of 60 days beyond the later of the date services are rendered
or invoice date or are being contested in good faith and as to which such
reserve as is required by GAAP has been made, and (c) Indebtedness which is
expressly subordinate to the Obligations upon terms satisfactory to the Agent
and the Required Lenders in their sole discretion.
2 CONTINGENT OBLIGATIONS. Create, incur, assume, or suffer to exist
any Contingent Obligation; provided, however, the foregoing restriction shall
not apply to (a) performance guarantees and performance surety or other bonds
provided in the ordinary course of business, (b) trade credit incurred or
operating leases entered into in the ordinary course of business, or (c) the
endorsement of commercial paper for deposit or collection in the ordinary course
of business.
3 LIENS. Create, incur, assume, or suffer to exist any Lien on any
of its Properties, whether now owned or hereafter acquired; provided, however,
the foregoing restrictions shall not apply to Permitted Liens.
4 SALES OF ASSETS. Without the prior written consent of the Agent
and the Required Lenders, sell, transfer, or otherwise dispose of, in one or any
series of transactions, any assets, whether now owned or hereafter acquired, or
enter into any agreement to do so; provided, however, the foregoing restriction
shall not apply to (a) the sale of hydrocarbons or inventory in the ordinary
course of business provided that no contract for the sale of hydrocarbons shall
obligate any Borrower to deliver hydrocarbons produced from any of the Mortgaged
Property at some future date without receiving full payment therefor within 90
days of delivery, (b) the sale or other disposition of Property destroyed, lost,
worn out, damaged, or having only salvage value or no longer used or useful in
the business of any Borrower, or (c) the sale of non-recourse production
payments; provided that (i) the Agent has been notified in advance of each such
sale, (ii) all proceeds of any such sale are applied to the Obligations, and
(iii) on a proforma basis, after each such sale, no Default or Event of Default
exists. In connection with each such production payment transaction, and
provided that each requirement set forth above is satisfactory to the Agent and
the Required Lenders in their sole
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discretion, the Agent shall release that portion of the Mortgaged Property
sufficient to allow the Borrowers to complete such transaction.
5 LEASEBACKS. Enter into any agreement to sell or transfer any
Property and thereafter rent or lease as lessee such Property or other Property
intended for the same use or purpose as the Property sold or transferred.
6 LOANS OR ADVANCES. Without the prior written consent of the Agent
and the Required Lenders, make or agree to make or allow to remain outstanding
any loans or advances to any Person; provided, however, the foregoing
restrictions shall not apply to (a) advances or extensions of credit in the form
of accounts receivable incurred in the ordinary course of business and upon
terms common in the industry for such accounts receivable, (b) advances to
officers or employees of the Borrowers for the payment of expenses in the
ordinary course of business not exceeding in the aggregate at any time $25,000,
or (c) loans or advances to the other Borrower.
7 INVESTMENTS. Acquire Investments in, or purchase or otherwise
acquire all or substantially all of the assets of, any Person; provided,
however, the foregoing restrictions shall not apply to the purchase or
acquisition of Investments in the form of (a) debt securities issued or directly
and fully guaranteed or insured by the United States Government or any agency or
instrumentality thereof, with maturities of no more than one year, or (b)
certificates of deposit issued by or acquired from or through the Agent or any
Lender.
8 DIVIDENDS AND DISTRIBUTIONS. Declare, pay, or make, whether in
cash or Property, any dividend or distribution on, or purchase, redeem, or
otherwise acquire for value, any share of any class of its capital stock.
9 CHANGE IN CONTROL. Permit Frank A. Lodzinski to cease to hold,
except for Cause, the position, and have the responsibilities, of chief
executive officer of each Borrower and, if Frank A. Lodzinski has been removed
for Cause, cease to have a chief executive officer and chief financial officer
acceptable to the Agent and the Required Lenders.
10 TRANSACTIONS WITH AFFILIATES. Directly or indirectly, enter into
any transaction (including the sale, lease, or exchange of Property or the
rendering of service) with any of its Affiliates, other than upon fair and
reasonable terms no less favorable than could be obtained in an arm's length
transaction with a Person which was not an Affiliate.
11 LINES OF BUSINESS. Expand, on its own or through any Affiliate,
into any line of business other than the exploration, production, gathering,
transporting and processing of oil, condensate, natural gas and natural gas
liquids and the purchase and sale of such products in connection with such
businesses.
12 ERISA COMPLIANCE. Permit any Plan maintained by any Borrower or
any Commonly Controlled Entity to (a) engage in any Prohibited Transaction, (b)
incur any "accumulated funding deficiency," as such term is defined in Section
302 of ERISA, or (c) terminate in a manner
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which could result in the imposition of a Lien on any Property of any Borrower
pursuant to Section 4068 of ERISA; or assume an obligation to contribute to any
Multiemployer Plan; or acquire any Person or substantially all of the assets of
any Person which has now or has had at any time an obligation to contribute to
any Multiemployer Plan.
13 POSITIVE WORKING CAPITAL. Permit, as of the close of any calendar
quarter or month, working capital to be other than a positive number (excluding
in the calculation thereof current maturities of long-term debt).
14 HEDGE AGREEMENTS. Create, incur, assume or suffer to exist any
Swap Obligations that (i) require a Borrower to deliver, or make cash settlement
payments based on quantities of Hydrocarbons which, in the aggregate for all
such Swap Obligations, would exceed 60% of the estimated production during the
term of such agreements from that portion of the Mortgaged Properties consisting
of proved developed producing reserves and (ii) of a maturity exceeding three
years, without the prior written consent of the Agent and the Required Lenders.
ARTICLE VII
EVENTS OF DEFAULT
1 ENUMERATION OF EVENTS OF DEFAULT. Any of the following events
shall constitute an Event of Default:
(a) any Borrower shall fail to pay when due any Obligation, fee or
other sum payable under any Loan Document;
(b) any Borrower shall fail to perform, observe, or comply with any
covenant, agreement, or term contained in the Loan Documents and, with
respect to Sections 5.13, 5.16, 5.17 or 6.11, such default shall continue
for 30 days after the earlier of notice thereof to the Borrowers by the
Agent or knowledge thereof by the Borrowers;
(c) any representation or warranty made by any Borrower in any of
the Loan Documents or in any representation, statement (including
Financial Statements), certificate, or data furnished or made to the Agent
or any Lender in connection with any Loan Document proves to have been
untrue in any material respect when made or as of the date the facts
therein set forth were stated or certified;
(d) any Borrower shall fail to comply (as principal or guarantor or
other surety) in the payment or performance of any bond, debenture, note,
or other Indebtedness or under any credit agreement, loan agreement,
indenture, promissory note, or similar agreement or instrument executed in
connection with any of the
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foregoing, and such default permits any holder or holders of such
Indebtedness to accelerate the maturity thereof;
(e) any Borrower shall (i) apply for or consent to the appointment
of a receiver, trustee, or liquidator of it or all or a substantial part
of its assets, (ii) file a voluntary petition commencing an Insolvency
Proceeding, (iii) make a general assignment for the benefit of creditors,
(iv) be unable, or admit in writing its inability, to pay its debts
generally as they become due, or (v) file an answer admitting the material
allegations of a petition filed against it in any Insolvency Proceeding;
(f) an order, judgment, or decree shall be entered against any
Borrower by any court of competent jurisdiction or by any other duly
authorized authority, on the petition of a creditor or otherwise, granting
relief in any Insolvency Proceeding or approving a petition seeking
reorganization or an arrangement of its debts or appointing a receiver,
trustee, conservator, custodian, or liquidator of it or all or any
substantial part of its assets, and such order, judgment, or decree shall
not be dismissed or stayed within 60 days;
(g) the levy against any significant portion of the Property of any
Borrower, or any execution, garnishment, attachment, sequestration, or
other writ or similar proceeding against any significant portion of the
Property of any Borrower which is not permanently dismissed or discharged
within 30 days after the levy;
(h) a final and non-appealable order, judgment, or decree shall be
entered against any Borrower for money damages and/or Indebtedness due in
an amount in excess of $50,000, and such order, judgment, or decree shall
not be dismissed or stayed within 30 days or be diligently contested in
good faith by appropriate proceedings with adequate reserves having been
set aside in accordance with GAAP;
(i) any charges are filed or any other action or proceeding is
instituted by any Governmental Authority against any Borrower under the
Racketeering Influence and Corrupt Organizations Statute (18 U.S.C.
ss.1961 ET SEQ.), the result of which could be the forfeiture or transfer
of any material Property subject to a Lien in favor of the Agent without
(i) satisfaction or provision for satisfaction of such Lien, or (ii) such
forfeiture or transfer of such Property being expressly made subject to
such Lien;
(j) any Borrower shall have (i) concealed, removed, or diverted, or
permitted to be concealed, removed, or diverted, any part of its Property,
with intent to hinder, delay, or defraud its creditors or any of them,
(ii) made or suffered a transfer of any of its Property which may be
fraudulent under any bankruptcy, fraudulent conveyance, or similar law, or
(iii) shall have suffered or permitted, while insolvent, any creditor to
obtain a Lien upon any of its Property through legal proceedings or
distraint which is not vacated within 30 days from the date thereof;
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(k) any Person shall engage in any Prohibited Transaction involving
any Plan; any "accumulated funding deficiency" (as defined in Section 302
of ERISA), whether or not waived, shall exist with respect to any Plan for
which an excise tax is due or would be due in the absence of a waiver; a
Reportable Event shall occur with respect to, or proceedings shall
commence to have a trustee appointed, or a trustee shall be appointed, to
administer or to terminate, any Single Employer Plan, which Reportable
Event or commencement of proceedings or appointment of a trustee is, in
the reasonable opinion of the Agent, likely to result in the termination
of such Plan for purposes of Title IV of ERISA; any Single Employer Plan
shall terminate for purposes of Title IV of ERISA; any Borrower or any
Commonly Controlled Entity shall incur, or in the reasonable opinion of
the Agent, be likely to incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer
Plan; or any other event or condition shall occur or exist with respect to
a Plan and the result of such events or conditions referred to in this
Section 7.1(k) could subject any Borrower or any Commonly Controlled
Entity to any tax (other than an excise tax under Section 4980 of the
Code), penalty or other liabilities which taken in the aggregate would
have a Material Adverse Effect and any such circumstance shall exist for
in excess of 30 days;
(l) any Security Instrument shall for any reason not, or cease to,
create valid and perfected first-priority Liens (subject to Permitted
Liens) against a portion of the Collateral purportedly covered thereby in
favor of the Agent for the benefit of the Lenders; or
(m) the occurrence of a Material Adverse Effects and the same shall
remain unremedied for in excess of 30 days after notice given by the
Agents.
2 REMEDIES. Upon the occurrence of an Event of Default specified in
Sections 7.1(e) or 7.1(f), immediately and without notice, (i) all Obligations
shall automatically become immediately due and payable, without presentment,
demand, protest, notice of protest, default, or dishonor, notice of intent to
accelerate maturity, notice of acceleration of maturity, or other notice of any
kind, except as may be provided to the contrary elsewhere herein, all of which
are hereby expressly waived by the Borrowers; (ii) the Commitment shall
immediately cease and terminate unless and until reinstated by the Lenders in
writing; and (iii) the Agent and each Lender are hereby authorized at any time
and from time to time, without notice to the Borrowers (any such notice being
expressly waived by the Borrowers), to set-off and apply any and all deposits
(general or special, time or demand, provisional or final) held by the Agent or
any Lender, and any and all other indebtedness at any time owing by the Agent or
any Lender to or for the credit or account of any Borrower against any and all
of the Obligations.
(a) Upon the occurrence of any Event of Default other than those
specified in Sections 7.1(e) or 7.1(f), the Agent may, by notice to the
Borrowers, (i) declare all Obligations immediately due and payable, without
presentment, demand, protest, notice of protest, default, or dishonor, notice of
intent to accelerate maturity, notice of acceleration of maturity, or other
notice
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of any kind, except as may be provided to the contrary elsewhere herein, all of
which are hereby expressly waived by the Borrowers; (ii) terminate the
Commitment unless and until reinstated by the Lenders in writing; and (iii) the
Agent and each Lender are hereby authorized at any time and from time to time,
without notice to the Borrowers (any such notice being expressly waived by the
Borrowers), to set-off and apply any and all deposits (general or special, time
or demand, provisional or final) held by the Agent or any Lender, and any and
all other indebtedness at any time owing by the Agent or any Lender to or for
the credit or account of any Borrower against any and all of the Obligations
although such Obligations may be unmatured.
(b) Upon the occurrence of any Event of Default, the Lender may, in
addition to the foregoing in this Section 7.2, exercise any or all of its rights
and remedies provided by law or pursuant to the Loan Documents.
ARTICLE VIII
THE AGENT
1 APPOINTMENT, POWERS AND IMMUNITIES. In order to expedite the various
transactions contemplated by this Agreement, the Lenders hereby irrevocably
appoint and authorize Comerica to act as their Agent hereunder and under each of
the other Loan Documents. Comerica consents to such appointment and agrees to
perform the duties of the Agent as specified herein. The Lenders authorize and
direct the Agent to take such action in their name and on their behalf under the
terms and provisions of the Loan Documents and to exercise such rights and
powers thereunder as are specifically delegated to or required of the Agent for
the Lenders, together with such rights and powers as are reasonably incidental
thereto. The Agent is hereby expressly authorized to act as the Agent on behalf
of itself and the other Lenders:
(a) To receive on behalf of each of the Lenders any payment of
principal, interest, fees or other amounts paid pursuant to this Agreement
and the Notes and to distribute to each Lender its share of all payments
so received as provided in this Agreement;
(b) To receive all documents and items to be furnished under the
Loan Documents;
(c) To act as nominee for and on behalf of the Lenders in and under
the Loan Documents;
(d) To arrange for the means whereby the funds of the Lenders are to
be made available to the Borrowers;
(e) To distribute to the Lenders information, requests, notices,
payments, prepayments, documents and other items received from any
Borrower and other Persons;
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(f) To execute and deliver to the Borrower and other Persons, all
requests, demands, approvals, notices, and consents received from the
Lenders;
(g) To the extent permitted by the Loan Documents, to exercise on
behalf of each Lender all rights and remedies of such Persons upon the
occurrence of any Event of Default;
(h) To accept, execute, and deliver the Security Documents as the
secured party, including, without limitation all UCC financing statements;
and
(i) To take such other actions as may be requested by Required
Lenders.
Neither the Agent nor any of its Affiliates, officers, directors,
employees, attorneys, or agents shall be liable for any action taken or omitted
to be taken by any of them hereunder or otherwise in connection with this
Agreement or any of the other Loan Documents except for its or their own gross
negligence or willful misconduct. Without limiting the generality of the
preceding sentence, the Agent (i) may treat the payee of any Note as the holder
thereof until the Agent receives written notice of the assignment or transfer
thereof signed by such payee and in form satisfactory to the Agent; (ii) shall
have no duties or responsibilities except those expressly set forth in this
Agreement and the other Loan Documents, and shall not by reason of this
Agreement or any other Loan Document be a trustee or fiduciary for any Lender;
(iii) shall not be required to initiate any litigation or collection proceedings
hereunder or under any other Loan Document except to the extent requested by the
Required Lenders; (iv) shall not be responsible to the Lenders for any recitals,
statements, representations or warranties contained in this Agreement or any
other Loan Document, or any certificate or other document referred to or
provided for in, or received by any of them under, this Agreement or any other
Loan Document, or for the value, validity, effectiveness, enforceability, or
sufficiency of this Agreement or any other Loan Document or any other document
referred to or provided for herein or therein or for any failure by any Person
to perform any of its obligations hereunder or thereunder; (v) may consult with
legal counsel (including counsel for the Borrowers), independent public
accountants, and other experts selected by it and shall not be liable for any
action taken or omitted to be taken in good faith by it in accordance with the
advice of such counsel, accountants, or experts; and (vi) shall incur no
liability under or in respect of any Loan Document by acting upon any notice,
consent, certificate, or other instrument or writing believed by it to be
genuine and signed or sent by the proper party or parties. As to any matters not
expressly provided for by this Agreement, the Agent shall in all cases be fully
protected in acting, or in refraining from acting, hereunder in accordance with
instructions signed by Lenders, and such instructions of Lenders and any action
taken or failure to act pursuant thereto shall be binding on all of the Lenders;
PROVIDED, however, that the Agent shall not be required to take any action which
exposes the Agent to personal liability or which is contrary to this Agreement
or any other Loan Document or applicable law.
2 RIGHTS OF AGENT AS A LENDER. With respect to its Commitment, the Loans
made by it and the Notes issued to it, Comerica in its capacity as a Lender
hereunder shall have the same rights and powers hereunder as any other Lender
and may exercise the same as though it were not acting as the Agent, and the
term "LENDER" or "LENDERS" shall, unless the context otherwise indicates,
include the Agent in its individual capacity. The Agent and its Affiliates may
(without having to
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account therefor to any Lender) accept deposits from, lend money to, act as
trustee under indentures of, provide merchant banking services to, and generally
engage in any kind of business with the Borrower and any other Person who may do
business with or own securities of the Borrower, all as if it were not acting as
the Agent and without any duty to account therefor to the Lenders.
3 SHARING OF PAYMENTS, ETC. If any Lender shall obtain any payment of any
principal of or interest on any Loan made by it under this Agreement or payment
of any other obligation under the Loan Documents then owed by the Borrowers to
such Lender, whether voluntary, involuntary, through the exercise of any right
of setoff, banker's lien, counterclaim or similar right, or otherwise, in excess
of its pro rata share, such Lender shall promptly purchase from the other
Lenders participations in the Loans held by them hereunder in such amounts, and
make such other adjustments from time to time as shall be necessary to cause
such purchasing Lenders to share the excess payment ratably with each of the
other Lenders in accordance with its pro rata portion thereof. To such end, all
of the Lenders shall make appropriate adjustments among themselves (by the
resale of participations sold or otherwise) if all or any portion of such excess
payment is thereafter rescinded or must otherwise be restored. Each Borrower
agrees, to the fullest extent it may effectively do so under applicable law,
that any Lender so purchasing a participation in the Loans made by the other
Lenders may exercise all rights of setoff, banker's lien, counterclaim, or
similar rights with respect to such participation as fully as if such Lender
were a direct holder of Loans to the Borrowers in the amount of such
participation. Nothing contained herein shall require any Lender to exercise any
such right or shall affect the right of any Lender to exercise, and retain the
benefits of exercising, any such right with respect to any other indebtedness or
obligation of the Borrowers.
4 INDEMNIFICATION. THE LENDERS HEREBY AGREE TO INDEMNIFY THE AGENT FROM
AND HOLD THE AGENT HARMLESS AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS,
LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS,
EXPENSES (INCLUDING ATTORNEYS' FEES), AND DISBURSEMENTS OF ANY KIND OR NATURE
WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST THE AGENT
IN ANY WAY RELATING TO OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY ACTION
TAKEN OR OMITTED TO BE TAKEN BY THE AGENT UNDER OR IN RESPECT OF ANY OF THE LOAN
DOCUMENTS; PROVIDED, FURTHER, THAT, AS BETWEEN AGENT AND LENDERS, NO LENDER
SHALL BE LIABLE FOR ANY PORTION OF THE FOREGOING TO THE EXTENT CAUSED BY THE
AGENT'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITATION OF THE
FOREGOING, IT IS THE EXPRESS INTENTION OF THE LENDERS THAT THE AGENT SHALL BE
INDEMNIFIED HEREUNDER FROM AND HELD HARMLESS AGAINST ALL OF SUCH LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES,
SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES), AND DISBURSEMENTS OF ANY
KIND OR NATURE DIRECTLY OR INDIRECTLY ARISING OUT OF OR RESULTING FROM THE SOLE
OR CONTRIBUTORY NEGLIGENCE OF THE AGENT. WITHOUT LIMITING ANY OTHER PROVISION OF
THIS SECTION, EACH LENDER AGREES TO REIMBURSE THE
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AGENT PROMPTLY UPON DEMAND FOR ITS PRO RATA SHARE (CALCULATED ON THE BASIS OF
THE COMMITMENTS) OF ANY AND ALL OUT-OF-POCKET EXPENSES (INCLUDING REASONABLE
ATTORNEYS' FEES) INCURRED BY THE AGENT OR IN CONNECTION WITH THE PREPARATION,
EXECUTION, DELIVERY, ADMINISTRATION, MODIFICATION, AMENDMENT OR ENFORCEMENT
(WHETHER THROUGH NEGOTIATIONS, LEGAL PROCEEDINGS, OR OTHERWISE) OF, OR LEGAL
ADVICE IN RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER, THE LOAN DOCUMENTS, TO
THE EXTENT THAT THE AGENT IS NOT REIMBURSED FOR SUCH EXPENSES BY THE BORROWERS.
5 INDEPENDENT CREDIT DECISIONS. Each Lender agrees that it has
independently and without reliance on the Agent, or any other Lender, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis of the Borrowers and decision to enter into this Agreement and
that it will, independently and without reliance upon the Agent, or any other
Lender, and based upon such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement or any of the other Loan
Documents. The Agent shall not be required to keep itself informed as to the
performance or observance by the Borrowers or any obligated party of this
Agreement or any other Loan Document or to inspect the properties or books of
any Borrower. Except for notices, reports and other documents and information
expressly required to be furnished by the Borrowers to the Agent only or
otherwise by the Agent to the Lenders hereunder or under the other Loan
Documents, or both, the Agent shall not have any duty or responsibility to
provide any Lender with any credit, financial or other information concerning
the affairs, financial condition or business of the Borrowers (or any of their
Affiliates) which may come into the possession of the Agent or any of its
Affiliates.
6 SEVERAL COMMITMENTS. The Commitments and other obligations of the
Lenders under this Agreement are several. The default by any Lender in making a
Loan in accordance with its Commitment shall not relieve the other Lenders of
their obligations under this Agreement. In the event of any default by any
Lender in making any Loan, each nondefaulting Lender shall be obligated to make
its Loan but shall not be obligated to advance the amount which the defaulting
Lender was required to advance hereunder. In no event shall any Lender be
required to advance an amount or amounts which shall in the aggregate exceed
such Lender's Commitment. No Lender shall be responsible for any act or omission
of any other Lender.
7 SUCCESSOR AGENT. Subject to the appointment and acceptance of a
successor Agent as provided below, the Agent may resign at any time by giving
notice thereof to the Lenders and the Borrowers and the Agent may be removed at
any time with or without cause by Required Lenders. Upon any such resignation or
removal, Required Lenders will have the right to appoint a successor Agent. If
no successor Agent shall have been so appointed by Required Lenders and shall
have accepted such appointment within 30 days after the retiring Agent's giving
of notice of resignation or the Required Lenders' removal of the retiring Agent,
then the retiring Agent may, on behalf of the Required Lenders, appoint a
successor Agent, which shall be a commercial bank organized under the
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laws of the United States of America or any State thereof and having combined
capital and surplus of at least $100,000,000. In the event the successor Agent
is not at the time of its appointment, a Lender hereunder, the Borrower shall
have the right to consent to the successor Agent, which consent shall not be
unreasonably withheld or delayed. Upon the acceptance of its appointment as
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all rights, powers, privileges, immunities, and duties of the
resigning or removed Agent, and the resigning or removed Agent shall be
discharged from its duties and obligations as Agent under this Agreement and the
other Loan Documents. After any Agent's resignation or removal as Agent, the
provisions of this Article VIII shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was the
Agent.
ARTICLE IX
MISCELLANEOUS
1 SUCCESSORS AND ASSIGNS.
(a) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns. The
Borrowers may not assign or transfer any of their rights or obligations
hereunder without the prior written consent of the Agent and all of the
Lenders. Any Lender may sell participations to one or more banks or other
institutions in or to all or a portion of its rights and obligations under
this Agreement and the other Loan Documents (including, without
limitation, all or a portion of its Commitments and the Loans owing to
it); PROVIDED, however, that (i) such Lender's obligations under this
Agreement and the other Loan Documents (including, without limitation, its
Commitments) shall remain unchanged, (ii) such Lender shall remain solely
responsible to the Borrowers for the performance of such obligations,
(iii) such Lender shall remain the holder of its Notes for all purposes of
this Agreement, (iv) the Borrowers shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and the other Loan Documents, and (v)
such Lender shall not sell a participation that conveys to the participant
the right to vote or give or withhold consents under this Agreement or any
other Loan Document, other than the right to vote upon or consent to (A)
any increase of such Lender's Commitments, (B) any reduction of the
principal amount of, or interest to be paid on, the Loans of such Lender,
(C) any reduction of any commitment fee or other amount payable to such
Lender under any Loan Document, or (D) any postponement of any date for
the payment of any amount payable in respect of the Loans of such Lender.
(b) The Borrower and each of the Lenders agree that any Lender (the
"ASSIGNING LENDER") may, with the Agent's consent (and, unless a Default
or Event of Default then exists, the consent of the Borrowers, which
consent of the Borrowers will not be unreasonably withheld), at any time
assign to one or more Eligible Assignees all, or a proportionate part of
all, of its rights and obligations under this Agreement and the other Loan
Documents
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(including, without limitation, its Commitments and Loans) (each an
"ASSIGNEE"); PROVIDED, however, that (i) each such assignment shall be of
a consistent, and not a varying, percentage of all of the assigning
Lender's Commitments, rights and obligations under this Agreement and the
other Loan Documents, (ii) except in the case of an assignment of all of a
Lender's rights and obligations under this Agreement and the other Loan
Documents, the amount of the Commitments of the Assigning Lender being
assigned pursuant to each assignment (determined as of the date of the
Assignment and Acceptance with respect to such assignment) shall in no
event be less than $5,000,000, and (iii) the parties to each such
assignment shall execute and deliver to the Agent for its acceptance and
recording in the Register (as defined below), an Assignment and
Acceptance, together with the Notes subject to such assignment, and a
processing and recordation fee of $3,500, to be paid by the Assignee. Upon
such execution, delivery, acceptance, and recording, from and after the
effective date specified in each Assignment and Acceptance, which
effective date shall be at least five Business Days after the execution
thereof, or, if so specified in such Assignment and Acceptance, the date
of acceptance thereof by the Agent, (x) the Assignee thereunder shall be a
party hereto as a "Lender" and, to the extent that rights and obligations
hereunder have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Lender hereunder and
under the Loan Documents and (y) the Assigning Lender thereunder shall, to
the extent that rights and obligations hereunder have been assigned by it
pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement and the other Loan
Documents (and, in the case of an Assignment and Acceptance covering all
or the remaining portion of a Lender's rights and obligations under the
Loan Documents, such Lender shall cease to be a party thereto).
(c) By executing and delivering an Assignment and Acceptance, the
Assigning Lender and the Assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Acceptance, such Assigning Lender makes no
representation or warranty and assumes no responsibility with respect to
any statements, warranties, or representations made in or in connection
with the Loan Documents or the execution, legality, validity, and
enforceability, genuineness, sufficiency, or value of the Loan Documents
or any other instrument or document furnished pursuant thereto; (ii) such
Assigning Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrowers or
the performance or observance by the Borrowers of their obligations under
the Loan Documents; (iii) such Assignee confirms that it has received a
copy of the other Loan Documents, together with copies of the financial
statements referred to in Sections 5.2 and 5.3 and such other documents
and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance; (iv)
such Assignee will, independently and without reliance upon the Agent or
such Assigning Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under this Agreement and the
other Loan Documents; (v) such Assignee confirms that it is an Eligible
Assignee; (vi) such
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Assignee appoints and authorizes the Agent to take such action as agent on
its behalf and exercise such powers under the Loan Documents as are
delegated to the Agent by the terms thereof, together with such powers as
are reasonably incidental thereto; and (vii) such Assignee agrees that it
will perform in accordance with their terms all of the obligations which
by the terms of the Loan Documents are required to be performed by it as a
Lender.
(d) The Agent shall maintain at its Principal Office a copy of each
Assignment and Acceptance delivered to and accepted by it and a register
for the recordation of the names and addresses of the Lenders and the
Commitments of, and principal amount of the Loans owing to, each Lender
from time to time (the "REGISTER"). The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error, and the
Borrowers, the Agent, and the Lenders may treat each Person whose name is
recorded in the Register as a Lender hereunder for all purposes under the
Loan Documents. The Register shall be available for inspection by the
Borrowers, or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
Assigning Lender and Assignee representing that it is an Eligible
Assignee, together with any Note subject to such assignment, the Agent
shall, if such Assignment and Acceptance has been completed and is in
substantially the form of EXHIBIT VI hereto, (i) accept such Assignment
and Acceptance, (ii) record the information contained therein in the
Register, and (iii) give prompt written notice thereof to the Borrowers.
Within five (5) Business Days after its receipt of such notice, the
Borrowers, at their expense, shall execute and deliver to the Agent in
exchange for the surrendered Notes new Notes to the order of such Eligible
Assignee in an amount equal to the Commitments assumed by it pursuant to
such Assignment and Acceptance and, if the Assigning Lender has retained a
portion of its Commitments, new Notes to the order of the Assigning Lender
in an amount equal to the Commitments retained by it hereunder (each such
promissory note shall constitute a "NOTE" for purposes of the Loan
Documents). Such new Notes shall be in an aggregate principal amount of
the surrendered Notes, shall be dated the effective date of such
Assignment and Acceptance, and shall otherwise be in substantially the
form of Exhibit I hereto.
(f) Any Lender may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this
Section, disclose to the Assignee or participant or proposed Assignee or
participant, any information relating to the Borrowers furnished to such
Lender by or on behalf of the Borrowers; provided, however, with respect
to all written information belonging to the Borrowers and marked
"confidential" by the Borrowers and obtained by the Lenders or the
proposed assignee pursuant to or in connection with this Agreement or any
other Loan Documents such information shall be maintained in confidence in
accordance with the standards of care and diligence that each utilizes in
maintaining its own confidential information.
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2 SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND COVENANTS. All
representations and warranties of the Borrowers and all covenants and agreements
herein made shall survive the execution and delivery of the Notes and the
Security Instruments and shall remain in force and effect so long as any
Obligation is outstanding or any Commitment exists.
3 NOTICES AND OTHER COMMUNICATIONS. Except as to oral notices
expressly authorized herein, which oral notices shall be confirmed in writing,
all notices, requests, and communications hereunder or in connection herewith
shall be in writing (including by telecopy). Unless otherwise expressly provided
herein, any such notice, request, demand, or other communication shall be deemed
to have been duly given or made when delivered by hand, or, in the case of
delivery by mail, when deposited in the mail, certified mail, return receipt
requested, postage prepaid, or, in the case of telecopy notice, when receipt
thereof is acknowledged orally or by written confirmation report, addressed as
follows:
(a) if to the Agent, to:
Comerica Bank-Texas
P.O. Box 4167
Houston, Texas 77210-4167
AttentionMr. James W. Kimble
Telecopy:(713) 722-6514
with a copy to:
Comerica Bank-Texas
1601 Elm Street, 2nd Floor
Dallas, Texas 75202
Attn: Mr. Mark Fuqua
Telecopy: (214) 965-8990
(b) if to the Lenders, to:
Comerica Bank-Texas
P.O. Box 4167
Houston, Texas 77210-4167
AttentionMr. Jim Kimble
Telecopy:(713) 722-6514
First Union National Bank
301 South College Street
Charlotte, North Carolina 28288-0658
Attention: Michael J. Kolosowsky
Telecopy:(704) 374-6249
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with a copy to:
First Union Corporation
1001 Fannin Street, Suite 2255
Houston, Texas 77002-6709
Attention: Jay M. Chernosky
Telecopy: 713/650-6354
(c) if to the Borrowers, to:
Cliffwood Oil & Gas Corp.
110 Cypress Station Drive, Suite 220
Houston, Texas 77090
Attention: Mr. Frank A. Lodzinski
Telecopy:(713) 537-9920
with a copy to:
Cliffwood Energy Company
110 Cypress Station Drive, Suite 220
Houston, Texas 77090
Attention: Mr. Frank A. Lodzinski
Telecopy:(713) 537-9920
and
Cliffwood Production Co.
110 Cypress Station Drive, Suite 220
Houston, Texas 77090
Attention: Mr. Frank A. Lodzinski
Telecopy: (713) 537-9920
Any party may, by proper written notice hereunder to the others,
change the individuals or addresses to which such notices to it shall
thereafter
be sent.
4 PARTIES IN INTEREST. Subject to the restrictions on changes in
corporate structure set forth in Section 6.9 and other applicable restrictions
contained herein, all covenants and agreements herein contained by or on behalf
of the Borrowers, the Agent or the Lenders shall be binding upon and inure to
the benefit of the Borrowers, the Agent or the Lenders, as the case may be, and
their respective legal representatives, successors, and assigns.
5 RIGHTS OF THIRD PARTIES. All provisions herein are imposed solely
and exclusively for the benefit of the Agent, the Lenders and the Borrowers. No
other Person shall have
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any right, benefit, priority, or interest hereunder or as a result hereof or
have standing to require satisfaction of provisions hereof in accordance with
their terms, and any or all of such provisions in favor of the Agent or the
Lenders may be freely waived in whole or in part by the Agent or each Lender at
any time if in its sole discretion it deems it advisable to do so.
6 RENEWALS; EXTENSIONS. All provisions of this Agreement relating to
the Notes shall apply with equal force and effect to each promissory note
hereafter executed which in whole or in part represents a renewal or extension
of any part of the Indebtedness of the Borrowers under this Agreement, the
Notes, or any other Loan Document.
7 NO WAIVER; RIGHTS CUMULATIVE. No course of dealing on the part of
the Agent, the Lenders, their respective officers or employees, nor any failure
or delay by the Agent or any Lender with respect to exercising any of its rights
under any Loan Document shall operate as a waiver thereof. The rights of the
Agent and the Lenders under the Loan Documents shall be cumulative and the
exercise or partial exercise of any such right shall not preclude the exercise
of any other right. The making of any Loan shall not constitute a waiver of any
of the covenants, warranties, or conditions of the Borrowers contained herein.
In the event the Borrowers are unable to satisfy any such covenant, warranty, or
condition, the making of any Loan shall not have the effect of precluding the
Agent or the Lenders from thereafter declaring such inability to be an Event of
Default as hereinabove provided.
8 SURVIVAL UPON UNENFORCEABILITY. In the event any one or more of
the provisions contained in any of the Loan Documents or in any other instrument
referred to herein or executed in connection with the Obligations shall, for any
reason, be held to be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any other provision
of any Loan Document or of any other instrument referred to herein or executed
in connection with such Obligations.
9 AMENDMENTS; WAIVERS. Neither this Agreement nor any provision
hereof may be amended, waived, discharged, or terminated orally, but only by an
instrument in writing signed by the party against whom enforcement of the
amendment, waiver, discharge, or termination is sought.
10 CONTROLLING AGREEMENT. In the event of a conflict between the
provisions of this Agreement and those of any other Loan Document, the
provisions of this Agreement shall control.
11 DISPOSITION OF COLLATERAL. Notwithstanding any term or provision,
express or implied, in any of the Security Instruments, the realization,
liquidation, foreclosure, or any other disposition on or of any or all of the
Collateral shall be in the order and manner and determined in the sole
discretion of the Agent and the Lenders; provided, however, that in no event
shall the Agent and the Lenders violate applicable law or exercise rights and
remedies other than those provided in such Security Instruments or otherwise
existing at law or in equity.
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12 GOVERNING LAW. This Agreement and the Notes shall be deemed to be
contracts made under and shall be construed in accordance with and governed by
the laws of the State of Texas without giving effect to principles thereof
relating to conflicts of law; provided, however, that Vernon's TEXAS CIVIL
STATUTES, Article 5069, Chapter 15 (which regulates certain revolving credit
loan accounts and revolving triparty accounts) shall not apply except for
Section 15.10(b) of such Chapter.
13 JURISDICTION AND VENUE. All actions or proceedings with respect
to, arising directly or indirectly in connection with, out of, related to, or
from this Agreement or any other Loan Document may be litigated, at the sole
discretion and election of the Lender, in courts having situs in Houston, Harris
County, Texas. Each Borrower hereby submits to the jurisdiction of any local,
state, or federal court located in Houston, Harris County, Texas, and hereby
waives any rights it may have to transfer or change the jurisdiction or venue of
any litigation brought against it by the Lender in accordance with this Section.
14 WAIVER OF RIGHTS TO JURY TRIAL. Each Borrower, the Agent and each
Lender hereby knowingly, voluntarily, intentionally, irrevocably, and
unconditionally waive all rights to trial by jury in any action, suit,
proceeding, counterclaim, or other litigation that relates to or arises out of
this Agreement or any other Loan Document or the acts or omissions of the Lender
in the enforcement of any of the terms or provisions of this Agreement or any
other Loan Document or otherwise with respect thereto. The provisions of this
Section are a material inducement for the Agent and the Lenders entering into
this Agreement.
15 ENTIRE AGREEMENT. THIS AGREEMENT CONSTITUTES THE ENTIRE AGREEMENT
BETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF AND SHALL
SUPERSEDE ANY PRIOR AGREEMENT BETWEEN THE PARTIES HERETO, WHETHER WRITTEN OR
ORAL, RELATING TO THE SUBJECT HEREOF, INCLUDING, WITHOUT LIMITATION, THE
PRELIMINARY TERM SHEET ENCLOSED THEREWITH. FURTHERMORE, IN THIS REGARD, THIS
AGREEMENT AND THE OTHER WRITTEN LOAN DOCUMENTS REPRESENT, COLLECTIVELY, THE
FINAL AGREEMENT AMONG THE PARTIES THERETO AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF SUCH
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG SUCH PARTIES.
16 COUNTERPARTS. For the convenience of the parties, this Agreement
may be executed in multiple counterparts, each of which for all purposes shall
be deemed to be an original, and all such counterparts shall together constitute
but one and the same Agreement.
17 AMENDMENT AND RESTATEMENT OF PRIOR CREDIT AGREEMENT. This
Agreement is executed in amendment and restatement of that certain Credit
Agreement dated September 17, 1996 executed by the Borrowers and Comerica, as
amended by that certain First Amendment to Credit Agreement dated September 27,
1996, executed by the Borrowers and Comerica and that certain
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Second Amendment to Credit Agreement dated March 18, 1997, executed by the
Borrowers and Comerica.
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IN WITNESS WHEREOF, this Agreement is deemed executed effective as
of the date first above written.
BORROWERS:
CLIFFWOOD OIL & GAS CORP.
By:/S/ FRANK A. LODZINSKI
Frank A. Lodzinski
President
CLIFFWOOD ENERGY COMPANY
By:/S/ FRANK A. LODZINSKI
Frank A. Lodzinski
President
CLIFFWOOD PRODUCTION CO.
By: /S/ FRANK A. LODZINSKI
Frank A. Lodzinski
President
AGENT:
COMERICA BANK-TEXAS
By: /S/ JAMES W. KIMBLE
James W. Kimble
Assistant Vice President
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COMMITMENT AMOUNT: LENDERS:
$ 8,100,000 COMERICA BANK-TEXAS
By:/S/ JAMES W. KIMBLE
James W. Kimble
Assistant Vice President
Lending Office:
One Shell Plaza
910 Louisiana, 4th Floor
Houston, Texas 77002
Fax No.: 713/722-6550
Telephone No.: 713/722-6514
Attn: James W. Kimble
COMMITMENT AMOUNT: LENDER:
$ 5,400,000 FIRST UNION NATIONAL BANK
By:/S/ MICHAEL J. KOLOSOWSKY
Michael J. Kolosowsky
Vice President
Lending Office:
301 South College
Charlotte, North Carolina 28288
Fax No.: 704/374-6249
Telephone No.: 704/383-8225
Attn: Michael J. Kolosowsky
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EXHIBIT I
PROMISSORY NOTE
$_____________ Houston, Texas August 1, 1997
FOR VALUE RECEIVED and WITHOUT GRACE except as may be provided in the
below-referenced Amended and Restated Credit Agreement, the undersigned (whether
one or more, referred hereinafter, collectively, as "MAKER") promise to pay,
jointly and severally, to the order of ____________________ ("PAYEE"), at the
banking quarters of Comerica Bank-Texas, as Agent in Dallas, Dallas County,
Texas, the sum of __________________________________ DOLLARS ($_______________),
or so much thereof as may be advanced against this Note pursuant to the Amended
and Restated Credit Agreement dated August 1, 1997 by and among Maker, Payee,
other Lenders from time to time signatory thereto and Comerica Bank-Texas, as
Agent (as amended, restated, or supplemented from time to time, the "CREDIT
AGREEMENT"), together with interest at the rates and calculated as provided in
the Credit Agreement.
Reference is hereby made to the Credit Agreement for matters governed
thereby, including, without limitation, general provisions relating to interest,
governing law, and certain events which will entitle the holder hereof to
accelerate the maturity of all amounts due hereunder. Capitalized terms used but
not defined in this Note shall have the meanings assigned to such terms in the
Credit Agreement.
This Note is issued pursuant to, is a "Note" under, and is payable as
provided in the Credit Agreement. Subject to compliance with applicable
provisions of the Credit Agreement, Maker may at any time pay the full amount or
any part of this Note without the payment of any premium or fee, but such
payment shall not, until this Note is fully paid and satisfied, excuse the
payment as it becomes due of any payment on this Note provided for in the Credit
Agreement.
Without being limited thereto or thereby, this Note is secured by the
Security Instruments.
This Note and the other Notes under the Credit Agreement renew, extend and
replace that certain Promissory Note dated September 17, 1996, made by Maker
payable to the order of Comerica Bank-Texas, in the original principal sum of
$15,000,000.
EXECUTED as of the date first-above written.
CLIFFWOOD OIL & GAS CORP.
By: _________________________________
Frank A. Lodzinski
President
Page 1 of 2
<PAGE>
CLIFFWOOD ENERGY COMPANY
By: _____________________________________
Frank A. Lodzinski
President
CLIFFWOOD PRODUCTION CO.
By: _____________________________________
Frank A. Lodzinski
President
Page 2 of 2
<PAGE>
EXHIBIT II
[FORM OF COMPLIANCE CERTIFICATE]
_______________, 19___
Comerica Bank - Texas, Agent
1601 Elm Street, 2nd Floor
Dallas, Texas 75202
Attention: Energy Group
Re: Amended and Restated Credit Agreement dated as of August 1, 1997, by
and between Comerica Bank - Texas, as agent, other lenders from time
to time signatory thereto Cliffwood Oil & Gas Corp., Cliffwood
Energy Company and Cliffwood Production Co. (as amended, restated,
or supplemented from time to time, the "CREDIT AGREEMENT")
Ladies and Gentlemen:
Pursuant to applicable requirements of the Credit Agreement, the
undersigned, as Responsible Officers of each Borrower, hereby certify to you the
following information as true and correct as of the date hereof or for the
period indicated, as the case may be:
[1. To the best of the knowledge of the undersigned, no Default or Event
of Default exists as of the date hereof or has occurred since the date of
our previous certification to you, if any.]
[1. To the best of the knowledge of the undersigned, the following
Defaults or Events of Default exist as of the date hereof or have occurred
since the date of our previous certification to you, if any, and the
actions set forth below are being taken to remedy such circumstances:]
2. The compliance of the Borrowers with the financial covenants of the
Credit Agreement, as of the close of business on _______________, is
evidenced by the following:
Section 6.13: Working Capital
REQUIRED ACTUAL
Greater than zero dollar $_____________
3. No Material Adverse Effect has occurred since the date of the Financial
Statements dated as of _______________.
II, VI-i
<PAGE>
Each capitalized term used but not defined herein shall have the
meaning assigned to such term in the Credit Agreement.
Very truly yours,
CLIFFWOOD OIL & GAS CORP.
By: ________________________________________
Name:
Title:
CLIFFWOOD PRODUCTION CO.
By: ________________________________________
Name:
Title:
CLIFFWOOD ENERGY COMPANY
By: ________________________________________
Name:
Title:
II, VI-ii
<PAGE>
EXHIBIT III
[FORM OF OPINION OF COUNSEL]
August 4, 1997
Comerica Bank-Texas, Agent
One Shell Plaza
Houston, Texas 77002
Attention: Energy Group
Re: Amended and Restated Credit Agreement dated as of August 1, 1997, by
and between Comerica Bank-Texas, as agent ("Agent"), other Lenders
from time to time signatory thereto ("Lenders") Cliffwood Oil & Gas
Corp., Cliffwood Energy Company and Cliffwood Production Co. (as
amended, restated, or supplemented from time to time, the "CREDIT
AGREEMENT")
Ladies and Gentlemen:
We have acted as counsel to Cliffwood Oil & Gas Corp., Cliffwood
Energy Company and Cliffwood Production Co. (together, the "BORROWERS") in
connection with the transactions contemplated in the Credit Agreement. This
Opinion is delivered pursuant to Section 3.1(l) of the Credit Agreement, and the
Agent and the Lenders are hereby authorized to rely upon this Opinion in
connection with the transactions contemplated in the Credit Agreement. Each
capitalized term used but not defined herein shall have the meaning assigned to
such term in the Credit Agreement.
In our representation of the Borrowers, we have examined an
executed counterpart of each of the following (the "LOAN DOCUMENTS"):
(a) the Assignment of the deeds of trust executed in connection with
the prior Credit Agreement referred to in Section 9.17 of the Credit
Agreement (the "Assignment").
(b) the Credit Agreement;
(c) the Notes;
(d) the several instruments styled "Deed of Trust, Mortgage,
Assignment of Production, Security Agreement and Financing Statement"
dated of even date herewith from the Borrowers in favor of the Lender (the
"MORTGAGE"); and
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(e) Non-Standard Financing Statements from the Borrowers, as
debtors, constituent to the Mortgage and the Pledge (the "FINANCING
STATEMENTS");
We have also examined the originals, or copies certified to our
satisfaction, of such other records of the Borrowers, certificates of public
officials and officers of the Borrowers, agreements, instruments, and documents
as we have deemed necessary as a basis for the opinions hereinafter expressed.
In making such examinations, we have, with your permission, assumed:
(a) the genuineness of all signatures to the Loan Documents other
than those of the Borrowers;
(b) the authenticity of all documents submitted to us as originals
and the conformity with the originals of all documents submitted to us as
copies;
(c) the Agent and the Lenders are authorized and has the power to
enter into and perform its obligations under the Credit Agreement;
(d) the due authorization, execution, and delivery of all Loan
Documents by each party thereto other than the Borrowers; and
(e) the Borrowers have title to all Property covered or affected by
the Mortgage.
Based upon the foregoing and subject to the qualifications set
forth herein, we are of the opinion that:
1. Each Borrower is a corporation duly organized, legally existing,
and in good standing under the laws of the state of its incorporation and
is duly qualified as a foreign corporation and is in good standing in all
jurisdictions wherein the ownership of its Property or the operation of
its business necessitates same.
2. The execution and delivery by the Borrowers of the Credit
Agreement and the borrowings thereunder, the execution and delivery by the
Borrowers of the other Loan Documents to which the Borrowers are a party,
and the payment and performance of all Obligations of the Borrowers
thereunder are within the power of each Borrower, have been duly
authorized by all necessary corporate action, and do not (a) require the
consent of any Governmental Authority, (b) contravene or conflict with any
Requirement of Law, (c) to our knowledge after due inquiry, contravene or
conflict with any indenture, instrument, or other agreement to which any
Borrower is a party or by which any Property of any Borrower may be
presently bound or encumbered, or (d) result in or require the creation or
imposition of any Lien upon any Property of the Borrower other than as
contemplated by the Loan Documents.
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3. The Loan Documents to which each Borrower is a party constitute
legal, valid, and binding obligations of such Borrower, enforceable
against such Borrower in accordance with their respective terms.
4. The forms of the Mortgage, the Financing Statements, and the
description of the Collateral and the Mortgaged Properties (as such term
is defined in the Mortgage and so used herein) situated in the State of
Texas (the "STATE") satisfy all applicable Requirements of Law of the
State and are legally sufficient under the laws of the State to enable the
Agent and the Lenders to realize the practical benefits purported to be
afforded thereby.
5. The Assignment and Mortgage (a) create a valid lien upon and
security interest in all Mortgaged Property situated in the State to
secure the Indebtedness (as such term is defined in the Mortgage and the
Pledge and so used herein), and (b) provide for nonjudicial foreclosure
remedies customarily used in the State.
6. The Assignment, Mortgage and the Financing Statements are in
satisfactory form for filing and recording in the offices described
below.
7. The filing and/or recording, as the case may be, of (a) the
Mortgage in the office of the county clerk of each county in the State in
which any portion of the Mortgaged Property is located, and as a financing
statement in the office of the Secretary of State of the State, and (b)
the Financing Statements in the Uniform Commercial Code records in each
county in the State in which any portion of the Mortgaged Property is
located, are the only recordings or filings in the State necessary to
perfect the liens and security interests in the Mortgaged Property created
by the Mortgage or to permit the Lender to enforce in the State its rights
under the Mortgage and the Financing Statements in the Uniform Commercial
Code records of the Secretary of State of Texas is the only recordings or
filings in the State necessary to perfect the liens and security interests
in the created Mortgaged Property in the Pledge or to permit the Lender to
enforce in the State its rights under the Pledge. No subsequent filing,
re-filing, recording, or re-recording will be required in the State in
order to continue the perfection of the liens and security interests
created by the Mortgage or the Pledge except that (a) a continuation
statement must be filed with respect to the Mortgage or the Pledge filed
as a financing statement in the office of the Secretary of State of the
State and with respect to the Financing Statement filed in the Uniform
Commercial Code records in each county in the State in which any portion
of the Mortgaged Property is located, each within six months prior to the
expiration of five years from the date of the relevant initial financing
statement filing, (b) a subsequent continuation statement must be filed
within six months prior to the expiration of each subsequent five-year
period from the date of each initial financing statement filing, and (c)
amendments or supplements to the Mortgage filed as a financing statement
and the Financing Statement; and/or additional financing
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statements may be required to be filed in the event of a change in the
name, identity, or structure of any Borrower or in the event the financing
statement filing otherwise becomes inaccurate or incomplete.
8. To our knowledge after due inquiry, except as disclosed in
Exhibit IV to the Credit Agreement, no litigation or other action of any
nature affecting any Borrower is pending before any Governmental Authority
or threatened against any Borrower. To our knowledge after due inquiry, no
unusual or unduly burdensome restriction, restraint, or hazard exists by
contract, Requirement of Law, or otherwise relative to the business or
operations of the Borrowers or the ownership and operation of any
Properties of the Borrowers other than such as relate generally to Persons
engaged in business activities similar to those conducted by the
Borrowers.
9. No authorization, consent, approval, exemption, franchise, permit
or license of, or filing (other than the filings set forth above) with,
any Governmental Authority or any other Person is required to authorize or
is otherwise required in connection with the valid execution and delivery
by the Borrowers of the Loan Documents or any instrument contemplated
thereby, or the payment and performance by the Borrowers of the
Obligations.
10. No transaction contemplated by the Loan Documents is in
violation of any regulations promulgated by the Board of Governors of the
Federal Reserve System, including, without limitation, Regulations G, T,
U, or X.
11. No Borrower is, nor is any Borrower directly or indirectly
controlled by or acting on behalf of any Person which is, an "investment
company" or an "affiliated person" of an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
12. No Borrower is a "holding company," or an "affiliate" of a
"holding company" or of a "subsidiary company" of a "holding company,"
within the meaning of the Public Utility Holding Company Act of 1935, as
amended.
The opinions expressed herein are subject to the following
qualifications and limitations:
(a) We are licensed to practice law only in the State and other
jurisdictions whose laws are not applicable to the opinions expressed
herein; accordingly, the foregoing opinions are limited solely to the laws
of the State, and applicable United States federal law.
(b) The validity, binding effect, and enforceability of the Loan
Documents may be limited or affected by bankruptcy, insolvency,
moratorium, reorganization, or other similar laws affecting rights of
creditors generally, including, without limitation, statutes or rules of
law which limit the effect of waivers of rights by a debtor or
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grantor; provided, however, that the limitations and other effects of such
statutes or rules of law upon the validity and binding effect of the Loan
Documents should not differ materially from the limitations and other
effects of such statutes or rules of law upon the validity and binding
effect of credit agreements, promissory notes, guaranties, and security
instruments generally.
(c) The enforceability of the respective obligations of the
Borrowers under the Loan Documents is subject to general principles of
equity (whether such enforceability is considered in a suit in equity or
at law).
This Opinion is furnished by us solely for the benefit of the Agent
and the Lenders in connection with the transactions contemplated by the Loan
Documents and is not to be quoted in whole or in part or otherwise referred to
or disclosed in any other transaction.
Very truly yours,
III-v
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EXHIBIT IV
DISCLOSURES
Section 1.2 PERMITTED LIENS
None
Section 4.8 LIABILITIES
None
LITIGATION
None
Section 4.12 ENVIRONMENTAL MATTERS
None
Section 4.13 REFUNDS
None
Section 4.14 GAS CONTRACTS
None
Section 4.16 CASUALTIES
None
Section 6.1 INDEBTEDNESS
None
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EXHIBIT V
PART ONE -[TO COME FROM BORROWER]
ho972030203
V-i
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EXHIBIT VI
ASSIGNMENT AND ACCEPTANCE AGREEMENT
This ASSIGNMENT AND ACCEPTANCE AGREEMENT (this "Agreement") dated as of
_________________, ____ is made by and between _________________________________
(the "Assignor") and (the "Assignee").
R E C I T A L S
WHEREAS, the Assignor is party to that certain Amended and Restated
Credit Agreement (the "Credit Agreement") dated as of August 1, 1997, by and
among Cliffwood Oil & Gas Corp., Cliffwood Energy Company and Cliffwood
Production Co., (the "Borrowers"), the several financial institutions from time
to time a party thereto (including the Assignor, the "Lenders") and Comerica
Bank - Texas, as Agent for the Lenders (terms defined in the Credit Agreement
are used herein with the same meaning);
WHEREAS, as provided in the Credit Agreement, the Lenders have committed
to extend credit to the Borrowers; and
WHEREAS, the Assignor wishes to assign to the Assignee part of its rights
and obligations under the Credit Agreement in respect of its Commitment,
together with a corresponding portion of each of its outstanding Loans, in a
total amount equal to $________ and its L/C Exposure in the amount of
$____________ (the "Assigned Amount") on the terms listed on Annex I hereto, and
subject to the conditions set forth herein and in the Credit Agreement, and the
Assignee wishes to accept assignment of such rights and to assume such
obligations from the Assignor on such terms and subject to such conditions.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:
1. ASSIGNMENT AND ACCEPTANCE.
(a) Before giving effect to this Agreement, Assignor's (a)
Commitment is $________, (b) its Loan Balance is $__________, (c) Commitment
Amount is $________, and (d) L/C Exposure is $_________. With effect on and
after the Effective Date (as defined in Section 4 hereof), the Assignor hereby
sells and assigns to the Assignee, and the Assignee hereby purchases and assumes
from the Assignor, the Assigned Amount, which shall be equal to percent ( %)
(the "Assignee's Percentage Share") of all of the Assignor's rights and
obligations under the Credit Agreement, including, without limitation, the
Assignee's Percentage Share of the Assignor's (i) Commitment, (ii) outstanding
Loan Balance, (iii) Commitment Amount, and (iv) L/C Exposure. After giving
effect to this Agreement on the Effective Date, the interests of Assignor and
Assignee, respectively, are set forth on Annex II hereto.
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The assignment set forth in this Section 1(a) shall be WITHOUT
RECOURSE TO, OR REPRESENTATION OR WARRANTY (except as expressly provided in this
Agreement) by, the Assignor.
(b) With effect on and after the Effective Date, the Assignee shall
be a party to the Credit Agreement, shall become a "Lender" for all purposes as
therein defined and contemplated, and shall succeed to all of the rights, shall
assume all of the obligations and shall be obligated to perform all of the
obligations of a Lender under the Credit Agreement with a Commitment Amount
equal to the Assigned Amount. The Assignee agrees that it will perform in
accordance with their terms all of the obligations which by the terms of the
Credit Agreement are required to be performed by it as a Lender. It is the
intent of the parties hereto that the Commitment and Commitment Amount of the
Assignor shall, as of the Effective Date, be reduced by an amount equal to the
Assigned Amount and the Assignor shall relinquish its rights and be released
from its obligations under the Credit Agreement to the extent such obligations
have been assumed by the Assignee.
2. PAYMENTS.
(a) As consideration for the sale, assignment and transfer
contemplated in Section 1 hereof, the Assignee shall (i) pay to the Assignor on
the Effective Date in immediately available funds an amount equal to Dollars ($
), representing the Assignee's Percentage Share of the principal amount of all
Loans previously made, and currently owned, by the Assignor under the Credit
Agreement and outstanding on the Effective Date and (ii) assume liability for
$_______ of L/C Exposure.
(b) The Assignee further agrees to pay to the Agent a processing or
transfer fee in the amount of $3,500.
(c) To the extent payment to be made by the Assignee pursuant to
Section 2(a) hereof is not made when due, the Assignor shall be entitled to
recover such amount together with interest thereon at the federal funds rate
accruing from the date such amounts were due.
3. REALLOCATION OF PAYMENTS. Any interest, commissions, fees and other
payments accrued to but excluding the Effective Date with respect to the
Assigned Amount shall be for the account of the Assignor. Any interest, fees and
other payments accrued on and after the Effective Date with respect to the
Assigned Amount shall be for the account of the Assignee. Each of the Assignor
and the Assignee agree that it will hold in trust for the other party any
interest, commissions, fees and other amounts which it may receive to which the
other party is entitled pursuant to the preceding sentence and pay to the other
party any such amounts which it may receive promptly upon receipt. The
Assignor's and the Assignee's obligations to make the payments referred to in
this Section 3 are non-assignable.
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4. EFFECTIVE DATE; NOTICES; NOTES.
(a) The effective date for this Agreement shall be _________________
(the "Effective Date"); PROVIDED that the following conditions precedent have
been satisfied on or before the Effective Date:
(i) this Agreement shall be executed and delivered by the Assignor
and the Assignee;
(ii) the consent of the Borrower (if no Default or Event of Default
has occurred and is continuing on the Effective Date) and the Agent
required for an effective assignment of the Assigned Amount by the
Assignor to the Assignee shall have been duly obtained in the form set
forth on Annex III hereof, and shall be in full force and effect as of the
Effective Date;
(iii) the Assignee shall pay to the Assignor all amounts due to the
Assignor under this Agreement; and
(iv) the processing or transfer fee referred to in Section 2(b)
shall have been paid to the Agent.
(b) Promptly following the execution of this Agreement, the
Assignor shall deliver to the Agent for acceptance by the Agent, the notices,
agreements or other documents as may be required under the Credit Agreement.
(c) Promptly following payment by the Assignee of the consideration
as provided in Section 2 hereof, the Assignor shall deliver its Note to the
Agent and shall request that new Notes be issued to the Assignor and the
Assignee as of the Effective Date to properly reflect the respective amounts of
the Loans held by each party.
5. AGENT [INCLUDE ONLY IF ASSIGNOR IS AGENT].
(a) The Assignee hereby appoints and authorizes the Assignor to
take such action as Agent on its behalf and to exercise such powers under the
Credit Agreement as are delegated to the Agent by the Lenders pursuant to the
terms of the Credit Agreement.
(b) The Assignee shall assume no duties or obligations held by the
Assignor in its capacity as Agent under the Credit Agreement.]
6. REPRESENTATIONS AND WARRANTIES.
(a) The Assignor represents and warrants that (i) it is the legal
and beneficial owner of the interest being assigned by it hereunder and that
such interest is free and clear of any lien, security interest or other adverse
claim; (ii) it is duly organized and existing and it has the full power and
authority to take, and has taken, all action necessary to execute and deliver
this Agreement and any other documents required or permitted to be executed or
delivered by it in connection with this Agreement and to fulfill its obligations
hereunder, (iii) no notices to, or consents, authorizations or
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approvals of, any person are required (other than any already given or obtained)
for its due execution, delivery and performance of this Agreement, and apart
from any agreements or undertakings or filings required by the Credit Agreement,
no further action by, or notice to, or filing with, any person is required of it
for such execution, delivery or performance; and (iv) this Agreement has been
duly executed and delivered by it and constitutes the legal, valid and binding
obligations of the Assignor, enforceable against the Assignor in accordance with
the terms hereof, except subject, as to enforcement, to bankruptcy, insolvency,
moratorium, reorganization and other laws of general appli cation relating to or
affecting creditors' rights and to general equitable principles.
(b) The Assignor makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Credit
Agreement or any other instrument or document furnished pursuant thereto. The
Assignor makes no representation or warranty in connection with, and assumes no
responsibility with respect to, the solvency, financial condition or statements
of the Borrowers or the performance or observance by the Borrower or any
guarantor of any of its respective obligations under the Credit Agreement or any
other instrument or document furnished in connection therewith.
(c) The Assignee represents and warrants that (i) it is duly
organized and existing and it has full power and authority to take, and has
taken, all action necessary to execute and deliver this Agreement and any other
documents required or permitted to be executed or delivered by it in connection
with this Agreement, and to fulfill its obligations hereunder; (ii) no notices
to, or consents, authorizations or approvals of, any person are required (other
than any already given or obtained) for its due execution, delivery and
performance of this Agreement; and apart from any agreements or undertaking or
filings required by the Credit Agreement, no further action by, or notice to, or
filing with, any person is required of it for such execution, delivery or
performance; (iii) this Agreement has been duly executed and delivered by it and
constitutes the legal, valid and binding obligations of the Assignee,
enforceable against the Assignee in accordance with the terms hereof, except
subject, as to enforcement, to bankruptcy, insolvency, moratorium,
reorganization and other laws of general application relating to or affecting
creditors' rights and to general equitable principles; and (iv) it is eligible
under the Credit Agreement to be an assignee in accordance with the terms
thereof.
7. FURTHER ASSURANCES. The Assignor and the Assignee each hereby agree to
execute and deliver such other instruments, and take such other action, as
either party may reasonably request in connection with the transactions
contemplated by this Agreement, including, without limitation, the delivery of
any notices or other documents or instruments to the Borrower, the Agent or any
guarantor which may be required in connection with the assignment and assumption
contemplated hereby.
8. INDEMNITY. The Assignee agrees to indemnify and hold harmless the
Assignor against any and all losses, costs, expenses (including, without
limitation, reasonable attorneys' fees and expenses) and liabilities incurred by
the Assignor in connection with or arising in any manner from the
non-performance by the Assignee of any obligation assumed by the Assignee under
this Agreement.
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9. MISCELLANEOUS.
(a) Any amendment or waiver of any provision of this Agreement
shall be in writing signed by the parties hereto. No failure or delay by either
party hereto in exercising any right, power or privilege hereunder shall operate
as a waiver thereof and any waiver of any breach of the provisions of this
Agreement shall be without prejudice to any rights with respect to any other or
further breach hereof.
(b) All payments made hereunder shall be made without any set-off
or counterclaim.
(c) All communications among the parties or notices in connection
herewith shall be in writing, hand-delivered, telex or facsimile transmitter,
addressed as follows: (i) if to the Assignor or the Assignee, at their
respective addresses set forth on the signature pages hereof and (ii) if to the
Borrowers, the Agent or any guarantor, at their respective addresses set forth
in the Credit Agreement or other documents or instruments. All such
communications and notices shall be effective upon receipt. The Assignee
specifies as its Lending Office the office set forth beneath its name on the
signature page hereof.
(d) The Assignor and the Assignee shall each pay their own costs
and expenses incurred in connection with the negotiation, preparation, execution
and performance of this Agreement.
(e) The representations and warranties made herein shall survive
the consummation of the transactions contemplated hereby.
(f) Subject to the terms of the Credit Agreement, this Agreement
shall be binding upon and inure to the benefit of the Assignor and the Assignee
and their respective successors and assigns; PROVIDED, HOWEVER, that no party
shall assign its rights hereunder without the prior written consent of the other
party and any purported assignment, absent such consent, shall be void. The
preceding sentence shall not limit or enhance the right of the Assignee to
assign or participate all or part of the Assignee's Percentage Share and the
Assigned Amount and any outstanding Loans attributable thereto in the manner
contemplated by the Credit Agreement.
(g) This Agreement may be executed in any number of counterparts and
all of such counterparts taken together shall be deemed to constitute one and
the same instrument.
(h) This Agreement shall be governed by and construed in accordance
with the law of the State of Texas. The Assignor and the Assignee each
irrevocably submits to the non-exclusive jurisdiction of any Texas State or
Federal court sitting in the Southern District of Texas over any suit, action or
proceeding arising out of or relating to this Agreement or the Credit Agreement
and irrevocably agrees that all claims in respect of such action or proceeding
may be heard and determined in such Texas State or Federal court. Each party to
this Agreement hereby irrevocably waives, to the fullest extent it may
effectively do so, the defense of an inconvenient forum to the maintenance of
such action or proceeding.
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(i) This Agreement and any agreement, document or instrument
attached hereto or referred to herein integrate all the terms and conditions
mentioned herein or incidental hereto, and together with the Credit Agreement
constitutes the entire agreement and understanding between the parties hereto
and supersedes any and all prior agreements and understandings related to the
subject matter hereof. In the event of any conflict between the terms,
conditions and provisions of this Agreement and the Credit Agreement, the terms,
conditions and provisions of the Credit Agreement shall prevail.
(j) In the event of any inconsistency between the provisions of this
Agreement, on the one hand, and Annex I, Annex II or Annex III hereto, on the
other hand, this Agreement shall control. Headings are for reference only and
are to be ignored in interpreting this Agreement.
(k) The illegality or unenforceability of any provision of this
Agreement or any instrument or agreement required hereunder shall not in any way
affect or impair the legality or enforceability of the remaining provisions of
this Agreement or any instrument or agreement required hereunder.
IN WITNESS WHEREOF, the Assignor and the Assignee have caused this
Agreement to be executed and delivered by their duly authorized officers as of
the date first above written.
ASSIGNOR:
_____________________________________
By: _________________________________
Name:
Title:
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ASSIGNEE:
_____________________________________
By: _________________________________
Name:
Title:
Lending Office:
_____________________________________
_____________________________________
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ANNEX I
TO
ASSIGNMENT AND ACCEPTANCE AGREEMENT
1. BORROWER:
2. DATE OF CREDIT AGREEMENT:
3. ASSIGNOR:
4. ASSIGNEE:
5. DATE OF ASSIGNMENT AGREEMENT:
6. EFFECTIVE DATE:
7. FEES PAID BY ASSIGNEE TO ASSIGNOR:
8. INTEREST PAID BY ASSIGNEE TO ASSIGNOR:
9. PAYMENT INSTRUCTIONS:
Assignor:
Assignee:
10. Assignee's Notice
INSTRUCTIONS:
11. OTHER INFORMATION:
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ANNEX II
TO
ASSIGNMENT AND ACCEPTANCE AGREEMENT
1. BORROWER:
2. DATE OF CREDIT AGREEMENT:
3. ASSIGNOR:
4. ASSIGNEE:
5. DATE OF ASSIGNMENT AGREEMENT:
6. EFFECTIVE DATE:
7. ASSIGNOR'S COMMITMENT AMOUNT AS OF EFFECTIVE DATE: $__________
8. ASSIGNOR'S LOAN BALANCE AS OF EFFECTIVE DATE: $__________
9. ASSIGNOR'S L/C EXPOSURE AS OF EFFECTIVE DATE:
10. ASSIGNEE'S COMMITMENT AMOUNT AS OF EFFECTIVE DATE: $__________
11. ASSIGNEE'S LOAN BALANCE AS OF EFFECTIVE DATE: $__________
12. ASSIGNEE'S L/C EXPOSURE AS OF EFFECTIVE DATE:
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ANNEX III
TO
NOTICE OF ASSIGNMENT AND ACCEPTANCE AGREEMENT
_______________, _____
[Agent's Name and Address]
[Borrower's Name and Address]
Dear Sirs:
We refer to the Credit Agreement dated as of April 1, 1997 (the "Credit
Agreement") by and among you and the Lenders from time to time a party thereto.
Capitalized terms not defined herein shall have the meaning ascribed to them in
the Credit Agreement.
1. We hereby give you notice of, and request the approval of the Borrower
(if required) and the Agent to, the assignment by ______________________________
(the "Assignor") to ________________________________ (the "Assignee") of _____%
of the right, title and interest of the Assignor in and to the
Credit Agreement (including without limitation the right, title and interest of
the Assignor in and to the Commitment of the Assignor, all of Assignor's L/C
Exposure and all Loan Balances of the Assignor). Before giving effect to such
assignment the Assignor's (a) Commitment Amount is $________, (b) the Loan
Balance is $_________, and (c) L/C Exposure is $___________. After giving effect
to such assignment, the Assignor's and Assignee's respective Loan Balances,
Commitment Amounts and L/C Exposures are as set forth on Schedule X hereto.
2. The Assignee agrees that upon receiving the consent of the Borrower (if
required) and the Agent to such assignment and from and after the Effective Date
of the Assignment, the Assignee will be bound by the terms of the Credit
Agreement, with respect to the interest in the Credit Agreement assigned to it
as specified above, as fully and to the same extent as if the Assignee were the
Lender originally holding such interest in the Credit Agreement.
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3. The following administrative details apply to the Assignee:
(A) Lending Office:
Assignee name: _______________________________
Address: _______________________________
Attention: _______________________________
Telephone: (_____)________________________
Telecopier: (_____)________________________
(B) Notice Address:
Assignee name _______________________________
Address: _______________________________
Attention: _______________________________
Telephone: (_____)________________________
Telecopier: (_____)________________________
(C) Payment Instructions:
Account No.: _______________________________
At: _______________________________
_______________________________
Reference: _______________________________
Attention: _______________________________
IN WITNESS WHEREOF, the Assignor and the Assignee have caused this
Assignment and Acceptance to be executed by their respective duly authorized
officials, officers or agents as of the date first above mentioned.
Very truly yours,
[Name of Assignor]
By: __________________________________
Name: ________________________________
Title: _______________________________
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[Name of Assignee]
By: __________________________________
Name: ________________________________
Title: _______________________________
The Borrowers (if necessary) and the Agent hereby grant their approval of the
foregoing assignment:
[Borrowers]
By: _________________________________
Name: _______________________________
COMERICA BANK- TEXAS, Agent
By: ________________________________
Name: ______________________________
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SCHEDULE X
[To Be Completed at Time of Assignment]
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EXHIBIT 4.12
- ------------------------------------------------------------------------------
AMENDED AND RESTATED
CREDIT AGREEMENT
BY AND AMONG
CLIFFWOOD OIL & GAS CORP.
CLIFFWOOD ENERGY COMPANY
CLIFFWOOD PRODUCTION CO.
COMERICA BANK - TEXAS,
AS AGENT
AND
THE SEVERAL FINANCIAL INSTITUTIONS
FROM TIME TO TIME PARTY HERETO
DATED AS OF
August 1, 1997
$25,000,000 MASTER REDUCING REVOLVING LINE OF CREDIT
AND LETTER OF CREDIT FACILITY
WITH AN INITIAL COMMITMENT AMOUNT OF $13,500,000
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TABLE OF CONTENTS
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TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND INTERPRETATION..................... 1
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1.1 TERMS DEFINED ABOVE............................................ 1
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1.2 ADDITIONAL DEFINED TERMS....................................... 1
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1.3 UNDEFINED FINANCIAL ACCOUNTING TERMS........................... 12
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1.4 REFERENCES..................................................... 12
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1.5 ARTICLES AND SECTIONS.......................................... 13
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1.6 NUMBER AND GENDER.............................................. 13
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1.7 INCORPORATION OF EXHIBITS...................................... 13
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ARTICLE II
TERMS OF FACILITY........................... 13
2.1 REVOLVING LINE OF CREDIT....................................... 13
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2.2 USE OF LOAN PROCEEDS AND LETTERS OF CREDIT..................... 14
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2.3 INTEREST....................................................... 14
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2.4 LETTER OF CREDIT FACILITY...................................... 14
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2.5 REPAYMENT OF LOANS AND INTEREST................................ 14
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2.6 OUTSTANDING AMOUNTS............................................ 15
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2.7 TIME, PLACE, AND METHOD OF PAYMENTS............................ 15
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2.8 BORROWING BASE DETERMINATIONS; REDUCTION OF BORROWING BASE..... 15
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2.9 MANDATORY PREPAYMENTS.......................................... 16
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2.10 VOLUNTARY PREPAYMENTS OF LOANS................................. 17
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2.11 COMMITMENT FEE................................................. 17
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2.12 ENGINEERING FEE................................................ 17
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2.13 FACILITY FEE................................................... 17
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2.14 LETTER OF CREDIT FEE........................................... 18
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2.15 LOANS TO SATISFY OBLIGATIONS OF BORROWERS...................... 18
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2.16 SECURITY INTEREST IN ACCOUNTS; RIGHT OF OFFSET................. 18
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2.17 GENERAL PROVISIONS RELATING TO INTEREST........................ 19
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2.18 YIELD PROTECTION............................................... 20
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2.19 LETTERS IN LIEU OF TRANSFER ORDERS............................. 20
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2.20 POWER OF ATTORNEY.............................................. 20
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2.21 JOINT BORROWER PROVISIONS...................................... 21
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2.22 PRO RATA TREATMENT............................................. 24
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2.23 NON-RECEIPT OF FUNDS BY THE AGENT.............................. 25
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2.24 WITHHOLDING TAX EXEMPTION...................................... 25
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2.25 CERTAIN AGREEMENTS REGARDING LETTERS OF CREDIT................. 26
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ARTICLE III
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CONDITIONS............................... 26
3.1 RECEIPT OF LOAN DOCUMENTS AND OTHER ITEMS...................... 27
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3.2 EACH LOAN AND LETTER OF CREDIT................................. 28
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES..................... 30
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4.1 DUE AUTHORIZATION.............................................. 30
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4.2 CORPORATE EXISTENCE............................................ 30
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4.3 VALID AND BINDING OBLIGATIONS.................................. 30
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4.4 SECURITY INSTRUMENTS........................................... 30
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4.5 TITLE TO ASSETS................................................ 30
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4.6 SCOPE AND ACCURACY OF FINANCIAL STATEMENTS..................... 31
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4.7 NO MATERIAL MISSTATEMENTS...................................... 31
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4.8 LIABILITIES, LITIGATION, AND RESTRICTIONS...................... 31
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4.9 AUTHORIZATIONS; CONSENTS....................................... 31
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4.10 COMPLIANCE WITH LAWS........................................... 31
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4.11 ERISA.......................................................... 31
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4.12 ENVIRONMENTAL LAWS............................................. 32
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4.13 REFUNDS........................................................ 32
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4.14 GAS CONTRACTS.................................................. 33
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4.15 INTELLECTUAL PROPERTY.......................................... 33
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4.16 CASUALTIES OR TAKING OF PROPERTY............................... 33
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4.17 LOCATIONS OF BORROWERS......................................... 33
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ARTICLE V
AFFIRMATIVE COVENANTS......................... 34
5.1 MAINTENANCE AND ACCESS TO RECORDS.............................. 34
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5.2 QUARTERLY FINANCIAL STATEMENTS................................. 34
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5.3 ANNUAL FINANCIAL STATEMENTS.................................... 34
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5.4 OIL AND GAS RESERVE REPORTS.................................... 34
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5.5 TITLE OPINIONS; TITLE DEFECTS; ETC............................. 35
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5.6 NOTICES OF CERTAIN EVENTS...................................... 35
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5.7 LETTERS IN LIEU OF TRANSFER ORDERS; DIVISION ORDERS............ 36
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5.8 ADDITIONAL INFORMATION......................................... 37
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5.9 COMPLIANCE WITH LAWS........................................... 37
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5.10 PAYMENT OF ASSESSMENTS AND CHARGES............................. 37
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5.11 MAINTENANCE OF CORPORATE EXISTENCE AND GOOD STANDING........... 37
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5.12 PAYMENT OF NOTES; PERFORMANCE OF OBLIGATIONS................... 37
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5.13 FURTHER ASSURANCES............................................. 37
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5.14 INITIAL FEES AND EXPENSES OF COUNSEL TO AGENT.................. 38
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5.15 SUBSEQUENT FEES AND EXPENSES OF AGENT AND LENDERS.............. 38
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5.16 OPERATION OF PROPERTIES........................................ 38
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5.17 MAINTENANCE AND INSPECTION OF PROPERTIES....................... 38
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5.18 MAINTENANCE OF INSURANCE....................................... 39
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5.19 INDEMNIFICATION................................................ 39
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ARTICLE VI
NEGATIVE COVENANTS........................... 40
6.1 INDEBTEDNESS................................................... 40
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6.2 CONTINGENT OBLIGATIONS......................................... 40
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6.3 LIENS.......................................................... 40
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6.4 SALES OF ASSETS................................................ 40
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6.5 LEASEBACKS..................................................... 41
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6.6 LOANS OR ADVANCES.............................................. 41
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6.7 INVESTMENTS.................................................... 41
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6.8 DIVIDENDS AND DISTRIBUTIONS.................................... 41
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6.9 CHANGE IN CONTROL.............................................. 41
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6.10 TRANSACTIONS WITH AFFILIATES................................... 41
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6.11 LINES OF BUSINESS.............................................. 42
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6.12 ERISA COMPLIANCE............................................... 42
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6.13 POSITIVE WORKING CAPITAL....................................... 42
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6.14 HEDGE AGREEMENTS............................................... 42
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ARTICLE VII
EVENTS OF DEFAULT........................... 42
7.1 ENUMERATION OF EVENTS OF DEFAULT............................... 42
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7.2 REMEDIES....................................................... 44
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ARTICLE VIII
THE AGENT............................... 45
8.1 APPOINTMENT, POWERS AND IMMUNITIES............................. 45
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8.2 RIGHTS OF AGENT AS A LENDER.................................... 47
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8.3 SHARING OF PAYMENTS, ETC....................................... 47
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8.4 INDEMNIFICATION................................................ 48
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8.5 INDEPENDENT CREDIT DECISIONS................................... 48
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8.6 SEVERAL COMMITMENTS............................................ 49
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8.7 SUCCESSOR AGENT................................................ 49
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ARTICLE IX
MISCELLANEOUS............................. 49
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9.1 SUCCESSORS AND ASSIGNS......................................... 49
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9.2 SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND COVENANTS......... 52
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9.3 NOTICES AND OTHER COMMUNICATIONS............................... 52
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9.4 PARTIES IN INTEREST............................................ 54
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9.5 RIGHTS OF THIRD PARTIES........................................ 54
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9.6 RENEWALS; EXTENSIONS........................................... 54
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9.7 NO WAIVER; RIGHTS CUMULATIVE................................... 55
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9.8 SURVIVAL UPON UNENFORCEABILITY................................. 55
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9.9 AMENDMENTS; WAIVERS............................................ 55
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9.10 CONTROLLING AGREEMENT.......................................... 55
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9.11 DISPOSITION OF COLLATERAL...................................... 55
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9.12 GOVERNING LAW.................................................. 55
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9.13 JURISDICTION AND VENUE......................................... 56
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9.14 WAIVER OF RIGHTS TO JURY TRIAL................................. 56
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9.15 ENTIRE AGREEMENT............................................... 56
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9.16 COUNTERPARTS................................................... 56
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9.17 AMENDMENT AND RESTATEMENT OF PRIOR CREDIT AGREEMENT............ 56
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LIST OF EXHIBITS
Exhibit I - Form of Note
Exhibit II - Form of Compliance Certificate
Exhibit III - Form of Opinion of Counsel
Exhibit IV - Disclosures
Exhibit V - Description of Belleview Acquisition
Exhibit VI - Form of Assignment and Assumption
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EXHIBIT 10.1
AGREEMENT
This agreement is entered into effective as of the 31st day of December,
1992 by and between Texas Meridian Resources Exploration, Inc., a Texas
corporation, having offices at 15995 North Barkers Landing, Suite 300, Houston,
Texas 77079, but sometimes hereinafter collectively referred to as "TMRX", and
Texoil Company, a Tennessee corporation, authorized to do business in the States
of Texas and Louisiana, with offices at 1600 Smith Street, Suite 4000, Houston,
Texas 77002, hereinafter referred to as "Texoil", all of which are corporations
appearing herein and acting through their duly authorized representatives, which
agreement is hereinafter referred to as "the Agreement."
WHEREAS, Texoil is the owner of certain Prospects, Data, Leases, Options
and Additional Prospects, all as hereinafter defined.
WHEREAS, (a) TMRX desires to hereby acquire from Texoil and Texoil hereby
desires to convey to TMRX any and all right, title and interest, whether
economic or beneficial, that Texoil owns regarding the Prospects and (b) TMRX
desires to acquire from Texoil and Texoil desires to convey to TMRX the
exclusive option to acquire any and all interests, whether economic or
beneficial, that Texoil owns regarding the Additional Prospects.
WHEREAS, TMRX and Texoil intend that this Agreement shall supersede any
and all prior communications, agreements, discussions and understandings related
to the matter set out herein.
NOW THEREFORE, in consideration of the premises, covenants, and agreements
set forth herein and for good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, the parties hereto, intending to be
legally bound hereby, agree as follows:
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I.
DEFINITIONS
DEFINITIONS. As used herein, the following terms shall have the meaning
indicated, unless otherwise required.
ADDITIONAL DATA: "Additional Data" means the seismic license agreements,
geophysical and other geological data, maps, files, enhancements,
interpretations, rights, titles and interests in other materials related thereto
and any other economic and/or beneficial interests in any other material
covering an Additional Prospect.
ADDITIONAL PROSPECT: "Additional Prospect" means a Prospect owned by Texoil and
identified and described in Exhibits "B-1" through "B-7" of this Agreement.
ADDITIONAL PROSPECTS: "Additional Prospects" means, collectively, the prospects
identified and described in Exhibits "B-1" through "B-7" of this Agreement.
BAYOU LAFOURCHE LETTER AGREEMENT: "Bayou Lafourche Letter Agreement" means the
letter agreement dated October 22, 1992, pertaining to the Bayou Lafourche
Prospect, by and between Texoil and Boudreaux Properties, Inc., a copy of which
is attached as Exhibit "C" to this Agreement.
CONFIDENTIALITY AGREEMENT: "confidentiality Agreement" means that certain
agreement dated December 31, 1992 by and between Texoil and TMRX regarding the
confidentiality of the Additional Prospects and the Additional Data. The
Confidentiality Agreement is attached hereto and made a part hereof as Exhibit
"D".
DATA: "Data" means the seismic license agreements, geophysical and other
geological data, maps, files, enhancements, interpretations, rights, titles and
interests in other materials related thereto and any other economic and/or
beneficial interests in any other material covering a Prospect.
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GENERATING GEOLOGIST: "Generating Geologist" means the geologist who was
previously engaged or employed by Texoil and who is credited with conceiving and
identifying a Prospect or Additional
Prospect.
GENERATING GEOLOGISTS' AGREEMENTS: "Generating Geologists' Agreements" means the
agreements between TMRX and the Generating Geologists as follows:
1. Letter Agreement dated December 30, 1992, by and between TMRX and
George L. Parker.
2. Letter Agreement dated December 30, 1992, by and between TMRX and
Michael F. Murry, Jr.
3. Letter Agreement dated December 30, 1992, by and between TMRX and
Thomas K. Joeckel.
GENERATING GEOLOGISTS' OVERRIDE: "Generating Geologists' Override" means the
overriding royalty interest in a Prospect or Additional Prospect which has been
granted to the Generating Geologist by TMRX pursuant to the Generating
Geologist's Agreements.
GROUND FLOOR: "Ground Floor" means a proportionate share of TMRX's actual third
party, out-of-pocket costs, and all actual costs incurred by TMRX to: (i)
acquire the Prospects and the Data; and (ii) conduct any additional geophysical
operations (including, but not limited to three dimensional surveys); and (iii)
acquire additional geophysical and/or geological data, process and/or reprocess
any of the Data or Additional Data; and (iv) purchase the Lease Options or other
lease options, leases, subleases (including all lease acquisition costs) and/or
farmout/farmin agreements; and (v) subject to the terms of the JOA hereinbelow
defined, drill, log, core, test, complete, equip and operate any well, or wells,
drilled on the applicable Prospect pertaining to an elected leasehold working
interest.
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LEASE OPTIONS: "Lease Options" means, with respect to a Prospect or Additional
Prospect the option, or options, to acquire oil, gas and mineral leases, and/or
any oil, gas and mineral lease(s) which Texoil owns, or has the right to own,
and any permit(s) appertaining thereto.
NEW LEASE OPTIONS: "New Lease Options" means, with respect to any Prospect or
Additional Prospect, options to acquire oil, gas and mineral leases, and/or any
permits pertaining thereto which acquired by or for TMRX over and upon the
Prospects and/or Additional Prospects.
PROSPECT: "Prospect" means a geographic area embracing a subsurface geological
feature which has been identified and defined by a Generating Geologist, and is
believed to be prospective of commercial hydrocarbons, is owned by Texoil, and
is identified and described in Exhibits "A-1" through "A-15." A Prospect may
include other economic benefits, and options to acquire oil and gas leases
covering some, but not all of the lands embraced within the Prospect.
PROSPECTS: "Prospects" means, collectively, the prospects identified in Exhibits
"A-1" through "A-15" of this Agreement.
II.
REPRESENTATIONS AND WARRANTIES
Texoil hereby represents and warrants to TMRX that Texoil is the owner,
free and clear of all liens and encumbrances the Prospects, and Data; all
Additional Prospects, and Additional Data; and the Lease Options.
To the best knowledge of Texoil, Texoil has delivered to TMRX all of the
Data, and the Additional Data, in Texoil's possession and except as to any
claims by: (i) any Generating Geologist under an Generating Geologist Agreement;
and/or (ii) any claim by Dan Smith under any agreement between Dan Smith and
TMRX; and (iii) any claim by Boudreaux Properties, Inc. under the Bayou
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Lafourche Letter Agreement, there are no third party(s) who claim, or may claim,
title or any interest whatsoever in and to the Prospects, the Data, the
Additional Prospects, and Additional Data or the Lease Options. However, Texoil
makes no warranty, express or implied, as to the material completeness of the
Prospects, the Data, the Additional Prospects, the Additional Data or the Lease
Options.
Reference is hereby made to the Bayou Lafourche Letter Agreement, and to
all of the terms and provisions contained therein, as if same had been copied in
full herein. Except for Texoil's agreement with Boudreaux Properties, Inc., as
contained in the Bayou Lafourche Letter Agreement, Texoil has incurred no
obligation or liability, contingent or otherwise, for lease brokers' fees, lease
brokers' overriding royalty interests and/or any other burden and/or encumbrance
payable to lease brokers with respect to the transactions contemplated by this
Agreement, and, if any such obligation, or liability, burden and/or encumbrance
payable to lease brokers incurred by Texoil exists, it shall remain the sole
obligation of Texoil, and TMRX shall have no liability or responsibility
thereof. Texoil hereby agrees to indemnify and hold TMRX harmless from and
against any and all damages, claims, causes of action, and reasonable attorney
fees, incurred by TMRX as a result of any such obligation, liability and/or
claim therefor save and except any such obligation, liability and/or claim under
any of the Generating Geologist's Agreements, or any agreements between Dan
Smith and TMRX or Boudreaux Properties, Inc. under the Bayou Lafourche Letter
Agreement.
Save and except for any knowledge and information which Dan Smith may have
and has not disclosed to Texoil, Texoil has no knowledge of any matter which
does nor could materially, adversely or specifically, affect the Prospects, the
Data, the Lease Options, the Additional Prospects
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or the Additional Data which has not been revealed to TMRX by Texoil.
Nevertheless, Texoil makes no warranty, express or implied, that such is the
case.
Except TMRX's obligations under the Generating Geologist's Agreement, TMRX
hereby represents and warrants to Texoil that TMRX has incurred no obligation or
liability, contingent or otherwise, for brokers' for finders' fee with respect
to the transactions contemplated by this Agreement, and, if any such obligation
or liability incurred by TMRX exists, it shall remain the sole obligation of
TMRX, and Texoil shall have no liability or responsibility thereof. TMRX hereby
agrees to indemnify and hold Texoil harmless from and against any and all
damages, claims, causes of action, and reasonable attorney fees, incurred by
Texoil as a result of any such obligation, liability and/or claim therefor.
III.
SALE OF DATA
A. In consideration of the mutual covenants contained herein, the payment
by TMRX to Texoil of the cash sum of Five Hundred Thousand and No/100
($500,000.00) Dollars, the receipt and sufficiency of which by Texoil is hereby
acknowledged, Texoil hereby agrees and does hereby bargain, grant, sell, assign,
convey and deliver unto TMRX all of Texoil's right, title and interest in the
Prospects and the Data and the rights to Data. The allocation of such
consideration as between the various individual prospects is set forth in
Exhibit "E" hereto and made a part hereof for all purposes. It is further agreed
that if Texoil subsequently receives, or has the right to receive, any
additional seismic data, geophysical or other geological data or any maps,
files, interpretations, rights, titles and interests in other materials related
to the Prospects, or the Data, directly and indirectly,
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and/or any other economic and/or beneficial interest(s) which pertains to the
Prospects, or the Data, that Texoil will immediately deliver the right to
receive such additional data to TMRX without additional consideration.
B. Texoil agrees to deliver all of the Data to TMRX contemporaneously with
the execution hereof.
IV.
SALE OF LEASE OPTIONS
For the consideration herein expressed, Texoil hereby assigns and conveys
all of its right, title and interest in the Bayou Lafourche Letter Agreement to
TMRX.
Texoil represents that, with the exception of the rights under the Bayou
Lafourche Letter Agreement, it has no other oil, gas or mineral leases, or
options to acquire oil, gas and mineral leases covering lands, or interests
therein, or right, option or agreement to acquire any oil, gas and mineral
lease(s) or lease option(s) covering lands, or interests therein, situated
within the geographical boundaries of the Prospects.
Texoil hereby agrees that it will not, directly or indirectly, acquire, or
compete with TMRX in any manner, on its own behalf or for any third party(s)
interest for the purpose of acquiring, any interest in any oil, gas and mineral
lease(s), sublease(s), option to acquire oil, gas and mineral lease(s) or any
other interest in any agreement which may relate to the right to drill and/or
explore for oil or gas upon any portion of the lands included in the Prospects
without the prior written consent of TMRX. In the event that Texoil does acquire
any such oil, gas and mineral lease(s), sublease(s), options(s) to acquire oil,
gas and mineral lease(s) than all of such leases, options, agreements, or any
other similar materials or instruments shall be promptly assigned, transferred
and conveyed to TMRX
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by instrument acceptable to TMRX and the leases, agreements, etc. shall be
covered by and subject to the terms, conditions and provisions of this
Agreement.
V.
TEXOIL OVERRIDE
It is hereby granted that with respect to any oil, gas and mineral lease
which may result from TMRX: (i) exercising any of the Lease Options; and/or (ii)
acquiring any oil, gas and mineral lease(s) which results from TMRX exercising
of any new option to acquire any oil, gas and mineral lease(s) covering lands,
or interests therein, situated in any of the Prospects which new options(s) is
acquired by TMRX either before or after the effective date hereof; and/or (iii)
acquiring any other oil, gas and mineral lease(s), or sublease(s), covering
lands situated in any of the Prospects which lease(s) or sublease(s) by TMRX
either before or after the effective date hereof, all of such oil, gas and
mineral lease(s), or sublease(s), or New Lease Options (regardless of how so
acquired by TMRX either before or during the term of this Agreement), all of
which shall be referred to collectively as "Leases," TMRX will assign to Texoil
a overriding royalty interest equal to two and one-half (2.5%) percent of 8/8ths
of the oil, gas and other minerals produced from each such Lease subject to: (i)
proportionate reduction to the extent that such Lease(s) covers less than the
entirety of the mineral estate underlying the lands covered thereby; and (ii)
the terms, conditions and provisions of such Lease, and any amendments thereto;
and (iii) the terms of this Agreement.
Notwithstanding the foregoing, it is agreed that such overriding royalty
interest shall be reduced, if necessary, to the extent required to enable TMRX
to receive a seventy-five (75%) percent of 8/8ths net revenue interest from such
Lease, after deduction for: (a) lessor royalty; (b) overriding royalty payable
to any lease broker; and (c) the Generating Geologist Override and any
overriding
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royalty interest payable to Dan Smith, provided however that the Generating
Geologist Override and any overriding royalty interest to Dan Smith shall not
exceed 1.75% in the aggregate, and provided however, that in no event will
Texoil's overriding royalty interest be less than an undivided two (2.0%)
percent of 8/8ths, subject to proportionate reduction in instances in which such
Lease may cover less than the entirety of the mineral estate underlying the
lands covered thereby. The foregoing notwithstanding, it is agreed, however,
that Texoil's overriding royalty interest with respect only to Bayou Lafourche
Prospect shall be three and three-fourths (3.75%) percent reducible to not less
than three and one-fourth (3.25%) percent calculated on the same basis as set
forth above. The foregoing overriding royalty interest shall be referred to as
the "Texoil Override."
All assignments of overriding royalty will be made and delivered in
recordable form and given with warranty of title by, through and under the
assignor therein, but not otherwise, or such lessor warranty as may be given by
the lessor in the applicable Lease or controlling instrument as the case may be.
Any such assignment of overriding royalty interest will be delivered prior to
the spudding of the first well drilled by TMRX on the applicable Prospect or
Additional Prospect as the case may be.
Notwithstanding anything to the contrary herein, it is hereby understood,
recognized and agreed by Texoil and TMRX that the possibility exists that TMRX
may acquire all, or a part, of an interest in certain lands located in the
Prospects and/or the Additional Prospects by way of lease(s), sublease(s),
farmout/farmin agreement(s), and assignments relating thereto, from a third
party(s) who may (by virtue of the instrument(s) creating the interest in TMRX)
reserve and/or retain a present and/or future right and option to participate as
a working interest owner in the drilling of a well, or wells, on the Prospects
and/or Additional Prospects, as the case may be. In the event that any such
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third party(s) make such an election, and as a result of such election TMRX's
working interest (in the applicable lease(s), sublease(s), well, or wells,
drilled on the applicable lease(s), or sublease(s), made the subject of the
election, or upon lands pooled therewith) is reduced from one hundred percent
(100%), then the Texoil Override shall be proportionately reduced by the same
factor which TMRX's interest is so reduced by virtue such third party election.
VI.
GENERATING GEOLOGIST OVERRIDE
In consideration for the Generating Geologists' contributions to the
Prospects, it is agreed that the Generating Geologists will be entitled to
receive an assignment from TMRX of a overriding royalty interest. The overriding
royalty interest to the Generating Geologist shall be applicable to each lease
acquired by TMRX insofar as each such Lease covers lands situated in the
Prospect and/or Additional Prospect.
The assignment of the applicable Generating Geologists' Override shall be
subject to: (i) proportionate reduction to the extent that such Lease(s) covers
less than the entirety of the mineral estate underlying the lands covered
thereby; and (ii) the terms, conditions and provisions of such Lease, and any
amendment thereto; and (iii) the terms of this Agreement; and (iv) special
warranty of title by the assignor only, and (v) the Generating Geologists'
Agreements.
VII.
WORKING INTEREST ELECTION
As additional consideration for the conveyance of the Prospects, the Data,
the Lease Options by Texoil to TMRX, TMRX hereby grants to Texoil the right and
option to purchase up to a maximum of ten (10%) of 8/8ths leasehold working
interest, on a "ground floor" basis. The leasehold
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working interest acquired by Texoil shall be subject to Texoil's bearing its
prorata share of all lease burdens, including, but not limited to: (a) lessor's
royalty; (b) overriding royalties; (c) other intervening third party burdens;
(d) the Texoil Override; and (e) the Generating Geologist Override and any
overriding royalty interest payable to Dan Smith, provided however that the
Generating Geologist Override and any overriding royalty interest to Dan Smith
shall not exceed 1.75% in the aggregate. Texoil will not bear any overriding
royalty interest subsequently created by TMRX for TMRX's officers, directors or
employees (unless any such employee is also a Generating Geologist).
In order for Texoil to elect to purchase a working interest ownership as
above provided, such election by Texoil must be delivered to TMRX in writing
within thirty (30) days following Texoil's receipt from TMRX of (i) a
recommendation to drill a well on a Prospect or Additional Prospect which is
proposed likewise to all owners of interest in the Prospect or Additional
Prospect, and (ii) an Authorization For Expenditure ("AFE") provided by TMRX
proposing Operations under the JOA, including, but not limited to the drilling
of a test well on the applicable Prospect. Texoil's election shall set forth the
percentage of leasehold working interest which Texoil elects to purchase. For
purposes of making its election to purchase the Texoil Working Interest, at all
times during regular business hours during said thirty (30) day election period,
Texoil shall have the right at its sole cost and expense to examine the Data,
Additional Data, and the engineering and land records and geological and
geophysical records ("materials") of TMRX relating to the Prospect (at TMRX's
offices, or the site of the Data or Additional Data) to which the election is
applicable; provided, however, TMRX will not warrant or represent the accuracy
and/or completeness of such Data, Additional Data, and the engineering and land
records. Any election by Texoil shall be based solely upon its own decisions,
evaluations and interpretations of such Data, Additional Data, and the
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engineering and land records. Such election shall be accompanied by full payment
for its proportionate share of costs incurred by TMRX as of the date of such
recommendation to drill, plus Texoil's proportionate share of the costs as
detailed on the AFE submitted by TMRX, provided, however, that Texoil's payment
of the costs, based upon the AFE, shall not be required earlier than thirty (30)
days prior to the anticipated date of such operation or spud date of the well as
the case may be. After Texoil timely elects to purchase a Texoil Working
Interest, Texoil and its designees shall be entitled to review and examine all
such materials, provided however that Texoil's designees will be subject to the
terms of a confidentiality agreement. In the event Texoil fails to timely and
properly make an election, as provided above, it shall be deemed that Texoil has
elected NOT to purchase any leasehold working interest in the applicable
Prospect and any well(s) drilled thereon, and the option set out herein shall
automatically terminate.
In the event that Texoil does timely and properly elect to purchase a
leasehold working interest in a Prospect, hereinafter referred to as the "Texoil
Working Interest," and upon TMRX's receipt of payment by Texoil to TMRX of
Texoil's share of all costs, as above provided, incurred by TMRX associated with
the applicable Prospect as of the date of such election, TMRX shall immediately
assign to Texoil the Texoil Working Interest to the extent Texoil has so
elected. Such assignment shall be executed and delivered in recordable form and
subject to: (i) the terms, conditions and provisions of the applicable Leases
included in the applicable Prospect; and (ii) the burdens against such Leases
existing as of the date of such election (which burdens shall include, but shall
not be limited to the Generating Geologist Override, and the Texoil Override);
and (iii) the terms, conditions and provisions of a Joint Operating Agreement,
hereinafter referred to as the "JOA," a copy of which is attached hereto as
Exhibit "F" and made a part hereof for all purposes; which JOA
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will govern and control the operations on the applicable Prospect, on a
Prospect-by-Prospect basis, provided however, that in any event where the JOA is
NOT applicable because another joint operating agreement is being utilized in
order to satisfy an agreement with a third party working interest owner in the
applicable Prospect, such other joint operating agreement shall apply.
Notwithstanding anything to the contrary herein, in the event that Texoil
purchases a Texoil Working Interest, and prior to the drilling of a first well
on the applicable Prospect, or Additional Prospect, should TMRX propose to
conduct a three dimensional survey operation on the applicable Prospect, or
Additional Prospect, Texoil shall have the right to defer its share of the cost
of such operation until the results of such operation are available for Texoil's
review. Within thirty (30) days after the results of he operation are available
to Texoil, Texoil must either pay its proportionate share of the total costs of
such operation or it shall be deemed to have elected to not join in any future
operations on the applicable Prospect, or Additional Prospect, and shall forfeit
all of its right, title and interest therein. In such event, TMRX shall return
to Texoil all of Texoil's actual payments made to TMRX as a result of the
purchase of the Texoil Working Interest in the applicable Prospect or Additional
Prospect.
In the event a discrepancy exists between the terms, conditions and
provisions of this Agreement and the JOA, or any other joint operating
agreement, if applicable, this Agreement shall govern and control as between
TMRX and Texoil.
Notwithstanding the foregoing, in the event that any third party elects to
become a working interest owner by exercising a prior reservation for same
(under the same instances as provided for in the Texoil Override), then the
leasehold working interest available to Texoil (for purposes of
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<PAGE>
electing to purchase the Texoil Working Interest) shall be proportionately
reduced by the same factor which TMRX's interest is so reduced by virtue of such
third party election.
VIII.
ADDITIONAL PROSPECTS OPTION
For a period of six (6) months after the effective date hereof, TMRX shall
have the exclusive option, but not the obligation, to purchase from Texoil, on a
prospect by prospect basis, any or all of the Additional Prospects.
In the event that TMRX elects to exercise it's option to purchase any of
such Additional Prospect(s) TMRX shall within such six (6) month period give
written notice thereof to Texoil accompanied by TMRX's check payable to Texoil
in the amount of Twenty-Five thousand and No/100 ($25,000.00) Dollars per
prospect. Upon receipt of such written notice and payment from TMRX, Texoil
shall, within ten (10) days therefrom, deliver all Additional Data and rights to
Additional Data pertaining to the Additional Prospect that is the subject of
such notice. In the event Texoil owns, or has the right to own, any lease
option(s), lease(s), sublease(s) and/or any interest in any agreement(s)
pertaining thereto, Texoil shall, without any additional consideration,
immediately assign, transfer and convey all of Texoil's right, title and
interest in and to such lease option(s), lease(s), sublease(s) and/or any
agreements(s) to TMRX by instrument in a form acceptable to TMRX which shall be
with special warranty of title only.
As to each and every Additional Prospect acquired by TMRX, if any, such
Additional Prospect will become subject to the terms, conditions and provisions
of this Agreement upon the same terms as the Prospects, the Data, the Lease
Options, and the Leases; provided however, that
14
<PAGE>
the Texoil Override shall be calculated and determined upon the same basis as
the Prospects (save and except the Bayou Lafourche Prospect).
In the event TMRX fails to timely exercise its option to purchase any
Additional Prospect, any deliver the purchase price applicable thereto, then it
will be deemed that TMRX has elected NOT to acquire such Additional Prospect.
With respect to each such Additional Prospect which is not timely acquired by
TMRX as above provided, it is hereby agreed that such Additional Prospect shall,
in such instance, no longer be subject to this Agreement and TMRX shall, as soon
as reasonable practicable, return the Additional Data on such Additional
Prospects to Texoil. However, each such Additional Prospect shall continue to be
subject to the Confidentiality Agreement.
IX.
MISCELLANEOUS
This Agreement, and the Exhibits attached hereto, constitute the entire
Agreement between Texoil and TMRX pertaining to the subject matter hereof and
supersedes all prior letters, agreements, understandings, negotiations and
discussion, whether oral or written, pertaining to said subject matter and there
are no warranties, representations or other agreements between Texoil and TMRX
in connection with the subject matter hereof except as specifically set forth
herein. No supplement, amendment, alteration, modification, waiver or
termination of this Agreement shall be binding unless executed in writing by
both parties hereto.
No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision hereof, whether or not similar,
nor shall such waiver constitute a continuing waiver, unless otherwise expressly
provided.
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The captions in this Agreement are for convenience purposes only and shall
not be considered a part of, or effect, the construction or interpretation of
any provision of this Agreement.
This Agreement, and the Exhibits hereto, shall be governed and construed
in accordance with the laws of the State of Texas. The validity of the various
conveyances affecting the title to the Prospects, the Data, the Additional
Prospects, the Additional Data, the Lease Options, New Lease Options and the
Leases, and all other matters related hereto, shall be governed by and construed
in accordance with the laws of the State of Texas.
Any notice, communication, request or instruction required or permitted
hereunder shall be given in writing and shall be deemed to have been duly given
and received on the earlier of: (i) the date on which such notice or other
communication is actually received by the intended recipient thereof, or (ii)
the date seven (7) days after the date such notice or communications mailed by
registered or certified mail, return receipt requested, postage pre-paid, or by
pre-paid telegram, contemporaneously confirmed by telex, or facsimile (FAX)
transmission, courier or other similar method as follows:
If to Texoil:
Texoil Company
1600 Smith Street, Suite 4000
Houston, Texas 77002
Attn: Mr. Walter L. Williams
FAX NO. (713) 652-9601
If to TMRX:
Texas Meridian Resources Corporation
15995 North Barkers Landing, Suite 300
Houston, Texas 77097
Attn: Mr. Joseph A. Reeves, Jr.
FAX NO. (713) 558-5595
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<PAGE>
(or at such other address or in care of such other person as shall hereafter be
designated in writing by either party to the other).
Except as otherwise provided herein, each party shall be solely
responsible for all expenses incurred by it in connection with this Agreement,
including, without limitation, fees and expenses of its own counsel and
accountants, and shall not be entitled to any reimbursement therefor from the
other party hereto.
Each party hereby agrees that it will not file, or cause to be filed, a
copy of this Agreement, or any Exhibit pertaining hereto, in the public records
in any County in the State of Texas or any parish in the State of Louisiana,
unless such filing is a part of a suit to compel performance hereunder. It is
hereby agreed that a Memorandum of this Agreement, including the Exhibits
hereto, may be filed in each of the Parishes in the State of Louisiana where the
Prospects, the Additional Prospects, the Lease Options, the New Lease Options
and/or Leases are located, and a copy of such Memorandum may also be filed in
the Real Property Records of Harris County, Texas and/or with the Secretary of
State of the State of Texas.
If any term or other provision of this Agreement is rendered invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect to long as the economic or legal substance of the
transactions contemplated hereby is not affected.
Time is of the essence regarding the performance of all terms, conditions
and provision of this Agreement by the parties hereto.
It is agreed that there is no Are of mutual Interest as between the
parties hereto.
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<PAGE>
It is understood, agreed and acknowledged that the Generating Geologists
were previously employed by, or affiliated with Texoil. Daniel L. Smith,
("Smith") a Generating Geologist, is a shareholder of Texoil, and is currently
affiliated with TMRX on a consulting basis, and is being compensated by TMRX for
his services to originate, generate and develop geological prospects, including,
but not limited to, the use of the Data, the Prospects and the Additional
Prospects. Texoil hereby agrees that it shall not request that Smith provide
Texoil with any information regarding TMRX business by virtue of his ownership
in Texoil or outside his scope of duties as exclusive Independent Contractor for
TMRX. Further, Texoil hereby releases Smith, TMRX and TMRX's officers,
directors, employees and shareholders and the other Generating Geologists from
any liabilities, claims and damages of Texoil against Smith, TMRX and TMRX's
officers, directors, employees and shareholders and the other Generating
Geologists pertaining to any information and/or knowledge concerning, or
pertaining to, the Data, the Prospects and/or the additional Prospects which are
purchased by TMRX which Smith and the other Generating Geologists may have, or
may be privileged to , as a result of Smith's and the other Generating
Geologist's prior employment by or affiliation with Texoil.
For and in consideration of the mutual covenants and agreements entered
herein the parties agree as follows:
Texoil does hereby release, remise, give up, quit claim, settle,
compromise, acquit and forever discharge TMRX from any and all claims (existing
and future), demands and causes of action for damages of any kind arising from
any actions by TMRX up to and including the date hereof regarding the Prospects
and Additional Prospects.
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<PAGE>
TMRX does hereby release, remise, give up, quit claim, settle, compromise,
acquit and forever discharge Texoil from any and all claims (existing and
future), demands an causes of action for damages of any kind arising from any
actions by Texoil up to and including the date hereof regarding the Prospects
and Additional Prospects.
This mutual release shall not be deemed to in any way affect any of the
agreements set out in this Agreement, rather it is for the purpose of resolving
any possible additional matters between Texoil and TMRX regarding the Prospects
and Additional Prospects.
IN WITNESS WHEREOF, Texoil and TMRX have executed and delivered this
Agreement as of the effective date first written above.
TEXOIL COMPANY
By:/S/ WALTER L. WILLIAMS
Its:
TEXAS MERIDIAN RESOURCES
EXPLORATION, INC.
By:/S/ JOSEPH A. REEVES, JR.
Its:
19
EXHIBIT 10.2
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS NON-QUALIFIED STOCK OPTION AGREEMENT (the "Agreement"), is made by
and between Texoil, Inc., a Nevada corporation, with its principal place of
business in Houston, Texas (the "Company"), and John L. Graves ("Optionee").
NOW, THEREFORE, in consideration of the mutual benefit to be derived
herefrom, the Company and Optionee agree as follows:
1. GRANT OF OPTION. The Company hereby grants to Optionee the right,
privilege and option (the "Option") to purchase 783,722 shares of its common
stock (the "Shares") at $0.2277 per share, in the manner and subject to the
conditions provided hereinafter.
2. TIME OF EXERCISE OF OPTION. The Option shall vest immediately in
Optionee and may be exercised by Optionee at any time prior to December 31,
1999, subject to the terms of this Agreement. Any exercise may be with respect
to any part or all of the Shares then exercisable pursuant to such Option,
subject to a minimum exercise amount of 10,000 shares. Such Option must be
exercised prior to the earlier of (i) December 31, 1999; or (ii) termination of
the Option as set forth in Section 6 below. In no event shall the Company be
required to transfer fractional shares to Optionee or those entitled hereunder
to Optionee's rights herein.
3. METHOD OF EXERCISE. The Optionee or Optionee's representative must
exercise this Option by giving written notice to the Secretary of the Company in
the form attached hereto as Exhibit A, including therewith a certified or bank
cashier's check in the appropriate amount payable to the Company. The notice
shall specify the election to exercise the Option and the number of Shares for
which it is being exercised. The notice shall be signed by the person or persons
exercising this Option. In the event that this Option is being exercised by the
representative of Optionee, the notice shall be accompanied by proof
satisfactory to the Company of the representative's right to exercise the
Option. Optionee or Optionee's representative shall deliver to the Secretary of
the Company, at the time of giving notice, payment in full in cash.
The Company shall thereafter cause to be issued a certificate or
certificates for the Shares as to which this Option has been exercised,
registered in the name of the person exercising the Option (or in the names of
such person and his or her spouse as community property or as joint tenants with
rights of survivorship). Except as otherwise provided in this Agreement, the
Company shall cause such certificate or certificates to be delivered to or upon
the order of the person exercising this Option.
4. RESTRICTIONS ON EXERCISE AND DELIVERY. The exercise of each Option
shall be subject to the conditions that, if at any time the Company shall
determine, in its sole and absolute discretion,
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(i) the satisfaction of any withholding tax or other withholding
liabilities, is necessary or desirable as a condition of, or
in connection with, such exercise or the delivery or purchase
of shares pursuant thereto,
(ii) the listing, registration, or qualification of any shares
deliverable upon such exercise is desirable or necessary,
under any state or federal law, as a condition of, or in
connection with, such exercise or the delivery or purchase of
shares pursuant thereto, or
(iii) the consent or approval of any regulatory body is necessary or
desirable as a condition of, or in connection with, such
exercise or the delivery or purchase of shares pursuant
thereto,
then in any such event, such exercise shall not be effective unless such
withholding, listing, registration, qualification, consent or approval shall
have been effected or obtained free of any conditions not acceptable to the
Company. Optionee shall execute such documents and take such other actions as
are satisfactory to the Company to enable it to effect or obtain such
withholding, listing, registration, qualification, consent or approval. Neither
the Company nor any officer or director shall have any liability with respect to
the non-issuance or failure to sell shares as the result of any suspension of
exercisability imposed pursuant to this Section.
5. SHARES AND ADJUSTMENTS. The Company agrees that it will at all times
during the term of this Option reserve and keep available sufficient authorized
but unissued or reacquired common stock to satisfy the requirements of this
Agreement.
Subject to any required action by the shareholders of the Company, the
number of Shares subject to this Option and the exercise price shall be adjusted
proportionately for any increase or decrease in the number of issued shares of
common stock resulting from a subdivision or consolidation of shares or the
payment of a stock dividend or any other increase or decrease in the number of
issued shares effected without receipt of consideration by the Company.
Subject to any required actions by the shareholders of the Company, upon a
sale or exchange of all or substantially all of the assets of the Corporation, a
merger or consolidation in which the Corporation is not the surviving
corporation, a merger, reorganization or consolidation in which the Corporation
is the surviving corporation and shareholders of the Corporation exchange their
stock for securities or property, a liquidation of the Corporation, or similar
transaction ("Capital Transaction"), this Option shall terminate, unless such
Option is assumed by a successor corporation in a merger or consolidation.
To the extent the foregoing adjustments relate to securities of the
Company, such adjustments shall be made by the Board of Directors of the
Company, whose determination shall be conclusive and binding on the persons.
2
<PAGE>
The grant of this Option shall not affect in any way the right or power of
the Company to make adjustments, reclassifications, reorganizations or changes
in its capital or business structure or to merge or to consolidate or to
dissolve, liquidate or sell, or transfer all or any part of its business or
assets.
Whenever the Company shall take any action resulting in adjustment as
provided herein, the Company shall forthwith deliver notice of such action to
Optionee, which notice shall set forth the number of shares subject to this
Option and the exercise price resulting therefrom.
6. TERMINATION OF OPTION. Except as otherwise provided in this Agreement,
the Option granted under this Agreement, to the extent not previously exercised,
shall terminate forthwith upon the first to occur of any of the following
events:
(a) the dissolution or liquidation of the Company; or
(b) the breach by Optionee of this Agreement.
7. NONTRANSFERABILITY OF OPTION. The Option granted under this Agreement
shall not be transferable and may be exercised only by Optionee; provided,
however, that in the case of the death of Optionee, the Option granted under
this Agreement may be transferred to and exercised by the executor or
administrator of the estate of Optionee or the person or persons to whom the
Option granted under this Agreement shall have been validly transferred by the
executor or administrator pursuant to Optionee's will or the laws of descent and
distribution.
8. RESTRICTIONS ON TRANSFER OF SHARES ACQUIRED; REPRESENTATIONS AND
WARRANTIES. Optionee represents and warrants to the Company that he understands
that, as of the date of this Agreement, the Option and the Shares of the Company
issuable upon exercise of the Option have not been registered under the
Securities Act of 1933 as amended ("Act") or qualified under any applicable
state securities laws and they must be held indefinitely unless they are
subsequently registered and qualified thereunder or an exemption from
registration is available. Optionee further represents and warrants to the
Company that he will not transfer any of the Shares acquired hereunder in
violation of the provisions of any applicable securities statute or regulation.
Optionee acknowledges that the Company has made no agreements, covenants or
undertakings whatsoever (a) to register any of the Shares issuable upon this
Option under the Act or any applicable securities laws or (b) about the
availability of any exemption under the Act (including the availability of Rule
144) or applicable state securities laws. Optionee also acknowledges that
currently there is no public market for the Shares and that such a market may
never develop. Optionee further represents and warrants (i) that the issuance of
the Option has not been accompanied by any advertisement, (ii) Optionee has a
pre-existing personal and business relationship with certain of the officers and
directors of the Issuer, and has access to any information regarding the Issuer
necessary to evaluate the risks of investing in it, and (iii) Optionee is
experienced in investments such as that represented by the Option, and can
afford to lose such an investment.
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9. RESTRICTIVE LEGENDS. Each certificate evidencing the Shares acquired
hereunder shall be imprinted with legends indicating that certain restrictions
exist as to any transfer of the Shares including but not limited to restrictions
imposed by federal and state securities laws and this Agreement.
10. REPRESENTATION. Upon any exercise of the Option, Optionee will deliver
to the Company a letter in the form attached hereto as Exhibit "A," in which
Optionee shall represent and agree that the Shares to be acquired pursuant to
the exercise of the Option are being acquired for investment, and not with a
view to the sale or distribution thereof. Optionee also agrees to make such
other representations as are deemed necessary or appropriate by the Company and
its counsel.
11. RIGHTS AS SHAREHOLDER. Neither Optionee nor his executor,
administrator, heirs, or legatees, shall be, or have any rights or privileges
of, a shareholder of the Company in respect of the Shares issuable upon exercise
of the Option granted under this Agreement, unless and until certificates
representing such shares shall have been issued in his name.
12. EMPLOYMENT RIGHTS. Nothing in this Agreement shall be construed as
giving Optionee the right to be retained as an employee of the Company or as
impairing the right of the Company to terminate his services at any time, with
or without cause.
13. EXPENSES. The Company shall pay all original issue and transfer taxes
with respect to the issuance and transfer of the Shares and all other fees and
expenses necessarily incurred by the Company in the payment of all federal,
state and other personal income taxes payable by Optionee in connection with the
grant or exercise of the Option, the issuance of the Shares and any subsequent
disposition of such Shares.
14. ARBITRATION. Any controversy arising under this Agreement shall be
settled by arbitration in Houston, Texas before a single arbitrator appointed in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association. Judgment upon the award rendered by the arbitrator may be entered
in any court having jurisdiction over this Agreement. Each party shall be
entitled to prehearing discovery to the maximum extent permitted by law.
15. NOTICES. Any notice to be given to the Company under the terms of this
Agreement shall be addressed to the Company in care of its Secretary at its
principal office, and any notice to be given to Optionee shall be addressed to
him at the address given below, or at such address as either party may hereafter
designate in writing to the other.
16. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of Optionee, his heirs and successors, and of the Company, its
successors and assigns.
17. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Texas.
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18. TERMINATION OF PRIOR OPTION AGREEMENT. This Agreement replaces and
supersedes that certain Non-Qualified Stock Option Agreement between Optionee
and Texoil Company, a Tennessee corporation ("Texoil Company"), which agreement
was assumed by the Company pursuant to the terms of the merger between Texoil
Company and the Company's wholly owned subsidiary.
IN WITNESS WHEREOF, this Agreement is effective as of April 16, 1993.
Texoil, Inc., a Nevada corporation
By:
Its.
OPTIONEE
/S/ JOHN L. GRAVES
John L. Graves
Address: 1600 Smith, Suite 4000
Houston, Texas 77002
5
<PAGE>
JOHN L. GRAVES
(Name)
(Address)
(Date)
Texoil, Inc.
1600 Smith, Suite 4000
Houston, TX 77002
Ladies and Gentlemen:
I ("Optionee") hereby exercise Optionee's right to purchase _______ shares
of Common Stock ("Shares") of Texoil, Inc., a Nevada corporation ("Issuer"),
pursuant to, and in accordance with, a Non-Qualified Stock Option Agreement
("Agreement") between the Issuer and Optionee. As provided in the Agreement, the
Optionee delivers herewith a certified or bank cashier's check in the amount of
the aggregate option exercise price. Please deliver to the Optionee at the
address set forth above stock certificates representing the subject shares
registered in the Optionee's name [and ______________________ (SPOUSE), as
______________________ (STYLE OF VESTING - JOINT TENANCY, ETC.) ].
Optionee makes the following representations and warranties with the
understanding that the Issuer will rely upon them in the Issuer's determination
of whether the exercise of Optionee's right to purchase Common Stock of the
Issuer meets the requirements of exemptions provided under the Securities Act of
1933, as amended, and applicable state securities laws.
1. The Shares are being purchased by Optionee for investment only, for
Optionee's own account, and not with a view to or for sale in connection with
any distribution of the Shares. Optionee will not take, or cause to be taken,
any action which would cause Optionee, or any entity or person affiliated with
Optionee, to be deemed an underwriter with respect to the Shares.
2. Optionee:
(a) has a preexisting personal or business relationship with the
Issuer or any of its officers, directors or controlling persons of a nature and
duration as would allow Optionee to be aware of the character, business acumen,
general business and financial circumstances of the Issuer or of the person with
whom such relationship exists; or
Exhibit A to Non-Qualified Stock Option Agreement
Page 1
<PAGE>
(b) by reason of Optionee's business or financial experience, or the
business or financial experience of Optionee's professional advisor who is
unaffiliated with and is not compensated by the Issuer or any affiliate or
selling agent of the Issuer, directly or indirectly, Optionee has the capacity
to protect Optionee's interests in connection with the purchase of the Shares.
3. Optionee acknowledges that an investment in the Issuer represents a
speculative investment and a high degree of risk. Optionee acknowledges that
Optionee has had the opportunity to obtain and review all information from the
Issuer necessary to make a reasonably informed investment decision and that
Optionee has had all questions asked of the Issuer answered to the reasonable
satisfaction of Optionee. Optionee is able to bear the economic risk of an
investment in the Shares.
4. The purchase of the Shares has not been accompanied by the publication
of any advertisement.
5. Optionee understands and acknowledges that the Shares have not, and
will not, be registered under the Securities Act of 1933, as amended, or under
any applicable state securities laws. Optionee understands and acknowledges that
the Shares may not be sold without compliance with the registration requirements
of federal and applicable state securities laws unless an exemption from such
laws is available.
6. Optionee understands that the certificate(s) evidencing the Shares will
bear a legend in the form set forth on Exhibit A.
7. Optionee will notify the Issuer immediately of any change in the above
information.
The foregoing representations and warranties are given on ___________,
199__ at .
John L. Graves
Exhibit A to Non-Qualified Stock Option Agreement
Page 2
<PAGE>
EXHIBIT A
THIS SECURITY HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF
1933 ("ACT") OR THE SECURITIES OR BLUE SKY LAWS OF CALIFORNIA OR ANY OTHER STATE
AND MAY NOT BE OFFERED AND SOLD UNLESS REGISTERED AND/OR QUALIFIED PURSUANT TO
THE RELEVANT PROVISIONS OF FEDERAL AND STATE SECURITIES OR BLUE SKY LAWS OR AN
EXEMPTION FROM SUCH REGISTRATION OR QUALIFICATION IS APPLICABLE. THEREFORE, NO
SALE OR TRANSFER OF THIS SECURITY SHALL BE MADE, NO ATTEMPTED SALE OR TRANSFER
SHALL BE VALID, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE ANY EFFECT TO ANY
SUCH TRANSACTION UNLESS (A) SUCH TRANSACTION SHALL HAVE BEEN DULY REGISTERED
UNDER THE ACT AND QUALIFIED OR APPROVED UNDER APPROPRIATE STATE OR BLUE SKY
LAWS, OR (B) THE ISSUER SHALL HAVE FIRST RECEIVED ANY OPINION OF COUNSEL
SATISFACTORY TO IT THAT SUCH REGISTRATION QUALIFICATION OR APPROVAL IS NOT
REQUIRED.
Exhibit A to Non-Qualified Stock Option Agreement
Page 3
EXHIBIT 10.3
SUBLEASE AGREEMENT
This Sublease is entered into by and between Presidio Exploration, Inc., a
Colorado corporation ("Sublessor"), and Texoil Co. ("Sublessee"), as of January
1, 1990.
WHEREAS, Home Petroleum Corporation ("Home") was the lessee of Suite 4000
on the 40th floor of the 1600 Smith Street Building (the "Building"), located at
1600 Smith Street, Houston, Texas, pursuant to a Lease Agreement dated the 15th
day of October, 1984 by and between 1600 Smith Street Venture as Landlord
("Building Landlord") and Home (the "Base Lease"); and
WHEREAS, the rights and obligations of the "Tenant" under the Base Lease
were assigned to and assumed by Home, pursuant to the Assignment and Assumption
of Lease dated December 15, 1988, executed by HPC, Inc. (as assignor) and Home
(as assignee) and consented to by Building Landlord; and
WHEREAS, Home assigned its rights under the Base Lease to Sublessor
pursuant to the assignment dated December 13, 1989 between Home and Sublessor
making Sublessor current Tenant under the Base Lease of Suite 4000 on the 40th
floor of the Building; and
WHEREAS, on January 1, 1990, Sublessor desires to sublet to Sublessee and
Sublessee desires to sublet from Sublessor that approximate 6,693 square foot
portion of the premises, and in June, 1990 Sublessor desires to sublet to
Sublessee and Sublessee desires to sublet from Sublessor an additional 2,384
square foot portion of the premises leased by Sublessor pursuant to the Base
Lease as further collectively described in the space plan attached as Exhibit A
(the "Subleased Premises");
NOW, THEREFORE, Sublessor, for and in consideration of the rents,
covenants and agreements hereinafter contained on the part of the Sublessee to
be paid, kept and performed, does hereby sublease and demise unto Sublessee, and
Sublessee hereby takes and hires from Sublessor, the Subleased Premises.
AND, Sublessor and Sublessee hereby agree as follows:
1. Sublessee covenants to pay to Sublessor during the term of this
Sublease, (a) an annual base rental of $41,754.20 ("Sublessee's Base Rent") in
equal monthly installments of $3,479.52 each in advance on the first day of each
month during the term hereof commencing on January 1, 1990 (however, during the
first five months of this Sublease Agreement, Sublessee shall pay a pro rata
monthly installment of Sublessee's Base Rent based on 6,693 square feet equal to
$2,565.65) and (b) Sublessee's proportionate share of the Additional Rent
payable by Lessor pursuant to (and as defined in) Section 4.01(i) of the Base
Lease ("Sublessee's Additional Rent"). The Sublessee's Base Rent is calculated
at the rate of $4.60 per square foot of rentable area. Sublessee's Additional
Rent shall equal the product obtained by multiplying the Additional Rent owned
by Sublessor by a fraction, (a)
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the numerator of which is the rentable area of the Subleased Premises, (b) the
denominator of which is the rentable area of the Premises under the Base Lease.
For purposes of calculating Sublessee's Base Rent and Sublessee's Additional
Rent, the rentable area of the Subleased Premises shall be deemed to be 6,693
square feet from January 1, 1990 to June 1, 1990 and 9,077 square feet
thereafter, and the rentable area of the Premises shall be deemed to be 16,783
square feet. The foregoing described Sublessee's Base Rent and Sublessee's
Additional Rent shall be paid by Sublessee without notice or demand and without
abatement, deduction or set-off of any amount whatsoever. The estimated amount
of Sublessee's Additional Rent shall be payable monthly in advance at the same
time as estimated Additional Rent is due and payable by Sublessor to Building
Landlord. If the estimated Sublessee's Additional Rent is greater or less than
the actual Sublessee's Additional Rent, then Sublessee shall pay any
underpayment or be entitled to a credit for any overpayment of Sublessee's
Additional Rent in accordance with Section 4.06 of the Base Lease.
Contemporaneously with the execution of this Sublease, Sublessee is paying to
Sublessor $5,856.38, which evidences the amount of Sublessee's Base Rent and
estimated Sublessee's Additional Rent owed for the month of January, 1990.
2. Sublessee shall accept the Subleased Premises in AS IS, WITH ALL
FAULTS, Sublessee hereby acknowledges that no representations with respect to
their condition have been made to it; provided, however, Sublessor shall pay the
cost of building two demising walls from floor to ceiling and upgrading the
necessary partitions to demising walls in accordance with plans and
specifications approved by Sublessor and Sublessee.
3. Pursuant to Article 9 of the Base Lease, the Building Landlord has
certain rights to consent or refuse its consent to this Sublease Agreement as
more fully described therein. The obligations of Sublessor and Sublessee
hereunder are subject to the obtaining of the consent hereto of Building
Landlord, and this Sublease Agreement shall not be effective until such consent
has been obtained. In the event Building Landlord has not executed this Sublease
Agreement by December 18, 1990, this Sublease Agreement shall automatically
terminate and neither Sublessor nor Sublessee shall have further rights or
obligations hereunder.
4. Except for Sections 1.02, 1.03, Article 3, 5 and 6, of the Base Lease,
attached hereto as Exhibit B, and to the extent not otherwise inconsistent with
the agreements and understandings expressed in this Sublease or applicable only
to the original parties to the Base Lease, the terms, provisions, covenants and
conditions of the Base Lease are hereby incorporated herein by reference, and
the following shall apply:
(a) The term "Landlord" as used herein shall refer to Sublessor
hereunder (and its successors and assigns), and the term "Tenant" as used
therein shall refer to Sublessee hereunder (and its permitted successors
and assigns).
(b) In any case where Building Landlord reserves the right to enter
the Subleased Premises, said right shall inure to the benefit of Building
Landlord as well as to Sublessor.
2
<PAGE>
(c) Sublessee hereby expressly assumes and agrees to perform all of
the terms, obligations, covenants and conditions required pursuant to the
Base Lease to be performed by Sublessor with respect to the Subleased
Premises, except to make any payments of rent to Building Landlord, and
not to do, suffer or permit anything to be done which would result in a
default under the Base Lease or cause the Base Lease to be terminated or
forfeited.
5. Sublessor agrees to perform all of the terms, obligations, covenants
and conditions of the "Tenant" under the Base Lease and not to do, suffer or
permit anything to be done which would result in a default under the Base Lease
or cause the Base Lease to be terminated or forfeited; provided, however, the
provisions of this Paragraph 5 shall not be construed to obligate Sublessor to
perform those obligations assumed by Sublessee pursuant to Paragraph 4(c).
6. In the event any installment of Sublessee's Base Rent or Sublessee's
Additional Rent as described in Paragraph 1 above, [the parking charges to be
paid pursuant to Paragraph 13], or any other amount due from Sublessee to
Sublessor under this Sublease Agreement (collectively, "Sublessee's Rent"), has
not been paid when due, Sublessee shall also pay late charges and default
interest for such amounts in a manner consistent with Sections 5.02 and 12.01 of
the Base Lease.
7. If Sublessee should fail to pay Sublessee's Rent when due or if
Sublessee should fail to perform Sublessee's other obligations hereunder or
should an execution, or attachment or other judicial process be levied against
any of Sublessee's property, or should Sublessee file petition for bankruptcy or
be adjudicated a bankrupt or make an assignment for the benefit of creditors,
then in any such event, Sublessee's Rent for the balance of term of this
Sublease Agreement, shall, at Sublessor's option, without the necessity of
notice, accelerate and immediately become due, and Sublessor shall have the
option to terminate this Sublease Agreement, or without terminating the Sublease
Agreement, to terminate Sublessee's right to possession and exercise any of the
other remedies available to Base Landlord under Article 18 of the Base Lease. In
either event, Sublessor may, without additional notice and without court
proceedings, re-enter and repossess the Subleased Premises and remove all
persons and property therefrom. Sublessee hereby waives any claim arising by
reason of such re-entry, repossession or removal or by reason of issuance of any
distress warrant or writ of sequestration and agrees to hold Sublessor harmless
from any such claim. If Sublessee is evicted from the Subleased Premises as the
result of any default by Sublessee hereunder, and Sublessor attempts to rent the
Subleased Premises (it being understood that Sublessor shall not be obligated to
mitigate its damages), Sublessee shall be charged with and be liable for all
costs of reletting incurred by Sublessor (such as, but not limited to, locator
service fees and brokerage fees), regardless of whether or not reletting
attempts are successful. This amount shall be in addition to past due rentals,
future rentals, and/or charges for cleaning, repairing, repainting and replacing
as hereinabove provided, or other sums due under this Sublease Agreement, and
the foregoing shall not waive or diminish Sublessor's right to recover such
additional amounts whether expressly provided herein or otherwise available to
Sublessor at law or in equity. All subsequent rentals shall be credited against
Sublessee's liability for future rentals, but in no event shall Sublessee be
entitled to any excess
3
<PAGE>
of rent (or rent plus other sums) obtained by Sublessor reletting or selling the
Demised Premises over and above the cost herein reserved.
8. If Sublessee fails to perform any of its obligations under this
Sublease Agreement, Sublessor may, but without obligation to do so and without
thereby waiving or curing such default, pay or perform or cause to be paid or
performed the underlying obligation for the account of Sublessee, in which event
the amounts paid and the reasonable and necessary costs incurred by Sublessor
(together with defaulted interest accrued thereon pursuant to Paragraph 6) shall
be considered "Sublessee's Rent" hereunder and shall be due and payable by
Sublessee to Sublessor upon the demand therefor. Sublessee agrees that Sublessor
shall be entitled to enter upon the Subleased Premises to the extent necessary
to cure any default by Sublessee hereunder.
9. In the event that Sublessee requires services, goods or materials to be
furnished by Building Landlord other than those required to be furnished under
the Base Lease, Sublessee shall pay to Building Landlord or Sublessor (as a part
of Sublessee's Rent hereunder) all charges by Building Landlord for such matters
not later than ten (10) days after Building Landlord renders a statement for
services to Sublessee pursuant to Section 5.03 of the Base Lease.
10. Except as provided in this Article 10, Sublessee shall not assign this
Sublease Agreement in whole or in part, by operation of law or otherwise, or
sublet the Subleased Premises in whole or in part without the prior written
consent of Sublessor, such consent not to be unreasonably withheld. Any attempt
to make such an assignment or to sublet the Subleased Premises without the prior
written consent of Sublessor shall be null, void and provisions of a sublease,
an outline of the terms of which has been presented to Sublessor. Sublessee
shall be entitled to keep all rent collected in said sublease, anything in the
Base Lease or this Sublease Agreement notwithstanding, but shall continue to
remit payments to Sublessor as to such 2,384 square feet as herein set forth. In
the case of a default on the party of Sublessee, any rent paid to Sublessee
pursuant to the terms of the above described sublease, shall be paid directly to
Sublessor as opposed to Sublessee.
11. Sublessee shall carry and maintain in full force and effect insurance
on terms and conditions consistent with the insurance required to be maintained
by Sublessor under Section 13.01 of the Base Lease. The insurance policies
obtained by Sublessee shall name Building Landlord and Sublessor as an
additional insured and Sublessee shall provide certificates of insurance and
copies of such policies to Building Landlord and Sublessor immediately following
their issuance.
12. Anything in this Sublease Agreement to the contrary notwithstanding,
each party hereto (the "first party") hereby waives any and every claim which
arises or may arise in favor and against the other party hereto (the "second
party") during the term of this Sublease Agreement, or an extension or renewal
thereof, for any and all loss of, or damage to, any of the first party's
property, which loss or damage is or could have been covered by Texas Standard
Form Fire, Lightning and/or Extended Coverage Insurance Policies,
notwithstanding that any sch loss or damage may be due to or result from the
negligence of either of the parties hereto or their respective employees or
agents.
4
<PAGE>
Each party hereto agrees to maintain coverage of all risks that can be covered
by Texas Standard Form Fire, Lightning and/or Extended Coverage Insurance
Policies. The foregoing shall not modify Sublessee's obligations under any
paragraph hereof requiring Sublessee to repair damage or destruction to
Subleased Premises caused by any party other than Sublessor, nor Sublessee's
liability to any third party, including other tenants in the building. Said
waiver shall be in addition to, and not in limitation or derogation of, any
other waiver or release contained in this Sublease Agreement with respect to any
losses or damage to property of the parties hereto. In as much as the above
mutual waivers will preclude the assignment of any aforesaid claim by way of
subrogation (or otherwise) to an insurance company (or any other person), each
party hereto hereby agrees immediately to give such insurance company which has
issued to it policies of fire, lightning and extended coverage insurance written
notice of the terms of said mutual waivers, and have said insurance policies
properly endorsed, if necessary, to prevent the invalidation of said insurance
coverages by reason of said waivers.
13. Sublessor shall allow Sublessee the right to 1 reserved parking space
and 11 unreserved parking spaces at current monthly changes imposed by Building
Landlord. Sublessee will pay the total charges imposed by Building Landlord for
such parking spaces.
14. If Sublessee or any party claiming under Sublessee shall remain in
possession of the Subleased Premises after the expiration or earlier termination
of this Sublease Agreement, then Sublessee shall be deemed a
tenant-at-sufferance, terminable at any time, and shall pay Sublessee's Rent at
double the rental rate of the most recent Sublessee's Rent due prior to such
termination or expiration, but otherwise shall be subject to all of the
obligations of Sublessee under this Sublease Agreement. Additionally, Sublessee
shall pay to Sublessor all damages sustained by Sublessor on account of such
holding over by Sublessee (including, without limitation, damages owed by
Sublessor to the Building Landlord as a consequence of the holding over). No
holding over by Sublessee, whether with or without consent of Sublessor, shall
operate to extend this Sublease Agreement.
15. Sublessor's rights under the Base Lease (excepting such rights as are
personal to Sublessor) may be enforced against the Building Landlord by
Sublessee in its own name or in Sublessor's name provided Sublessee advices
Sublessor in writing at least seven (7) days before taking any action to enforce
such rights. Sublessee agrees to reimburse Sublessor for any reasonable
attorney's fees or other expenses incurred by Sublessor as a result of any such
action.
16. Sublessee shall indemnify and hold Sublessor and Building Landlord
harmless from and against any and all liabilities arising from Sublessee's use
and occupancy of the Subleased Premises, or from the conduct of Sublessee's use
of the Subleased Premises, or from the conduct of Sublessee's business or from
any activity,, work or things done, suffered or permitted by Sublessee in or
about the Subleased Premises or elsewhere and shall further indemnify and hold
Sublessor and Building Landlord harmless from and against any and all claims and
any and all liabilities arising from any breach or default in the performance of
any obligation on Sublessee's part to be performed under the terms of this
Sublease or the Base Lease or arising from any negligence of Sublessee, or any
of Sublessee's agents, contractors, or employees, and from and against any and
all costs, attorney's fees,
5
<PAGE>
expenses and liabilities incurred in the defense of any such claim or any action
or proceeding brought thereon; and in case any action or proceeding be brought
against Sublessee or Building Landlord by reason of any such claim, Sublessee,
upon notice from Sublessor, shall defend the same at Sublessee's expense by
counsel satisfactory to Sublessor and Building Landlord. Sublessee, as a
material part of the consideration hereunder to Sublessor, hereby assumes all
risk of damage to property or injury to persons, in, upon or about the Subleased
Premises (excluding damage at the Premises leased by Sublessor under the Base
Lease which are not a part of the Subleased Premises herein demised) arising
from any cause (except the gross negligence of Sublessor) and Sublessee hereby
waives all claims in respect thereof against Sublessor.
17. Any rent, notices or demands to be paid or given pursuant to the Base
Lease or this Sublease Agreement shall comply with the Base Lease and shall be
sent to Sublessor or Sublessee, respectively at the addresses set forth below,
or at such other address as either party shall designate by written notice to
the other party.
To Sublessor:
Presidio Oil Co.
5613 DTC Parkway #750
Denver, Colorado 80111
To Sublessee:
Texoil Company
Walter Williams
1600 Smith
Houston, Texas 77002
18. This Sublease Agreement contains all of the understandings of the
parties and all representations made by either party to the other prior hereto
are merged herein. This Sublease Agreement shall be governed by the laws of the
State of Texas.
19. This Sublease Agreement may not be modified in any respect except by a
document in writing executed by both parties hereto or their respective
successors.
20. Building Landlord joins in the execution of this Sublease Agreement
for the purposes of evidencing the following and for no other purposes:
(a) Its consent to the sublease by Sublessor to Sublessee of the
Subleased Premises in accordance with the terms and provisions of this
Sublease Agreement; and
6
<PAGE>
(b) Its agreement to make available to Sublessee during the term of
this Sublease Agreement the services and rights with respect to the
Subleased Premises to which Sublessor is entitled pursuant to the terms of
the Base Lease.
(c) Its consent to the provisions of Paragraphs 2 and 10 hereof even
though such provisions may conflict with the terms of the Base Lease.
IN WITNESS WHEREOF, the parties have duly executed this Sublease as of the
day and year first above written.
SUBLESSOR:
PRESIDIO EXPLORATION, INC.
By:
Date:
SUBLESSEE:
TEXOIL COMPANY
By:
Date:
7
EXHIBIT 10.4
September 20, 1994
3DX Technologies, Inc.
16001 Park Ten Place
Suite 200
Houston, Texas 77084-5120
Attention: Mr. Joseph Schuchardt, Vice President
Business Development
RE: Texoil Company's 1994 Seismic and
Exploration Joint Venture
Gentlemen:
When accepted by you, this letter shall evidence the agreement between you
("3DX" for purposes of this agreement) and Texoil Company ("Tcxoil" for purposes
of this agreement) regarding your participation with Texoil, in reviewing the
oil and gas prospects identified in Exhibit "A" (and outlined in Exhibits A-1
through A-6) of this agreement ("Subject Prospects") to determine which of
Subject Prospects are suitable for 3-D) seismic survey, designing the 3-D
seismic program for the prospects to be surveyed, providing field supervision
and quality control, processing the data, interpreting the data, and reviewing
the seismic data and reporting your findings to Texoil in consideration of a
portion of Texoil's position in Subject Prospects on an unpromoted basis, all in
accordance with this agreement:
1.
Texoil proposes to form a joint venture with oil and gas industry and
financial partners (parties other than you and Texoil) that in general terms
will provide as follows:
(a) Texoil will contribute to the joint venture its proprietary
position in maps, geological and geophysical information, and in-house
work defining and supporting the
<PAGE>
geological concepts underlying Subject Prospects Texoil's current costs
and expenses in generating Subject Prospects is shown in Exhibit "B" of
this agreement.
(b) The joint venture will provide for the venture's business to be
conducted in five (5) stages, generally described as: (i) the initial
commitment for acquisition and review of available data; (ii) verification
and identification of the prospects that are suitable for 3-D seismic
survey; (iii) acquiring seismic permits on the suitable prosper,
conducting 3-D seismic surveys, and, evaluating the surveys made; (iv)
acquiring oil and gas leases and drilling the prospect selected for
drilling; and (v) developing the oil and gas prospects that prove to be
productive of oil or gas.
(c) Each industry and financial participant will have the option and
privilege of electing, on a prospect-by-prospect basis, to participate or
not participate in each of phases 2, 3, 4 and 5, as outlined above. Each
participant will agree to participate in phase 1 upon joining the venture.
(d) The joint venture will be structured and offered to industry and
financial participants on the basis that the industry and financial
participants will bear 75% of the costs and expenses incurred by the joint
venture for each prospect in phases 1, 2 and 3, and 50% of the costs and
expenses incurred by the joint venture for each prospect in phases 4 and
5, in consideration of and for an undivided 50% interest in each prospect,
subject, of course, to an option given each participant to elect not to
participate in the next ensuing phase as to any such prospect, and the
relinquishment of interest in that prospect to Texoil.
(e) The joint venture agreement will contain customary provisions
designating Texoil as Venture Manager; authorizing Texoil to engage
seismic services and acquire seismic permits and options; authorizing
Texoil to acquire oil arid gas leases, engage drilling contractors, and to
drill and complete exploratory wells on oil and gas prospects selected for
drilling; and providing for an agreed form of operating agreement to
govern operations on each oil and gas prospect that is drilled.
2.
In consideration of your agreeing to perform seismic design, evaluation
and supervisory services for the joint venture in the manner outlined in Exhibit
"C" of this agreement and at no cost to the joint venture, and your agreeing to
bear certain of the costs and expenses attributable to the interest which you
elect to acquire or retain in Subject Prospects in accordance with this
agreement,
<PAGE>
Texoil agrees to assign and convey to you an undivided 12.5% interest in the
Subject Prospects, which assignment will be subject to this agreement and to the
joint venture agreement which Texoil will establish with industry and financial
partners covering Subject Prospects.
3.
During phases 1 and 2 of the joint venture, Texoil will bear 100% of the
costs and expenses attributable to your 12.5% interest in Subject Prospects. At
such time as Texoil 3DX Technologies, Inc. advises you that phase 3 of the joint
venture will be initiated, you will be obligated to elect, by notice in writing
to Texoil, the prospects that you will participate in, and reimburse Texoil for
100% of your 12.5% share of the generating costs for each such prospect as
outlined in Exhibit "B", and the phase 1 and phase 2 costs and expenses
attributable to those prospects which were borne for you by Texoil during those
phases of the joint venture. Thereafter, you will bear your prorata (12.5%) part
of the costs and expenses incurred in phases 3, 4 and 5 which are attributable
to the prospects which you elect to participate in at the commencement of phase
3 of the joint venture, subject also to the right after phase 3 to elect not to
continue your interest in any such prospect by notifying Texoil and
relinquishing your interest to Texoil. All costs and expenses which Texoil
receives from industry or financial participants in the joint venture will vest
in Texoil, and you will not share in those proceeds.
4.
In addition to other rights and options granted to you by this agreement,
Texoil grants to you, on a prospect-by-prospect basis, and in and only in the
prospects in which you have elected to continue to hold interest after phase 3,
the option, exercisable by you after and only after phase 3 has been completed,
to acquire from Texoil an additional undivided 1 % interest in each prospect
(out of Texoil's interest) for every 10% share of the industry and financial
participant's cost shares you have sold to an industry or financial participant
on the basis that industry and financial participants bear 75% of phase 1, 2 and
3 costs for a 50% interest in the prospect. Your cost for the additional
interest which you may acquire pursuant to this provision will be that
percentage (the interest you acquire) of Texoil's generating costs, as outlined
in Exhibit "B", plus that percentage of the phase 1, 2 and 3 costs attributable
to the prospects in which you acquire interest. It is agreed that you may
commence your sales efforts upon your execution of this agreement. This option
shall be on an "interest available" basis, such that if all or a portion of the
interest which Texoil is offering to industry and financial partners has been
sold by Texoil prior to your selling any such interest, this option will be null
and void, or at least reduced to the available interest. The sales you make will
be on the terms and conditions established by Texoil, and the agreements
evidencing such sales will he prepared and approved by Texoil.
5.
<PAGE>
In addition to the oil and gas prospects described in Exhibit "A" of this
agreement, this agreement shall extend to, cover and encompass, as if described
in Exhibit "A" originally, any oil and gas prospect geological concept) covering
lands in South Louisiana which Texoil elects to acquire from sources outside of
Texoil as a potential 3-D seismic candidate during the period of time commencing
with the date of this letter agreement and ending at the end of a six (6) month
period to be provided for in the joint venture agreement referenced above,
during which Texoil will be obligated to offer any such prospect to the joint
venture.
6.
You agree to be bound by the terms and provisions of the joint venture
agreement which Texoil establishes in the manner contemplated by this agreement,
provided, however, where this agreement may conflict with the terms and
provisions of the joint venture agreement as to your rights and interests, this
agreement as between you and Texoil shall prevail.
If this letter agreement correctly expresses our agreement, please
evidence your agreement to be bound by the terms and provisions of this letter
agreement by executing this agreement in the space provided below for your
signature, and returning one fully executed copy to us at the address shown
above.
Yours very truly,
TEXOIL COMPANY
By:
Its:
Agreed to and accepted this 20 day of 1994.
<PAGE>
3DX TECHNOLOGIES, INC.
By:/S/ JOSEPH SCHUCHARDT
Its:/S/ VICE PRESIDENT
<PAGE>
EXHIBIT "A"
(ATTACHED TO AND MADE A PART OF THAT CERTAIN LETTER AGREEMENT DATED SEPTEMBER
20, 1994, BY AND BETWEEN 3DX TECHNOLOGIES, INC. AND TEXOIL COMPANY.)
THE EXPLORATION PROSPECTS
The exploratory prospects in Texoil's inventory which presently comprise
the Exploration Joint Venture are described below, and summarized on the
following Exhibits "A-1" through "A-6".
CREOLE
This prospect is an upthrown closure on a large down to the south fault.
The 2-D seismic interpretation shows north and west dip which are confirmed by
the dip meter in a key well on the flank of the structure. East closure is
provided by a fault which has been confirmed by subsurface well cuts. A 3-D
seismic survey will confirm closure on the west side of the prospect as well as
the precise high point to drill a test well. As in the West Cameron Prospect,
the potential pay zones are in the Planulina and the Christelaria R zones which
have been prolific producers in the area.
WEST CAMERON
This prospect lies within the wedge situated between two downthrown faults
which converge into one fault to the East. The 2-D interpretation shows an
anticlinal feature with some 200 feet of closure which could trap the Planulina
suite of sands as well as possibly the Christelaria "R" sand, which are prolific
producers in the immediate area. A 3-D survey will confirm the location at which
to position a test well at the high point on the structure.
RACELAND
This prospect is an upthrown closure on a very large down to the south,
east-west trending fault. Good north and west dip have been established from the
interpretation of excellent quality recent 2-D seismic data. There are also
indications of east dip from older 2-D seismic. The 3-D survey would prove the
existence of the east dip and the exact location at which to position a test
well. The zones of interest in this prospect are the Rob 43 through Rob A
section which have been prolific producers in the Lake Boeuf and southwest Lake
Boeuf Fields which are in the area. Texas Meridian Resources has recently
discovered significant oil reserves in the Rob A sand in a new structure at
southwest Lake Boeuf.
<PAGE>
DORCYVILLE DEEP
This prospect is a very large fault closure which has been identified by
seismic work done primarily by Texoil. The objective sand section lies deeper in
the section than any of the wells in the area have to date penetrated. Detailed
stratigraphic interpretation of 3-D seismic will be required to attempt to
determine if reservoir quality sands are present at the objective depths.
CHALKLEY DEEP
This prospect is a downthrown closure on s major fault which traps
production at shallower depths in the field. The Marg howei zone is a major
producer at a shallower depth in the Chalkley Field and also produces on trend
at a comparable depth at which it will be encountered in this prospect A 3-D
survey would confirm the exact placement of the north bounding fault as well as
the East West closure which has been indicated by the 2~D seismic
interpretation.
CHALKLEY SHALLOW
This prospect consists of a satellite downthrown closure on a shallower
fault which has also trapped significant reserves in the siphonina davisi and
Amphistegina "B" zones. As interpreted now, a well to test the deeper Marg bowel
section in the Chalkley Deep Prospect would also test the potential pay zones in
this prospect. A 3-D survey would confirm this interpretation and locate a
position for the test well at the top of the structure. A 3-D survey over the
Chalkley Deep prospect would also cover this prospect. For this reason A 3-D
cost has been allocated to this prospect.
<PAGE>
EXHIBIT "A-1"
PROSPECT: CREOLE
PARISH: CAMERON
AREA: 1,400 ACRES
OBJECTIVE: LOWER MIOCENE (PLANULINA AND CHRISTELARIA "R")
POTENTIAL RESERVES: 205 BCFE
POTENTIAL PAY ZONES: 3
EST. NET LEASEHOLD: 76% - 24% LEASE BURDENS
EST. COST TO VERIFY: $43.0K - 27 mi. 2-D seismic acquisition,
reprocessing & interpretation
EST. COST OF 3-D SURVEY: $700K 9 SQ. MILE SURVEY
-----------------
- survey design
- options, permits & damages
- acquisition & acq. QC
- processing
- interpretation
EST. COST OF ACREAGE: $280K - $270K bonus
- $10K brokerage
EST. COST TO DRILL TEST WELL: $1MM 11.500' TEST WELL
TOTAL EST. COSTS: $2,023,000
<PAGE>
EXHIBIT "A"
PROSPECT: WEST CAMERON
PARISH: CAMERON
AREA: 1,000 ACRES
OBJECTIVES: MIDDLE AND LOWER MIOCENE
AMPHISTEGINA B AND SIPHONINA DAVISI
POTENTIAL RESERVES: 190 BCFE
POTENTIAL PAY ZONES: 4
EST. NET LEASEHOLD: 76.00% - 25% lease burdens
EST. COST TO VERIFY: $43.4K - 27 mi. 2-D seismic acquisition,
reprocessing & interpretation
EST. COST OF 3-D SURVEY: $700K 9 SQ. MILE SURVEY
-----------------
- survey design
- options, permits & damages
- acquisition & acq. QC
- processing
- interpretation
EST. COST OF ACREAGE: $165K - $165K bonus
- $0 brokerage
EST. COST, DRILL TEST WELL: $1.75MM 14.000' TEST WELL
TOTAL EST. COSTS: $2,654,400
<PAGE>
EXHIBIT "A-3"
PROSPECT: RACELAND
PARISH: LAFOURCHE
AREA: 3,000 ACRES
OBJECTIVES: MIDDLE MIOCENE (ROB 43 - ROB A)
POTENTIAL RESERVES: 280 BCFE
POTENTIAL PAY ZONES: 5
EST. NET LEASEHOLD: 77% - 23% lease burdens
EST. COST TO VERIFY: $56.2K - 2-D seismic acquisition,
reprocessing & interpretation
EST. COST OF 3-D SURVEY: $1.48MM 34.5 SQ. MILE SURVEY
--------------------
- survey design
- options, permits & damages
- acquisition & acq. QC
- processing
- interpretation
EST. COST OF ACREAGE: $320K - $300K bonus
- $20K brokerage
EST. COST TO DRILL TEST WELL $2.5MM 16.500' TEST WELL
TOTAL EST. COSTS: $4,365,200
<PAGE>
EXHIBIT "A-4"
PROSPECT: DORCYVILLE DEEP
PARISH: IBERVILLE
AREA: 2,000 ACRES
OBJECTIVES:
POTENTIAL RESERVES: 400 BCFE
POTENTIAL PAY ZONES: 4
EST. NET LEASEHOLD: 74% - 26% lease burdens
EST. COST TO VERIFY: $47.5K - 27 mi. 2-D seismic acquisition,
reprocessing & interpretation
EST. COST OF 3-D SURVEY: $1.2MM 38 SQ. MILE SURVEY
------------------
- survey design
- options, permits & damages
- acquisition & acq. QC
- processing
- interpretation
EST. COST OF ACREAGE: $220K - $200K bonus
- $20K brokerage
EST. COST TO DRILL TEST WELL $3.25MM 18.500' TEST WELL
TOTAL EST. COSTS: $4,717,500
<PAGE>
EXHIBIT "A---"
PROSPECT: DORCYVILLE DEEP
PARISH: IBERVILLE
AREA: 2,000 ACRES
OBJECTIVES:
POTENTIAL RESERVES: 400 BCFE
POTENTIAL PAY ZONES: 4
EST. NET LEASEHOLD: 74% - 26% lease burdens
EST. COST TO VERIFY: $47.5K - 27 mi. 2-D seismic acquisition,
reprocessing & interpretation
EST. COST OF 3-D SURVEY: $1.2MM 38 SQ. MILE SURVEY
------------------
- survey design
- options, permits & damages
- acquisition & acq. QC
- processing
- interpretation
EST. COST OF ACREAGE: $220K - $200K bonus
- $20K brokerage
EST. COST TO DRILL TEST WELL $3.25MM 18.500' TEST WELL
TOTAL EST. COSTS: $4,717,500
<PAGE>
EXHIBIT "A-6"
PROSPECT: CHALKLEY SHALLOW
PARISH: CAMERON
AREA: 600 ACRES
OBJECTIVES: MIDDLE AND LOWER MIOCENE (AMPHISTEGINA B AND
SIPHONINA DAVISI)
POTENTIAL RESERVES: 35 BCFE
POTENTIAL PAY ZONES: 2
EST. NET LEASEHOLD: 74% - 26% lease burdens
EST. COST TO VERIFY: $0 - COVERED BY 40 MI. 2-D SEISMIC
-----------------------------
ACQUIRED, REPROCESSED AND
INTERPRETED FOR CHALKLEY DOME
DEEP PROSPECT.
EST. COST OF 3-D SURVEY: $0 COVERED BY 18 SQ. MILE SURVEY
-----------------------------
SHOT OVER CHALKLEY DOME DEEP
PROSPECT. NO INCREMENTAL COSTS
EST. COST OF ACREAGE: $50K ONLY IF CHALKLEY DEEP PROSPECT
NOT PURSUED; OTHERWISE INCLUDED
IN CHALKLEY DOME DEEP PROSPECT
LAND COSTS.
EST. COST TO DRILL TEST WELL $500K 10.00' TEST WELL
TOTAL EST. COSTS: $550 ONLY IF CHALKLEY DEEP PROSPECT
------------------------------
NOT PURSUED.
ALTERNATE TOTAL COSTS: $500K LAND INCL., CHALKLEY DEEP
<PAGE>
EXHIBIT "B"
(ATTACHED TO AND MADE A PART OF THAT CERTAIN LETTER AGREEMENT DATED SEPTEMBER
20, 1994, BY AND BETWEEN 3DX TECHNOLOGIES, INC. AND TEXOIL COMPANY.)
CURRENT PROSPECT COSTS
GENERATING INITIAL
COSTS REVIEW TOTAL
- ---------------------------------------- -------------- -------------
1. CREOLE $15,800 $3,689.14 $19,489.14
2. W. CAMERON $20,200 $27,694.15 $47,894.15
3. RACELAND $15,000 $25,550.95 $40,550.95
4. DORCYVILLE DEEP $58,700 $11,611.18 $70,311.18
5. CHALKLEY DEEP $21,700 $3,984.13 $25,684.13
6. CHALKLEY SHALLOW* $0 $0 $0
GRAND TOTAL: $203,929.55
- ---------------------------------------- -------------
* All Chalkley Shallow costs have been allocated to Chalkley Deep in Texoil's
records, since the shallow play would probably not be pursued except in
conjunction with the deep play.
<PAGE>
EXHIBIT "C"
3DX will provide the following services for Tcxoil and the joint venture:
(a) Review and evaluate the 2-d seismic data acquired by Texoil relative
to Subject Prospects and advise Texoil as to the aspects that are
suitable and appropriate for a 3-D seismic survey.
(b) Design the 3-D geophysical survey for each prospect selected for the
survey, including without limitation, the location of and other
specifications associated with seismic shot holes and lines;
(c) Provide Tcxoil with an estimate of the cost of the 3-D geophysical
prograin for each selected prospect and obtain Texoil's authority to
implement the proposed 3-D geophysical program;
(d) Contract with a reputable seismic contractor approved by Texoil to
conduct the seismic work, oversee the acquisition of seismic data,
and provide quality control services in regard thereto;
(e) Gather, record, analyze, process and interpret the seismic data for
each selected prospect utilizing computer-aided exploration
technologies ("CAEX"); and
(f) Prepare and deliver to Texoil a presentation of 3DX's findings and
interpretations.
3DX will provide Texoil with complete copies, either in documentary form or on
computer tape, of all information and data acquired pursuant to the 3-Dl
geophysical program. 3DX will not charge Texoil any fees or overhead costs in
connection with performing 3DX's functions as manager of the 3-D geophysical
program. All 3-Dl seismic information obtained pursuant to this agreement will
be the property of Texoil] and the joint venture.
EXHIBIT 10.5
TEXOIL, INC.
1994 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN
This Texoil, Inc. 1994 Stock Option Plan (the "Plan") is intended to
promote the interests of the Company by providing those employees and
consultants of the Company who are largely responsible for the management,
growth and protection of the Company's business with a proprietary interest in
the Company.
2. DEFINITIONS
As used in the Plan, the following definitions apply to the terms
indicated below:
(a) "Board of Directors" shall mean the Board of Directors of Texoil, Inc.
(b) "Cause," when used in connection with the termination of a
Participant's employment with the Company, shall mean the termination of the
Participant's employment by the Company by reason of (i) the conviction of the
Participant of a crime involving moral turpitude by a court of competent
jurisdiction as to which no further appeal can be taken; (ii) the proven
commission by the Participant of an act of fraud on the Company; (iii) the
willful and proven misappropriation of any funds or property of the Company by
the Participant; (iv) the willful, continued and unreasonable failure by the
Participant to perform duties assigned to him and agreed to by him; (v) the
knowing engagement by the Participant in any direct, material conflict of
interest with the Company without compliance with the Company's conflict of
interest policy, if any, then in effect; (vi) the knowing engagement by the
Participant, without the written approval of the Board of Directors of the
Company, in any activity which competes with the business of the Company or
which would result in a material injury to the Company; or (vii) the knowing
engagement by the Participant in any activity which would constitute a material
violation of the provisions of the Company's Insider Trading Policy or Business
Ethics Policy, if any, then in effect.
(c) "Change in Control" shall mean the occurrence of any of the following
events:
(i) any Person becomes, after the effective date of this Plan, the
"beneficial owner" (as defined in Rule 13d-3 promulgated under the
Exchange Act), directly or indirectly, of securities of the Company
representing more than 50% of the combined voting power of the Company's
then outstanding securities; or
(ii) at any given time, less than 50% of the then incumbent members
of the Board of Directors shall have been continuously incumbent during
the preceding 18 months.
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(d) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(e) "Committee" shall mean the Compensation Committee of the Board of
Directors or such other committee as the Board of Directors shall appoint from
time to time to administer the Plan.
(f) "Common Stock" shall mean the Company's common stock, $.01 par value
per share.
(g) "Company" shall mean Texoil, Inc., a Nevada corporation.
(h) "Consultant" shall mean any person who is engaged by the Company or
any Parent or Subsidiary to render consulting services and is compensated for
such consulting services.
(i) "Employee" shall mean any person employed by the Company or any Parent
or Subsidiary of the Company. The payment of a director's fee by the Company
shall not be sufficient to constitute "employment" by the Company.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(k) the "Fair Market Value" of a share of Common Stock on any date shall
be (i) the closing sales price on the immediately preceding business day of a
share of Common Stock as reported on the principal securities exchange on which
shares of Common Stock are then listed or admitted to trading or (ii) if not so
reported, the average of the closing bid and asked prices for a share of Common
Stock on the immediately preceding business day as quoted on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") or (iii)
if not quoted on NASDAQ, the average of the closing bid and asked prices for a
share of Common Stock as quoted by the National Quotation Bureau's "Pink Sheets"
or the National Association of Securities Dealers' OTC Bulletin Board System. If
the price of a share of Common Stock shall not be so reported, the Fair Market
Value of a share of Common Stock shall be determined by the Committee in its
absolute discretion.
(l) "Non-Qualified Stock Option" shall mean a stock option which is not an
incentive stock option within the meaning of Section 422 of the Code.
(m) "Option" shall mean a Non-Qualified Stock Option to purchase shares of
Common Stock granted pursuant to Section 6 hereof.
(n) "Parent" shall mean a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(o) "Participant" shall mean an employee or consultant of the Company who
is eligible to participate in the Plan and to whom an Option is granted pursuant
to the Plan.
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<PAGE>
(p) "Person" shall mean a "person," as such term is defined in Section
3(a)(9) of the Exchange Act, and as used in Sections 13(d) and 14(d) of the
Exchange Act, and the rules and regulations in effect from time to time
thereunder.
(q) "Plan" shall mean this 1994 Stock Option Plan, as it may be amended
from time to time.
(r) "Regulations" shall mean all regulations promulgated pursuant to the
Code.
(s) "Securities Act" shall mean the Securities Act of 1933, as amended
from time to time.
(t) "Subsidiary" or "Subsidiaries" shall mean any and all corporations in
which at the pertinent time the Company owns, directly or indirectly, stock
vested with more than fifty percent of the total combined voting power of all
classes of stock of such corporation within the meaning of Section 424(f) of the
Code.
3. STOCK SUBJECT TO THE PLAN
The Committee may grant Options under the Plan with respect to a number of
shares of Common Stock that in the aggregate does not exceed 250,000 shares. The
Company will, during the term of this Plan, reserve and keep available for
issuance a sufficient number of shares of Common Stock to satisfy the
requirements of the Plan.
If any outstanding Option expires, terminates or is canceled for any
reason, the shares of Common Stock subject to the unexercised portion of such
Option shall again be available for grant under the Plan.
Shares of Common Stock issued under the Plan may be either newly issued or
treasury shares, at the discretion of the Committee.
4. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Committee, which shall consist of
two or more persons each of whom shall be a "disinterested person" within the
meaning of Rule 16b-3(c)(2)(i) promulgated under Section 16 of the Exchange Act.
The Committee shall from time to time designate the Participants who shall be
granted Options under the Plan.
The Committee shall have full authority to administer the Plan, including
authority to interpret and construe any provision of the Plan and the terms of
any Option issued under it and to adopt such rules and regulations for
administering the Plan as it may deem necessary. Decisions of the Committee
shall be final and binding on all parties.
The Committee may, in its absolute discretion (i) accelerate the date on
which any Option granted under the Plan becomes exercisable or (ii) extend the
date on which any Option granted under the Plan ceases to be exercisable.
3
<PAGE>
In addition, the Committee may, in its absolute discretion, grant Options
to Participants on the condition that such Participants surrender to the
Committee for cancellation such other previously granted Options (including,
without limitation, Options with higher exercise prices) as the Committee
specifies. Notwithstanding Section 3 hereof, Options granted on the condition of
surrender of outstanding Options shall not count against the limits set forth in
such Section 3 until such time as such outstanding Options are surrendered and
canceled.
Except as provided in Section 6(d)(4) hereof, whether an authorized leave
of absence or absence in military or government service shall constitute
termination of employment shall be determined by the Committee in its absolute
discretion.
No member of the Committee shall be liable for any action, omission, or
determination relating to the Plan, and the Company shall indemnify and hold
harmless each member of the Committee and each other director or employee of the
Company to whom any duty or power relating to the administration or
interpretation of the Plan has been delegated from and against any cost or
expense (including attorneys' fees) or liability (including any sum paid in
settlement of a claim with the approval of the Committee) arising out of any
action, omission or determination relating to the Plan, unless, in either case,
such action, omission or determination was taken or made by such member,
director or employee in bad faith and without reasonable belief that it was in
the best interests of the Company.
5. ELIGIBILITY
All Employees and Consultants of the Company and its Subsidiaries shall be
eligible to receive Options pursuant to the Plan.
6. OPTIONS
The Committee may grant Options pursuant to the Plan, which Options shall
be evidenced by agreements in such form as the Committee shall from time to time
approve. Options shall comply with and be subject to the following terms and
conditions:
(a) IDENTIFICATION OF OPTIONS
All Options granted under the Plan shall be clearly identified in the
agreement evidencing such Options as Non-Qualified Stock Options.
(b) EXERCISE PRICE
The exercise price of any Non-Qualified Stock Option granted under the
Plan shall be such price as the Committee shall determine on the date on which
such Non-Qualified Stock Option is granted; PROVIDED, that such price may not be
less than the minimum price required by law.
4
<PAGE>
(c) TERM AND EXERCISE OF OPTIONS
(1) Each Option shall be exercisable on such date or dates,
during such period and for such number of shares of Common Stock as
shall be determined by the Committee on the day on which such Option
is granted and set forth in the agreement evidencing the Option;
PROVIDED, HOWEVER, that no Option shall be exercisable (i) before
the later of (A) approval of the Plan by the Company's stockholders
in accordance with applicable law and the requirements of Rule 16b-3
promulgated under Section 16(b) of the Exchange Act, or (B) one year
from the date such Option was granted, nor (ii) after the expiration
of ten years from such date of grant; and, PROVIDED, FURTHER, that
each Option shall be subject to earlier termination, expiration or
cancellation as provided in this Plan.
(2) Each Option shall be exercisable in whole or in part with
respect to whole shares of Common Stock. The partial exercise of an
Option shall not cause the expiration, termination or cancellation
of the remaining portion thereof. Upon the partial exercise of an
Option, the agreement evidencing such Option shall be returned to
the Participant exercising such Option together with the delivery of
the certificates described in Section 6(c)(5) hereof.
(3) An Option shall be exercised by delivering notice to the
Company's principal office, to the attention of its Secretary, no
fewer than five business days in advance of the effective date of
the proposed exercise. Such notice shall be accompanied by the
agreement evidencing the Option, shall specify the number of shares
of Common Stock with respect to which the Option is being exercised
and the effective date of the proposed exercise, and shall be signed
by the Participant. The Participant may withdraw such notice at any
time prior to the close of business on the business day immediately
preceding the effective date of the proposed exercise, in which case
such agreement shall be returned to the Participant. Payment for
shares of Common Stock purchased upon the exercise of an Option
shall be made on the effective date of such exercise either (i) in
cash, by certified check, bank cashier's check or wire transfer or
(ii) subject to the approval of the Committee, in shares of Common
Stock owned by the Participant and valued at their Fair Market Value
on the effective date of such exercise, or partly in shares of
Common Stock with the balance in cash, by certified check, bank
cashier's check or wire transfer. Any payment in shares of Common
Stock shall be effected by the delivery of such shares to the
Secretary of the Company, duly endorsed in blank or accompanied by
stock powers duly executed in blank, together with any other
documents and evidences as the Secretary of the Company shall
require from time to time.
(4) Any Option granted under the Plan may be exercised by a
broker-dealer acting on behalf of a Participant if (i) the
broker-dealer has received from the Participant or the Company a
duly endorsed agreement evidencing such Option and instructions
signed by the Participant requesting the Company to deliver the
shares of Common Stock subject to such Option to the broker-dealer
on behalf of the
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<PAGE>
Participant and specifying the account into which such shares should
be deposited, (ii) adequate provision has been made with respect to
the payment of any withholding taxes due upon such exercise and
(iii) the broker-dealer and the Participant have otherwise complied
with Section 220.3(e)(4) of Regulation T, 12 C.F.R. Part 220.
(5) Certificates for shares of Common Stock purchased upon the
exercise of an Option shall be issued in the name of the Participant
and delivered to the Participant as soon as practicable following
the effective date on which the Option is exercised; provided,
however, that such delivery shall be effected for all purposes when
a stock transfer agent of the Company shall have deposited such
certificates in the United States mail, addressed to the
Participant.
(6) During the lifetime of a Participant each Option granted
to him shall be exercisable only by him or a broker-dealer acting on
behalf of such Participant pursuant to Section 6(c)(4) hereof. No
Option shall be assignable or transferable otherwise than by will or
by the laws of descent and distribution.
(d) EFFECT OF TERMINATION OF EMPLOYMENT
(1) If the employment of a Participant with the Company shall
terminate for any reason other than Cause, "permanent and total
disability" (within the meaning of Section 22(e)(3) of the Code) or
the death of the Participant (i) Options granted to such
Participant, to the extent that they were exercisable at the time of
such termination, shall remain exercisable until the expiration of
three months after such termination, on which date they shall
expire, and (ii) Options granted to such Participant, to the extent
that they were not exercisable at the time of such termination,
shall expire at the close of business on the date of such
termination; PROVIDED, HOWEVER, that no Option shall be exercisable
after the expiration of its term.
(2) If the employment of a Participant with the Company shall
terminate on account of the "permanent and total disability" (within
the meaning of Section 22(e)(3) of the Code) or the death of the
Participant (i) Options granted to such Participant, to the extent
that they were exercisable at the time of such termination, shall
remain exercisable until the expiration of one year after such
termination, on which date they shall expire, and (ii) Options
granted to such Participant, to the extent that they were not
exercisable at the time of such termination, shall expire at the
close of business on the date of such termination; PROVIDED,
HOWEVER, that no Option shall be exercisable after the expiration of
its term.
(3) In the event of the termination of a Participant's
employment for Cause, all outstanding Options granted to such
Participant shall expire at the commencement of business on the date
of such termination.
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<PAGE>
(4) An Employee's employment with the Company shall be deemed
terminated if the Employee's leave of absence (including, military
or sick leave or other bona fide leave of absence) extends for more
than 90 days and the Employee's continued employment with the
Company is not guaranteed by contract or statute.
(e) ACCELERATION OF EXERCISE DATE UPON CHANGE IN CONTROL
Upon the occurrence of a Change in Control, each Option granted under the
Plan and outstanding at such time shall become fully and immediately exercisable
and shall remain exercisable until its expiration, termination or cancellation
pursuant to the terms of the Plan.
7. ADJUSTMENT UPON CHANGES IN COMMON STOCK
(a) OUTSTANDING OPTIONS, INCREASE OR DECREASE IN ISSUED SHARES WITHOUT
CONSIDERATION
Subject to any required action by the stockholders of the Company, in the
event of any increase or decrease in the number of issued shares of Common Stock
resulting from a subdivision or consolidation of shares of Common Stock or the
payment of a stock dividend (but only on the shares of Common Stock), or any
other increase or decrease in the number of such shares effected without receipt
of consideration by the Company, the Committee shall proportionally adjust the
number of shares and the exercise price per share of Common Stock subject to
each outstanding Option. Conversion of any of the Company's convertible
securities shall not be deemed to have been "effected without receipt of
consideration by the Company."
(b) OUTSTANDING OPTIONS, CERTAIN MERGERS
Subject to any required action by the stockholders of the Company, if the
Company shall be the surviving corporation in any merger or consolidation
(except a merger or consolidation as a result of which the holders of shares of
Common Stock receive securities of another corporation), each Option outstanding
on the date of such merger or consolidation shall entitle the Participant to
acquire upon exercise the securities which a holder of the number of shares of
Common Stock subject to such Option would have received in such merger or
consolidation.
(c) OUTSTANDING OPTIONS, CERTAIN OTHER TRANSACTIONS
In the event of a dissolution or liquidation of the Company, a sale of all
or substantially all of the Company's assets, a merger or consolidation
involving the Company in which the Company is not the surviving corporation or a
merger or consolidation involving the Company in which the Company is the
surviving corporation but the holders of shares of Common Stock receive
securities of another corporation and/or other property, including cash, the
Committee shall, in its absolute discretion, have the power to:
(i) cancel, effective immediately prior to the occurrence of such
event, each Option outstanding immediately prior to such event (whether or
not then exercisable), and,
7
<PAGE>
in full consideration of such cancellation, pay to the Participant to whom
such Option was granted an amount in cash, for each share of Common Stock
subject to such Option equal to the excess of (A) the value, as determined
by the Committee in its absolute discretion, of the property (including
cash) received by the holder of a share of Common Stock as a result of
such event over (B) the exercise price of such Option; or
(ii) provide for the exchange of each Option outstanding immediately
prior to such event (whether or not then exercisable) for an option on
some or all of the property for which such Option is exchanged and,
incident thereto, make an equitable adjustment as determined by the
Committee in its absolute discretion in the exercise price of the Option,
or the number of shares or amount of property subject to the Option or, if
appropriate, provide for a cash payment to the Participant to whom such
Option was granted in partial consideration for the exchange of the
Option.
(d) OUTSTANDING OPTIONS, OTHER CHANGES
In the event of any change in the capitalization of the Company or
corporate change other than those specifically referred to in Sections 7(a), (b)
or (c) hereof, the Committee may, in its absolute discretion, make such
adjustments in the number and class of shares subject to Options outstanding on
the date on which such change occurs and in the per share exercise price of each
such Option as the Committee may consider appropriate to prevent dilution or
enlargement of rights.
(e) NO OTHER RIGHTS
Except as expressly provided in the Plan, no Participant shall have any
rights by reason of any subdivision or consolidation of shares of stock of any
class, the payment of any dividend, any increase or decrease in the number of
shares of stock of any class or any dissolution, liquidation, merger or
consolidation of the Company or any other corporation. Except as expressly
provided in the Plan, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number of shares of Common Stock subject to any Option or the exercise price of
any Option.
8. RIGHTS AS A STOCKHOLDER
No Person shall have any rights as a stockholder with respect to any
shares of Common Stock covered by or relating to any Option granted pursuant to
the Plan until the date of the issuance of a stock certificate with respect to
such shares. Except as otherwise expressly provided in Section 7 hereof, no
adjustment to any Option shall be made for dividends or other rights for which
the record date occurs prior to the date such stock certificate is issued.
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<PAGE>
9. NO SPECIAL EMPLOYMENT RIGHTS; NO RIGHT TO OPTION
Nothing contained in the Plan or any Options shall confer upon any
Participant any right with respect to the continuation of his employment by the
Company or interfere in any way with the right of the Company, subject to the
terms of any separate employment agreement to the contrary, at any time to
terminate such employment or to increase or decrease the compensation of the
Participant from the rate in existence at the time of the grant of an Option.
No person shall have any claim or right to receive an Option hereunder.
The Committee's granting of an Option to a Participant at any time shall neither
require the Committee to grant an Option to such Participant or any other
Participant or other Person at any time nor preclude the Committee from making
subsequent grants to such Participant or any other Participant or other Person.
10. SECURITIES MATTERS
(a) The Company shall be under no obligation to effect the registration
pursuant to the Securities Act of any shares of Common Stock to be issued as a
result of the exercise of any Option granted hereunder or to effect similar
compliance under any state laws. Notwithstanding anything herein to the
contrary, the Company shall not be obligated to cause to be issued or delivered
any certificates evidencing shares of Common Stock pursuant to the exercise of
any Option granted hereunder unless and until the Company is advised by its
counsel that the issuance and delivery of such certificates is in compliance
with all applicable laws and regulations promulgated by governmental authority
and all requirements of any securities exchange or quotation system on which
shares of Common Stock are traded or quoted. The Committee may require, as a
condition of the issuance and delivery of certificates evidencing such shares of
Common Stock, that the recipient of such shares make such covenants, agreements
and representations, and that such certificates bear such legends, as the
Committee, in its sole discretion, deems necessary or desirable.
(b) The exercise of any Option granted hereunder shall only be effective
at such time as counsel to the Company shall have determined that the issuance
and delivery of shares of Common Stock pursuant to such exercise is in
compliance with all applicable laws and regulations promulgated by governmental
authorities and all requirements of any securities exchange or quotation system
on which shares of Common Stock are traded or quoted. The Company may, in its
sole discretion, defer the effectiveness of any exercise of an Option granted
hereunder in order to allow the issuance of shares of Common Stock pursuant
thereto to be made pursuant to registration or an exemption from registration or
other methods for compliance available under federal or state securities laws.
The Company shall inform the Participant in writing of its decision to defer the
effectiveness of the exercise of an Option granted hereunder. During the period
that the effectiveness of the exercise of an Option has been deferred, the
Participant may, by written notice, withdraw such exercise and obtain the refund
of any amount paid with respect thereto.
(c) With respect to persons subject to Section 16 of the 1934 Act,
transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under
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<PAGE>
the Exchange Act. To the extent any provision of the Plan or action by the
Committee fails to so comply, such provision or action shall be deemed null and
void to the extent permitted by applicable law and deemed advisable by the
Committee.
11. WITHHOLDING TAXES
Whenever shares of Common Stock are to be issued upon the exercise of an
Option, the Company shall have the right to require the Participant to remit to
the Company in cash an amount sufficient to satisfy federal, state and local
withholding tax requirements, if any, attributable to such exercise prior to the
delivery of any certificate or certificates for such shares.
12. AMENDMENT OF THE PLAN
The Board of Directors may at any time suspend or discontinue the Plan or
revise or amend it in any respect whatsoever, PROVIDED, HOWEVER, that without
approval of the holders of a majority of the outstanding shares of Common Stock
present in person or by proxy at an annual or special meeting of stockholders
(or such greater percentage as may be required by applicable law or the
Company's articles of incorporation), no revision or amendment shall (i)
increase the number of shares of Common Stock that may be issued under the Plan,
except as provided in Section 7 hereof, (ii) materially increase the benefits
accruing to individuals holding Options granted pursuant to the Plan or (iii)
materially modify the requirements as to eligibility for participation in the
Plan.
13. NO OBLIGATION TO EXERCISE
The grant to a Participant of an Option shall impose no obligation upon
such Participant to exercise such Option.
14. TRANSFERS UPON DEATH
Upon the death of a Participant, outstanding Options granted to such
Participant may be exercised only by the executors or administrators of the
Participant's estate or by any person or persons who shall have acquired such
right to exercise by will or by the laws of descent and distribution. No
transfer by will or the laws of descent and distribution of any Option, or the
right to exercise any Option, shall be effective to bind the Company unless the
Committee shall have been furnished with (a) written notice thereof with a copy
of the will and/or such other evidence as the Committee may deem necessary to
establish the validity of the transfer and (b) an agreement by the transferee to
comply with all the terms and conditions of the Options that are or would have
been applicable to the Participant and to be bound by the acknowledgments made
by the Participant in connection with the grant of the Options.
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5. EXPENSES AND RECEIPTS
The expenses of the Plan shall be paid by the Company. Any proceeds
received by the Company in connection with any Option may be used for general
corporate purposes.
16. FAILURE TO COMPLY
In addition to the remedies of the Company elsewhere provided for herein,
failure by a Participant to comply with any of the terms and conditions of the
Plan or the agreement executed by such Participant evidencing an Option, unless
such failure is remedied by such Participant within ten days after having been
notified of such failure by the Committee, shall be grounds for the cancellation
and forfeiture of such Option, in whole or in part as the Committee, in its
absolute discretion, may determine.
17. EFFECTIVE DATE AND TERM OF PLAN
The Plan became effective on July 25, 1994, the date upon which the Plan
was adopted by the Board of Directors subject to approval by the Company's
stockholders in accordance with applicable law and the requirements of Rule
16b-3 promulgated under Section 16(b) of the Exchange Act. No Option may be
granted under the Plan after July 25, 2004.
11
<PAGE>
EXHIBIT 10.6
TEXOIL, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
TEXOIL, INC., a Nevada corporation (the "COMPANY"), hereby grants to
WALTER L. WILLIAMS (the "OPTIONEE") a non-qualified stock option (the "OPTION")
to purchase a total of 50,000 shares (the "SHARES") of the Company's common
stock, par value $.01 per share (the "COMMON STOCK"), at the price determined as
provided herein, and in all respects subject to the terms and conditions of the
Company's 1994 Stock Option Plan (the "PLAN"), which is incorporated herein in
its entirety by reference and a copy of which is attached hereto. Capitalized
terms not otherwise defined in this agreement (the "OPTION AGREEMENT") shall
have the meaning given to such terms in the Plan.
1. NATURE OF OPTION. This Option is intended to constitute a non-qualified
stock option.
2. EXERCISE PRICE. The exercise price of this Option is $3.00 per share of
Common Stock acquired on exercise.
3. TERM OF OPTION. This Option may not be exercised (i) before the later
of (A) approval of the Plan by the Company's stockholders as contemplated by
Section 17 of the Plan or (B) one year after the date of grant of this Option as
set forth herein, nor (ii) after the expiration of 10 years after such date of
grant; PROVIDED, FURTHER, that this Option may be exercised during such term
only in accordance with the terms and conditions of the Plan and this Option
Agreement, subject specifically to Section 6 of the Plan and Sections 4 and 6 of
this Option Agreement.
4. TERMINATION OF OPTIONEE'S EMPLOYMENT. If the Optionee's employment with
the Company is terminated for reasons other than Cause, "permanent and total
disability" (within the meaning of Section 22(e)(3) of the Internal Revenue Code
of 1986, as amended ("Code")), or death of the Optionee, those Shares that had
vested under the terms of this Option Agreement shall remain exercisable for a
period of three months after the date of such termination of the Optionee's
employment with the Company; PROVIDED, HOWEVER, that after the expiration of
this three-month period, this Option Agreement, and the Optionee's right to
exercise any vested portion of this Option, shall terminate. If the Optionee's
employment with the Company is terminated because of the "permanent or total
disability" (within the meaning of Section 22(e)(3) of the Code) or death of the
Optionee, those Shares that had vested in accordance with this Option Agreement
shall remain exercisable for a period of one year after the date of such
termination; PROVIDED, HOWEVER, that after the expiration of one year period,
this Option Agreement, and the Optionee's right to exercise any vested portion
of this Option, shall terminate. If the Optionee's employment with the Company
terminates for Cause, this Option Agreement, and the Optionee's right to
exercise any vested portion of this Option, shall terminate at the commencement
of business on the date of such termination.
1
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5. TERM OF EMPLOYMENT. This Option shall not grant to Optionee any right
to continue serving as an employee or consultant of the Company.
6. EXERCISE OF OPTION. This Option shall be exercisable during its term,
subject to the provisions of Sections 3 and 4 hereof and Section 6 of the Plan,
as follows:
(i) VESTING. For as long as the Optionee remains an Employee or a
Consultant, this Option shall vest cumulatively as follows: 100% of the Shares
shall vest one year from the date of grant as provided herein.
(ii) RIGHT OF EXERCISE. This Option is exercisable at any time
during the term of this Option Agreement, in whole or in part, to acquire those
Shares that have vested in accordance with this Option Agreement; PROVIDED,
HOWEVER, that this Option may only be exercisable to acquire whole shares of
Common Stock.
(iii) METHOD OF EXERCISE. This Option is exercisable by delivery of
this Option Agreement and a written notice to the attention of the Secretary of
the Company, no fewer than five business days before the proposed effective date
of exercise, signed by the Optionee, specifying the number of Shares to be
acquired on, and the effective date of, such exercise. The Optionee may withdraw
notice of exercise of this Option at any time before close of business on the
business day preceding the proposed exercise date, and in this instance, the
Company will return this Option Agreement to the Optionee.
(iv) METHOD OF PAYMENT. Payment of the exercise price for the Shares
purchased under this Option shall be delivered, by certified mail to the
attention of the Secretary of the Company, on the effective date of exercise
either (i) in cash, or by certified check, bank cashier's check, or wire
transfer, or (ii) subject to the approval of the Committee, in whole or in part
in shares of Common Stock owned by the Optionee and valued at their Fair Market
Value on the effective date of exercise. Such shares must be delivered to the
Secretary, duly endorsed in blank or accompanied by stock powers duly executed
in blank, and any other documents that the Secretary may require.
7. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the
issuance of such Shares or the method of payment of the consideration for such
Shares would constitute a violation of any applicable federal or state
securities or other laws or regulations, including any rule under Part 207 of
Title 12 of the Code of Federal Regulations ("Regulation G") as promulgated by
the Federal Reserve Board, or any rules or regulations of any stock exchange or
quotation system on which the Common Stock may be listed or quoted.
This Option may only be exercised in accordance with the terms and
conditions of the Plan and this Option Agreement. If a conflict exists between
any term or provision contained in this Option Agreement and a term or provision
in the Plan, the applicable terms and provisions of the Plan shall govern and
prevail.
2
<PAGE>
8. NON-TRANSFERABILITY OF OPTION. During the lifetime of the Optionee,
this Option may only be exercised by the Optionee. This Option is not assignable
or transferable otherwise than by will or by the laws of descent and
distribution. The Plan limits the vesting and exercise period of this Option on
the Optionee's termination of employment, "permanent and total disability"
(within the meaning of Section 22(e)(3) of the Code) or death. The terms of this
Option Agreement shall be binding on the Optionee's heirs and legatees and on
the administrators and executors of the Optionee's estate.
9. INDEPENDENT LEGAL AND TAX ADVICE. The Optionee has and will obtain
independent legal and tax advice regarding the grant and exercise of this Option
and the disposition of any Shares acquired thereby.
10. AMENDMENT. This Option Agreement may not be amended, modified or
waived except by a written instrument signed by the party against whom
enforcement of any such modification, amendment or waiver is sought.
11. GOVERNING LAW. This Option Agreement shall be governed by and shall be
construed and enforced in accordance with the corporate laws of the State of
Nevada as they apply to a Nevada corporation and the laws of the State of Texas.
12. SUPERSEDES PRIOR AGREEMENTS. This Option Agreement shall supersede and
replace all prior agreements and understandings, oral or written, between the
Company and the Optionee regarding the grant of an Option under the Plan on July
26, 1994. All other option agreements relating to the grant by the Company of an
Option under the Plan or predecessor employee stock option plans maintained by
the Company on such date shall be null, void and of no further force and effect.
IN WITNESS WHEREOF, the Company has as of July 26, 1994, caused this
Option Agreement to be executed on its behalf by a member of the Committee and
Optionee has hereunto set his hand as of the same date, which date is the date
of grant of this Option.
TEXOIL, INC.,
a Nevada corporation
By:
Committee Member
3
<PAGE>
OPTIONEE:
/S/ WALTER L. WILLIAMS
Walter L. Williams
4
<PAGE>
EXHIBIT 10.7
TEXOIL, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
TEXOIL, INC., a Nevada corporation (the "COMPANY"), hereby grants to RUBEN
MEDRANO (the "OPTIONEE") a non-qualified stock option (the "OPTION") to purchase
a total of 20,000 shares (the "SHARES") of the Company's common stock, par value
$.01 per share (the "COMMON STOCK"), at the price determined as provided herein,
and in all respects subject to the terms and conditions of the Company's 1994
Stock Option Plan (the "PLAN"), which is incorporated herein in its entirety by
reference and a copy of which is attached hereto. Capitalized terms not
otherwise defined in this agreement (the "OPTION AGREEMENT") shall have the
meaning given to such terms in the Plan.
1. NATURE OF OPTION. This Option is intended to constitute a non-qualified
stock option.
2. EXERCISE PRICE. The exercise price of this Option is $3.00 per share of
Common Stock acquired on exercise.
3. TERM OF OPTION. This Option may not be exercised (i) before the later
of (A) approval of the Plan by the Company's stockholders as contemplated by
Section 17 of the Plan or (B) one year after the date of grant of this Option as
set forth herein, nor (ii) after the expiration of 10 years after such date of
grant; PROVIDED, FURTHER, that this Option may be exercised during such term
only in accordance with the terms and conditions of the Plan and this Option
Agreement, subject specifically to Section 6 of the Plan and Sections 4 and 6 of
this Option Agreement.
4. TERMINATION OF OPTIONEE'S EMPLOYMENT. If the Optionee's employment with
the Company is terminated for reasons other than Cause, "permanent and total
disability" (within the meaning of Section 22(e)(3) of the Internal Revenue Code
of 1986, as amended ("Code")), or death of the Optionee, those Shares that had
vested under the terms of this Option Agreement shall remain exercisable for a
period of three months after the date of such termination of the Optionee's
employment with the Company; PROVIDED, HOWEVER, that after the expiration of
this three-month period, this Option Agreement, and the Optionee's right to
exercise any vested portion of this Option, shall terminate. If the Optionee's
employment with the Company is terminated because of the "permanent or total
disability" (within the meaning of Section 22(e)(3) of the Code) or death of the
Optionee, those Shares that had vested in accordance with this Option Agreement
shall remain exercisable for a period of one year after the date of such
termination; PROVIDED, HOWEVER, that after the expiration of one year period,
this Option Agreement, and the Optionee's right to exercise any vested portion
of this Option, shall terminate. If the Optionee's employment with the Company
terminates for Cause, this Option Agreement, and the Optionee's right to
exercise any vested portion of this Option, shall terminate at the commencement
of business on the date of such termination.
1
<PAGE>
5. TERM OF EMPLOYMENT. This Option shall not grant to Optionee any right
to continue serving as an employee or consultant of the Company.
6. EXERCISE OF OPTION. This Option shall be exercisable during its term,
subject to the provisions of Sections 3 and 4 hereof and Section 6 of the Plan,
as follows:
(i) VESTING. For as long as the Optionee remains an Employee or a
Consultant, this Option shall vest cumulatively as follows: 100% of the Shares
shall vest one year from the date of grant as provided herein.
(ii) RIGHT OF EXERCISE. This Option is exercisable at any time
during the term of this Option Agreement, in whole or in part, to acquire those
Shares that have vested in accordance with this Option Agreement; PROVIDED,
HOWEVER, that this Option may only be exercisable to acquire whole shares of
Common Stock.
(iii) METHOD OF EXERCISE. This Option is exercisable by delivery of
this Option Agreement and a written notice to the attention of the Secretary of
the Company, no fewer than five business days before the proposed effective date
of exercise, signed by the Optionee, specifying the number of Shares to be
acquired on, and the effective date of, such exercise. The Optionee may withdraw
notice of exercise of this Option at any time before close of business on the
business day preceding the proposed exercise date, and in this instance, the
Company will return this Option Agreement to the Optionee.
(iv) METHOD OF PAYMENT. Payment of the exercise price for the Shares
purchased under this Option shall be delivered, by certified mail to the
attention of the Secretary of the Company, on the effective date of exercise
either (i) in cash, or by certified check, bank cashier's check, or wire
transfer, or (ii) subject to the approval of the Committee, in whole or in part
in shares of Common Stock owned by the Optionee and valued at their Fair Market
Value on the effective date of exercise. Such shares must be delivered to the
Secretary, duly endorsed in blank or accompanied by stock powers duly executed
in blank, and any other documents that the Secretary may require.
7. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the
issuance of such Shares or the method of payment of the consideration for such
Shares would constitute a violation of any applicable federal or state
securities or other laws or regulations, including any rule under Part 207 of
Title 12 of the Code of Federal Regulations ("Regulation G") as promulgated by
the Federal Reserve Board, or any rules or regulations of any stock exchange or
quotation system on which the Common Stock may be listed or quoted.
This Option may only be exercised in accordance with the terms and
conditions of the Plan and this Option Agreement. If a conflict exists between
any term or provision contained in this Option Agreement and a term or provision
in the Plan, the applicable terms and provisions of the Plan shall govern and
prevail.
2
<PAGE>
8. NON-TRANSFERABILITY OF OPTION. During the lifetime of the Optionee,
this Option may only be exercised by the Optionee. This Option is not assignable
or transferable otherwise than by will or by the laws of descent and
distribution. The Plan limits the vesting and exercise period of this Option on
the Optionee's termination of employment, "permanent and total disability"
(within the meaning of Section 22(e)(3) of the Code) or death. The terms of this
Option Agreement shall be binding on the Optionee's heirs and legatees and on
the administrators and executors of the Optionee's estate.
9. INDEPENDENT LEGAL AND TAX ADVICE. The Optionee has and will obtain
independent legal and tax advice regarding the grant and exercise of this Option
and the disposition of any Shares acquired thereby.
10. AMENDMENT. This Option Agreement may not be amended, modified or
waived except by a written instrument signed by the party against whom
enforcement of any such modification, amendment or waiver is sought.
11. GOVERNING LAW. This Option Agreement shall be governed by and shall be
construed and enforced in accordance with the corporate laws of the State of
Nevada as they apply to a Nevada corporation and the laws of the State of Texas.
12. SUPERSEDES PRIOR AGREEMENTS. This Option Agreement shall supersede and
replace all prior agreements and understandings, oral or written, between the
Company and the Optionee regarding the grant of an Option under the Plan on July
26, 1994. All other option agreements relating to the grant by the Company of an
Option under the Plan or predecessor employee stock option plans maintained by
the Company on such date shall be null, void and of no further force and effect.
IN WITNESS WHEREOF, the Company has as of July 26, 1994, caused this
Option Agreement to be executed on its behalf by its President or a member of
the Committee, and Optionee has hereunto set his hand as of the same date, which
date is the date of grant of this Option.
TEXOIL, INC.,
a Nevada corporation
By:
President or Committee Member
3
<PAGE>
OPTIONEE:
/S/ RUBEN MEDRANO
Ruben Medrano
4
EXHIBIT 10.8
1600 SMITH STREET BUILDING
LEASE AGREEMENT
BETWEEN
1600 SMITH STREET VENTURE
(LANDLORD)
AND
TEXOIL, INC.
(TENANT)
DATED /S/ JUNE 1, 1995
1
<PAGE>
1600 SMITH STREET BUILDING
LEASE AGREEMENT
INDEX
BASIC LEASE PROVISIONS.......................................................1
ARTICLE 1 PREMISES.........................................................3
1.01 Premises. ......................................................3
1.02 Refusal Rights. ................................................3
1.03 Expansion Rights. ..............................................4
1.04 Parking..........................................................4
ARTICLE 2 TERM.............................................................5
2.01 Term and Commencement Date. ....................................5
2.02 Expiration. ....................................................5
2.03 Acceptance. ....................................................5
2.04 Renewal Term. ..................................................5
2.05 Early Occupancy. ...............................................6
2.06 Early Cancellation Option. .....................................6
ARTICLE 3 BASE RENT........................................................6
3.01 Base Rent. .....................................................6
3.02 Renewal Term. ..................................................6
3.03 Prevailing Market Rate - Defined. ..............................6
ARTICLE 4 ADDITIONAL RENT..................................................7
4.01 Additional Rent. ...............................................7
4.02 Additional Rent - Defined. .....................................7
4.03 Building Operating Expenses......................................7
(a) Defined. .................................................7
(b) Labor/Energy-Saving Devices. .............................9
(c) Tenant's Pro Rata Building Operating Expenses. ...........9
4.04 Estimated Additional Rent. ....................................10
4.05 Revision of Estimated Additional Rent. ........................10
4.06 Actual Additional Rent. .......................................11
ARTICLE 5 RENT............................................................11
5.01 Rent. .........................................................11
5.02 Late Charge. ..................................................11
5.03 Payments for Other Services. ..................................11
5.04 Partial Month's Rent. .........................................11
i
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ARTICLE 6 LEASEHOLD IMPROVEMENTS/PREMISES.................................12
6.01 Leasehold Improvements/Premises. ..............................12
6.02 Environmental Disclosure........................................12
(a) Studies. ................................................12
(b) Landlord Environmental Tests. ...........................13
(c) Prohibition on Placement or Disposal. ....................13
(d) Tenant's Covenants to Remove. ...........................13
6.03 Refurbishment Allowance. ......................................14
ARTICLE 7 PERMITTED USE...................................................14
7.01 Use. ..........................................................14
7.02 Signs. ........................................................14
ARTICLE 8 RENTABLE AREA...................................................15
8.01 Full Floor. ...................................................15
8.02 Partial Floor. ................................................15
8.03 Building Common Areas. ........................................15
8.04 Agreed Area. ..................................................15
ARTICLE 9 ASSIGNMENT AND SUBLETTING.......................................15
9.01 By Landlord. ..................................................15
9.02 By Tenant. ....................................................16
9.03 Continuing Liability. .........................................16
9.04 Consent. ......................................................17
9.05 Subsequent Transactions. ......................................17
ARTICLE 10 BUILDING SERVICES...............................................17
10.01 Building Standard Services. ...................................17
10.02 Additional Services. ..........................................18
10.03 Common Area Services. .........................................18
10.04 Interruption of Services. .....................................18
10.05 Modifications of Services. ....................................19
ARTICLE 11 ALTERATION, REPAIRS AND LIENS...................................19
11.01 Changes in Building. ..........................................19
11.02 Alteration by Tenant. .........................................19
11.03 Removal. ......................................................20
11.04 Maintenance and Repair by Tenant. .............................20
11.05 Repairs by Landlord/Limitation of Liability. ..................20
11.06 Tenant Liens. .................................................21
ii
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ARTICLE 12 LATE PAYMENTS....................................................21
12.01 Late Payments. ................................................21
ARTICLE 13 INSURANCE.......................................................21
13.01 Tenant's Insurance. ...........................................21
13.02 Landlord's Insurance. .........................................22
13.03 Increased Premiums. ...........................................22
13.04 Waiver of Subrogation. ........................................22
13.05 Indemnity. ....................................................23
ARTICLE 14 CASUALTY........................................................24
14.01 Fire or Other Casualty. .......................................24
14.02 Casualty Caused by Tenant. ....................................24
ARTICLE 15 CONDEMNATION....................................................25
15.01 Condemnation. .................................................25
ARTICLE 16 ENTRY...........................................................25
16.01 Entry. ........................................................25
ARTICLE 17 SUBORDINATION, ATTORNMENT AND QUIET ENJOYMENT...................26
17.01 Subordination. ................................................26
17.02 Attornment. ...................................................26
17.03 Rights/Security Documents. ....................................26
17.04 Modifications to Lease. .......................................26
17.05 Landlord as Attorney-in-Fact. .................................27
17.06 Quiet Enjoyment. ..............................................27
ARTICLE 18 DEFAULT.........................................................27
18.01 Event of Default. .............................................27
18.02 Rights Upon Default. ..........................................28
18.03 Costs. ........................................................30
18.04 Defaults by Landlord. .........................................30
18.05 Non-Waiver. ...................................................30
ARTICLE 19 MISCELLANEOUS PROVISIONS........................................30
19.01 Amendment. ....................................................30
19.02 Severability. .................................................30
19.03 Estoppel Letters. .............................................31
19.04 Landlord's Liability. .........................................31
19.05 Holdover. .....................................................31
19.06 Taxes on Tenant's Property. ...................................31
19.07 Surrender. ....................................................31
iii
<PAGE>
19.08 Successors and Parties. .......................................32
19.09 Notice. .......................................................32
19.10 Rules and Regulations. ........................................32
19.11 Captions. .....................................................32
19.12 Number and Gender. ............................................32
19.13 Governing Law. ................................................32
19.14 Discriminatory School. ........................................32
19.15 Force Majeure. ................................................33
19.16 Use of Name. ..................................................33
19.17 Broker. .......................................................33
19.18 Attorneys' Fees. ..............................................33
19.19 Common Facilities. ............................................33
19.20 Examination of Lease. .........................................34
19.21 Time. .........................................................34
19.22 Authority. ....................................................34
19.23 Recording. ....................................................34
19.24 Financial Statements. .........................................34
19.25 Lender Approval. ..............................................34
19.26 Entire Agreement. .............................................34
19.27 Waiver of Texas Deceptive Trade Practices Act. ................34
EXHIBITS
A - Floor Plan
B - Property Description
C - Acceptance of Premises Memorandum D - Cleaning and Janitorial Services
E - Rules and Regulations of the Building F - Tenant Parking Agreement
iv
<PAGE>
1600 SMITH STREET BUILDING
LEASE AGREEMENT
TEXOIL, INC.
THIS LEASE AGREEMENT ("Lease") is made and executed by and between 1600
SMITH STREET VENTURE, a Texas Joint venture, with its principal office in
Houston, Harris County, Texas ("Landlord"), and TEXOIL, INC., a Texas
corporation ("Tenant"), this /S/ 1ST day of /S JUNE, 1995 ("Effective Date").
BASIC LEASE PROVISIONS
The following provisions set forth various basic terms of this Lease and
are sometimes called the "Basic Lease Provisions."
1. BUILDING: 1600 Smith Street Building
1600 Smith Street
Houston, Texas 77002
2. PREMISES:
(a) Suite No. 4000/4025 on Floor 40
(b) Agreed Rentable Area of Premises: 9,077 square feet
(c) Agreed Rentable Area of Building: 1,108,479 square feet
3. RENT:
(a) INITIAL TERM:
Annual Base Rent: $122,539.50
($13.50 per square foot of Agreed Rentable Area)
Monthly Installment: $10,211.63
(includes a component applicable to Building Operating Expenses
equal to the initial estimated Operating Expense Factor in the
amount set forth in ITEM 3(B) OF THE BASIC LEASE PROVISIONS)
(b) $64,537.47 Initial Estimated Operating Expense Factor:
1
<PAGE>
($7.11 per square foot of Agreed Rentable Area (such per square foot
amount is herein called the "Operating Expense Factor")
Initial Monthly Installment: $5,378.12
(c) Renewal Term: Prevailing Market Rate
4. TERM:
(a) INITIAL TERM: Five (5) years
(b) RENEWAL TERM: One (1) option of five (5) years
5. LEASE DATES:
(a) TARGET COMMENCEMENT DATE: October 1, 1995
(b) EXPIRATION DATE: September 31, 2000
(c) EXPANSION DATE: October 1, 1998
6. LEASEHOLD INDUCEMENTS:
(a) Refusal Space: Balance of square feet of Agreed Rentable Area
located on Floor 40 of the Building as per article 1.02 of the Lease
(Refusal Space)
(b) Refurbishment Allowance: $4.25 per square foot
(c) Expansion Option: Approximately 1,500 square feet of Agreed Rentable
Area located on Floor 40 of the Building as shown on attached
Exhibit "-1" (Expansion Space") on the third (3rd) anniversary of
this Commencement Date ("Expansion Date").
7. BROKERS: Cushman Realty Corp.
2800 Post Oak Boulevard
Houston, Texas 77056
Attn: Trey Strake
2
<PAGE>
8. ADDRESSES FOR NOTICES:
Landlord: 1600 Smith Street Venture
1600 Smith Street, Suite 4800
Houston, Texas 77002
Attn: President, Cullen Center, Inc.
Tenant: Texoil, Inc.
1600 Smith Street Building
1600 Smith Street, Suite 4000
Houston, Texas 77002
Attn: John L. Graves
ARTICLE 1
PREMISES
1.01 PREMISES. Landlord does hereby lease, let and demise unto Tenant, and
Tenant does hereby lease and rent from Landlord, upon and subject to the
provisions of this Lease, the space ("Premises") reflected on the floor plan
attached as Exhibit "A", located within the building identified in Item 1 of the
Basic Lease Provisions, and situated on Block 509 S.S..B.B., Houston, Harris
County, Texas. The land on which the office building is situated, which is more
particularly described on attached Exhibit "B", together with the office
building and all present or future additional improvements, appurtenances or
facilities, including, but not limited to, the underground tunnel and elevated
pedestrian walkways, but excluding the parking garage, are collectively called
"Building."
The Premises consist of the Agreed Rentable Area specified in Item 2 of
the Basic Lease Provisions, together with the vertical space within the demising
walls from the floor slab up to and including the finished ceiling system, and
all improvements and fixtures, and all alterations, additions, accessions and
installations attached to or located within that space ("Leasehold
Improvements").
1.02 REFUSAL RIGHTS. If Tenant performs all of the terms and conditions of
this Lease, Tenant shall have during the initial Term a preferential right to
lease the Refusal Space, more particularly described in ITEM 6(A) OF THE BASIC
LEASE PROVISIONS, prior to the same being leased to any third party. Prior to
leasing any portion of the Refusal Space to a third party, Landlord shall give
to Tenant a written bona fide offer for the lease of all or a portion of the
Refusal Space that contains the basic lease terms upon which Landlord intends to
lease such space ("PROSPECT OFFER"). Tenant shall be deemed to have waived its
rights under this ARTICLE 1.02, unless Tenant accepts the Prospect Offer in
writing within five (5) days following receipt of the Prospect Offer, and Tenant
executes and delivers Landlord's then standard form amendment adding the Refusal
Space to the Premises on the terms and conditions of the Prospect Offer within
ten (10) days following receipt of such amendment. The rights set forth in this
Paragraph shall not be a one-time right to lease the Refusal Space and shall
recur with respect to any subsequent offer. Nonetheless, anything to the
contrary in this Lease,
3
<PAGE>
Tenant acknowledges and agrees that its rights in connection with the Refusal
Space to the rights of any other Tenants under their respective leases in effect
on the effective date of this Lease.
Unless the cost thereof is reflected in the Prospect Offer, all Refusal
Space shall be delivered and accepted in an "AS-IS" condition, no lease
inducements (such as rent abatement or refurbishment allowances) shall be
provided with respect to the Refusal Space, all of the terms and conditions of
Landlord's then standard form lease shall apply to the Refusal Space, and the
term of the Refusal Space shall be coterminous with the Term of this Lease (as
the same may have been extended). The Refusal Space shall constitute a portion
of the Premises for all purposes. Rent for the Refusal Space shall be the rental
rate set forth in the Prospect Offer, unless the term set forth in the Prospect
Offer is not conterminous with the Term of this Lease, in which case the Rent
for the Refusal Space shall be the rental rate set forth in the Prospect Offer
modified to reflect Landlord's net effective rental rate of return over the
different term.
1.03 EXPANSION RIGHTS. If Tenant performs all of the terms and conditions
of this Lease, Tenant shall have the right to lease the Expansion Space, more
particularly described in ITEM 6(C) OF THE BASIC LEASE PROVISIONS, on or about
the Delivery Date (defined below) at the Prevailing Market Rate (as defined
below). At least six (6) months prior to the Expansion Date, set forth in ITEM
6(C) OF THE BASIC LEASE PROVISIONS, Landlord shall notify Tenant (i) the date
such Expansion Space will be delivered to Tenant, which may be six (6) months
before or after the Expansion Date ("DELIVERY DATE"), (ii) the size of the
Expansion Space, which may be plus or minus twenty percent (20%), and (iii) the
location and configuration of the Expansion Space, all of which shall be
determined in Landlord's sole discretion. Tenant shall be deemed to have waived
its rights under this ARTICLE 1.03, unless Tenant notifies Landlord in writing
of Tenant's election to exercise this expansion option and executes Landlord's
standard form amendment adding the Expansion Space to the Premises at the
Prevailing Market Rate, which notice and amendment shall be executed and
delivered to Landlord not more than nine (9) months and not less than six (6)
months prior to the Expansion Option Date. Unless the cost thereof is reflected
in the Prevailing Market Rate, all Expansion Space shall be delivered and
accepted in an "AS-IS" condition, no lease inducements (such as rent abatement
or refurbishment allowances) shall be provided with respect to the Expansion
Space, and the terms and conditions of Landlord's then standard form lease shall
apply to the Expansion Space. The Expansion Space shall constitute a portion of
the Premises for all purposes and the Rent for the Expansion Space shall be
equal to the then Prevailing Market Rate determined as of the Delivery Date.
1.04 PARKING. During the initial Term of this Lease, Tenant shall lease
ten (10) unreserved parking spaces in the parking garage connected to the
Building, under terms and conditions as set forth in the Tenant Parking
Agreement, attached as EXHIBIT F. Tenant agrees to abide by and comply with all
rules and regulations applicable to such parking or parking garage, whether
promulgated by Landlord or the operator of the parking garage. Tenant shall be
charged $75.00 per parking space for the use of such parking space for the
initial term of this Lease. Thereafter, and for any additional parking spaces
used by Tenant, Tenant shall pay the rates generally charged for such spaces in
the parking garage, which rates may be changed from time to time upon written
notice from Landlord. In addition to the Parking Charges, Tenant shall pay all
state taxes with respect to the Parking
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Charges; it being the intent of the parties that such state taxes be passed
through to the Tenant. Notwithstanding any provision to the contrary, Tenant
shall not be charged for the use of ten (10) parking spaces for the first four
(4) months of the Term of the Tenant Parking Agreement.
ARTICLE 2
TERM
2.01 TERM AND COMMENCEMENT DATE. The Term of this Lease shall be the
period of time specified in ITEM 4(A) OF THE BASIC LEASE PROVISIONS and shall
commence on the Target Commencement Date.
If Tenant takes possession of the Premises for any purpose, other than
construction, Tenant shall be deemed to have accepted the Premises even though
the Acceptance of Premises Memorandum described in ARTICLE 2.03 may not have
been executed and the date of such possession shall be the Commencement Date.
Neither the validity of this Lease nor the obligations of Tenant hereunder
shall be affected by Landlord's failure to tender to Tenant possession of the
Premises on or before Landlord's Target Commencement Date nor shall Landlord be
subject to any liability for failure to timely tender possession of the Premises
to Tenant, but the Rent reserved and covenanted herein to be paid shall not
commence until the Commencement Date.
2.02 EXPIRATION. The Term of this Lease shall be for the period of time
set forth in ITEM 4(A) OF THE BASIC LEASE PROVISIONS and shall commence on the
Target Commencement Date.
2.03 ACCEPTANCE. Prior to Tenant's occupancy of the Premises, Landlord and
Tenant shall confirm the actual Commencement Date and Term by execution of an
Acceptance of Premises Memorandum (the form of which is attached as EXHIBIT
"C").
2.04 RENEWAL TERM. If Tenant performs all of the terms and conditions of
this Lease, Tenant shall have the right to extend the term of the Lease for the
number of years set forth in ITEM 4(B) OF THE BASIC LEASE PROVISIONS ("RENEWAL
TERM" and, as extending the Term, the "TERM"), which shall commence on the day
following the then current Expiration Date ("RENEWAL TERM COMMENCEMENT DATE").
Tenant shall be deemed to have waived its rights under this ARTICLE 2.04, unless
Tenant notifies Landlord in writing of Tenant's election to exercise this
renewal right and executes Landlord's standard form amendment subject to
negotiations extending the Term at the rental rate set forth in ITEM 3(C) OF THE
BASIC LEASE PROVISIONS, which notice and amendment shall be executed and
delivered to Landlord not more than nine (9) months and not less than six (6)
months prior to the then Expiration Date. Tenant shall accept the Premises in an
"AS-IS" condition, Tenant shall not be entitled to any lease inducements (such
as rent abatement or refurbishment allowances), and Tenant shall not be entitled
to extend the Term beyond the Renewal Term. The terms and conditions of
Landlord's then standard form lease shall apply to the Premises and the Rent
shall be
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equal to ninety percent (90%) the Prevailing Market Rate determined as of the
Renewal Term Commencing Date. If requested in writing by Tenant, Landlord shall
provide Tenant with Landlord's good faith determination of the Prevailing Market
Rate for the Premises.
2.05 EARLY OCCUPANCY. Notwithstanding any provision in this Lease to the
contrary, Tenant shall be allowed to take possession of the Premises on June 1,
1995, to make modifications and improvements to the Premises with the Consent of
Landlord as provided for under the provisions of this Lease ("EARLY OCCUPANCY").
Such Early Occupancy by Tenant will be without obligation to pay Base Rent or
Additional Rent until October 1, 1995, at which time all Rent shall commence as
provided for in the Lease without exception including completion of Leasehold
Improvements.
2.06 EARLY CANCELLATION OPTION. If Tenant performs all of the terms and
conditions of this Lease, Tenant shall have the right, but not the obligation,
to terminate this Lease with respect to all of the Premises on any date
specified from October 1, 1998, until January 1, 1999. ("CANCELLATION DATE");
PROVIDED, HOWEVER, (i) Tenant gives Landlord written notice of its election to
terminate the Lease, which notices shall be given not less than four (4) months
prior to the Cancellation Date, (ii) Tenant surrenders the Premises in
accordance with the terms and conditions of this Lease no later than the
Cancellation Date, and (iii) at the time Tenant gives such notice of early
cancellation, Tenant pays to Landlord an Early Cancellation Fee equal to $3.68
per square feet of Agreed Rentable Area if canceled on November 1, 1998 and
reduced thereafter to the unamortized lease costs per square foot of Agreed
Rentable Area upon the Cancellation Date.
ARTICLE 3
BASE RENT
3.01 BASE RENT. Tenant, in consideration for this Lease and the leasing of
the Premises, covenants and agrees to pay Landlord, as Base Rent, the annual sum
shown in ITEM 3(A) OF THE BASIC LEASE PROVISIONS, in equal monthly installments
in advance without notice, offset, abatement, deduction or demand, commencing on
the Commencement Date (subject to the provisions of ARTICLE 5.04) and continuing
on the first day of each calendar month during the Term.
3.02 RENEWAL TERM. In the event Tenant elects to extend the Term pursuant
to ARTICLE 2.04, the Base Rent shall be the amount set forth in ITEM 3(C) OF THE
BASIC LEASE PROVISIONS.
3.03 PREVAILING MARKET RATE - DEFINED. For the purposes of this Lease, the
term "PREVAILING MARKET RATE" shall mean the rate at which a willing landlord
and a willing tenant would agree to lease comparable space in the first class
office buildings in downtown Houston, Texas, which rate shall take into account
all economic and non-economic factors, including, but not limited to: the
credit-worthiness of such tenant, the quality and reputation of the management
of the building, the amount of space the tenant then occupies, the amount of
space being offered for lease, the location within the building of such offered
space, the quality and finish of the offered space as it then exists, the age
and quality of the building, lease term, scheduled or actual commencement date,
add-on factor, and lease
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inducements, such as name identification, rental abatement, moving expenses, and
architectural, construction and lease assumption allowances. Landlord shall have
the right to configure the rental rate in the manner it reasonably determines
(E.G., Base Rent with lease inducements), provided such rate is equivalent to
the Prevailing Market Rate.
ARTICLE 4
ADDITIONAL RENT
4.01 ADDITIONAL RENT. Tenant, in consideration for this Lease and the
leasing of the Premises and in addition to Base Rent, covenants and agrees to
pay Landlord Additional Rent as defined in ARTICLE 4.02 and calculated on an
annual basis (subject to the partial month provisions of ARTICLE 5.04), monthly,
in advance without notice, offset, abatement, deduction or demand commencing on
the Commencement Date and continuing on the first day of each calendar month
during the Term.
4.02 ADDITIONAL RENT - DEFINED. Additional Rent shall be composed of (i)
Tenant's pro rata share of Building Operating Expenses (as defined in ARTICLE
4.03 that exceeds $64,537.00 per annum for each calendar year during the Term,
(ii) payments for other services (as defined in ARTICLE 5.03), if any, and (iii)
Parking Charges (as set forth in the Tenant Parking Agreement, attached as
EXHIBIT "F").
4.03 BUILDING OPERATING EXPENSES.
(a) DEFINED. Building Operating Expenses shall mean and include all
amounts, expenses, and costs of whatsoever nature that are paid and
incurred because of or in connection with the ownership, management,
operation, repair, and maintenance of the Building and of Landlord's
personal property used in connection with the Building, and shall include,
but not be limited to: all general real estate taxes, special assessments,
governmental charges and fees, plus any and all costs and expenses of
evaluating and contesting the validity or amount of any of the foregoing;
insurance premiums; water, sewer, electrical and other utility charges;
service and other charges incurred in the operation and maintenance of the
elevators and the heating, ventilation and air-conditioning system;
cleaning and other janitorial services; tools and supplies; repair costs;
landscape maintenance costs; security services; license, permit and
inspection fees; property management fees; wages, salaries, related taxes,
insurance, reimbursable expenses and related benefits payable to employees
engaged in the maintenance and operation of the Building; and, in general,
all other costs and expenses that are incurred for the operation and
maintenance of first-class office buildings in the central business
district of Houston, including those which would normally be amortized
over a period not to exceed five (5) years. There shall also be included
in Building Operating Expenses the cost of any capital improvements made
to the Building by Landlord after the date of this Lease which is required
under any governmental law or regulation that was not applicable to the
Building at the time it was constructed, amortized over such period as
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Landlord shall reasonably determine, together with interest at the rate of
twelve percent (12%) per annum on the unamortized balance.
Building Operating Expenses shall not include:
(i) costs and expenses associated with owning, operating,
maintaining, or repairing the parking garage, except the portion of the
management fee and security costs allocated to the parking garage shall be
included in Building Operating Expenses;
(ii) costs, expenses and fees relating to soliciting, advertising
for and entering into leases or other tenant arrangements for space in the
Building, including leasing commissions, architectural and engineering
services, and attorney's fees;
(iii) expenses incurred in furnishing to individual tenants services
in excess of Building Standard Services (as defined in ARTICLE 10.01);
(iv) costs of renovating or otherwise improving or decorating or
redecorating space for other tenants or other occupants in the Building or
vacant space in the Building (other than Common Areas);
(v) costs, expenses and fees relating to disputes with tenants and
other occupants in the Building, including attorney's fees and punitive
damages, if any;
(vi) costs of sculpture, paintings or works of art installed in and
on the Building or the real property described in attached EXHIBIT "B";
(vii) costs of correcting defects in the Building (including latent
defects in the Building) or the building equipment or replacing defective
equipment, which is covered by warranty contract;
(viii)costs of restoring or repairing the Building as a result of
total or partial destruction or condemnation;
(ix) except as provided in this ARTICLE 4, costs of replacement of
any major Building system (or major component thereof) or other similar
capital addition made subsequent to the original construction;
(x) any interest on debt or other finance charges or amortization
payments on any mortgage or underlying leases or lease;
(xi) non-cash items, such as deductions for depreciation or
obsolescence of the Building and Building equipment, or interest on
capital invested;
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(xii) penalties or fines incurred due to the violation of building
codes by Landlord or by any other tenant of the terms and conditions of
any lease pertaining to the Building;
(xiii)any compensation paid to clerks, attendants or other persons
in commercial concessions operated by Landlord;
(xiv) rentals and other related expenses, if any, incurred in
leasing air conditioning systems, elevators or other equipment ordinarily
considered to be of a capital nature, except equipment which is used in
providing janitorial services or in operating an office and which is not
affixed to the Building; or
(xv) costs incurred in connection with the sale or financing of the
Building, including brokerage commissions, attorneys and accountants fees,
closing costs and interest charges.
In the event any of the foregoing labor materials are used in
connection with buildings other than the Building, only the pro rata
portion of those expenses that are applicable to the Building based upon
usage or consumption, shall be included in the Building Operating
Expenses.
(b) LABOR/ENERGY-SAVING DEVICES. If Landlord shall install a
labor/energy-saving device or other similar equipment, which is designed
to improve the operating efficiency of any system within the Building and
thereby reduce Building Operating Expenses, then Landlord may add to
Building Operating Expenses in each year during the useful life of such
installed device or equipment an amount equal to the annual amortization
allowance of the cost of such installed device or equipment, as determined
in accordance with applicable regulations of the Internal Revenue Service
or generally accepted accounting principles, together with interest at the
rate of twelve percent (12%) per annum on the unamortized balance thereof.
(c) TENANT'S PRO RATA BUILDING OPERATING EXPENSES. Tenant's pro rata
share of Building Operating Expenses shall be the product of (i) the
amount, if any, by which the amount obtained by dividing Building
Operating Expenses by the Agreed Rentable Area of the Building, specified
as being the amount in ITEM 2(C) OF THE BASIC LEASE PROVISIONS, exceeds
the initial estimated Operating Expense Factor, multiplied by (ii) the
Agreed Rentable Area of the "Premises", specified as being the amount in
ITEM 2(B) OF THE BASIC LEASE PROVISIONS.
If less than one hundred percent (100%) of the Agreed Rentable Area
of the Building is occupied during any calendar year or partial calendar
year or if less than one hundred percent (100%) of the Agreed Rentable
Area of the Building is supplied with Building Standard Services during
any such period, Building Operating Expenses shall include all
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additional costs and expenses Landlord determines it would have incurred
if the Building had been one hundred percent (100%) occupied and supplied
with Building Standard Services.
4.04 ESTIMATED ADDITIONAL RENT. During the calendar year in which the Term
of this Lease commences, Tenant agrees to pay Landlord, on account of Additional
Rent due for that period, the monthly sum calculated pursuant to this ARTICLE 4.
Notwithstanding the foregoing, Landlord and Tenant acknowledge and agree that
the Annual Base Rent set forth in ITEM 3(A) OF THE BASIC LEASE PROVISIONS
includes a component applicable to Building Operation Expenses equal to the
initial estimated Operating Expense Factor in the amount set forth in ITEM 3(B)
OF THE BASIC LEASE PROVISIONS.
Prior to the end of each calendar year during the term, Landlord shall
furnish Tenant a written estimate of Building Operating Expenses for the next
ensuing calendar year and shall notify Tenant of Tenant's estimated Additional
Rent for such year. Tenant agrees to pay Landlord such estimated Additional Rent
in twelve (12) equal monthly installments during such year. Notwithstanding the
foregoing, in no event shall the Base Rent due from Tenant to Landlord be
reduced to an amount less than the amount set forth in ITEM 3(A) OF THE BASIC
LEASE PROVISIONS.
If Landlord fails to deliver a written estimate of Building Operating
Expenses and a notice of Tenant's estimated Additional Rent, Tenant shall
continue to make payments of estimated Additional Rent in accordance with the
most recent such estimate and notice provided, until a new written estimate and
notice is delivered, whereupon the newly estimated Additional Rent shall be
paid, and adjustments shall be made between Landlord and Tenant to bring Tenant
current on its payment of estimated Additional Rent for the calendar year in
question.
If this Lease is not terminated or does not expire on the last day of a
calendar year, Landlord shall make a good faith estimate of Tenant's actual
Additional Rent for the partial calendar year in which the Lease expires or is
terminated and shall notify Tenant thereof at least thirty (30) days prior to
such date and Landlord and Tenant agree to make payments as required to
compensate for Tenant's overpayment or underpayment of Additional Rent during
such partial calendar year on or prior to the Expiration Date or the day this
Lease is terminated, as the case may be, and both agree that such payment shall
be in final settlement of Tenant's obligation to pay Additional Rent for that
period.
4.05 REVISION OF ESTIMATED ADDITIONAL RENT. If Building Operating Expenses
should increase during any calendar year above the level anticipated in
Landlord's estimate of Building Operating Expenses for such year, Landlord may
revise its estimate of Tenant's Additional Rent for such year and Tenant agrees
upon thirty (30) days written notice to begin payment of the revised estimated
Additional Rent in such amounts so that the revised estimated Additional Rent
shall be fully paid by the end of the calendar year in question.
4.06 ACTUAL ADDITIONAL RENT. After the end of each calendar year during
the Term, Landlord shall prepare and deliver to Tenant a statement showing the
actual Building Operating
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Expenses for the preceding calendar year, Tenant's actual Additional Rent due
for that year or portion thereof, and the amount either owing to Tenant by
reason of Tenant's overpayment of Additional Rent during such period or due from
Tenant by reason of its underpayment of Additional Rent during such period.
Tenant acknowledges and agrees that Tenant shall not be entitled to receive any
credit for the amount by which Tenant's actual Additional Rent is less than the
initial estimate of Additional Rent set forth in ITEM 3(B) OF THE BASIC LEASE
PROVISIONS; it being the intent of the parties that in no event shall the Base
Rent be reduced to an amount less than the amount set forth in ITEM 3(A) OF THE
BASIC LEASE PROVISIONS. Tenant agrees to pay Landlord the amount of any
underpayment of Additional Rent within thirty (30) days of the transmission of
the aforementioned statement. Landlord agrees to credit any overpayment of
Additional Rent against the next Additional Rent payments due from Tenant.
ARTICLE 5
RENT
5.01 RENT. As used in this Lease, the term "RENT" shall mean and include
the Base Rent, Additional Rent and all other amounts to be paid by Tenant, as
provided in this Lease or documents executed in connection with this Lease, all
of which shall constitute Rent in consideration for this Lease and the leasing
of the Premises. The Rent shall be paid at the times and in the amounts provided
in this Lease in legal tender of the United States of America to Landlord at the
address specified in the Basic Lease Provisions in Houston, Harris County, Texas
or to such other person or at such other address as Landlord may from time to
time designate in writing. The Rent shall be paid without notice, demand,
abatement, deduction, or offset.
5.02 LATE CHARGE. In the event any installment of Base Rent or Additional
Rent, or any other amount due from Tenant to Landlord under this Lease, has not
been paid within ten (10) days after the date the amount was due, a late charge
of five cents ($.05) per each dollar so overdue shall be charged by Landlord, as
Additional Rent, for the purpose of defraying Landlord's administrative expenses
incident to the handling of such overdue payments, and Tenant agrees to pay such
Rent to Landlord upon demand.
5.03 PAYMENTS FOR OTHER SERVICES. Unless otherwise specified herein,
Tenant agrees to pay to Landlord as Rent all charges for any services, goods, or
materials furnished by Landlord at Tenant's request which are not required to be
furnished by Landlord under this Lease, no later than ten (10) days after
Landlord renders a statement therefor to Tenant.
5.04 PARTIAL MONTH'S RENT. If the Commencement Date is not the first day
of a calendar month or the Expiration Date is not the last day of a calendar
month, Tenant shall pay Landlord on the Commencement Date or the first day of
the month in which the Expiration Date occurs, as the case may be, the Base Rent
and Estimated Additional Rent due for that partial month, calculated in the
proportion that the number of days in that month following the Commencement Date
or preceding the Expiration Date divided by the total number of days in that
month.
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ARTICLE 6
LEASEHOLD IMPROVEMENTS/PREMISES
6.01 LEASEHOLD IMPROVEMENTS/PREMISES. Tenant has examined the Premises and
the Leasehold Improvements located in the Premises and has made such inspections
of the Building, Premises and Leasehold Improvements that Tenant deems necessary
to determine their suitability for Tenant's needs. Based upon this examination
and inspection, Tenant accepts the Building, Premises and Leasehold Improvements
in an "AS-IS" condition WITH ALL FAULTS and with no warranties, express or
implied, and Landlord shall have no further obligations with respect thereto.
TENANT HEREBY WAIVES ANY AND ALL WARRANTIES, INCLUDING ANY IMPLIED WARRANTY OF
HABITABILITY, SUITABILITY, OR FITNESS FOR ANY PARTICULAR PURPOSE. Except as
specifically set forth in this Lease, Landlord shall have no further obligation
with respect to the construction or maintenance of any Leasehold Improvements.
6.02 ENVIRONMENTAL DISCLOSURE.
(a) STUDIES. A review of the plans and projects manual for the
Building, as updated, revealed that there should not by any asbestos
within the base building when built in accordance with such plans and
project manual (hereinafter called the "HAZARDOUS SUBSTANCE SURVEYS").
Landlord makes no representations or warranties whatsoever to Tenant
regarding: (i) the Hazardous Substance Surveys, including, without
limitation, the contents, accuracy and/or scope thereof [Landlord having
informed Tenant that said Hazardous Substance Surveys are not
comprehensive surveys for all forms of hazardous or toxic materials,
including, but not limited to, asbestos containing materials, or actual
field inspections of the Building therefor, and cannot be relied upon as a
representation that there are no hazardous or toxic materials at the
Premises or Building, whether addressed therein or not], or (ii) the
presence or absence of toxic or hazardous materials in, at, or under the
Premises or the Building. Tenant: (x) shall not rely on and Tenant hereby
represents to Landlord that it has not relied on the Hazardous Substance
Surveys, the same having been provided for informational purposes only;
and (y) acknowledges that Tenant will make or has made such studies and
investigations, will conduct or has conducted such tests and surveys, and
will engage or has engaged such specialists as Tenant deems appropriate to
fairly evaluate the Premises and any risks from hazardous or toxic
materials ("ENVIRONMENTAL TESTS"), which shall be permitted only following
prior written notice to and coordination with Landlord. Further, Tenant
shall furnish Landlord with a complete and legible copy of any such
resulting study, report, test, survey or investigation and shall fully
restore all areas and improvements where samples were taken or work
performed and repair all damage resulting from any of the same and shall
indemnify and hold harmless from and against all claims, actions,
liabilities, damages, losses, injuries or deaths in connection with or
arising out of or from any Environmental Tests or similar or dissimilar
activity conducted by Tenant, Tenant's agents or contractors at the
Premises or the Building, whether under this provision or otherwise under
or in connection with this Lease.
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(b) LANDLORD ENVIRONMENTAL TESTS. Landlord shall have the right to
conduct Environment Tests in the Premises from time to time; PROVIDED,
HOWEVER, Landlord does not unreasonably interfere with Tenant's business
operations at the Premises, repairs any damage to Tenant's property,
inventory or fixtures damaged as a result of such Environmental Tests, and
furnishes Tenant on request with a true and complete copy of any resulting
report, survey or study.
(c) PROHIBITION ON PLACEMENT OR DISPOSAL. Tenant shall not knowingly
incorporate into, use, or otherwise place or dispose of at the Premises or
in the Building any toxic or hazardous materials in concentrations or
levels sufficient that by the then-applicable EPA, OSHA, or other
applicable governmental standards cause the specific materials so
identified to be classified or identified as toxic or hazardous materials
except for the limited purposes of use and storage only where (i) such
materials are in small quantities, properly labeled and contained, (ii)
such materials are handled and disposed of in accordance with the highest
accepted industry standards for safety, storage, use and disposal, (iii)
such materials are for use in the ordinary course of business (i.e., as
with office or cleaning supplies), (iv) notice of and a copy of the
current material safety data sheet is provided to Landlord for each such
hazardous or toxic material, and (v) such materials are used, transported,
stored, handled and disposed of in accordance with all applicable
governmental laws, rules and regulations. If Tenant ever has knowledge of
the presence in the Premises or the Building of such toxic or hazardous
materials which affect the Premises, Tenant shall notify Landlord thereof
in writing promptly after obtaining such knowledge. For purposes of this
Lease, "HAZARDOUS OR TOXIC MATERIALS" shall mean hazardous or toxic
chemicals or any materials or wastes containing hazardous or toxic
chemicals at levels or content which cause such materials or wastes to be
classified as hazardous or toxic as then prescribed by the prevalent
industry practice and standards or by the then-current levels or content
as set from time to time by EPA or OSHA or as defined under 29 C.F.R. 1910
or 29 C.F.R. 1925 or other applicable governmental laws, rules and
regulations (such practices, standards, governmental laws, rules and
regulations, are herein collectively called the "ENVIRONMENTAL LAWS").
(d) TENANT'S COVENANTS TO REMOVE. If Tenant or its employees,
agents, or contractors shall ever violate the provisions of this Article,
or if Tenant's acts, negligence, breach of this provision of business
operations directly and materially expand the scope of or materially
worsen any contamination from toxic or hazardous materials, then Tenant
shall clean-up, remove and dispose of the material causing violation, in
compliance, with all applicable governmental standards, laws, rules and
regulations and repair any damage to the Premises or Building within such
period of time as may be reasonable under the circumstances after written
notice by Landlord; PROVIDED, HOWEVER, such work shall commence not later
than thirty (30) days from such notice and be diligently and continuously
carried to completion by Tenant or Tenant's designated contractors, which
contractors shall be approve in writing by Landlord. Tenant shall notify
Landlord of its method, time and procedure for any clean-up or removal of
toxic or hazardous materials under this provision and Landlord shall have
the right to require reasonable changes in such method, time or procedure
or to require the same
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to be done after normal business hours or when the Building is otherwise
closed (i.e., weekends or holidays).
6.03 REFURBISHMENT ALLOWANCE. If Tenant performs all of the terms and
conditions of this Lease, Landlord agrees to give Tenant a credit in the amount
of $4.25 per square foot of Agreed Rentable Area ("REFURBISHMENT ALLOWANCE") to
be applied toward the payment of direct invoices for refurbishing the Premises.
Landlord agrees to construct and install the improvements set forth on plans and
specifications which are mutually approved by Landlord and Tenant, at Tenant's
cost and expense, which cost shall include a five percent (5%) fee for
Landlord's overhead and supervision if Tenant uses Landlord's contractors and a
five percent (5%) fee if an outside contractor is utilized. In the event a
credit remains following the full and final payment of all such invoices,
Landlord agrees to apply such credit toward the next sums due and owing by
Tenant to Landlord.
ARTICLE 7
PERMITTED USE
7.01 USE. Tenant shall use and occupy the Premises only for general
business office purposes. Tenant shall not use or permit the Premises to be used
for any unlawful purpose or in any unlawful manner or in any manner prohibited
hereunder. Tenant, to the best of Tenant's knowledge, shall comply with all
federal, state and local governmental laws, ordinances, orders, rules, and
regulations applicable to the Premises, the Building, and the occupancy thereof
and Tenant shall give prompt written notice to Landlord of any notification to
Tenant of any claimed violation thereof. Tenant shall not permit the maintenance
of any public or private nuisance, or do or permit any other thing which may
disturb the quiet enjoyment of any other tenant of the Building; or create
unreasonable or excessive elevator or floor loads; or interfere with any of the
operations of the Building or any part thereof or the proper and economic
heating, air conditioning, cleaning or other servicing of the Building or any
part thereof; or unreasonably interfere with the use of the other areas of the
Building by any other tenants; or keep any substance or carry on or permit any
operation which might emit offensive odors or conditions into other portions of
the Building; or use any apparatus which might make undue noise or set up
vibrations in the Building; or do or permit any other thing which would
adversely affect Landlord's leasing of the Building.
7.02 SIGNS. Tenant shall not inscribe, paint, affix or display any signs,
advertisements or notices on or in the Building, except for such Tenant
identification information other than existing as Landlord permits in writing to
be included or shown on the main building directory and adjacent to the
principal access to the Premises.
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ARTICLE 8
RENTABLE AREA
8.01 FULL FLOOR. The Rentable Area of a full floor of the Building shall
be: the area encompassed by the exterior walls of the Building (measured to the
center line of the glass assembly); less, the areas used for stairs, elevator
shafts, fire towers, flues, vents, stacks, pipe shafts, vertical ducts and other
such floor penetrations; measured to the edge of the slab opening, plus, a pro
rata allocation (based upon Rentable Area) of the Building Common Areas, as
defined below.
8.02 PARTIAL FLOOR. The Rentable Area of a portion of a floor of the
Building shall be: the area encompassed by any exterior walls of the Building
(measured to the center line of the glass assembly), the center line of any
partitions separating the area being measured from other areas leased or
leasable to others, and the center line of any partitions separating the area
being measured from common or service areas; plus, a pro rata share of all of
the areas on that floor which are used by or are for the use or benefit of all
tenants of that floor, including but not limited to, elevator lobbies,
corridors, restrooms, janitor closets, telephone closets and mechanical rooms
measured to the center line of partitions defining such areas; plus, a pro rata
allocation (based upon Rentable Area) of Building Common Areas, as defined
below.
8.03 BUILDING COMMON AREAS. Building Common Areas shall include but not be
limited to the following areas of the Building: the ground floor and concourse
level public lobbies; the mechanical and machine rooms serving the entire
building; the shipping and receiving area; the engineers' offices and
maintenance rooms; the fire control, security and mail rooms; code required exit
enclosures; the building penthouse; elevator equipment rooms; the tunnel and the
elevated walkways; and all other such areas which are used by or for the use or
benefit of all of the tenants of the Building in common, measured to the center
line of partitions defining such areas.
8.04 AGREED AREA. The Rentable Area of the Premises shall be deemed to be
the area set forth in ITEM 2(B) OF THE BASIC LEASE PROVISIONS. The Agreed
Rentable Area of the Premises and the Agreed Rentable Area of the Building as
shown in the Basic Lease Provisions have been calculated in accordance with the
foregoing definitions and are hereby agreed to be the stated areas regardless of
minor variations resulting from actual construction and completion of the
Premises for occupancy.
ARTICLE 9
ASSIGNMENT AND SUBLETTING
9.01 BY LANDLORD. Landlord may sell, transfer, assign, and convey all or
any part of the Building and any and all of its rights under this Lease at any
time, and in the event Landlord assigns its rights under this Lease, Landlord
shall be released from any further obligations hereunder, and Tenant agrees to
look solely to Landlord's successor in interest or assignee for performance of
such obligations, and shall attorn to any such successor in interest or
assignee.
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9.02 BY TENANT. Tenant shall not assign this Lease, or allow it to be
assigned, in whole or in part, by operation of law or otherwise (including
without limitation the sale or transfer of a majority interest in ownership of
Tenant), or mortgage or pledge the same, or sublet the Premises, or any part
thereof, without the express prior written consent of Landlord, which shall not
be unreasonably withheld, and any attempt to do so shall be void and of no
effect.
If Tenant desires to assign or sublet all or any part of the Premises, it
shall inform Landlord in writing at least thirty (30) days in advance of the
date on which Tenant desires to make such assignment or sublease that it intends
to seek a sublessee or an assignee. Tenant shall give Landlord a notice
("TENANT'S NOTICE") stating the name, address and business of the proposed
assignee or sublessee, detailed financial references for the proposed assignee
or sublessee (including its most recent audited balance sheet and income
statement), the number of rentable square feet proposed to be sublet, the
proposed effective date of the assignment or sublease, the fixed rent and/or
other consideration, written consent from such proposed assignee or sublessee to
a credit check and any other information Landlord may reasonably require. Tenant
shall reimburse Landlord for Landlord's reasonable out-of-pocket expenses
incurred in connection with Tenant's request for such consent.
When Tenant has obtained an assignee or sublessee, Tenant shall provide
Landlord with a copy of the proposed assignment or sublease. Within fifteen (15)
days after Landlord's receipt of Tenant's proposed assignment or sublease
together with all information required to be included in the Tenant's Notice,
Landlord shall have the option to:
Cancel the Lease with respect to the portion of the Premises
proposed to be assigned or sublet; or
(a) Consent to the proposed assignment or sublease, in which event,
however, if the rent due and payable by any assignee or sublessee under
any such permitted assignment or sublease (or a combination of the rent
payable under such assignment or sublease plus any bonus or any other
consideration therefor or any payment incident thereto) for the space
assigned or sublet exceeds the Rent payable under this Lease for such
space, Tenant shall be bound and obligated to pay to Landlord within ten
(10) days following receipt all net process of such subletting or
assignment, which shall be calculated as fifty percent (50%) of the
difference of the amounts received including any bonuses and other
considerations less the amount of the Rent payable under this Lease and
the reasonable expenses of leasing have been previously agreed upon by
Landlord and Tenant; or
(b) Refuse its consent to the proposed assignment or sublease but
allow Tenant to continue in the search for an assignee or sublessee that
may be acceptable to Landlord. This option (b) shall be deemed to be
elected unless Landlord gives Tenant written notice providing otherwise.
9.03 CONTINUING LIABILITY. In no event shall any assignment or sublease
ever release Tenant from any obligation or liability hereunder. Any collection
by Landlord from any assignee or sublessee
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or any other party on behalf of Tenant's account shall not be construed to
constitute a novation or a release of Tenant from further performance of its
obligations under this Lease.
9.04 CONSENT. Any consent by Landlord to any transaction contemplated by
this ARTICLE 9 must be in writing signed by the Landlord and shall contain such
provisions as Landlord may specify.
9.05 SUBSEQUENT TRANSACTIONS. Consent by Landlord to a particular
assignment or sublease or other transaction shall not be deemed a consent to any
other or subsequent transaction. If this Lease is assigned or if the Premises
are subleased (whether in whole or in part) or in the event of the mortgage,
pledge or hypothecation of the leasehold interest or grant of any concession or
license within the Premises to anyone other than Tenant without the prior
written permission of Landlord, Landlord may nevertheless collect rent from the
assignee, sublessee, mortgagee, pledgee, party to whom the leasehold interest
was hypothecated, concessione or licensee or other occupant and apply the net
amount collected to the Rent payable hereunder, but no such transaction or
collection of rent or applicable thereof by Landlord shall be deemed a waiver of
the rights of Landlord under this ARTICLE 9 or a release of Tenant from the
further performance by Tenant of its covenants, duties and obligations
hereunder.
ARTICLE 10
BUILDING SERVICES
10.01 BUILDING STANDARD SERVICES. Provided Tenant is not in default under
this Lease, Landlord shall cause to be provided to the Premises, subject to the
conditions set forth in this ARTICLE, the following "BUILDING STANDARD
SERVICES":
(a) Hot and cold water for drinking and lavatory purposes at those
points of supply provided for the general use of tenants of the Building.
(b) Heating and air-conditioning, in season and at such temperatures
and in such amounts as Landlord deems necessary during Standard Building
Hours, subject to any governmental requirements or standards which are or
may become applicable.
(c) Janitorial services as outlined on attached EXHIBIT "D", Monday
through Friday, holidays excepted.
(d) Automatic, nonexclusive, passenger elevator service twenty-four
(24) hours per day, and nonexclusive freight elevator service during
Building Standard Hours.
(e) Electrical facilities to furnish sufficient power for Building
Standard lighting, as described in the Work Letter, and typewriters, voice
writers, personal computers calculating machines, photocopying machines
and other machines of similar low electrical consumption; but not
including electricity required for electronic equipment (whether listed
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above or not) which (singly) consumes more than 0.5 kilowatts per hour at
rated capacity or requires a voltage other than 110 volts single phase. If
Tenant installs any electrical equipment which requires additional
electrical or air-conditioning capacity, then Tenant shall bear the entire
cost of installing and operating such additional electrical or
air-conditioning service.
(f) Replacement of all bulbs and ballasts in all Building Standard
light fixtures.
(g) Security for the Building, the extent and nature of which shall
be determined by Landlord and may be modified from time to time but never
less than currently provided by the Building. Tenant hereby waives any and
all claims that may arise against Landlord for damages or injuries
occasioned or alleged to be occasioned by a failure of the security
system.
10.02 ADDITIONAL SERVICES. On Tenant's written request and at Tenant's
expense, Landlord shall make available to Tenant, after-hours heat or
air-conditioning and shall inform Tenant of those standards and charges as
determined from time to time. The Building Standard Hours are set forth in the
Building Rules and Regulations, which are attached as EXHIBIT "E" and may change
from time to time upon written notice by Landlord; PROVIDED, HOWEVER, that such
changes are generally consistent with the standards in other first-class office
buildings in the central business district of Houston, Texas.
If Tenant should require services not specified herein or services
specified herein in quantities or at times not specified herein, and Landlord
elects to provide such services, Tenant shall pay Landlord upon demand, as
Additional Rent, the cost of such service, including a ten percent (10%)
administrative fee.
10.03 COMMON AREA SERVICES. Landlord shall cause the Building Common
Areas, including its public lobbies and special service areas, to be cleaned,
lighted and heated or air-conditioned as Landlord in its judgment deems
necessary.
10.04 INTERRUPTION OF SERVICES. Landlord shall use reasonable diligence to
restore any failure or defect in the supply or character of Building Standard
Services and Common Area Services but Landlord shall not otherwise be liable to
Tenant for any such failure or defect and no such failure or defect shall be
construed as an eviction of Tenant nor shall such entitle Tenant to any
reduction, abatement, offset, or refund of Rent or to any damages from Landlord,
nor shall Landlord be in breach or default under this Lease if Landlord uses
reasonable diligence to restore any such failure or defect after Landlord
receives written notice thereof.
Notwithstanding the foregoing, but subject to the casualty and
condemnation provisions of ARTICLES 14 AND 15, which shall supersede the
provisions of this ARTICLE 10.04, in the event any of the essential Building
Services (which shall mean the services set forth in ARTICLES 10.01(B), (D) AND
(E) are interrupted (unless due in whole or in part to a general curtailment of
services in downtown Houston, Texas caused by any governmental body, public
utility, or utility franchise) and such
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cessation continues uninterrupted for ten (10) business days, then unless the
cessation was caused by reason of the gross negligence or willful misconduct of
Tenant or Tenant's employees or agents, Tenant shall be entitled to an equitable
abatement of rent and additional rent based upon the extent to which Tenant is
unable to use the Premises to substantially the same extent and for
substantially the same purposes that Tenant used the Premises prior to the
cessation, until (i) the date the cessation is corrected or (ii) the date Tenant
reoccupies the Premises, whichever occurs earlier. In any event, the 10-day
period shall be extended on a day-by-day basis for any days in which delay are
attributable to Tenant, Tenant's employees or agents, or force majeure.
10.05 MODIFICATIONS OF SERVICES. Landlord reserves the nondiscriminatory
modifications to the Building Standard Services; PROVIDED, HOWEVER, that the
modified services shall be generally consistent with standard building services
provided in other first-class office buildings in the central business district
of Houston, Texas.
ARTICLE 11
ALTERATION, REPAIRS AND LIENS
11.01 CHANGES IN BUILDING. Landlord shall have the right at any time to
change the arrangement, location and/or size of entrances or passageways, doors
and doorways, and corridors, elevators, stairs, toilets or other public parts of
the Building, and upon giving Tenant notice thereof, to change the name, number
or designation by which the Building is known.
11.02 ALTERATION BY TENANT. Tenant shall make no alterations,
installations, additions, or improvements in or to the Premises without
Landlord's prior written consent which shall not be unreasonably withheld and to
the extent permitted the same shall be made at Tenant's sole cost and expense.
Tenant shall indemnify and forever hold harmless the Landlord against any and
all claims, liabilities, damages or causes of action arising out of the
performance of any such work. All alterations, installations, additions, or
improvements made to the Premises shall remain upon and be surrendered with the
Premises and become the property of Landlord at the expiration or termination of
this Lease or the termination of Tenant's right to possession of the Premises.
Any such work performed by Tenant shall be performed so as not to alter
the exterior appearance of the Building, or adversely affect the structure or
safety of systems or services of the Building, and shall comply with all
building, safety, fire, and other codes and governmental and insurance
requirements, and shall be performed so as not to result in any excess usage of
Building Standard Services (either during or after such work) without prior
written permission of Landlord.
From and after the Commencement Date, Tenant shall cause the Premises to
be in compliance with all existing requirements of and regulations issued under
the Disability Acts (as herein defined) for each of the following: (i)
alterations or improvements to any portion of the Premises performed after the
Commencement Date; (ii) obligations arising under the Disability Acts or
Tenant's employer-employee obligations; (iii) obligations arising under or out
of the conduct or operations of Tenant's
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business, including any obligations or requirements for barrier removal to
customers or invitees as a commercial facility or as a public accommodation (as
defined in the Disability Acts); and (iv) any change in the nature of Tenant's
business, or its employees, or Tenant's business operations that triggers an
obligation under the Disability Act of 1990, 42 U.S.C. ss.ss. 12101-12213, and
the Architectural Barriers Act, Tex. Rev. Civ. Stat. Ann. art. 9102, as amended
from time to time, and interpretations or regulations related thereto.
11.03 REMOVAL. Subject to lien rights in favor of Landlord, Tenant agrees
to remove all of its trade fixtures and personal property ("TENANT'S PROPERTY")
on or before the date of expiration or termination of the Term, and shall
promptly reimburse Landlord for the estimated cost of repairing all damage done
to the Premises or the Building by such removal and by restoring the Premises
affected by such removal to an architectural whole. Unless Tenant has made prior
arrangements with Landlord and Landlord has agreed in writing to permit Tenant
to leave any of Tenant's Property in the Premises for an agreed period, if
Tenant does not remove such property prior to such termination, then, in
addition to its other remedies at law or in equity, Landlord shall have the
right to remove and store all remaining items of Tenant's Property and all
damage to the Premises or Building resulting therefrom repaired at the cost of
Tenant or treat such items of Tenant's Property as being abandoned thereby
vesting ownership in Landlord upon termination of this Lease, and Tenant shall
not have any further right with respect thereto or reimbursement therefor.
11.04 MAINTENANCE AND REPAIR BY TENANT. Tenant shall maintain the Premises
and all fixtures and appurtenances therein, including all Leasehold Improvements
in good order and repair. Any waste, damage or destruction to or on any portion
of the Premises shall be repaired or replaced by Tenant excepting normal wear
and tear. In addition, any waste, damage or destruction to the Building, the
appurtenances or fixtures therein, or any other property located in or about the
Building, including that of any other tenant, and caused by or resulting from
the act, omission, or neglect of Tenant or Tenant's employees, servants, agents,
invitees, assignees or subtenants, shall be repaired or replaced by Tenant. The
liability of the Tenant under this Article shall not be restricted to limits of
insurance required to be carried under the terms of this Lease. Any injury or
damage described in this Article 11.04 shall be repaired by Tenant within twenty
(20) days after written notice from Landlord. In the event Tenant has failed to
complete the repair or restoration within the twenty day period, Landlord, at
Landlord's option, may repair or replace any or all of such damage pursuant to
ARTICLE 11.05. All insurance proceeds from the policies required under ARTICLE
13.01 shall be used for the repair or restoration required by this ARTICLE
11.04.
11.05 REPAIRS BY LANDLORD/LIMITATION OF LIABILITY. Landlord shall provide
for the maintenance of the public portions of the Building. Except to the extent
required by ARTICLE 14, Landlord shall not be required to make any improvements
or repairs of any kind or character upon or in the Premises, except repairs to
the exterior walls, windows, roof and other structural elements and the
equipment of the Building. Landlord shall not be liable to Tenant for losses due
to theft or burglary or for damages done by other tenants or unauthorized
persons on the Premises. In the event Tenant has failed to fulfill its duty to
repair pursuant to ARTICLE 11.04, after written notice, Landlord may, at its
option and at the cost and expense of Tenant, repair or replace any damage or
injury done
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to the Building or any part thereof caused by Tenant, Tenant's agents,
employees, licensees, invitees or visitors and Tenant shall pay the cost
thereof, which shall include Landlord's administrative fee of fifteen percent
(15%), upon demand by Landlord.
11.06 TENANT LIENS. Tenant shall keep the Premises free from any liens
arising out of any work performed, materials furnished, or obligations incurred
by or for Tenant. In the event that Tenant shall not within ten (10) days
following the imposition of any such lien cause the same to be released of
record by payment or posting of a proper bond, Landlord shall have, in addition
to all the remedies provided herein, and by law, the right but not the
obligation, to cause the same to be released by such means as it shall deem
proper, including payment of or defense against the claim giving rise to such
lien. All sums paid by Landlord and all expenses incurred by it in connection
therewith shall create automatically an obligation of Tenant to pay, on demand,
an equivalent amount as Rent. No work which Landlord permits Tenant to perform
in the Premises shall be deemed to be for the immediate use and benefit of
Landlord so that no mechanic's, materialmen's or other liens shall be allowed
against the estate of Landlord by reason of its consent to such work.
ARTICLE 12
LATE PAYMENTS
12.01 LATE PAYMENTS. All late payments of Rent or other amounts or any
portion there of by Tenant shall bear interest from the date due until paid at
the rate of (i) twelve percent (12%) per annum or (ii) the maximum contract rate
of interest that Landlord may collect from Tenant under applicable law from time
to time, whichever is less.
ARTICLE 13
INSURANCE
13.01 TENANT'S INSURANCE. Tenant covenants and agrees that at all times
during the Term, Tenant shall carry and maintain, at its sole cost and expense,
insurance as follows:
(a) General Public Liability Insurance that covers the Premises and
Tenant's use thereof against claims for personal injury or death and
property damage occurring upon, in or about the Premises, containing a
broad form contractual liability endorsement insurance Tenant's
obligations under the indemnities made by Tenant under this Lease with a
combined single limit of at least One Million Dollars ($1,000,000) per
occurrence, or such greater amounts as Landlord may reasonably require.
(b) All-Risk fire and extended coverage property insurance covering
all Leasehold Improvements and non-standard heating, ventilating and
air-conditioning equipment, installed by reason of Leasehold Improvements;
fixtures installed by or at the expense of Tenant; and all personal
property (including any fixtures and equipment) in, on or upon the
Premises, in
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an amount not less than 80% of the full replacement cost thereof and
containing the waiver of subrogation required in ARTICLE 13.04.
The foregoing policies (with the exception of worker's compensation
insurance to the extent not available under statutory law) shall name Landlord
as an additional insured as its respective interest may appear, and, except for
worker's compensation coverage, shall provide that any loss shall be payable to
Landlord and Tenant as their respective interests may appear. All insurance
shall be placed with companies which are reasonably acceptable to Landlord and
licensed to do business in the state in which the Building is located and
written as primary policies with annual deductibles not to exceed Ten Thousand
Dollars ($10,000), with any other policies serving as excess coverage. Tenant
shall (i) provide to Landlord prior to the Commitment Date and (ii) maintain
with Landlord throughout the Term of this Lease, certificates of insurance
showing the foregoing coverages, naming Landlord as a loss payee as its interest
may appear, and containing a provision that such policies will not be canceled
or modified without the endeavor to provide Landlord with thirty (30) days prior
written notice. One time per year, Tenant agrees to permit Landlord, at a
reasonable time to inspect the policies of insurance required herein.
13.02 LANDLORD'S INSURANCE. Landlord shall, at all times during the Term,
maintain in effect a policy or policies of insurance covering the Building
(excluding property required to be insured by Tenant) in such amounts as
Landlord may from time to time determine, providing protection against perils
included within the All Risk Property Policy together with such other risks as
Landlord may from time to time determine and with any such deductibles as
Landlord may from time to time determine.
Any insurance provided for in this ARTICLE 13.02 may be effected by a
policy or policies of blanket insurance, covering additional items or locations
or assureds, provided that the requirements of this Article are otherwise
satisfied. Tenant shall have no rights in any policy or policies maintained by
Landlord nor shall Tenant by reason of payment of its pro rata share of
Landlord's premium for such insurance, as part of Additional Rent, be entitled
to be a named insured under any policy maintained by Landlord.
13.03 INCREASED PREMIUMS. Tenant shall not knowingly do nor permit to be
done any act or thing which increases the rate of insurance for the Building,
any part thereof, or any property or equipment located therein or thereon. In
addition to Landlord's rights and remedies, in the event of a breach of Tenant
under this ARTICLE 13.03, Tenant shall reimburse Landlord after receiving
written proof upon demand for any increased premiums.
13.04 WAIVER OF SUBROGATION. Notwithstanding any provision in this Lease
to the contrary, each party hereto ("FIRST PARTY") hereby waives any and every
claim which arises or may arise in favor and against the other party hereto
("SECOND PARTY") during the Term, for any and all loss of, or damage to, any of
the First Party's property, which loss or damage is or could have been covered
by an All-Risk Property Policy. Each party hereto agrees to maintain coverage of
all risks that can be covered by an All-Risk Property Policy. The foregoing
shall not modify the parties' obligations under
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ARTICLES 11.04, 13.01(A), 13.05 AND 19.07 to repair damage or destruction to the
Premises caused by any party other than Landlord, nor the First Party's
liability to any third party, including other tenants in the Building. Said
waiver shall be in addition to, and not in limitation or derogation of, any
other waiver or release contained in this Lease with respect to any losses or
damage to property of the parties hereto. Inasmuch as the above mutual waivers
will preclude the assignment of any aforesaid claim by way of subrogation (or
otherwise) to an insurance company (or any other person), each party hereto
hereby agrees immediately to give such insurance company which has issued to it
policies of property insurance written notice of the terms of said mutual
waivers, and have said insurance policies properly endorsed, if necessary, to
prevent the invalidation of said insurance coverages by reason of said waivers.
13.05 INDEMNITY. Notwithstanding any provision in this Lease to the
contrary, Landlord and Tenant (respectively called the "FIRST PARTY") each
assumes responsibility and liability for their respective employees, agents,
servants, invitees, guests, contractors, officers, directors, partners,
venturers, and other related persons ("WORKERS") and the respective property and
the property of their respective Workers ("PROPERTY"). The First Party waives
any and every claim against the other party and its Workers ("OTHER PARTY") for
any and all actual, incidental, and consequential damages, loss of profits, and
business interruption, to the First Party or its Workers, and for any and all
damages to the Property of the First Party or its Workers, and for any death or
injury to the First Party or its Workers. Further, the First Party shall
indemnify and hold harmless the Other Party from and against any and all
liabilities, claims, costs (including, but not limited to court costs ,
attorneys' fees, and costs of investigation), and actions of any kind arising or
alleged to arise by reason of injury to or death of the First Party or any of
its Workers or damage to or loss of Property of the First Party or its Workers,
occurring on, in, or about the Building, caused by any nature whatsoever or any
person or party (including other tenants in the Building), or occasioned or
alleged to be occasioned in whole or part by any acct or omission on the part of
the Other Party, including the negligence of the Other Party, or by breach,
violation, or nonperformance of any covenant of the Other Party under this
Lease. If any action or proceeding shall be brought by or against the Other
Party in connection with any such liability or claim, the First Party, on notice
from the Other Party, shall defend such action or proceeding, at the First
Party's sole cost and expense, by or through attorneys, reasonably satisfactory
to the Other Party. The provisions of this ARTICLE 13.05 shall apply to all
activities of both parties with respect to the Building, whether occurring
before, during, or after the Term of this Lease. The First Party's obligations
under this ARTICLE 13.05 shall not be limited to the limits of coverage of
insurance maintained or required to be maintained by that party under this
Lease. Inasmuch as the above mutual waivers will preclude the assignment of any
aforesaid claim by way of subrogation (or otherwise) to an insurance company (or
any other person), each party hereto hereby agrees immediately to give such
insurance company which has issued to it policies of insurance written notice of
the terms of said mutual waivers, and have said insurance policies properly
endorsed, if necessary, to prevent the invalidation of said insurance coverages
by reason of said waivers.
ARTICLE 14
CASUALTY
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14.01 FIRE OR OTHER CASUALTY. If the Premises or the Building is damaged
or destroyed in whole or in part by fire or other casualty at any time during
the term of this Lease and if after the damage or destruction Tenant is not able
to use the portion of the Premises not damaged or destroyed to substantially the
same extent and for substantially the same purposes as Tenant used the Premises
prior thereto, then within thirty (30) days after delivery to Landlord by Tenant
of written notice describing in reasonable detail such damage or destruction,
Landlord shall give Tenant a written notice setting forth Landlord's election
either (i) to terminate this Lease, or (ii) to restore or replace the damaged or
destroyed portion to substantially the same condition that existed immediately
prior to such damage or destruction. If Landlord does not elect in writing to
proceed under the foregoing subsection (ii), it shall be deemed that it has
elected to terminate this Lease pursuant to the foregoing subsection (i). If
such damage or destruction occurs, then, unless such damage or destruction is
the result of the gross negligence or willful misconduct of Tenant, after such
damage or destruction the Rent shall be abated proportionately to the extent
that Tenant is unable to use the portion of the Premises damaged or destroyed to
substantially the same extent and for substantially the same purposes as Tenant
used the Premises prior thereto. Landlord shall not be liable to Tenant for any
injury or inconvenience to Tenant or its business resulting from the above
damage or repair thereof except for the above rent abatement (if any). If
Landlord elects to restore or replace the damaged or destroyed portions of the
Premises or Building, this Lease shall continue in full force and effect in
accordance with the terms hereof except for the rent abatement referred to above
(if applicable) and such restoration or replacement shall be made within one
hundred eighty (180) days, subject to delays attributable to force majeure, as
set forth in ARTICLE 19.15. If Landlord elects to terminate this Lease, this
Lease shall terminate on the last day of the month next following the end of the
thirty (30) day period referred to above.
In the event of a major casualty, Tenant, unless such major casualty is
the result of the gross negligence or willful misconduct of Tenant, shall have
the right, but not the obligation, to terminate this Lease if the repair and
restoration of the damaged or destroyed portion of the Premises reasonably
cannot be completed within one hundred eighty (180) days following Landlord's
notice of intent to repair and restore, which right shall be deemed waived
unless exercised in writing by Tenant within ten (10) days following Tenant's
receipt of such notice.
14.02 CASUALTY CAUSED BY TENANT. If the Building or the Premises shall be
damaged by fire or other casualty resulting from the gross negligence or willful
misconduct of Tenant, or the agents, employees, licensees or invitees of Tenant
(except that which is the subject of a waiver of subrogation rights under
ARTICLE 13.04), such damage shall be repaired or replaced at Tenant's sole cost
and expense. if such casualty is the result of the gross negligence or willful
misconduct of Tenant, Rent shall in any case continue without abatement.
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ARTICLE 15
CONDEMNATION
15.01 CONDEMNATION. If all or any part of or interest in the Premises
shall be taken as a result of the exercise of the power of eminent domain, this
Lease shall terminate as to the part so taken as of the date Tenant is deprived
of possession thereby. If only a part of or interest in the Premises or a
substantial portion of the Building is so taken, either Landlord or Tenant shall
have the right to terminate this Lease as to the balance of the Premises by
written notice to the other within thirty (30) days after the date of taking;
provided, however, that a condition to the exercise by Tenant of such right to
terminate shall be that the portion of the Premises or Building taken shall be
of such extent and nature as to substantially handicap, impede or impair
Tenant's use of the Premises or the balance of the Premises remaining. In the
event of any taking, Landlord shall be entitled to any and all compensation,
damages, income, rent and awards with respect thereto, including any award for
the value of any unexpired Term of the Lease, but excepting any award specified
by the condemning authority for any property that Tenant has the right to remove
upon expiration of this Lease. Tenant shall have no claim against Landlord for
the value of any unexpired Term. In the event of a partial taking of the
Premises which does not result in a termination of this Lease, the Rent
thereafter to be paid shall be equitably reduced.
ARTICLE 16
ENTRY
16.01 ENTRY. Landlord, its agents, employees, and representatives shall
have the right to enter the Premises at any time upon reasonable notice to
Tenant under the circumstances (such notice may be oral and not in compliance
with ARTICLE 19.09, and no notice shall be required in the case of routine
maintenance or any emergency) for any purpose which Landlord may reasonably deem
necessary for the operation and maintenance of the Building, or the alteration,
improvement or repair of the Premises, or any adjoining space, or to exhibit the
Premises to prospective purchasers, mortgagees, or tenants, or to determine if
Tenant is performing its obligations hereunder, or to cure any defaults by
Tenant, or to remove from the Premises any improvements placed thereon or
property placed therein in violation of this Lease. Landlord may do any of the
foregoing without being deemed guilty of an eviction of Tenant and without
abatement of Rent, and may for that purpose erect scaffolding and other
necessary structures where reasonably required by the character of the work to
be performed , provided the business of Tenant shall be interfered with as
little as is reasonably practicable. Tenant hereby waives any claim for damages
for any injury or inconvenience to or interference with Tenant's business, any
loss of occupancy or quiet enjoyment of the Premises, and any other loss
occasioned thereby. For each of the aforesaid purposes, Landlord shall at all
times have and retain a key with which to unlock all of the doors, in, upon and
about the Premises, except Tenant's vaults and safes. Landlord shall have the
right to use any and all means which Landlord may deem proper to open any doors
in an emergency without liability therefor.
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ARTICLE 17
SUBORDINATION, ATTORNMENT AND QUIET ENJOYMENT
17.01 SUBORDINATION. The rights and interests of Tenant under this Lease
and in and to the Premises shall be subject and subordinate to any lease wherein
Landlord is the tenant or lessee (whether by sale/leaseback or otherwise), and
to the lien of all deeds of trust, mortgages, and other security instruments and
to all renewals, modifications, consolidations, replacements and extensions
thereof (said leases, deeds of trust and other documents being collectively
called "SECURITY DOCUMENTS") heretofore or hereafter executed by Landlord
covering the Premises, the Building, or any parts thereof or interest therein to
the same extent as if the Security Documents had been executed, delivered and
recorded prior to the execution of this Lease. Tenant agrees, however, that the
holder of or lessor under any of the Security Documents may at its option,
unilaterally elect to subordinate, in whole or in part, by an instrument in form
and substance satisfactory to such party, such Security Documents to this Lease.
In such case, Tenant agrees to execute promptly and deliver to Landlord or such
party any such subordination instrument or instruments reasonably requested by
such party.
17.02 ATTORNMENT. If a lease constituting a Security Document is
terminated or mortgage constituting a Security Document is foreclosed, as the
case may be, this Lease (at the option of the Landlord under such lease or the
purchaser at such foreclosure sale, as the case may be) shall not terminate or
be terminable by Tenant by reason of such termination or foreclosure and Tenant
shall (if requested to do so) attorn to the landlord under such lease or the
purchaser at such foreclosure sale, as the case may be.
17.03 RIGHTS/SECURITY DOCUMENTS. After delivery to Tenant of a notice from
Landlord that it has entered into one or more Security Documents, then during
the term of such Security Documents, Tenant shall deliver to the holder or
holders (which term shall include "LESSORS") of all Security Documents a copy of
all notices to Landlord and shall grant to such holder or holders the right to
cure all defaults, if any, of Landlord hereunder within the same time period
provided in this Lease for curing such defaults by Landlord and for an
additional twenty (20) day period after the expiration of the time period
provided in this Lease for Landlord to cure such default and, except with prior
written consent of the holder of the Security Documents, shall not (i) amend
this Lease, (ii) surrender or terminate this Lease except pursuant to a right to
terminate expressly set forth in this Lease, or (iii) pay any Rent more than one
month in advance or pay a Rent or other amounts payable hereunder other than in
strict accordance with the terms hereof.
17.04 MODIFICATIONS TO LEASE. If, in connection with financing or
refinancing for the Building or with any ground or underlying lease, the lender,
Landlord, or financier shall request reasonable modifications in this Lease,
Tenant will not unreasonably withhold, delay, or defer its consent thereto,
provided that such modifications do not increase the obligations of Tenant
hereunder or materially adversely affect the leasehold interest hereby created
or Tenant's use and enjoyment of the Premises or Building.
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17.05 LANDLORD AS ATTORNEY-IN-FACT. The provisions of this ARTICLE 17
shall be self-operative and shall not require further agreement by Tenant.
Tenant agrees, however, that, upon the request of Landlord, or any such lessor,
mortgagee or trustee, Tenant shall execute and deliver whatever instruments may
be required for such purposes and to carry out the intent of this ARTICLE 17,
and in the event Tenant fails to do so within ten (10) days after demand in
writing, Tenant does hereby make, constitute and irrevocably appoint Landlord as
its attorney-in-fact, complete with an interest, in its name, place and stead so
to sign and deliver such instruments as if the same had been signed and
delivered by Tenant.
17.06 QUIET ENJOYMENT. Tenant, on paying the Rent and keeping and
performing the conditions and covenants herein contained, shall and may
peaceably and quietly enjoy the Premises for the Term, subject to the aforesaid
underlying leases and mortgages, all applicable laws and other governmental and
legal requirements, applicable insurance requirements and regulations, and the
provisions of this Lease.
ARTICLE 18
DEFAULT
18.01 EVENT OF DEFAULT. If any of the following events occurs, each shall
constitute a material "DEFAULT" by Tenant (as used in this ARTICLE 18.01 only,
Tenant shall mean "TENANT" as defined above, and/or any general partner of
Tenant, and/or any stockholder owning more than 50% of Tenant, or any guarantor
of Tenant's obligations hereunder):
(a) The failure of Tenant to pay the Rent or any part thereof or any
other sums due hereunder or under documents executed in connection
herewith when due; PROVIDED, HOWEVER, in the event Tenant makes such
payment within five (5) days following the due date and Tenant has not
been late in the payment of any sums due to Landlord more than one (1)
time in the preceding twelve (12) month period, Landlord agrees to waive
such late payment as a Default;
(b) The entry of a decree or order by a court having jurisdiction
adjudging Tenant to be bankrupt or insolvent or approving as properly
filed a petition seeking reorganization of Tenant under the Bankruptcy
Code, or any other similar applicable Federal or State law, or a decree or
order of a court having jurisdiction for the appointment of a receiver or
liquidator or a trustee or assignee in bankruptcy or insolvency of Tenant
or its property or for the winding up or liquidation of its affairs; or
Tenant shall institute proceedings to be adjudicated a voluntary
bankruptcy or shall file or consent to the filing of any bankruptcy,
reorganization, receivership or other proceeding for or against Tenant, or
any such proceedings shall be instituted against Tenant and the same shall
not be vacated within thirty (30) days after the same are commenced; or
Tenant shall make an assignment for the benefit of Tenant's creditors or
Tenant shall fail to pay Tenant's debts as they become due; or Tenant
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shall admit in writing Tenant's liability to pay the debts of Tenant
generally as they may become due; or Tenant shall become insolvent; or
(c) Tenant shall fail to fulfill or perform, in whole or in part,
any of its obligations under this Lease (other than the payment of Rent or
other sums due hereunder or under documents executed in connection
therewith); or
(d) Tenant shall vacate or abandon the Premises or any significant
portion thereof which shall mean that Tenant is absent from the Premises
or any significant portion thereof for ten (10) consecutive days; or
(e) Tenant shall fail to take possession of the Premises within
twenty (20) days following the Commencement Date, provided, Landlord had
notified Tenant that the same are ready for occupancy; or
(f) The sale or attempted sale under execution or other legal
process of the Tenant's interest in the Lease; or
(g) The failure by Tenant to discharge or stay execution on any
judgment against Tenant within thirty (30) days after such judgment
becomes final.
18.02 RIGHTS UPON DEFAULT. If a Default occurs, then Landlord at any time
thereafter, without waiving any other rights available to Landlord herein, at
law or in equity, may either terminate this Lease or terminate Tenant's rights
to possession without terminating this Lease, whichever Landlord elects. In
either event, Landlord may, without additional notice and with or without court
proceedings, reenter and repossess the Premises, and remove all persons and
property therefrom using such force as is necessary, and Tenant hereby waives
any claim arising by reason thereof or by reason of issuance of any distress
warrant or writ of sequestration and agrees to indemnify and hold harmless
Landlord from any such claims. Unless Landlord specifically in writing
terminates this Lease, the same shall be deemed to be a termination of Tenant's
right to possession without a termination of this Lease.
If Landlord elects to terminate this Lease, it may treat the Default as an
entire breach of this Lease and Tenant shall immediately become liable to
Landlord for damages equal to the total of (i) the cost of recovering,
relenting, and remodeling the Premises to Building Standard condition, (ii) all
unpaid Rent and other amounts earned or due through such termination, plus (iii)
any other remedies at law or in equity available to Landlord.
If Landlord elects to terminate Tenant's rights to possession of the
Premises without terminating the Lease, Landlord may do any one or more of the
following:
(a) recover from Tenant the costs of recovering, remodeling and (if
applicable) rerenting the Premises;
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(b) recover from Tenant all unpaid Rent and other amounts earned or
due through such termination;
(c) recover from Tenant all Rent and other amounts as the same
becomes due and owing pursuant to the terms hereof;
(d) accelerate and cause to become immediately due and payable all
Rent and other amounts due and/or likely to be due hereunder and recover
from Tenant the present value thereof; such present value to be based upon
a six percent (6%) per year discount rate;
(e) rent the Premises or any part thereof for the account of Tenant
to any person or persons for such rent and for such terms and other
conditions as Landlord deems appropriate, and Tenant shall be liable to
Landlord for the amount, if any, by which the Rent for the unexpired
balance of the Term exceeds the net amount, if any, received by Landlord
from such rerenting, being the gross amount so received by Landlord less
the costs of repossession, rerenting, remodeling, and other expenses
incurred by Landlord. Such sum or sums shall be paid by Tenant in monthly
installments on the first days of each month of the Term. Tenant agrees
that Landlord may file suit to recover any sums due under the terms hereof
and that no recovery of any portion due Landlord shall be defense to any
subsequent action brought for any amount not theretofore reduced to
judgment in favor of Landlord. In no case shall Landlord be required to
relent the Premises or to collect the rental due under such rerenting and
in event shall Tenant be entitled to any excess rents received by
landlord; and
(f) pursue any other remedies at law or in equity available to
Landlord.
If Landlord elects to terminate Tenant's rights to possession without
terminating this Lease, Landlord shall have the right at any time thereafter to
terminate this Lease, whereupon the foregoing provisions with respect to
termination of this Lease will thereafter apply. All rights and remedies of
Landlord shall be cumulative and not exclusive of any remedies provided by law,
and Landlord shall be entitled simultaneously to pursue multiple or alternative
remedies, at any time to abandon pursuit of any remedy, and at any time to
pursue additional remedies. All of the foregoing remedies may be exercised
without grace, notice or demand of any kind, which Tenant hereby waives. Tenant
agrees that all of the foregoing remedies provide just and reasonable
compensation to the Landlord for a Default, and are a reasonable method of
determining damages to Landlord which are unascertainable as of the date hereof.
Tenant acknowledges and agrees that in connection with this Lease, Landlord has
expended and will continue to expend sums of money for Tenant's lease
inducements, (E.G., expenses, such as construction costs, allowances, and fees),
for which Landlord has agreed to accept payments over all or a portion of the
initial Term of the Lease. Notwithstanding its designation as Rent, Tenant
acknowledges and agrees that the cost of such sums, plus interest at the rate of
twelve percent (12%) per annum amortized over the initial Term of the Lease,
constitute an obligation of Tenant separate and apart from the consideration for
the Premises, and that upon a Default, the unamortized portion thereof shall
become immediately due and owing; it being the intent of the
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parties that the foregoing constitutes a proper characterization of the
components of Rent and do not constitute additional rent.
18.03 COSTS. If a Default occurs, or if either party brings any action to
enforce any provision of this Lease, then the nonprevailing party shall
reimburse the prevailing party on demand for all costs reasonably incurred by
the prevailing party in connection with such enforcement, including, but not
limited to, reasonable attorney's fees, court costs, and related costs.
18.04 DEFAULTS BY LANDLORD. Except as otherwise provided in this Lease,
Landlord shall be in default under this Lease if Landlord fails to perform any
of its obligations hereunder and said failure continues for a period of thirty
(30) days after written notice thereof from Tenant to Landlord (unless such
failure cannot reasonably be cured within thirty (30) days and Landlord shall
have commenced to cure said failure within said thirty (30) days and continues
diligently to pursue the curing of the same).
18.05 NON-WAIVER. The failure of Landlord to seek redress for violation
of, or to insist upon the strict performance of, any covenant or condition of
this Lease shall not prevent a subsequent act or omission that would have
originally constituted a violation. The receipt by Landlord of Rent with or
without knowledge of the breach of any provision of this Lease shall not be
deemed a waiver of such breach (except a breach of Tenant's obligation to pay
such Rent as Landlord shall have actually received), shall not reinstate this
Lease or Tenant's right of possession if either or both have been terminated,
and shall not otherwise affect any notice, election, action, or suit by
Landlord; and any such waiver shall not be construed as a waiver of any other or
future default by Tenant. No act or thing done by Landlord during the Term shall
be deemed an acceptance of a surrender of the Premises and no agreement to
accept such surrender shall be valid, unless expressed and in writing signed by
Landlord.
ARTICLE 19
MISCELLANEOUS PROVISIONS
19.01 AMENDMENT. Any agreement hereafter made between Landlord and Tenant
shall be ineffective to modify, release, or otherwise affect this Lease, in
whole or in part, unless such agreement is in writing and signed by the parties
to be bound thereby.
19.02 SEVERABILITY. If any term or provision of this Lease shall, to any
extent be held invalid or unenforceable by a final judgment of a court of
competent jurisdiction, the remainder of this Lease shall not be affected
thereby. In addition, to the extent possible any such term or provision shall be
deemed modified so that the intention of the parties is maintained to the extent
permitted by applicable law. Each obligation of Landlord hereunder shall be
construed as a separate and independent covenant, and not as a condition to the
performance by Tenant of its obligations hereunder.
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19.03 ESTOPPEL LETTERS. Tenant shall at any time and from time to time
upon not less than ten (10) days prior written notice from Landlord execute,
acknowledge and deliver to Landlord a statement in writing certifying that this
Lease is unmodified and in full force and effect (or if modified, stating the
nature of such modification and certifying that this Lease, as so modified, is
in full force and effect) and the dates to which the rental and other charges
are paid, and acknowledging that there are not, to Tenant's knowledge, any
uncured defaults on the part of the Landlord hereunder (or specifying such
defaults if any are claimed), and such other matters as Landlord may reasonably
request. It is expressly understood and agreed that any such statement may be
relied upon by any prospective purchaser or existing or future lienholder of all
or any portion of the real property of which the Premises is a part or by any
other person to whom it is delivered. Tenant's failure to deliver such statement
within such time shall be conclusive upon Tenant that this Lease is in full
force and effect, without modification except as may be represented by Landlord,
that there are no uncured defaults in Landlord's performance and that the dates
through which rental and other charges have been paid, as represented by the
Landlord, are true and accurate.
19.04 LANDLORD'S LIABILITY. Tenant specifically agrees to look solely to
the then current Landlord's interest in the Building for the recovery of any
judgment against Landlord relating to this Lease, it being agreed that Landlord
shall never be personally liable for any such judgment beyond such matters. In
no event shall Tenant have the right to levy execution against any property of
Landlord other than its interest in the Building as hereinabove expressly
provided; however, that such shall not limit Tenant's right to injunctive or
other relief that does not involve Landlord's payment of money to Tenant out of
assets other than the then current Landlord's interest in the Building.
19.05 HOLDOVER. If Tenant or any party claiming under Tenant shall remain
in possession of the Premises after the expiration or earlier termination of
this Lease, then Tenant shall be deemed a tenant-at-sufferance, terminable at
any time, and shall pay Rent at double the rental rate of the most recent Rent
due prior to such termination or expiration, but otherwise shall be subject to
all of the obligations of Tenant under this Lease. Additionally, Tenant shall
pay to Landlord all damages sustained by Landlord on account of such holding
over by Tenant. No holding over by Tenant, whether with or without consent of
landlord, shall operate to extend this Lease.
19.06 TAXES ON TENANT'S PROPERTY. Tenant upon written notice shall be
liable for and shall pay, prior to their becoming delinquent, any and all taxes
and assessments levied against any personal property or trade or other fixtures
placed by tenant in or about the Premises.
19.07 SURRENDER. Upon the expiration or earlier termination of the Term,
or upon the exercise by Landlord of its rights to enter the Premises without
terminating this Lease, Tenant shall peaceably quit and surrender the Premises,
including all Leasehold Improvements and other fixtures and appurtenances made
part of the Premises, all in good order and condition, except ordinary wear and
tear resulting from normal use, and further subject to ARTICLE 11.02. All
obligations of Tenant for the period of time prior to the expiration or earlier
termination of the Term shall survive such expiration or termination. All
indemnity agreements and hold harmless agreements contained herein shall survive
the expiration or earlier termination of the Term. Upon the expiration or
earlier
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termination of the Term of this Lease, Tenant shall, at the option of Landlord,
execute a Release of Lease and Waiver of Claim, in recordable form, containing
Tenant's release of all of his interests in the Premises.
19.08 SUCCESSORS AND PARTIES. Subject to the limitations and conditions
set forth elsewhere herein, this Lease shall bind and inure to the benefit of
the respective heirs, legal representatives, successors, and assigns of the
parties hereto. The term "LANDLORD", as used in this Lease, so far as the
performance of any covenants or obligations on the part of Landlord under this
lease are concerned, shall mean only the owner of the Building or the entity
with the right of possession of the Building, as a master lessee or otherwise,
at the time in question. If Tenant is composed of more than one party, then all
such parties shall be jointly and severally liable.
19.09 NOTICE. Except as otherwise herein provided, any statement, notice,
or other communication which Landlord or Tenant may desire or be required to
give to the other shall be in writing and shall be deemed sufficiently given or
rendered if (a) received by the other or (b) sent by registered or certified
mail with postage prepaid and addressed to the appropriate address given in ITEM
B OF THE BASIC LEASE PROVISION or at such other address as the other shall
designate by prior written notice, and such notice shall be effective upon the
earlier of four (4) days after the same is mailed as herein provided or on the
date when the same is received or (c) delivered to the Premises.
19.10 RULES AND REGULATIONS. Tenant, its servants, employees, agents,
visitors, invitees, and licensees, shall observe faithfully and comply strictly
with the Rules and Regulations set forth in attached EXHIBIT "E" and shall abide
by and conform to such further rules, regulations and modifications as Landlord
may from time to time reasonably make or adopt after Tenant receives a copy
thereof. All changes shall be sent by Landlord to Tenant in writing and shall
thereafter be carried out and observed by Tenant.
19.11 CAPTIONS. The captions in this Lease are inserted only as a matter
of convenience and for reference only and they in no way define, limit, or
describe the scope of this Lease or the intent of any provisions hereof.
19.12 NUMBER AND GENDER. All genders used in this Lease shall include the
other genders, the singular shall include the plural, and plural shall include
the singular, whenever and as often as may be appropriate.
19.13 GOVERNING LAW. This Lease shall be governed by and construed in
accordance with the laws of the State of Texas, including applicable federal
law.
19.14 DISCRIMINATORY SCHOOL. Under no circumstances shall Tenant operate,
on the Premises, as school which discriminates on the basis of race, color,
creed or national origin.
19.15 FORCE MAJEURE. If, by reason of inability reasonably to obtain and
utilize labor, materials, equipment, or supplies; or by reason of circumstances
directly or indirectly the result of any
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state of war or national or local emergency or acts of public enemies or
terrorists; any laws, rules, orders, regulations, action, inaction, or
requirements of any kind of government of the United States or of the State or
of any of their departments, agencies, officials or civil, military or
governmental authority, or subdivisions thereof now or hereafter in force;
epidemics; weather; strikes, lockouts, or other industrial disturbances;
insurrections; civil disturbances; arrests, restraints of government and people;
explosions; breakage or accident to machinery and transmission lines or pipes;
or partial or entire failure of utility services; accidents in, damage to, or
the making of repairs, replacements, or improvements to the Building or the
Premises, or any of the equipment of either; or any other cause beyond the
reasonable control of either party and such party shall be unable to perform or
shall be delayed in the performance of any obligation hereunder (except for
Tenant's obligation to pay Rent or any other sums due to Landlord), then this
Lease and the obligation of Tenant to pay the Base Rent or additional items of
Rent and the obligations of the other party to perform and comply with all of
the other covenants and agreements hereunder shall in no way be affected or
impaired, and such nonperformance or delay in performance (except for Tenant's
failure to pay Rent and other sums due under this Lease in a timely manner)
shall not constitute a breach or default by Landlord under this Lease nor give
rise to any claim against Landlord for damages or constitute a total or partial
eviction, constructive or otherwise. Each party shall exercise due diligence in
undertaking to remedy such inability to perform or delay in performance with all
reasonable dispatch, but shall not be required to adjust a labor dispute against
its will.
19.16 USE OF NAME. The name of the Building throughout the Term shall be
"1600 SMITH STREET BUILDING". Tenant shall not, except to designate Tenant's
business address, use the name or mark "1600 SMITH STREET BUILDING" for any
purpose whatsoever. Landlord shall have the right to change the name of the
Building.
19.17 BROKER. Landlord and Tenant each represent and warrant that it has
dealt with, and only with, the Brokers identified in ITEM 7 OF THE BASIC LEASE
PROVISIONS in connection with this Lease and that no other broker negotiated
this Lease or is entitled to any commission in connection with this Lease, by
through or under it. Each party shall indemnify and hold harmless the other
party from and against all claims (and costs of defending against and
investigating such claims including reasonable attorney's fees) of any other
broker (or similar parties) claiming by, through or under it in connection with
this Lease.
19.18 ATTORNEYS' FEES. In the event of any legal action or proceeding
brought by either party against the other arising out of this Lease, the
prevailing party shall be entitled to recover reasonable attorneys' fees and
costs incurred in such action and such amount shall be included in any judgment
rendered in such proceeding.
19.19 COMMON FACILITIES. Tenant shall have the nonexclusive right, in
common with others, to the use of common entrances, lobbies, elevators, ramps,
drives, stairs and similar access and serviceways and other common facilities in
and adjacent to the Building, subject to such rules and regulations as may be
adopted by the Landlord.
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19.20 EXAMINATION OF LEASE. Submission of this instrument for examination
or signature by Tenant does not constitute a reservation of or option for lease,
and it is not effective as a lease or otherwise until execution by and delivery
to both Landlord and Tenant.
19.21 TIME. TIME IS OF THE ESSENCE IN THIS LEASE AND IN EACH AND ALL OF
THE PROVISIONS HEREOF.
19.22 AUTHORITY. If Tenant executes this Lease as a corporation,
partnership or other artificial entity, each of the persons executing this Lease
on behalf of Tenant does hereby personally covenant and warrant that Tenant is a
duly authorized and existing entity, that Tenant has and is qualified to do
business in Texas, that said entity has full right and authority to enter into
this Lease, and that each person signing on behalf of said entity was authorized
to do so.
19.23 RECORDING. This Lease shall not be recorded, however, Landlord shall
have the right to record a short form or memorandum thereof, at Landlord's
expense, at any time during the term hereof.
19.24 FINANCIAL STATEMENTS. Tenant shall deliver to landlord within ninety
(90) days following the Effective Date and following the end of each calendar
year during the Term of this Lease, financial statements of Tenant, each of
which are certified that such financial statement correctly and accurately sets
forth the financial position of Tenant as of the Effective Date or the end of
the calendar year in question, as the case may be.
19.25 LENDER APPROVAL. Tenant acknowledges and agrees that this Lease is
subject to the approval of Citicorp Real Estate, Inc. and Landlord agrees to
notify Tenant of such approval within five (5) days following Landlord's receipt
thereof.
19.26 ENTIRE AGREEMENT. This Lease, including attached EXHIBITS "A"
THROUGH "F" (which Exhibits are incorporated in and shall constitute a portion
of this Lease for all purposes), contains the entire agreement between Landlord
and Tenant with regard to the subject matter hereof. Tenant hereby acknowledges
and agrees that neither Landlord nor Landlord's agents or representatives have
made any representations, warranties or promises with respect to the Building,
the Premises, Landlord services, or any other matters pertaining to the
agreement between Landlord and Tenant which are not contained herein.
19.27 WAIVER OF TEXAS DECEPTIVE TRADE PRACTICES ACT. It is the intent of
Landlord and Tenant to waive all of the provisions (other than Section 17.555)
of the Texas Deceptive Trade Practices Consumer Protection Act, Subchapter E of
Chapter 17 of the Texas Business and Commerce Code (the "DTPA") as such
provisions are or may be applicable to this Lease and the transaction evidenced
hereby. Accordingly, Landlord and Tenant hereby represent and agree as follows:
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(a) Tenant represents to Landlord that with respect to this Lease,
Tenant is a business consumer as that term is used in the DTPA (i.e.
Tenant is an individual, partnership or corporation who seeks or acquires
by purchase or lease, any goods or services for commercial or business
use).
(b) Landlord and Tenant agree that the total consideration paid or
to be paid by Tenant over the term of this Lease exceeds $500,000.00,
failing which this part (b) shall be deemed deleted.
(c) Tenant represents to Landlord that Tenant has assets of $5
million or more according to the most recent financial statement of Tenant
prepared in accordance with generally accepted accounting principles,
failing which Tenant shall have its legal counsel sign this Lease in the
space provided on the signature page hereof. Tenant further represents
that it has knowledge and experience in financial and business matters
that enable it to evaluate the merits and risks of this transaction.
(d) Landlord and Tenant hereby agree, for themselves, their agents,
property managers, brokers and contractors and their respective heirs,
personal representatives, successors and assigns, that all of the
provisions of the DTPA (except for Section 17.555 thereof) which are or
may be applicable to this Lease and the transaction evidenced hereby are
hereby WAIVED, including specifically without limitation, all rights and
remedies resulting from or arising out of any and all acts or practices of
the other party or their agents, property managers or brokers or their
respective heirs, personal representatives or assigns in connection with
this Lease and/or the transaction evidenced hereby, regardless of whether
such acts or practices occurred before or after the execution of this
Lease. The provisions of this Section 19.28 shall survive the execution
and any termination of this Lease. IF PART (b) ABOVE IS DEEMED DELETED,
THIS SECTION 19.28 SHALL NOT BE APPLICABLE AND SHALL BE WITHOUT FORCE OR
EFFECT.
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IN WITNESS WHEREOF, this Lease is hereby executed as of the Effective
Date.
"LANDLORD" "TENANT"
1600 SMITH STREET VENTURE TEXOIL, INC., a Texas corporation
By: Cullen Center, Inc.,
A Venturer
BY /S/ PAUL D. TILLEY BY /S/ JOHN L. GRAVES
PAUL D. TILLEY, President Name: John L. Graves
Its: President
By: Cullen Property Management
Corporation, a Venturer
Attorney for Tenant if Required
Pursuant to Section 19.28
BY /S/ PAUL D. TILLEY
PAUL D. TILLEY, President
EXHIBITS
A - Floor Plan
B - Property Description
C - Acceptance of Premises Memorandum D - Cleaning and Janitorial Services E -
Rules and Regulations of the Building F - Tenant Parking Agreement
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EXHIBIT "A"
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EXHIBIT "B"
1600 SMITH STREET BUILDING
PROPERTY DESCRIPTION
Being a tract or parcel of land containing 140,935 square feet situated in
the Obedience Smith Survey, Abstract 696, City of Houston, Harris County, Texas,
being out of the Senechal Addition as described on the map recorded in Volume M,
page 475 of the Harris County Deed Records (H.C.D.R.) and the W. J. Fredericks
Addition as shown on the map recorded in Volume 11, page 832 H.C.D.R. Said tract
being more particularly described as follows with all Coordinates and bearings
referenced to the Texas Coordinate System, South Central Zone.
COMMENCING at a Copperweld Monument stamped "A.C.-5" (x=3,150,906.78,
Y=716,037.50) found for the intersection of the centerline of Smith Street (80
feet wide) with the centerline of Pease Avenue (80 feet wide) from which City
Survey marker 5357-1606-C (City Rod No. 52) bears South 57 Degrees 08'01" East:
THENCE, North 32 Degrees 51'57" East, 40.00 feet along the centerline of
said Smith Street to a point;
THENCE, departing said centerline at a right angle, North 57 Degrees
08'03" West, 40.00 feet to a 5/8-inch iron rod set for the intersection of the
northeasterly right-of-way line of said Pease Avenue with the northwesterly
right-of-way line of said Smith Street, same being the most southerly corner of
a 108,360 square foot tract described in the deed recorded in File No. D570782,
Film Code 143-24-1731 of the Harris County Official Public Records of Real
Property (H.C.O.P.R.R.P.), and the POINT OF BEGINNING (X=3,150,894.89,
y=716,092.80) of the herein described Cullen Center Phase 1;
THENCE, along the northeasterly right-of-way line of said Pease Avenue,
North 57 Degrees 08'03" West, 160.07 feet to a 5/8-inch iron rod set for an
angle point;
THENCE, continuing along the right-of-way line of said Peace Avenue (width
varies at this point), North 56 Degrees 11'52" West, 104.10 feet to a 5/8-inch
iron rod set for the intersection with the easterly right-of-way line of Howe
Street (width varies) and a non-tangent curve to the left;
THENCE, 54.17 feet northerly along the arc of said curve and the easterly
right-of-way line of Howe Street, (Delta = 18 Degrees 49'51", Radius = 164.81
feet, Chord = North 07 Degrees 17'29" East, 53.92 feet) to a 5/8-inch iron rod
set for a point of tangency;
THENCE, North 02 Degrees 07'27" West along the easterly right-of-way line
of said Howe Street, at 133.93 feet pass the south line of a 10,826 square foot
tract described in the deed recorded in Volume 7769, Page 568 of the Harris
County Deed Records, at 232.37 feet pass the north line of a proposed 0.123 acre
Houston Light and Power Company easement, at 263.66 feet pass the
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proposed north line of said easement, at 265.66 feet pass the south line of a
54,130 square foot tract described in the deed recorded in File No. E143452,
Filme Code ###-##-#### of the H.C.O.P.R.R.P., and in all a total distance of
429.17 feet to a 5/8-inch iron rod set for the most southerly cut-back corner of
the intersection with the southerly right-of-way line of Andrews Street (60 feet
wide);
THENCE, North 42 Degrees 45'03" East, 14.17 feet along said cut-back line
to a 5/8-inch iron rod set in the southerly right-of-way line of said Andrews
Street;
THENCE, along the southerly right-of-way line of said Andrews Street,
North 87 Degrees 37'33" East, 217.07 feet to a 5/8-inch iron rod set for the
most northerly cut-back corner of the intersection with the westerly
right-of-way line of Shaw Street (60 feet wide);
THENCE, South 47 Degrees 14'57" East, 14.17 feet along said cut-back line
to a 5/8-inch iron rod set in the proposed westerly right-of-way line of said
Shaw Street;
THENCE, South 02 Degrees 07'27" East, 109.42 feet along the westerly
right-of-way line of said Shaw Street, (60 feet wide) to a 5/8-inch iron rod set
for the beginning of a tangent curve to the left;
THENCE, along the westerly and southwesterly right-of-way line of said
Shaw Street, and along the arc of said curve, at 60.84 feet pass the proposed
northeast corner of said Houston Lighting and Power Company easement, in all a
total arc length of 73.08 feet (Delta = 48 Degrees 07'33", Radius = 87.00 feet,
Chord = South 26 Degrees 11'13" East, 70.95 feet) to the intersection with the
line dividing said 140,935 square foot tract (Cullen Center Phase I) and a
52,048 square foot tract (Cullen Center Phase 2);
THENCE, along said dividing line the following four courses;
South 02 Degrees 07'27" East, 120.90 feet;
South 32 Degrees 51'57" West, 107.78 feet;
South 12 Degrees 08'03" East, 106.60 feet;
South 57 Degrees 08'03" East, 71.61 feet to the existing northwesterly
right-of-way line of said Smith Street;
THENCE, along said right-of-way line, South 32 Degrees 51'57" West, 130.39
feet to the POINT OF BEGINNING, containing 140,935 square feet of land.
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EXHIBIT "C"
ACCEPTANCE OF PREMISES MEMORANDUM
THIS ACCEPTANCE OF PREMISES MEMORANDUM is an amendment to the Lease for
space in 1600 Smith Street Building, executed on the ___ day of _______, 1995,
between 1600 SMITH STREET VENTURE, a Texas joint venture, as Landlord, and
TEXOIL, INC., a Texas corporation, as Tenant.
Landlord and Tenant hereby agree that:
1. The Premises are tenantable, Landlord has no obligation for
construction (except as specified in the Lease for repairs and maintenance), and
Tenant acknowledges that the Premises and the Leasehold Improvements located in
the Premises are satisfactory in all respects.
2. The Commencement Date of the Lease is agreed to be the 1st day of
September, 1995.
3. The Expiration Date of the Lease is hereby agreed to be the 31st day of
August, 2000.
All other terms and conditions of the Lease are hereby ratified and
acknowledges to be unchanged.
IN WITNESS WHEREOF, this Acceptance of Premises Memorandum is executed
this _____ day of ________, 1995.
"LANDLORD" "TENANT"
1600 SMITH STREET VENTURE TEXOIL, INC., a Texas corporation
By: Cullen Center, Inc.,
A Venturer
BY BY
PAUL D. TILLEY, President Name:
Its:
By: Cullen Property Management
Corporation, a Venturer
Attorney for Tenant if Required
Pursuant to Section 19.29
BY
PAUL D. TILLEY, President
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EXHIBIT "D"
CLEANING AND JANITORIAL SERVICE
NIGHTLY CLEANING 1. Empty, clean and damp dust all waste receptacles,
wash as necessary.
2. Empty and clean all ash trays.
3. Vacuum all rugs and carpeted area.
4. Dust furniture, file, fixtures, etc.
5. Damp wipe and polish all glass furniture tops.
6. Remove finger marks and smudges from vertical
surfaces.
7. Damp dust all water coolers.
8. Sweep all private stairways nightly and vacuum if
carpeted.
9. Damp mot spillage in office and public areas as
required.
10. Damp dust all telephones as necessary.
FLOORS 1. Ceramic tile, marble and terrazzo floors to be
swept and buffed nightly and washed or scrubbed as
necessary.
2. Vinyl particle floors and bases to be swept nightly.
3. Tile floors to be waxed and buffed monthly.
4. All carpeted areas and rugs to be vacuum cleaned
nightly.
5. Carpet shampooing to be performed at Tenant's request
and billed to Tenant.
WASH ROOMS 1. Damp mop, rinse and dry floors nightly.
2. Scrub floors as necessary.
3. Clean all mirrors, bright work and enameled surfaces
nightly.
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4. Wash and disinfect all fixtures.
5. Damp wipe and disinfect, all partitions, tile, walls,
etc.
6. Empty and sanitize all receptacles.
7. Fill toilet tissue, soap, towel and sanitary napkin
dispensers.
8. Clean flushometers and other metal work.
9. Wash and polish all wall partitions, tile walls and
enamel surfaces from trim to floor monthly.
10. Vacuum all louvers, ventilating grills and dust light
fixtures monthly.
GLASS 1. Clean all perimeter windows at least twice per year
on the outside, and once per year on the inside.
2. Clean glass entrance doors and adjacent glass panels
nightly.
3. Clean partition glass and interior glass doors
quarterly.
HIGH DUSTING
(QUARTERLY 1. Dust and wipe clean all closet shelving when empty.
2. Dust all picture frames, charts, graphs, etc.
3. Dust clean all vertical surfaces
4. Damp dust all ceiling air conditioning diffusers.
5. Dust the exterior surfaces of light fixtures
DAY 1. Check men's washrooms for toilet tissue replacement.
2. Check ladies' washrooms for toilet tissue and
sanitary napkin replacements.
3. Supply toilet tissue, soap and towels in men's and
ladies' washroom.
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Anything hereinabove to the contrary notwithstanding it is understood that
no services of the character provided for in this EXHIBIT shall be performed on
Saturdays, Sundays or on Holidays defined in this Lease.
The cleaning services outlined may be changed or altered from time to time
to facilitate the inclusion of the latest methods of maintenance and cleaning
technology generally recognized as acceptable for first-class office buildings
in Houston, Texas.
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EXHIBIT "E"
1600 SMITH STREET BUILDING
RULES AND REGULATIONS OF THE BUILDING
1. Landlord will provide and maintain a directory for all tenants on the
concourse level of the Building. No signs, advertisements or notices
visible to the general public shall be permitted within the Building
unless first approved in writing by Landlord.
2. Sidewalks, doorways, vestibules, halls, stairways and other similar areas
shall not be obstructed by tenants or used by any tenant for any purpose
other than ingress and egress to and from the leased premises and for
going from one to another part of the Building.
3. Corridor doors, when not in use, shall be kept closed.
4. Plumbing, fixtures and appliances shall be used only for the purposes for
which designed, and no sweepings, rubbish, rags or other unsuitable
material shall be thrown or placed therein. Damage resulting to any such
fixtures or appliances from misuse by a tenant shall be paid by Tenant.
5. Landlord shall provide all locks for doors into each tenant's leased area,
and no tenant shall place any additional lock or locks on any door in its
leased area without Landlord's prior written consent. Two keys fro each
lock on the doors in each tenant's leased area shall be furnished by
Landlord. Additional keys shall be made available to tenants at tenant's
cost. Tenant shall not have any duplicate keys made except by Landlord.
6. Electric current shall not be used for cooking or heating without
Landlord's prior written permission.
7. All tenants will refer all contractors, contractors' representatives and
installation technicians who are to perform any work within the Building
to Landlord for Landlord' supervision, approval and control before the
performance of any such work. This provision shall apply to all work
performed in the Building including, but not limited to, installations of
telephones, telegraph equipment, electrical devices and attachments, and
any and all installations of every nature affecting floors, walls,
woodwork, trim, windows, ceilings, equipment and any other physical
portion of the Building.
8. Movement in or out of the Building or furniture or office equipment, or
dispatch or receipt by tenants of any heavy equipment, bulky material or
merchandise which requires use of elevators or stairways, or movement
through the Building entrances or lobbies shall be restricted to such
hours as Landlord shall designate. All such movement shall be in a manner
to be agreed between the tenants and Landlord in advance. Such
prearrangement shall be
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initiated by the tenant. The time, method, and routing of movement and
limitations for safety or other concern which may prohibit any article,
equipment or other item from being brought into the Building shall be
subject to Landlord's discretion and control. Although Landlord or its
personnel may participate in or assist in the supervision of such
movement, tenant assumes final responsibility for all risks as to damage
to articles moved and injury to persons or public engaged or not engaged
in such movement, including equipment, property and personnel of Landlord
if damages or injured as a result of acts in connection with carrying out
this service for tenant from time of entering the property to completion
of work. Landlord shall not be liable for acts of any person engaged in,
or any damage or loss to any of said property or persons resulting from
any act in connection with such service performed for a tenant.
9. The location, weight and supporting devices for any safes and other heavy
equipment shall in all cases be approved by Landlord prior to initial
installation or relocation.
10. No portion of any tenant's leased area shall at any time be used for
cooking, sleeping or lodging quarters. No birds, animals or pets of any
type, with the exception of guide dogs accompanying visually handicapped
persons, shall be brought into or kept in, on or about tenant's leased
area.
11. Tenants shall not make or permit any loud or improper noises in the
Building or otherwise interfere in any with other tenants or persons
having business with them.
12. Each tenant shall endeavor to keep its leased area neat and clean. Nothing
shall be swept or thrown into the corridors, halls, elevator shafts or
stairways, nor shall tenants place any trash receptacles in these areas.
13. Tenants shall not employ any person for the purpose of cleaning other than
the authorized cleaning and maintenance personnel for the building unless
otherwise approved in writing by Landlord.
14. To ensure orderly operation of the Building, Landlord reserves the right
to approve all concessionaires, vending machines operators or other
distributors of cold drinks, coffee, food or other concessions, water,
towels or newspapers.
15. Landlord shall not be responsible to the tenants, their agents, employees
or invitees for any loss of money, jewelry or other personal property from
the leased premises or public areas or for any damages to any property
therein from any cause whatsoever whether such loss or damage occurs when
an area is locked against entry or not.
16. Tenants shall exercise reasonable precautions in the protection of their
personal property from loss or damage by keeping doors to unattended areas
locked. Tenants shall also report any thefts or losses to the Building
Manager and security personnel as soon as reasonably possible
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after discovery and shall also notify the Building Manager and security
personnel of he presence of any persons whose conduct is suspicious or
causes a disturbance.
17. Tenants, their employees, guests and invitees may be called upon to show
suitable identification and sign a building register when entering or
leaving the Building at times other than normal Building operating hours
and all tenants shall cooperate fully with Building security personnel in
complying with such requirements.
18. Tenants shall not solicit from or circulate advertising material among
other tenants of the Building except the regular use of the U.S. mail
service. Tenants shall notify Building Manager or the Building security
personnel promptly if it comes to their attention that any unauthorized
persons are soliciting from or causing annoyance to tenants, their
employees, guests or invitees.
19. Landlord reserves the right to deny entrance to the Building or remove any
person or persons from the Building in any case where the conduct of such
person or persons involves a hazard or nuisance to any tenant of the
Building or to the public or in the event of fire or other emergency,
riot, civil commotion or similar disturbance involving risk to the
Building, tenants or the general public.
20. Firearms of any caliber or make are strictly prohibited from being carried
or stored in the Building. Requests for an exception to this policy must
be submitted in writing to landlord prior to any introduction of a firearm
in the building and must detail the reasons for the requested exception.
Any exception permitting a person to carry or store a firearm in the
Building must be in writing signed by Landlord and shall contain such
conditions and provisions as Landlord may specify in its sole discretion.
Notwithstanding the grant of any exception, Landlord shall retain the
right to revoke such permission at any time and for any reason, including
without limitation, the unsafe, rude, offensive, alarming or reckless
display or carrying of the firearms.
21. The Building Standard Hours are presently scheduled to be from 6:00 a.m.
to 6:00 p.m., Monday through Friday and 8:00 a.m. to 1:00 p.m. Saturdays,
holidays excepted.
22. Smoking is prohibited in all public areas of the Building, including
without limitation, restrooms, corridors, lobbies, elevators, stairwells
and cross-walks.
23. Landlord reserves the right to rescind any of these rules and regulations
and to make such other and further rules and regulations as in its
judgment shall from time to time be needful for the safety, protection,
care and cleanliness of the Building, the operation thereof, the
preservation of good order therein and the protection and comfort of the
tenants and their agents, employees and invitees, which rules and
regulations, when made and written notice thereof is given to a tenant,
shall be binding upon it in like manner as if originally herein
prescribed.
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EXHIBIT "F"
1600 SMITH STREET BUILDING
TENANT PARKING AGREEMENT
BASIC PROVISIONS
TENANT: TERM:
FIVE (5) YEARS
TEXOIL, INC.
1600 Smith Street, Commencement Date:
Suite _____
Houston, Texas 77002
Attn:______________
Expiration Date:
NO. TYPE
10 Unreserved
MONTHLY PARKING CHARGES*
- -0- Reserved $ 75.00
$112.00
*Subject to adjustment pursuant to SECTION 4
1. CONSIDERATION. In consideration of Tenant's obligation to pay the
Parking Charges and observe the other terms and conditions of this Parking
Agreement ("AGREEMENT"), 1600 SMITH STREET VENTURE ("LANDLORD") leases and rents
to Tenant and Tenant leases and rents from Landlord, up to the number and type
of parking spaces for the Term, as set forth in the Basic Provisions. Tenant may
lease additional parking spaces on a monthly basis subject to availability. The
parking spaces are located in the parking garage of the 1600 Smith Street
Building ("PARKING GARAGE") that is operated by CENTRAL PARKING SYSTEM OF TEXAS,
INC. ("OPERATOR").
2. LOCATION. The reserved parking spaces are located in the Parking Garage
in locations determined by the Operator and may be changed from time to time
upon advance written notice to Tenant. Operator will use best efforts to prevent
others from using the reserved parking spaces, but neither Landlord nor Operator
assumes any obligation or liability to Tenant for unauthorized use of such
spaces, other than to attempt to have such vehicle removed within a reasonable
time after Operator receives notice by Tenant of such unauthorized use. The
unreserved parking spaces are located throughout the Parking Garage in areas
designated by Operator and will be available on a first-come, first-served
basis.
3. TERM, COMMENCEMENT AND EXPIRATION. The Term will commence on the
Commencement Date and will expire without notice on the Expiration Date, as set
forth in the Basic
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Provisions. In the event Tenant is in default under the terms of the lease of
office space in the 16500 Smith Street Building, Landlord may terminate this
Agreement at any time thereafter.
4. PARKING CARD. A magnetic access card ("PARKING CARD") will be issued
for each parking space leased, upon the receipt of ten dollars ($10.00) per
Parking Card as a security deposit, which will be refunded upon the return of
the Parking Card. The parking Cards are not transferable and entitle Tenant to
only one parking space per Parking Card.
Parking Charges are due and payable in advance, without notice, offset or
demand, beginning on the Commencement Date and continuing the first day of each
calendar month during the term of this Agreement. The Parking Charges may be
adjusted by landlord and/or Operator from time to time to reflect the prevailing
market rate; provided, however, Operator gives Tenant thirty (30) days prior
notice of such change. Tenant will be assessed Parking Charges for each Parking
Card in the possession of Tenant and no refunds, credits, or allowances will be
granted for absence, vacation, or other nonuse of the Parking Garage. Parking
Charges will not be prorated for partial months, unless the Commencement Date is
after the 15th day of the calendar month, in which case only the first month's
Parking Charges will be prorated to one-half of the monthly parking Charges.
The initial Parking Charges per month are subject to adjustment for
increases in the State tax rate for taxable items sold or leased (the "STATE TAX
RATE") and any increases in the State Tax Rate shall be "passed through" to the
Tenant and shall result in an increase in TENANT's Parking Charges per month.
Notwithstanding any provisions herein to the contrary, during the initial
term of the Lease and this Agreement, Tenant shall be charged $75.00 per parking
space for ten (10) unreserved parking spaces. Thereafter, and for any additional
parking spaces needed by Tenant, Tenant shall apply the rates generally charged
for each space in the parking garage.
5. REMEDIES. In the event Tenant is in default under the terms and
conditions of this Agreement, Landlord may immediately terminate this Agreement.
Landlord and Tenant agree that damages to landlord would be difficult to
ascertain and that because of the surplus of available parking spaces, a
reasonable estimate of damage is the present value of the remaining Parking
Charges based upon a six percent (6%) per year discount rate. Additionally,
Landlord may pursue any and all of the remedies that it may have in law and
equity.
6. WAIVER OF LIABILITY. Neither Landlord nor Operator assume any
responsibility whatsoever for any loss of or damage to the vehicles or their
contents. Tenant hereby waives any and all claims, liabilities and actions
against Landlord and Operator and agrees to indemnify and hold Landlord and
Operator harmless from all liabilities, claims, and actions against Landlord
and/or Owner for any damages, direct and indirect, arising or alleged to have
arising with respect to the performance or non-performance of this Agreement.
ALL VEHICLES SHOULD BE LOCKED AND VALUABLES REMOVED.
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7. ASSIGNMENT. Upon written notification to Tenant by Landlord or
Operator, all rights, interests and obligations of Operator may be assigned to
another parking garage operator and Tenant agrees to look solely to such
successor or assignee for full performance of such obligations after the date of
notice.
8. RULES AND REGULATIONS. Tenant has received and reviewed a copy of the
Rules and Regulations covering the Parking Garage and agrees to abide by them.
The Rules and Regulations may be amended from time to time by Landlord and/or
Operator, in their sole judgment.
IN WITNESS WHEREOF, this Tenant Parking Agreement is executed effective as
of the Effective Date of the Lease to which this EXHIBIT is attached.
"LANDLORD" "TENANT"
1600 SMITH STREET VENTURE TEXOIL, INC., a Texas corporation
By: Cullen Center, Inc.,
A Venturer
BY BY
PAUL D. TILLEY, President Name: John L. Graves
Its: President
By: Cullen Property Management
Corporation, a Venturer
Attorney for Tenant if Required
Pursuant to Section 19.29
BY
PAUL D. TILLEY, President
49
EXHIBIT 10.16
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of February /S/ 28_,
1996, among Oxford Consolidated, Inc., a Nevada corporation ("Seller"), AMF
Production Company, a Texas corporation ("Buyer"), and Cliffwood Energy Company,
a California corporation (the "Company").
WHEREAS, Seller owns all of the issued and outstanding shares of the
common stock of the Company; and
WHEREAS, the Company is the General Partner of Cliffwood Exploration
Limited Partnerships 1981, 1982, 1983, 1984-A, and 1984-B; and
WHEREAS, Seller desires to sell and Buyer desires to buy all of the issued
and outstanding shares of the Company on the terms and conditions herein set
forth,
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE 1
DEFINITIONS
As used in this Agreement and the Exhibits, Schedules and deliveries
pursuant to this Agreement, the following terms shall have the following
meanings.
1.1 CLOSING. "Closing" means the closing referred to in SECTION 2.3
of this Agreement.
1.2 CLOSING DATE. The "Closing Date" is the first business day (other than
a Saturday, Sunday or legal holiday) following the day on which the conditions
to the obligations of the parties to this Agreement shall have been satisfied or
waived but not later than February 29, 1996, or such other time as shall be set
by the parties in writing.
1.3 COMPANY STOCK. "Company Stock" means all of the issued and
outstanding no par common stock of the Company, consisting of 111,500 shares.
1.4 DISCLOSURE SCHEDULE. The "Disclosure Schedule" is the Disclosure
Schedule dated the date of this Agreement and delivered by Seller to Buyer. A
copy of the Disclosure Schedule is attached hereto as EXHIBIT B. Each heading in
the Disclosure Schedule refers to the applicable section of the Agreement.
1.5 EFFECTIVE DATE. The "Effective Date" means the close of business
on January 1, 1996.
1.6 ENCUMBRANCE. An "Encumbrance" is any option, pledge, security
interest, lien, charge or encumbrance.
1.7 FINANCIAL STATEMENTS. The "Financial Statements" are collectively, the
respective financial statements of the Company and each of the Limited
Partnerships for the 1994 fiscal year and the financial statements for the six
month period ended June 30, 1995 for each such entity.
1.8 GAAP. "GAAP" means generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, in statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession, which are applicable to the circumstances as of the
date of determination.
1.9 GENERAL PARTNER INTERESTS. "General Partner Interests" means all of
the interests, or any of them, directly or indirectly held by the Company as a
general partner in a particular Limited Partnership or in all of the Limited
Partnerships, as the case may be.
1.10 GOVERNMENTAL ENTITY. A "Governmental Entity" is any federal, state,
municipal, domestic or foreign court, tribunal, administrative agency,
department, commission, board, bureau or other governmental authority or
instrumentality.
1.11 HYDROCARBONS. "Hydrocarbons" mean oil, gas and/or other liquid and
gaseous hydrocarbons or any combination thereof.
1.12 INTERESTS. The "Interests" mean:
(a) All of a Limited Partnership's right, title and interest in and to the
wells described in EXHIBIT A and all of the oil, gas and mineral leases and
other agreements ("the Leases") covering said wells described in EXHIBIT A. To
the extent that the Working Interests and Net Revenue Interests described in
EXHIBIT A are in conflict with those described in any reserve estimates
previously furnished to Buyer by the Company, the interests in EXHIBIT A shall
control and prevail for purposes of this Agreement; and
(b) With respect to the wells described in EXHIBIT A, all of a Limited
Partnership's right, title and interest in and to all of the property, rights
and leasehold interests incident thereto, including without limitation all of
such Limited Partnership's right, title and interest in and to all agreements,
purchase and sale contracts, leases, permits, rights-of-way, easements,
licenses, farmout agreements, options, pooling agreements, orders and rulings of
applicable regulatory agencies, operating agreements, unitization agreements,
wells, lease and well equipment, machinery, production facilities, gathering
systems, fixtures and other items of personal property and improvements now or
as of the Closing Date appurtenant to the Leases or wells or used, obtained or
held for use in connection with the operation of the Leases or wells or with the
production, treatment, sale or disposal of Hydrocarbons or water produced
therefrom or attributable thereto.
1.13 LEASES. The "Leases" are as defined in SECTION 1.11.
1.14 LIMITED PARTNERSHIP OR LIMITED PARTNERSHIPS. Reference to any
"Limited Partnership" or to the "Limited Partnerships" shall mean any limited
partnership listed below:
Cliffwood Exploration Limited Partnership 1981
Cliffwood Exploration Limited Partnership 1982
Cliffwood Exploration Limited Partnership 1983
Cliffwood Exploration Limited Partnership 1984-A
Cliffwood Exploration Limited Partnership 1984-B
1.15 LIMITED PARTNERSHIP AGREEMENT OR LIMITED PARTNERSHIP AGREEMENTS.
Reference to any "Limited Partnership Agreement" or to the "Limited Partnership
Agreements" shall mean any limited partnership agreement listed in SECTION 1.15
of the Disclosure Schedule.
1.16 LOSSES. "Losses" mean any claims, liabilities, damages, loss, cost or
expense (including reasonable attorneys' fees) incurred or suffered by a party
hereto or its affiliates, employees or agents other than the Limited
Partnerships.
1.17 NET REVENUE INTEREST. "Net Revenue Interest" (or "NRI") means the
decimal interest in and to all production of the Hydrocarbons produced and saved
or sold from under or by virtue of each of the leases covered by EXHIBIT A after
giving effect to all valid lessors' royalties, overriding royalties of third
parties and/or other burdens against productions.
1.18 OIL AND GAS CONTRACTS. "Oil and Gas Contracts" means all leases,
licenses, farmout or farmin agreements, bottom hole or acreage contribution
agreements, operating agreements, unit agreements, declarations or orders, joint
venture, exploration, participation or acquisition agreements, division orders,
production, sales, purchase, exchange, processing or transportation agreements
and all other contracts and agreements affecting or relating to the ownership or
operation of the Interests or the disposition of the Hydrocarbons production
therefrom.
1.19 PERMITTED ENCUMBRANCES. "Permitted Encumbrances" means those
Encumbrances identified as such in SECTION 3.8.
1.20 SECURITIES ACT. "Securities Act" means the Securities Act of
1933, as amended, or any successor statute.
1.21 TAXES. "Taxes" means all taxes, charges, fees, levies or other
assessments, including, without limitation, income, gross receipts, excise,
property, sales, use, license, payroll and franchise taxes, imposed by any
Governmental Entity and includes any estimated tax, interest and penalties or
additions to tax.
1.22 TAX RETURN. A "Tax Return" is a report, return or other information
required to be supplied to a Governmental Entity in connection with Taxes
including, where permitted or required, combined or consolidated returns for any
group of entities that includes the Company.
1.23 WORKING INTEREST. "Working Interest" (OR "WI") means the decimal
interest in the full and entire leasehold estate created by virtue of the Leases
covered by EXHIBIT A and all rights and obligations of every kind and character
pertinent thereto or arising therefrom, without regard to any valid lessor
royalties, overriding royalties and/or other burdens against production insofar
as interest in said leasehold is burdened with the obligation to bear and pay
the cost of exploration, development and operation and, if different, the
decimal interest of the owner's right, title and interest in and to the lease
and well equipment, machinery, fixtures and other personal property of every
character situated on any Lease or well used or held for use in connection with
the mineral operations thereon.
ARTICLE 2
PURCHASE AND SALE OF STOCK
AND LIMITED PARTNER INTERESTS
2.1 TRANSFER OF STOCK. At the Closing and subject to the terms and
conditions set forth in this Agreement, Seller will sell, assign, transfer and
deliver to Buyer stock certificates representing the Company Stock, endorsed in
blank or accompanied by stock powers endorsed in blank conveying good and valid
title to all of the Company Stock, free and clear of all Encumbrances.
2.2 CONSIDERATION. At the Closing and subject to the terms and conditions
set forth in this Agreement, and in consideration of the sale, assignment,
transfer and delivery of the Company Stock, Buyer will pay an aggregate purchase
price of Five Hundred Thousand and No/100 Dollars ($500,000.00). The payment of
the purchase price shall be by certified or Cashier's check or wire transfer to
an account designated by the Seller.
2.3 THE CLOSING. The Closing shall take place on the Closing Date at the
offices of Seller in Denver, Colorado, at 3:00 p.m. on the 29th day of February,
1996, or such other place or time as Buyer and Seller may agree.
2.4 TRANSFER OF BANK ACCOUNTS. At the Closing, the Seller and the Company
shall transfer to the Buyer control of all bank accounts of the Company which
shall contain a balance of at least $240,000.00. Seller and the Company shall
execute such documents as shall be required to accomplish this transfer.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF SELLER AND THE COMPANY
Seller and the Company hereby represent, warrant and agree, as herein
indicated, except as set forth in the applicable section of the Disclosure
Schedule, as follows:
3.1 CORPORATE ORGANIZATION. The Seller represents and warrants that (i)
the Company is duly organized, validly existing and in good standing under the
laws of the State of California and has the corporate power to own its
properties and conduct its business substantially as it is presently being
conducted, (ii) the Company is duly qualified and in good standing in each of
the jurisdictions in which it is required by the nature of its business or the
ownership of its properties to so qualify except in those jurisdictions where
the failure to so qualify or be in good standing would not have a material
adverse effect upon the business, operations or the financial condition of the
Company and (iii) Seller has delivered to Buyer complete and correct copies of
the Articles of Incorporation and bylaws of the Company as are now in effect.
3.2 CAPITALIZATION. The Company represents and warrants that the
authorized and issued capital stock of the Company is set forth in Section 3.2
of the Disclosure Schedule and that all issued shares of the Company are duly
authorized, validly issued and outstanding, and are fully-paid and
non-assessable. There are in existence no subscriptions, preemptive rights,
calls, options, warrants, agreements, understanding, commitments or rights of
first refusal, or similar rights or any other agreements to which the Company or
the Seller is a party or by which the Company or Seller is bound relating to the
issuance, redemption, transfer, purchase or sale by any of them of any of the
Company's capital stock, or any other securities of the Company convertible into
capital stock or other securities of the Company;
3.3. STOCK OWNERSHIP. Seller represents and warrants with respect to it
that such Seller owns directly all of the capital stock of the Company, as
described in Section 2.1 of the Disclosure Schedule, free and clear of all
Encumbrances, and that upon delivery and payment for such stock as contemplated
by this Agreement, Seller will deliver to Buyer good and valid title thereto
free and clear of all Encumbrances and subject to no legal or equitable
restrictions of any kind.
3.4. AUTHORIZATION. Seller and the Company represent and warrant, with
respect to itself, that (i) such party has full power and authority to enter
into this Agreement and to carry out the transactions contemplated hereby; (ii)
Seller and the Company have taken all actions required by law, their charters,
bylaws or otherwise, to authorize the execution, delivery and performance of
this Agreement and the transactions contemplated hereby and (iii) this Agreement
is a valid and binding Agreement of Seller and the Company enforceable against
Seller and the Company in accordance with its terms, except as enforcement may
be limited by bankruptcy, insolvency, moratorium, reorganization or other laws
or equitable principles relating to or affecting creditors' rights generally.
3.5 NO VIOLATIONS; DEFAULTS. (a) The Company represents that the
execution, delivery and approval of this agreement by the Company the
consummation of the transactions contemplated herein by the Company will not in
any material respect, itself, or after the giving of notice or lapse of time:
(i) violate any provision of the respective charters of the Company; (ii)
violate, or be in conflict with, or constitute a default under, or permit the
termination or adverse amendment or modification of, any agreement or other
instrument to which the Company or any of the Limited Partnerships is a party or
by which it is bound; or (iii) result in the creation of any lien upon any of
the properties or assets of the Company or the Limited Partnerships or upon the
Company Stock.
(b) Seller represents and warrants, with respect to himself or
itself, that the execution, delivery and approval of this Agreement by Seller
and the consummation of the transactions contemplated herein by Seller will not
itself, or after the giving of notice or lapse of time, violate any provisions
of the respective charters or bylaws of Seller.
3.6 FINANCIAL STATEMENTS. (a) The Seller represents and warrants that the
Financial Statements were each prepared on an accrual basis and either an income
tax basis or in accordance with GAAP applied on a consistent basis (except as
stated in such Financial Statements and except for omission of footnotes) and
fairly present the financial position of the Company and the Limited
Partnerships, as the case may be, as of the dates thereof and the results of its
operations and changes in financial position for the respective periods then
ended, subject, in the case of the unaudited financial statements, to normal
year-end audit adjustments which, in the case of the unaudited financial
statements covering periods in 1995, will not be materially adverse to the
Company or the Limited Partnerships, as the case may be. The Financial
Statements do not reflect any non-recurring items except as stated thereon.
(b) The Seller further represents and warrants that except as set
forth elsewhere in this Agreement or in SECTION 3.6 of the Disclosure Schedules,
none of the Company or the Limited Partnerships has any liabilities or
obligations, whether direct, indirect, absolute, contingent, known, unknown,
matured, or otherwise of whatever nature, (including, without limitation,
liabilities as guarantor or otherwise with respect to obligations of others,)
except (i) liabilities that are fully reflected on or reserved against on the
Balance Sheet of the respective entity as of June 30, 1995, (ii) the
year-to-date detailed General Ledger Report as of December 31, 1995, dated
February 7, 1996, or (iii) liabilities incurred in the ordinary course of
business since such date and consistent with past practices of the Company and
the Limited Partnerships.
3.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. The Seller represents and
warrants that since December 31, 1994, the Company and each of the Limited
Partnerships has operated its business only in the ordinary course of business
and there has not been: (a) any material adverse change in its condition
(financial or otherwise), results of operations, properties or business; (b) any
declaration, setting aside or payment of any dividend (whether in cash, stock or
property) with respect to the capital stock of the Company or declaration or
making of any distribution with respect to interests in the Limited Partnerships
other than the distributions paid on January 31, April 30, July 31, October 31,
1995, and January 31, 1996, or other than in the ordinary course of business; or
(c) any borrowing, sale of assets or capital expenditure in excess of $50,000
individually or $100,000 in the aggregate, except for the sale of oil and gas
production in the ordinary course of business, or as set forth in Section 3.7 of
the Disclosure Schedule.
3.8 TITLE TO PROPERTY; ENCUMBRANCES. The Seller represents and warrants
that except as permitted by this Agreement and except as to the wells listed in
SECTION 3.8 of the Disclosure Schedule,
(a) the Limited Partnerships have (and as of the Closing will have) good
and defensible title to the Interests, entitling the relevant Limited
Partnership to receive not less than the Net Revenue Interests set forth in
EXHIBIT A of all Hydrocarbons produced, saved and marketed from the Interests
and obligating such Limited Partnership to bear costs and expenses relating to
the maintenance, development and operations of the interests not greater than
the Working Interests set forth on EXHIBIT A; and
(b) the properties and assets described in (a) above are free and clear of
any and all Encumbrances except the following (collectively the "Permitted
Encumbrances"):
(i) statutory Encumbrances not yet delinquent;
(ii) Encumbrances which do not materially impair the financial
condition, business or operations of the Limited Partnerships; and
(iii) encumbrances for Taxes not yet due or delinquent or the
validity of which are being contested in good faith by appropriate
actions.
3.9 STATUS OF THE INTERESTS. The Seller represents and warrants that,
except as to the wells listed in SECTION 3.9 of the Disclosure Schedule,
(a) no suit, action or other proceeding is pending or, to the
knowledge of the Seller, threatened before any court or governmental agency as
of the date of this Agreement that is likely to result in the impairment or loss
of any Limited Partnership's title to any material part of the Interests or that
might hinder or impede in any material respect the operation or value of the
Leases, and that the Seller shall promptly notify Buyer of any such suit, action
or other proceeding arising or threatened prior to the Closing with respect to
which any Seller receives actual notice;
(b) to the best of the Seller's and Company's knowledge all
royalties (other than royalties held in suspense), rentals and other payments
due under the Interests have been properly and timely paid and no notices have
been received by the Seller, the Company or the Limited Partnerships of any
claim to the contrary;
(c) neither the Company nor the Limited Partnerships are obligated
for any amounts exceeding in the aggregate $1,000 by virtue of any prepayment
arrangement under any contract for the sale of Hydrocarbons containing a "take
or pay" or similar provision or a production payment or any other arrangement to
deliver Hydrocarbons produced from the Interests at some future time without
then or thereafter receiving full payment therefor;
(d) no condition, obligation or other circumstance, including, but
not limited to, any prior overproduction under a gas balancing agreement or
notice of any of these, which would give rise to expenses, losses or liabilities
to the company or the Limited Partnerships exceeding in the aggregate $10,000,
exists which would affect the right of Buyer to receive full payment of proceeds
from the sale of Hydrocarbons attributable to the interests (to the extent of
the Company's interest in such Limited Partnership);
(e) after careful examination and to the best of the Seller's and
Company's knowledge, during the period of time that the Interests have been
owned by any of the Limited Partnerships, all ad valorem, property, production,
severance, windfall profit and similar taxes and assessments based on or
measured by the ownership of property or the production of the Hydrocarbons or
the receipt of proceeds therefrom on the interests have been properly paid
(excluding any such taxes and assessments which are being contested in good
faith by appropriate proceedings and as to which adequate reserves have been
provided), and all such taxes and assessments which become due and payable prior
to the Closing and of which the Seller has actual knowledge shall be properly
paid by such Limited Partnership; and
(f) the leases in which any of the Limited Partnerships hold the
Interests are in full force and effect.
3.10 LITIGATION; NO VIOLATIONS OF LAW.
(a) LITIGATION. Section 3.10 of the Disclosure Statement sets forth
a list and brief description of all litigation to which the Company or the
Limited Partnerships have been named a party during the last five (5) years from
the date hereof, and a list and brief description of material pending or
threatened litigation or administrative or governmental proceeding to which the
Company or the Limited Partnership are or may become a party. The Seller
represents and warrants that there is no action, suit, proceeding or arbitration
at law or in equity or before or by any Governmental Entity pending or, to the
best knowledge of the Seller threatened against the Company or any of the
Limited Partnerships that would result, in the aggregate, in any material
adverse change in the business, operations, properties, assets or condition
(financial or otherwise) of the Company or any of the Limited Partnerships,
taken as a whole, or that would materially adversely affect their ability to
perform their respective obligations hereunder.
(b) NO VIOLATIONS OF LAW. After careful examination and to the best
of Seller's and Company's knowledge, none of the Company or the Limited
Partnerships is: (a) in violation of any applicable law, rule, regulation or
order that individually or in the aggregate materially adversely affects the
business, operations, properties, assets or condition (financial or otherwise)
of the Company or any Limited Partnership, taken as a whole; or (b) subject to
or in default with respect to any judgment, writ, injunction, decree, rule or
regulation of any Governmental Entity that would have a materially adverse
effect on the business, operations, properties, assets or condition (financial
or otherwise) of the Company, taken as a whole.
3.11 MATERIAL CONTRACTS. The Company represents and warrants that SECTION
3.11 of the Disclosure Schedule contains an accurate and complete list of all
contracts, agreements, licenses and instruments, written or oral, to which the
Company or any Limited Partnership is a party or is bound which pertain to the
business, assets, financial condition or results of operations of the Company or
any Limited Partnership, other than with respect to oil and gas operations, and
(i) (A) involve payments of more than $50,000 per year and (B) cannot be
terminated in less than 60 days; (ii) are for capital expenditures for the
acquisition or construction of fixed assets in an amount exceeding $50,000 in
any individual case of $100,000 in the aggregate; or (iii) otherwise materially
affect the operations or business of the Company or any of the Limited
Partnerships. True and correct copies of all items so listed in SECTION 3.11 of
the Disclosure Schedule have been made available by the Company to Buyer.
3.12 GENERAL PARTNER INTERESTS. (a) The Company represents and
warrants that the Company is the sole general partner of the Limited
Partnerships.
(b) The Company further represents and warrants that each of the
Limited Partnerships is duly formed and validly existing as a limited
partnership under the laws of the state of its formation. Each of the Limited
Partnerships is duly qualified and in good standing in each of the jurisdictions
in which it is required by the nature of its business or the ownership of its
properties to so qualify except in those jurisdictions where the failure to so
qualify or be in good standing would not have a material adverse effect upon the
business, operations or the financial condition of the Limited Partnership.
SECTION 3.12 of the Disclosure Schedule sets forth each of the states in which
each of the Limited Partnerships is organized and is qualified to transact
business. Each of the Limited Partnerships has the partnership power to own its
properties and conduct its business as it is presently being conducted.
3.13 EXPENSES OR FINDER'S FEES. Each of the parties hereto shall bear its
own expenses incurred in connection with this Agreement and with the performance
of its obligations hereunder. Except for Rob Lindermanis of Bay Capital
Corporation whose fee is being paid by Buyer. The Seller and Buyer agree and
represent to each other that no third person has brought the parties together or
been instrumental in this transaction to such an extent as to be entitled to
compensation therefor. Accordingly, each of the parties hereto shall indemnify
the other for any liability to any broker, finder or other third party for any
fees in connection with the transactions contemplated hereby resulting from such
indemnifying party's actions in connection herewith.
3.14 TAXES. Federal, state and local tax returns, reports and estimates
have been filed for the Company and the Limited Partnership in correct form for
all periods in which such were due. All taxes shown thereby to be payable have
been paid or adequate provision has been made therefor. Any additional tax
liability asserted by the Internal Revenue Service as a result of any
examinations has been paid unless contested and disclosed to Buyer in writing.
The provisions for taxes shown on the Financial Statements include liabilities
for all taxes (including but not limited to, employee income tax withholding,
social security, franchise, value added, sales, use, ad valorem and unemployment
taxes) to the date thereof. All withholding taxes or other taxes the Company is
obligated to collect have been withheld or collected. Neither the Seller nor the
Company has made or filed any income tax elections to be taxable as a DISC or
under Subchapter S of the Internal Revenue Code, nor any consents or waivers of
statutes of limitation with respect to the Company.
3.15 INSURANCE. The Company is adequately insured with respect to loss or
damage to buildings, equipment and inventory, public liability, products
liability, worker's compensation and all other risks normally insured against by
companies similarly situated. The Company does not directly own these policies;
therefore, it would be necessary for the Buyer to purchase new policies to cover
these risks.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents, warrants and agrees as follows:
4.1 CORPORATE ORGANIZATION. Buyer is a corporation duly formed, validly
existing and in good standing under the laws of the State of Texas and has full
power and authority to execute and deliver this Agreement and to consummate all
of the transactions contemplated hereby.
4.2 AUTHORIZATION. The execution, delivery and performance of this
Agreement by Buyer have been duly and validly authorized and approved by the
board of directors of Buyer, and Buyer has taken or will take prior to the
Closing Date all action required by law to authorize the execution, delivery and
performance of this Agreement, and this Agreement is a valid and binding
agreement of Buyer, enforceable against Buyer in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency, moratorium,
reorganization or other laws or equitable principles relating to or affecting
creditors' rights generally.
4.3 NO VIOLATIONS; DEFAULTS. The execution and delivery of this Agreement,
the approval of this Agreement and the consummation of the transactions
contemplated hereby by Buyer will not in any material respect: (a) violate any
provision of its charter or bylaws; or (b) violate, or be in conflict with, or
constitute a material default under, or permit the termination of, any material
agreement or other instrument to which Buyer is a party or by which it is bound,
except for violations, conflicts or defaults which, in the aggregate, would not
have a materially adverse effect on the ability of Buyer to perform its
obligations under this Agreement or render this Agreement unenforceable by the
Seller.
4.4 INVESTMENT INTENT. Buyer is acquiring the Company Stock for its own
account, for investment, and with no view to the distribution thereof in any
transaction or transactions that would require registration under the Securities
Act or any state securities law.
ARTICLE 5
CONDUCT OF BUSINESS
During the period from the date of this Agreement and continuing until the
Closing Date, the Company agrees and the Seller, solely with respect to SECTION
5.3, agrees, (except as expressly contemplated by this Agreement or to the
extent that Buyer shall otherwise consent in writing) that:
5.1 REGULAR COURSE OF BUSINESS. The Company will carry on its business and
the business of the Limited Partnerships in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted and, to the
extent consistent with such business, use all reasonable efforts to preserve
relationships with customers, suppliers and any others having business dealings
with it. The Limited Partnerships will continue to pay the Company for general
and administrative expenses and to reimburse the Company for expenses incurred
on behalf of the Limited Partnerships through the Closing Date. The parties
hereto will consult as necessary regarding the operations of the Interests.
5.2 CERTAIN COVENANTS WITH RESPECT TO THE INTERESTS. The Company shall,
except as otherwise permitted by this Agreement:
(a) promptly notify Buyer of the receipt of any written notice or
written claim of default or breach by the Company or any of the Limited
Partnerships, or of any termination of cancellation, or written threat of
termination, of any of the Oil and Gas Contracts;
(b) subject to the Oil and Gas Contracts, prior to Closing, cause
the interests to be operated and maintained in a good and workmanlike manner
consistent with prior practices, not abandon any Interests other than in the
ordinary course of business and pay or cause to be paid all costs and expenses
in connection therewith. The Company shall not authorize any operation on any
well included on the leases covering the Interests other than in the ordinary
course of business and will promptly notify the Buyer of its granting any such
authorization;
(c) not enter into any new agreements or commitments with respect to
the Interests, not modify or terminate any of the Oil and Gas Contracts, or
encumber any of the Interests and not commit itself to do any of the foregoing,
other than in the ordinary course of business in each case; and
(d) exercise all due diligence in safeguarding and maintaining all
engineering, geological and geophysical data, reports and maps, contract rights
and like information relating to the Interests.
Notwithstanding the foregoing provisions, nothing contained in this SECTION 5.2
shall limit the rights of the Company (i) to produce, consume or sell
Hydrocarbons from the Interest in the ordinary course of business of (ii) to
perform its obligations under any Oil and Gas Contract or any Limited
Partnership Agreement.
5.3 AMENDMENTS TO CHARTER AND BYLAWS. The Company will not, nor will
Seller cause or permit the Company to, amend (i) the charter or bylaws of the
Company or (ii) any of the Limited Partnership Agreements.
5.4 CAPITAL CHANGES; ISSUANCE OF SECURITIES. The Company will not issue,
deliver, sell or authorize or propose the issuance, deliver, sale or purchase of
any shares of its capital stock of any class or any securities convertible into,
or rights, warrants or options to acquire, any such shares or other convertible
securities.
5.5 DIVIDENDS AND DISTRIBUTIONS. The Company will not declare, set aside
or pay any dividend or distribution with respect to its capital stock or other
ownership interest or, except for the distribution to limited partners for the
fourth calendar quarter of 1995 (paid January 31, 1996), permit the Limited
Partnerships to declare or make any distributions.
5.6 SUBSIDIARIES. Neither the Company nor any of the Limited Partnerships
will organize any new Subsidiary or acquire any capital stock or other equity
securities or ownership interest of any corporation or business entity.
5.7 CERTAIN CHANGES. Except as set forth in SECTION 5.7 of the Disclosure
Schedule, or except with the prior written consent of Buyer, neither the Company
nor any of the Limited Partnerships will:
(a) BORROW FUNDS. Borrow or agree to borrow any funds or incur,
assume or become subject to, whether directly or by way of guarantee or
otherwise, any other obligation or liability (absolute or contingent) except
obligations and liabilities incurred in the ordinary course of business in which
event in connection with any such borrowing, the Company will promptly notify
Buyer of such borrowing;
(b) ENCUMBRANCES. Cause any of its property or assets (real,
personal or mixed, tangible or intangible) to be subjected to any Encumbrance
other than liens for taxes not yet due and payable or which are being disputed
in good faith;
(c) SELL PROPERTY. Sell, transfer, or otherwise dispose of any of
its properties or assets, except for properties and assets plugged and abandoned
or disposed of in accordance with customary practice in the business, and sales,
transfers or other dispositions for fair and equivalent value in the ordinary
course of business and consistent with past practice; provided that if the
Company shall sell, transfer or dispose of any such assets, the Company will
promptly notify Buyer of any such sale, transfer or other disposition; or
(d) MAKE CAPITAL EXPENDITURES. Except in the ordinary course of
business, make capital expenditures or commitments for additions to property,
other than as set forth in SECTION 5.7 of the Disclosure Schedule.
5.8 NON-BREACH. Notwithstanding any provision in this ARTICLE 5, the
failure or inability of the Company to comply with any provision in this ARTICLE
5 as a consequence of (i) its fiduciary duty as general partner to any of the
Limited Partnerships, (ii) its compliance with any requirement under any of the
Limited Partnership Agreements, (iii) its status as a minority owner in any
Interest or other property or (iv) the fulfillment of legal or existing
contractual obligations of any other type, will not constitute a breach by the
Company of such provision.
ARTICLE 6
ADDITIONAL AGREEMENTS
6.1 ACCESS TO INFORMATION. The Company shall afford to Buyer and to
Buyer's accountants, counsel and other representatives reasonable access during
normal business hours during the period prior to the Closing Date to all
properties, books, documents and records relating to the Company. All
information made available and copies made pursuant hereto shall be subject to
the confidentiality agreement set forth in SECTION 6.5 below.
6.2 EXPENSES. Whether or not the transactions contemplated hereby are
consummated, all costs and expenses incurred in connection with this Agreement
and the related transactions contemplated will be paid by the party incurring
such expense.
6.3 ADDITIONAL AGREEMENTS; FURTHER ACTIONS. Subject to the terms and
conditions of this Agreement, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable to consummate and make
effective the transactions contemplated by this Agreement.
6.4 PUBLIC ANNOUNCEMENTS. Seller and Buyer agree that they will not make
any public announcements regarding the existence of this Agreement or the
transactions contemplated hereby except as required by law, following prior
consultation as to the timing and content of such announcement with the other
party hereto.
6.5 CONFIDENTIALITY. Buyer and Seller will maintain the confidentiality of
any and all confidential information furnished to one of them by the other in
connection with the transactions contemplated by this Agreement, except as may
be required by any Governmental Entity. If this Agreement is terminated, each
party hereto shall, as soon as practicable, return to the other party hereto all
copies of confidential information including, without limitation, summaries and
analyses in the possession of such party obtained from such other party pursuant
to any provision of this Agreement.
6.6 INDEMNIFICATION. (a) Buyer shall indemnify and hold harmless Seller
against and from any Losses incurred or suffered by Seller after the Closing
arising out of or relating to (i) any duty, obligation or liability of the
general partner of the Limited Partnerships arising after the Closing Date; (ii)
with respect to the Interests, all claims, costs, expenses and liabilities which
accrue or relate to times after the Closing Date, and (iii) any breach or
failure by Buyer of any representation or warranty which survives the Agreement.
(b) Seller shall indemnify and hold harmless Buyer against and from
any Losses incurred or suffered by Buyer after the Closing arising out of or
relating to (i) any duty, obligation or liability of the general partner of the
Limited Partnerships arising before the Closing Date; (ii) with respect to the
Interests, all claims, costs, expenses and liabilities which accrue or relate to
times before the Closing Date, and (iii) any breach or failure by Seller of any
representation or warranty which survives the Agreement.
(c) Upon receipt by Seller (for purposes of SECTION 6.6 (B) ) or
Buyer (for purposes of SECTION 6.6 (A) ) (each such party, for such purposes,
being hereinafter referred to as an "Indemnified Party") of notice of any
action, suit, proceeding, claim, demand or assessment against such Indemnified
Party that might give rise to a claim pursuant to SECTION 6.6, the Indemnified
Party shall give written notice thereof within ten days (the "Notice of Claim")
to the Buyer or Seller, as the case may be (each such party, for such purposes,
being hereinafter referred to as an "Indemnifying Party") indicating the nature
of such claim and the basis therefor. The Notice of Claim shall specify all
facts known to Indemnified Party giving rise to such claim and the amount or an
estimate of the amount of the liability arising therefrom.
(d) A claim for indemnity may, at the option of the Indemnified
Party, be asserted as soon as any claim has been asserted by a third party in
writing, regardless of whether actual harm has been suffered or out-of-pocket
expenses incurred, provided that the Indemnified Party shall have reasonably
determined that it may be liable or shall otherwise incur Losses in respect of
such claim.
(e) Promptly after a claim is made for which the Indemnified Party
seeks indemnity, the Indemnified Party shall permit the Indemnifying Party, at
its option and expense, to assume the defense of such action, suit, proceeding,
claim, demand or assessment with full authority to conduct such defense and the
Indemnified Party will cooperate fully in such defense.
(f) Any delay or failure to so notify the Indemnifying Party shall
relieve the Indemnifying Party of its obligations hereunder only to the extent,
if at all, that it is prejudiced by reason of such delay or failure. The
Indemnified Party shall have the right to employ separate counsel in any of the
foregoing actions, claims or proceedings and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
the Indemnified Party unless both the Indemnified Party and the Indemnifying
Party shall in good faith determine that representation by the same counsel is
inappropriate. In the event that the Indemnifying Party, within ten (10) days
after notice of any such action or claim fails to assume the defense thereof,
the Indemnified Party shall have the right to undertake the defense, compromise
or settlement of such action, claim or proceeding for the account of the
Indemnifying Party, subject to the right of the Indemnifying Party to assume the
defense of such action, claim or proceeding with counsel reasonably satisfactory
to the Indemnified Party at any time prior to the settlement, compromise or
final determination thereof. Anything in this SECTION 6.6 to the contrary
notwithstanding, the Indemnifying Party shall not, without the Indemnified
Party's prior written consent, settle or compromise any action or claim or
proceeding or consent to entry of any judgment with respect to any such action
or claim unless such settlement or compromise requires solely the payment of
money damages by the Indemnifying Party and includes as an unconditional term
thereof the release by the claimant or the plaintiff of the Indemnified Party
from all liability in respect of such action, claim or proceeding.
6.7 TAXES. The Company shall timely prepare and file all Tax Returns of
the Limited Partnerships and of the Company for federal and state tax purposes
for the year ended December 31, 1995. The Company will furnish to the limited
partners of the Limited Partnerships the information necessary for federal and
state tax purposes for such year.
6.8 FURTHER ASSURANCES. After Closing, Seller and Buyer shall execute,
acknowledge and deliver or cause to be executed, acknowledged and delivered such
instruments and take such other action including payment of monies as may be
necessary or advisable to carry out their obligations under this Agreement and
under any document, certificate or other instrument delivered pursuant hereto or
required by law. If at any time subsequent to the Closing, either party comes
into possession of money or property belonging to the other, including revenues
attributable to the Interests, such money or property shall be promptly turned
over to the party entitled thereto.
6.9 DELIVERY OF FILES AND RECORDS. Within sixty (60) business days after
the Closing, Seller shall deliver to Buyer all files and records relating to the
Company and the Interests and not previously delivered to Buyer and information
relating to the Limited Partnerships, including tax, investor and accounting
information. Buyer will make such files and records available to Seller for a
period of three (3) years after the Closing.
ARTICLE 7
CONDITIONS PRECEDENT
7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The obligations of Seller and
Buyer to consummate the closing of the transactions contemplated hereby are
subject to the satisfaction, at or before the Closing Date, of each of the
following conditions:
(a) NO INJUNCTIONS; ORDERS. No preliminary or permanent injunction
or other order shall have been issued by any Governmental Entity of competent
jurisdiction nor shall any statute, rule, regulation or executive order be
promulgated or enacted by any Governmental Entity that prevents the consummation
of the transactions contemplated hereby.
(b) NO LITIGATION. No action or proceeding before any Governmental
Entity and no investigation by any Governmental Entity shall be pending, and no
action or proceeding by any Governmental Entity shall have been threatened
against Seller or Buyer or any of their respective affiliates, associates,
officers or directors seeking to prevent or delay the transactions contemplated
hereby or challenging any of the terms or provisions of this Agreement or
seeking material damages in connection therewith.
7.2 CONDITIONS TO SELLER'S OBLIGATIONS. In addition to the conditions set
forth in SECTION 7.1 hereof, the obligations of Seller to consummate the closing
of the transactions contemplated hereby are subject to the satisfaction, on or
prior to the Closing Date, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of Buyer are true and correct in all material respects on the date
hereof and shall be in all material respects true and correct as of the Closing
Date as though such representations and warranties were made at and as of such
date, except for changes expressly permitted or contemplated by this Agreement.
(b) PERFORMANCE. Buyer shall have performed and complied, in all
material respects, with all agreements, covenants, obligations and conditions
required by this Agreement to be performed or complied with by it on or prior to
the Closing Date.
(c) CERTIFICATES. Buyer shall have furnished such certificates of
its officers and others to evidence compliance with the conditions set forth in
this Article, as may be reasonably requested by Seller.
(d) DELIVERIES BY BUYER.
At the Closing, Buyer shall deliver or cause to be delivered to Seller the
following:
(1) the cash consideration described in SECTION 2.2 hereof;
(2) instruments evidencing its assumption of all liability on
any state, federal or other surety bond relating to the Interests;
and
(3) such documents as are required pursuant to this Agreement
or as may reasonably be requested by Seller.
7.3 CONDITIONS TO BUYER'S OBLIGATIONS. In addition to the conditions set
forth in SECTION 7.1 hereof, the obligations of Buyer to consummate the closing
of the transactions contemplated hereby are subject to the satisfaction, on or
prior to the Closing Date, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of Seller and the Company are true and correct in all material
respects on the date hereof and shall be in all material respects true and
correct as of the Closing Date as though such representations and warranties
were made at and as of such date, except for changes expressly permitted or
contemplated by this Agreement and except for any such representation or
warranty that is expressly made as of the date of this Agreement.
(b) PERFORMANCE. Seller and the Company shall have performed and
complied, in all material respects, with all agreements, covenants, obligations
and conditions required by this Agreement to be performed or complied with by
them on or prior to the Closing Date.
(c) CERTIFICATES. Seller shall have furnished such certificates of
its officers and others to evidence compliance with the conditions set forth in
this Article, as may be reasonably requested by Buyer.
(d) DELIVERIES OF SELLER.
On the Closing Date, Seller shall deliver or cause to be delivered the
following to Buyer:
(1) certificates evidencing all of the Company Stock in form
acceptable for transfer on the books of the Company;
(2) the resignations of all officers and directors of the
Company;
(3) such other documents as are required pursuant to this
Agreement or as may reasonably be requested by Buyer.
ARTICLE 8
TERMINATION AND WAIVER
8.1 GROUNDS FOR TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date, or on the Closing Date, as specified below, under the
circumstances set forth below pursuant to written notice given by the party
wishing to terminate this Agreement given in accordance with the provisions of
SECTION 9.2 hereof.
(a) MUTUAL CONSENT. By mutual written consent of Buyer and
Seller.
(b) BREACH OF WARRANTIES OR COVENANTS; MISREPRESENTATION. By either
Buyer or Seller if there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of the
other party set forth in this Agreement and such breach of a covenant or
agreement has not been promptly cured within ten days of receipt of written
notice from the non-breaching party by the breaching party.
(c) EXPIRATION DATE. By either Buyer or Seller if the Closing shall
not have been consummated on or before February 29, 1996, which date may be
extended by mutual written agreement of Buyer and Seller.
(d) DISTRIBUTION RIGHTS. At the option of Buyer, by the failure of
Buyer to acquire the Distribution Rights owned by Belleview Capital Corp. and
David E. Park, Jr., on terms and conditions acceptable to Buyer.
8.2 AUTOMATIC TERMINATION. This Agreement shall automatically terminate if
there shall be a final nonappealable order of a Governmental Entity of competent
jurisdiction in effect preventing the Closing.
8.3 EFFECT OF TERMINATION. If this Agreement is terminated by either Buyer
of Seller, or shall be automatically terminated, as provided above, this
Agreement shall forthwith become void and there shall be no liability on the
part of Buyer or Seller, except liabilities then existing as a result of a
breach of any covenant or agreement contained herein, those then existing as a
result of any willful misrepresentation made herein and with respect to SECTION
6.2 and 6.5 hereof.
8.4 AMENDMENT. At any time prior to the Closing Date, this Agreement may
be amended or modified in any respect by the parties hereto only by an agreement
in writing.
8.5 WAIVER. Buyer or Seller may (but are not obligated to), to the extent
legally allowed: (a) extend the time for the performance of any of the
obligations or other acts of the other party; (b) waive any inaccuracies in the
representations and warranties made to such party; or (c) waive compliance with
any of the agreements or conditions for the benefit of such party. No such
agreement shall be effective unless in writing.
ARTICLE 9
MISCELLANEOUS
9.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties contained in this Agreement shall survive the Closing. The
covenants and agreements contained in this Agreement shall survive the Closing
Date and shall continue until terminated in accordance with their terms, except
for the agreements in SECTION 6.6 which shall survive for one (1) year following
the Closing Date.
9.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be given (and shall be deemed to have been duly given upon
receipt) by delivery in person by telegram, telex or other standard form of
telecommunications, or by registered, addressed as follows:
(a) If to Buyer, to:
AMF PRODUCTION COMPANY
2121 Sage Road, Suite 175
Houston, Texas 77056
Attn: Mr. Frank A. Lodzinski, Jr.
With a copy to:
Carl H. Moerer, Jr.
Moerer & Burton, LLP
440 Louisiana, Suite 350
Houston, Texas 77002-1634
(b) If to Seller, to:
Oxford Consolidated, Inc.
10 Inverness Drive East, Suite 101
Inglewood, Colorado 80012
Attn: Mr. Michael J. Foy
(c) If to Company, to:
Cliffwood Energy Company
10 Inverness Drive East, Suite 101
Inglewood, Colorado 80012
Attn: Mr. Michael J. Foy
or to such other addresses as may have been furnished to the other in writing.
9.3 ASSIGNMENTS. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Neither this Agreement nor any of the rights,
interest or obligations hereunder shall be assigned by any party without the
prior written consent of the others. Nothing contained herein, express or
implied, is intended to confer on any person other than the parties hereto or
their respective successors and permitted assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
9.4 GOVERNING LAW. THIS AGREEMENT AND THE LEGAL RELATIONS BETWEEN THE
PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF TEXAS APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED IN THAT STATE, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
9.5 VENUE FOR LEGAL ACTIONS. For purposes of determining venue in the
event that a legal action is brought by either party to this Agreement, this
Agreement shall be deemed performable in Houston, Harris County, Texas, in all
respects and the parties specifically agree to bring any and all legal actions
regarding interpretation, enforcement, and/or any other aspect of this Agreement
in the state courts of Houston, Harris County, Texas, or the Federal Courts of
the Southern District of Texas.
9.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute but one agreement.
9.7 ENTIRE AGREEMENT. This Agreement (including the instruments between
the parties referred to herein and any waivers delivered pursuant hereto)
constitutes the entire agreement among the parties and supersedes all other
prior agreements and understandings, both written and oral, among the parties,
or any of them, with respect to the subject matter hereof. The Exhibits and
Schedules are a part of this Agreement as if fully set forth herein. All
references to sections, subsections, clauses, exhibits and schedules shall be
deemed references to such part of this Agreement, unless the context shall
otherwise require.
9.8 HEADINGS. The headings contained in this Agreement are inserted for
convenience only and do not constitute a part of this Agreement.
9.9 INVALIDITY. If any provision of this Agreement is held invalid or
unenforceable, the remainder of this Agreement shall nevertheless remain in full
force and effect.
9.10 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur if any of the provisions of this Agreement were not performed
in accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, in addition to any other remedy to which they are entitled
at law or in equity.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement.
COMPANY: SELLER:
CLIFFWOOD ENERGY COMPANY OXFORD CONSOLIDATED, INC.
By: /S/ MICHAEL J. FOY By: /S/ MICHAEL J. FOY
Its: President Its: President
BUYER:
AMF PRODUCTION COMPANY
By: /S/ FRANK A. LODZINSKI
Its: President
EXHIBIT 10.17
STANDARD OFFICE BUILDING
LEASE AGREEMENT
THE STATE OF TEXAS
COUNTY OF HARRIS
THIS LEASE AGREEMENT made and entered into on this the 14TH day of
JANUARY, 1997 between RADLER ENTERPRISES TEXAS, INC. (hereinafter called
"Landlord"), whose address for purposes hereof is 14450 T.C. JESTER BLVD., SUITE
100 Houston, Texas, 77014, and CLIFFWOOD OIL & GAS CORP., a Texas corporation
(hereinafter called "Tenant"). Tenant's address for purposes hereof until
commencement of the term of this Lease being 110 CYPRESS STATION, SUITE 220,
HOUSTON, TEXAS, 77090 and thereafter being that of the "Building" (hereinafter
defined).
WITNESSETH:
1. LEASED PREMISES. Subject to and upon the terms, provisions and conditions
hereinafter set forth, Landlord does hereby lease, demise and let to Tenant and
Tenant does hereby lease from Landlord those certain premises (hereinafter
sometimes called the "Leased Premises") in the building (herein called the
"Building") situated upon the property described in Exhibit "A" attached hereto,
such premises being more particularly described as follows:
CYPRESS COURT OFFICE BUILDING
110 CYPRESS STATION DRIVE, SUITE 220 & 246
HOUSTON, TEXAS 77090
as reflected on the floor plan of such premises attached hereto and made a part
hereof as Exhibit "B".
The total aggregate rentable area in the Leased Premises is hereby
stipulated for all purposes hereof to be approximately 5092 square feet, whether
the same should be more or less as a result of minor variations resulting from
actual construction and completion of the Leased Premises for occupancy so long
as such work is done in accordance with the terms and provisions hereof.
2. TERM. Subject to and upon the terms and conditions set forth herein, or in
any exhibit or addendum hereto, this Lease shall continue in force for a term of
approximately THIRTY SIX (36) MONTHS, beginning on the 16TH day of JANUARY,
1997, and ending on the 31ST day of JANUARY, 2000. In the event the Leased
Premises should not be ready for occupancy by said commencement date for any
reason, Landlord shall not be liable or responsible for any claims, damages or
liabilities in connection therewith or by reason thereof. This Lease Agreement
shall be effective only from the time that the Leased Premises are ready for
occupancy by Tenant which date shall be the date of commencement of the term of
this Lease. Should the term of this Lease commence on a date other than that
specified in this Section 2, Landlord and Tenant will, at the request of either,
execute a declaration specifying the beginning date of the term of this Lease
Agreement. In such event, rental under this Lease Agreement shall not commence
until said revised commencement date, and the stated term in this Lease
Agreement shall thereupon commence and the expiration date shall be extended so
as to give effect to the full stated term. Also, in such event, Landlord shall
give Tenant written notice of such revised commencement date at least fifteen
(15) days in advance thereof.
3. USE, COMMON AREAS, HAZARDOUS SUBSTANCES AND BUILDING RULES. (a) The Leased
Premises are to be used and occupied by Tenant solely
for the purpose of an office and for no other use without Landlord's prior
written consent. Tenant agrees not to occupy or use, or permit any portion of
the Leased Premises to be occupied or used for any business or purpose which is
unlawful, disreputable or
Radler Office Form 1/97 1
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deemed to be extra-hazardous on account of fire, or permit anything to be done
which would in any way increase the rate of fire insurance coverage on said
Building and/or its contents.
Tenant further agrees to conduct its business and control its agents,
employees, invitees and visitors in such manner as not to create any nuisance,
or interfere with, annoy or disturb any other tenant or Landlord in his
operation of the Building.
Tenant, by entry under this lease, acknowledges that it has examined the
Leased Premises and accepts them as being in good state of repair and in the
condition called for under this Lease. Tenant accepts the premises in its "AS
IS" condition, without further improvements by Landlord.
(b) The "COMMON AREA" of the premises is that part of the premises
designated by Landlord from time to time for the common use of all tenants,
including among other facilities, those interior and exterior portions of the
Building and such other areas, facilities and equipment serving the Building,
which are designated by Landlord for the common use and benefit of tenants,
their respective employees, customers and invitees and/or members of the public,
including, but not limited to: entrances; exits: lobbies; elevators; stairways:
corridors: passageways; public washrooms; parking facilities: loading areas;
plazas; private sidewalks; landscaped areas; walkways: mechanical, electrical
and telephone rooms; utility and service facilities; electrical, mechanical,
sprinkler, fire detection and fire prevention and security equipment and
facilities; duct shafts; operating, maintenance and storage areas; and service
areas, equipment and facilities. All of these "COMMON AREAS" are subject to
Landlord's sole management and control and shall be operated and maintained in
such manner as Landlord in his discretion shall determine. Landlord reserves the
right to change from time to time the dimensions and location of the "COMMON
AREAS", as well as the dimensions, identity and type of any buildings, and to
construct additional buildings or additional stories on existing buildings or
other improvements. Landlord also reserves the right to dedicate portions of the
"COMMON AREA" and other portions of the premises (excepting only the Demised
Premises) for street, park, utility and other public purposes. Tenant, and its
employees, customers, subtenants, licensees, and guests shall have the
non-exclusive right to use the "COMMON AREA" as constituted from time to time,
such use to be in common with Landlord, other tenants and other persons entitled
to use the same, and subject to such reasonable rules and regulations governing
such use as Landlord may from time to time prescribe. Landlord may elect
(without any obligation to do so) to designate from time to time, Tenant,
employee, subtenant, licensee and guests parking areas. Should Landlord so
designate such parking area, then Tenant, its employees, subtenants, licensees
and guests may have the non-exclusive use, along with other Tenants and their
employees, subtenants, licensees and guests, of only that available space so
designated by Landlord for such use and neither Tenant, nor Tenant's employees,
subtenants, licensees or guests shall use any other parking space. Upon request
of Landlord, Tenant will furnish to Landlord a complete list of the license
numbers of all automobiles operated by Tenant, its employees, subtenants,
licensees or guests. If any automobile or other vehicle owned by Tenant or any
of its employees or any of its subtenants, licensees or guests, or any of their
respective employees, shall at any time be parked in any part of Landlord's
premises, other than the specific areas designated by Landlord from time to time
for employee parking, Landlord shall be, and is hereby, authorized to cause such
automobile or other vehicle to be removed to such other location, either within
or beyond Landlord's premises, and Tenant shall, and does hereby, agree to
indemnify Landlord, his employees, and agents, and hold each of them harmless
from any and all claims of whatsoever sort which may arise by reason of such
removal. Tenant shall not solicit business or display merchandise within the
"COMMON AREA", or distribute handbills therein, or take any action which would
interfere with the rights of other persons to use the "COMMON AREA". Landlord
may temporarily close any part of the "COMMON AREA" for such periods of time as
may be necessary to prevent the public from obtaining prescriptive rights or to
make repairs or alterations.
(c) Hazardous Substances
(1) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE"
as used in this Lease shall mean any product, substance, chemical, or material
or waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Landlord to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products or by-products or fractions thereof. Tenant
shall not engage in any activity in, on or about the Premises which constitutes
a Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Landlord and compliance in a timely manner (at
Tenant's sole cost and expense) with all
Radler Office Form 1/97 2
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Applicable Law (as defined in section 3(d)). "REPORTABLE USE" shall mean (i) no
installation or use of any above or below ground storage tank, (ii) the
generation, possession, storage, use, transportation, or disposal of a Hazardous
Substance that requires a permit from, or with respect to which a report,
notice, registration or business plan is required to be filed with, any
governmental authority. Reportable Use shall also include Tenant's being
responsible for the presence in, on or about the Premises of a Hazardous
Substance with respect to which any Applicable Law requires that a notice be
given to persons entering or occupying the Premises or neighboring properties.
Notwithstanding the forgoing, Tenant may, without Landlord's prior consent, but
in compliance with all Applicable Law, use any ordinary and customary materials
reasonably required to be used by Tenant in the normal course of Tenant's
business permitted on the Premises, so long as such use is not a Reportable Use
and does not expose the premises or neighboring properties to any meaningful
risk or contamination or damage or expose Landlord to any liability therefor. In
addition, Landlord may (but without any obligation to do so) condition its
consent to the use or presence of any Hazardous Substance, activity or storage
tank by Tenant upon Tenant's giving Landlord such additional assurances as
Landlord, in its reasonable discretion, deems necessary to protect itself, the
public, the Premises and the environment against damage, contamination or injury
and/or liability therefrom or therefor, including, but not limited to, the
installation (and removal on or before Lease expiration or earlier termination
or reasonably necessary protective modification to the Premises (such as
concrete encasements.) and/or the deposit of an additional Security Deposit
under Section 4(c) hereof.
(2) DUTY TO INFORM LANDLORD. If Tenant knows, or has reasonable
cause to believe, that a Hazardous Substance, or a condition involving or
resulting from same, has come to be located in, on, under or about the Premises,
other than as previously consented to by Landlord, Tenant shall immediately give
written notice of such fact to Landlord. Tenant shall also immediately give
Landlord a copy of' any statement, report, notice, registration, application,
permit, business plan, license, claim, action or proceeding given to, or
received from, any governmental authority or private party, or persons entering
or occupying the Premises, concerning the presence, spill, release, discharge
of, or exposure to, any Hazardous Substance or contamination in, on, or about
the Premises, including but not limited to all such documents as may be involved
in any Reportable Uses involving the Premises.
(3) INDEMNIFICATION. Tenant shall indemnify, protect, defend and
hold Landlord, its agents, employees, lenders and ground Landlord, if any, and
the Premises. harmless from and against any and all loss of rents and/or
damages, liabilities, judgments, costs, claims, liens, expenses, penalties,
permits and attorney's and consultant's fees arising out of or involving any
Hazardous Substance or storage tank brought onto the Premises by or for Tenant
or under Tenant's control. Tenant's obligations under this paragraph 3 shall
include, but not be limited to, the effects of any contamination or injury to
person, property or the environment created or suffered by, Tenant, and the cost
of investigation (including consultant's and attorney's fees and testing).
removal, remediation, restoration and/or abatement thereof, or of any
contamination therein involved, and shall survive the expiration or earlier
termination of this Lease. No termination, cancellation or release agreement
entered into by Landlord and Tenant shall release Tenant from its obligations
under this Lease with respect to Hazardous Substances or storage tanks, unless
specifically so agreed by Landlord in writing at the time of such agreement.
(d) TENANT'S COMPLIANCE WITH LAW. Except as otherwise provided in this
Lease, Tenant shall, at Tenant's sole cost and expense, fully, diligently and in
a timely manner, comply with all "APPLICABLE LAW," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of records, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Landlord's engineers and/or consultants, relating in any
manner to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture. production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Tenant shall,
within five (5) days after receipt of Landlord's written request, provide
Landlord with copies of all documents and information, including, but not
limited to, permits, registrations, manifests, applications, reports and
certificates, evidencing Tenant's compliance with any Applicable Law specified
by Landlord, and shall immediately upon receipt, notify Landlord in writing
(with copies of any documents involved) of any threatened or actual claim,
notice, citation, warning, complaint or report pertaining to or involving
failure by Tenant or the premises to comply with any Applicable Law.
Radler Office Form 1/97 3
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(e) INSPECTION; COMPLIANCE. Landlord and shall have the right to enter the
Premises at any time, in the case of an emergency, and otherwise at reasonable
times, for the purpose of inspecting the condition of the Premises and for
verifying compliance by Tenant with this Lease and all Applicable Laws (as
defined in Section 3(d)), and to employ experts and/or consultants in connection
therewith and/or to advise Landlord with respect to Tenant's activities,
including but not limited to the installation, operation, use, monitoring ,
maintenance, or removal of any Hazardous Substance or storage tank on or from
the Premises. The costs and expenses of any such inspections shall he paid by
the party requesting same, unless a Default or Breach of this Lease, violation
of Applicable Law. or a contamination, caused or materially contributed to by
Tenant is found to exist or be imminent, or unless the inspection is requested
or ordered by a governmental authority as the result of any such existing or
imminent violation or contamination. In any such case, Tenant shall upon request
reimburse Landlord or Landlord's Lender, as the case may be, for the costs and
expenses of such inspections.
(f) Tenant and Tenant's agents, employees, and invitees, will comply fully
with all requirements of the rules of the building, parking area and related
facilities which are contained in section 23 of this lease. Landlord shall at
all times have the right to change such rules and regulations or to promulgate
other rules and regulations in such reasonable manner as may be deemed advisable
for safety, care and cleanliness of the Leased Premises and for preservation of
good order therein, all of which rules and regulations, changes, and amendments.
will be forwarded to Tenant in writing and shall be carried out and observed by
Tenant. Tenant shall further be responsible for the compliance with such rules
and regulations by the employees, servants, agents and visitors of Tenant.
4. BASE RENTAL, ADJUSTMENTS AND LATE CHARGES.
(a) Tenant hereby agrees to pay a base annual rental (herein called "Base
Rental") in the sum of
RENT SCHEDULE
MONTHLY NO. OF AGGREGATE
PAYMENT NO. DUE DATES AMOUNT PAYMENTS AMOUNT
- ---------- -------------------- ----------- -------- -----------
1 1/16/1997-1/31/1997 $ 2,190.00 12 $ 2,190.00
2-13 2/1/1997-1/31/1998 $ 4,380.00 12 $ 52,560.00
14-25 2/1/1998-1/31/1999 $ 4,380.00 12 $ 52,076.00
26-37 2/1/1999-1/31/2000 $ 4,380.00 12 $ 52.076.00
Such Base Rental, together with any adjustments of rent provided for herein then
in effect, shall be due and payable in equal installments on the first day of
each calendar month during the initial term and any extensions or renewals
thereof, and Tenant hereby agrees to so pay such rent to Landlord at Landlord's
address as provided herein monthly in advance without demand, deduction or
set-off. If the term of this Lease Agreement as heretofore established commences
on other than the first day of a month or terminates on other than the last day
of a month, then the installment of Base Rental for such month or months shall
be prorated and the installment or installments so prorated shall be paid in
advance.
All Base Rental and all other sums hereunder provided to be paid by Tenant
shall be due and payable by Tenant without demand, deduction, abatement or
off-set except as expressly provided herein.
All other sums and charges of whatsoever nature required to be paid by
Tenant to Landlord pursuant to the terms of this Lease constitute additional
rent and failure by Tenant to timely pay such other sums or charges may be
treated by Landlord as a failure by Tenant to pay the Base Rental.
Tenant hereby acknowledges that late payments by Tenant to Landlord of
rent or other sums due hereunder will cause Landlord to incur costs not
contemplated by the Lease, the exact amount of which will be extremely difficult
to ascertain. Such costs include, but are not limited to processing and
accounting charges, and late charges which may be imposed upon Landlord by terms
of any mortgage or trust deed covering the Premises. In the event of any failure
to pay the Base Rental or to make any other payment due Landlord hereunder, in
the manner or time provided for herein, and such Base Rental or other payment is
not made by the tenth (10th) day following the date on which said payment was
due, Tenant shall pay to Landlord, in addition to the amounts then due and
without prior demand therefore and without any deduction or offsets, an
administrative charge in the amount of $100.00 per each
Radlar Office Form 1197 4
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occurrence, or 15% of the amount due, whichever is greater.
Acceptance by Landlord of any late rent payment and administrative
charge due therefor shall not constitute a waiver of any of Landlord's rights
and remedies available in connection with any subsequent failure of Tenant to
pay the Base Rental or to make any other payment due Landlord hereunder in the
manner or time provided for herein. if tender of late Base Rental or any other
payment due Landlord hereunder is made, Landlord at its sole discretion, shall
have the option to accept the tendered late Base Rental payment and
administrative charge computed as above specified, or to pursue the rights and
remedies provided in Section 14 of the Lease without the necessity of any
further notice or demand.
If within any six (6) month period during the term of this Lease, Tenant
shall fail for three (3) times to make timely payment to Landlord of any rental
payment and/or any other payment due Landlord hereunder on the date when due,
the Landlord shall have the immediate right, without the necessity of giving any
notice of default, to pursue the rights and remedies provided in Section 14
hereof
Tenant shall pay to Landlord upon demand a One Hundred and No/100 Dollar
($100.00) charge for each check tendered to Landlord in payment of Base Rental
or any other payment due Landlord hereunder which is returned uncollectible to
Landlord.
(b) In the event that operating expenses for any calendar year during the
term of this Lease (including without limitation the calendar year in which the
Lease term commences) exceeds $5.00 per square foot of net rentable area, the
Tenant agrees to pay to Landlord, as additional rental, a prorated share of such
increased expenses for the entire building, based on the ratio the Lease's net
rentable area bears to ninety-five percent (95%) of the total net rentable area
in the Building or to the total net rentable area leased in the Building (if
such total is greater than ninety-five percent (95%) of the total Building area)
as Follows:
Within one hundred eighty (180) days after the close of each calendar
year, Landlord shall give Tenant a statement of the operating expenses for the
Building for such calendar year. If such operating expenses exceed $5.00 per
square foot of net rentable area, Tenant will pay Landlord, within thirty (30)
days of receipt of such statement, tenant's proportionate share of such
increased expenses for the entire year immediately preceding issuance of said
statement and for the previous months in the then current year. Thereafter,
Tenant will pay an adjusted monthly rental which reflects the most recent year's
operating expense increases, subject to further increase as aforesaid, or, at
Landlord's option, Tenant will pay an adjusted monthly rental which reflects
projected operating expenses for the current year, subject to further increases
as aforesaid.
Should a discrepancy exist between the actual and estimated costs when
actual operating expenses are calculated at the end of the calendar year, a lump
sum payment will be made from Landlord to Tenant or from Tenant to Landlord, as
appropriate, within thirty (30) days of the delivery of a actual operating
expenses to Tenant outlining such discrepancy.
If at Lease commencement or termination a partial calendar year is
involved, operating expenses shall be computed as though a full calendar year
was involved and prorated for such partial year. If the lease terminates other
than at the end of a calendar year, an estimate of current annual operating
expenses shall be computed for the year of termination and any increased rental
based on such estimate shall be billed to the Tenant at termination.
For purposes of this Lease, operating expenses shall include those
expenses paid or incurred by the Landlord for maintaining, operating and
repairing the real property described in Exhibit "A", the Building and other
improvements thereon and the personal property used in conjunction therewith
(hereafter collectively referred to as "Project") including but not limited to
the cost of ad valorem taxes, electricity, natural gas, ventilation. heating and
air conditioning, water, window cleaning, janitorial service, insurance.
including but not limited to, fire, extended coverage, liability, workmen's
compensation, elevator or any other insurance carried in good faith by the
Landlord and applicable to the project, painting, uniforms, customary property
management tees, supplies, sundries, sales or use taxes on supplies or services,
cost of wages and salaries of all persons engaged in the operation, maintenance
and repair of the Project and so-called fringe benefits, or any other cost or
expenses which the Landlord pays or incurs to provide benefits for employees so
engaged in the operation, maintenance and repair of the Project, the charges of
any independent contractor who, under contract with the Landlord or its
representatives, does any of the work of operating, maintaining or repairing the
Project, legal and accounting expenses, including but not limited to such
expenses as related to seeking or obtaining reductions in and refunds of real
estate taxes, or any other expenses or charge, whether or not hereinbefore
mentioned, which in accordance with generally accepted accounting and management
principles would be considered as an expense of maintaining, operating or
repairing the Project. If any Project expense, though paid in one year, relates
to more than one calendar year, at the option of Landlord such expense may be
proportionately allocated among such related calendar years.
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Tenant at its expense shall have the right at all reasonable times to
audit Landlord's books and records relating to the Lease for any year or years
for which additional rental payments become due.
Notwithstanding any other provision herein to the contrary, it is agreed
that in the event the Building is not hilly occupied during any year of the
lease term, an adjustment shall be made in computing the Operating Expenses for
such year so that the Operating Expenses shall be computed for such year as
though the Building had been fully occupied during such year.
(c) At the time of execution of this Lease by Tenant, Tenant shall pay to
Landlord as and for a Security Deposit, $911.00 additional Security Deposit
($3469.00 on file) a total of $4380.00 which is equal to last month's rent
hereunder. The deposit shall be held by Landlord without liability for interest
and as security for the performance by Tenant of' Tenant's covenants and
obligations under this lease, it being expressly understood that such deposit
shall not be considered an advance payment of rental or a measure of Landlord's
damages in case or default by Tenant. Upon the occurrence of any event of
default by Tenant, Landlord may, from time to time, without prejudice to any
other remedy, use such deposit to the extent necessary to make good any
arrearages of Tenant and any other damage, injury, expense, or liability caused
to Landlord by such event of default. Following any such application of the
Security Deposit, Tenant shall pay to Landlord on demand the amount so applied
in order to restore the Security Deposit to its original amount. Any remaining
balance of such deposit shall be returned by Landlord to Tenant within thirty
(30) days after expiration of this lease. If Landlord transfers its interest in
the Premises during the Lease Term, Landlord may assign the Security Deposit to
the Transferee and thereafter Landlord shall have no further liability for the
return of such Security Deposit.
(d) Upon execution of this Lease, Tenant will pay to Landlord the first
month's rental as described in section 4(a) above.
5. SERVICES TO BE FURNISHED BY LANDLORD. Landlord covenants and agrees with
Tenant:
(a) To furnish the electricity and water utilized in operating the
facilities serving the Leased Premises, except as otherwise provided herein.
(b) So long as Lessee is not in default hereunder, Lessor shall furnish
the Leased Premises during reasonable and usual business hours (which hours
shall be from 8:00 A.M. to 6:00 P.M. Monday through Friday, excluding holidays),
the following services at Lessor's sole expense except as otherwise provided in
this lease.
(i) Air-conditioning as reasonably required for comfortable use
(subject to federal, state, and local regulations). Lessor retains the option of
whether to keep the building air-conditioned on Saturdays, Sundays, and/or legal
holidays. Whenever machines or equipment which generate unusual heat are used in
the Leased Premises and affect temperature otherwise maintained by the building
air-conditioning system, Lessor reserves the right to install supplementary
air-conditioning units in the Leased Premises and the costs thereof as well as
the cost of operation and maintenance thereof shall be paid by Lessee to Lessor
simultaneous with Lessor's incurring any such cost or expense.
(ii) Hot and cold water at those points of supply provided for
general use of other tenants in the Building; central heat and air conditioning
in season, at such times as Landlord normally furnishes these services to other
tenants in the Building and at such temperatures and in such amounts as are
considered by Landlord to be standard, but such service on Saturday, Sundays and
holidays to be furnished only upon the request of Tenant, who shall bear the
entire cost thereof; routine maintenance and electric lighting service for all
public areas and special service areas of the Building in the manner and to the
extent deemed by Landlord to be standard. Landlord will furnish janitor service
on a five (5) day week basis at no extra charge; provided, however, if Tenant's
floor covering or other improvements are other than building standard, Tenant
shall pay the additional cleaning cost attributable thereto as additional rent.
Failure by Landlord to any extent to furnish these defined services, or any
cessation thereof, resulting from causes beyond the control of Landlord, shall
not render Landlord liable in any respect for damages to either person or
property, nor be construed as an eviction of Tenant, nor work an abatement of
rent, nor relieve Tenant from fulfillment of any covenant or agreement hereof.
Should any of the equipment or machinery break down, or for any cause cease to
function properly, Landlord shall use reasonable diligence to repair same
promptly, but Tenant shall have no claim for rebate of rent or damages on
account of any interruptions in service occasioned thereby or resulting
therefrom.
(iii) Proper electrical facilities to furnish sufficient power for
typewriters, voice writers, calculating machines and other machines of similar
low electrical consumption; but not including electricity required for
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electronic data processing equipment which (singly) consumes more than 0.5
kilowatts per hour at a rated capacity or require a voltage other than 120 volts
single phase. When hear generating machines, equipment, fixtures or other
devices of any nature whatsoever are used in the premises by Tenant which affect
the temperature otherwise maintained by the air conditioning system, Landlord
shall have the right to install supplementary air conditioning units in the
premises, and the cost thereof, including the cost of installation and the cost
of operation and maintenance thereof, shall be paid by Tenant to Landlord upon
demand by Landlord. Lessor has the right to meter and to charge Tenant for
excessive consumption as well as the cost of installing such meter.
(c) To use Landlord's best efforts to control access to the truck loading
area and provide security to the Building during the weekends and after normal
working hours during the week. Landlord shall not be liable to Tenant for losses
due to theft or burglary, or for damages done by unauthorized persons on the
premises.
(d) To furnish Tenant, free of charge, with two keys for each corridor
door entering the Leased Premises. and additional keys will he furnished at a
charge by Landlord equal to its cost plus 15% on an order signed by Tenant or
Tenant's authorized representative. All such keys shall remain the property of
Landlord. No additional locks shall be allowed on any door of Leased Premises
without Landlord's permission, and Tenant shall not make, or permit to be made,
any duplicate keys, except those furnished by Landlord. Upon termination of this
Lease, Tenant shall surrender to Landlord all keys to the Leased Premises, and
give to Landlord the explanation of the combination of all locks for safes, safe
cabinets and vault doors, if any, in the Leased Premises.
(e) To provide and install, at Tenant's cost, all letters or numerals by
or on doors in the Leased Premises; all such letters and numerals shall be in
the building standard graphics. Tenant will not paint, install lighting or
decorations, or install any signs, window or door lettering or advertising media
of any type on or about the Leased Premises or any part thereof, without the
prior written consent of Landlord.
6. REPAIRS BY LANDLORD. Unless otherwise expressly stipulated herein, Landlord
shall not be required to make any improvements or repairs of any kind or
character on the Leased Premises during the term of this Lease, except such
repairs as may be required for normal maintenance operations and such additional
maintenance as may be necessary because of damages, except damages caused by
Tenant, its agents, employees, invitees or visitors. The obligation of Landlord
to maintain and repair the Leased Premises shall be limited to building standard
items, provided that leasehold improvements which are not building standard
will, at Tenant's written request, be maintained by Landlord at Tenant's cost,
plus an additional charge of 15% of such cost to cover overhead.
7. REPAIRS BY TENANT. Tenant agrees, at its own cost and expense, to repair or
replace any damage or injury done to the Building, or any part thereof, caused
by Tenant or Tenant's agents, employees, invitees or visitors: provided,
however, if Tenant fails to make such repairs or replacement promptly, Landlord
may, at its option, make such repairs or replacements, and Tenant shall repay
the cost thereof to the Landlord on demand, plus an additional charge of 15% of
such cost to cover overhead. Tenant further agrees not to commit or allow any
waste or damage to be committed on any portion of the Leased Premises and at the
termination of this Lease, by lapse of time or otherwise, Tenant shall deliver
up said Leased Premises to Landlord in as good condition as at date of
possession by Tenant, ordinary wear and tear excepted, and upon such termination
of this Lease, Landlord shall have the right to re-enter and resume exclusive
possession of the Leased Premises.
8. ASSIGNMENT OR SUBLEASE.
(a) In the event Tenant should desire to assign this Lease or sublet the
Leased Premises or any part thereof, Tenant shall give Landlord written notice
of such desire at least sixty (60) days in advance of the date on which Tenant
desires to make such assignment or sublease. Landlord shall then have a period
of thirty (30) days following receipt of such notice within which to notify
Tenant in writing that Landlord elects either (1) to terminate this Lease as to
the space so affected as of the date so specified by Tenant in which event
Tenant will be relieved of all further obligation hereunder as to such space, or
(2) to permit Tenant to assign this Lease or sublet such space, subject,
however, to subsequent written approval of the proposed assignee or subtenant by
Landlord. If Landlord shall fail to notify Tenant in writing of such election
within said thirty (30) day period, Landlord shall be deemed to have elected
option (2) above, but subsequent written approval by Landlord of the proposed
assignee or subtenant shall be required. If Landlord elects to exercise option
(2) above, Tenant agrees to provide, at its expense, direct access from the
assignment or sublease space to a public corridor of the Building. No assignment
or subletting by Tenant shall relieve Tenant of any obligation under this Lease.
(b) Landlord shall have the right to transfer and assign, in whole or in
part, all its rights and obligations
Radler Office Form 1/97 7
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hereunder and in the Building and property referred to herein, and in such event
and upon assumption by the transferee of Landlord's obligations hereunder (any
such transferee to have the benefit of, and be subject to, the provisions of
Section 20 hereof) no further liability or obligation shall thereafter accrue
against Landlord hereunder.
9. ALTERATIONS, ADDITIONS, IMPROVEMENTS. Tenant agrees not to make or allow to
be made any alterations or physical additions in or to the Leased Premises
without first obtaining the written consent of Landlord. Any and all such
alterations, physical additions, or improvements, shall only be made by
contractors and subcontractors approved in writing by Landlord, and when made to
the Leased Premises by Tenant, shall at once become the property of Landlord and
shall be surrendered to Landlord upon the termination of this Lease by lapse of
time or otherwise; provided, however, this clause shall not apply to movable
equipment or furniture owned by Tenant. Tenant agrees specifically that no food,
soft drink or other vending machine will be installed within the Leased
Premises.
10. ENTRY FOR REPAIRS AND INSPECTION. Tenant agrees to permit Landlord or its
agents or representatives to enter into and upon any part of the Leased Premises
at all reasonable hours to inspect same, clean or make repairs, alterations or
additions thereto, as Landlord may deem necessary or desirable, and Tenant shall
not be entitled to any abatement or reduction of rent by reason thereof.
11. CASUALTY INSURANCE DAMAGE.
(a) Landlord shall, at all times during the term of this Lease, maintain a
policy or policies of insurance with the premiums thereon fully paid in advance,
issued by and binding upon a insurance company, insuring the Building against
loss or damage by fire. explosion or other hazards and contingencies for at
least 80% of the full insurable value thereof; provided that Landlord shall not
be obligated to insure any furniture, equipment, machinery, goods or supplies
which Tenant may bring upon the Leased Premises or any additional improvement
which Tenant may construct thereon. If the annual premiums charged Landlord for
such casualty insurance exceed the standard premium rates because the nature of
Tenant's operations results in extra-hazardous exposure, then Tenant shall upon
receipt of appropriate premium invoices reimburse Landlord for such increases in
such premiums.
(b) In the event of a fire or other casualty in the Leased Premises,
Tenant shall immediately give notice thereof to Landlord. If the Leased
Premises, through no fault or neglect of Tenant, its agents, employees, invitees
or visitors, shall be partially destroyed by fire or other casualty so as to
render the premises untenantable, the rental herein shall abate thereafter until
such time as the Leased Premises are made tenantable by Landlord. Landlord shall
not be required to rebuild, repair or replace any part of the partitions,
fixtures, and other improvements which may have been placed by Tenant or other
tenants within the Building. In the event of the total destruction of the Leased
Premises without fault or neglect of Tenant, its agents, employees, invitees or
visitors, or if from such cause the same shall be so damaged that Landlord shall
decide not to rebuild, then all rent owed up to the time of such destruction or
termination shall be paid by Tenant and henceforth this Lease shall cease and
come to an end. In the event any Mortgagee under a mortgage on the Building
should require that the insurance proceeds be used to retire the mortgage debt,
Landlord shall have no obligations to rebuild and this Lease shall terminate at
Landlord's option. Any insurance which may be carried by Landlord or Tenant
against loss or damage to the Building or to the demised premises shall be for
the sole benefit of the party carrying such insurance and under its sole
control.
(c) Anything in this Lease to the contrary notwithstanding, Landlord and
Tenant each hereby waives any and all rights of recovery, claim, action or cause
of action against the other, its agents, officers or employees, for any loss or
damage that may occur to the Leased Premises, or any improvements thereto, or
any personal property of such party therein, by reason of fire, the elements, or
any other insurance policies, regardless of cause or origin including negligence
to the other party hereto, its agents, officers or employees, and covenants that
no insurer shall hold any right of subrogation against such other party.
12. CONDEMNATION. If the lease premises shall be taken or condemned for any
public purpose to such an extent as to render Leased Premises untenantable, this
Lease shall, at the option of either party, forthwith cease and terminate. All
compensation awarded for any taking or condemnation proceedings (or sale in lieu
thereof) shall be the property of the Landlord.
13. EVENTS OF DEFAULT. The following events shall be deemed to be events of
default by Tenant under this Lease:
(a) Tenant shall fail to pay when due any rental or other sums payable by
Tenant hereunder (or under any
Radler Office Form 1/97 8
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other lease now or hereafter executed by Tenant in connection with space in
the building);
(b) Tenant shall fail to comply with or observe any other provision of
this Lease (or any other lease now or hereafter executed by Tenant in connection
with space in the building);
(c) Tenant or any guarantor of Tenant's obligations hereunder shall make
an assignment for the benefit of creditors;
(d) Any petition shall be filed by or against Tenant or any guarantor of
Tenant's obligations hereunder under any section or chapter of the National
Bankruptcy Act, as amended, or under any similar law or statute of the United
States or any State thereof; or Tenant or any guarantor of Tenant's obligations
hereunder shall be adjudged bankrupt or insolvent in proceedings filed
thereunder;
(e) A receiver or Trustee shall be appointed for all or substantially all
of the assets of Tenant or any guarantor of Tenant's obligations hereunder;
(f) Tenant shall desert or vacate any portion of the Leased Premises.
14. REMEDIES. Upon the occurrence of any event of default specified in this
lease, Landlord shall have the option to pursue any one or more of the following
remedies without any notice or demand whatsoever, not specifically provided for
herein:
(a) Terminate this lease, in which event Tenant shall immediately
surrender the Leased Premises to Landlord, and if Tenant fails to do so,
Landlord may, without prejudice to any other remedy which it may have for
possession or arrearages in rent, enter upon and take possession of the Leased
Premises and expel or remove Tenant and any other person who may be occupying
the premises or any part thereof. This may be done, by self-help if necessary,
without being liable for prosecution or any claim of damages for such entrance
and expulsion or removal. Tenant agrees to pay to Landlord on demand the amount
of all loss and damage which Landlord may suffer by reason of such termination,
whether through inability to relet the premises on satisfactory terms or
otherwise. In the event Landlord elects to terminate the lease by reason of an
any event of default, then notwithstanding such termination, Tenant shall be
liable for and shall pay to Landlord, at the address specified for notice to
Landlord herein, the following: (i) the cost of recovering the premises, (ii)
the cost of removing and storing Tenant's property, (iii) the unpaid rental and
other indebtedness accrued hereunder at the date of termination plus interest at
the highest legal rate, (iv) all remaining rentals and other sums which would
have accrued to Landlord under this Lease for the remainder of the Lease Term if
the terms and provisions of this Lease had been fully complied with shall be
accelerated and immediately and automatically due and payable; Landlord and
Tenant agree that it is their mutual intent that Landlord shall receive the
"benefit of the bargain," (v) rental accruing subsequent to the date of
termination pursuant to the Holding Over provisions in Section 18, and (vi) any
increase in insurance premiums caused by the vacancy of the premises.
(b) Enter upon and take possession of the Leased Premises and expel or
remove Tenant and any other person who may be occupying the Leased Premises or
any part thereof, by self-help if necessary, without being liable for
prosecution or any claim for damages, and if Landlord so elects, relet the
Leased Premises on such terms as Landlord shall deem advisable and receive the
rent therefrom; and Tenant agrees to pay to Landlord on demand any deficiency
that may arise by reason of such reletting.
(c) Enter upon the Leased Premises, by self-help if necessary, without
being liable for prosecution or any claim for damages therefore, and do whatever
Tenant is obligated to do under the terms of this Lease; and Tenant agrees to
reimburse Landlord on demand for any expenses which Landlord may incur in thus
effecting compliance with Tenant's obligations under this Lease, and Tenant
further agrees that Landlord shall not be liable for any damages resulting to
Tenant from such action.
(d) Landlord may, without being liable for prosecution or any claim for
damages therefore, discontinue furnishing all or any part of the services
described in this lease, and no such discontinuance shall be deemed an eviction
or disturbance of Tenant's use of the premises.
(e) Landlord may enforce any or all of its rights provided in Section 17
(Landlord's Lien).
(t) The following provisions shall override and control any conflicting
provisions of Section 92.008 of the
RADLER OFFICE FORM 1/97 9
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Texas Property Code, as well as any successor statute governing the right of
Landlord to change the door locks of commercial tenants. In the event of the
failure or refusal by Tenant to make the timely punctual payment of any rent or
other sums payable under this Lease when and as the same shall become due and
payable, or in the event of any default of this Lease by Tenant as described in
this lease. Landlord is entitled and is hereby authorized, without any notice to
Tenant whatsoever, to enter upon the Leased Premises by use of master key, a
duplicate key or other peaceable means, arid to change, alter and/or modify the
door locks on all entry doors of the Leased Premises, thereby permanently
excluding Tenant, and its officers, principals, agents, employees and
representatives therefrom.
In the event the Landlord has either permanently repossessed the Leased
Premises pursuant to the foregoing provisions of this Lease, or has terminated
the Lease by reason of Tenant's default, Landlord shall not thereafter be
obligated to provide Tenant with a key to the Leased Premises at any time,
regardless of any amounts subsequently paid by Tenant, provided, however, that
in any such instance, during Landlord's normal business hours and at the
convenience of Landlord, and upon receipt of written request from Tenant
accompanied by such written waivers and releases as the Landlord may require,
Landlord will either (at Landlord's option) (I) escort Tenant or its authorized
personnel to the Leased Premises to retrieve any personal belongings or other
property of Tenant not subject to the Landlord's lien or security interest
described in Section 17 hereof or (2) obtain a list from Tenant of such personal
property as Tenant intends to remove, whereupon Landlord shall remove such
property and make it available to Tenant at a time and place designated by
Landlord. However, if Landlord elects option (2), Tenant shall pay, in cash in
advance, all costs and expenses estimated by Landlord to be incurred in removing
such property and making it available to Tenant and all moving and/or storage
charges theretofore incurred by Landlord with respect to such property. If
Landlord elects to exclude Tenant from the Leased Premises without permanently
repossessing or terminating pursuant to the foregoing provisions of this Lease,
then Landlord shall not be obligated to provide Tenant a key to reenter the
Leased Premises until such time as all delinquent rental and other amounts due
under this Lease have been paid in frill and all other defaults, if any, have
been completely cured to Landlord's satisfaction (if such cure occurs prior to
any actual permanent repossession or termination), and Landlord has been given
assurance reasonably satisfactory to Landlord evidencing Tenant's ability to
satisfy its remaining obligations under this Lease. During any such temporary
period of exclusion, Landlord will, during Landlord's regular business hours and
at Landlord's convenience, upon receipt of written request from Tenant
(accompanied by such written waivers and releases as Landlord may require),
escort Tenant or its authorized personnel to the Leased Premises to retrieve
personal belongings of Tenant or its employees, and such other property of
Tenant as is not subject to the Landlord's lien and security interest described
in Section 17. This remedy of Landlord shall be in addition to, and not in lieu
of, any of its other remedies set forth in this Lease, or otherwise available to
Landlord at law or in equity.
No re-entry or taking possession of the Leased Premises by Landlord shall
be construed as an election on its part to terminate this Lease, unless a
written notice of such intention is given to Tenant. Notwithstanding any such
reletting or re-entry to take possession, Landlord may at any time thereafter
elect to terminate this Lease for a previous default.
Pursuit of any of the foregoing remedies shall not preclude pursuit of any
of the other remedies herein provided or any other remedies provided by law, nor
shall pursuit of any remedy herein provided constitute a forfeiture or waiver of
any rent due to Landlord hereunder or of any damages accruing to Landlord by
reason of the violation of any of the terms, provisions and covenants herein
contained. Landlord's acceptance of rent following an event of default hereunder
shall not be construed as Landlord's waiver of such event of default. No waiver
by Landlord of any violation or breach of any of the terms, provisions, and
covenants herein contained shall be deemed or construed to constitute a waiver
of any other violation or breach of any of the terms, provisions, and covenants
herein contained. Forbearance by Landlord to enforce one or more of the remedies
herein provided upon an event of default shall not be deemed or construed to
constitute a waiver of such default.
The loss or damage that Landlord may suffer by reason of termination of
this Lease or the deficiency from any reletting as provided for above shall
include the expense of repossession and any repairs or remodeling undertaken by
Landlord following repossession.
No act or thing done by Landlord or its agents during the term hereby
granted shall be deemed an acceptance of a surrender of the Premises, and no
agreement to accept a surrender of the Premises shall be valid unless the same
be made in writing and subscribed by Landlord.
Notwithstanding any other remedy available to Landlord, in the event
Tenant vacates the Leased Premises voluntarily or at the instance and request of
Landlord after default by Tenant, or should Tenant give oral or written
Radler Office Form 1/97 10
<PAGE>
notice of intent to vacate the Leased Premises prior to the end of the lease
term without the rent being paid in full for the entire remainder of the lease
term or renewal or extension period or without prior written consent of
Landlord, all remaining rents (Base Rent and Estimated Rental Escalation) for
the remainder of the lease term shall be accelerated immediately and
automatically. Such accelerated rents shall be due and delinquent without notice
before or after such acceleration. Such acceleration shall occur even if the
rent for the current month has been paid in full.
15. SURRENDER OF LEASED PREMISES. No act or thing done by Landlord or its agents
during the term hereby granted shall be deemed an acceptance of a surrender of
the premises shall be valid unless the same be made in writing and signed by
Landlord.
16. ATTORNEY'S FEES. In case it should be necessary or proper for Landlord to
bring any action under this Lease or to consult or place this Lease, or any
amount payable by Tenant hereunder, with an attorney concerning or for the
enforcement of any of Landlord's rights hereunder, then Tenant agrees in each
and any such case to pay to Landlord a reasonable attorney's fee.
17. LANDLORD'S LIEN. In consideration of the mutual benefits arising under this
Lease, Tenant hereby grants to Landlord a lien and security interest on all
properly of Tenant now or hereafter placed in or upon the Leased Premises, and
such property shall be and remain subject to such lien and security interest of
Landlord for payment of all rent and other sums agreed to be paid by Tenant
herein. Said lien and security interest shall be in addition to and cumulative
of the Landlord's liens provided by law. This Lease shall constitute a security
agreement under the Uniform Commercial Code so that Landlord shall have and may
enforce a security interest on all property of Tenant now or hereafter placed in
or on the Leased Premises, including but not limited to all fixtures, machinery,
equipment, furnishings and other articles of personal property now or hereafter
placed in or upon the Leased Premises by Tenant. Tenant and each of them agrees
to execute as debtor such financing statement or statements as Landlord may now
or hereafter request in order that such security interest or interests may be
protected pursuant to said Code. In the event Tenant fails to return such
financing statement within twenty-four (24) hours after request by Landlord,
Tenant agrees that Landlord may file a financing statement without Tenant's
signature or, at Landlord's sole option, Tenant hereby appoints Landlord as
Tenant's attorney-in-fact for the specific purpose of signing such financing
statement for and on behalf of Tenant. Landlord may at its election at any time
file a copy of this Lease as a financing statement. More specifically, the
current version of the Uniform Commercial Code-Financing Statement-form UCC- 1,
shall be executed by both Tenant and Landlord and registered with the State of
Texas, and The County wherein the Leased Premises are located, promptly upon
occupancy of the Leased Premises. Landlord, as secured party, shall be entitled
to all of the rights and remedies afforded a secured party under said Uniform
Commercial Code, which rights and remedies shall be in addition to and
cumulative of the Landlord's liens and rights provided by law or by the other
terms and provisions of this Lease.
Upon the occurrence of an event of default by Tenant, Landlord may, in
addition to any other remedies provided herein, enter upon the Leased Premises
and take possession of any and all goods, wares, equipment, fixtures, furniture,
improvements, and other personal property of Tenant situated on the Leased
Premises, without liability for trespass or conversion, and sell the same at
public or private sale, with or without having such property at the sale, after
giving Tenant reasonable notice of the time and place of any public sale or of
the time after which any private sale is to be made, at which sale the Landlord
or its assigns may purchase, unless otherwise prohibited by law.
Unless otherwise provided by law, and without intending to exclude any
other manner of giving Tenant reasonable notice, the requirement of reasonable
notice shall be met if such notice is given at least five (5) days before the
time of sale.
The proceeds from any such disposition, less any and all expenses
connected with the taking of possession, holding, and selling of the property
(including reasonable attorney's fees and other expenses), shall be applied as a
credit against the indebtedness secured by the security interest granted in this
article. Any surplus shall be paid to Tenant or as otherwise required by law,
and the Tenant shall pay any deficiencies forthwith.
18. HOLDING OVER. In the event of holding over by Tenant after expiration or
termination of this Lease without the written consent of Landlord, Tenant shall
pay as liquidated damages double rent for the entire holdover period. No holding
over by this Tenant after the term of this Lease shall operate to extend the
Lease; in the event of such
Radler Office Form 1/97 11
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holding over, Tenant shall indemnify Landlord against all claims for damages by
any other tenant or prospective tenant to whom Landlord may have leased or
entered into any agreement, either oral or written, for all or any part of the
premises covered hereby effective upon the termination of this Lease. Any
holding over with the consent of Landlord in writing shall thereafter constitute
this Lease a lease from month to month.
19. HOLD HARMLESS AND LIABILITY INSURANCE.
(a) Landlord shall not be liable or responsible to Tenant for any loss or
damage to any property or person occasioned by theft, act of God, public enemy.
injunction, riot, strike, insurrection, war, court order, requisition or order
of governmental body or authority, or for any damage or inconvenience which may
arise through repair or alteration of any part of the Building, or failure to
make any such repairs. Landlord shall not be liable to Tenant, or to Tenant's
agents, servants, employees, customers or invitees for any damage to person or
property caused by any act, omission or neglect of Tenant, and Tenant agrees to
hold Landlord harmless from all claims for any such damage. Tenant shall not be
liable to Landlord, or to Landlord's agents. servants. employees, customers or
invitees for any damage to person or property caused by any act, omission or
neglect of Landlord, and Landlord agrees to hold Tenant harmless from all claims
for such damage.
(b) Tenant shall, at its expense, maintain a policy or policies of
comprehensive general liability insurance pertaining to its use and occupancy of
the Leased Premises hereunder, with the premiums thereon fully paid in advance,
issued by and binding upon some solvent insurance company, such insurance to
name Landlord and Tenant as insureds and to afford minimum protection of not
less than One Hundred Thousand Dollars ($100,000.00) in respect of personal
injury or death to any one person, and of not less than Three Hundred Thousand
Dollars ($300,000.00) in respect to any one occurrence, and of not less than One
Hundred Thousand Dollars ($100,000.00) for property damage in one occurrence.
20. PEACEFUL ENJOYMENT. That Tenant shall, and may peacefully have, hold and
enjoy the Leased Premises, subject to the other terms hereof, provided that
Tenant pays the rental herein recited and performs all of Tenant's covenants and
agreements herein contained. It is understood and agreed that this covenant and
any and all other covenants of Landlord contained in this Lease shall be binding
upon Landlord and its successors only with respect to breaches occurring during
its and their respective ownerships of the Landlord's interest hereunder. In
addition, Tenant specifically agrees to look solely to Landlord's interest in
the Building for the recovery of any judgment from Landlord; it being agreed
that Landlord shall never be personally liable for any such judgment. The
provision contained in the foregoing sentence is not intended to, and shall not,
limit any right that Tenant might otherwise have to obtain injunctive relief
against Landlord or Landlord's successors in interest, or any other action not
involving the personal liability of Landlord to respond in monetary damages from
assets other than Landlord's interest in the Building.
21. SUBORDINATION TO MORTGAGE. This Lease is subject and subordinate to any
first lien mortgage or deed of trust which may now or hereafter encumber the
Building of which the Leased Premises form a part and to all renewals,
modifications, consolidations, replacements and extensions thereof. This clause
shall be self-operative and no further instrument of subordination need be
required by any mortgagee. In conformation of such subordination, however,
Tenant shall at Landlord's request execute promptly any appropriate certificate
or instrument that Landlord may request. Tenant hereby constitutes and appoints
Landlord as the Tenant's attorney-in-fact to execute any such certificate or
instrument for and on behalf of Tenant. In the event of the enforcement by the
trustee or the beneficiary under any such mortgage or deed of trust of the
remedies provided for by law or by such mortgage or deed of trust, Tenant will,
upon request of any person or party succeeding to the interest of Landlord as a
result of such enforcement, automatically become the Tenant of such successor in
interest without change in the terms or other provisions of this Lease;
provided, however, that such successor in interest shall not be bound by (i) any
payment of rent or additional rent for more than one month in advance except
prepayments in the nature of security for the performance by Tenant of its
obligations under this Lease or (ii) any amendment or modification of this Lease
made without the written consent of such trustee or such beneficiary or such
successor in interest. Upon request by such successor in interest, Tenant shall
execute and deliver an instrument or instruments confirming the attornment
herein provided for.
Radler Office Form 1/97 12
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22. OPTION FOR SUBSTITUTE SPACE.
(a) Landlord shall have the right at any time from the date hereof through
the end of the term of this lease or any renewal or extension hereof to
substitute, instead of the Leased Premises, other space (of at least the area of
the Leased Premises) hereinafter referred to as " Substitution Space, " in a
Building within the subject property of this Lease.
(b) If Landlord desires to exercise such right, it shall give Tenant at
least sixty (60) days prior notice thereof specifying the effective date of such
substitution, whereupon, as of such effective date: (1)the description of the
Leased Premises set forth in this Lease shall, without further act on the part
of Landlord or Tenant. be deemed amended so that the Substitution Space shall,
for all intents and purposes be deemed the Leased Premises hereunder, and all of
the terms, covenants, conditions, provisions and agreements of this Lease shall
continue in full force and effect and shall apply to the Substitution Space
except that if the Substitution Space contains more square footage than the
presently Leased Premises, the annual rental appearing on the first page of this
Lease shall be increased proportionately (provided that such rental increase
shall not be in excess of five percent (5%) of the rental immediately preceding
such increase); and (2) Tenant shall move from the presently Leased Premises
into the Substitution Space and shall vacate and surrender possession to
Landlord of the presently Leased Premises after such effective date, and if
Tenant continues to occupy the presently Leased Premises after such date, then
thereafter, during the period of such occupancy, Tenant shall pay rent for the
presently Leased Premises at the rate set forth in this lease in addition to the
rent for the Substitution Space at the above-described rate.
(c) Tenant shall have the option to accept possession of the Substitution
Space in its "as is" condition as of such effective date or to require Landlord
to alter the Substitution Space in the same manner as the presently Leased
Premises were altered or were to be altered. Such option shall be exercised by
notice from Tenant to Landlord within ten (10) days after the aforesaid notice
from Landlord to Tenant of such proposed relocation. If Tenant fails to deliver
to Landlord within such ten (10) day period notice of its election, or if Tenant
is in default under any of the terms, covenants, conditions, provisions or
agreement of this lease, Tenant shall be deemed to have elected to accept
possession of the Substitution Space in its "as is" condition. If Tenant elects
to require Landlord to alter the Substitution Space, then (1) Tenant shall
continue to occupy the presently Leased Premises (upon all of the terms,
covenants, conditions, provisions, and agreements of this lease including the
covenant for the payment of rent) until the date on which work in the
Substitution Space is substantially complete, and (2) Tenant shall move from the
presently Leased Premises into the Substitution Space immediately upon the date
of such substantial completion by Landlord and shall vacate and surrender
possession to Landlord of the presently Leased Premises on such date and if
Tenant continues to occupy the presently Leased Premises after such date, then
thereafter, during the period of such occupancy, Tenant shall pay rent for the
presently Leased Premises at the rate set forth in this Lease, in addition to
the rent for the Substitution Space at the above-described rate. With respect to
such alteration work in the Substitution Space, if Tenant shall make changes in
the work and if such changes shall delay the work to be performed by Landlord,
or if Tenant shall otherwise delay the substantial completion of Landlord's
work, the happening of such delays shall in no event postpone the date for the
commencement of the payment of rent for such Substitution Space, beyond the date
on which such work would have been substantially completed but for such delay,
and, in addition, Tenant shall continue to pay rent for the presently Leased
Premises at the rate set forth in this Lease until it vacates and surrenders
same as aforesaid. Landlord at its discretion may substitute materials of like
quality for the materials originally utilized.
(d) If Landlord exercises this relocation right, Landlord shall reimburse
Tenant for Tenant's reasonable out- of-pocket expenses for moving Tenant's
furniture, equipment, supplies and telephones and telephone equipment from the
presently Leased Premises to the Substitution Space and for reprinting Tenant's
stationary of the same quality and quantity of Tenant's stationary supply on
hand immediately prior the Landlord's notice to Tenant of the exercise of this
relocation right. If the Substitution Space contains more square footage than
the presently Leased Premises, and if the Leased Premises were carpeted,
Landlord shall supply and install an equal amount of carpeting of the same or
equivalent quality and color.
23. BUILDING RULES AND REGULATIONS.
The following rules and regulations shall apply, where applicable, to the
premises, the Building, the parking garage or parking areas associated
therewith, the land situated beneath the Building and the appurtenances thereto:
Radler Office Form 1/97 13
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(a) Sidewalks, doorways, vestibules, halls, stairways, and other similar
areas shall not be obstructed by tenants or used by any tenant for any purpose
other than ingress and egress to and from the Leased Premises and for going from
one to another part of the Building. Corridor doors, when not in use, shall be
kept close.
(b) No signs, advertisements or notices shall be painted or affixed on or
to any windows or doors or other part of the Building or any "COMMON AREA" or in
or upon any vehicle in any parking area, except of such color, size and style
and in such places as shall be first approved in writing by Landlord. No nails,
hooks or screws shall be driven or inserted in any part of the Building except
by the Building maintenance personnel nor shall any part of the Building be
defaced by tenants. No curtains or other window treatments shall be placed
between the glass and the Building standard window treatments.
(c) Landlord will provide and maintain, at Tenant's cost. an alphabetical
directory board for all tenants in the first floor (main lobby) of the Building
and no other directory shall be permitted unless previously consented to by
Landlord in writing.
(d) With respect to work being performed by tenants in any Leased Premises
with the approval of Landlord, all tenants will refer all contractors,
contractors' representatives and installation rendering any service to them to
Landlord for Landlord's supervision and approval before the performance of any
contractual services. This provision shall apply to all work performed in the
building including, but not limited to, installation of telephones, telegraph
equipment, electrical devises and attachments, and any and all installations of
every nature affecting floors, walls, woodwork, trim, windows, ceilings,
equipments and any other physical portion of the Building. Should a tenant
require telegraphic, telephonic, annunciator or other communication service,
Landlord will direct the electrician where and how wires are to be introduced
and placed and none shall be introduced or placed except as Landlord shall
direct. Electric current shall not be used for power or heating without
Landlord's prior written permission.
(e) All deliveries of other than hand carried items must be made via the
service entrances and service elevator. Any deliveries, removals or relocations
of large, bulky or voluminous items, such as furniture, office machinery and
equipment, etc., can only be made after obtaining approval from the Landlord and
at those times specified by the Landlord. A tenant shall notify the Building
manager when safes or other heavy equipment are to be taken in or out of the
Building, and the moving shall be done under the supervision of the Building
manager, after written permission from Landlord. Persons employed to move such
property must be acceptable to Landlord. Landlord shall have the right to
prescribe the weight and position of safes and other heavy equipment or items,
which shall in all cases, to distribute weight, stand on supporting devices
approved by Landlord.
(f) All movement referenced in Section 23(e) above, shall be under the
supervision of Landlord and in the manner agreed between the tenants and
Landlord by prearrangement before performance. Such prearrangement initiated by
a tenant will include determination by Landlord, and subject to Landlord's
decision, as to the time, method, and routing of movement as to the limitations
for safety of other concern which may prohibit any article, equipment or any
other item from being brought into the Building. The tenants are to assume all
risks and indemnify and hold Landlord harmless, as to damage to articles moved
and injury to persons engaged and not engaged in such movement, including
without limitation equipment, property and personnel of Landlord if damaged or
injured as a result of acts in connection with carrying out this service for a
tenant from the time of entering the property to completion of work: and
Landlord shall not be liable for and the tenant shall indemnify and hold
harmless Landlord from and against, acts of any person engaged in, or any damage
or loss to any of said property or persons resulting from, any act in connection
with such service performed for a tenant. All damages done to the Building by
the installation or removal of any property of a tenant, or done by a tenant's
property while in the Building, shall be repaired at the expense of such tenant.
(g) Each tenant shall cooperate with Landlord's employees in keeping its
Leased Premises neat and clean. Tenants shall not employ any person for the
purpose of such cleaning other than the Building's cleaning and maintenance
personnel. Landlord shall be in no way responsible to the tenants, their agents,
employees or invitees for any loss of property from the Leased Premises or
public areas or for any damages to any property thereon from any cause
whatsoever.
Radler Office Form 1/97 14
<PAGE>
(h) Plumbing, fixture, and appliances shall be used only for the purposes
for which designed, and no sweepings, rubbish, rags or other unsuitable material
shall be thrown or placed therein. Damage resulting to any such fixtures or
appliances from misuse by a tenant or such tenant's agents, employees or
invitees, shall be paid by such tenant, and Landlord shall not in any case be
responsible thereof.
(i) To insure orderly operation of the Building, no ice, mineral or other
water, towels, newspapers, etc. shall be delivered to any leased area except by
persons appointed or approved by Landlord in writing.
(j) Tenants shall not make or permit any improper, objectionable or
unpleasant noise or odors in the Building or otherwise interfere in any way with
other tenants or persons having business with them.
(k) Nothing shall be swept or thrown into the corridors, halls. elevator
shafts or stairways. No birds or animals shall be brought into or kept in, on or
about the Building.
(l) No machinery of any kind shall be operated by any tenant on its leased
area without the prior written consent of Landlord.
(m) No portion of any tenant's leased premises shall at any time be used
or occupied as sleeping or lodging quarters, or for any unlawful or immoral
purpose.
(n) Tenant shall not do anything, or permit anything to be done, in or
about the Building, or bring or keep anything therein, including without
limitation any inflammable or explosive fluid or substance, that will in any way
increase the possibility of fire or other casualty, or do anything in conflict
with valid laws, rules or regulations of any governmental authority.
(o) Landlord will not be responsible for lost or stolen personal property,
money or jewelry from tenant's leased premises or public or common areas
regardless of whether such loss occurs when the area is locked against entry or
not.
(p) Landlord or its agents or employees shall have the right to enter the
leased premises to examine the same or to make such repairs, alterations, or
additions as Landlord shall deem necessary for the safety, preservation or
improvement of the Building.
(q) No additional locks or bolts shall be placed on any doors or shall
tenant alter any locks without the prior written consent of Landlord. If
Landlord shall give its consent, tenant shall in each case furnish the Landlord
a key for any such lock. All keys furnished by Landlord, or purchased from
Landlord by tenant, shall be surrendered upon termination of the Lease.
(r) Landlord grants Tenant a revocable license to park, in common with
other tenants, up to Tenant's Parking Allotment of automobiles in the parking
facilities appurtenant to the Building. Tenant agrees to pay Landlord, or
Landlord's designee, the regularly scheduled parking rates at such time and in
such manner as Landlord or Landlord's designee may, from time to time, establish
for tenants of the Building. Tenant's license shall be revoked and expire
concurrently with the termination of the Lease, unless sooner terminated
pursuant to the terms and conditions of this Lease. Tenant agrees to abide by
all of the rules and regulations for the parking facilities that Landlord, or
its designee, may from time to time establish. In the event Tenant is in default
under any term or condition of the Lease, Landlord may revoke this license in
whole or in part and prohibit Tenant's or any or all of its employee's,
servant's, agent's or contractor's use of the Parking facilities without
liability to Tenant. This Section creates only a revocable license to use such
parking facilities and does not convey to Tenant any estate in the Building, the
"COMMON AREAS'., the real property on which the Building is located or in any
parking facilities located at or on said real property. No bailment is created
hereby and Tenant, for itself, its agents, servants, employees, successors and
assigns, hereby releases Landlord and Landlord's agents, servants, employees and
independent contractors from all claims for loss or damage arising out of or
related to use of the parking facilities.
Radler Office Form 1/97 15
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(s) No bicycles or vehicles of any kind shall be brought into, stored or
kept in or about the Premises. There shall not be used in any space, or in the
"COMMON AREAS" of the Building, either by Tenant or others, any hand trucks
except those equipped with rubber tires and rubber side guards or such other
material handling equipment as Landlord may approve.
(t) No cooking shall be done or permitted by Tenant on the Premises,
except that the preparation of coffee, tea, hot chocolate and similar items for
Tenant and its employees shall be permitted, provided the power requirement does
not exceed that amount which can be provided by a 30 amp circuit. Tenant shall
not cause or permit any unusual or objectionable odors to be produced or
permeate the Premises or the Building. No vending or similar machines shall be
installed, maintained or operated upon the Premises without the written consent
of Landlord.
(u) Tenant shall not place a load upon any floor of the Premises which
exceeds the load per square foot which such floor was designed to carry and
which is allowed by law. Landlord shall have the right to prescribe the weight,
size and position of all equipment, materials, furniture or other property
brought into the Building. Heavy objects shall, if considered necessary by
Landlord, stand on such platforms as determined by Landlord to be necessary to
properly distribute the weight. Business machines and mechanical equipment
belonging to Tenant, which cause noise or vibration that may be transmitted to
the structure of the Building, or to any space therein, to such a degree as to
be objectionable to Landlord, or to any tenants in the Building, shall be placed
and maintained by Tenant, at Tenant's expense, on vibration eliminators or other
devices sufficient to eliminate noise or vibration. The Landlord reserves the
right to inspect all safes, freight or other bulky articles to be brought into
the Building and to exclude from the Building all safes, freight or bulky
articles which violate any of these Rules and Regulations or the Lease.
(v) Landlord shall have the right to prohibit any advertising by Tenant
which, in Landlord's opinion, tends to impair the reputation of the Building or
its desirability as an office building and, upon written notice from Landlord,
Tenant shall refrain from or discontinue such advertising.
(w) The requirements of Tenant will be attended to only upon appropriate
application to the office of the Building by an authorized individual. Employees
of Landlord shall not perform any work or do anything outside of their regular
duties unless under special instructions from Landlord.
(x) Landlord reserves the right to rescind any of these rules and
regulations and to make such other and further rules and regulations as in its
judgement shall from time to time be needful for the safety, protection, care
and cleanliness of the Building, the operation thereof, the preservation of good
order therein and the protection and comfort of the tenants and their agents,
employees and invitees, which rules and regulations, when made and written
notice thereof is given to a tenant, shall be binding upon it and like manner as
if originally herein prescribed.
(y) Tenant shall, before leaving the leased premises unattended, close and
lock all outside doors and shut off all utilities; damage resulting from failure
to do so shall be paid by Tenant.
24. DELIVERY OF NOTICE. Any notice and/or document required to be delivered
hereunder shall be deemed to be delivered, whether actually received or not,
when deposited in the United States mail, postage prepaid, certified or
registered mail, return receipt requested, addressed to the parties hereto at
the respective addresses specified above, or at such other address as they have
set forth specified by written notice delivered in accordance herewith.
25. MISCELLANEOUS.
(a) This Lease may not be altered, changed or amended, except by an
instrument in writing, signed by both parties hereto. This lease and the
schedules and exhibits attached if any, form a part of this lease together with
the rules and regulations adopted and promulgated by the Landlord pursuant to
Section 3 and Section 23 hereof, and set forth all the covenants, promises,
assurances, agreements, representations, conditions, warranties, statements, and
understandings ("Representations") between the Landlord and the Tenant
concerning the Leased Premises, and there are no Representations, either oral or
written, between them other than those in this Lease.
Radler Office Form 1/97 16
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This lease supersedes and revokes all previous negotiations, arrangements,
letters of intent, offers to lease, lease proposals, brochures. Representations,
and information conveyed, whether oral or in writing, between the parties hereto
or their respective representatives or any other person purporting to represent
the Landlord or the Tenant. The Tenant acknowledges that it has not been induced
to enter into this lease by any Representations not set forth in this Lease, it
has not relied on any such Representations, no such Representations shall be
used in the interpretations or construction of this Lease, and the Landlord
shall have no liability for any consequences arising as a result of any such
Representations.
Except as herein otherwise provided, no subsequent alteration, amendment
change, or addition to this Lease shall be binding upon the Landlord or the
Tenant unless in writing and signed by each of them.
(b) This Lease shall be binding upon and inure to the benefit of the
successors and assigns of Landlord, and shall be binding upon and inure to the
benefit of Tenant, its successors, and, to the extent assignment may be approved
by Landlord hereunder, Tenant's assigns. The pronouns of any gender shall
include the other genders, and either the singular or the plural shall include
the other.
(c) All rights and remedies of Landlord under this Lease shall be
cumulative and none shall exclude any other rights or remedies allowed by law;
and this Lease is declared to be a Texas contract, and all of the terms thereof
shall be construed to the laws of the State of Texas.
(d) Whenever a period of time is herein prescribed for action to be taken
by Landlord, the Landlord shall not be liable or responsible for, and there
shall be excluded from the computation for any such period of time, any delays
due to strikes, riots, acts of God, shortages of labor or materials, war,
governmental laws, regulations, or restrictions or any other causes of any kind
whatsoever.
(e) At Landlord's request Tenant will execute either an estoppel
certificate addressed to Landlord's mortgagee or a three-party agreement among
Landlord, Tenant and said mortgagee certifying as to such facts (true) and
agreeing to such notice provisions and other matters as such mortgagee may
reasonably require in connection with Landlord's financing.
(f) Tenant warrants that it has had no dealings with any broker or agent
in connection with the negotiation or execution of this Lease and Tenant agrees
to indemnify Landlord and hold him harmless from and against any and all cost,
expense or liability for commissions or other compensation and charges claimed
by any broker or agent with respect to this Lease.
(g) Upon request from Landlord, Tenant and Guarantor agree by their
respective execution of this Lease and the Guaranty at Exhibit "C", to provide
current, signed financial statements (balance sheet and income statements) and
information to Landlord during the term of this Lease. Landlord may not in any
event, make such requests more frequently than semi-annually.
(h) BUILDING ACCESS CARDS. Prior to Lease Commencement Tenant shall submit
to Landlord a list of employees needing Building Access Cards. Based upon such
list, Landlord will provide Tenant a maximum of one (1) Building Access Card per
employee at a cost to Tenant of $20.00 per card. After the date Tenant first
occupies the premises, any replacement or additional cards will be furnished at
a cost to Tenant of $20.00 per card.
(i) Contingent upon Tenant satisfying all the following conditions, (the
"Conditions") Tenant is hereby granted an option to terminate the Lease Term, as
set forth in Section 2 of the Lease. The Conditions being that (i) Tenant shall
have fully performed all of its covenants, duties and obligations hereunder
during the term of this lease; (ii) Tenant shall have given written notice to
Landlord on or before NOVEMBER 30, 1997 that Tenant is exercising such Option;
(iii) that such written notice be delivered to Landlord at Landlord's business
office within normal business hours on or before NOVEMBER 30, 1997; and (iv)
Tenant shall reimburse Landlord at the time of written notification to terminate
the Lease for the unamortized portion of up front costs in the amount of
$3,689.00. Time is of the essence in the exercise of such Option, and the time
period within which such Option may be exercised shall not be extended or
enlarged by Tenant for any reason, including inability to exercise such Option.
In the event that Tenant satisfies all the Conditions and effectively
exercises such Option to Terminate, this Lease Agreement shall expire on JANUARY
31, 1998. Failure of Tenant to provide notice as specified herein shall cause
the lease term to continue unabated.
(b) Contingent upon Tenant satisfying all the following conditions, (the
"Conditions") Tenant is hereby granted an option to terminate the Lease Term, as
set forth in Section 2 of the Lease. The Conditions being that (i) Tenant shall
have fully performed all of its covenants, duties and obligations hereunder
during the term of this lease; (ii) Tenant shall have given written notice to
Landlord on or before NOVEMBER 30, 1998 that Tenant is exercising such Option:
(iii) that such written notice be delivered to Landlord at Landlord's business
office within normal business hours on or before NOVEMBER 30, 1998; and (iv)
Tenant shall reimburse Landlord at the time of
Radler Office Form /97 17
<PAGE>
written notification to terminate the Lease for the unamortized portion of up
front costs in the amount of $1,845.00. Time is of the essence in the exercise
of such Option, and the time period within which such Option may be exercised
shall not be extended or enlarged by Tenant for any reason, including inability
to exercise such Option.
In the event that Tenant satisfies all the Conditions and effectively
exercises such Option to Terminate, this Lease Agreement shall expire on JANUARY
31, 1999. Failure of Tenant to provide notice as specified herein shall cause
the lease term to continue unabated.
IN TESTIMONY WHEREOF, the parties hereto have executed this Lease as of
the date of aforesaid.
LANDLORD
RADLER ENTERPRISES TEXAS, INC.
BY: /S/ MISHAEL H. RADOM
MISHAEL H. RADOM
PRESIDENT
RADLER ENTERPRISES TEXAS, INC.
DATE: /S/ JANUARY 22, 1997
TENANT
CLIFFWOOD OIL & GAS CORP.
BY: /S/ FRANK A. LODZINSKI
FRANK A. LODZINSKI
PRESIDENT
CLIFFWOOD OIL & GAS CORP.
DATE: /S/ JANUARY 21, 1997
Radler Office Form 1/97 18
Exhibit 10.18
FIRST AMENDMENT OF STANDARD OFFICE BUILDING
LEASE AGREEMENT
RECITALS:
CLIFFWOOD OIL & GAS CORPORATION ("Tenant") entered into that certain
Standard Office Building Lease Agreement (the "Lease") dated, January 14, 1997
for certain premises located at 110 Cypress Station, Suite 220 & 246, Houston,
Texas, 77090, with RADLER ENTERPRISES TEXAS, INC. ("Landlord"). The purpose of
this First Amendment of Standard Office Building Lease Agreement (hereinafter
"First Amendment") is to amend the Lease. The effective date of this First
Amendment shall be March 12, 1997.
AMENDMENT:
For valuable consideration respectively given, the receipt and sufficiency
of which is hereby acknowledged, Landlord and Tenant do hereby enter this First
Amendment which amends the Lease as follows:
1. SECTION 25. Miscellaneous (i) and (b). (i) Contingent upon Tenant satisfying
all the following conditions, (the "Conditions") Tenant is hereby granted an
option to terminate the Lease Term, as set forth in Section 2 of the Lease. The
Conditions being that (i) Tenant shall have fully performed all of its
covenants, duties and obligations hereunder during the term of this lease; (ii)
Tenant shall have given written notice to Landlord on or before NOVEMBER 30,
1997 that Tenant is exercising such Option; (iii) that such written notice be
delivered to Landlord at Landlord's business office within normal business hours
on or before NOVEMBER 30, 1997; and (iv) Tenant shall reimburse Landlord at the
time of written notification to terminate the Lease for the unamortized portion
of up front costs in the amount of $4,889.00. Time is of the essence in the
exercise of such Option, and the time period within which such Option may be
exercised shall not be extended or enlarged by Tenant for any reason, including
inability to exercise such Option.
In the event that Tenant satisfies all the Conditions and effectively
exercises such Option to Terminate, this Lease Agreement shall expire on JANUARY
31, 1998. Failure of Tenant to provide notice as specified herein shall cause
the lease term to continue unabated.
(j) Contingent upon Tenant satisfying all the following conditions, (the
"Conditions") Tenant is hereby granted an option to terminate the Lease Term, as
set forth in Section 2 of the Lease. The Conditions being that (i) Tenant shall
have fully performed all of its covenants, duties and obligations hereunder
during the term of this lease; (ii) Tenant shall have given written notice to
Landlord on or before NOVEMBER 30, 1998 that Tenant is exercising such Option;
(iii) that such written notice be delivered to Landlord at Landlord's business
office within normal business hours on or before NOVEMBER 30, 1998; and (iv)
Tenant shall reimburse Landlord at the time of written notification to terminate
the Lease for the unamortized portion of up front costs in the amount of
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Page 2 of 3
FIRST AMENDMENT OF STANDARD OFFICE BUILDING LEASE AGREEMENT
$2,445.00. Time is of the essence in the exercise of such Option, and the time
period within which such Option may be exercised shall not be extended or
enlarged by Tenant for any reason, including inability to exercise such Option.
In the event that Tenant satisfies all the Conditions and effectively
exercises such Option to Terminate, this Lease Agreement shall expire on JANUARY
31, 1999. Failure of Tenant to provide notice as specified herein shall cause
the lease term to continue unabated.
2. ENTIRE AGREEMENT. This First Amendment sets forth all the covenants,
promises, assurances, agreements, representations, conditions, warranties,
statements, and understandings ("Representations") between the Landlord and
Tenant concerning the Leased Premises, and there are no Representations, either
oral or written, between them other than those in the Lease or this First
Amendment. This First Amendment supersedes and revokes all previous
negotiations, arrangements, letters of intent, offers to lease, lease proposals,
brochures, Representations, and information conveyed, whether oral or in
writing, between the parties hereto or their respective representatives or any
other person purporting to represent the Landlord or Tenant.
3. LEASE IN FULL FORCE AND EFFECT. All provisions of said Lease not inconsistent
herewith shall remain in full force and effect. Except as specifically amended
by the provisions hereof, the terms and provisions stated in the Lease shall
continue to govern the rights and obligations of the parties thereunder; and all
provisions and covenants of the Lease shall remain in full force and effect as
stated therein, except to extent specifically amended by the provisions hereof.
4. DEFINED TERMS. Terms defined in the Lease and delineated herein by initial
capital letters shall have the same meanings ascribed thereto in the Lease,
except to the extent that the meanings of any such term is specifically modified
by the provisions hereof. In addition, other terms not defined in the Lease but
defined herein will, when delineated with initial capital letters, have the
meanings ascribed thereto in this Agreement. Terms and phrases which are not
delineated by initial capital letters shall have the meanings commonly ascribed
thereto.
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Page 3 of 3
FIRST AMENDMENT OF STANDARD OFFICE BUILDING LEASE AGREEMENT
In witness whereof the parties here to have executed this First Amendment
and affixed their signatures as of the _____ day of
LANDLORD
RADLER ENTERPRISES TEXAS, INC.
BY: /S/ MISHAEL H. RADOM
MISHAEL H. RADOM
PRESIDENT
RADLER ENTERPRISES TEXAS, INC.
DATE: /S/ MARCH 21, 1997
TENANT
CLIFFWOOD OIL & GAS CORPORATION
BY: /S/ FRANK A. LODZINSKI
FRANK A. LODZINSKI
PRESIDENT
CLIFFWOOD OIL & GAS CORPORATION
DATE: /S/ MARCH 19, 1997
EXHIBIT 10.19
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (the "Agreement"), effective April 1,
1997 (the "Effective Date"), is between Belleview 1992 Income Fund L.P. with
offices located at 10 Inverness Drive East, Suite 101, Englewood, CO 80112
("SELLER"), and , Cliffwood Oil & Gas Corp. whose offices are located at 110
Cypress Station Drive, Suite 220, Houston, TX 77090 ("BUYER").
RECITALS:
SELLER owns certain oil and gas properties as detailed on Exhibit "A" and
related contractual rights and desires to sell these properties and transfer
these contractual rights.
BUYER desires to purchase these properties from SELLER and acquire these
contractual rights.
Accordingly, in consideration of the mutual promises contained in this
Agreement, BUYER and SELLER agree as follows:
ARTICLE 1. PURCHASE AND SALE
1.1 THE PROPERTY. Subject to the terms of this Agreement, SELLER agrees to sell
and assign to BUYER and BUYER agrees to purchase and acquire from SELLER all of
SELLER's right and title to, and interest in, the following (collectively the
"Property"):
1.1.1 The oil, gas and mineral lease(s) and other interests in oil and gas
described in Exhibit A, Part I and all rights, privileges and obligations
appurtenant to the leases (the "Leases");
1.1.2 All rights in any unit in which the Leases are included, to the
extent that these rights arise from and are associated with the Leases,
including without limitation all rights derived from any unitization, pooling,
operating, communitization or other agreement or from any declaration or order
of any governmental authority;
1.1.3 All oil, gas and condensate wells (whether producing, not producing
or temporarily abandoned but not permanently abandoned wells), water source,
water injection and other injection or disposal wells listed on Exhibit A, Part
II ( the "Wells") and/or located on the Leases or lands unitized or pooled with
the Leases;
1.1.4 All equipment, pipelines, facilities and other personal property on
the Leases used in developing or operating the Leases or producing, treating,
storing, compressing, processing, gathering, or transporting hydrocarbons on or
from the Lease, other than that specifically designated as retained property in
Exhibit A, Part I or excluded from the Property in Section 1.2;
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1.1.5 All easements, rights-of-way, licenses, permits, servitude and
similar interests applicable to or used in operating the Leases or the personal
property described above, to the extent they are assignable or transferrable and
subject to any consents to assignment or transfer to which they may be subject,
including without limitation those described in Exhibit A, Part I;
1.1.6 All contracts and contractual rights, obligations and interests
relating to the Leases, including without limitation unit agreements, farmout
agreements, farmin agreements, operating agreements, and hydrocarbon sales,
purchase, gathering, transportation, treating, marketing, exchange, processing
and fractionating agreements (the "Related Contracts"), including without
limitation those Related Contracts described in Exhibit A, Part I,
1.1.7 All Hydrocarbon production from the Wells and Leases; and
1.1.8 All original files (or if originals are not available, legible
copies), records, data (including without limitation engineering, seismic,
geological, geophysical and other technical data) and information relating to
the items in Section 1, Subsections 1.1.1 through 1.1.7, maintained by the
SELLER (the "Records").
1.2 EXCLUSIONS. The Property sold and assigned under this Agreement does not
include:
1. Trade credits, accounts and notes receivable and adjustments or
refunds (including without limitation transportation tariff refunds, take-or-pay
claims, audit adjustments claims for under-or-non-payment and claims with
respect to breach of contract) attributable to the Property with respect to any
period before the Effective Date.
1.3 OWNERSHIP OF PRODUCTION FROM THE PROPERTY.
1.3.1 PRODUCTION BEFORE THE EFFECTIVE DATE. SELLER owns all oil, gas,
condensate liquid and liquifiable natural gas products, and distillate
("Hydrocarbons") produced from the Property before the Effective Date. If
Hydrocarbons produced from the Property before the Effective Date are stored in
the Lease stock tanks on the Effective Date (the "Stock Tank Oil"), BUYER shall
purchase the Stock Tank Oil above pipeline connections in the stock tanks from
SELLER at the prevailing market value in the area, adjusted for grade and
gravity and less taxes. BUYER will pay SELLER for the Stock Tank Oil by upward
adjustment to the Purchase Price, as provided in Section 7.4.3. SELLER and BUYER
shall accept the Lease operator's tank gauge readings or other inventory records
of the Stock Tank Oil adjusted for the above pipeline connection tank bottoms.
1.3.2 PRODUCTION AFTER THE EFFECTIVE DATE. BUYER owns all Hydrocarbons
produced from the Property on and after the Effective Date. SELLER will sell on
BUYER's behalf all Hydrocarbons produced from the Property between the Effective
Date and the Closing Date. SELLER will credit BUYER for the proceeds of these
sales as a downward adjustment to the Purchase Price at Closing and, as provided
in Section 7.4.3. Subject to any continuing sale obligations under the Related
Contracts,
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BUYER may sell Hydrocarbons produced from the Property on and after the Closing
Date as it deems appropriate. Provided, however, that the downward adjustment to
the Purchase Price shall be calculated at no less than the fair market value of
such production at the time it is sold, pursuant to arms-length transactions
with parties unaffiliated with the seller of the production or with SELLER.
ARTICLE 2. PURCHASE PRICE
2.1 PURCHASE PRICE. BUYER shall pay SELLER at Closing Four Million and No/100
Dollars ($4,000,000.00) by cashiers check or bank wire transfer plus 550,000
shares of Class A Common Stock of Cliffwood Oil & Gas Corp. (Stock") and
warrants to purchase 275,000 shares of Class A Common Stock of Cliffwood Oil &
Gas Corp. for $4.25 per share ("Warrant") for the Property (the "Purchase
Price"), subject to any adjustments to the Purchase Price made at Closing and
subsequently in the post-closing final accounting under Section 7.4 which such
adjustments shall be made in cash. The Stock and the Warrant shall be
transferred pursuant to the Common Stock and Warrant Purchase Agreement in the
form of Exhibit D hereto ("Stock Agreement") and the Stock Purchase Warrant in
the form of Exhibit E hereto ("Purchase Warrant"). SELLER acknowledges that the
Stock and the Warrant shall bear legends stating that neither the Stock nor the
Warrant have been registered under the Securities Act of 1933 nor under any
state securities or blue sky laws and that the Stock and the Warrant issued to
SELLER will have legends restricting their transfer.
DEPOSIT. Within 5 business days after this Agreement is fully executed,
BUYER shall pay SELLER $300,000 cash, by bank wire transfer, as an earnest money
deposit (the "Deposit"). If the transactions contemplated by this Agreement
should fail to close due to a breach of this Agreement by BUYER, then SELLER
shall keep the Deposit as liquidated damages and not as a penalty and in lieu of
any and all other remedies of SELLER for BUYER's failure to perform and SELLER
shall retain the Property. If the transactions contemplated by this Agreement
shall fail to close for any reason other than BUYER's breach of this Agreement,
then SELLER shall immediately refund the Deposit to BUYER.
2.3 CLOSING ADJUSTMENTS. No later than five (5) business days prior to Closing,
SELLER shall deliver to BUYER, SELLER's proposed adjustments to the Purchase
Price for BUYER's review and approval. Such adjustments shall include:
2.3.1 UPWARD ADJUSTMENTS TO THE PURCHASE PRICE FOR All actual
production expenses, operating expenses, overhead charged under applicable
operating agreements, and capital expenditures, which must be approved by BUYER
if such expenditure occurs after the date that this Agreement is fully executed
and exceeds the
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amount allowed for under the applicable joint operating agreement, (including
without limitation royalties, minimum royalties, rentals and prepaid charges)
paid by SELLER and attributable to operation of the Property on and after the
Effective Date;
23.2 Downward adjustments to the Purchase Price for
(i) Any proceeds received by SELLER for production from the
Property on and after the Effective Date or the value thereof, as provided in
Section 1.3.2 of this Agreement; and
(ii) Any other amounts to which BUYER is entitled under this
Agreement, including provisions under Article 10; and
(iii) The amount of the Deposit.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES
3.1 RECIPROCAL REPRESENTATIONS AND WARRANTIES. Each SELLER and BUYER represent
and warrant to the other that as of the Effective Date and the Closing Date:
3.1.1 CORPORATE/PARTNERSHIP AUTHORITY. It is a corporation/partnership
duly organized and in good standing under the laws of its state of origination,
and has all the requisite power and authority to enter into and perform this
Agreement.
3.1.2 REQUISITE APPROVALS. It has taken all necessary actions pursuant to
its Articles or Certificate of Incorporation or Partnership, By-laws and other
governing documents to fully authorize it to consummate the transaction
contemplated by this Agreement.
3.1.3 VALIDITY OF OBLIGATION. This Agreement and all documents it is to
execute and deliver on or before the Closing Date have been duly executed by its
appropriate officials and constitute valid and legally binding obligations,
enforceable against it in accordance with the terms of this Agreement and such
documents.
3.1.4 IMPEDIMENTS TO CONSUMMATION OF AGREEMENT. It's executing, delivering
and performing this Agreement does not conflict with or violate any agreement or
instrument to which it is a party, or any law, rule, regulation, ordinance,
judgment, decree or order to which it is subject. 3.1.5 BANKRUPTCY. There are no
bankruptcy, reorganization or receivership proceedings pending, being
contemplated by, or to its actual knowledge, threatened against it.
3.1.6 BROKER'S FEES. It has not incurred any obligation for brokers,
finders or similar fees for which the other party would be liable.
3.2 BUYER'S REPRESENTATIONS AND WARRANTIES. BUYER represents and warrants to
SELLER that as of the Effective Date and the Closing Date:
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3.2.1 INDEPENDENT EVALUATION. BUYER is experienced and knowledgeable in
the oil and gas business. BUYER has been advised by and has relied solely on its
own expertise and legal, tax, reservoir engineering, environmental and other
professional counsel concerning this transaction, the Property and the value
thereof.
3.2.2 QUALIFICATION. BUYER or its designated agent is now or at Closing
will be, and thereafter will continue to be, qualified to operate federal and
State of Nebraska oil, gas and mineral leases, including meeting all bonding
requirements.
3.2.3 SECURITIES LAWS. BUYER has complied with all federal and state
securities laws, if any, applicable to the purchase of the Property and will
comply with such laws if it subsequently disposes of all or any part of the
Property.
3.2.4 PHYSICAL AND ENVIRONMENTAL MATTERS. Prior to Closing and as a
condition of Closing, BUYER will have had access to the Property, the public
records and SELLER's files for all purposes, including without limitation for
the purpose of detecting the presence of asbestos and the presence and
concentration of naturally-occurring radiative materials and satisfied itself as
to the physical condition and environmental condition of the property, both
surface and subsurface. BUYER acknowledges that no representations have been
made by SELLER regarding environmental conditions or physical conditions, past
or present.
3.3 SELLER'S REPRESENTATIONS. SELLER represents to BUYER that as of the
Effective Date and the Closing Date:
3.3.1 COMPLIANCE WITH LAWS. SELLER has no notice to the effect that any
portion of the property has been or is being operated in violation of any
applicable law, rule, regulation or order of a governmental authority with
jurisdiction, including without limitation, any environmental laws, rules,
orders or regulations of any federal, state or municipal body, the Comprehensive
Environmental Response, Compensation and Liability Act, of 1980, as amended, the
Resource Conservation and Recovery Act of 1976, as amended, the Safe Drinking
Water Act, the Toxic Substance Control Act, and the Hazardous Materials
Transportation Act, and to the best of SELLER's knowledge, the Property has been
operated prior to the Effective Date in substantial compliance with all
applicable laws, rules, regulations and orders of all governmental authorities
with jurisdiction over the Property, including without limitation all
environmental laws, rules, orders or regulations of all federal, state or
municipal body, the Comprehensive Environmental Response, Compensation and
Liability Act, of 1980, as amended, the Resource Conservation and Recovery Act
of 1976, as amended the Safe Drinking Water Act, the Toxic Substance Control
Act, and the Hazardous Materials Transportation Act and SELLER is not in default
under any permit, license or agreement relating to the operation and maintenance
of the Property.
3.3.2 LAWSUITS AND CLAIMS. SELLER has no notice of any lawsuit, claim or
demand pending or threatened related to the Property and to the best of SELLER's
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knowledge, there are no lawsuits, claims, or demands pending or threatened in
writing against SELLER or the operator of any portion of the Property, nor any
compliance orders or notices of probable violation or similar governmental
agency actions relating to the Property or the operation of the Property, except
as disclosed in writing by SELLER no later than ten (10) business days prior to
Closing.
3.3.3 PREFERENTIAL RIGHTS AND CONSENTS. Except as shown on Exhibit A, Part
III attached hereto, there are no preferential rights of purchase, rights of
first refusal, or similar rights with respect to any of the Property. Except as
shown on Exhibit A, Part III there are no consents or approvals, governmental or
otherwise, required to permit or enable SELLER to transfer to BUYER the
ownership and operation of the Property as contemplated by this Agreement.
3.3.4 TAKE-OR-PAY. SELLER is not obligated by virtue of any prepayment
arrangement under any contract for the sale of Hydrocarbons containing a
"take-or-pay" or similar provision, a production payment, "make-up" obligation,
gas imbalance, or any other arrangement to deliver Hydrocarbons produced from
the Property at some future time without then or thereafter receiving full
payment therefore, and SELLER's interest in the Property is not subject to any
non-consent or other penalty or provision which would prevent BUYER from taking
the working interest share of production from each Well.
3.3.5 OPEN AFE'S. Except as set forth on Exhibit A, Part V attached
hereto, there are no outstanding authorizations for expenditures.
3.3.6 TAXES. Except for those taxes and assessments for which a purchase
price adjustment is made under Article 7.4.3.2, all ad valorem, property,
production, severance, excise and similar taxes and assessments on the Property
that have become due and payable before the Effective Date have been paid.
3.3.7 CONTRACTS. SELLER has received no notice of default under any of the
Leases or Related Contracts. To the best of SELLER's knowledge (i) all Leases
and Related Contracts are in full force and effect and are the valid and legally
binding obligations of the parties thereto enforceable in accordance with their
respective terms; (ii) SELLER is not in material breach or default with respect
to any of its obligations pursuant to any of the Leases or Related Contracts;
and (iii) all payments (including, without limitation, royalties, delay rentals,
shut-in royalties, production payments, and valid calls under unit or operating
agreements) due thereunder have been timely paid.
3.3.8 OPERATION OF THE PROPERTY. To the best of SELLER's knowledge, the
operators of the Property have operated the Property in a good and workmanlike
manner in accordance with good oilfield practices.
3.3.9 PERFORMANCE OF OBLIGATIONS. SELLER, and to the best of SELLER's
knowledge, the operators of the Property, have complied with and performed all
terms and conditions of the Leases, whether express or implied, and made all
payments due under the Leases and no Lease has been forfeited, released,
terminated or surrendered.
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3.3.10 CALLS ON PRODUCTION. No party or person has the right to purchase
production from any portion of the Property pursuant to a call on production or
right of first refusal or similar arrangement.
3.3.11 SALES CONTRACTS. No production from the Property is sold under any
arrangement or committed to a sales contract which cannot be terminated upon 60
days or less notice.
3.4 NOTICE. SELLER and BUYER shall each give the other prompt written notice of
any matter materially affecting any of its representations or warranties under
this Article 3 or rendering any such warranty or representation untrue.
ARTICLE 4. WARRANTIES
4.1 TITLE; ENCUMBRANCES. SELLER SELLS AND TRANSFERS THE PROPERTY TO BUYER
SUBJECT TO ALL ROYALTIES, OVERRIDING ROYALTIES, BURDENS AND ENCUMBRANCES, AND
WITHOUT WARRANTY OF TITLE EXPRESS, STATUTORY, OR IMPLIED, EXCEPT BY, THROUGH AND
UNDER SELLER AND AS SET FORTH IN THIS SECTION 4.1.. SELLER HEREBY WARRANTS
SELLER HAS NOT ALLOWED ANY LIENS, MORTGAGES, SECURITY INTERESTS AND SIMILAR
ENCUMBRANCES TO BE PLACED ON THE PROPERTY. SELLER HEREBY WARRANTS GOOD AND
DEFENSIBLE TITLE TO THE PROPERTY BY, THROUGH AND UNDER SELLER BUT NOT OTHERWISE
AND AGREES TO INDEMNIFY AND SAVE BUYER HARMLESS, INCLUDING WITHOUT LIMITATION
FOR REASONABLE ATTORNEY'S FEES, FEES OF EXPERTS AND COURT COSTS, FROM AND
AGAINST ALL ADVERSE CLAIMS TO THE TITLE TO THE PROPERTY BY THROUGH OR UNDER
SELLER. SELLER AGREES THAT BUYER IS HEREBY SUBROGATED TO ANY AND ALL RIGHTS THAT
SELLER MAY HAVE AGAINST ANY PREDECESSOR OF SELLER WITH RESPECT TO TITLE TO THE
PROPERTY OR CLAIMS AGAINST SUCH TITLE. SELLER HEREBY REPRESENTS AND WARRANTS
THAT TO THE BEST OF ITS KNOWLEDGE, ALL ROYALTIES, OVERRIDING ROYALTIES, BURDENS
AND ENCUMBRANCES ARE DISCLOSED.
4.2 OTHER PROPERTY WARRANTIES. EXCEPT AS OTHERWISE PROVIDED IN ARTICLE 4.1,
SELLER SELLS AND TRANSFERS THE PROPERTY TO BUYER WITHOUT ANY EXPRESS, STATUTORY
OR IMPLIED WARRANTY OR REPRESENTATION OF ANY KIND, INCLUDING WARRANTIES RELATING
TO (i) THE CONDITION OR MERCHANTABILITY OF THE PROPERTY, OR (ii) THE FITNESS OF
THE PROPERTY FOR A PARTICULAR PURPOSE. BUYER HAS INSPECTED, OR BEFORE CLOSING
WILL HAVE INSPECTED OR BEEN GIVEN THE OPPORTUNITY TO INSPECT, THE PROPERTY AND
IS SATISFIED AS TO THE PHYSICAL AND ENVIRONMENTAL CONDITION (BOTH SURFACE AND
SUBSURFACE) OF THE PROPERTY AND ACCEPTS THE PROPERTY "AS IS", "WHERE IS", AND
"WITH ALL FAULTS."
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4.3 INFORMATION ABOUT THE PROPERTY. SELLER MAKES NO WARRANTY OR REPRESENTATION,
EXPRESS, STATUTORY OR IMPLIED, AS TO (i) THE ACCURACY, COMPLETENESS, OR
MATERIALITY OF ANY DATA, INFORMATION OR RECORDS FURNISHED TO BUYER IN CONNECTION
WITH THE PROPERTY; (ii) THE QUALITY AND QUANTITY OF HYDROCARBON RESERVES (IF
ANY) ATTRIBUTABLE TO THE PROPERTY; (iii) THE ABILITY OF THE PROPERTY TO PRODUCE
HYDROCARBONS, INCLUDING WITHOUT LIMITATION PRODUCTION RATES, DECLINE RATES AND
RECOMPLETION OPPORTUNITIES; (iv) THE PRESENT OR FUTURE VALUE OF THE ANTICIPATED
INCOME, COSTS OR PROFITS, IF ANY, TO BE DERIVED FROM THE PROPERTY, OR (v) THE
ENVIRONMENTAL CONDITION OF THE PROPERTY. ANY AND ALL DATA, INFORMATION OR OTHER
RECORDS FURNISHED BY SELLER ARE PROVIDED TO BUYER AS A CONVENIENCE AND BUYER'S
RELIANCE ON OR USE OF THE SAME IS AT BUYER'S SOLE RISK.
ARTICLE 5. TITLE EXAMINATION AND PHYSICAL INSPECTION
5.1 INFORMATION AND ACCESS. To allow BUYER to confirm SELLER's title to the
Property, SELLER shall give BUYER, and BUYER's authorized representatives, at
mutually agreeable times before Closing, access to all title opinions
andaccounting, contract, land and lease records, to the extent such data and
records are in SELLER's possession and relate to the Property. During due
diligence, BUYER may photocopy such records at its sole expense. BUYER shall
keep confidential all information made available to BUYER until Closing. BUYER
shall take all reasonable steps necessary to ensure that BUYER's authorized
representatives comply with the provisions of this Section 5.1.
5.2 TITLE PENDING GOVERNMENTAL CONSENTS. Until SELLER and BUYER obtain federal
and state approval of the sale and assignment of any Leases requiring such
approval, SELLER will continue to hold record title to such Leases as nominee
for BUYER. Until the required approvals are obtained, SELLER will act only upon
and in accordance with BUYER's specific written instructions and will have no
authority, responsibility or discretion to perform any tasks with respect to
such Leases other than purely administrative or ministerial tasks, unless
otherwise specifically requested and authorized by BUYER in writing. If any
required approval is finally denied, SELLER shall refund to BUYER, in cash, the
portion of the Purchase Price allocated to the Leases (the "Allocated Value") as
set forth on Exhibit "C" hereto, for which the approval was denied and BUYER
shall immediately reassign such Leases and other Property to SELLER. If such a
reassignment occurs, BUYER shall indemnify and hold SELLER harmless from any and
all claims, suits, obligations, liabilities, losses, costs and expenses of any
kind or character (unless resulting from the negligence or willful misconduct of
SELLER) relating to such Leases and other Property accruing between Closing Date
and the date on which BUYER reassigns the Leases and other Property to SELLER.
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5.3 TITLE AND ENVIRONMENTAL DEFECTS.
5.3.1 BUYER will review title to the Property prior to Closing and notify
SELLER in writing of any title defect or environmental defect (collectively, a
"Defect") it discovers as soon as reasonably practicable after its discovery,
but in no event less than ten (10) business days prior to the Closing Date in
the case of a title defect or ten (10) business days prior to the Closing Date
in the case of an environmental defect. BUYER will be deemed to have
conclusively waived any title defect about which it fails to notify SELLER in
writing within the applicable period specified in the preceding sentence.
5.3.2 If BUYER properly notifies SELLER of any material Defect, BUYER
shall have the option to either (i) waive the Defect and close, (ii) request
SELLER to cure the Defect, but SELLER will have no obligation to cure any
Defects in the Property, or (iii) if SELLER declines to cure a material Defect,
exclude the portion of the Property affected by the defect from the transaction
under this Agreement, in which case the Purchase Price will be reduced by the
Allocated Value of the excluded Property. If BUYER asks SELLER to cure a
material Defect, and SELLER agrees to attempt to cure the Defect, the Closing
with respect to the affected Property only will be deferred and SELLER will have
thirty (30) days after the Closing Date to correct the Defect, in the case of a
title defect, or one hundred twenty (120) days in the case of an environmental
defect. With respect to all such material Defects that SELLER fails to cure to
the reasonable satisfaction of BUYER, BUYER may rescind its purchase of that
portion of the Property affected by those Defects. Notwithstanding the foregoing
provisions of this Section 5.3.2, if on the Closing Date the Allocated Value of
the Property affected by all uncured material Defects of which SELLER has been
properly notified and which have not been cured by Seller or waived by BUYER,
together with the Allocated Value of portions of the Property for which
preferential purchase rights have been exercised, exceeds twenty percent (20%)
of the Purchase Price, either BUYER or SELLER may terminate this Agreement, and
neither party will have any further rights or obligations under this Agreement.
5.3.3 (a) For the purpose of this Agreement, a material title defect
("Defective Interest") shall be any matter that, in the opinion of BUYER, would
cause the title to the Property to fail to qualify as marketable title.
Marketable title shall mean a title that can be deduced from the applicable
county, state and federal records and is such that (i) a reasonable and prudent
person engaged in the business of the ownership, development and operation of
oil and gas properties with the knowledge of all the facts and their legal
bearing would be willing to accept title to the Property, (ii) the title is free
and clear from liens and encumbrances that would materially reduce, impair or
prevent BUYER from receiving payment from the purchasers of production, or which
would materially impair or reduce the economic benefit BUYER could reasonably
expect from acquiring the Property; and (iii) defects asserting a change in
working interest or net revenue interest wherein SELLER's working interest is
increased or SELLER's net revenue interest is decreased from that set forth on
Exhibit A, Part II attached hereto. Neither the environmental condition of the
Property nor any failure to obtain Consents to the transfer of Related Contracts
will be considered a title defect under this Section 5.3.3.
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(b) For purposes of this Agreement, a material environmental defect
shall be any circumstance on or related to the Property which, in the opinion of
BUYER, constitutes an Environmental Obligation (as defined in Section 8.3)
requiring remediation, control or other response under environmental laws as in
effect on the date hereof and which might, under such laws, require BUYER to
expend in excess of $25,000 for any single Environmental Obligation or $100,000
for all Environmental Obligations in the aggregate. For purposes of this Section
5.3, obligations described in Section 8.2 shall not be considered Environmental
Obligations.
5.4 PREFERENTIAL PURCHASE RIGHTS. Seller has not heretofore sent letters to
parties holding preferential purchase rights covering the Properties requesting
a waiver of such rights as they may apply to the transactions set forth in this
Agreement. With respect to each such preferential purchase right, upon execution
of this Agreement SELLER shall send to the holder of such right a notice
offering to sell to such holder, in accordance with the contractual provisions
applicable to such right, those portions of the Property covered by such rights
on the same terms hereof and for the Allocated Value attributable to the
portions of the Property to which such rights apply", subject to adjustments in
the same manner as the Purchase Price is adjusted pursuant to of this Agreement.
If, prior to Closing, any holder of a preferential purchase right notifies
SELLER that it intends to consummate the purchase of the Properties to which its
preferential purchase right applies, then those properties shall be excluded
from the Properties to be conveyed to BUYER, and the Purchase Price shall be
reduced by the Allocated Value therefor, provided however, that if the holder of
such preferential purchase right fails to consummate the purchase of the
properties covered by such right, the SELLER shall so notify BUYER, and within
fifteen (15) business days after BUYER's receipt of such notice from SELLER,
SELLER shall sell to BUYER, and BUYER shall purchase from SELLER, for the
Allocated Value attributable to such properties and upon the other terms of this
Agreement the Properties to which the preferential purchase right is applied.
All properties for which preferential purchase right has been waived or for
which the time to exercise has lapsed prior to Closing shall be sold to BUYER at
Closing pursuant to the provisions of this Agreement.
5.5 INSPECTION; ASSUMPTION OF RISK. Before Closing, SELLER will permit BUYER and
its representatives, at their sole risk and expense, to conduct reasonable
inspections of the Property at times approved by SELLER. BUYER shall repair any
damage to the Property resulting from its inspection and shall indemnify, defend
and hold SELLER harmless from and against any and all losses, damages,
obligations, claims, liabilities, expenses (including court costs and attorney's
fees), or causes of action arising from BUYER's inspecting and observing the
Property, including without limitation, claims for personal injuries or death of
employees of the BUYER, its contractors, agents, consultants and
representatives, and property damages, regardless of whether such claims are
caused by the sole or concurrent negligence of SELLER or the condition of the
Property, provided however that this indemnity does not apply to the extent
these claims result, from the gross negligence or willful misconduct of Seller.
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ARTICLE 6. PRECLOSING OBLIGATIONS
6.1 OPERATIONS. BUYER shall assume all risk and realize all benefits of any such
change in condition of the Property from the Effective Date to Closing,
including but not limited to change in produced volumes, equipment failure, and
well completions, except to the extent any change in condition is directly
caused by the gross negligence or willful misconduct of SELLER. Notwithstanding
the foregoing, if prior to Closing all or any portion of the Property is
substantially damaged or destroyed by fire or other casualty ("Casualty
Defect"), SELLER shall promptly notify BUYER after SELLER learns of such event.
SELLER shall have the right but not the obligation to cure the Casualty Defect
by repair or replacement, to BUYER's reasonable satisfaction, with equivalent
items no later than Closing. If any uncured Casualty Defect exists at Closing,
BUYER shall proceed to purchase the affected portion of the Property, and the
Purchase Price shall be reduced by the aggregate reduction in value of the
affected portion of the Property as determined by the mutual agreement of the
parties.
6.2 PERMITS AND APPROVALS. SELLER will use its reasonable efforts to obtain all
necessary consents, approvals, or filings for the sale of the Property as may be
required under any agreement or governmental law or regulation.
ARTICLE 7. CLOSING; FINAL SETTLEMENT
7.1 CLOSING DATE. Unless BUYER and SELLER otherwise agree, the closing of this
purchase and sale (the "Closing") will occur on or before July 15, 1997 (the
actual date on which Closing occurs being the "Closing Date") in SELLER's
offices in Englewood, Colorado. Provided, however, if BUYER is diligently
pursuing its review of the Property but desires an extension of Closing, BUYER
may give SELLER a written request that Closing be delayed to no later than
August 1, 1997, and SELLER shall not unreasonably refuse such request. If SELLER
and BUYER agree to close the purchase and sale of the Property by mail rather
than in person, the Closing Date of this transaction sale will be the date on
which SELLER receives payment of the Purchase Price.
7.2 CONDITIONS TO CLOSING BUYER or SELLER are not obligated to close the
transactions that are the subject of this Agreement if:
7.2.1 Any matter represented or warranted by the other party in this
Agreement is not true, or is misleading in any material respect, as of the
Closing Date or any material obligation of the other party before the Closing
Date is not satisfied on the Closing Date.
7.2.2 Any suit or other proceeding is pending or threatened before any
court or governmental agency seeking to restrain, prohibit, or declare illegal,
or seeking substantial damages in connection with, the transaction that is the
subject of this Agreement, or there is reasonable basis for any such suit or
other proceeding.
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7.2.3 Any necessary waiver of Preferential Rights and Consents (other than
Consents typically obtained after Closing and Consents to the transfer of
Related Contracts) has not been obtained or waived.
7.2.4 SELLER shall not be obligated to close the transactions that are the
subject of this Agreement if BUYER has failed to deliver any notice or document
to SELLER that this Agreement requires BUYER to deliver to SELLER prior to
Closing.
7.2.5 BUYER shall not be obligated to close the transactions that are the
subject of this Agreement if SELLER has failed to deliver any notice or document
to BUYER that this Agreement requires SELLER to deliver to BUYER prior to
Closing.
7.3 CLOSING. SELLER and BUYER have the following obligations at Closing:
7.3.1 SELLER'S OBLIGATIONS. At Closing, SELLER shall deliver to BUYER:
(i) An executed and acknowledged Assignment and Bill of Sale (in
sufficient counterparts for recording) in the form of Exhibit B (the "Assignment
and Bill of Sale");
(ii) The Stock Agreement, executed by SELLER;
(iii) Letters in lieu of transfer orders, in a form satisfactory to
BUYER, signed by SELLER and addressed to all parties which pay SELLER for
Hydrocarbons produced from the Property directing such party to pay BUYER for
all such Hydrocarbons produced and sold after the Effective Date.
(iv) Any other appropriate instruments necessary to effect or
support the transaction contemplated in this Agreement, including, without
limitation, any lease assignment forms or other forms or filings required by
federal or state agencies to transfer ownership of the Property.
(v Written notification that applicable preferential purchase rights
have been waived or the time within which they were required to be exercised has
lapsed.
7.3.2 BUYER'S OBLIGATIONS. At Closing, BUYER shall:
(i) Pay SELLER the cash portion of the Purchase Price adjusted for
pre-closing adjustments provided in this Agreement, either by cashier's check or
wire transfer of immediately available funds into an account designated by
SELLER according to SELLER's instructions, and deliver the Stock;
(ii) Deliver the Purchase Warrant, executed by BUYER, to SELLER;
(iii) Deliver the Stock Agreement, executed by BUYER, to SELLER;
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(iv) Deliver a certificate or multiple certificates (as SELLER may
reasonably request) representing the Stock to SELLER;
(v) Execute any ratification and joinder instruments required to
transfer SELLER's rights, obligations and interests in the Related Contracts and
other Property; and
(vi) Execute any applications necessary to transfer regulatory
permits to which the Property is subject, and which SELLER has agreed to
transfer under this Agreement.
7.3.3 DOCUMENT PREPARATION. Unless SELLER and BUYER otherwise agree,
SELLER will prepare any closing documents to be executed on mutually agreed to
forms and delivered under Sections 7.3.1 and 7.3.2 at Closing.
7.4 POST-CLOSING OBLIGATIONS. SELLER and BUYER have the following
post-closing obligations:
7.4.1 RECORDS. Within fifteen (15) days after Closing, SELLER shall
deliver to BUYER the originals (or if originals are not available, legible
copies) the Records, at a location designated by BUYER. BUYER shall use its best
efforts to preserve and maintain the Records for at least seven (7) years after
the Closing Date. BUYER shall notify SELLER before destroying any of the Records
during such period. SELLER reserves the right to access and copy (at its own
expense) the Records for seven (7) years after the Closing Date, and BUYER
agrees to provide access to the Records to SELLER during normal business hours.
7.4.2 RECORDING AND FILING. BUYER, within thirty (30) days after Closing,
shall (i) record the Assignment and Bill of Sale and all other instruments that
must be recorded to effectuate the transfer of the Property; and (ii) file for
approval with the applicable government agencies all state and federal transfer
and assignment documents for the Property. BUYER shall provide SELLER a recorded
copy of the Assignment and Bill of Sale and other recorded instruments, and
approved copies of the state and federal transfer and assignment documents as
soon as they are available.
7.4.3 Final SETTLEMENT STATEMENT. SELLER shall deliver to BUYER, within
120 days after the Closing Date, a final settlement statement that will adjust
the Purchase Price for revenues and expenses not accounted for in the Closing
adjustments as follows.
7.4.3.1 The Purchase Price will be adjusted upward by the amount of:
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(i) All actual production expenses, operating expenses,
overhead charged under applicable operating agreements, and capital
expenditures, which must be BUYER approved if the expenditure exceeds the amount
allowed for under the applicable joint operating agreement, (including without
limitation royalties, minimum royalties, rentals and prepaid charges) paid by
SELLER and attributable to operation of the Property on and after the Effective
Date;
(ii) The value of the Stock Tank Oil, less applicable taxes,
royalties and burdens which shall be paid by SELLER, as provided in Section
1.3.1 of this Agreement, and any proceeds received by BUYER for the sale of
production from the Property before the Effective Date; and
(iii)Any other amounts to which SELLER is entitled under this
Agreement, including provisions under Article 10, that are not paid as part of
the Purchase Price at Closing.
7.4.3.2 The Purchase Price will be adjusted downward by the amount
of:
(i) Any proceeds received by SELLER for production from the
Property on and after the Effective Date, as provided in Section 1.3.2 of this
Agreement;
(ii) Any other amounts to which BUYER is entitled under this
Agreement, including provisions under Article 10, that are not paid or
reimbursed at Closing.
SELLER's failure to deliver the final settlement statement within 120 days
will not constitute a waiver of any right to an adjustment otherwise due.
7.4.4 FINAL SETTLEMENT. The parties will attempt to agree to the final
settlement statement within 30 days after delivery to BUYER, and settlement will
be made by company check, or wire transfer, at the receiving party's option,
within 15 days after agreement. Thereafter, if SELLER or BUYER receives
additional proceeds or pays additional expenses for or on behalf of the other
party, they shall promptly invoice the other party for expenses paid or remit to
the other party any proceeds received. All adjustments to the Purchase Price due
to the Final Settlement Statement shall be made in cash. Interest will accrue on
the amount of such final settlement at the prime commercial lending rate of
Comerica Bank - Texas from time to time, plus 2%, or the maximum legal rate,
whichever is less, from the one hundred twenty-first day following Closing until
paid.
7.4.5 FURTHER ASSURANCES. BUYER and SELLER agree to execute and deliver
from time to time such further instruments and do such other acts as may be
reasonably necessary to effectuate the purposes of this Agreement.
ARTICLE 8. ASSUMPTION OF OBLIGATIONS
8.1 OWNERSHIP AND OPERATIONS. Upon and after Closing, BUYER shall assume and
perform all the rights, duties, obligations and liabilities of ownership of the
Property accruing after the Effective Date, including without limitation: (i)
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all of the express and implied obligations and covenants after the Effective
Date under the terms of the Leases, the Related Contracts and all other orders
and contracts to which the Property is subject; (ii) responsibility for all
royalties, overriding royalties, production payments, net profits obligations,
rentals, shut-in payments and other burdens or encumbrances to which the
Property is subject accruing after the Effective Date; and (iii) all other
obligations assumed by BUYER under this Agreement. SELLER remains responsible
for all costs, expenses and liabilities incurred by SELLER in connection with
the ownership of the Property before the Effective Date, except those for which
BUYER indemnities SELLER, or which BUYER assumes in this Agreement.
8.2 PLUGGING AND ABANDONMENT OBLIGATIONS. From and after the Effective Date,
BUYER assumes full responsibility and liability for the following obligations of
SELLER related to the Property (the "Plugging and Abandonment Obligations"): (i)
plugging, and abandoning all Wells; (ii) removing and disposing of all
structures and equipment located on or comprising part of the Property, (iii)
the necessary and proper capping and burying of all associated flow lines
located on or comprising part of the Property; (iv) restoring the leasehold
premises of the Property, both surface and subsurface, to the condition they
were in before commencement of oil and gas operations, as may be required by
applicable laws, regulation or contract; and (v) any necessary disposal of
Property contaminated by naturally occurring radioactive material ("NORM").
BUYER's obligations under this Section 8.2 include without limitation
obligations arising from contractual requirements and demands made by authorized
regulatory bodies or parties claiming a vested interest in the Property. With
respect to any non-operating interests in the Property being transferred to
BUYER under this Agreement, BUYER shall assume full responsibility and
liability, from and after the Effective Date, for that portion of the Plugging
and Abandonment Obligations of SELLER for which non-operators are responsible.
Notwithstanding anything to the contrary contained herein, SELLER shall be
responsible for all costs of such plugging and other operations actually
performed prior to the Effective Date.
8.3 ENVIRONMENTAL OBLIGATIONS. From and after the Effective Date, with respect
to the non-operating interests in the Property being transferred to BUYER under
this Agreement, BUYER agrees to assume full responsibility and liability for
that portion of the following occurrences, events and activities on or relating
to the Property (the "Environmental Obligations") for which non-operators are
responsible, whether arising before or after the Effective Date: (i)
environmental pollution or contamination, including pollution of the soil,
groundwater or air; (ii) underground injection activities and waste disposal
onsite or offsite; (iii) clean-up responses, and the cost of remediation,
control or compliance with respect to surface and subsurface pollution caused by
spills, pits, ponds or lagoons; (iv) failure to comply with applicable land use,
surface disturbance, licensing or notification requirements; and (v) violation
of environmental or land use rules, regulations, demands or orders of
appropriate state or federal regulatory agencies.
ARTICLE 9. INDEMNITIES
9.1 SELLER'S INDEMNITY. Except as otherwise provided herein and for a period of
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one year from Closing, SELLER shall assume and indemnify and hold harmless BUYER
and its subsidiaries, affiliates, and parents, and its and their employees,
representatives, officers, directors, attorneys and agents from and against all
claims, expenses (including attorneys' fees), damages, losses, liabilities,
obligations, penalties, and assessments relating to the Property (a) which
accrue or relate to occurrences or operations prior to the Effective Date
including, without limitation, claims, expenses, damages, losses, liabilities,
obligations, penalties, and assessments in connection with owning, operating,
developing, and maintaining any of the Property prior to the Effective Date, or
(b) resulting from any breach by SELLER of any of SELLER's representations,
warranties, covenants, indemnities, and other agreements set forth in this
Agreement. SELLER's indemnity of BUYER shall include Environmental Obligations
arising before the Effective Date and which was either a violation of, or
required clean-up, remediation, or other response under environmental laws as
they existed on the Closing Date, except environmental defects raised by BUYER
pursuant to Section 5.3, provided SELLER shall not indemnify BUYER with respect
to any such Environmental Obligation (i) as to which BUYER does not give SELLER
written notice on or prior to the first anniversary of the Closing Date or (ii)
as to which the cost to BUYER resulting from such Environmental Obligation is
less than $25,000 individually. Notwithstanding the foregoing provisions,
SELLER's indemnity shall be limited to Environmental Obligations in aggregate
not to exceed the Purchase Price.
9.2 BUYER'S INDEMNITY. Except as otherwise provided herein, BUYER shall assume
and indemnify and hold harmless SELLER and its subsidiaries, affiliates, and
parents, and its and their employees, representatives, offices, directors,
attorneys and agents from and against all claims, expenses (including attorneys'
fees), damages, losses, liabilities, obligations, penalties, and assessments
relating to the portion of the Property transferred to BUYER (a) which arise or
relate to occurrences or operations on or after the Effective Date including,
without limitation, claims, expenses, damages, losses, liabilities, obligations,
penalties, and assessments in connection with owning, operating, developing, and
maintaining any of the portion of the Property transferred to BUYER on or after
the Effective Date, or (b) resulting from any breach by BUYER of any of BUYER's
representations, warranties, covenants, indemnities, and other agreements set
forth in this Agreement.
9.3 CLAIMS. Promptly upon the discovery thereof SELLER or BUYER, as may be the
case, shall give written notice to the other of any claim with respect to which
the party giving notice asserts it is entitled to indemnity or payment pursuant
to this Article 9. For the purpose of this Article the party giving notice of a
claim shall be referred to as the "Indemnified Party" and the party receiving
notice of a claim shall be referred to as the "Indemnifying Party". In the event
that the Indemnified Party gives notice of a claim to the Indemnifying Party,
such notice shall set forth the facts known to the Indemnified Party pertaining
to the claim, and shall specify the manner in which the Indemnified Party
proposes to respond to the claim. Within ten (10) days of receipt of such notice
the Indemnifying Party shall state in writing: (i) whether the Indemnified Party
may proceed to respond to the claim in the manner set forth in its notice; or
(ii) whether the Indemnifying Party shall assume responsibility for and conduct
negotiations, defense, or settlement of the claim, and if so, the specific
manner in which the Indemnifying Party proposes to proceed.
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9.4 NORM. BUYER ACKNOWLEDGES THAT IT HAS BEEN INFORMED THAT OIL AND GAS
PRODUCING FORMATIONS CAN CONTAIN NATURALLY OCCURRING RADIOACTIVE MATERIAL
("NORM"). SCALE FORMATION OR SLUDGE DEPOSITS CAN CONCENTRATE LOW LEVELS OF NORM
ON EQUIPMENT AND OTHER PROPERTY. SOME OR ALL OF THE EQUIPMENT, MATERIALS AND
OTHER PROPERTY SUBJECT TO THIS AGREEMENT MAY HAVE LEVELS OF NORM ABOVE
BACKGROUND LEVELS. A HEALTH HAZARD MAY EXIST IN CONNECTION WITH THIS EQUIPMENT,
MATERIALS AND OTHER PROPERTY. THEREFORE, BUYER MAY NEED TO FOLLOW SAFETY
PROCEDURES WHEN HANDLING THIS EQUIPMENT, AND OTHER PROPERTY. BUYER shall
indemnify, defend and hold SELLER harmless from and against any and all Claims
(including without limitation cleanup and disposal costs) arising out of the
existence of NORM on any portion of the Property transferred to BUYER under this
Agreement.
ARTICLE 10. TAXES AND EXPENSES.
10.1 RECORDING EXPENSES. BUYER shall pay all costs of recording and filing the
Assignment and Bill of Sale for the Property, all state and federal transfer and
assignment documents, and all other instruments.
10.2 AD VALOREM, REAL PROPERTY AND PERSONAL PROPERTY TAXES. All Ad Valorem
Taxes, Real Property Taxes, Personal Property Taxes, and similar obligations
("Property Taxes") of the Property are SELLER's obligation for periods billed
before the Effective Date and BUYER's obligation for periods billed on and after
the Effective Date. On a mutually agreeable basis, BUYER and SELLER shall each
pay its proportionate share of these taxes, prorated as of the Effective Date,
as a post-closing adjustment under Article 7.4 of this Agreement. If Property
Taxes for the current tax year of 1997 have not been assessed and paid as of the
Closing Date, the SELLER shall file all required reports and returns incident to
the Property Taxes and pay the Property Taxes for the current tax year. If
Property Taxes for the tax year of 1997 have been assessed and paid as of the
Closing Date, the BUYER will reimburse the SELLER for its proportionate share of
these taxes, prorated as of the Effective Date, as a post-closing adjustment
under Article 7.4 of this Agreement.
10.3 SEVERANCE TAXES. SELLER shall bear and pay all severance taxes to the
extent attributable to production from the Property before the Effective Date.
SELLER shall withhold and pay on behalf of BUYER all such taxes relating to
production from the Property between the Effective Date and the Closing Date.
BUYER shall bear and pay all such taxes on production from the Property on and
after the Closing Date. If either party pays taxes owed by the other, upon
receipt of evidence of payment, the nonpaying party will reimburse the paying
party promptly for its proportionate share of such taxes.
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10.4 TAX REPORTING SELLER and BUYER agree that this transaction is not subject
to the reporting requirement of Section 1060 of the Internal Revenue Code of
1986, as amended, and that, accordingly, IRS Form 8594, Asset Acquisition
Statement, is not required and will not be filed for this transaction. If the
parties mutually agree that a filing of Form 8594 is required, the parties will
confer and cooperate in the preparation and filing of their respective forms to
reflect a consistent reporting of the agreed upon allocation of the value of the
Property.
10.5 SALES TAXES. Subject to Closing and Post-Closing Adjustments to the
Purchase Price, BUYER shall remit all applicable state and county sales taxes
due after Closing on the Property.
ARTICLE 11. MISCELLANEOUS
11.1 PRESS RELEASES. Neither party may make press releases or other public
announcements concerning this transaction, without the other party's prior
written approval and agreement to the form of the announcement, except as may be
required by applicable laws or rules and regulation of any governmental agency
or stock exchange.
11.2 NOTICES. All notices under this Agreement must be in writing. Any notice
under this Agreement may be given by personal delivery, facsimile transmission,
U.S. mail (postage prepaid), or commercial delivery service, and will be deemed
duly given when received by the party charged with such notice and addressed as
follows:
SELLER: BUYER:
Belleview 1992 Income Fund L.P. Cliffwood Oil & Gas Corporation
10 Inverness Dr. East, Ste. 101 110 Cypress Station Dr., Ste. 220
Englewood, Colorado 80112 Houston, TX 77090
Attn: Michael J. Foy Attn: Frank A. Lodzinski - Pres.
FAX: 303-706-1029 FAX: 281-537-8324
Any party, by written notice to the other, may change the address or the
individual to which or to whom notices are to be sent under this Agreement.
11.4 EFFECTIVE DATE. The Effective Date of this Agreement will be 11:59 p.m.,
local time, where the Property is located, on the date set forth in the
Preamble.
11.5 BINDING EFFECT; ASSIGNMENT. Neither party may assign its rights or
obligations under this Agreement without the prior written consent of the other,
unless the assignment occurs by merger, reorganization or sale of all of a
party's assets. This Agreement shall be binding upon and shall inure to the
benefit of and be enforceable by each of the parties, and their successors and
permitted assigns. This Agreement shall not be assigned by BUYER without the
consent of SELLER or by SELLER without the consent of the BUYER, except that
SELLER or BUYER may assign its rights hereunder to any subsidiary or affiliate.
This provision pertains to this Agreement only and does not require BUYER to
obtain the consent of SELLER prior to selling all or any part of the Property
after Closing.
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11.6 ENTIRETY OF AGREEMENT; AMENDMENT. This Agreement, including the Exhibits
hereto, along with the Stock Agreement and the Purchase Warrant, constitutes the
entire understanding between the parties with respect to subject matter hereof,
superseding all negotiations, prior discussions, representations, and prior
agreements and understandings relating hereto.
11.7 SUCCESSORS AND ASSIGNS. This Agreement binds and inures to the benefit of
the parties hereto their respective permitted successors and assigns, and
nothing contained in this Agreement, express or implied, is intended, to confer
upon any other person or entity any benefits, rights, or remedies.
11.8 GOVERNING LAW. THIS AGREEMENT IS GOVERNED BY AND MUST BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS EXCLUDING ANY CONFLICTS-OF-LAW
RULE OR PRINCIPLE THAT MIGHT APPLY THE LAW OF ANOTHER JURISDICTION.
11.9 SURVIVAL. All of the representations, warranties, and agreements of or by
the parties to this Agreement survive the execution and delivery of the
Assignment and Bill of Sale and the transfer of the Property to BUYER.
11.10 EXHIBITS. The Exhibits attached to this Agreement are incorporated into
and made a part of this Agreement. In the event of a conflict between the
provisions of the Exhibits or the executed Assignment and Bill of Sale and the
foregoing provisions of this Agreement, the provisions of this Agreement take
precedence over the foregoing Exhibits and the executed Assignment and Bill of
Sale . In the event of a conflict between the provisions of the pro forma
Assignment and Bill of Sale attached to this Agreement as Exhibit B and the
executed Assignment and Bill of Sale, the provisions of the executed Assignment
and Bill of Sale take precedence.
11.11 OPERATORSHIP. Upon and after Closing, SELLER shall take all action and
execute all documents reasonably requested by BUYER so as to have BUYER named as
successor operator on those portions of the Property where SELLER is operator as
of the date hereof.
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The authorized representatives of SELLER and BUYER sign below indicating their
agreement to the terms of this Agreement.
SELLER: BUYER:
BELLEVIEW 1992 INCOME FUND L.P. CLIFFWOOD OIL & GAS CORP.
By: /S/ MICHAEL J. FOY By: /S/ FRANK A. LODZINSKI
Belleview Capital Corp., Frank A. Lodzinski, President
General Partner
Michael J. Foy, President
Date: /S/ JUNE 10,1997 Date: /S/ JUNE 12, 1997
CORPORATE ACKNOWLEDGMENTS
STATE OF COLORADO SS.
SS.
COUNTY OF ARAPAHOE SS.
On this /S/ 10TH_ day of June, 1997, before me personally appeared Michael
J. Foy, who, being by me duly sworn, did say that he is the President of
Belleview Capital Corp., General Partner of Belleview 1992 Income Fund, L.P. and
that said instrument was signed and sealed in behalf of said corporation by
authority of its Board of Directors, and said Michael J. Foy acknowledged said
instrument to be the free act and deed of said corporation.
WITNESS my hand and official seal.
/S/ LINDA A. MERGES
Notary Public
State of Colorado
My Commission Expires:
/S/ AUGUST 12, 1998__
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STATE OF TEXAS SS.
SS.
COUNTY OF HARRIS SS.
On this /S/ 12TH_day of June, 1997, before me personally appeared Frank A.
Lodzinski, being by me duly sworn, did say that he is the President of Cliffwood
Oil & Gas Corp., and that said instrument was signed and sealed in behalf of
said corporation by authority of its Board of Directors, and said Frank A.
Lodzinski acknowledged said instrument to be the free act and deed of said
corporation.
WITNESS my hand and official seal.
/S/ CHRISTINA S. BARRILE
Notary Public
State of Texas
My Commission Expires:
/S/ NOVEMBER 8, 2000
EXHIBIT 10.20
COMMON STOCK AND WARRANT
PURCHASE AGREEMENT
THIS COMMON STOCK AND WARRANT PURCHASE AGREEMENT (this "Agreement") is
dated as of August 4, 1997, between CLIFFWOOD OIL & GAS CORP., a Texas
corporation (the "Company") and BELLEVIEW 1992 INCOME FUND, L.P.., a Colorado
limited partnership (the "Purchaser").
STATEMENT OF PURPOSE
The Company proposes to issue to the Purchaser shares of Class A Common
Stock of the Company and warrants to purchase additional shares of Class A
Common Stock of the Company, all for and in consideration of the transfer of
certain oil and gas producing properties to the Company pursuant to that certain
Purchase and Sale Agreement dated Effective April 1, 1997 by and between the
Company and the Purchaser (the "P&S Agreement") and on the other terms and
conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. For the purposes of this Agreement, in addition to the
terms defined elsewhere in this Agreement, the following terms shall have the
meanings set forth below:
"AGREEMENT" means this Common Stock and Warrant Purchase Agreement, as
amended or supplemented from time to time.
"ARTICLES OF INCORPORATION" means the Amended and Restated Articles of
Incorporation of the Company as in effect on the date hereof, a copy of which is
attached hereto as Exhibit A, as amended from time to time.
"BENEFIT PLANS" has the meaning assigned to it in Section 5.24 hereof.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other day on
which commercial banks in Houston, Texas are authorized or required by law or
executive order to close.
"BYLAWS" means the Bylaws of the Company as in effect on the date hereof,
a copy of which is attached hereto as Exhibit B, as amended from time to time.
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"CALCULATED MARKET VALUE" has the meaning assigned thereto in Section
7.3(b) hereof.
"CALP" means the Cliffwood Acquisitions - 1996 Limited Partnership form
pursuant to the CALP Agreement.
"CALP AGREEMENT" means that certain Agreement of Limited Partnership by
and among Cliffwood Energy Company (a wholly owned subsidiary of the Company),
EnCap Equity 1996 Limited Partnership and Energy Capital Investment Company Plc.
dated September 27, 1996.
"CLASS A COMMON" means the Class A Common Stock of the Company as
described in the Articles of Incorporation.
"CLOSING" has the meaning assigned thereto in Section 2.4 hereof.
"CLOSING DATE" has the meaning assigned thereto in Section 2.4 hereof.
"CODE" means the Internal Revenue Code of 1986, as amended, or any
successor statute thereto.
"COMMISSION" means the Securities and Exchange Commission or any similar
agency then having jurisdiction to enforce the Securities Act.
"COMPANY INDEMNIFIED PARTIES" has the meaning assigned thereto in Section
9.2 hereof.
"CONTRACTUAL OBLIGATIONS" means, with respect to a Person, any provision
of any security issued by such Person or of any agreement, undertaking,
contract, indenture, mortgage, deed of trust or other instrument to which such
Person is a party or by which it or any of its property is bound.
"CO-SALE AGREEMENT" means the agreement to be entered into between the
Company and the Purchaser in substantially the form attached hereto as Exhibit
D.
"DEMAND REGISTRATION" has the meaning assigned thereto in Section 8.1
hereof.
"EMPLOYEE BENEFIT PLAN has the meaning assigned to it in Section 5.24
hereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"EXERCISE NOTICE" has the meaning assigned thereto in Section 7.2 hereof.
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"FIRST UNION AGREEMENTS" means that certain Common Stock and Warrant
Purchase Agreement by and between the Company and First Union Capital Partners,
Inc. dated May 30, 1997 and the Stock Purchase Warrant dated May 30, 1997 issued
to First Union Capital Partners, Inc.
"GAAP" means generally accepted United States accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board that are applicable
to the circumstances as of the date of determination.
"GOVERNMENTAL AUTHORITY" means the government of any nation, state, city,
locality or other political subdivision of any thereof, any entity having
jurisdiction and exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, and any corporation or
other entity owned or controlled, through stock or capital ownership or
otherwise, by any of the foregoing.
"HOLDER INDEMNIFIED PARTIES" has the meaning assigned thereto in Section
9.1 hereof.
"NET ASSET VALUE" has the meaning assigned thereto in Section 7.3(b)
hereof.
"P&S AGREEMENT" has the meaning assigned to it in the Statement of Purpose
hereof.
"PERSON" means any individual, firm, corporation, partnership, trust,
limited liability company, incorporated or unincorporated association, joint
venture, joint stock company, Governmental Authority or other entity of any
kind, and shall include any successor (by merger or otherwise) of such entity.
"PIGGYBACK REGISTRATION" has the meaning assigned thereto in Section 8.2
hereof.
"PUBLIC OFFERING" means a public offering of the Common Stock pursuant to
a registration statement declared effective under the Securities Act,
underwritten on a firm commitment basis by an investment banking firm acceptable
to the Company.
"PURCHASE PRICE" has the meaning assigned thereto in Section 2.3 hereof.
"PUT SECURITIES" means the Sharesand any securities issued or issuable
with respect to the foregoing securities by way of a stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization.
"REGISTRABLE SECURITIES" means the Shares, the Warrant Shares, any
securities issued upon conversion of the Shares or Warrant Shares, and any
securities issued or issuable with respect to the foregoing securities by way of
a stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
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"REGISTRATION EXPENSES" means all expenses incident to the Company's
performance of or compliance with the registration rights granted hereunder,
including (without limitation) all registration and filing fees, fees and
expenses of compliance with securities and blue sky laws, printing and engraving
expenses, messenger, telephone and delivery expenses, and fees and disbursements
of counsel for the Company and reasonable fees and disbursements of a single
attorney or firm representing the Purchaser, all independent certified public
accountants and underwriters (excluding discounts and commissions); provided,
that Registration Expenses shall not include any Selling Expenses.
"REQUIREMENTS OF LAW" means with respect to a Person, the articles of
incorporation and bylaws or other organizational or governing documents of such
Person, and any law, treaty, rule, regulation, right, privilege, qualification,
license or franchise or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is subject
or pertaining to any or all of the transactions contemplated or referred to
herein.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SELLING EXPENSES" means underwriting discounts or commissions and any
selling commissions and stock transfer taxes attributable to sales of
Registrable Securities.
"SHARES" has the meaning assigned thereto in Section 2.1 hereof.
"TRANSACTION DOCUMENTS" means, collectively, this Agreement, the Warrants,
the Articles of Incorporation, the Bylaws, the P&S Agreement and the Exhibits
thereto, the Assignment and Bill of Sale (as such term is defined in the P&S
Agreement) and the Co-Sale Agreement.
"WARRANT SHARES" means the shares of Class A Common issuable upon exercise
of the Warrants.
"WARRANTS" mean the common stock purchase warrants issued by the Company
to the Purchaser pursuant to this Agreement substantially in the form attached
hereto as Exhibit C.
ARTICLE 2
PURCHASE AND SALE OF COMMON STOCK AND WARRANTS
2.1 PURCHASE AND SALE OF COMMON STOCK. Subject to the terms and conditions
hereof, the Company agrees to issue to the Purchaser, and the Purchaser agrees
that it will purchase from the Company, on the Closing Date, 550,000 shares of
Class A Common (the "Shares"). The Shares shall have all the powers, rights and
preferences of Class A Common as set forth in the Articles of Incorporation.
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2.2 PURCHASE AND SALE OF WARRANTS. Subject to the terms and conditions
hereof, the Company agrees to issue to the Purchaser and the Purchaser agrees
that it will purchase from the Company, on the Closing Date, in the form
attached hereto as Exhibit C, warrants to purchase, for $4.25 per share, 275,000
shares of Class A Common (the "Warrants").
2.3 PURCHASE PRICE. The aggregate purchase price of the Shares and
Warrants (the "Purchase Price") shall be an undivided part of the Properties as
such term is defined in the P&S Agreement.
2.4 CLOSING. The issuance and purchase of the Shares and the Warrants
shall take place at the closing (the "Closing") to be held at such time and
place as mutually agreed upon by the Company and the Purchaser, (the "Closing
Date"). At the Closing, the Company shall deliver to the Purchaser the Shares
and the Warrants against delivery to the Company by the Purchaser of the
Purchase Price therefor in the manner set forth in the P&S Agreement.
2.5 RESERVATION OF SHARES. The Company shall at all times reserve and keep
available out of its authorized Class A Common, solely for the purpose of issue
or delivery upon exercise of the Warrants as provided therein, the maximum
number of shares of Class A Common that may be issuable or deliverable upon such
exercise. Such shares of Class A Common shall, when issued or delivered in
accordance with the provisions of the Articles of Incorporation or the Warrants,
as the case may be, be duly and validly issued and fully paid and
non-assessable. The Company shall issue such Class A Common in accordance with
the provisions of the Articles of Incorporation and the Warrants, and shall
otherwise comply with the terms thereof.
ARTICLE 3
CONDITIONS TO THE OBLIGATION
OF THE PURCHASER TO CLOSE
The obligation of the Purchaser to purchase the Shares and the Warrants,
to pay the Purchase Price therefor at the Closing and to perform any obligations
hereunder shall be subject to the satisfaction as determined by the Purchaser of
the following conditions on or before the Closing Date:
3.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company contained in Section 5 hereof shall be true and correct on and as of
the Closing Date as if made on and as of such date.
3.2 COMPLIANCE WITH THIS AGREEMENT. The Company shall have performed and
complied with all of its agreements and conditions set forth or contemplated
herein that are required to be performed or complied with by the Company on or
before the Closing Date.
3.3 OFFICERS' CERTIFICATE. The Purchaser shall have received a certificate
dated as of the Closing Date from the President of the Company, in form and
substance satisfactory to the Purchaser, to the effect that (a) all
representations and warranties of the Company contained in this Agreement are
true, correct and complete, (b) neither the Company nor any Subsidiary is in
violation of any of the covenants contained in this Agreement, and (c) all
conditions precedent to the Closing of this Agreement to be performed by the
Company have been duly performed.
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3.4 SECRETARY'S CERTIFICATE. The Purchaser shall have received a
certificate from the Company, dated the Closing Date and signed by the Secretary
or an Assistant Secretary of the Company, certifying (a) that the attached
copies of the Articles of Incorporation and Bylaws of the Company, are all true,
complete and correct and remain unamended and in full force and effect and (b)
as to the incumbency and specimen signature of each officer of the Company
executing this Agreement and any other document delivered in connection herewith
on behalf of the Company. Attached to such certificate shall be certificates of
good standing and qualification or authorization to do business of the Company
in the State of Texas, each other jurisdiction where the Company is required to
be so qualified or authorized.
3.5 TRANSACTION DOCUMENTS. The Purchaser shall have received true,
complete and correct copies of the Transaction Documents and such other
documents as it may reasonably request in writing in connection with or relating
to the sale of the Shares and the Warrants and the transactions contemplated
hereby, all in form and substance reasonably satisfactory to the Purchaser.
3.6 PURCHASE PERMITTED BY APPLICABLE LAWS. The acquisition of and payment
for the Shares and the Warrants to be acquired by the Purchaser hereunder and
the consummation of the transactions contemplated hereby (a) shall not be
prohibited by any Requirement of Law, (b) shall not subject the Purchaser to any
penalty or other onerous condition under or pursuant to any Requirement of Law,
and (c) shall be permitted by all Requirements of Law to which it or the
transactions contemplated by or referred to herein are subject and the Purchaser
shall have received such certificates or other evidence as it may reasonably
request to establish compliance with this condition.
3.7 APPROVAL OF COUNSEL TO THE PURCHASER. All actions and proceedings
hereunder and all documents required to be delivered by the Company or any of
its Subsidiaries hereunder or in connection with the consummation of the
transactions contemplated hereby, and all other related matters, shall be in
form and substance acceptable to Reid A. Godbolt, Jones & Keller, P.C. counsel
to the Purchaser, in its reasonable judgment.
3.8 CONSENTS AND APPROVALS. All consents, exemptions, authorizations or
other actions by, or notices to, or filings with, Governmental Authorities and
other Persons in respect of all Requirements of Law and with respect to
Contractual Obligations of the Company and its Subsidiaries necessary, desirable
or required in connection with the execution, delivery or performance by, or
enforcement against, the Company of this Agreement and the other Transaction
Documents shall have been obtained and be in full force and effect, and the
Purchaser shall have been furnished with appropriate evidence thereof, and all
waiting periods shall have lapsed without extension or the imposition of any
conditions or restrictions.
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3.9 CO-SALE AGREEMENT. The Company and the Purchaser shall have executed
the Co-Sale Agreement, a copy of which is attached hereto as Exhibit D.
3.10 P&S AGREEMENT. Those of the conditions of Closing under the P&S
Agreement which are the responsibility of the Company shall have been fulfilled.
3.11 LEGAL OPINION. The Purchaser shall have received the Legal Opinion of
John A. Brush in form and substance as attached hereto as Exhibit E.
ARTICLE 4
CONDITIONS TO THE OBLIGATION
OF THE COMPANY TO CLOSE
The obligations of the Company to issue and sell the Shares and the
Warrants and to perform its other obligations hereunder shall be subject to the
satisfaction as determined by the Company of the following conditions on or
before the Closing Date:
4.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of the Purchaser contained in Section 6 hereof shall be true and
correct on and as of the Closing Date as if made on and as of such date.
4.2 COMPLIANCE WITH THIS AGREEMENT. The Purchaser shall have performed and
complied with all of the agreements and conditions set forth or contemplated
herein that are required to be performed or complied with by the Purchaser on or
before the Closing Date.
4.3 ISSUANCE PERMITTED BY APPLICABLE LAWS. The issuance of the Shares and
the Warrants hereunder and the consummation of the transactions contemplated
hereby (a) shall not be prohibited by any Requirement of Law, (b) shall not
subject the Company to any penalty or, in its reasonable judgment, other onerous
condition under or pursuant to any Requirement of Law and (c) shall be permitted
by all Requirements of Law to which the Company is subject.
4.4 APPROVAL OF COUNSEL TO THE COMPANY. All actions and proceedings
hereunder and all documents required to be delivered by the Purchaser hereunder
or in connection with the consummation of the transactions contemplated hereby,
and all other related matters, shall be in form and substance acceptable to
Stephenson & Snokhous, counsel to the Company, in its reasonable judgment.
4.5 CONSENTS AND APPROVALS. All consents, exemptions, authorizations or
other actions by, or notices to, or filings with, Governmental Authorities and
other Persons in respect of all Requirements of Law necessary or required in
connection with the execution, delivery or performance by the Purchaser or
enforcement against the Purchaser of this Agreement shall have been obtained and
be in full force and effect, and the Company shall have been furnished with
appropriate evidence thereof.
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4.6 P&S AGREEMENT. Those of the conditions of Closing under the P&S
Agreement which are the responsibility of the SELLER (as such term is defined in
the P&S Agreement) shall have been fulfilled.
ARTICLE 5
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser before and
after giving effect to the transactions contemplated by this Agreement and the
other Transaction Documents as follows:
5.1 CORPORATE EXISTENCE AND POWER. The Company (a) is duly organized,
validly existing and in good standing under the laws of the State of Texas and
(b) has all requisite power and authority to own, lease and operate its assets,
properties and business and to conduct the business in which it is currently, or
is currently proposed to be, engaged. Except for its ownership of and interest
in the Cliffwood Acquisition - 1996 Limited Partnership as General Partner
pursuant to that certain Agreement of Limited Partnership dated as of September
27, 1996 by and among the Company, Energy Capital Investment Company and EnCap
Equity Limited Partnership, the Company does not directly or indirectly own any
stock or other equity interest in any corporation or other entity. The Company
has the power and authority to execute, deliver and perform its obligations
under this Agreement and each other Transaction Document to which it is or will
be a party.
5.2 CAPITALIZATION. All outstanding shares of capital stock of the
subsidiaries of the Company have been duly authorized and validly issued, are
fully paid and non-assessable, and are owned, directly or indirectly, by the
Company free and clear of all liens, encumbrances and security interests. No
options, warrants or other rights to purchase, agreements or other obligations
to issue, or other rights to convert any obligations into shares of capital
stock or ownership interests in any subsidiary of the Company are outstanding.
The authorized capitalization of the Company is 20,000,000 shares of Class A
Common Stock, par value $0.01, of which 2,741,323 shares, not including the
Shares, are issued and outstanding; 5,000,000 of Class B Common Stock par value
$0.01, of which 333,334 are issued and outstanding; and 10,000,000 shares of
Preferred Stock, par value $0.01, of which none are issued or outstanding. All
of the issued and outstanding shares of capital stock of the Company are duly
authorized, validly issued, fully paid and non-assessable, were offered and sold
in compliance with all federal and state securities laws, and were no issued in
violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities.
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Except as contemplated hereby and by the First Union Agreements, no rights to
register shares of the Company's capital stock or shares issuable upon the
exercise of outstanding warrants, options, convertible securities or other
rights to acquire shares of such capital stock exist.
5.32 CORPORATE AUTHORIZATION; NO CONTRAVENTION. The execution, delivery
and performance by the Company of this Agreement and each other Transaction
Document to which it is or will be a party and the transactions contemplated
hereby and thereby, including, without limitation, the issuance of the Shares
and the Warrants (a) have been duly authorized by all necessary corporate, and
if required, stockholder action, (b) do not contravene the terms of the Articles
of Incorporation or Bylaws of the Company, and (c) will not violate, conflict
with or result in any breach or contravention of or the creation of any lien
under, any Contractual Obligation of the Company, or any Requirement of Law
applicable to the Company.
5.4 BINDING EFFECT. This Agreement and each of the other Transaction
Documents to which the Company is a party will, upon the due execution and
delivery thereof by the Company, constitute the legal, valid and binding
obligation of the Company enforceable against the Company in accordance with
their respective terms except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity relating to enforceability.
5.5 LITIGATION. There are no legal actions, suits, proceedings, claims or
disputes pending, or to the knowledge of the Company, threatened, at law, in
equity, in arbitration or before any Governmental Authority against or affecting
the Company or any Subsidiary (a) with respect to this Agreement or any of the
other Transaction Documents, or any of the transactions contemplated hereby or
thereby, or (b) which would, if adversely determined, have an adverse effect on
the ability of the Company or any Subsidiary to perform its obligations under
this Agreement or any of the other Transaction Documents. No injunction, writ,
temporary restraining order, decree or any order of any nature has been issued
by any court or other Governmental Authority purporting to enjoin or restrain
the execution, delivery or performance of this Agreement or any of the other
Transaction Documents.
5.6 NO DEFAULT OR BREACH. The Company is not in default under or with
respect to any Contractual Obligation in any respect, which, individually or
together with all such default, could have a material adverse effect on the
condition of the Company, or which could adversely affect the ability of the
Company to perform its obligations under this Agreement or any of the other
Transaction Documents.
5.7 ERISA. The execution and delivery of this Agreement and each of the
other Transaction Documents, the purchase and sale of the Shares and the
Warrants hereunder and the consummation of the transactions contemplated hereby
and thereby will not result in any prohibited transaction within the meaning of
Section 406 of ERISA or Section 4975 of the Code or any other violation of ERISA
or any other Requirement of Law related thereto.
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5.8 MATERIAL ADVERSE EFFECT. Other than general market conditions
affecting companies similar to the Company, there is no fact known to the
Company which the Company has not disclosed to the Purchaser in writing which
materially adversely affects, or insofar as the Company can reasonably foresee
could materially adversely affect, the ability of the Company to perform its
obligations under this.
5.9 PRIVATE OFFERING. No form of general solicitation or general
advertising was used by the Company or its representatives in connection with
the offer or sale of the Shares, the Warrants or other securities. No
registration of the Shares, the Warrants, or the Shares issuable upon conversion
or exercise thereof pursuant to the provisions of the Securities Act or any
state securities or "blue sky" laws will be required by the offer, sale or
issuance of the Shares and the Warrants pursuant to this Agreement.
5. 10 BROKER'S, FINDER'S OR SIMILAR FEES. There are no brokerage
commissions, finder's fees or similar fees or commissions payable in connection
with the transactions contemplated hereby or any other Transaction Documents to
which the Company is a party, based on any agreement, arrangement or
understanding with the Company or any action taken by the Company.
5.11 SALE OF CAPITAL STOCK. For one year following the Closing, the
Company will not, without Purchaser's prior written consent, issue or offer for
sale any class of the Company's capital stock for less than $3.50 per share nor
shall it issue warrants or options to purchase any class of capital stock of the
Company for less that $3.50 per share if and to the extent such warrants and/or
options are exercisable within such one year.
5.12 CONTRACTS. Each material contract to which the Company or its
subsidiaries is a party has been duly and validly executed by the Company or its
subsidiaries, is in full force and effect in all material respects in accordance
with its respective terms, and none of the such contracts, leases or documents
have been assigned by the Company or its subsidiaries. The Company know of no
present situation or condition or fact which would prevent compliance with the
terms of such contracts, leases and documents as amended to date. Except for
amendments or modifications of such contracts, leases or documents in the
ordinary course of business, neither the Company nor any of its subsidiaries has
any intention of exercising any right which it may have to cancel any of its
obligations uncer such contracts, leases and documents and to the best knowledge
of the Company and the subsidiaries, none of them is aware that any other party
to such contracts, lease or other documents has nay intention not to render full
performance uncer such contracts, leases and documents.
5.13 FINANCIAL STATEMENTS. The consolidated financial statements of the
Company as of the fiscal year ended December 31, 1996 and the quarter ended
March 31, 1997, together with related notes and schedules therein, present
fairly the consolidated financial position, the results of operations and cash
flows of the Company, at the indicated dates and for the indicated periods. Such
financial statements have been prepared in accordance with GAAP.
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5.14 RESERVE REPORT. T. J. Smith & Company, Inc. (the "Petroleum
Engineer"), which prepared the most recent report containing estimates of the
Company's oil and gas reserves is an independent petroleum engineering firm. The
factual data provided to the Petroleum Engineer in the preparation of its
estimates of the Company's oil and gas reserves are accurate in all material
respects, the assumptions, in the aggregate and viewed in their entirety,
provided to the Petroleum Engineer by the Company are reasonable and conform to
guidelines published by the Commission. The Company has no reason to believe
that the methodology and assumptions which used by the Petroleum Engineer, in
the aggregate and viewed in their entirety, are not reasonable as of the date of
this Agreement except for such changes in methodology and assumptions which
would not result in a material change in the estimates of the oil and gs
reserves of the Company and its subsidiaries set forth in the report prepared by
the Petroleum Engineer, (other than methodology and assumptions relating to oil
and gas prices to the extent such prices have fluctuated from the prices
required to be assumed in the report of the Petroleum Engineer), although no
representation is made that such methodology nad assumptions will prove to be
correct.
5.15 TAX RETURNS. The Company and its subsidiaries have filed all federal,
state, local and foreign income, withholding and franchise tax returns which
have been required to be filed and have paid all taxes indicated by said returns
and assessments received by them to the extent that such taxes have become due
and payable except for a claim or assessment which the Company and its
subsidiaries have reasonable grounds to dispute and which in the aggregate would
not have a material adverse effect on the business, business prospects,
financial condition, results of operations or properties of the Company, taken
as a whole.
5.16 UPDATE. Since the latest quarterly balance sheet date of the
Company's financial statements (i) there has not been any material adverse
change, or to the best of the Company's knowledge any development involving a
prospective material adverse change, in or affecting the business, business
prospects, financial condition, results of operations, or properties of the
Company or its subsidiaries, whether or not occurring in the ordinary course of
business, and (ii) except for the First Union Agreements, there has not been any
transaction entered into by the Company or its subsidiaries which is material to
the Company or its subsidiaries. Except as disclosed herein, except as relates
to the First Union Agreements, except for shares of the capital stock of the
Company sold as authorized by the Resolutions of the Board of Directors of the
Company dated February 13, 1997, except as contemplated by this Agreement, and
except as otherwise disclosed to Purchaser in writing, since May 30, 1997, there
has not been any change in the capital stock of the Company (including a change
in the Articles of Incorporation or Board of Directors' action to authorize,
issue or repurchase any capital stock of the Company or, since the latest
quarterly balance sheet date in the Company's financial statements, any increase
in the short-term or long-term debt, except for increase in debt required to
finance the purchase contemplated by the P&S Agreement (including capitalized
lease obligations) of the Company, or any transaction entered into by the
Company or its subsidiaries, other than those in the ordinary course of
business, which are material with respect to the Company on any class of its
capital stock or any issuance of warrants, options, convertible securities or
other rights to purchase or acquire capital stock of the Company.
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5.17 CONDUCT OF BUSINESS. The business and operations conducted by the
Company are being conducted in compliance in all material respects with all
laws, rules and regulations or all public and private authorities, foreign or
domestic, having jurisdiction over the Company.
5.18 ENVIRONMENTAL. Neither the Company nor any of its subsidiaries has
received any notice or demand from any governmental authority or private party,
nor is it aware that there has been storage, disposal, generation, manufacture,
refinement, transportation, handling or treatment of toxic wastes, medical
wastes, hazardous wastes or hazardous substances by the Company or its
subsidiaries (or to the best of the Company's knowledge, any of its predecessors
in interest) at, upon or from any of the property now or previously owned or
leased under contract for purchase by the Company or any of its subsidiaries, or
affiliated partnerships in violation of any applicable law, ordinance, rule,
regulation order, judgment, decree, or permit or which would require remedial
action by the Company or its subsidiaries which would not result in, or which
would not be reasonably likely to result in, singularly or in the aggregatewith
all such violations or remedial actions, any material adverse change in the
business, business prospects, financial condition, results of operations or
properties of the Company and its subsidiaries taken as a whole. Neither the
Company nor any of its subsidiaries has received notice or demand nor to the
best of the Company's knowledge is it aware that there has been a material
spill, discharge, leak, emission, injection, escape, dumping or release of any
kind onto such property or into the environment surrounding such property of any
toxic wastes, medical wastes, solid wastes, hazardous wastes or hazardous
substances due to or caused by the Company or any of its subsidiaries, except
for any such spill, discharge, leak, emission, injections, escapes, dumpings or
release which would not result in or would not be reasonably likely to result
in, singularly or in the aggregate with all such spills, discharges, leaks,
emissions, injections, escapes, dumpings, and releases, any material adverse
change in the business, business prospects, financial condition, results of
operations or properties of the Company and its subsdiaries taken as a whole,
Ther terms "hazardous wastes", "toxic wastes", "hazardous substances", and
"medical wastes", shall have the meanings specified in any applicable local,
state, federal and foreign laws of regulations with respect to environmental
protection.
5.19 INSURANCE. The Company and its subsidiaries maintain insurance of the
types and in the amounts generally deemed adequate for their respective
businesses and consistent with insurance maintained by similar companies in
similar businesses, all of which insurance is in full force and effect.
5.20 CERTAIN TRANSACTIONS. All transactions during the Company's last full
fiscal year between the Company and any person who is or was during such last
fiscal year, an officer, director or 5% stockholder of the Company have been
accurately disclosed in the consolidated financial statements of the Company as
of the last fiscal year and the terms of each such transaction were in all
material respects fair to the Company.
5.21 CONTRIBUTIONS. Neither the Company nor any of its subsidiaries, nor
any director, officer or employee of the Company nor to the best of the
Company's knowledge, any agent or stockholder (or any person associated with, or
acting on behalf of the Company, or any of them), has intentionally and
unlawfully, directly or indirectly (i) used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political or other activity, (ii) made any unlawful payment to foreign or
domestic government officials or employees or to foreign or domestic political
parties or campaigns from corporate funds, (iii) violated any provisions of the
Foreign Corrupt Practices Act of 1977, as amended, (iv) established or
maintained any unlawful or unrecorded fund of corporate monies or other assets,
(v) made any bribe, rebate, payoff, influence payment, kickback, or other
unlawful payment, (vi) made any bribe, kickback, or other payment of a similar
or comparable nature, whether lawful or not, to any person or entity, private or
public, regardless of form, whether in money, property, or services, to obtain
favorable treatment in securing business or to obtain special concessions, or to
pay for favorable treatment for business secured or for special concessions
already obtained.
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5.22 EMPLOYEE BENEFIT PLAN. Each employee benefit plan, as defined in
ERISA, ("Employee Benefit Plan") and each bonus, retirement, pension, profit
sharing, stock bonus, thrift, stock option, stock purchase, incentive,
severance, deferred or other compensation or welfare benefit plan, program,
agreement or arrangement of, or applicable to employees of the Company or its
subsidiaries ("Benefit Plans"), which is presently in existence or was in
existence at any time, was or has been established, maintained and operated in
all material respects in compliance with all applicable federal, state, and
local statutes, orders, governmental rules and regulations, including but not
limited to ERISA and the Code.
5.23 EMPLOYMENT LAWS. Each of the Company and its subsidiaries is in
compliance in all material respects with all federal, state and local laws and
regulations respecting the employment of its employees and employment practices,
terms and conditions of employment and wages and hours relating thereto. There
are no actual or threatened claims of employees or former employees of the
Company or its subsidiaries against the Company or its subsidiaries.
5.24 INTERIM ACCOUNTING CONTROLS. The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorization: (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
ARTICLE 6
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants as follows:
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6.1 AUTHORIZATION; NO CONTRAVENTION. The execution, delivery and
performance by the Purchaser of this Agreement (a) is within the Purchaser's
power and authority and has been duly authorized by all necessary action, (b)
does not contravene the terms of the Purchaser's organizational documents or any
amendment thereof, and (c) will not violate, conflict with or result in any
breach or contravention of any material Contractual Obligation of the Purchaser,
or any material Requirement of Law directly relating to the Purchaser.
6.2 BINDING EFFECT. This Agreement has been duly executed and delivered by
the Purchaser, and this Agreement constitutes the legal, valid and binding
obligation of the Purchaser enforceable against it in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws
affecting the enforcement of creditors' rights generally or by general equitable
principles relating to enforceability.
6.3 PURCHASE FOR OWN ACCOUNT. The Shares, the Warrants and the shares of
common stock to be issued upon conversion or exercise thereof are being or will
be acquired for the Purchaser's own account and with no intention of
distributing or reselling such securities or any part thereof in any transaction
that would be in violation of the Securities Act or the securities laws of any
state, without prejudice, however, to the rights of the Purchaser at all times
to sell or otherwise dispose of all or any part of its Shares, the Warrants or
its shares of common stock under an effective registration statement under the
Securities Act, or under an exemption from such registration available under the
Securities Act. If the Purchaser should in the future decide to dispose of any
of its Shares, the Warrants or its shares of common stock issued upon the
exercise or conversion thereof, the Purchaser understands and agrees that it may
do so only in compliance with the Securities Act and applicable state secur ties
laws as then in effect. The Purchaser agrees to the imprinting, so long as
required by law, of a legend on certificates representing all of its Shares, the
Warrants and its shares of common stock to be issued upon conversion or exercise
thereof to the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF SUCH ACT AND SUCH LAWS."
6.4 ERISA. No part of the funds used by such Purchaser to purchase the
Shares or the Warrants hereunder constitutes assets of any "employee benefit
plan" (as defined in Section 3(3) of ERISA) or "plan" (as defined in Section
4975 of the Code).
6.5 BROKER'S, FINDER'S OR SIMILAR FEES. There are no brokerage
commissions, finder's fees or similar fees or commissions payable in connection
with the transactions contemplated hereby or by any other Transaction Documents
to which the Purchaser is a party, based on any agreement, arrangement or
understanding with the Purchaser or any action taken by the Purchaser.
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6.6 GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENT. Except as
contemplated by the Transaction Documents, no approval, consent, compliance,
exemption, authorization or other action by, or notice to, or filing with, any
Governmental Authority or any other Person in respect of any Requirement of Law,
and no lapse of a waiting period under any Requirement of Law, is necessary or
required in connection with the execution, delivery or performance by such
Purchaser or enforcement against such Purchaser of this Agreement or the
transactions contemplated hereby.
ARTICLE 7
PUT RIGHTS
7.1 OPTION TO PUT. From and after the second anniversary of the Closing
and until the earlier of the fifth anniversary of the Closing or the date any
class of the securities of the Company become subject to the reporting
requirements under the Exchange Act, the Purchaser shall have the right to sell
all or a portion of its Put Securities to the Company, and the Company shall be
obligated to purchase such Put Securities, at a price per share determined in
accordance with Section 7.3 below.
7.2 SALE OF PUT SECURITIES. To exercise its right to sell all or any
portion of the Put Securities under Section 7.1, the Purchaser shall give
written notice to that effect to the Company, which notice (the "Exercise
Notice") shall also specify the number of Put Securities the Purchaser is
electing to sell. The Company and the Purchaser shall consummate any purchase
and sale contemplated under this Article 7 at a place and time mutually
determined by the Company and the Purchaser, but in any event within fifteen
(15) days after receipt by the Company of the Exercise Notice. At the closing of
any purchase and sale contemplated under this Article 7, the Company shall
tender immediately available funds to the Purchaser in an amount equal to the
number of the Put Securities to be sold multiplied by the price per share
determined in accordance with Section 7.3 below and the Purchaser shall deliver
to the Company certificate(s) or instrument(s) evidencing such securities.
7.3 PRICE PER SHARE.
(a) PURCHASE PRICE. The Company shall be obligated to purchase the Put
Securities pursuant to Sections 7.1 and 7.2 at a price per share equal to the
Net Asset Value.
(b) NET ASSET VALUE. For purposes of this Article 7, the term "Net Asset
Value" shall mean, as of the date of the Exercise Notice, an amount determined
by dividing X by Y, where "X" is (i) the total assets of the Company which would
be shown as assets on a consolidated balance sheet of the Company as of such
time prepared in accordance with GAAP (except that oil and gas properties, other
assets, and deferred income taxes shall be excluded, provided further that
estimated COPAS income for the following 24 months, discounted at 15%, shall be
included), PLUS (ii) the "Calculated Market Value" (as hereinafter defined) of
such oil and gas properties, MINUS (iii) the total liabilities of the Company
which would be shown as liabilities on a consolidated balance sheet of the
Company as of such time prepared in accordance with GAAP and where "Y" is the
total number of shares of Common Stock outstanding as of such time determined on
a fully diluted basis (except for options which have not yet vested or are not
immediately exercisable). In computing Net Asset Value, the "Calculated Market
Value" of oil and gas properties of the Company shall be the value determined by
T. J. Smith & Company, Inc. or another mutually acceptable, nationally
recognized, independent engineering firm acceptable to the Company and the
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Purchaser, and calculated in accordance with ss.210.4-10 of Regulation S-X, as
promulgated by the Commission, with the following adjustments to certain
parameters: (i) applicable future prices for commodities shall be determined as
follows: (A) for crude oil the beginning price shall be calculated using the
average of one full calendar year forward prices, and (B) for natural gas the
beginning price shall be calculated using the average of the first twelve month
forward prices, each as reported on the New York Mercantile Exchange; PROVIDED,
that such prices shall be adjusted for product quality and for basis
differentials resulting from product location, as determined by the Company by
obtaining market quotes from at least two mutually agreeable major independent
third party dealers for each pipeline or point of delivery; PROVIDED, FURTHER,
that such prices shall escalate at 3% per annum thereafter; (ii) beginning lease
operating expenses, as determined by ss.210.4-10 of Regulation S-X, shall
escalate at 3% per annum thereafter; (iii) the resulting cashflow stream, as
determined by ss.210.4-10 of Regulation S-X, after giving effect to the
adjustments to commodity price and lease operating expense assumptions, shall be
discounted for a present value at a 15% discount rate; and (iv) that in making
such computation, only the following categories (and portions of such
categories) of reserves shall be utilized: 100% of proved developed producing
reserves; 80% of proved developed non-producing reserves; and 40% of proved
undeveloped reserves The foregoing discount rate and percentages of reserves
categories shall also apply to the Company's (or its subsidiary's) direct 10%
interest in the reserves owned by the CALP as provided in the CALP Agreement,
and to additional interests, if any, that the independent engineer referred to
above estimates that the Company (or its subsidiary) will earn in the CALP
pursuant to the CALP Agreement.
7.4 FUTURE PUT RIGHTS. If, at any time or from time to time, within the
two years following Closing, the Company shall grant any Person rights to
require the Company to purchase any class of security of the Company from such
Person, the Company shall give Purchaser written notice of such grant, including
a copy of the terms thereof. Purchaser may then elect, by written notice to the
Company given within 30 days after Purchaser's receipt of the written notice
from the Company, to have the same rights to require the Company to purchase the
Put Securities as such Person and in lieu of the rights granted to Purchaser
under this Article 7, provided however, any time limitations on such rights
shall remain as originally set forth in this Article 7. Should Purchaser fail to
provide the Company with its written election with the time specified, Purchaser
shall be deemed to have elected not to have the same rights to require the
Company to purchase the Put Securities as such Person and the provisions of this
Article 7 shall remain in effect.
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ARTICLE 8
REGISTRATION RIGHTS
8.1 DEMAND REGISTRATION
(a) FORM OF DEMAND REQUEST. Subject to paragraphs (b), (c) and (d) below
and the other terms and provisions hereof, until the fifth anniversary of the
Closing, the Purchaser may request at any time a registration by the Company
under the Securities Act of all or a part of its Registrable Securities (a
"Demand Registration"). Any request made pursuant to this paragraph (a) will
specify the number of Registrable Securities to be registered and will specify
the intended method of disposition thereof; PROVIDED, that such method of
disposition shall be an underwritten offering if requested by the Purchaser.
(b) LIMITATIONS ON REGISTRATION RIGHTS OF THE PURCHASER. Notwithstanding
paragraph (a) above or anything else herein to the contrary, the Company shall
have no obligations under this Section 8.1 until the earlier of (i) the third
anniversary of the Closing or (ii) one year after the date any class of the
Company's common stock becomes subject to the reporting requirements under the
Exchange Act. Notwithstanding paragraph (a) above or anything else herein to the
contrary, in no event shall the Company be obligated to effect more than one
registration pursuant to this Section 8.1; provided, that any registration
requested pursuant to this Section 8.1 will not be deemed to have been effected
unless it has become effective and remained effective until all of the
Registrable Securities have been sold; provided, further, that any such
registration which does not become effective after the Company has filed a
registration statement in accordance with the provisions of this Section 8.1
solely by reason of the refusal to proceed of the Purchaser after having
requested the Demand Registration pursuant to paragraph (a) above, including
failure to comply with the provisions of this Agreement (other than any refusal
to proceed based upon the advice of counsel to the Purchaser that the
registration statement, or the prospectus contained therein, contains an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing, or that such registration statement or
such prospectus, or the distribution contemplated thereby, otherwise violates or
would, if such distribution using such prospectus took place, violate any
applicable state or federal securities law) shall be deemed to have been
effected by the Company at the request of the Purchaser.
(c) UNDERWRITERS. If a Demand Registration is an underwritten offering or
a best efforts underwritten offering, the investment banker or investment
bankers and manager or managers that will administer the offering shall be
selected by the Purchaser; provided, that such investment bankers and managers
must be reasonably satisfactory to the Company.
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8.2 PIGGYBACK REGISTRATION. If, at any time before the fifth anniversary
of the Closing, the Company proposes to register any of its securities under the
Securities Act for its own account or for the account of any other holder of its
securities other than (a) under employee compensation or benefit programs or (b)
an exchange offer or an offering of securities solely to the existing
stockholders or employees of the Company, and the registration form to be used
may be used for the registration of Registrable Securities, the Company will
give prompt written notice to the Purchaser of its intention to effect such a
registration and will include in such registration all Registrable Securities
with respect to which the Company has received written requests for inclusion
therein within fifteen (15) days after the receipt of the Company's notice (a
"Piggyback Registration"). The Company shall use its reasonable best efforts to
cause the managing underwriters of a proposed underwritten offering to permit
the Registrable Securities requested to be included in the registration
statement (or registration statements) for such offering to be included therein
on the same terms and conditions as any similar securities of the Company
included therein. Notwithstanding the foregoing, if the Company gives notice of
such a proposed registration, the total number of Registrable Securities which
shall be included in such registration shall be reduced to such number, if any,
as in the reasonable opinion of the managing underwriters of such offering would
not adversely affect the marketability or offering price of all of the
securities proposed to be offered by the Company in such offering; provided,
that (i) if such Piggyback Registration is incident to a primary registration on
behalf of the Company, the securities to be included in the registration
statement (or registration statements) for any person other than the Purchaser
and the Company shall be first reduced prior to any such reduction applicable to
the Purchaser, and (ii) if such Piggyback Registration is incident to a
secondary registration on behalf of holders of securities of the Company, the
securities to be included in the registration statement (or registration
statements) for any person not exercising "demand" registration rights other
than the Purchaser, as currently in effect, shall be first reduced prior to any
such pro rata reduction applicable to the Purchaser.
8.3 REGISTRATION PROCEDURES.
(a) Whenever the Purchaser has requested that any Registrable Securities
be registered pursuant to Section 8.1 or 8.2, the Company will use its
reasonable best efforts to effect the registration of and permit the sale of
such Registrable Securities in accordance with the intended method of
disposition thereof, and pursuant thereto the Company will as expeditiously as
possible:
(i) prepare and file with the Commission a registration statement on the
appropriate form with respect to such Registrable 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 copies of all such
documents proposed to be filed to the Purchaser);
(ii) 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 for
a period which will terminate when Registrable Securities covered by such
registration statement have been sold (but not before the expiration of the
applicable prospectus delivery period) and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such registration
statement;
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(iii) furnish to the Purchaser such number of copies of such
registration statement, each amendment and supplement thereto, the prospectus
included in such registration statement (including, without limitation, each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by the Purchaser;
(iv) use its reasonable best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions within the United States as the Purchaser reasonably requests and
do any and all other acts and things which may be reasonably necessary or
advisable to enable the Purchaser to consummate the disposition in such
jurisdictions of the Registrable Securities owned by the Purchaser (provided
that the Company will not be required to qualify generally to do business or
subject itself to any general service of process in any jurisdiction where it is
otherwise not then so subject);
(v) notify the Purchaser, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening of any
event which requires the making of any change in the prospectus included in such
registration statement so that such document will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and,
at the request of the Purchaser, the Company will prepare a supplement or
amendment to such prospectus so that such prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading;
(vi) use its reasonable best efforts to cause all such Registrable
Securities to be listed on each securities exchange or exchanges, automated
quotation system or over-the-counter market upon which securities of the Company
of the same class are then listed or which are recommended for listing by the
Purchaser or any underwriters;
(vii) enter into such customary agreements (including, without
limitation, underwriting agreements in customary form, substance, and scope) and
take all such other actions as the Purchaser or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities;
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(viii) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make generally available
to its security holders an earnings statement no later than 90 days after the
end of the 12 month period beginning with the first day of the Company's first
full calendar quarter after the effective date of the registration statement,
which earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder;
(ix) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any common stock included in such registration statement for sale in any
jurisdiction, the Company will use its reasonable best efforts promptly to
obtain the withdrawal of such order; and
(x) use its reasonable best efforts to cause such Registrable Securities
covered by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable the
Purchaser to consummate the disposition of such Registrable Securities.
(b) The Purchaser agrees with the Company as follows:
(i) upon receipt of any notice from the Company of the happening of any
event of the kind described in Section 8.3(a)(v), the Purchaser will forthwith
discontinue disposition of any Registrable Securities until the Purchaser
receives copies of the supplemented or amended prospectus contemplated by
Section 8.3(a)(v), or until it is advised in writing by the Company that the use
of the applicable prospectus may be resumed, and it has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such prospectus;
(ii) furnish to the Company such information regarding the Purchaser,
the Registrable Securities held by it and the intended method of disposition
thereof as the Company shall reasonably request and as shall be reasonably
required in connection with the preparation of the applicable registration
statement and other actions taken by the Company under this Agreement, and it
shall be a condition precedent to the obligation of the Company to take any
action pursuant to this Agreement in respect of the Registrable Securities that
such information has been furnished to the Company by the Purchaser; and
(iii) if any Registrable Securities are being registered in any
registration pursuant to this Agreement, the Purchaser will comply with all
anti-stabilization, manipulation and similar provisions of Section 10 of the
Exchange Act, as amended, and any rules promulgated thereunder by the Commission
and, at the request of the Company, will execute and deliver to the Company and
to any underwriter participating in such offering, an appropriate agreement to
such effect.
8.4 EXPENSES. The Company shall pay all Registration Expenses in
connection with each registration effected pursuant to Section 8.1 or 8.2 and,
in any event, shall pay its internal expenses (including, without limitation,
all salaries and expenses of its officers and employees performing legal and
accounting duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the securities to be registered on
each securities exchange on which similar securities issued by the Company are
then listed. All Selling Expenses incurred in connection with a registration
effected pursuant to the terms hereof shall be borne by the Purchaser and any
other holder of Registrable Securities participating in such registration pro
rata, based upon the number of Registrable Securities included in such
registration.
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8.5 LOCK-UP AGREEMENTS. In the event V & C Energy Limited Partnership or
Energy Resource Associates, Inc. enters into any "lock-up" or similar agreement
not to dispose of any securities of the Company during registration, the
Purchaser covenants and agrees to enter into a substantially similar agreement;
provided, that such restrictive period does not exceed 180 days.
ARTICLE 9
INDEMNIFICATION
9.1 SECURITIES LAWS VIOLATIONS. The Company shall indemnify and hold
harmless, with respect to any registration statement filed by it, to the full
extent permitted by law, the Purchaser and each other Person, if any, who
controls the Purchaser within the meaning of Section 15 of the Securities Act
(collectively, "Holder Indemnified Parties") against all losses, claims,
damages, liabilities and expenses, joint or several to which any such Holder
Indemnified Parties may become subject under the Securities Act, the Exchange
Act, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement in which such Registrable Securities were included as
contemplated hereby or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) any untrue statement or alleged untrue statement of
a material fact contained in any preliminary, final or summary prospectus,
together with the documents incorporated by reference therein (as amended or
supplemented if the Company shall have filed with the Commission any amendment
thereof or supplement thereto), or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, or (iii) any violation by the Company of any federal,
state or common law rule or regulation applicable to the Company and relating to
action of or inaction by the Company in connection with any such registration;
and in each such case, the Company shall reimburse each such Holder Indemnified
Parties for any reasonable legal or other expenses incurred by any of them in
connection with investigating or defending any such loss, claim, damage,
liability, expense, action or proceeding; provided, that the Company shall not
be liable to any such Holder Indemnified Parties in any such case to the extent
that any such loss, claim, damage, liability or expense (or action or
proceeding, whether commenced or threatened, in respect thereof) arises out of
or is based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement or amendment thereof or
supplement thereto or in any such preliminary, final or summary prospectus in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of any such Holder Indemnified Parties for use in the
preparation thereof. If and to the extent that such indemnification is
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of such liabilities which shall be permissible
under applicable laws. Such indemnity and reimbursement of expenses and other
obligations shall remain in full force and effect regardless of any
investigation made by or on behalf of the Holder Indemnified Parties and shall
survive the transfer of such securities by such Holder Indemnified Parties.
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9.2 INDEMNIFICATION BY PURCHASER. The Purchaser shall indemnify and hold
harmless, to the fullest extent permitted by law, the Company, its directors,
officers, employees and agents, and each Person who controls the Company (within
the meaning of Section 15 of the Securities Act) (collectively, the "Company
Indemnified Parties") against all losses, claims, damages, liabilities and
expenses to which the Company Indemnified Parties may become subject under the
Securities Act, the Exchange Act, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of a material fact
contained in any registration statement in which the Purchaser's Registrable
Securities were included or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) any untrue statement or alleged untrue statement of
a material fact contained in any preliminary, final or summary prospectus,
together with the documents incorporated by reference therein (as amended or
supplemented if the Company shall have filed with the Commission any amendment
thereof or supplement thereto), or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading to the extent in the cases described in clauses (i)
and (ii), that such untrue statement or omission was furnished in writing by the
Purchaser for use in the preparation thereof, or (iii) any violation by the
Purchaser of any federal, state or common law rule or regulation applicable to
the Purchaser and relating to action of or inaction by such holder in connection
with any such registration. Such indemnity obligation shall remain in full force
and effect regardless of any investigation made by or on behalf of the Company
Indemnified Parties (except as provided above) and shall survive the transfer of
such securities by the Purchaser.
9.3 NOTIFICATION. Each Indemnified Parties under this Article 9 will,
promptly after the receipt of notice of the commencement of any action,
investigation, claim or other proceeding against such Indemnified Parties in
respect of which indemnity may be sought under this Article 9, notify the
Indemnifying Party in writing of the commencement thereof. The omission of any
Indemnified Parties so to notify the Indemnifying Party of any such action shall
not relieve the Indemnifying party from any liability which it may have to such
Indemnified Parties (a) other than pursuant to this Article 9 or (b) under this
Article 9 unless, and only to the extent that, such omission results in the
Indemnifying Party's forfeiture of substantive rights or defenses. In case any
such action, claim or other proceeding shall be brought against any Indemnified
Parties and it shall notify the Indemnifying Party of the commencement thereof,
the Indemnifying Party shall be entitled to assume the defense thereof at its
own expense, with counsel satisfactory to such Indemnified Parties in its
reasonable judgment; provided, that any Indemnified Party may, at its own
expense, retain separate counsel to participate in such defense. Notwithstanding
the foregoing, in any action, claim or proceeding in which both the Indemnifying
Party, on the one hand, and an Indemnified Parties, on the other hand, is, or is
reasonably likely to become, a party, such Indemnified Parties shall have the
right to employ separate counsel at the Indemnifying Party's expense and to
control its own defense of such action, claim or proceeding if, in the
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reasonable opinion of counsel to such Indemnified Parties, a conflict or
potential conflict exists between the Indemnifying Party, on the one hand, and
such Indemnified Parties, on the other hand, that would make such separate
representation advisable. The Indemnifying Party agrees that it will not,
without the prior written consent of the Indemnified Parties, which consent
shall not be unreasonably withheld, settle, compromise or consent to the entry
of any judgment in any pending or threatened claim, action or proceeding
relating to the matters contemplated hereby (if any Indemnified Parties is a
party thereto or has been actually threatened to be made a party thereto) unless
such settlement, compromise or consent includes an unconditional release of the
Indemnified Parties and each other Indemnified Parties from all liability
arising or that may arise out of such claim, action or proceeding. The
Indemnifying Party shall not be liable for any settlement of any claim, action
or proceeding effected against an Indemnified Parties without its written
consent, which consent shall not be unreasonably withheld. The rights accorded
to Indemnified Parties hereunder shall be in addition to any rights that any
Indemnified Parties may have at common law, by separate agreement or otherwise.
ARTICLE 10
MISCELLANEOUS
10.1 BOARD MEETING OBSERVATION. From and after the Closing and until the
earlier of (i) the date any class of securities of the Company becomes subject
to the reporting requirements of the Exchange Act, (ii) the date that Purchaser
ceases to own at least 50% of the Put Securities which it owns as of Closing or
(iii) the fifth anniversary of Closing, the Company shall permit one
representative of Purchaser to be present and observe all meetings of the Board
of Directors of the Company. While such observation rights exist, the Company
shall give Purchaser the same notice of such meetings of the Board of Directors
as is given to members of said Board. The attendance of Purchaser's
representative at any such Board meetings shall be at Purchaser's sole cost,
risk and expense. Purchaser and Purchaser's representative shall keep the
content of all such meetings strictly confidential and shall not disclose the
details or substance of any such meetings to any Person, unless and to the
extent that
disclosure by Purchaser is required by applicable law, subpoena or court order.
10.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties made herein shall survive the execution and
delivery of this Agreement, any investigation by or on behalf of the Purchaser,
acceptance of the Shares and the Warrants and payment therefor, conversion of
the Shares, and exercise of the Warrants.
10.3 NOTICES. All notices, demands and other communications provided for
or permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telecopy, recognized
overnight courier service or personal delivery:
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(a) if to the Company:
Cliffwood Oil & Gas Corp.
110 Cypress Station Drive, Suite 220
Houston, Texas 77090
Attention: Frank A. Lodzinski
Telephone No.: (281) 537-9920
Telecopy No.: (281) 537-8324
(b) if to the Purchaser:
Belleview 1992 Income Fund, L.P.
10 Inverness Drive East, Suite 101
Englewood, CO 80112
Attention: Michael J. Foy
Telephone No.: (303) 706-1025
Telecopy No.: (303) 706-1029
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; five Business
Days after being deposited in the mail, postage prepaid, if mailed; and when
receipt is acknowledged, if telecopied.
10.4 NON-ASSIGNABILITY. This Agreement is personal to the Company and
Purchaser and may not be assigned to any other party. Any attempted assignment
shall be null and void.
10.5 AMENDMENT AND WAIVER.
(a) No failure or delay on the part of the Company or the Purchaser in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the Company or
the Purchaser at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any provision of
this Agreement, any waiver of any provision of this Agreement, and any consent
to any departure from the terms of any provision of this Agreement, shall be
effective (i) only if it is made or given in writing and signed by the Company
and the Purchaser, and (ii) only in the specific instance and for the specific
purpose for which made or given. Except where notice is specifically required by
this Agreement, no notice to or demand in any case shall entitle either party to
any other or further notice or demand in similar or other circumstances.
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10.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
10.7 HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
10.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO THE PRINCIPLES
OF CONFLICTS OF LAW OF SUCH STATE.
10.9 JURISDICTION. Each party to this Agreement hereby irrevocably agrees
that any legal action or proceeding arising out of or relating to this Agreement
or any agreements or transactions contemplated hereby may be brought in the
courts of the State of Texas or of the United States of America for the Southern
District of Texas and hereby expressly submits to the personal jurisdiction and
venue of such courts for the purposes thereof and expressly waives any claim of
improper venue and any claim that such courts are an inconvenient forum. Each
party hereby irrevocably consents to the service of process of any of the
aforementioned courts in any such suit, action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to the address
set forth in Section 10.3, such service to become effective 10 days after such
mailing.
10.10 SEVERABILITY. If any one or more of the provisions contained herein,
or the application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
10.11 RULES OF CONSTRUCTION. Unless the context otherwise requires, "or"
is not exclusive, and references to sections or subsections refer to sections or
subsections of this Agreement. All pronouns and any variations thereof refer to
the masculine, feminine or neuter, singular or plural, as the context may
require.
10.12 ENTIRE AGREEMENT. This Agreement, together with the exhibits and
schedules hereto and the other Transaction Documents, is intended by the parties
as a final expression of their agreement and is intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and therein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein or therein. This Agreement, together with the exhibits and
schedules hereto, and the other Transaction Documents supersede all prior
agreements and understandings between the parties with respect to such subject
matter.
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10.13 PUBLICITY. Except as may be required by applicable law, none of the
parties hereto shall issue a publicity release or announcement or otherwise make
any public disclosure concerning this Agreement or the transactions contemplated
hereby without prior approval by the other parties hereto. If any announcement
is required by law to be made by any party hereto, prior to making such
announcement such party will deliver a draft of such announcement to the other
parties and shall give the other parties an opportunity to comment thereon.
10.14 FURTHER ASSURANCES. Each of the parties shall execute such documents
and perform such further acts (including, without limitation, obtaining any
consents, exemptions, authorizations, or other actions by, or giving any notices
to, or making any filings with, any Governmental Authority or any other Person)
as may be reasonably required or desirable to carry out or to perform the
provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized as
of the date first above written.
CLIFFWOOD OIL & GAS CORP.
By: /S/ FRANK A. LODZINSKI
Name: Frank A. Lodzinski
Title: President
BELLEVIEW 1992 INCOME FUND, L.P.
By Belleview Capital Corp., General Partner
By: /S/ MICHAEL J. FOY
Name: Michael J. Foy
Title: President
26
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COMMON STOCK AND WARRANT
PURCHASE AGREEMENT
between
CLIFFWOOD OIL & GAS CORP.
and
BELLEVIEW 1992 INCOME FUND, L.P.
Dated as of August 4, 1997
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TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS............................................... 1
1.1 DEFINITIONS.............................................. 1
ARTICLE 2
PURCHASE AND SALE OF COMMON STOCK AND WARRANTS............. 4
2.1 PURCHASE AND SALE OF COMMON STOCK........................ 4
2.2 PURCHASE AND SALE OF WARRANTS............................ 4
2.3 PURCHASE PRICE........................................... 4
2.4 CLOSING.................................................. 4
2.5 RESERVATION OF SHARES.................................... 4
ARTICLE 3
CONDITIONS TO THE OBLIGATION OF THE PURCHASER TO CLOSE.... 5
3.1 REPRESENTATIONS AND WARRANTIES........................... 5
3.2 COMPLIANCE WITH THIS AGREEMENT........................... 5
3.3 OFFICERS' CERTIFICATE.................................... 5
3.4 SECRETARY'S CERTIFICATE................................... 5
3.5 TRANSACTION DOCUMENTS..................................... 5
3.6 PURCHASE PERMITTED BY APPLICABLE LAWS..................... 5
3.7 APPROVAL OF COUNSEL TO THE PURCHASER...................... 6
3.8 CONSENTS AND APPROVALS.....................................6
3.9 CO-SALE AGREEMENT......................................... 6
3.10 P&S AGREEMENT............................................. 6
3.11 LEGAL OPINION..............................................6
28
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ARTICLE 4
CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE........6
4.1 REPRESENTATIONS AND WARRANTIES TRUE....................... 6
4.2 COMPLIANCE WITH THIS AGREEMENT............................ 6
4.3 ISSUANCE PERMITTED BY APPLICABLE LAWS..................... 6
4.4 APPROVAL OF COUNSEL TO THE COMPANY........................ 6
4.5 CONSENTS AND APPROVALS.................................... 7
4.6 P&S AGREEMENT..............................................7
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............. 7
5.1 CORPORATE EXISTENCE AND POWER............................. 7
5.2 CAPTALIZATION..............................................7
5.3 CORPORATE AUTHORIZATION; NO CONTRAVENTION................. 8
5.4 BINDING EFFECT.............................................8
5.5 LITIGATION.................................................8
5.6 NO DEFAULT OR BREACH...................................... 8
5.7 ERISA..................................................... 8
5.8 MATERIAL ADVERSE EFFECT....................................8
5.9 PRIVATE OFFERING.......................................... 8
5.10 BROKER'S, FINDER'S OR SIMILAR FEES........................ 9
5.11 SALE OF CAPITAL STOCK.....................................9
5.12 CONTRACTS..................................................9
5.13 FINANCIAL STATEMENTS.......................................9
5.14 RESERVE REPORT.............................................9
5.15 TAX RETURNS...............................................10
5.16 UPDATE....................................................10
5.17 CONDUCT OF BUSINESS.......................................10
5.18 ENVIRONMENTAL.............................................10
5.19 INSURANCE.................................................11
5.20 CERTAIN TRANSACTIONS......................................11
5.21 CONTRIBUTIONS.............................................11
5.22 EMPLOYEE BENEFIT PLAN.....................................11
5.23 EMPLOYMENT LAWS...........................................12
5.24 INTERNAL ACCOUNTING CONTROLS..............................12
ARTICLE 6
29
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REPRESENTATIONS AND WARRANTIES OF THE PURCHASER............ 12
6.1 AUTHORIZATION; NO CONTRAVENTION.......................... 12
6.2 BINDING EFFECT............................................12
6.3 PURCHASE FOR OWN ACCOUNT..................................12
6.4 ERISA.................................................... 13
6.5 BROKER'S, FINDER'S OR SIMILAR FEES........................13
6.6 GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENT.......... 13
ARTICLE 7
PUT RIGHTS................................................ 13
7.1 OPTION TO PUT.............................................13
7.2 SALE OF PUT SECURITIES....................................13
7.3 PRICE PER SHARE...........................................13
7.4 FUTURE PUT RIGHTS.........................................14
ARTICLE 8
REGISTRATION RIGHTS....................................... 15
8.1 DEMAND REGISTRATION...................................... 15
8.2 PIGGYBACK REGISTRATION....................................15
8.3 REGISTRATION PROCEDURES.................................. 16
8.4 EXPENSES..................................................18
8.5 LOCK-UP AGREEMENTS....................................... 18
ARTICLE 9
INDEMNIFICATION........................................... 19
9.1 SECURITIES LAWS VIOLATIONS............................... 19
9.2 INDEMNIFICATION BY PURCHASER............................. 19
9.3 NOTIFICATION............................................. 20
ARTICLE 10
MISCELLANEOUS............................................. 21
10.1 BOARD MEETING OBSERVATION.................................21
10.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES............... 21
10.3 NOTICES.................................................. 21
10.4 NON-ASSIGNABILITY........................................ 22
10.5 AMENDMENT AND WAIVER..................................... 22
10.6 COUNTERPARTS..............................................22
10.7 HEADINGS................................................. 22
10.8 GOVERNING LAW............................................ 22
10.9 JURISDICTION............................................. 22
10.10 SEVERABILITY............................................. 22
10.11 RULES OF CONSTRUCTION.................................... 22
30
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10.12 ENTIRE AGREEMENT......................................... 23
10.13 PUBLICITY................................................ 23
10.14 FURTHER ASSURANCES....................................... 23
31
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EXHIBITS
Exhibit A - Articles of Incorporation
Exhibit B - Bylaws
Exhibit C - Co-Sale Agreement
Exhibit D - Form of Warrant
Exhibit E - Legal Opinion
EXHIBIT 10.21
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES
OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD,
ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER SAID ACT AND UNDER APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR
EXEMPTIONS FROM SUCH REGISTRATION. THIS WARRANT MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT UPON THE CONDITIONS SPECIFIED IN
THIS WARRANT, AND NO SALE, ASSIGNMENT, TRANSFER, OR OTHER DISPOSITION OF THIS
WARRANT SHALL BE VALUED OR EFFECTIVE UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE
BEEN COMPLIED WITH.
No. -007- Right to Purchase 13,750 Shares
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Michael J. Foy or registered
assigns, is entitled to purchase from Cliffwood Oil & Gas Corp., a Texas
corporation (the "Company"), at any time or from time to time during the period
specified in PARAGRAPH 2 hereof, Thirteen thousand seven hundred fifty (13,750)
fully paid and nonassessable shares of the Company's Class A Common Stock, par
value $0.01 per share (the "Class A Common"), at a price per share of $4.25 (the
"Exercise Price"). The term "Warrant Shares", as used herein, refers to the
shares of Class A Common purchasable hereunder. The Warrant Shares and the
Exercise Price are subject to adjustment as provided in PARAGRAPH 4 hereof.
This Warrant is subject to the terms of a Common Stock and Warrant
Purchase Agreement dated as of August 4, 1997 (the "Purchase Agreement") between
the Company and Belleview 1992 Income Fund, L.P., and to the following terms,
provisions, and conditions:
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR Shares.
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part by the surrender of this Warrant, together with a
completed Exercise Agreement in the form attached hereto, to the Company during
normal business hours on any business day at the Company's principal office in
Houston, Texas (or such other office or agency of the Company as it may
designate by notice to the holder hereof), and upon payment to the Company in
cash or by certified or official bank check of the Exercise Price for the
Warrant Shares specified in said Exercise Agreement. The Warrant Shares so
purchased shall be deemed to be issued to the holder hereof or its designee as
the record owner of such shares as of the close of business on the date on which
this Warrant shall have been surrendered, the completed Exercise Agreement
delivered, and payment made for such shares as aforesaid. Certificates for the
Warrant Shares so purchased, representing the aggregate number of shares
specified in said Exercise Agreement, shall be delivered to the holder hereof
within a reasonable time, not exceeding seven business days, after this Warrant
shall have been so exercised. The certificates so delivered shall be in such
denominations as may be requested by the holder hereof and shall be registered
in the name of said holder or such other name as shall be designated by said
holder. If this Warrant shall have been exercised only in part, then, unless
this Warrant has expired, the Company shall, at its expense, at the time of
delivery of said certificates, deliver to said holder a new Warrant representing
the number of shares with respect to which this Warrant shall not then have been
exercised. The Company shall pay all taxes and other expenses and charges
payable in connection with the preparation, execution, and delivery of stock
certificates (and any new Warrants) pursuant to this PARAGRAPH 1 except that, in
case such stock certificates shall be registered in a name or names other than
the holder of this Warrant, funds sufficient to pay all stock transfer taxes
which shall be payable in connection with the execution and delivery of such
stock certificates shall be paid by the holder hereof to the Company at the time
of the delivery of such stock certificates by the Company as mentioned above.
2. PERIOD OF EXERCISE. This Warrant is exercisable at any time or from
time to time after August 4, 1997, and before 5:00 p.m., local time on August 4,
2002.
3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants and
agrees as follows:
(a) SHARES TO BE FULLY PAID. All Warrant Shares will, upon issuance, be
validly issued, fully paid, and nonassessable and free from all taxes, liens,
and charges with respect to the issue thereof.
(b) RESERVATION OF SHARES. During the period within which this Warrant may
be exercised, the Company will at all times have authorized, and reserved for
the purpose of issue upon exercise of this Warrant, (i) a sufficient number of
shares of Class A Common to provide for the exercise of this Warrant.
(c) CERTAIN ACTIONS PROHIBITED. The Company will not, by amendment of its
charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. Without limiting the generality of the foregoing, (i) the Company
will not increase the par value of the shares of Class A Common receivable upon
the exercise of this Warrant above the Exercise Price then in effect, and (ii)
before taking any action which would cause an adjustment reducing the Exercise
Price below the then par value of the shares of Class A Common so receivable,
the Company will take all such corporate action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Class A Common at such adjusted Exercise Price upon
the exercise of this Warrant.
(d) REGISTRATION. If the issuance of any Warrant Shares required to be
reserved for purposes of exercise of this Warrant requires registration with or
approval of any governmental authority under any federal or state law (other
than any registration under the Securities Act of 1933, as amended, or under
applicable state securities or blue sky laws) or listing on any national
securities exchange, before such shares may be issued upon exercise of this
Warrant, the Company will, at its expense, use its best efforts to cause such
shares to be duly registered or approved, or listed on the relevant national
securities exchange, as the case may be, at such time, so that such shares may
be issued in accordance with the terms hereof.
4. ANTIDILUTION PROVISIONS. The Exercise Price shall be subject to
adjustment from time to time as provided in this PARAGRAPH 4. Upon each
adjustment of the Exercise Price, the holder of this Warrant shall thereafter be
entitled to purchase, at the Exercise Price resulting from such adjustment, the
largest number of Warrant Shares obtained by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Shares
purchasable hereunder immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment. For
purposes of this PARAGRAPH 4, the term "Capital Stock", as used herein, includes
the Class A Common Stock of the Company, and any additional class of stock of
the Company having no preference as to dividends or distributions on liquidation
which may be authorized in the future, provided that the shares purchasable
pursuant to this Warrant shall include only shares of Class A Common, or shares
resulting from any subdivision or combination of the Class A Common, or in the
case of any reorganization, reclassification, consolidation, merger, or sale of
the character referred to in PARAGRAPH 4(G) hereof, the stock or other
securities or property provided for in said Paragraph. For purposes of this
PARAGRAPH 4, the term "Net Asset Value" shall mean, at a point in time, an
amount determined by dividing X by Y, where "X" is (i) the total assets of the
Company and its subsidiaries which would be shown as assets on a consolidated
balance sheet of the Company and its subsidiaries as of such time prepared in
accordance with generally accepted accounting principles (exclusive, however, of
oil and gas properties), PLUS (ii) the "Calculated Market Value" (as defined
below) of such oil and gas properties, MINUS (iii) the total liabilities of the
Company and its subsidiaries which would be shown as liabilities on a
consolidated balance sheet of the Company and its subsidiaries as of such time
prepared in accordance with generally accepted accounting principles, and where
"Y" is the total number of shares of Capital Stock outstanding as of such time.
In computing Net Asset Value, the "Calculated Market Value" of oil and gas
properties of the Company and its consolidated subsidiaries shall be the value
determined in accordance with ss. 210.4-10 of Regulation S-X, aS promulgated by
the Securities and Exchange Commission, with the following adjustments to
certain parameters: (i) applicable future prices for commodities shall be
determined as follows: (A) for crude oil the beginning price shall be calculated
using the average of one full calendar year forward prices, and (B) for natural
gas the beginning price shall be calculated using the average of the first
twelve month forward prices, each as reported on the New York Mercantile
Exchange; PROVIDED, that such prices shall be adjusted for product quality and
for basis differentials resulting from product location, as determined by the
holder of this Warrant by obtaining market quotes from at least two mutually
agreeable major independent third party dealers for each pipeline or point of
delivery; PROVIDED, FURTHER, that such prices shall escalate at 3% per annum
thereafter; (ii) beginning lease operating expenses, as determined by ss.
210.4-10 of Regulation S-X, shalL escalate at 3% per annum thereafter; (iii) the
resulting cashflow stream, as determined by ss. 210.4-10 of Regulation S-X,
after giving effect to thE adjustments to commodity price and lease operating
expense assumptions, shall be discounted for a present value at a 15% discount
rate; and (iv) that in making such computation, only the following categories
(and portions of such categories) of reserves shall be utilized: 100% of proved
developed producing reserves; 80% of proved developed non-producing reserves;
and 40% of proved undeveloped reserves. The foregoing discount rate and
percentages of reserves categories shall also apply to the Company's (or its
subsidiary's) direct 10% interest in the reserves owned by the CALP (as defined
in the Purchase Agreement) as provided in the CALP Agreement (as defined in the
Purchase Agreement), provided however, that if, when and to the extent that the
Company (or its subsidiary) earns additional interest in the CALP, then and to
the extent of such additional interest, all reserves categories shall be risked
at 80%.
(a) ISSUANCE OF CAPITAL STOCK. Other than securities issued (x) pursuant
to stock option plans authorized by the Board of Directors of the Company at a
meeting of such Board held on May 28, 1997 (provided that either the exercise
price of such options is at least $3.50 per share or that the option may not be
exercised during the twelve months following the Closing), or (y) pursuant to
the private offering which was authorized by the Board of Directors of the
Company pursuant to resolutions dated February 13, 1997 (provided such sale of
securities is closed and funded no later than July 31, 1997), if and whenever
the Company shall issue or sell any shares of Capital Stock without
consideration or for a consideration per share less than the Exercise Price in
effect immediately prior to the time of such issue or sale, and/or the Company
shall issue or sell any shares of its Capital Stock for a consideration per
share less than the Net Asset Value on the date of such issue or sale, then,
forthwith upon such issue or sale, the Exercise Price shall be reduced to a
price (calculated to the nearest cent) determined as provided in PARAGRAPH (I)
below (in the case of a consideration per share less than the Exercise Price),
or the price (calculated to the nearest cent) determined as provided by
PARAGRAPH (II) below (in the case of a consideration per share less than the Net
Asset Value), or the lower of the prices (calculated to the nearest cent)
determined as provided in PARAGRAPHS (I) and (II) below (in the case of a
consideration per share which is less than both the Exercise Price and the Net
Asset Value):
(i) by dividing X by Y, where "X" is an amount equal to the sum
of (A) the total number of shares of Capital Stock outstanding immediately
prior to such issue or sale multiplied by the then existing Exercise
Price, and (B) the consideration, if any, received by the Company upon
such issue or sale, and where "Y" is the total number of shares of Capital
Stock outstanding immediately after such issue or sale; and
(ii) by multiplying the Exercise Price in effect immediately prior
to the time of such issue or sale by X/Y, where "X" is an amount equal to
the sum of (A) the number of shares of Capital Stock outstanding
immediately prior to such issue or sale multiplied by the Net Asset Value
immediately prior to such issue or sale and (B) the consideration received
by the Company upon such issue or sale, and where "Y" is equal to the
product of (A) the total number of shares of Capital Stock outstanding
immediately after such issue or sale and (B) the Net Asset Value
immediately prior to such issue or sale.
(b) TREATMENT CONVERTIBLE SECURITIES; COMPUTATION OF CONSIDERATION. For
purposes of PARAGRAPH 4(A) hereof, the following provisions shall also be
applicable:
(i) In case the Company shall grant any rights to subscribe for
or purchase for the purchase of, Capital Stock or securities convertible
into or exchangeable for Capital Stock (such convertible or exchangeable
securities being herein called "Convertible Securities"), whether or not
such Convertible Securities are immediately exercisable, and the price per
share for which Capital Stock is issuable upon exchange of such
Convertible Securities (as determined in accordance with the following
sentence) shall be less than the greater of (A) the Exercise Price in
effect immediately prior to the time of issuance of such Convertible
Securities and (B) the Net Asset Value, determined as of the date of
issuance of such Convertible Securities, then the total maximum number of
shares of Capital Stock issuable upon the exchange of such Convertible
Securities shall (as of the date issuance of such Convertible Securities)
be deemed to be outstanding and to have been issued and sold for such
price per share. The price per share for which the Capital Stock is
issuable, as provided in the preceding sentence, shall be determined by
dividing (x) the total amount, if any, received or receivable by the
Company as consideration for the issuance of such Convertible Securities,
plus the minimum aggregate amount, if any, of additional consideration
payable to the Company upon the conversion or exchange of such Convertible
Securities by (y) the total maximum number of shares of Capital Stock
issuable upon the conversion or exchange of all such Convertible
Securities. Except as provided in PARAGRAPH 4(B)(VI) hereof, no further
adjustments of the Exercise Price shall be made upon the actual issue of
such Capital or upon the actual issue of such Capital Stock upon the
conversion or exchange of such Convertible Securities.
(ii) In case at any time the Company shall pay a dividend or make
any other distribution upon the Capital Stock payable in Capital Stock,
Options or Convertible Securities, any Capital Stock, Options or
Convertible Securities, as the case may be, issuable in payment of such
dividend or distribution shall be deemed to have been issued without
consideration.
(iii) In case at any time any Capital Stock, Convertible
Securities, or Options shall be issued or sold for cash, the consideration
received therefor shall be deemed to be the amount received by the Company
therefor, without deduction therefrom of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Company in
connection therewith. In case any Capital Stock, Convertible Securities,
or Options shall be issued or sold for a consideration other than cash,
the amount of the consideration other than cash received by the Company
therefor shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the Company, except
where such consideration consists of securities, in which case the amount
of consideration received by the Company shall be the market price thereof
(determined as provided in PARAGRAPH 4(E) hereof) as of the date of
receipt, but in each such case without deduction therefrom of any expenses
incurred or any underwriting commissions or concessions paid or allowed by
the Company in connection therewith. In computing the market price of a
note or other obligation that is not listed or admitted to trading on any
securities exchange or quoted in the National Association of Securities
Dealers, Inc. Automated Quotation System or reported by the National
Quotation Bureau, Inc. or a similar reporting organization, the total
consideration to be received by the Company thereunder (including
interest) shall be discounted to present value at the prime rate of
interest of NationsBank of Texas, N.A., in effect at the time the note or
obligation is deemed to have been issued. In case any Capital Stock or
Convertible Securities shall be issued in connection with any merger of
another corporation into the Company, the amount of consideration therefor
shall be deemed to be the fair value as determined in good faith by the
Board of Directors of the Company of such portion of the assets of such
merged corporation as the Board shall determine to be attributable to such
Capital Stock or Convertible Securities.
(iiii) In case at any time the Company shall take a record of the
holders of Capital Stock for the purpose of entitling them (A) to receive
a dividend or other distribution payable in Capital Stock or Convertible
Securities, or (B) to subscribe for or purchase Capital Stock, or
Convertible Securities, then such record date shall be deemed to be the
date of the issue or sale of such Capital Stock or Convertible Securities.
(v) If the price at which any Convertible Securities referred to
in PARAGRAPH 4(B)(I) hereof are convertible into or exchangeable for
Capital Stock, shall change at any time (whether by reason of provisions
designed to protect against dilution or otherwise), the Exercise Price
then in effect hereunder shall forthwith be increased or decreased to such
Exercise Price as would have obtained had the adjustments made upon the
issuance of Convertible Securities been made upon the basis of (A) the
issuance of the number of shares of Capital Stock theretofore actually
delivered upon the conversion or exchange of such Convertible Securities,
and the total consideration received therefor, and (B) the number of
shares of Capital Stock to be issued for the consideration, if any,
received by the Company therefor and to be received on the basis of such
changed price.
(iv) If any adjustment has been made in the Exercise Price because
of the issuance Convertible Securities and if any of such rights to
convert or exchange such Convertible Securities expire or otherwise
terminate, then the Exercise Price shall be readjusted to eliminate the
adjustments previously made in connection with the rights to convert or
exchange Convertible Securities which have expired or terminated.
(v) The number of shares of Capital Stock outstanding at any
given time shall not include shares owned or held by or for the account of
the Company, and the disposition of any such shares shall be considered an
issue or sale of Capital Stock.
(c) SUBDIVISIONS AND COMBINATIONS. In case at any time the Company shall
subdivide the outstanding shares of Capital Stock into a greater number of
shares, the Exercise Price in effect immediately prior to such subdivision shall
be proportionately reduced, and conversely, in case the outstanding shares of
Capital Stock shall be combined into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination shall be proportionately
increased. An adjustment made pursuant to this PARAGRAPH 4(c) shall become
effective immediately after the effective date of such subdivision or
combination.
(d) EXTRAORDINARY DIVIDENDS AND DISTRIBUTIONS. In case at any time the
Company shall pay a dividend or make a distribution to all holders of Capital
Stock, as such, of shares of its stock, evidences of its indebtedness, assets,
or rights, options, or warrants to subscribe for or purchase such shares,
evidences of indebtedness, or assets, other than (i) a dividend or distribution
payable in Capital Stock, Convertible Securities or (ii) a dividend or
distribution payable in cash out of earnings or earned surplus, then in each
such case the Exercise Price shall be adjusted so that the same shall equal the
price determined by multiplying the Exercise Price in effect immediately prior
to the record date mentioned below by a fraction, the numerator of which shall
be the total number of shares of Capital Stock outstanding on such record date
multiplied by the market price per share of Capital Stock (determined as
provided in PARAGRAPH 4(E) hereof) on such record date, less the fair market
value (as determined in good faith by the Board of Directors of the Company) as
of such record date of such shares of stock, evidences of indebtedness, assets,
or rights, options, or warrants so paid or distributed, and the denominator of
which shall be the total number of shares of Capital Stock outstanding on such
record date multiplied by the market price per share of Capital Stock
(determined as provided in PARAGRAPH 4(E) hereof) on such record date. Such
adjustment shall be made whenever such dividend is paid or such distribution is
made and shall become effective immediately after the record date for the
determination of shareholders entitled to receive such dividend or distribution.
(e) COMPUTATION OF MARKET PRICE. For the purpose of any computation under
PARAGRAPHS 4(B), 4(D) OR 5 hereof, the market price of the security in question
on any day shall be deemed to be the average of the last reported sale prices
for the security for the twenty (20) consecutive Trading Days (as defined below)
commencing thirty (30) Trading Days before the day in question. The last
reported sale price for each day shall be (i) the last reported sale price of
the security on the National Market of the National Association of Securities
Dealers, Inc. Automated Quotation System, or any similar system of automated
dissemination of quotations of securities prices then in common use, if so
quoted, or (ii) if not quoted as described in CLAUSE (I) above, the mean between
the high bid and low asked quotations for the security as reported by the
National Quotation Bureau, Inc. if at least two securities dealers have inserted
both bid and asked quotations for such security on at least ten (10) of such
twenty (20) consecutive Trading Days, or (iii) if the security is listed or
admitted for trading on any national securities exchange, the last sale price,
or the closing bid price if no sale occurred, of such class of security on the
principal securities exchange on which such class of security is listed or
admitted to trading. If the security is quoted on a national securities or
central market system, in lieu of a market or quotation system described above,
the last reported sale price shall be determined in the manner set forth in
CLAUSE (II) of the preceding sentence if bid and asked quotations are reported
but actual transactions are not, and in the manner set forth in CLAUSE (III) of
the preceding sentence if actual transactions are reported. If none of the
conditions set forth above is met, the last reported sale price of the security
on any day or the average of such last reported sale prices for any period shall
be the fair market value of such security as determined by a member firm of the
New York Stock Exchange, Inc. selected by the Company. The term "Trading Days",
as used herein, means (i) if the security is quoted on the National Market of
the National Association of Security Dealers, Inc. Automated Quotation System,
or any similar system of automated dissemination of quotations of securities
prices, days on which trades may be made on such system or (ii) if the security
is listed or admitted for trading on any national securities exchange, days on
which such national securities exchange is open for business.
(f) RECORD DATE ADJUSTMENTS. In any case in which this PARAGRAPH 4
requires that a downward adjustment of the Exercise Price shall become effective
immediately after a record date for an event, the Company may defer until the
occurrence of such event issuing to the holder of this Warrant exercised after
such record date and before the occurrence of such event the additional Warrant
Shares issuable upon such exercise by reason of the adjustment required by such
event over and above the Warrant Shares issuable upon such exercise before
giving effect to such adjustment.
(g) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER, OR Sale. If
any capital reorganization of the Company, or any reclassification of the
Capital Stock, or any consolidation or merger of the Company with or into
another corporation or entity, or any sale of all or substantially all the
assets of the Company to another corporation or entity, shall be effected in
such a way that the holders of Class A Common (or any other securities of the
Company then issuable upon the exercise of this Warrant) shall be entitled to
receive stock or other securities or property (including cash) with respect to
or in exchange for Class A Common (or such other securities), then, as a
condition of such reorganization, reclassification, consolidation, merger, or
sale, lawful and adequate provision shall be made whereby the holder of this
Warrant shall thereafter have the right to purchase and receive upon the basis
and upon the terms and conditions specified in this Warrant, and in lieu of the
shares of Class A Common (or such other securities) immediately theretofore
purchasable and receivable upon the exercise hereof, such stock or other
securities or property (including cash) as may be issuable or payable with
respect to or in exchange for a number of outstanding shares of Class A Common
(or such other securities) equal to the number of shares of Class A Common (or
such other securities) immediately theretofore purchasable and receivable upon
the exercise of this Warrant, had such reorganization, reclassification,
consolidation, merger, or sale not taken place. In any such case appropriate
provision shall be made with respect to the rights and interests of the holder
of this Warrant to the end that the provisions hereof (including, without
limitation, the provisions for adjustments of the Exercise Price and of the
number of Warrant Shares purchasable upon exercise hereof) shall thereafter be
applicable, as nearly as reasonably may be, in relation to the stock or other
securities or property thereafter deliverable upon the exercise hereof
(including an immediate adjustment of the Exercise Price if by reason of or in
connection with such consolidation, merger, or sale any securities are issued or
event occurs which would, under the terms hereof, require an adjustment of the
Exercise Price). In the event of a consolidation or merger of the Company with
or into another corporation or entity as a result of which a greater or lesser
number of shares of common stock of the surviving corporation or entity are
issuable to holders of Capital Stock in respect of the number of shares of
Capital Stock outstanding immediately prior to such consolidation or merger,
then the Exercise Price in effect immediately prior to such consolidation or
merger shall be adjusted in the same manner as though there were a subdivision
or combination of the outstanding shares of Capital Stock. The Company shall not
effect any such consolidation, merger, or sale unless prior to or simultaneously
with the consummation thereof the successor corporation or entity (if other than
the Company) resulting from such consolidation or merger or the corporation or
entity purchasing such assets and any other corporation or entity the shares of
stock or other securities or property of which are receivable thereupon by the
holder of this Warrant shall expressly assume, by written instrument executed
and delivered (and satisfactory in form) to the holder of this Warrant, (i) the
obligation to deliver to such holder such stock or other securities or property
as, in accordance with the foregoing provisions, such holder may be entitled to
purchase and (ii) all other obligations of the Company hereunder.
(h) NO FRACTIONAL SHARES. No fractional shares of Class A Common are to be
issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the current market value of a share
of Class A Common, which current market value shall be the last reported sale
price (determined as provided in PARAGRAPH 4(E) hereof) on the Trading Day
immediately preceding the date of the exercise.
(i) NOTICE OF ADJUSTMENT. Upon the occurrence of any event which requires
any adjustment of the Exercise Price, then and in each such case the Company
shall give notice thereof to the holder of this Warrant, which notice shall
state the Exercise Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
(j) OTHER NOTICES. In case at any time:
(i) the Company shall declare any dividend upon the Capital Stock
payable in shares of stock of any class or make any other distribution
(other than dividends or distributions payable in cash out of earnings or
earned surplus) to the holders of the Capital Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Capital Stock any additional shares of stock of any class
or other rights;
(iii) there shall be any capital reorganization of the Company, or
reclassification of the Capital Stock, or consolidation or merger of the
Company with or into, or sale of all or substantially all its assets to,
another corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation, or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(A) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Capital Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Capital Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up and (B) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Capital Stock shall be entitled to receive such
dividend, distribution, or subscription rights or to exchange their Capital
Stock for stock or other securities or property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding-up, as the case may be. Such notice shall be given at
least 20 days prior to the record date or the date on which the Company's books
are closed in respect thereto. Failure to give any such notice or any defect
therein shall not affect the validity of the proceeding referred to in CLAUSES
(I), (II), (III), and (IV) above.
(k) CERTAIN EVENTS. If any event occurs as to which, in the good faith
judgment of the Board of Directors of the Company, the other provisions of this
PARAGRAPH 4 are not strictly applicable or if strictly applicable would not
fairly protect the exercise rights of the holder of this Warrant in accordance
with the essential intent and principles of such provisions, then the Board of
Directors of the Company shall appoint the Company's regular independent
auditors or another firm of independent public accountants of recognized
national standing who are satisfactory to the holder of this Warrant which shall
give their opinion upon the adjustment, if any, on a basis consistent with such
essential intent and principles, necessary to preserve, without dilution, the
rights of the holder of this Warrant. Upon receipt of such opinion, the Board of
Directors of the Company shall forthwith make the adjustments described therein;
provided that no such adjustment shall have the effect of increasing the
Exercise Price as otherwise determined pursuant to this PARAGRAPH 4. The Company
may make such reductions in the Exercise Price or increase in the number of
shares of Class A Common purchasable hereunder as it deems advisable, including
any reductions or increases, as the case may be, necessary to ensure that any
event treated for federal income tax purposes as a distribution of stock rights
not be taxable to recipients.
5. MANDATORY EXERCISE. Notwithstanding anything herein to the contrary
herein, this Warrant must be exercised in full, and shall be deemed to be
exercised in full without any notice from the holder of this Warrant, if and
when the Class A Common Stock is publicly traded and the market price, as
computed pursuant to PARAGRAPH 4(E) hereof equal to or greater than $6.00 per
share. The foregoing price of $6.00 per share shall be subject to the same
adjustments as provided for herein for the Exercise Price and shall be adjusted
in proportion to the Exercise Price whenever the Exercise Price is adjusted.
6. ISSUE TAX. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax in respect thereof, provided that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than the holder of this Warrant.
7. AVAILABILITY OF INFORMATION. The Company will cooperate with the holder
of this Warrant and each holder of any Warrant Shares in supplying such
information as may be necessary for such holder to complete and file any
information reporting forms presently or hereafter required by the Securities
and Exchange Commission as a condition to the availability of an exemption from
the Securities Act of 1933, as amended, for the sale of this Warrant or any
Warrant Shares. Nothing in this Section 6 obligates the Company to register any
Warrant Shares or other securities under federal or state securities laws or
incur any other unreasonable expense. The Company will deliver to the holder of
this Warrant, promptly upon their becoming available, copies of all financial
statements, reports, notices, and proxy statements sent or made available
generally by the Company to its shareholders, and copies of all regular and
periodic reports and all registration statements and prospectuses filed by the
Company with any securities exchange or with the Securities and Exchange
Commission.
8. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
9. TRANSFER, EXCHANGE, AND REPLACEMENT OF WARRANT.
(a) WARRANT TRANSFERABLE. The transfer of this Warrant and all rights
hereunder, in whole or in part, is registrable at the office or agency of the
Company referred to in PARAGRAPH 9(E) hereof by the holder hereof in person or
by his duly authorized attorney, upon surrender of this Warrant properly
endorsed. Each taker and holder of this Warrant, by taking or holding the same,
consents and agrees that this Warrant, when endorsed in blank, shall be deemed
negotiable, and that the holder hereof, when this Warrant shall have been so
endorsed, may be treated by the Company and all other persons dealing with this
Warrant as the absolute owner and holder hereof for any purpose and as the
person entitled to exercise the rights represented by this Warrant and to the
registration of transfer hereof on the books of the Company; but until due
presentment for registration of transfer on such books the Company may treat the
registered holder hereof as the owner and holder hereof for all purposes, and
the Company shall not be affected by any notice to the contrary.
(b) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This Warrant is
exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in PARAGRAPH 9(E) hereof, for new Warrants of
like tenor representing in the aggregate the right to purchase the number of
shares of Class A Common which may be purchased hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by said holder hereof at the time of such surrender.
(c) REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
(d) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of this Warrant
in connection with any transfer, exchange, or replacement as provided in this
PARAGRAPH 9, this Warrant shall be promptly canceled by the Company. The Company
shall pay all taxes (other than securities transfer taxes) and all other
expenses and charges payable in connection with the preparation, execution, and
delivery of Warrants pursuant to this PARAGRAPH 9.
(e) REGISTER. The Company shall maintain, at its principal office in
Houston, Texas, (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
(f) EXERCISE OR TRANSFER WITHOUT REGISTRATION. Anything in this Warrant to
the contrary notwithstanding, if, at the time of the surrender of this Warrant
in connection with any exercise, transfer, or exchange of this Warrant, this
Warrant shall not be registered under the Securities Act of 1933, as amended,
and under applicable state securities or blue sky laws, the Company may require,
as a condition of allowing such exercise, transfer, or exchange, that (i) the
holder or transferee of this Warrant, as the case may be, furnish to the Company
a written opinion of counsel, which opinion and counsel are acceptable to the
Company, to the effect that such exercise, transfer, or exchange may be made
without registration under said Act and under applicable state securities or
blue sky laws and (ii) the holder or transferee execute and deliver to the
Company an investment letter in form and substance acceptable to the Company.
The first holder of this Warrant, by taking and holding the same, represents to
the Company that such holder is acquiring this Warrant for investment and not
with a view to the distribution thereof.
10. NOTICES. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the holder of this Warrant or to
the holder of shares acquired upon exercise of this Warrant shall be in writing,
and shall be personally delivered, or shall be sent by certified or registered
mail, postage prepaid and addressed, to such holder at the address shown for
such holder on the books of the Company, or at such other address as shall have
been furnished to the Company by notice from such holder. All notices, requests,
and other communications required or permitted to be given or delivered
hereunder to the Company shall be in writing, and shall be personally delivered,
or shall be sent by certified or registered mail, postage prepaid and addressed,
to the office of the Company at 110 Cypress Station Drive, Suite 220, Houston,
Texas 77090, Attention: President, or at such other address as shall have been
furnished to the holder of this Warrant or to the holder of shares acquired upon
exercise of this Warrant by notice from the Company. Any such notice, request,
or other communication may be sent by telegram or telex, but shall in such case
be subsequently confirmed by a writing personally delivered or sent by certified
or registered mail as provided above. All notices, requests, and other
communications shall be deemed to have been given either at the time of the
delivery thereof to (or the receipt by, in the case of a telegram or telex) the
person entitled to receive such notice at the address of such person for
purposes of this PARAGRAPH 10, or, if mailed, at the completion of the third
full day following the time of such mailing thereof to such address, as the case
may be.
2. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
3. MISCELLANEOUS.
(a) AMENDMENTS. This Warrant and any provision hereof may not be changed,
waived, discharged, or terminated orally, but only by an instrument in writing
signed by the party (or any predecessor in interest thereof) against which
enforcement of the same is sought.
(b) DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof.
(c) SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon any entity
succeeding to the Company by merger, consolidation, or acquisition of all or
substantially all the Company's assets.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer under its corporate seal, on this fourth day of
August, 1997.
CLIFFWOOD OIL & GAS CORP.
By: /S/ FRANK A. LODZINSKI
Name: Frank A. Lodzinski
Title: President
[CORPORATE SEAL]
EXHIBIT 10.22
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES
OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD,
ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER SAID ACT AND UNDER APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR
EXEMPTIONS FROM SUCH REGISTRATION. THIS WARRANT MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT UPON THE CONDITIONS SPECIFIED IN
THIS WARRANT, AND NO SALE, ASSIGNMENT, TRANSFER, OR OTHER DISPOSITION OF THIS
WARRANT SHALL BE VALUED OR EFFECTIVE UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE
BEEN COMPLIED WITH.
No. -006- Right to Purchase 261,250 Shares
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, The Lincoln National Life
Insurance Company, or registered assigns, is entitled to purchase from Cliffwood
Oil & Gas Corp., a Texas corporation (the "Company"), at any time or from time
to time during the period specified in PARAGRAPH 2 hereof, Two hundred sixty one
thousand two hundred fifty (261,250) fully paid and nonassessable shares of the
Company's Class A Common Stock, par value $0.01 per share (the "Class A
Common"), at a price per share of $4.25 (the "Exercise Price"). The term
"Warrant Shares", as used herein, refers to the shares of Class A Common
purchasable hereunder. The Warrant Shares and the Exercise Price are subject to
adjustment as provided in PARAGRAPH 4 hereof.
This Warrant is subject to the terms of a Common Stock and Warrant
Purchase Agreement dated as of August 4, 1997 (the "Purchase Agreement") between
the Company and Belleview 1992 Income Fund, L.P., and to the following terms,
provisions, and conditions:
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR Shares.
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part by the surrender of this Warrant, together with a
completed Exercise Agreement in the form attached hereto, to the Company during
normal business hours on any business day at the Company's principal office in
Houston, Texas (or such other office or agency of the Company as it may
designate by notice to the holder hereof), and upon payment to the Company in
cash or by certified or official bank check of the Exercise Price for the
Warrant Shares specified in said Exercise Agreement. The Warrant Shares so
purchased shall be deemed to be issued to the holder hereof or its designee as
the record owner of such shares as of the close of business on the date on which
this Warrant shall have been surrendered, the completed Exercise Agreement
delivered, and payment made for such shares as aforesaid. Certificates for the
Warrant Shares so purchased, representing the aggregate number of shares
specified in said Exercise Agreement, shall be delivered to the holder hereof
within a reasonable time, not exceeding seven business days, after this Warrant
shall have been so exercised. The certificates so delivered shall be in such
denominations as may be requested by the holder hereof and shall be registered
in the name of said holder or such other name as shall be designated by said
holder. If this Warrant shall have been exercised only in part, then, unless
this Warrant has expired, the Company shall, at its expense, at the time of
delivery of said certificates, deliver to said holder a new Warrant representing
the number of shares with respect to which this Warrant shall not then have been
exercised. The Company shall pay all taxes and other expenses and charges
payable in connection with the preparation, execution, and delivery of stock
certificates (and any new Warrants) pursuant to this PARAGRAPH 1 except that, in
case such stock certificates shall be registered in a name or names other than
the holder of this Warrant, funds sufficient to pay all stock transfer taxes
which shall be payable in connection with the execution and delivery of such
stock certificates shall be paid by the holder hereof to the Company at the time
of the delivery of such stock certificates by the Company as mentioned above.
2. PERIOD OF EXERCISE. This Warrant is exercisable at any time or from
time to time after August 4, 1997, and before 5:00 p.m., local time on August 4,
2002.
3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants and
agrees as follows:
(a) SHARES TO BE FULLY PAID. All Warrant Shares will, upon issuance, be
validly issued, fully paid, and nonassessable and free from all taxes, liens,
and charges with respect to the issue thereof.
(b) RESERVATION OF SHARES. During the period within which this Warrant may
be exercised, the Company will at all times have authorized, and reserved for
the purpose of issue upon exercise of this Warrant, (i) a sufficient number of
shares of Class A Common to provide for the exercise of this Warrant.
(c) CERTAIN ACTIONS PROHIBITED. The Company will not, by amendment of its
charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. Without limiting the generality of the foregoing, (i) the Company
will not increase the par value of the shares of Class A Common receivable upon
the exercise of this Warrant above the Exercise Price then in effect, and (ii)
before taking any action which would cause an adjustment reducing the Exercise
Price below the then par value of the shares of Class A Common so receivable,
the Company will take all such corporate action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Class A Common at such adjusted Exercise Price upon
the exercise of this Warrant.
(d) REGISTRATION. If the issuance of any Warrant Shares required to be
reserved for purposes of exercise of this Warrant requires registration with or
approval of any governmental authority under any federal or state law (other
than any registration under the Securities Act of 1933, as amended, or under
applicable state securities or blue sky laws) or listing on any national
securities exchange, before such shares may be issued upon exercise of this
Warrant, the Company will, at its expense, use its best efforts to cause such
shares to be duly registered or approved, or listed on the relevant national
securities exchange, as the case may be, at such time, so that such shares may
be issued in accordance with the terms hereof.
4. ANTIDILUTION PROVISIONS. The Exercise Price shall be subject to
adjustment from time to time as provided in this PARAGRAPH 4. Upon each
adjustment of the Exercise Price, the holder of this Warrant shall thereafter be
entitled to purchase, at the Exercise Price resulting from such adjustment, the
largest number of Warrant Shares obtained by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Shares
purchasable hereunder immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment. For
purposes of this PARAGRAPH 4, the term "Capital Stock", as used herein, includes
the Class A Common Stock of the Company, and any additional class of stock of
the Company having no preference as to dividends or distributions on liquidation
which may be authorized in the future, provided that the shares purchasable
pursuant to this Warrant shall include only shares of Class A Common, or shares
resulting from any subdivision or combination of the Class A Common, or in the
case of any reorganization, reclassification, consolidation, merger, or sale of
the character referred to in PARAGRAPH 4(G) hereof, the stock or other
securities or property provided for in said Paragraph. For purposes of this
PARAGRAPH 4, the term "Net Asset Value" shall mean, at a point in time, an
amount determined by dividing X by Y, where "X" is (i) the total assets of the
Company and its subsidiaries which would be shown as assets on a consolidated
balance sheet of the Company and its subsidiaries as of such time prepared in
accordance with generally accepted accounting principles (exclusive, however, of
oil and gas properties), PLUS (ii) the "Calculated Market Value" (as defined
below) of such oil and gas properties, MINUS (iii) the total liabilities of the
Company and its subsidiaries which would be shown as liabilities on a
consolidated balance sheet of the Company and its subsidiaries as of such time
prepared in accordance with generally accepted accounting principles, and where
"Y" is the total number of shares of Capital Stock outstanding as of such time.
In computing Net Asset Value, the "Calculated Market Value" of oil and gas
properties of the Company and its consolidated subsidiaries shall be the value
determined in accordance with ss. 210.4-10 of Regulation S-X, aS promulgated by
the Securities and Exchange Commission, with the following adjustments to
certain parameters: (i) applicable future prices for commodities shall be
determined as follows: (A) for crude oil the beginning price shall be calculated
using the average of one full calendar year forward prices, and (B) for natural
gas the beginning price shall be calculated using the average of the first
twelve month forward prices, each as reported on the New York Mercantile
Exchange; PROVIDED, that such prices shall be adjusted for product quality and
for basis differentials resulting from product location, as determined by the
holder of this Warrant by obtaining market quotes from at least two mutually
agreeable major independent third party dealers for each pipeline or point of
delivery; PROVIDED, FURTHER, that such prices shall escalate at 3% per annum
thereafter; (ii) beginning lease operating expenses, as determined by ss.
210.4-10 of Regulation S-X, shalL escalate at 3% per annum thereafter; (iii) the
resulting cashflow stream, as determined by ss. 210.4-10 of Regulation S-X,
after giving effect to thE adjustments to commodity price and lease operating
expense assumptions, shall be discounted for a present value at a 15% discount
rate; and (iv) that in making such computation, only the following categories
(and portions of such categories) of reserves shall be utilized: 100% of proved
developed producing reserves; 80% of proved developed non-producing reserves;
and 40% of proved undeveloped reserves. The foregoing discount rate and
percentages of reserves categories shall also apply to the Company's (or its
subsidiary's) direct 10% interest in the reserves owned by the CALP (as defined
in the Purchase Agreement) as provided in the CALP Agreement (as defined in the
Purchase Agreement), provided however, that if, when and to the extent that the
Company (or its subsidiary) earns additional interest in the CALP, then and to
the extent of such additional interest, all reserves categories shall be risked
at 80%.
(a) ISSUANCE OF CAPITAL STOCK. Other than securities issued (x) pursuant
to stock option plans authorized by the Board of Directors of the Company at a
meeting of such Board held on May 28, 1997 (provided that either the exercise
price of such options is at least $3.50 per share or that the option may not be
exercised during the twelve months following the Closing), or (y) pursuant to
the private offering which was authorized by the Board of Directors of the
Company pursuant to resolutions dated February 13, 1997 (provided such sale of
securities is closed and funded no later than July 31, 1997), if and whenever
the Company shall issue or sell any shares of Capital Stock without
consideration or for a consideration per share less than the Exercise Price in
effect immediately prior to the time of such issue or sale, and/or the Company
shall issue or sell any shares of its Capital Stock for a consideration per
share less than the Net Asset Value on the date of such issue or sale, then,
forthwith upon such issue or sale, the Exercise Price shall be reduced to a
price (calculated to the nearest cent) determined as provided in PARAGRAPH (I)
below (in the case of a consideration per share less than the Exercise Price),
or the price (calculated to the nearest cent) determined as provided by
PARAGRAPH (II) below (in the case of a consideration per share less than the Net
Asset Value), or the lower of the prices (calculated to the nearest cent)
determined as provided in PARAGRAPHS (I) and (II) below (in the case of a
consideration per share which is less than both the Exercise Price and the Net
Asset Value):
(i) by dividing X by Y, where "X" is an amount equal to the sum
of (A) the total number of shares of Capital Stock outstanding immediately
prior to such issue or sale multiplied by the then existing Exercise
Price, and (B) the consideration, if any, received by the Company upon
such issue or sale, and where "Y" is the total number of shares of Capital
Stock outstanding immediately after such issue or sale; and
(ii) by multiplying the Exercise Price in effect immediately prior
to the time of such issue or sale by X/Y, where "X" is an amount equal to
the sum of (A) the number of shares of Capital Stock outstanding
immediately prior to such issue or sale multiplied by the Net Asset Value
immediately prior to such issue or sale and (B) the consideration received
by the Company upon such issue or sale, and where "Y" is equal to the
product of (A) the total number of shares of Capital Stock outstanding
immediately after such issue or sale and (B) the Net Asset Value
immediately prior to such issue or sale.
(b) TREATMENT CONVERTIBLE SECURITIES; COMPUTATION OF CONSIDERATION. For
purposes of PARAGRAPH 4(A) hereof, the following provisions shall also be
applicable:
(i) In case the Company shall grant any rights to subscribe for
or purchase for the purchase of, Capital Stock or securities convertible
into or exchangeable for Capital Stock (such convertible or exchangeable
securities being herein called "Convertible Securities"), whether or not
such Convertible Securities are immediately exercisable, and the price per
share for which Capital Stock is issuable upon exchange of such
Convertible Securities (as determined in accordance with the following
sentence) shall be less than the greater of (A) the Exercise Price in
effect immediately prior to the time of issuance of such Convertible
Securities and (B) the Net Asset Value, determined as of the date of
issuance of such Convertible Securities, then the total maximum number of
shares of Capital Stock issuable upon the exchange of such Convertible
Securities shall (as of the date issuance of such Convertible Securities)
be deemed to be outstanding and to have been issued and sold for such
price per share. The price per share for which the Capital Stock is
issuable, as provided in the preceding sentence, shall be determined by
dividing (x) the total amount, if any, received or receivable by the
Company as consideration for the issuance of such Convertible Securities,
plus the minimum aggregate amount, if any, of additional consideration
payable to the Company upon the conversion or exchange of such Convertible
Securities by (y) the total maximum number of shares of Capital Stock
issuable upon the conversion or exchange of all such Convertible
Securities. Except as provided in PARAGRAPH 4(B)(VI) hereof, no further
adjustments of the Exercise Price shall be made upon the actual issue of
such Capital or upon the actual issue of such Capital Stock upon the
conversion or exchange of such Convertible Securities.
(ii) In case at any time the Company shall pay a dividend or make
any other distribution upon the Capital Stock payable in Capital Stock,
Options or Convertible Securities, any Capital Stock, Options or
Convertible Securities, as the case may be, issuable in payment of such
dividend or distribution shall be deemed to have been issued without
consideration.
(iii) In case at any time any Capital Stock, Convertible
Securities, or Options shall be issued or sold for cash, the consideration
received therefor shall be deemed to be the amount received by the Company
therefor, without deduction therefrom of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Company in
connection therewith. In case any Capital Stock, Convertible Securities,
or Options shall be issued or sold for a consideration other than cash,
the amount of the consideration other than cash received by the Company
therefor shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the Company, except
where such consideration consists of securities, in which case the amount
of consideration received by the Company shall be the market price thereof
(determined as provided in PARAGRAPH 4(E) hereof) as of the date of
receipt, but in each such case without deduction therefrom of any expenses
incurred or any underwriting commissions or concessions paid or allowed by
the Company in connection therewith. In computing the market price of a
note or other obligation that is not listed or admitted to trading on any
securities exchange or quoted in the National Association of Securities
Dealers, Inc. Automated Quotation System or reported by the National
Quotation Bureau, Inc. or a similar reporting organization, the total
consideration to be received by the Company thereunder (including
interest) shall be discounted to present value at the prime rate of
interest of NationsBank of Texas, N.A., in effect at the time the note or
obligation is deemed to have been issued. In case any Capital Stock or
Convertible Securities shall be issued in connection with any merger of
another corporation into the Company, the amount of consideration therefor
shall be deemed to be the fair value as determined in good faith by the
Board of Directors of the Company of such portion of the assets of such
merged corporation as the Board shall determine to be attributable to such
Capital Stock or Convertible Securities.
(iiii) In case at any time the Company shall take a record of the
holders of Capital Stock for the purpose of entitling them (A) to receive
a dividend or other distribution payable in Capital Stock or Convertible
Securities, or (B) to subscribe for or purchase Capital Stock, or
Convertible Securities, then such record date shall be deemed to be the
date of the issue or sale of such Capital Stock or Convertible Securities.
(v) If the price at which any Convertible Securities referred to
in PARAGRAPH 4(B)(I) hereof are convertible into or exchangeable for
Capital Stock, shall change at any time (whether by reason of provisions
designed to protect against dilution or otherwise), the Exercise Price
then in effect hereunder shall forthwith be increased or decreased to such
Exercise Price as would have obtained had the adjustments made upon the
issuance of Convertible Securities been made upon the basis of (A) the
issuance of the number of shares of Capital Stock theretofore actually
delivered upon the conversion or exchange of such Convertible Securities,
and the total consideration received therefor, and (B) the number of
shares of Capital Stock to be issued for the consideration, if any,
received by the Company therefor and to be received on the basis of such
changed price.
(iv) If any adjustment has been made in the Exercise Price because
of the issuance Convertible Securities and if any of such rights to
convert or exchange such Convertible Securities expire or otherwise
terminate, then the Exercise Price shall be readjusted to eliminate the
adjustments previously made in connection with the rights to convert or
exchange Convertible Securities which have expired or terminated.
(v) The number of shares of Capital Stock outstanding at any
given time shall not include shares owned or held by or for the account of
the Company, and the disposition of any such shares shall be considered an
issue or sale of Capital Stock.
(c) SUBDIVISIONS AND COMBINATIONS. In case at any time the Company shall
subdivide the outstanding shares of Capital Stock into a greater number of
shares, the Exercise Price in effect immediately prior to such subdivision shall
be proportionately reduced, and conversely, in case the outstanding shares of
Capital Stock shall be combined into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination shall be proportionately
increased. An adjustment made pursuant to this PARAGRAPH 4(c) shall become
effective immediately after the effective date of such subdivision or
combination.
(d) EXTRAORDINARY DIVIDENDS AND DISTRIBUTIONS. In case at any time the
Company shall pay a dividend or make a distribution to all holders of Capital
Stock, as such, of shares of its stock, evidences of its indebtedness, assets,
or rights, options, or warrants to subscribe for or purchase such shares,
evidences of indebtedness, or assets, other than (i) a dividend or distribution
payable in Capital Stock, Convertible Securities or (ii) a dividend or
distribution payable in cash out of earnings or earned surplus, then in each
such case the Exercise Price shall be adjusted so that the same shall equal the
price determined by multiplying the Exercise Price in effect immediately prior
to the record date mentioned below by a fraction, the numerator of which shall
be the total number of shares of Capital Stock outstanding on such record date
multiplied by the market price per share of Capital Stock (determined as
provided in PARAGRAPH 4(E) hereof) on such record date, less the fair market
value (as determined in good faith by the Board of Directors of the Company) as
of such record date of such shares of stock, evidences of indebtedness, assets,
or rights, options, or warrants so paid or distributed, and the denominator of
which shall be the total number of shares of Capital Stock outstanding on such
record date multiplied by the market price per share of Capital Stock
(determined as provided in PARAGRAPH 4(E) hereof) on such record date. Such
adjustment shall be made whenever such dividend is paid or such distribution is
made and shall become effective immediately after the record date for the
determination of shareholders entitled to receive such dividend or distribution.
(e) COMPUTATION OF MARKET PRICE. For the purpose of any computation under
PARAGRAPHS 4(B), 4(D) OR 5 hereof, the market price of the security in question
on any day shall be deemed to be the average of the last reported sale prices
for the security for the twenty (20) consecutive Trading Days (as defined below)
commencing thirty (30) Trading Days before the day in question. The last
reported sale price for each day shall be (i) the last reported sale price of
the security on the National Market of the National Association of Securities
Dealers, Inc. Automated Quotation System, or any similar system of automated
dissemination of quotations of securities prices then in common use, if so
quoted, or (ii) if not quoted as described in CLAUSE (I) above, the mean between
the high bid and low asked quotations for the security as reported by the
National Quotation Bureau, Inc. if at least two securities dealers have inserted
both bid and asked quotations for such security on at least ten (10) of such
twenty (20) consecutive Trading Days, or (iii) if the security is listed or
admitted for trading on any national securities exchange, the last sale price,
or the closing bid price if no sale occurred, of such class of security on the
principal securities exchange on which such class of security is listed or
admitted to trading. If the security is quoted on a national securities or
central market system, in lieu of a market or quotation system described above,
the last reported sale price shall be determined in the manner set forth in
CLAUSE (II) of the preceding sentence if bid and asked quotations are reported
but actual transactions are not, and in the manner set forth in CLAUSE (III) of
the preceding sentence if actual transactions are reported. If none of the
conditions set forth above is met, the last reported sale price of the security
on any day or the average of such last reported sale prices for any period shall
be the fair market value of such security as determined by a member firm of the
New York Stock Exchange, Inc. selected by the Company. The term "Trading Days",
as used herein, means (i) if the security is quoted on the National Market of
the National Association of Security Dealers, Inc. Automated Quotation System,
or any similar system of automated dissemination of quotations of securities
prices, days on which trades may be made on such system or (ii) if the security
is listed or admitted for trading on any national securities exchange, days on
which such national securities exchange is open for business.
(f) RECORD DATE ADJUSTMENTS. In any case in which this PARAGRAPH 4
requires that a downward adjustment of the Exercise Price shall become effective
immediately after a record date for an event, the Company may defer until the
occurrence of such event issuing to the holder of this Warrant exercised after
such record date and before the occurrence of such event the additional Warrant
Shares issuable upon such exercise by reason of the adjustment required by such
event over and above the Warrant Shares issuable upon such exercise before
giving effect to such adjustment.
(g) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER, OR Sale. If
any capital reorganization of the Company, or any reclassification of the
Capital Stock, or any consolidation or merger of the Company with or into
another corporation or entity, or any sale of all or substantially all the
assets of the Company to another corporation or entity, shall be effected in
such a way that the holders of Class A Common (or any other securities of the
Company then issuable upon the exercise of this Warrant) shall be entitled to
receive stock or other securities or property (including cash) with respect to
or in exchange for Class A Common (or such other securities), then, as a
condition of such reorganization, reclassification, consolidation, merger, or
sale, lawful and adequate provision shall be made whereby the holder of this
Warrant shall thereafter have the right to purchase and receive upon the basis
and upon the terms and conditions specified in this Warrant, and in lieu of the
shares of Class A Common (or such other securities) immediately theretofore
purchasable and receivable upon the exercise hereof, such stock or other
securities or property (including cash) as may be issuable or payable with
respect to or in exchange for a number of outstanding shares of Class A Common
(or such other securities) equal to the number of shares of Class A Common (or
such other securities) immediately theretofore purchasable and receivable upon
the exercise of this Warrant, had such reorganization, reclassification,
consolidation, merger, or sale not taken place. In any such case appropriate
provision shall be made with respect to the rights and interests of the holder
of this Warrant to the end that the provisions hereof (including, without
limitation, the provisions for adjustments of the Exercise Price and of the
number of Warrant Shares purchasable upon exercise hereof) shall thereafter be
applicable, as nearly as reasonably may be, in relation to the stock or other
securities or property thereafter deliverable upon the exercise hereof
(including an immediate adjustment of the Exercise Price if by reason of or in
connection with such consolidation, merger, or sale any securities are issued or
event occurs which would, under the terms hereof, require an adjustment of the
Exercise Price). In the event of a consolidation or merger of the Company with
or into another corporation or entity as a result of which a greater or lesser
number of shares of common stock of the surviving corporation or entity are
issuable to holders of Capital Stock in respect of the number of shares of
Capital Stock outstanding immediately prior to such consolidation or merger,
then the Exercise Price in effect immediately prior to such consolidation or
merger shall be adjusted in the same manner as though there were a subdivision
or combination of the outstanding shares of Capital Stock. The Company shall not
effect any such consolidation, merger, or sale unless prior to or simultaneously
with the consummation thereof the successor corporation or entity (if other than
the Company) resulting from such consolidation or merger or the corporation or
entity purchasing such assets and any other corporation or entity the shares of
stock or other securities or property of which are receivable thereupon by the
holder of this Warrant shall expressly assume, by written instrument executed
and delivered (and satisfactory in form) to the holder of this Warrant, (i) the
obligation to deliver to such holder such stock or other securities or property
as, in accordance with the foregoing provisions, such holder may be entitled to
purchase and (ii) all other obligations of the Company hereunder.
(h) NO FRACTIONAL SHARES. No fractional shares of Class A Common are to be
issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the current market value of a share
of Class A Common, which current market value shall be the last reported sale
price (determined as provided in PARAGRAPH 4(E) hereof) on the Trading Day
immediately preceding the date of the exercise.
(i) NOTICE OF ADJUSTMENT. Upon the occurrence of any event which requires
any adjustment of the Exercise Price, then and in each such case the Company
shall give notice thereof to the holder of this Warrant, which notice shall
state the Exercise Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
(j) OTHER NOTICES. In case at any time:
(i) the Company shall declare any dividend upon the Capital Stock
payable in shares of stock of any class or make any other distribution
(other than dividends or distributions payable in cash out of earnings or
earned surplus) to the holders of the Capital Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Capital Stock any additional shares of stock of any class
or other rights;
(iii) there shall be any capital reorganization of the Company, or
reclassification of the Capital Stock, or consolidation or merger of the
Company with or into, or sale of all or substantially all its assets to,
another corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation, or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(A) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Capital Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Capital Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up and (B) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Capital Stock shall be entitled to receive such
dividend, distribution, or subscription rights or to exchange their Capital
Stock for stock or other securities or property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding-up, as the case may be. Such notice shall be given at
least 20 days prior to the record date or the date on which the Company's books
are closed in respect thereto. Failure to give any such notice or any defect
therein shall not affect the validity of the proceeding referred to in CLAUSES
(I), (II), (III), and (IV) above.
(k) CERTAIN EVENTS. If any event occurs as to which, in the good faith
judgment of the Board of Directors of the Company, the other provisions of this
PARAGRAPH 4 are not strictly applicable or if strictly applicable would not
fairly protect the exercise rights of the holder of this Warrant in accordance
with the essential intent and principles of such provisions, then the Board of
Directors of the Company shall appoint the Company's regular independent
auditors or another firm of independent public accountants of recognized
national standing who are satisfactory to the holder of this Warrant which shall
give their opinion upon the adjustment, if any, on a basis consistent with such
essential intent and principles, necessary to preserve, without dilution, the
rights of the holder of this Warrant. Upon receipt of such opinion, the Board of
Directors of the Company shall forthwith make the adjustments described therein;
provided that no such adjustment shall have the effect of increasing the
Exercise Price as otherwise determined pursuant to this PARAGRAPH 4. The Company
may make such reductions in the Exercise Price or increase in the number of
shares of Class A Common purchasable hereunder as it deems advisable, including
any reductions or increases, as the case may be, necessary to ensure that any
event treated for federal income tax purposes as a distribution of stock rights
not be taxable to recipients.
5. MANDATORY EXERCISE. Notwithstanding anything herein to the contrary
herein, this Warrant must be exercised in full, and shall be deemed to be
exercised in full without any notice from the holder of this Warrant, if and
when the Class A Common Stock is publicly traded and the market price, as
computed pursuant to PARAGRAPH 4(E) hereof equal to or greater than $6.00 per
share. The foregoing price of $6.00 per share shall be subject to the same
adjustments as provided for herein for the Exercise Price and shall be adjusted
in proportion to the Exercise Price whenever the Exercise Price is adjusted.
6. ISSUE TAX. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax in respect thereof, provided that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than the holder of this Warrant.
7. AVAILABILITY OF INFORMATION. The Company will cooperate with the holder
of this Warrant and each holder of any Warrant Shares in supplying such
information as may be necessary for such holder to complete and file any
information reporting forms presently or hereafter required by the Securities
and Exchange Commission as a condition to the availability of an exemption from
the Securities Act of 1933, as amended, for the sale of this Warrant or any
Warrant Shares. Nothing in this Section 6 obligates the Company to register any
Warrant Shares or other securities under federal or state securities laws or
incur any other unreasonable expense. The Company will deliver to the holder of
this Warrant, promptly upon their becoming available, copies of all financial
statements, reports, notices, and proxy statements sent or made available
generally by the Company to its shareholders, and copies of all regular and
periodic reports and all registration statements and prospectuses filed by the
Company with any securities exchange or with the Securities and Exchange
Commission.
8. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
9. TRANSFER, EXCHANGE, AND REPLACEMENT OF WARRANT.
(a) WARRANT TRANSFERABLE. The transfer of this Warrant and all rights
hereunder, in whole or in part, is registrable at the office or agency of the
Company referred to in PARAGRAPH 9(E) hereof by the holder hereof in person or
by his duly authorized attorney, upon surrender of this Warrant properly
endorsed. Each taker and holder of this Warrant, by taking or holding the same,
consents and agrees that this Warrant, when endorsed in blank, shall be deemed
negotiable, and that the holder hereof, when this Warrant shall have been so
endorsed, may be treated by the Company and all other persons dealing with this
Warrant as the absolute owner and holder hereof for any purpose and as the
person entitled to exercise the rights represented by this Warrant and to the
registration of transfer hereof on the books of the Company; but until due
presentment for registration of transfer on such books the Company may treat the
registered holder hereof as the owner and holder hereof for all purposes, and
the Company shall not be affected by any notice to the contrary.
(b) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This Warrant is
exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in PARAGRAPH 9(E) hereof, for new Warrants of
like tenor representing in the aggregate the right to purchase the number of
shares of Class A Common which may be purchased hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by said holder hereof at the time of such surrender.
(c) REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
(d) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of this Warrant
in connection with any transfer, exchange, or replacement as provided in this
PARAGRAPH 9, this Warrant shall be promptly canceled by the Company. The Company
shall pay all taxes (other than securities transfer taxes) and all other
expenses and charges payable in connection with the preparation, execution, and
delivery of Warrants pursuant to this PARAGRAPH 9.
(e) REGISTER. The Company shall maintain, at its principal office in
Houston, Texas, (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
(f) EXERCISE OR TRANSFER WITHOUT REGISTRATION. Anything in this Warrant to
the contrary notwithstanding, if, at the time of the surrender of this Warrant
in connection with any exercise, transfer, or exchange of this Warrant, this
Warrant shall not be registered under the Securities Act of 1933, as amended,
and under applicable state securities or blue sky laws, the Company may require,
as a condition of allowing such exercise, transfer, or exchange, that (i) the
holder or transferee of this Warrant, as the case may be, furnish to the Company
a written opinion of counsel, which opinion and counsel are acceptable to the
Company, to the effect that such exercise, transfer, or exchange may be made
without registration under said Act and under applicable state securities or
blue sky laws and (ii) the holder or transferee execute and deliver to the
Company an investment letter in form and substance acceptable to the Company.
The first holder of this Warrant, by taking and holding the same, represents to
the Company that such holder is acquiring this Warrant for investment and not
with a view to the distribution thereof.
10. NOTICES. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the holder of this Warrant or to
the holder of shares acquired upon exercise of this Warrant shall be in writing,
and shall be personally delivered, or shall be sent by certified or registered
mail, postage prepaid and addressed, to such holder at the address shown for
such holder on the books of the Company, or at such other address as shall have
been furnished to the Company by notice from such holder. All notices, requests,
and other communications required or permitted to be given or delivered
hereunder to the Company shall be in writing, and shall be personally delivered,
or shall be sent by certified or registered mail, postage prepaid and addressed,
to the office of the Company at 110 Cypress Station Drive, Suite 220, Houston,
Texas 77090, Attention: President, or at such other address as shall have been
furnished to the holder of this Warrant or to the holder of shares acquired upon
exercise of this Warrant by notice from the Company. Any such notice, request,
or other communication may be sent by telegram or telex, but shall in such case
be subsequently confirmed by a writing personally delivered or sent by certified
or registered mail as provided above. All notices, requests, and other
communications shall be deemed to have been given either at the time of the
delivery thereof to (or the receipt by, in the case of a telegram or telex) the
person entitled to receive such notice at the address of such person for
purposes of this PARAGRAPH 10, or, if mailed, at the completion of the third
full day following the time of such mailing thereof to such address, as the case
may be.
2. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
3. MISCELLANEOUS.
(a) AMENDMENTS. This Warrant and any provision hereof may not be changed,
waived, discharged, or terminated orally, but only by an instrument in writing
signed by the party (or any predecessor in interest thereof) against which
enforcement of the same is sought.
(b) DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof.
(c) SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon any entity
succeeding to the Company by merger, consolidation, or acquisition of all or
substantially all the Company's assets.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer under its corporate seal, on this fourth day of
August, 1997.
CLIFFWOOD OIL & GAS CORP.
By: /S/ FRANK A. LODZINSKI
Name: Frank A. Lodzinski
Title: President
[CORPORATE SEAL]
EXHIBIT 10.23
AGREEMENT OF LIMITED PARTNERSHIP
CLIFFWOOD ACQUISITION - 1996 LIMITED PARTNERSHIP
DATED AS OF SEPTEMBER 27, 1996
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TABLE OF CONTENTS
RECITALS: ................................................................. 1
AGREEMENT: ................................................................ 1
ARTICLE I FORMATION OF PARTNERSHIP........................................ 1
Section 1.1. Formation.............................................. 1
Section 1.2. Name................................................... 1
Section 1.3. Business............................................... 2
Section 1.4. Places of Business, Registered Agent and Addresses. ... 2
Section 1.5. Term................................................... 2
Section 1.6. Filings................................................ 2
ARTICLE II CERTAIN DEFINITIONS AND REFERENCES............................. 3
Section 2.1. Certain Defined Terms.................................. 3
Section 2.2. References, Titles and Construction. .................. 10
ARTICLE III CAPITALIZATION................................................ 11
Section 3.1. Capital Contributions of General Partner. ............. 11
Section 3.2. Agreed Capital Contributions of Limited Partners. ..... 11
Section 3.3. Request for Additional Capital Contributions of Limited
Partner............................................... 12
Section 3.4. Reduced Capital Contributions of Limited Partner....... 15
Section 3.5. Payments of Capital Contributions. .................... 15
Section 3.6. Non-payment of Capital Contributions................... 16
Section 3.7. Interest on and Return of Capital Contributions........ 16
ARTICLE IV ALLOCATIONS AND DISTRIBUTIONS.................................. 16
Section 4.1. Allocation of Costs and Expenses....................... 16
Section 4.2. Allocation of Revenues................................. 17
Section 4.3. Income Tax Allocations................................. 19
Section 4.4. Distributions.......................................... 22
Section 4.5. Allocation Among Limited Partners...................... 22
Section 4.6. Withholding............................................ 22
ARTICLE V PARTNERSHIP PROPERTY............................................ 23
Section 5.1. Title to Partnership Property.......................... 23
Section 5.2. Acquisition of the Subject Properties.................. 23
Section 5.3. Acquisitions of Additional Interests in the Properties:
Area of Mutual Interest. .............................. 23
Section 5.4. Lease Sales. .......................................... 24
Section 5.5. Sales of Production.................................... 24
Section 5.6. Operating Agreements................................... 24
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ARTICLE VI MANAGEMENT..................................................... 25
Section 6.1. Power and Authority of General Partner................. 25
Section 6.2. Certain Restrictions on General Partner's Power and
Authority.............................................. 25
Section 6.3. Duties and Services of General Partner................. 27
Section 6.4. Liability of General Partner........................... 28
Section 6.5. Limitations on Indemnification......................... 28
Section 6.6. Costs, Expenses and Reimbursement. .................... 28
Section 6.7. Organization Costs..................................... 29
Section 6.8. Insurance.............................................. 29
Section 6.9. Tax Elections.......................................... 29
Section 6.10. Tax Returns........................................... 30
Section 6.11. Appointment of Trustee to Receive Payments............ 31
ARTICLE VII RIGHTS AND OBLIGATIONS OF LIMITED PARTNER..................... 31
Section 7.1. Rights of Limited Partner.............................. 31
Section 7.2. Limitations on Limited Partner......................... 31
Section 7.3. Liability of Limited Partner........................... 31
Section 7.4. Access of Limited Partner to Data...................... 32
Section 7.5. Withdrawal and Return of Capital Contribution.......... 32
ARTICLE VIII BOOKS, RECORDS, REPORTS AND BANK ACCOUNTS.................... 33
Section 8.1. Capital Accounts, Books and Records. .................. 33
Section 8.2. Reports................................................ 35
Section 8.3. Bank Accounts. ........................................ 37
Section 8.4. Information Relating to the Partnership................ 38
ARTICLE IX ASSIGNMENTS OF INTERESTS AND SUBSTITUTIONS..................... 38
Section 9.1. Assignments by Limited Partner. ....................... 38
Section 9.2. Assignment by General Partner.......................... 39
Section 9.3. Merger or Consolidation................................ 39
Section 9.4. Removal of General Partner............................. 39
Section 9.5. Right of General Partner Upon Removal.................. 41
ARTICLE X DISSOLUTION, LIQUIDATION AND TERMINATION........................ 42
Section 10.1. Dissolution........................................... 42
Section 10.2. Withdrawal by General Partner and Reconstitution...... 43
Section 10.3. Liquidation and Termination........................... 44
Section 10.4. Cancellation of Certificate........................... 45
ARTICLE XI REPRESENTATIONS AND WARRANTIES................................. 46
Section 11.1. Representations and Warranties of General Partner..... 46
Section 11.2. Representations and Warranties of Limited Partner..... 48
ARTICLE XII MISCELLANEOUS................................................. 49
Section 12.1. Notices............................................... 49
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Section 12.2. Amendments............................................ 49
Section 12.3. Partition............................................. 49
Section 12.4. Entire Agreement...................................... 49
Section 12.5. No Waiver............................................. 50
Section 12.6. Applicable Law........................................ 50
Section 12.7. Successors and Assigns................................ 50
Section 12.8. Exhibits.............................................. 50
Section 12.9. Survival of Representations and Warranties............ 50
Section 12.10. No Third-Party Benefit............................... 50
Section 12.11. Counterparts......................................... 50
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AGREEMENT OF LIMITED PARTNERSHIP
CLIFFWOOD ACQUISITION - 1996 LIMITED PARTNERSHIP
THIS AGREEMENT OF LIMITED PARTNERSHIP (this "AGREEMENT") is made and
entered into this 27th day of September, 1996, by and among Cliffwood Energy
Company, a California corporation (herein sometimes called "CLIFFWOOD"), Energy
Capital Investment Company PLC, an English investment company (herein sometimes
called "ENERGY PLC"), and EnCap Equity 1996 Limited Partnership, a Texas limited
partnership (herein sometimes called "ENCAP LP").
RECITALS:
WHEREAS, Cliffwood, Energy PLC and EnCap LP desire to form a limited
partnership pursuant to the terms and conditions hereof; and
WHEREAS, Cliffwood will be the sole general partner of the limited
partnership created hereby and will sometimes be referred to herein as the
"GENERAL PARTNER"; and
WHEREAS, Energy PLC and EnCap LP will be the limited partners of the
limited partnership created hereby and will sometimes be referred to herein as
the "LIMITED PARTNERS".
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual
covenants and agreements contained herein, the parties hereto do hereby agree as
follows:
ARTICLE I
FORMATION OF PARTNERSHIP
SECTION 1.1. FORMATION. Subject to the provisions of this Agreement, the
parties hereto do hereby form a limited partnership (the "PARTNERSHIP") pursuant
to the provisions of the Texas Revised Limited Partnership Act (Article 6132a-1,
Vernon's Texas Civil Statutes) (such Act, as amended from time to time, or any
successor statute or statutes thereto, being called the "ACT").
SECTION 1.2. NAME. The name of the Partnership shall be Cliffwood
Acquisition - 1996 Limited Partnership. The business of the Partnership shall be
conducted in the name of the Partnership. The General Partner shall cause to be
filed on behalf of the Partnership such partnership or assumed or fictitious
name certificate or certificates or similar instruments as may from time to time
be required by law.
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SECTION 1.3. BUSINESS. Subject to the other provisions of this Agreement,
the business of the Partnership shall be: (a) to acquire the Subject Properties
(as defined herein); (b) to acquire additional Leases (as defined herein) in
accordance with the terms hereof; (c) to hold, maintain, renew, drill, develop
and operate the Properties (as defined herein); (d) to produce, collect, store,
treat, deliver, market, sell or otherwise dispose of oil, gas and related
hydrocarbons and minerals from the Properties; (e) to farm-out, sell, abandon
and otherwise dispose of the Properties; and (f) to take all such other actions
incidental to any of the foregoing as the General Partner may determine to be
necessary or desirable. Notwithstanding the foregoing and any other provision of
this Agreement, the Partnership shall not acquire (i) any Leases other than the
Subject Properties, except as expressly provided herein, (ii) any carbon-dioxide
removal, sulfur removal or other equipment for the processing or treatment of
gas or other hydrocarbons, whether on or off the Properties (other than
equipment acquired by the Partnership in connection with the assignment or
acquisition of the Properties or which the General Partner deems necessary or
desirable for the efficient operation of the Properties or the marketing of
hydrocarbons therefrom), (iii) any refining facilities or (iv) any
transportation facilities except pipelines and gathering systems connecting the
Properties with other gathering systems or transmission pipelines or as
otherwise acquired in connection with the assignment or acquisition of the
Properties, or engage in the contract drilling business or any other business
except as expressly permitted herein.
SECTION 1.4. PLACES OF BUSINESS, REGISTERED AGENT AND ADDRESSES.
(a) The principal United States office and place of business of the
Partnership and its street address shall be 110 Cypress Station Drive, Suite
220, Houston, Texas 77090. The General Partner, at any time and from time to
time, may change the location of the Partnership's principal United States
office and place of business, provided notice thereof is concurrently given to
the Limited Partners.
(b) The registered office of the Partnership in Texas shall be 110 Cypress
Station Drive, Suite 220, Houston, Texas 77090, and the registered agent for
service of process on the Partnership shall be the Parent, a corporation whose
business address is the same as the Partnership's registered office. The General
Partner, at any time and from time to time, may change the Partnership's
registered office or registered agent or both by complying with the applicable
provisions of the Act and giving concurrent notice thereof to the Limited
Partners and may establish, appoint and change additional registered offices and
registered agents of the Partnership in such other states as the General Partner
shall determine to be necessary or advisable.
SECTION 1.5. TERM. The Partnership shall be formed and commence upon the
completion of filing of record of an initial certificate of limited partnership
of the Partnership with the Secretary of State of Texas, and shall continue
until terminated in accordance with ARTICLE X.
SECTION 1.6. FILINGS. Upon the request of the General Partner, the Limited
Partners shall promptly execute and deliver all such certificates and other
instruments conforming hereto as shall be necessary for the General Partner to
accomplish all filing, recording, publishing and other acts appropriate to
comply with all requirements for the formation and operation of the Partnership
as
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a limited partnership under the laws of the State of Texas and for the
qualification or reformation and operation of the Partnership as a limited
partnership (or a partnership in which the Limited Partners have limited
liability) in all other jurisdictions where the Partnership shall propose to
conduct business. Prior to the conducting of any business in any jurisdiction,
the General Partner shall: (a) to the full extent necessary to establish limited
liability for the Limited Partners under the laws of such jurisdiction and
otherwise to comply with the laws of such jurisdiction, cause the Partnership to
comply with all requirements for the registration, qualification or reformation
of the Partnership to conduct business as a limited partnership (or a
partnership in which the Limited Partners have limited liability) in such
jurisdiction and (b) at the request of the Limited Partners, obtain an opinion
of reputable counsel in such jurisdiction satisfactory in all respects to the
Limited Partners as to such registration, qualification or reformation and as to
the limited liability of the Limited Partners under the laws of such
jurisdiction. Thereafter, the General Partner shall cause the Partnership to
continue to comply with all such requirements regarding registration,
qualification or formation in each jurisdiction where the, Partnership does
business.
ARTICLE II
CERTAIN DEFINITIONS AND REFERENCES
SECTION 2.1. CERTAIN DEFINED TERMS. When used in this Agreement, the
following terms shall have the respective meanings assigned to them in this
SECTION 2.1 or in the sections, subsections or other subdivisions referred to
below:
"ACQUISITION COST" shall mean, (a) with respect to the purchase by the
Partnership from the General Partner or its Affiliates of any Lease, the costs
as described in CLAUSE (B) immediately below incurred by the General Partner
and/or its Affiliates in acquiring such Lease and (b) with respect to the
acquisition by the Partnership of any Lease other than those purchased pursuant
to CLAUSE (A) immediately above, the sum of (i) the price paid or contractually
agreed to be paid for such Lease to the lessor, assignor or grantor of such
Lease, including lease bonuses, advance rentals and other acquisition costs and
(ii) title insurance or examination costs, broker's commissions, attorneys'
fees, due diligence fees, filing fees, recording costs, and transfer and sales
taxes, if any, and other similar costs incurred with respect to such Lease in
connection with its acquisition, but excluding (without limitation) any actual,
allocated or imputed interest expense.
"ACT" shall have the meaning assigned to such term in SECTION 1.1.
"ACTUAL NET CASH FLOW" shall mean, with respect to a calendar year, the
actual cumulative net cash flow of the Partnership for such year attributable to
Partnership wells.
"ADJUSTED CAPITAL ACCOUNT" shall mean the capital account maintained for
each Partner pursuant to SECTION 8.1(B) of this Agreement as of the end of each
fiscal year (a) increased by (i) the amount of any unpaid Capital Contributions
unconditionally agreed to be contributed by such Partner under ARTICLE III, if
any, and (ii) an amount equal to such Partner's allocable share of the
Partnership's Minimum Gain, as computed on the last day of such fiscal year in
accordance with
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applicable Treasury Regulations, and (b) reduced by (i) the amount of all
depletion deductions reasonably expected to be allocated to such Partner in
subsequent years and charged to such Partner's capital account, (ii) the amount
of all losses and deductions reasonably expected to be allocated to such Partner
in subsequent years under Sections 704(e)(2) and 706(d) of the Internal Revenue
Code and Treasury Regulation ss. 1.751-1(b)(2)(ii), and (iii) the amount of all
distributions reasonably expected to be made to such Partner to the extent they
exceed offsetting increases to such Partner's capital account that are
reasonably expected to occur during (or prior to) the year in which such
distributions are reasonably expected to be made.
"AFFILIATE" shall mean (a) any person directly or indirectly owning,
controlling or holding with power to vote 10% or more of the outstanding voting
securities of the General Partner, (b) any person 10% or more of whose
outstanding voting securities are directly or indirectly owned, controlled or
held with power to vote by the General Partner, (c) any person directly or
indirectly controlling, controlled by or under common control with the General
Partner, (d) any officer, director, member, manager, or partner of the General
Partner or any person described in CLAUSE (A), (B) or (C) of this paragraph and
(e) any person related by blood, adoption or marriage to any person referred to
in CLAUSES (C) and (D) of this paragraph. As used in this Agreement, the term
"PERSON" shall include an individual, an estate, a corporation, a partnership, a
limited liability company, an association or other entity, a joint stock company
and a trust.
"AMOCO PROPERTIES" shall mean the Subject Properties proposed to be
acquired from Amoco Production Company.
"CAPITAL CONTRIBUTIONS" shall mean for any Partner at the particular time
in question the aggregate of the dollar amounts of any cash or the fair market
value of any properties contributed to the capital of the Partnership (net of
any liabilities secured by such properties that the Partnership is considered to
assume or take subject to), or, if the context in which such term is used so
indicates, the dollar amounts of cash or the fair market value of properties
agreed to be contributed, or requested to be contributed, by such Partner to the
capital of the Partnership.
"CAPITAL COSTS" shall mean (a) all geological and geophysical costs
incurred by the Partnership to the extent any of such costs are incurred in
connection with Partnership wells drilled or proposed to be drilled on the
Properties and any additional Leases acquired pursuant to the terms hereof, (b)
all costs incurred by the Partnership in locating, drilling, completing,
equipping, deepening or sidetracking a well located on the Properties or any
additional Lease acquired pursuant to the terms hereof, including without
limitation (i) the costs of surveying and staking such well, the costs of any
surface damages and the costs of clearing, coring, testing, logging and
evaluating such well, (ii) the costs of casing, cement and cement services for
such well, (iii) the cost of plugging and abandoning such well if it is
determined that such well would not produce in commercial quantities and should
be abandoned and (iv) all direct charges and overhead (subject to SECTION 5.6)
chargeable to the Partnership with respect to such well under any applicable
operating agreement until such time as all operations are carried out as
required by applicable regulations and sound engineering practices to make such
well ready for production, including the installation and testing of wellhead
equipment, or to plug and abandon a dry hole; (c) all costs incurred by the
Partnership in recompleting or plugging back any Partnership well;
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(d) all costs incurred by the Partnership in reworking any Partnership well when
the Partnership's share of such costs as set forth in the applicable authority
for expenditure presented to the Partnership with respect thereto is greater
than $10,000; (e) all costs incurred by the Partnership in locating, drilling,
completing, equipping, deepening or sidetracking any enhanced recovery producer
or injector well (including the costs of all necessary surface equipment such as
steam generators, compressors, water treating facilities, injection pumps, flow
lines and steam lines) or otherwise conducting Enhanced Recovery Operations and
(f) all costs incurred by the Partnership in constructing production facilities,
pipelines and other facilities necessary to develop the Properties and any
additional Leases acquired pursuant to the terms hereof and produce, collect,
store, treat, deliver, market, sell or otherwise dispose of oil, gas and other
hydrocarbons and minerals therefrom; but such term shall not include (without
limitation) (A) any Lease Operating and Production Costs or (B) any Catastrophe
Costs.
"CAPITAL OVERRUN COSTS" shall mean with respect to any Partnership
operation or project, that portion of the aggregate Capital Costs incurred by
the Partnership which is in excess of the estimated Capital Costs attributable
to such operation or project.
"CATASTROPHE COSTS" shall mean all costs, expenses and damages incurred by
the Partnership as a result of the failure of the General Partner to cause the
Partnership to obtain or carry the types or amounts of insurance coverage agreed
upon from time to time by the Partners in accordance with SECTION 6.8, but such
term shall not include the deductible amounts under any insurance coverage
arranged by or on behalf of the Partnership or with respect to its property or
operations to the extent such deductible amounts have been approved or agreed to
by the Limited Partners in accordance with SECTION 6.8.
"CONVEYANCES" shall have the meaning assigned to such term in SECTION 5.2.
"DEFICIT PARTNER" shall have the meaning assigned to such term in SECTION
4.3(H).
"DELIVERY DATE" shall mean the date on which this Agreement has been fully
and unconditionally executed and delivered by each of the parties hereto.
"DEPLETABLE PROPERTY" shall have the meaning assigned to it in SECTION
4.3(B).
"ENCAP LP" shall have the meaning assigned to such term in the
introductory paragraph of this Agreement.
"ENERGY PLC" shall have the meaning assigned to such term in the
introductory paragraph of this Agreement.
"ENGINEERING REPORT" shall have the meaning assigned to such term in
SECTION 8.2(F).
"ENHANCED RECOVERY OPERATIONS" shall mean any operations or project
intended to increase the recovery of oil and/or gas from a pool or unit by
artificial means or by the application of energy extrinsic to the pool or unit,
which artificial means or application shall include (without
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limitation) pressuring, cycling, pressure maintenance, injection to the pool or
unit of a substance or form of energy, or other operations or projects that
would be commonly considered secondary or tertiary operations or projects, but
such term shall not include the injection in a well of a substance or form of
energy for the sole purpose of (a) aiding in the lifting of fluids in the well,
or (b) stimulation of the pool or unit at or near the well by mechanical,
chemical, thermal or explosive means.
"GENERAL PARTNER" shall mean Cliffwood Energy Company, a California
corporation, in its capacity as general partner of the Partnership and any
person who becomes a substituted general partner of the Partnership pursuant to
the terms hereof.
"HEDGING TRANSACTION" shall mean any commodity hedging transaction
pertaining to oil, gas and related hydrocarbons and minerals, whether in the
form of a swap agreement, option to acquire or dispose of a futures contract,
whether on an organized commodities exchange or otherwise, or similar type of
financial transaction classified as "notional principal contracts" pursuant to
Treasury Regulation ss.1.512(b)-1(a)(1). Any Hedging Transaction shall be
identified in the books and records of the Partnership as a "hedging
transaction" in the manner and at the times prescribed by Treasury Regulation
ss.1.1221-2(e).
"INTERNAL REVENUE CODE" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and any successor statute or statutes.
"INVESTORS AGREEMENT" shall mean that certain Investors Agreement dated as
of even date herewith by and among V&C Energy Limited Partnership, Energy
Resource Associates, Inc., Energy PLC and EnCap LP.
"LEASE" shall mean a lease, mineral interest, royalty or overriding
royalty, fee right, mineral servitude, license, concession or other right
covering oil, gas and related hydrocarbons (or a contractual right to acquire
such an interest) or an undivided interest therein or portion thereof, together
with all appurtenances, easements, permits, licenses, servitudes and
rights-of-way situated upon or used or held for future use in connection with
such an interest or the exploration, development or operation thereof. A "Lease"
shall also mean and include all rights and interests in all lands and interests
unitized or pooled therewith pursuant to any law, rule, regulation or agreement.
"LEASE OPERATING AND PRODUCTION COSTS" shall mean all costs incurred by
the Partnership in connection with the maintenance of the Properties (except
drilling and similar obligations the costs of which are classified as Capital
Costs hereunder) and the production and marketing of oil, gas and related
hydrocarbons from completed wells (including wells which have been involved in
Enhanced Recovery Operations) in which the Partnership has an interest pursuant
to this Agreement, including (without limitation) costs incurred for all delay
rentals, shut-in royalties and similar payments, royalties on lost or flared gas
or gas used for which payment is required, labor, fuel, repairs, transportation,
supplies, utility charges, ad valorem, severance, excise and similar taxes, the
cost of reworking any Partnership well (except to the extent provided in the
definition of Capital Costs), the costs of plugging and abandoning any
Partnership well (except to the extent
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provided in the definition of Capital Costs), and compensation to well
operators, consultants and others and insurance in connection with the
foregoing; but such term shall not include (without limitation) (a) any Capital
Costs or (b) any Catastrophe Costs.
"LIMITED PARTNER" shall mean Energy Capital Investment Company PLC, an
English investment company, EnCap Equity 1996 Limited Partnership, a Texas
limited partnership, and any person who becomes a substituted limited partner of
the Partnership pursuant to the terms hereof.
"LOPC OVERRUN COSTS" shall mean, with respect to a given calendar year,
that portion of the aggregate Lease Operating and Production Costs incurred by
the Partnership for such year and attributable to Partnership Wells (as defined
below) which is in excess of the lesser of either (a) the estimated Lease
Operating and Production Costs for such year and attributable to such
Partnership Wells as set forth in the T.J. Smith Report or (b) the estimated
Lease Operating and Production Costs for such year and attributable to such
Partnership Wells as set forth in the annual Engineering Report prepared with
respect to the calendar year immediately prior to such year. For purposes of
making this calculation, the estimated Lease Operating and Production Costs
shall be proportionately reduced to take into account the working interest
actually owned by the Partnership in the Partnership Wells (to the extent that
the Partnership owns less than 8/8ths of the working interest therein). As used
in this definition and for purposes of making the calculation contemplated
thereby, the term "PARTNERSHIP WELL" shall mean a well in which the Partnership
has an interest and which is then currently producing.
"MINIMUM GAIN" shall mean (a) with respect to Partnership Nonrecourse
Liabilities, the amount of gain that would be realized by the Partnership if it
disposed of (in a taxable transaction) all Partnership properties which are
subject to Partnership Nonrecourse Liabilities in full satisfaction of such
liabilities, computed in accordance with applicable Treasury Regulations and (b)
with respect to each Partner Nonrecourse Debt, the amount of gain that would be
realized by the Partnership if it disposed of (in a taxable transaction) the
Partnership property that is subject to such liability in full satisfaction of
such liability, computed in accordance with applicable Treasury Regulations.
"NET INVESTMENT" shall mean, as of the date in question, an amount equal
to X divided by Y, where "X" is equal to the difference between (a) the
aggregate Capital Contributions actually paid by the Limited Partners pursuant
to SECTIONS 3.2 and 3.3, which Capital Contributions shall be discounted back
from the respective dates such Capital Contributions are made to the last day of
the month in which the Delivery Date occurs at a rate of 12% per annum
compounded monthly, and (b) the aggregate cash distributions (other than any
cash distributions made pursuant to SECTION 10.2) which the Limited Partners
shall have actually received from the Partnership, which cash distributions
shall be discounted back from the respective dates such cash distributions are
made to the last day of the month in which the Delivery Date occurs at a rate of
12% per annum compounded monthly, and where "Y" is the applicable discount
factor set forth in EXHIBIT 2.1--PAYOUT NO.1 with respect to the month in which
the date in question falls. For purposes of making such discount calculations,
each cash distribution and Capital Contribution shall be deemed to have been
made on the last day of the month during which it was paid or received, and
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all such discount calculations shall be made on a monthly basis and by
application of the appropriate discount factors set forth in EXHIBIT 2.1--PAYOUT
NO. 1.
"ORGANIZATION COSTS" shall have the meaning assigned to such term in
SECTION 6.7.
"PARENT" shall mean Cliffwood Oil & Gas Corp., a Texas corporation.
"PARENT AGREEMENTS" shall mean (a) that certain Stock Purchase Warrant
dated as of even date herewith executed by the Parent in favor of Energy PLC,
(b) that certain Stock Purchase Warrant dated as of even date herewith executed
by the Parent in favor of EnCap LP, (c) that certain Investment Agreement dated
as of even date herewith by and among the Parent, Energy PLC and EnCap LP and
(d) that certain Guaranty and Support Agreement dated as of even date herewith
executed by the Parent in favor of the Partnership and the Limited Partners.
"PARTNER NONRECOURSE DEBT" shall mean any nonrecourse debt of the
Partnership (or portions thereof) for which any Partner bears the economic risk
of loss.
"PARTNER NONRECOURSE DEDUCTIONS" shall mean the amount of deductions,
losses and expenses equal to the net increase during the year in Minimum Gain
attributable to a Partner Nonrecourse Debt, reduced (but not below zero) by
proceeds of such Partner Nonrecourse Debt distributed during the year to the
Partners who bear the economic risk of loss for such debt, as determined in
accordance with applicable Treasury Regulations.
"PARTNERS" shall mean the General Partner and the Limited Partners.
"PARTNERSHIP" shall have the meaning assigned to it in SECTION 1.1.
"PARTNERSHIP NONRECOURSE LIABILITIES" shall mean any nonrecourse
liabilities (or portions thereof) of the Partnership for which no Partner bears
the economic risk of loss.
"PAYOUT NO.1" shall mean the last day of the earliest calendar month
during which (a) the aggregate cash distributions (other than any cash
distributions made pursuant to SECTION 10.2) which the Limited Partners shall
have actually received from the Partnership, when discounted back from the
respective dates such cash distributions are made to the last day of the month
in which the Delivery Date occurs at a rate of 12% per annum compounded monthly
shall equal (b) the aggregate Capital Contributions actually paid by the Limited
Partners pursuant to SECTIONS 3.2 and 3.3, which Capital Contributions shall be
discounted back from the respective dates such Capital Contributions are made to
the last day of the month in which the Delivery Date occurs at a rate of 12% per
annum compounded monthly. For purposes of making such discount calculations,
each cash distribution and Capital Contribution shall be deemed to have been
made on the last day of the month during which it was paid or received, and all
such discount calculations shall be made on a monthly basis and by application
of the appropriate discount factors set forth in EXHIBIT 2.1--PAYOUT NO.1.
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"PAYOUT NO. 2" shall mean the last day of the earliest calendar month
during which (a) the aggregate cash distributions (other than any cash
distributions made pursuant to SECTION 10.2) which the Limited Partners shall
have actually received from the Partnership, when discounted back from the
respective dates such cash distributions are made to the last day of the month
in which the Delivery Date occurs at a rate of 15% per annum compounded monthly
shall equal (b) the aggregate Capital Contributions actually paid by the Limited
Partners pursuant to SECTIONS 3.2 and 3.3, which Capital Contributions shall be
discounted back from the respective dates such Capital Contributions are made to
the last day of the month in which the Delivery Date occurs at a rate of 15% per
annum compounded monthly. For purposes of making such discount calculations,
each cash distribution and Capital Contribution shall be deemed to have been
made on the last day of the month during which it was paid or received, and all
such discount calculations shall be made on a monthly basis and by application
of the appropriate discount factors set forth in EXHIBIT 2.1--PAYOUT NO.2.
"PAYOUT NO. 3" shall mean the last day of the earliest calendar month
during which (a) the aggregate cash distributions (other than any cash
distributions made pursuant to SECTION 10.2) which the Limited Partners shall
have actually received from the Partnership, when discounted back from the
respective dates such cash distributions are made to the last day of the month
in which the Delivery Date occurs at a rate of 18% per annum compounded monthly
shall equal (b) the aggregate Capital Contributions actually paid by the Limited
Partners pursuant to SECTIONS 3.2 and 3.3, which Capital Contributions shall be
discounted back from the respective dates such Capital Contributions are made to
the last day of the month in which the Delivery Date occurs at a rate of 18% per
annum compounded monthly. For purposes of making such discount calculations,
each cash distribution and Capital Contribution shall be deemed to have been
made on the last day of the month during which it was paid or received, and all
such discount calculations shall be made on a monthly basis and by application
of the appropriate discount factors set forth in EXHIBIT 2.1--PAYOUT NO.3.
"PLACEMENT FEE" shall have the meaning assigned to such term in SECTION
6.7.
"POSITIVE PARTNER" shall have the meaning assigned to such term in SECTION
4.3(H).
"PROJECTED NET CASH FLOW" shall mean, with respect to a calendar year, the
higher of either (a) the estimated cumulative net cash flow for such year
attributable to Partnership Wells as set forth in the T.J. Smith Report or (b)
the estimated cumulative net cash flow for such year attributable to Partnership
Wells as set forth in the annual Engineering Report prepared with respect to the
calendar year immediately prior to the year in which the determination of
Projected Net Cash Flow is being calculated. For purposes of making this
calculation, the estimated net cash flow shall be proportionately reduced to
take into account the working interest actually owned by the Partnership in the
Partnership Wells (to the extent that the Partnership owns less than 8/8ths of
the working interest therein). As used in this definition and for purposes of
making the calculation contemplated thereby, the term "PARTNERSHIP WELL" shall
mean a well in which the Partnership has an interest and which is then currently
producing.
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"PROPERTIES" shall mean the "Subject Properties" and, if the context so
requires, any additional Leases acquired by the Partnership pursuant to the
terms hereof.
"PROVED INVESTMENT COVERAGE" shall mean, at the point in time in question,
a ratio equal to X divided by Y, where "X" is the pre-income tax value of
projected net revenues (I.E., revenues less direct expenses) attributable to the
proved reserves set forth in the then most recently prepared Engineering Report
(and computed net to the Partnership's interest in such reserves) discounted at
a rate of 10% per annum, and where "Y" is the Limited Partners' Net Investment.
"PROVED PRODUCING INVESTMENT COVERAGE" shall mean, at the point in time in
question, a ratio equal to X divided by Y, where "X" is the pre-income tax value
of projected net revenues (I.E., revenues less direct expenses) attributable to
the proved developed producing reserves set forth in the then most recently
prepared Engineering Report (and computed net to the Partnership's interest in
such reserves) discounted at a rate of 10% per annum, and where "Y" is the
Limited Partners' Net Investment.
"PURCHASE AGREEMENT" shall mean (a) that certain Purchase and Sale
Agreement by and between the Parent and Exxon Corporation effective July 1, 1996
and (b) that certain Purchase and Sale Agreement by and between the Parent and
Amoco Production Company effective July 1, 1996.
"PURCHASE PRICE" shall have the meaning assigned to such term in the
Purchase Agreement.
"REVENUE ALLOCATION ADJUSTMENT" shall have the meaning assigned to it in
SECTION 4.2(F).
"SIMULATED BASIS", "SIMULATED GAIN", "SIMULATED DEPLETION" and "SIMULATED
LOSS" shall have the respective meanings assigned to such terms in SECTION
8.1(B).
"SUBJECT LANDS" shall mean the lands covered by the Properties.
"SUBJECT PROPERTIES" shall mean the "Subject Properties", as such term is
defined in the Conveyances.
"T.J. SMITH REPORT" shall mean that certain reserve report dated August
30, 1996, prepared by T.J. Smith & Company, Inc. with respect to the Subject
Properties.
SECTION 2.2. REFERENCES, TITLES AND CONSTRUCTION.
(a) All references in this Agreement to articles, sections, subsections
and other subdivisions refer to corresponding articles, sections, subsections
and other subdivisions of this Agreement unless expressly provided otherwise.
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(b) Titles appearing at the beginning of any of such subdivisions are for
convenience only and shall not constitute part of such subdivisions and shall be
disregarded in construing the language contained in such subdivisions.
(c) The words "this Agreement", "this instrument", "herein", "hereof",
"hereby", "hereunder" and words of similar import refer to this Agreement as a
whole and not to any particular subdivision unless expressly so limited.
(d) Words in the singular form shall be construed to include the plural
and VICE VERSA, unless the context otherwise requires.
(e) Examples shall not be construed to limit, expressly or by implication,
the matter they illustrate.
(f) The word "includes" and its derivatives means "includes, but is not
limited to" and corresponding derivative expressions.
(g) No consideration shall be given to the fact or presumption that one
party had a greater or lesser hand in drafting this Agreement.
(h) All references herein to "$" or "dollars" shall refer to U.S. Dollars.
ARTICLE III
CAPITALIZATION
SECTION 3.1. CAPITAL CONTRIBUTIONS OF GENERAL PARTNER.
(a) On the Delivery Date, the General Partner shall contribute cash to the
Partnership in an amount not to exceed $350,000, which Capital Contribution
shall be used exclusively by the Partnership to pay the General Partner's
allocable share hereunder of the Purchase Price and the Placement Fee.
(b) The General Partner shall contribute in cash to the Partnership such
additional amounts as shall be necessary to pay timely the costs and expenses
allocated and charged to the General Partner in SECTIONS 3.3 and 4.1 and
elsewhere herein. Such Capital Contributions shall be paid to the Partnership by
the General Partner from time to time in the appropriate amounts concurrently
with each payment to the Partnership by the Limited Partners of their Capital
Contributions to pay its allocable share of such costs or, with respect to costs
allocated solely to the General Partner, when necessary for the Partnership to
pay timely such costs.
(c) If, based upon the Engineering Report furnished pursuant to SECTION
8.2(F) with respect to the fiscal year ending December 31, 1997, the Proved
Investment Coverage is less than 1.75 to 1, the General Partner shall contribute
cash to the Partnership in the amount of $300,000
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no later than March 15, 1998, which cash shall be used exclusively by the
Partnership as provided in SECTION 4.4.
SECTION 3.2. AGREED CAPITAL CONTRIBUTIONS OF LIMITED PARTNERS.
(a) Subject to the provisions of this SECTION 3.2 and SECTION 3.5(A) and
except as otherwise provided herein, the Limited Partners shall make Capital
Contributions to the Partnership in an aggregate amount not to exceed
$3,060,000, which Capital Contributions shall be used exclusively by the
Partnership to pay the Limited Partner's allocable share hereunder of the
Purchase Price; provided, however, that notwithstanding the foregoing or
anything else herein to the contrary, the obligation of the Limited Partner to
fund its allocable share hereunder of the Purchase Price attributable to the
Amoco Properties shall be expressly contingent upon the following: (i) the
execution and delivery by the General Partner or an Affiliate of a Purchase
Agreement with Amoco Production Company satisfactory to the Limited Partner; and
(ii) the determination by the Limited Partner that the Partnership will acquire
good and marketable title to the Amoco Properties.
(b) Subject to the provisions of this SECTION 3.2 and SECTION 3.5(A) and
except as otherwise provided herein, the Limited Partners shall make Capital
Contributions to the Partnership equal to $90,000, which Capital Contributions
shall be used exclusively by the Partnership to pay the Limited Partners'
allocable share hereunder of the Placement Fee.
(c) Notwithstanding anything to the contrary herein, the Capital
Contributions referenced in SUBSECTIONS (A) and (B) above shall be the maximum
contribution to the Partnership that the Limited Partners shall be required to
make (unless the Limited Partners otherwise elect as provided in SECTION 3.3).
(d) With respect to the Capital Contributions to be made by the Limited
Partners pursuant to the foregoing provisions (and any requested additional
Capital Contributions pursuant to SECTION 3.3), each Limited Partner's several
share of such Capital Contributions shall be as follows: 25% to Energy PLC and
75% to EnCap LP.
SECTION 3.3. REQUEST FOR ADDITIONAL CAPITAL CONTRIBUTIONS OF LIMITED
PARTNER.
(a) Subject to this SECTION 3.3 and the other terms and provisions hereof,
the General Partner may request additional Capital Contributions from each
Limited Partner to be used exclusively for the payment of its allocated share
(pursuant to SECTION 4.1) of (i) Capital Costs of the type described in CLAUSE
(A) of the definition thereof, (ii) Capital Costs of the type described in
CLAUSE (B) of the definition thereof, (iii) Capital Costs of the type described
in CLAUSE (C) of the definition thereof, (iv) Capital Costs of the type
described in CLAUSE (D) of the definition thereof, (v) Capital Costs of the type
described in CLAUSE (E) of the definition thereof, (vi) Capital Costs of the
type described in CLAUSE (F) of the definition thereof, (vii) Acquisition Costs
under the circumstances described in SECTION 5.3, and (viii) costs overruns
associated with any of the operations or projects with respect to which a
Limited Partner has previously agreed to make Capital Contributions to the
Partnership hereunder. Each of the categories of expenditures
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described in CLAUSES (I), (II), (III), (IV), (V), (VI), (VII) and (VIII) of this
SECTION 3.3(A) may include such contingent amounts as the General Partner in
good faith shall determine to be appropriate under the circumstances.
(b) Requests for additional Capital Contributions pursuant to this SECTION
3.3 shall be made by the General Partner and agreed to by each Limited Partner
separately with respect to each operation or acquisition included in any given
category of expenditures as specified in SUBSECTION (A) above. Requests pursuant
to this SECTION 3.3 shall not be made more often than quarterly each year (i)
except for requests pursuant to either CLAUSE (VII) or CLAUSE (VIII) of
SUBSECTION (A) above or (ii) unless an emergency or some other urgent need for
funds exist outside of the reasonable control of the General Partner. Payments
of any additional Capital Contributions agreed to be made by a Limited Partner
pursuant to this SECTION 3.3 shall be requested by the General Partner and made
by such Limited Partner in the manner provided for in SECTION 3.5(B).
(c) Notice of any request for additional Capital Contributions made by the
General Partner shall be in writing and sent to each Limited Partner at its
address as provided in SECTION 12.1. With respect to the category of costs
described in CLAUSES (I), (II), (III), (IV), (V) and (VI) of SECTION 3.3(A),
each request shall cover all of the Capital Costs intended to be incurred during
the next three months (and with respect to any Partnership well or Enhanced
Recovery Operation or facility, the costs estimated to be incurred in connection
with such well or operation or facility). With respect to the category of costs
described in CLAUSE (VII) of SECTION 3.3(A), each request shall contain the
information specified in SECTION 5.3. With respect to the category of costs
described in CLAUSE (VIII) of SECTION 3.3(A), each request shall cover the
reasonably anticipated overruns associated with conducting the Partnership
operation. Each such request shall also set forth (i) the date by which the
Limited Partner must elect in writing to make the requested additional Capital
Contributions, which date shall not be less than 30 days from the date the
General Partner mails or sends such request, unless a shorter period is provided
to the General Partner under any applicable "authority for expenditure", in
which event such shorter period shall also be applicable to the election period
of the Limited Partner (provided that in no event shall such shorter period be
less than 15 days), (ii) the purpose or purposes for which the proceeds of the
requested additional Capital Contributions are to be used, (iii) to the extent
practicable, a summary of the pertinent geological data relating to each well or
operation with respect to which the proceeds that are requested are to be
expended and financial projections with respect to the expenditure of such
additional Capital Contributions and the revenue projected to be received
therefrom and (iv) a summary of the action that the General Partner anticipates
it will take under SECTION 3.3(D) and any applicable operating agreement if the
Limited Partner does not elect to make such requested additional Capital
Contributions. In connection with any request pertaining to an Enhanced Recovery
Operation, the General Partner shall endeavor to confine such request to the
extent possible in accordance with generally accepted industry standards to
those matters or items which should be conducted in conjunction with each other.
Thereafter, the General Partner shall promptly furnish to each Limited Partner
such additional information concerning the use and application of the requested
additional Capital Contributions as such Limited Partner shall reasonably
request. In the event a Limited Partner does not elect to pay all of the
categories of requested additional Capital Contributions (or operations or
acquisitions within a given category), it may elect to pay all of the Capital
Contributions requested to be used for any of the remaining
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categories of costs designated in the General Partner's request as provided
above (or, as to a given category, the costs associated with any other operation
or acquisition within such category). The General Partner shall not use any
Capital Contributions received from a Limited Partner pursuant to this SECTION
3.3 and designated for payment of one category of costs (or an operation or
acquisition within such category) to pay any other category of costs (or other
operations or acquisitions within such category).
(d) If a Limited Partner declines to make any additional Capital
Contributions requested by the General Partner or fails to give timely notice to
the General Partner pursuant to a request for additional Capital Contributions
made pursuant to SECTION 3.3(A), the General Partner may elect to take any
action specified in PARAGRAPHS (1) through (5) below with respect to each Lease,
Partnership well, Enhanced Recovery Operation or other operation or project to
which the request pertains, if appropriate:
(1) With respect to the acquisition of Leases pursuant to SECTION
5.3, the General Partner or its Affiliates may purchase or retain for its
or their own account the Leases not acquired by the Partnership.
(2) The General Partner may cause the Partnership (to the extent it
can do so under any applicable operating agreement) to abandon the
operation or project, in which event all costs (if any) thereafter
incurred in abandoning the operation or project shall be borne by the
Partnership.
(3) The General Partner may cause the Partnership to sell, farm-out
or otherwise dispose of the well or Lease (or the applicable part thereof)
to which such operation or project pertains (subject, however, to SECTION
6.2).
(4) In the event a well or Lease to which such proposed operation or
project pertains is subject to an operating agreement to which one or more
third persons (which are not Affiliates of the General Partner) are
parties, the General Partner may cause the Partnership to elect not to
participate in the proposed operation and to assume the status of a
"non-consenting party" under such operating agreement; provided, however,
that neither the General Partner nor any of its Affiliates shall be
permitted to pay or shall pay the Partnership's non-consenting share of
costs or expenses or any part thereof with respect to such operation or
project under such operating agreement.
(5) The General Partner may take such other actions as may be
mutually agreed upon by the Partners.
(e) If a Limited Partner (for purposes of this SUBSECTION (E), a
"NON-ELECTING LP") declines to make any additional Capital Contributions
requested by the General Partner or fails to give timely notice to the General
Partner in accordance with this SECTION 3.3 with respect to the category of
expenditures described in CLAUSE (VIII) of SECTION 3.3(A), the General Partner
may elect (i) to take any action specified in PARAGRAPHS (2) through (5) of
SECTION 3.3(D) with respect to each Partnership well, Enhanced Recovery
Operation or other operation or project to which the request
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pertains or (ii) to advance to the Partnership on behalf of such non-electing LP
the amount of the requested additional Capital Contribution (which advance shall
bear interest on the principal amount outstanding from time to time at a rate of
10% per annum, shall be nonrecourse to such non-electing LP and shall be repaid
to the General Partner from the Designated Percentage (as defined below) of the
cash distributions that would otherwise be made to such non-electing LP from the
well, operation or project to which the request pertains (which cash
distributions shall be applied first to accrued interest and second to the
principal amount outstanding from time to time)). As used in this preceding
sentence, "DESIGNATED PERCENTAGE" shall mean a percentage equal to X divided by
Y, where "X" is the amount of the costs of the well, operation, or project
attributable to the non-electing LP and funded by the General Partner, and where
"Y" is the total amount of the costs of the well, operation or project
attributable to the non-electing LP. Notwithstanding the foregoing or anything
else herein to the contrary, however, a Limited Partner shall not, in connection
with the repayment to the General Partner of the amount advanced by it pursuant
to this SUBSECTION (E), forfeit any interest it has in revenues from Partnership
wells or operations unrelated to such requested additional Capital Contribution
or in revenues it would have otherwise received absent the well or operation to
which such requested additional Capital Contribution pertains.
(f) If, in connection with a request to the Limited Partners for Capital
Contributions to fund their share hereunder of Capital Overrun Costs, the
General Partner notifies the Limited Partners that it is unable to fund its
share hereunder of such costs, the Limited Partners shall have the right to make
the Capital Contributions the General Partner would otherwise be required to
make to fund such costs, subject to SECTIONS 4.1 and 4.2.
SECTION 3.4. REDUCED CAPITAL CONTRIBUTIONS OF LIMITED PARTNER. In the
event the Partnership or the General Partner properly retains (in accordance
with SECTION 4.4) a portion of a Limited Partner's share of Partnership revenues
for the purpose of paying any Capital Costs, Acquisition Costs, Capital Overrun
Costs or LOPC Overrun Costs allocated to such Limited Partner hereunder, the
amount so retained and not distributed shall reduce on a dollar for dollar basis
the amount of Capital Contributions such Limited Partner is required to
thereafter make.
SECTION 3.5. PAYMENTS OF CAPITAL CONTRIBUTIONS.
(a) The Limited Partners shall pay an amount not to exceed $2,610,000 of
the Capital Contribution referenced in SECTION 3.2(A) on the Delivery Date,
which amount shall be immediately applied by the Partnership to the payment of
the Purchase Price attributable to the Subject Properties to be acquired from
Exxon Corporation. The Limited Partners shall pay the Capital Contributions
referenced in SECTION 3.2(B) on the Delivery Date, which amount shall
immediately be applied by the Partnership to the payment of the Placement Fee.
The Limited Partners shall pay an amount not to exceed the remaining portion of
its Capital Contribution referenced in SECTION 3.2(A) on the date on which the
Partnership is to acquire the Amoco Properties, provided that all of the
conditions set forth in such Section have been satisfied.
(b) Except as otherwise provided in SUBSECTION (A) above, each Limited
Partner shall pay its Capital Contributions monthly upon request by the General
Partner in such amounts as are
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required to pay its share of all costs and expenses properly allocated to it
hereunder. The General Partner may request on a monthly basis additional
payments of the Capital Contributions elected or agreed to be made by a Limited
Partner for such Limited Partner's share of all costs and expenses estimated to
have been and/or to be incurred by the Partnership during that calendar month
except those for which advances have previously been made or for which payment
will be made from another source. Each monthly request for payment shall be
adjusted to the extent a Limited Partner's cumulative share of actual
Partnership disbursements for the preceding calendar month's costs and expenses
is either greater or less than the amounts previously contributed by such
Limited Partner for such purpose. Any request from the General Partner to a
Limited Partner for payment by such Limited Partner of Capital Contributions
shall be in writing and shall set forth (i) the type, nature or items of
Partnership costs or expenses for which such payment will be used by the
Partnership, including invoices, canceled checks and other similar items
requested for each expense item if previously incurred, (ii) the net amount of
the Capital Contributions to be paid by such Limited Partner and (iii) the date
by which payment of such Capital Contributions shall be received, which shall
not be less than ten business days from the date the notice is received by such
Limited Partner.
(c) Payments by each Limited Partner of its Capital Contributions shall be
made by wire transfer of funds to the Partnership's account as designated by the
General Partner by notice to such Limited Partner pursuant to SECTION 12.1.
SECTION 3.6. NON-PAYMENT OF CAPITAL CONTRIBUTIONS. The Partnership shall
have the right to pursue any remedy existing at law or in equity for the
collection of the unpaid amount of the Capital Contributions agreed to be made
in SECTIONS 3.1 and 3.2 or hereafter elected or agreed to be made in accordance
with SECTION 3.3, including without limitation the prosecution of a suit against
a defaulting Partner.
SECTION 3.7. INTEREST ON AND RETURN OF CAPITAL CONTRIBUTIONS. No interest
shall accrue on any contributions to the capital of the Partnership; and no
Partner shall have the right to withdraw or be repaid any capital contributed by
such Partner (a) except as provided in SECTION 10.3 and (b) in the instance of a
return of cash funds due to an adjustment to the Purchase Price under the
Purchase Agreement (in which event the General Partner shall cause the
Partnership to refund immediately to each Limited Partner and itself its
allocable share of such funds, which share shall be determined by reference to
SECTION 4.1(F)). All interest which accrues on Partnership funds shall be
allocated and credited to the Partners in accordance with SECTION 4.2.
ARTICLE IV
ALLOCATIONS AND DISTRIBUTIONS
SECTION 4.1. ALLOCATION OF COSTS AND EXPENSES. All costs and expenses of
the Partnership shall be allocated and charged to the Partners as follows:
(a) Catastrophe Costs shall be allocated 100% to the General Partner.
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(b) (i) Organization Costs (exclusive of the Placement Fee) in an
aggregate amount not to exceed $25,000 shall be allocated 100% to the General
Partner and (ii) Organization Costs (exclusive of the Placement Fee) in excess
of $25,000 shall be allocated 10% to the General Partner and 90% to the Limited
Partners.
(c) The Placement Fee shall be allocated 10% to the General Partner and
90% to the Limited Partners.
(d) Capital Overrun Costs and LOPC Overrun Costs shall be allocated 70% to
the General Partner and 30% to the Limited Partners; provided, however, that if,
for the calendar year during which such Capital Overrun Costs or LOPC Overrun
Costs occur, Actual Net Cash Flow for such year is in excess of Projected Net
Cash Flow for such year, such Capital Overrun Costs or LOPC Overrun Costs shall
be allocated as provided in SUBSECTION (F) below.
(e) Acquisition costs of the Subject Properties, up to an amount equal to
the Purchase Price, shall be allocated 10% to the General Partner and 90% to the
Limited Partners.
(f) All other costs and expenses of the Partnership not specifically
allocated above shall be allocated (i) 10% to the General Partner and 90% to the
Limited Partners prior to Payout No. 1, (ii) 40% to the General Partner and 60%
to the Limited Partners after Payout No. 1 but prior to Payout No. 2, (iii) 50%
to the General Partner and 50% to the Limited Partners after Payout No. 2 but
prior to Payout No. 3 and (iv) 70% to the General Partner and 30% to the Limited
Partners after Payout No. 3; provided, however, that if, pursuant to SECTION
4.2(E), an adjustment is made to the allocation of revenues between the General
Partner and the Limited Partners, a corresponding adjustment to the allocation
of costs described in this SUBSECTION (F) shall be made as between the General
Partner and the Limited Partners; and provided, further, that if, pursuant to
SECTION 4.2(F), an adjustment is made to the allocation of revenues between the
General Partner and the Limited Partners, a corresponding adjustment to the
allocation of costs described in this SUBSECTION (F) shall be made as between
the General Partner and the Limited Partners.
SECTION 4.2. ALLOCATION OF REVENUES. All revenues of the Partnership
(which shall not include Capital Contributions and loans to the Partnership)
shall be allocated and credited to the Partners as follows:
(a) Insurance proceeds, to the extent not otherwise expended by the
Partnership to preserve and protect Partnership property in the event of an
accident or other occurrence or to pay Partnership liabilities or other
obligations arising from an accident or other occurrence, shall be allocated
between the Partners in the same manner as revenues from the sale of the
property to which such insurance proceeds relate would be allocated under this
SECTION 4.2.
(b) All revenues used to repay any principal, interest or other amounts
owing with respect to any Partnership borrowings or indebtedness shall be
allocated to the Partners in the same proportions as the costs and expenses paid
with such borrowings or indebtedness were allocated to the Partners (and, with
respect to any indebtedness to which any property acquired
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by the Partnership is subject at the time of its acquisition, in the same
proportions as costs are allocated under SECTION 4.1(F) at the time such
property is acquired by the Partnership).
(c) After making the allocation provided for in SECTION 4.2(B) and taking
into account the revenues allocated therein, all additional revenues resulting
from the sale or other disposition of Depletable Property (as defined in SECTION
4.3(B)) shall be allocated, to the extent such revenues constitute a recovery of
Simulated Basis of such property, to the Partners in the same percentages as the
costs of the property sold were allocated up to an amount equal to each
Partner's share of the Partnership's Simulated Basis in such property at the
time of such sale. Thereafter, revenues resulting from any such sale or
disposition shall be allocated to the Partners in a manner which will cause the
aggregate of all revenues allocated to the Partners from such sale or
disposition and all prior sales or other dispositions of Depletable Property (to
the extent possible and subject to, and taking into account, the other
subsections (as applicable) referenced in SUBSECTION (D) of this SECTION 4.2) to
equal the amounts which would have been allocated under SUBSECTION (D) of this
SECTION 4.2 in the absence of this SUBSECTION (C).
(d) Subject to SUBSECTION (E) or SUBSECTION (F) below (as applicable), all
other revenues of the Partnership not specifically allocated above shall be
allocated (i) 10% to the General Partner and 90% to the Limited Partners prior
to Payout No. 1, (ii) 40% to the General Partner and 60% to the Limited Partners
after Payout No. 1 but prior to Payout No. 2, (iii) 50% to the General Partner
and 50% to the Limited Partners after Payout No. 2 but prior to Payout No. 3 and
(iv) 70% to the General Partner and 30% to the Limited Partners after Payout No.
3; provided, however, and subject to SUBSECTION (E) or SUBSECTION (F) below (as
applicable), if all or substantially all of the properties of the Partnership
are sold or otherwise disposed of by the Partnership on or prior to January 1,
2000, the allocations set forth in SUBSECTION (IV) shall instead be "60% to the
General Partner and 40% to the Limited Partners after Payout No. 3".
(e) Notwithstanding SUBSECTION (D) above, if the Limited Partners fund the
General Partner's share of any LOPC Overrun Costs or Capital Overrun Costs (the
amount so funded in this SUBSECTION (E) being called the "AGGREGATE AMOUNT"),
the Limited Partners' LP Allocable Share (as defined below) (i) shall be
permanently increased by an amount equal to 10 percentage points (and the
General Partner's GP Allocable Share (as defined below) shall be correspondingly
permanently decreased) as of the date on which the Limited Partners initially
fund the Aggregate Amount (in this SUBSECTION (E), the "INITIAL FUNDING DATE")
and (ii) shall be further permanently increased by an amount equal to ten
percentage points (and the General Partner's GP Allocable Share shall be
correspondingly permanently decreased) upon the expiration of a three-month
period commencing with the Initial Funding Date (and upon the expiration of each
successive three-month period thereafter); provided, that additional permanent
increase(s) (and corresponding permanent decrease(s)) shall cease when (x) the
General Partner contributes cash to the Partnership in an amount equal to the
Aggregate Amount and (y) the Partnership distributes such cash to the Limited
Partners (the date on which such distribution occurs in this SUBSECTION (E)
being called the "DISTRIBUTION DATE"); provided, further, that without limiting
the foregoing (and subject to the Limited Partners thereafter funding any
additional LOPC Overrun Costs), the Limited Partner's LP Allocable Share shall
remain the percentage amount as revised to the Distribution Date and the General
Partner's GP Allocable Share shall remain the percentage
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amount as revised to the Distribution Date; provided, further, that
notwithstanding any adjustment pursuant to this SUBSECTION (E), the General
Partner's GP Allocable Share shall not be less than 1%. As used in this
SUBSECTION (E), "LP ALLOCABLE SHARE" shall mean the Limited Partners' percentage
share of Partnership revenues specified in CLAUSES (I), (II),(III) and (IV) of
SUBSECTION (D) above. As used herein, "GP ALLOCABLE SHARE" shall mean the
General Partner's percentage share of Partnership revenues specified in CLAUSES
(I), (II), (III) and (IV) of SUBSECTION (D) above.
(f) Notwithstanding SUBSECTION (D) above or anything else herein to the
contrary, if at any time the Proved Producing Investment Coverage is less than
1.25 to 1, then, from and after the effective date of the Engineering Report
upon which the computation of the Proved Producing Investment Coverage is based,
all revenues of the type described in SUBSECTION (D) above shall be adjusted
from time to time as determined by the Limited Partners so as to increase the
Limited Partners' share thereof (and to correspondingly decrease the General
Partner's share thereof) (provided that the General Partner shall be allocated
not less than 1% of such revenues and the Limited Partners shall be allocated no
more than 99% of such revenues) until the point that the Proved Producing
Investment Coverage is equal to or greater than the ratio of 1.25 to 1 (which
point shall be the effective date of a subsequent Engineering Report that
establishes that the Proved Producing Investment Coverage is equal to or greater
than 1.25 to 1, and at which point all revenues of the type described in
SUBSECTION (D) above shall be allocated as provided in SUBSECTION (D) above). An
adjustment to the allocation of revenues made pursuant to the first sentence of
this SUBSECTION (F) shall be herein called a "REVENUE ALLOCATION ADJUSTMENT".
(g) Notwithstanding SUBSECTION (C) above, SECTION 10.3 or anything else
herein to the contrary, if, (i) a Revenue Allocation Adjustment is effected and
(ii) during the time the Revenue Allocation Adjustment is in effect all or a
portion of the properties of the Partnership are sold or otherwise disposed of,
the revenues from any such sale shall be allocated (A) 1% to the General Partner
and 99% to the Limited Partners until Payout No. 3 and (B) thereafter as
provided in CLAUSE (IV) of SUBSECTION (D) above (subject, however, to any
modifications of the percentages in such clause pursuant to SUBSECTION (E)).
SECTION 4.3. INCOME TAX ALLOCATIONS. Except as otherwise provided herein,
for purposes of any applicable federal, state or local income tax law, rule or
regulation items of income, gain, deduction, loss, credit and amount realized
shall be allocated to the Partners as follows:
(a) Income from the sale of oil or gas production (and any credits under
Section 29 of the Internal Revenue Code with respect thereto) shall be allocated
in the same manner as revenue therefrom is allocated and credited pursuant to
SECTION 4.2.
(b) Cost and percentage depletion deductions and the gain or loss on the
sale or other disposition of property the production from which is subject to
depletion (herein sometimes called "DEPLETABLE PROPERTY") shall be computed
separately by the Partners rather than the Partnership. For purposes of Section
613A(c)(7)(D) of the Internal Revenue Code, the Partnership's adjusted basis in
each Depletable Property shall be allocated in proportion to each Partner's
respective share of the costs and expenses which entered into the Partnership's
adjusted basis for such Depletable Property. The amount realized on the sale or
other disposition of each Depletable
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Property shall be allocated to the Partners in proportion to each Partner's
respective share of the revenue from the sale or other disposition of such
property provided for in SECTION 4.2. For purposes of allocating amounts
realized upon any such sale or disposition which are deemed to be received for
federal income tax purposes and are attributable to Partnership indebtedness or
indebtedness to which the Depletable Property is subject at the time of such
sale or disposition, such amounts shall be allocated in the same manner as
Partnership revenues used for the repayment of such indebtedness would have been
allocated under SECTION 4.2(B).
(c) Items of deduction, loss and credit not specifically provided for
above (other than loss from the sale or other disposition of Depletable
Property), shall be allocated to the Partners in the same manner that the costs
and expenses of the Partnership that gave rise to such items of deduction, loss
and credit were allocated pursuant to SECTION 4.1.
(d) Gain from the sale or other disposition of Partnership property that
is not specifically provided for above shall be allocated to the Partners in a
manner which reflects each Partner's allocable share of the revenue from the
sale of the Partnership property provided for in SECTION 4.2, and loss from the
sale or other disposition of Partnership property that is not specifically
provided for above shall be allocated to the Partners in a manner which reflects
each Partner's allocable share of the costs and expenses of the Partnership
property provided for in SECTION 4.1.
(e) All recapture of income tax deductions resulting from the sale or
other disposition of Partnership property shall, to the maximum extent possible,
be allocated to the Partner to whom the deduction that gave rise to such
recapture was allocated hereunder to the extent that such Partner is allocated
any gain from the sale or other disposition of such property.
(f) Any other items of Partnership income or gain not specifically
provided for above shall be allocated in the same manner as the revenue that
resulted in such income or gain is allocated and credited pursuant to SECTION
4.2.
(g) Notwithstanding any of the foregoing provisions of this SECTION 4.3 to
the contrary:
(i) If during any fiscal year of the Partnership there is a net
increase in Minimum Gain attributable to a Partner Nonrecourse Debt that
gives rise to Partner Nonrecourse Deductions, each Partner bearing the
economic risk of loss for such Partner Nonrecourse Debt shall be allocated
items of Partnership deductions and losses for such year (consisting first
of cost recovery or depreciation deductions with respect to property that
is subject to such Partner Nonrecourse Debt and then, if necessary, a pro
rata portion of the Partnership's other items of deductions and losses,
with any remainder being treated as an increase in Minimum Gain
attributable to Partner Nonrecourse Debt in the subsequent year) equal to
such Partner's share of Partner Nonrecourse Deductions, as determined in
accordance with applicable Treasury Regulations.
(ii) If for any fiscal year of the Partnership there is a net
decrease in Minimum Gain attributable to Partnership Nonrecourse
Liabilities, each Partner shall be allocated
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items of Partnership income and gain for such year (consisting first of
gain recognized, including Simulated Gain, from the disposition of
Partnership property subject to one or more Partnership Nonrecourse
Liabilities and then, if necessary, a pro rata portion of the
Partnership's other items of income and gain for that year, and if
necessary, for subsequent years) equal to such Partner's share of such net
decrease (except to the extent such Partner's share of such net decrease
is caused by a change in debt structure with such Partner commencing to
bear the economic risk of loss as to all or part of any Partnership
Nonrecourse Liability or by such Partner contributing capital to the
Partnership that the Partnership uses to repay a Partnership Nonrecourse
Liability), as determined in accordance with applicable Treasury
Regulations.
(iii) If for any fiscal year of the Partnership there is a net
decrease in Minimum Gain attributable to a Partner Nonrecourse Debt, each
Partner bearing the economic risk of loss for such Partner Nonrecourse
Debt shall be allocated items of Partnership income and gain for such year
(consisting first of gain recognized, including Simulated Gain, from the
disposition of Partnership property subject to Partner Nonrecourse Debt,
and then, if necessary, a pro rata portion of the Partnership's other
items of income and gain, and if necessary, for subsequent years) equal to
such Partner's share of such net decrease (except to the extent such
Partner's share of such net decrease is caused by a change in debt
structure or by the Partnership's use of capital contributed by such
Partner to repay Partner Nonrecourse Debt) as determined in accordance
with applicable Treasury Regulations.
(h) The General Partner shall use all reasonable efforts to prevent any
allocation or distribution from causing a negative balance in the Limited
Partner's Adjusted Capital Account. Consistent therewith, and notwithstanding
any of the foregoing provisions of this SECTION 4.3 to the contrary, if for any
fiscal year of the Partnership the allocation of any loss or deduction (net of
any income or gain) to any Partner would cause or increase a negative balance in
such Partner's Adjusted Capital Account as of the end of such fiscal year (a
"DEFICIT PARTNER") after taking into account the provisions of SUBSECTION (G) of
this SECTION 4.3, only the amount of such loss or deduction that reduces the
balance to zero shall be allocated to such Deficit Partner and the remaining
loss or deduction shall be allocated to the Partners whose Adjusted Capital
Accounts have a positive balance remaining at such time (the "POSITIVE
PARTNERS") in proportion to such positive balances. After any such allocation,
any Partnership income or gain (including Simulated Gain) that would otherwise
be allocated to the Deficit Partner shall be allocated instead to the Positive
Partners up to an amount equal to the Partnership loss or deduction allocated to
the Positive Partners under the preceding sentence; provided, however, that no
allocation of income, gain or amount realized shall be made under this sentence
if the effect of such allocation would be to cause the Adjusted Capital Account
of a Deficit Partner to be less than zero. If, after taking into account the
allocation in the first sentence of this SECTION 4.3(H), the Adjusted Capital
Account balance of a Deficit Partner remains less than zero at the end of a
fiscal year, a pro rata portion of each item of Partnership income or gain
(including Simulated Gain) otherwise allocable to the Positive Partners for such
fiscal year (or if there is no such income or gain allocable to the Positive
Partners for such fiscal year, all such income or gain (including Simulated
Gain) so allocable in the succeeding fiscal year or years) shall be allocated to
the Deficit Partner in an amount necessary to cause its Adjusted Capital Account
balance to equal zero; provided that if
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there is more than one Deficit Partner, such income or gain shall be allocated
to all Deficit Partners in proportion to their negative Adjusted Capital
Accounts; and provided further that no allocation under this sentence shall have
the effect of causing any Positive Partner's Adjusted Capital Account to be less
than zero. After any such allocation, any Partnership gain (including Simulated
Gain) resulting from the sale or other disposition of Partnership property that
would otherwise be allocated to a Deficit Partner for any fiscal year under this
SECTION 4.3 shall be allocated instead to the Positive Partners until the amount
of gain so allocated equals the amount of gain previously allocated to such
Deficit Partner under the preceding sentence of this SECTION 4.3(H); provided,
however, that no allocation of gain shall be made under this sentence if the
effect of such allocation would be to cause the Adjusted Capital Account of a
Deficit Partner to be less than zero.
(i) Notwithstanding anything to the contrary herein, in accordance with
SECTION 704(C) of the Internal Revenue Code and the Treasury Regulations
thereunder, income, gain, loss and deductions with respect to any property
contributed to the Partnership or with respect to which a revaluation pursuant
to Treasury Regulation ss. 1.704-1(b)(2)(iv)(f) has occurred shall, solely for
federal income tax purposes, be allocated among the Partners in a manner to take
into account any variation between the adjusted tax basis of such property to
the Partnership and its fair market value. In making such allocations, the
General Partner shall use the traditional method with curative allocations as
set forth in Treasury Regulation ss. 1.704-3(c) limited to similar items of
depreciation deductions for depreciable assets and depletion deductions for
depletable assets, unless otherwise agreed by all Partners.
SECTION 4.4. DISTRIBUTIONS. At least monthly (commencing the first month
after the receipt by the Partnership of its first revenues), all cash funds of
the Partnership (exclusive of Capital Contributions, any borrowed funds and any
dry hole and bottom hole and similar contributions) which the General Partner
reasonably determines are not needed for the payment of any existing or
reasonably foreseeable (within 30 days) Partnership obligations and expenditures
shall be distributed to the Partners; provided, however, that notwithstanding
the foregoing or any other provision contained in this Agreement, (a) unless a
Limited Partner otherwise consents in writing or defaults in the payment of any
Capital Contributions previously agreed to be made by it, the General Partner
shall not be entitled to cause the Partnership to retain any of a Limited
Partner's share of Partnership revenues for the purpose of paying (directly or
indirectly) any Capital Costs, Acquisition Costs, Capital Overrun Costs or LOPC
Overrun Costs and (b) the Partnership may retain such insurance proceeds and
other amounts as the General Partner shall reasonably determine are necessary to
pay Partnership liabilities and expenses, to restore, preserve and protect
Partnership property upon the occurrence of an accident (E.G., a blowout),
catastrophe or similar event or to comply with all applicable environmental
laws, ordinances, rules and regulations. All such cash funds of the Partnership
shall be distributed to the Partners in the same respective percentages as the
revenues to which such cash funds are attributable were allocated to the
Partners pursuant to SECTION 4.2 (after deducting therefrom the costs and
expenses charged to the Partnership pursuant to SECTION 4.1 and elsewhere
herein); provided, however, that if Payout No. 1, Payout No. 2 or Payout No. 3
would occur, as applicable, as a result of a distribution of cash funds to the
Limited Partners, such distribution shall be deemed to constitute two
distributions: (i) the first distribution shall consist of the amount of cash
funds necessary to cause
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Payout No.1, Payout No.2 or Payout No.3, as applicable, to occur and (ii) the
second distribution shall consist of the balance of the funds then distributed.
The calculation of each monthly distribution shall be made pursuant to SECTION
8.2(D). Notwithstanding the foregoing or anything else herein to the contrary,
the General Partner shall cause the Partnership to distribute to the Limited
Partners the cash funds contributed to the Partnership pursuant to SECTION
3.1(C) immediately upon receipt of such funds by the Partnership. Payment of all
distributions made by the Partnership to each Limited Partner shall be made by
wire transfer of immediately available funds in accordance with such written
instructions to the General Partner as may be provided by such Limited Partner
from time to time. Nothing contained in this SECTION 4.4 shall relieve the
General Partner from its obligation to bear 100% of Catastrophe Costs pursuant
to SECTION 4.1(A).
SECTION 4.5. ALLOCATION AMONG LIMITED PARTNERS. Subject to SECTION 3.3,
all Partnership items of costs, expenses, deductions (other than depletion),
credits, income, revenues, gain and loss (other than gain or loss from the sale
or other disposition of Depletable Property) to be allocated, charged or
credited to the Limited Partners shall be allocated, charged or credited to each
Limited Partner as follows: 25% to Energy PLC and 75% to EnCap LP.
SECTION 4.6. WITHHOLDING. The General Partner shall be entitled to
withhold from distributions made to the Partners any taxes required to be
withheld under applicable law. Amounts so withheld shall upon payment to the
appropriate taxing authority be treated as distributions to the Partner for
whose account the funds are withheld.
ARTICLE V
PARTNERSHIP PROPERTY
SECTION 5.1. TITLE TO PARTNERSHIP PROPERTY. All property owned by the
Partnership, whether real or personal, tangible or intangible, shall be deemed
to be owned by the Partnership as an entity, and no Partner, individually, shall
have any ownership of such property. The Partnership shall hold all of its
assets in the name of the Partnership. The General Partner shall promptly take
all such action as it shall deem necessary or appropriate, or as may be required
by law, to perfect and preserve the ownership interest of the Partnership in all
Leases, and (if requested by a Limited Partner) upon recordation of title to a
Lease shall promptly supply such Limited Partner with a copy of such recorded
title.
SECTION 5.2. ACQUISITION OF THE SUBJECT PROPERTIES. Immediately after the
execution and delivery of this Agreement by the parties hereto and the
acquisition by the Parent of the Subject Properties to be acquired from Exxon
Corporation, the General Partner shall cause the Parent to assign such Subject
Properties to the Partnership, which assignment shall be in the form of the
Conveyance attached hereto as EXHIBIT 5.2. Immediately after the acquisition by
the Parent of the Subject Properties to be acquired from Amoco Production
Company (and subject to the satisfaction of the conditions referenced in SECTION
3.2(A) with respect to the Amoco Properties), the General Partner shall cause
the Parent to assign such Subject Properties to the Partnership, which
assignment shall be in the form of the Conveyance acceptable to the Partners.
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SECTION 5.3. ACQUISITIONS OF ADDITIONAL INTERESTS IN THE PROPERTIES: AREA
OF MUTUAL INTEREST.
(a) If the General Partner or an Affiliate thereof acquires (or proposes
to acquire) an additional interest in the Subject Lands, the terms and
provisions of this SECTION 5.3(A) shall be operative. Specifically, upon the
acquisition (or proposed acquisition) under the circumstances described above,
the General Partner shall notify the Limited Partners, which notice shall (i)
specify the additional interest the General Partner or its Affiliates have
acquired (or propose to acquire) in the Subject Lands, (ii) specify the purchase
price (or proposed purchase price), and (iii) include such other information as
the General Partner deems material. Thereafter, the General Partner shall
promptly furnish to the Limited Partners any additional information concerning
the acquisition (or proposed acquisition) as a Limited Partner may reasonably
request and which is in the possession of the General Partner or its Affiliates
or can be obtained without undue effort or expense. Subject to SECTION 3.3, the
Partnership shall acquire the additional interest of the General Partner and
Affiliates in the Subject Lands (or, if applicable, which the General Partner
and Affiliates propose to acquire). In connection with any acquisition of an
interest by the Partnership pursuant to this SECTION 5.3(A), the General Partner
or an Affiliate thereof shall not retain from or otherwise burden the interest
assigned to the Partnership with any overriding royalty, net profits interest,
carried interest, reversionary interest, production payment or other burden in
favor of itself, its officers, directors or employees.
(b) If the General Partner or an Affiliate thereof proposes to
participate, either directly or indirectly or by itself or with others, in the
acquisition, exploitation and/or development of Leases or the acquisition of
other oil and gas related assets, the terms and provisions of this SECTION
5.3(B) shall be operative. Specifically, upon the occurrence of the
circumstances described above, the General Partner shall notify the Limited
Partners, which notice shall (i) specify in reasonable detail the nature of the
proposed acquisition and all salient terms thereof, (ii) include financial
projections relating to the proposed acquisition (to the extent prepared) and
any internally or externally prepared related engineering or reserve reports,
(iii) include such other information as the General Partner deems material and
(iv) offer the Partnership the right to participate in no less than 25% of the
proposed transaction on the same terms as Cliffwood or an Affiliate. Thereafter,
the General Partner shall promptly furnish to the Limited Partners any
additional information concerning the proposed transaction as a Limited Partner
may reasonably request (including, without limitation, any then existing reports
of consultants and outside engineers).
SECTION 5.4. LEASE SALES.
(a) Subject to SUBSECTION (B) below and SECTION 6.2(D) and elsewhere
herein, the General Partner may sell, farm-out, abandon or otherwise dispose of
any Partnership Lease, on such terms as the General Partner deems reasonable and
in the best interests of the Partnership and the Limited Partners.
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(b) Except as expressly permitted in SECTION 10.3, neither the General
Partner or any of its Affiliates nor any of their employees shall acquire,
directly or indirectly, any Lease (or any interest therein) from the
Partnership.
SECTION 5.5. SALES OF PRODUCTION. The General Partner shall have the right
to cause the Partnership to sell any oil or gas produced by or for the account
of the Partnership, including but not limited to crude oil, condensate, natural
gas liquids and natural gas (including casinghead gas) which may be produced
from or allocated to the Properties or any additional Leases acquired pursuant
to the terms hereof, to such purchaser and on such terms and conditions as the
General Partner shall determine to be in the best interest of the Partnership;
provided, however, that all such sales shall be upon terms and conditions which
are the best terms and conditions available as determined in good faith by the
General Partner taking into account all relevant circumstances, including but
not limited to, price, quality of production, access to markets, minimum
purchase guarantees, identity of purchaser, and length of commitment.
Notwithstanding anything to the contrary contained herein, neither the General
Partner nor any of its Affiliates shall purchase any oil or gas produced by or
for the account of the Partnership.
SECTION 5.6. OPERATING AGREEMENTS. The General Partner or an Affiliate
shall act as operator in connection with operations on the Properties and shall
be entitled to receive for its account all compensation and reimbursement
provided to an operator under the standard COPAS-1984-Onshore accounting
procedure; provided, however, that (a) the amounts charged to the Partnership
must be no less favorable than those available from unrelated third parties in
the area engaged in the business of rendering comparable services which could
reasonably be made available to the Partnership and in no event shall the
producing well overhead rate charged to the Partnership exceed an amount equal
to (x) $300 per well per month times the Partnership's working interest in such
well, in the instance of the Fort Stockton Field, and (y) $350 per well per
month times the Partnership's working interest in such well, in the instance of
a well located in the Goldsmith Landreth (San Andres) Unit, and (b) for any
given month with respect to a producing well, if the aggregate costs and
expenses charged to the Partnership and attributable to such well for such month
exceed the Partnership's share of revenues attributable to such well for such
month (in this SECTION 5.6, called the "EXCESS OPERATING COSTS"), the General
Partner shall reduce the producing well overhead rate for such well for such
month to an amount equal to the lesser of (x) the producing well overhead rate
charged with respect to such well or (y) the excess operating costs. In no event
shall the terms of any operating or similar agreement governing all or a portion
of the Properties vary or affect this Agreement or the duties and obligations of
the General Partner hereunder (even if the terms of any such agreement should
provide otherwise). Subject to the immediately following sentence, the General
Partner or Affiliate shall not substitute another party or operator or assign
its obligations as operator with respect to any Partnership Lease where it acts
as operator prior to the occurrence of Payout No. 3 unless the Limited Partners
so request in the event the General Partner is removed as such pursuant to
SECTION 9.4 or the Limited Partners dissolve the Partnership pursuant to any of
SUBSECTIONS (C), (E), (F), (H) or (I) of SECTION 10.1 (and the General Partner
agrees to use its best efforts to cause the person designated by the Limited
Partners to be the successor operator).
ARTICLE VI
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MANAGEMENT
SECTION 6.1. POWER AND AUTHORITY OF GENERAL PARTNER. Except as provided in
SECTIONS 6.2 and elsewhere in this Agreement and except as otherwise provided by
applicable law, the General Partner shall have full and exclusive power and
authority on behalf of the Partnership to manage, control, administer and
operate the properties, business and affairs of the Partnership in accordance
with this Agreement and to do or cause to be done any and all acts deemed by the
General Partner to be necessary or appropriate thereto, and (except as aforesaid
in this SECTION 6.1) the scope of such power and authority shall encompass all
matters in any way connected with such business or incident thereto.
SECTION 6.2. CERTAIN RESTRICTIONS ON GENERAL PARTNER'S POWER AND
AUTHORITY. Notwithstanding any other provisions of this Agreement to the
contrary, the General Partner shall not have the power or authority to, and
shall not, do, perform or authorize any of the following:
(a) To borrow any money in the name or on behalf of the Partnership, or
otherwise draw, make, execute and issue promissory notes and other negotiable or
non-negotiable instruments and evidences of indebtedness, except that the
General Partner may borrow money in the name and on behalf of the Partnership in
such amounts as the General Partner shall reasonably determine are necessary to
preserve and protect Partnership property upon the occurrence of an accident
(E.G., a blowout), catastrophe or similar event or to comply with all applicable
environmental laws, ordinances, rules and regulations;
(b) To mortgage, pledge, assign in trust or otherwise encumber any
Partnership property, or to assign any monies owing or to be owing to the
Partnership, except to secure the payment of any borrowing permitted in SECTION
6.2(A) and except for customary liens contained in or arising under any
operating agreements, construction contracts and similar agreements executed by
or binding on the Partnership, provided that in no event shall the General
Partner mortgage, pledge, assign in trust or otherwise encumber the
Partnership's right to receive Capital Contributions from the Limited Partners;
(c) To guarantee in the name or on behalf of the Partnership the payment
of money or the performance of any contract or other obligation of any person
except for responsibilities customarily assumed under operating agreements
considered standard in the industry;
(d) To sell, assign, farm-out, abandon or otherwise dispose of any
Partnership Lease except such Leases or interests therein as the General Partner
shall reasonably determine to be necessary to raise funds to pay Partnership
liabilities and expenses (other than Catastrophe Costs) and to restore, preserve
and protect Partnership property upon the occurrence of an accident, catastrophe
or similar event or to comply with all applicable environmental laws,
ordinances, rules and regulations;
(e) To make any advance payments of compensation or other consideration to
the General Partner or any of its Affiliates;
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(f) To bind or obligate the Partnership with respect to any matter outside
the scope of the Partnership business;
(g) To merge or consolidate the Partnership with any partnership or other
person or entity, convert the Partnership to a general partnership or other
entity or agree to an exchange of interests with any other person;
(h) To use the Partnership name, credit or property for other than
Partnership purposes;
(i) To loan any Partnership funds to the General Partner or any of its
Affiliates;
(j) To enter into any Hedging Transaction;
(k) To acquire any Lease in violation of the terms of this Agreement;
(l) To compromise or settle any lawsuit, administrative matter or other
dispute where the amount the Partnership may recover or might be obligated to
pay, as applicable, is in excess of $25,000 or to repair or replace Partnership
property damaged or destroyed as a result of an accident or other occurrence
when the Partnership's share of the costs of repair or replacement (either
individually or in the aggregate) is equal to or in excess of $100,000;
(m) To alter, supplement, modify or amend the Purchase Agreement in any
material respect, waive any of the Partnership's rights or any of seller's
duties thereunder in any material respect or make any material election or
agreement thereunder;
(n) To alter, supplement, modify or amend any Conveyance in any material
respect, waive any of the Partnership's rights or any of assignor's duties
thereunder in any material respect or make any material election or agreement
thereunder;
(o) To enter into any contract or agreement with the General Partner or
any Affiliate for the rendering of services or the sale or lease of supplies
(except that the foregoing shall not preclude the General Partner from serving
as operator in accordance with SECTION 5.6); or
(p) Except as expressly provided herein, to take any action with respect
to the assets or property of the Partnership which would reasonably be expected
to benefit the General Partner or any of its Affiliates to the detriment of the
Limited Partners or the Partnership, including, among other things, utilization
of funds of the Partnership as compensating balances for its own benefit.
SECTION 6.3. DUTIES AND SERVICES OF GENERAL PARTNER. The General Partner
shall comply in all respects with the terms of this Agreement and shall use its
best efforts to cause its Affiliates to comply with the terms of this Agreement.
In the conduct of the business and operations of the Partnership the General
Partner shall cause the Partnership (a) to comply with the terms and provisions
of all agreements to which the Partnership is a party or to which its properties
are subject, (b) to comply with all applicable laws, ordinances or governmental
rules and regulations
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to which the Partnership is subject (including, without limitation, all
applicable federal, state and local environmental laws, ordinances, rules and
regulations) and (c) to obtain and maintain all licenses, permits, franchises
and other governmental authorizations necessary with respect to the ownership of
Partnership properties and the conduct of Partnership business and operations.
With respect to the maintenance, development and operation of the Properties and
any additional Leases acquired pursuant to the terms hereof, the General Partner
shall have the standard of care of a prudent and diligent operator. With respect
to the Limited Partners and their interests in the Partnership, the General
Partner shall have the duties set forth in Section 4.04 of the Texas Revised
Partnership Act and shall discharge such as provided in Section 4.04(d) of the
Texas Revised Partnership Act, provided that (i) the General Partner shall at
all times act with integrity and in good faith and utilize its best efforts in
all activities relating to the conduct of the business of the Partnership and in
resolving conflicts of interest; (ii) during the existence of the Partnership,
the General Partner shall devote such time and effort to the Partnership
business and operations as shall be necessary to promote fully the interests of
the Partnership and the mutual best interests of the Partners; however, it is
specifically understood and agreed that the General Partner shall not be
required to devote full time to Partnership business; and (iii) subject to the
other express provisions of this Agreement, each Limited Partner acknowledges
that the General Partner currently engages in and possesses, and agrees that the
General Partner may continue to engage in and possess, interests in other
business ventures of any and every type and description, independently or with
others, including without limitation the ownership, acquisition, exploration,
development, operation and management of oil and gas properties, oil and gas
drilling programs and partnerships similar to this Partnership, and (subject to
the other express provisions of this Agreement) neither the Partnership nor any
Limited Partner shall by virtue of this Agreement have any right, title or
interest in or to such independent ventures. With respect to the maintenance and
safekeeping of Partnership funds, the General Partner shall owe the Partnership
and the Limited Partners a fiduciary duty. The General Partner covenants and
agrees that it will at all times have available to it and the Partnership a
professional staff and outside consultants which together will be reasonably
adequate in size, experience and competency to discharge properly the duties and
functions of the General Partner hereunder and under any applicable operating
and other agreements, including without limitation, engineers, geologists and
other technical personnel, accountants and secretarial and clerical personnel.
SECTION 6.4. LIABILITY OF GENERAL PARTNER. The General Partner and its
officers, employees and agents (all of such foregoing persons being herein
called an "INDEMNITEE") shall not be liable, responsible or accountable in
damages or otherwise to the Partnership or the Limited Partners for, and
(subject to SECTION 6.5) the Partnership shall indemnify and save harmless the
General Partner and each Indemnitee from any costs, expenses, losses or damages
(including attorneys' fees and expenses, court costs, judgments and amounts paid
in settlement) incurred by reason of its being General Partner or an Indemnitee,
provided it has acted in good faith on behalf of the Partnership and the Limited
Partners and in a manner reasonably believed by it to be within the scope of the
authority granted to it by this Agreement and in the best interests of the
Partnership, and provided further that (a) the General Partner or Indemnitee was
not guilty of a material breach of this Agreement, gross negligence, willful or
wanton misconduct or breach of fiduciary duty with respect to such acts or
omissions, and (b) the satisfaction of any indemnification and any saving
harmless shall be from and limited to Partnership assets (which
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shall be converted to cash to the extent necessary in a manner appropriate to
protect the interests of all Partners) and not from any Capital Contributions to
be made by the Limited Partners hereunder, and no Limited Partner shall have any
personal liability on account thereof.
SECTION 6.5. LIMITATIONS ON INDEMNIFICATION. The rights of the General
Partner or an Indemnitee under SECTION 6.4 with respect to indemnification from
the Partnership shall be subject to the provisions of Article 11 of the Act. Any
indemnification under SECTION 6.4 shall be made by the Partnership only as
permitted herein and, unless the General Partner or Indemnitee was wholly
successful on the merits, only upon a determination by a court upon the request
of the General Partner or by independent legal counsel selected by the General
Partner and satisfactory to the Limited Partners in a written opinion that
indemnification of the General Partner or Indemnitee is permitted (a) under the
circumstances because it has met the applicable standard of conduct set forth in
SECTION 6.4 and (b) pursuant to Article 11 of the Act.
SECTION 6.6. COSTS, EXPENSES AND REIMBURSEMENT.
(a) Subject to the other express provisions of this Agreement, all direct,
third party out-of-pocket costs and expenses reasonably incurred in the
Partnership's business shall be paid from Partnership funds, including without
limitation costs of reports under SECTION 8.2, costs of obtaining audits of the
Partnership's books and records, outside legal costs, general taxes and other
direct, third party out-of-pocket costs and expenses of the Partnership.
(b) Except as specifically provided in SECTION 5.6, this SECTION 6.6 and
SECTION 6.7, the General Partner and its Affiliates shall not be paid any fee,
compensation or reimbursement or be entitled to or charge the Partnership for or
on account of their services, services of their officers, employees or
consultants, fees or compensation of those geologists, geophysicists and
engineers who are employed or retained by them, office expense, overhead or any
other general and administrative costs unless otherwise agreed to in writing by
the Limited Partners.
SECTION 6.7. ORGANIZATION COSTS. The Partnership from time to time shall
pay directly or shall reimburse the General Partner and the Limited Partners for
any payment by them of the following fees and expenses in connection with the
organization of the Partnership ("ORGANIZATION COSTS"): (a) all reasonable fees
and expenses incurred by them (including fees for outside legal services) in
connection with the preparation and filing of all certificates, opinions and
documents required pursuant to SECTIONS 1.2 and 1.6, (b) all reasonable fees and
expenses incurred by the Limited Partners in obtaining reports of outside
consultants and advisors relating to the determination of appropriate insurance
coverage for the Partnership, (c) all reasonable fees and expenses of engineers
and other outside consultants retained by the Limited Partners in connection
with their decision to enter into this Agreement, (d) all reasonable fees and
expenses of legal counsel to the Limited Partners in connection with (i) the
negotiation, preparation and execution of this Agreement and all related
documents and (ii) the review of title and the transfer of the Subject
Properties to the Partnership, (e) all reasonable fees and expenses of legal
counsel to the Limited Partners in connection with the Limited Partners'
consideration of any waiver of their rights under this Agreement or any proposed
amendment or supplement to this Agreement and (f)
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that certain PLACEMENT FEE (as herein called) in the amount of $100,000 due and
owing to EnCap Investments L.C. by the General Partner.
SECTION 6.8. INSURANCE. The General Partner shall cause the Partnership to
obtain (and maintain during the entire term of the Partnership), or the General
Partner shall carry for the benefit of the Partnership, insurance coverage in
such amounts, with provisions for such deductible amounts and for such purposes
as specified in EXHIBIT 6.8 attached hereto. Where appropriate, the General
Partner may include the Partnership or the Limited Partners as additional
insureds on any policies otherwise carried by the General Partner and the costs
thereof shall be allocated to the Partnership on a basis mutually agreed upon in
writing by the General Partner and the Limited Partners from time to time. The
General Partner shall furnish to the Limited Partners (a) within 10 days after
the end of each calendar year, certified copies of all the policies constituting
the insurance coverage agreed upon pursuant to this SECTION 6.8 and (b) within
10 days after their issuance or amendment, certified copies of any new policies
issued, or existing policies amended, during any calendar year. The General
Partner shall use its best efforts to cause all the policies constituting the
insurance coverage agreed upon pursuant to this SECTION 6.8 to be endorsed to
preclude cancellation or reduction of coverage except upon 30-days' written
notice to the Limited Partners. In the event the insurance coverage agreed upon
by the General Partner and the Limited Partners pursuant to this SECTION 6.8 is
or becomes unavailable on the market, the General Partner shall immediately
notify the Limited Partners of such fact and shall use its best efforts to
obtain the maximum coverage of the type of insurance involved available on the
market. The cost of all such insurance coverage shall be charged to the
Partnership as a Partnership expense.
SECTION 6.9. TAX ELECTIONS. The General Partner shall make the following
elections on behalf of the Partnership:
(a) To elect, in accordance with Section 263(c) of the Internal Revenue
Code and applicable regulations and comparable state law provisions, to deduct
as an expense all intangible drilling and development costs with respect to
productive and non-productive wells and the preparation of wells for the
production of oil or gas; law;
(b) To elect the calendar year as the Partnership's fiscal year if
permitted by applicable
(c) To elect the accrual method of accounting;
(d) If requested by a Partner and at such Partner's expense, to elect, in
accordance with Sections 734, 743 and 754 of the Internal Revenue Code and
applicable regulations and comparable state law provisions, to adjust basis in
the event any Partnership interest is transferred in accordance with this
Agreement or any Partnership property is distributed to any Partner;
(e) To elect to treat all organizational and start-up costs of the
Partnership as deferred expenses amortizable over 60 months under Sections 195
and 709 of the Internal Revenue Code; and
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(f) To elect with respect to such other federal, state and local tax
matters as the General Partner and the Limited Partners shall agree upon from
time to time.
SECTION 6.10. TAX RETURNS. The General Partner shall prepare and timely
file all federal, state and local income and other tax returns and reports as
may be required as a result of the business of the Partnership, which returns
shall be signed by the independent certified public accountants of the
Partnership. Not less than 30 days prior to the date (as extended) on which the
Partnership intends to file its federal income tax return or any state income
tax return, the return proposed to be filed by the General Partner shall be
furnished to the Limited Partners for review and comments. In addition, not more
than 10 days after the date on which the Partnership actually files its federal
income tax return or any state income tax return, a copy of the return so filed
by the General Partner shall be furnished to the Limited Partners. The General
Partner shall be designated the tax matters partner under Section 6231 of the
Internal Revenue Code and shall promptly notify the Limited Partners if any tax
return or report of the Partnership is audited or if any adjustments are
proposed by any governmental body. In addition, the General Partner shall
promptly furnish to the Limited Partners all notices concerning administrative
or judicial proceedings relating to federal income tax matters as required under
the Internal Revenue Code. During the pendency of any such administrative or
judicial proceeding, the General Partner shall furnish to the Limited Partners
periodic reports, not less often than monthly, concerning the status of any such
proceeding. Without the consent of the Limited Partners, the General Partner
shall not extend the statute of limitations, file a request for administrative
adjustment, file suit concerning any tax refund or deficiency relating to any
Partnership administrative adjustment or enter into any settlement agreement
relating to any Partnership item of income, gain, loss, deduction or credit for
any fiscal year of the Partnership.
SECTION 6.11. APPOINTMENT OF TRUSTEE TO RECEIVE PAYMENTS. The Limited
Partners may cause the Partnership at the Partnership's expense to assign the
Partnership's right to receive revenues to a trustee named by the Limited
Partners (a) if the General Partner has committed fraud, willful or intentional
misconduct or gross negligence in the performance of its duties hereunder, (b)
if the General Partner is in default in the performance or observation of any
material agreement, covenant, term, condition or obligation hereunder, (c) if a
representation or warranty made by the General Partner herein or by the General
Partner or any of its officers in any writing furnished in connection with or
pursuant to this Agreement shall be false in a material respect on the date as
of which made, or (d) upon the occurrence of any of the events described in
either Section 4.02(a)(4) or in Section 4.02(a)(5) of the Act (except that with
respect to Section 4.02(a)(5) the operative number of days shall be 60 instead
of those set forth in such Section). Such trustee shall receive and hold
Partnership revenues for the benefit of all the Partners, but shall not have the
rights of the General Partner hereunder. The trustee's sole right and
responsibility shall be to receive Partnership funds and disburse them in
accordance with the other provisions of this Agreement. In the event a trustee
is appointed pursuant to this SECTION 6.11 and the default is cured or the
action or event under or with respect to the bankruptcy law is completely
dismissed or eliminated, the General Partner and the Limited Partners shall, at
the request of either the General Partner or the Limited Partners, cause the
trustee to be discharged at the Partnership's expense; provided that in the
judgment of the Limited Partners, their interest under this Agreement will not
be adversely affected by any such discharge.
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ARTICLE VII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNER
SECTION 7.1. RIGHTS OF LIMITED PARTNER. In addition to the other rights
specifically set forth herein or by non-waivable provisions of applicable law,
each Limited Partner shall have the right to: (a) have the Partnership books and
records (including without limitation those required in Section 1.07 of the Act)
kept at the principal United States office of the Partnership and at all
reasonable times to inspect and copy any of them, (b) have on demand true and
full information of all things affecting the Partnership and a formal account of
Partnership affairs whenever circumstances render it just and reasonable, (c)
have dissolution and winding up by decree of court as provided for in the Act
and (d) exercise all rights of a limited partner under the Act (except to the
extent otherwise specifically provided for herein).
SECTION 7.2. LIMITATIONS ON LIMITED PARTNER. No Limited Partner shall have
the authority or power in its capacity as a Limited Partner to act as agent for
or on behalf of the Partnership or any other Partner, to do any act which would
be binding on the Partnership or any other Partner, or to incur any expenditures
on behalf of or with respect to the Partnership. The General Partner shall not
hold out or represent to any third party that any Limited Partner has any such
right or power or that a Limited Partner is anything other than a "limited
partner" in the Partnership.
SECTION 7.3. LIABILITY OF LIMITED PARTNER. No Limited Partner shall be
liable for the debts, liabilities, contracts or other obligations of the
Partnership except to the extent of any unpaid Capital Contributions agreed to
be made by such Limited Partner as set forth in SECTION 3.2 (which shall be
subject to reduction as provided for in SECTION 3.4), any additional Capital
Contributions hereafter agreed to be made by such Limited Partner in accordance
with SECTION 3.3 (which shall also be subject to reduction as provided for in
SECTION 3.4) and such Limited Partner's share of the assets (including
undistributed revenues) of the Partnership; and in all events, such Limited
Partner shall be liable and obligated to make payments of its Capital
Contributions only as and when such payments are due in accordance with the
terms of this Agreement, and such Limited Partner shall not be required to make
any loans to the Partnership. Except to the extent expressly provided in the
preceding sentence, the Partnership shall indemnify and hold harmless each
Limited Partner in the event it (a) becomes liable for any debt, liability,
contract or other obligation of the Partnership or (b) is directly or indirectly
required to make any payments with respect thereto.
SECTION 7.4. ACCESS OF LIMITED PARTNER TO DATA. During the term of the
Partnership, the Partnership may acquire or have access to geophysical,
geological and other similar data and information. Each Limited Partner and its
agents and representatives, at any time either during the term of or after
termination of the Partnership, shall have the right to inspect, review and copy
any such data or information (or studies, maps, evaluations or reports derived
therefrom) which relates to the Properties or other Leases which the Partnership
owns or has owned or which has been paid for with Partnership funds and to
consult with the Partnership's independent certified
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public accountants and independent petroleum engineers and the General Partner's
technical personnel with respect to Partnership matters. Upon liquidation of the
Partnership, copies of all such documents shall be distributed to the General
Partner and to each Limited Partner if so requested by it. Notwithstanding the
foregoing, the Limited Partners shall not have the right to inspect, review or
copy geophysical, geological and other similar data and information if the
Partnership or the General Partner is subject to a valid, bona fide agreement
prohibiting such inspection, review or copying. If requested by a Limited
Partner, the General Partner shall attempt to obtain an amendment or waiver of
any such agreement to permit such data or other information to be provided to
such Limited Partner upon the execution by such Limited Partner of a similar
agreement and in any event shall attempt in advance of execution of any such
agreement to obtain permission for the Limited Partners to inspect, review and
copy any such data or other information.
SECTION 7.5. WITHDRAWAL AND RETURN OF CAPITAL CONTRIBUTION. No Limited
Partner shall be entitled to (a) withdraw from the Partnership except upon the
assignment by the Limited Partner of all of its interest in the Partnership and
the substitution of such Limited Partner's assignee as a Limited Partner of the
Partnership in accordance with SECTION 9.1, or (b) the return of its Capital
Contributions except to the extent, if any, that distributions made pursuant to
the express terms of this Agreement may be considered as such by law or by
unanimous agreement of the Partners, or upon dissolution and liquidation of the
Partnership, and then only to the extent expressly provided for in this
Agreement and as permitted by law.
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ARTICLE VIII
BOOKS, RECORDS, REPORTS AND BANK ACCOUNTS
SECTION 8.1. CAPITAL ACCOUNTS, BOOKS AND RECORDS.
(a) Except as may otherwise be required by this Agreement, the General
Partner shall keep books of account for the Partnership in accordance with
generally accepted accounting principles consistently applied in accordance with
the terms of this Agreement. Such books shall be maintained at the principal
United States office of the Partnership and shall be maintained by the General
Partner for review by the Limited Partners during the term of the Partnership
and for a period of five years thereafter. The calendar year shall be selected
as the accounting year of the Partnership and the books of account shall be
maintained on an accrual basis.
(b) An individual capital account shall be maintained by the Partnership
for each Partner as provided below:
(i) The capital account of each Partner shall, except as otherwise
provided herein, be (A) credited by such Partner's Capital Contributions
when made, (B) credited by the fair market value of any property
contributed to the Partnership by such Partner (net of liabilities secured
by such contributed property that the Partnership is considered to assume
or take subject to under Section 752 of the Internal Revenue Code), (C)
credited with the amount of any item of taxable income or gain and the
amount of any item of income or gain exempt from tax allocated to such
Partner, including the Partner's share of Simulated Gain as provided in
PARAGRAPH (II) of this SECTION 8.1(B), (D) debited by the amount of any
item of tax deduction or loss allocated to such Partner, including the
Partner's share of Simulated Loss and Simulated Depletion as provided in
paragraph (ii) of this SECTION 8.1(B), (E) debited by such Partner's
allocable share of expenditures of the Partnership not deductible in
computing the Partnership's taxable income and not properly chargeable as
capital expenditures, including any non-deductible book amortizations of
capitalized costs, and (F) debited by the amount of cash or the fair
market value of any property distributed to such Partner (net of
liabilities secured by such distributed property that such Partner is
considered to assume or take subject to under Section 752 of the Internal
Revenue Code). Immediately prior to any distribution of assets by the
Partnership that is not pursuant to a liquidation of the Partnership or
all or any portion of a Partner's interest therein, the Partners' capital
accounts shall be adjusted by (X) assuming that the distributed assets
were sold by the Partnership for cash at their respective fair market
values as of the date of distribution by the Partnership and (Y) crediting
or debiting each Partner's capital account with its respective share of
the hypothetical gains or losses, including Simulated Gains and Simulated
Losses, resulting from such assumed sales in the same manner as each such
capital account would be debited or credited for gains or losses on actual
sales of such assets. Notwithstanding the foregoing sentence, the
Partnership shall not distribute any property in kind to any Partner
except as provided in SECTION 10.3.
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(ii) The allocation of basis prescribed by Section 613A(c)(7)(D) of
the Internal Revenue Code and provided for in SECTION 4.3(B) and each
Partner's separately computed depletion deductions shall not reduce such
Partner's capital account, but such Partner's capital account shall be
decreased by an amount equal to the product of the depletion deductions
that would otherwise be allocable to the Partnership in the absence of
Section 613A(c)(7)(D) of the Internal Revenue Code (computed without
regard to any limitations which theoretically could apply to any Partner)
times such Partner's percentage share of the adjusted basis of the
property (determined under SECTION 4.3(B)) with respect to which such
depletion is claimed (herein called "SIMULATED DEPLETION"). The
Partnership's basis in any depletable property as adjusted from time to
time for the Simulated Depletion allocable to all Partners (and where the
context requires, each Partner's allocable share thereof, which share
shall be determined in the same manner as the allocation of basis
prescribed in SECTION 4.3(B)) is herein called "SIMULATED BASIS". No
Partner's capital account shall be decreased, however, by Simulated
Depletion deductions attributable to any Depletable Property to the extent
such deductions exceed such Partner's allocable share of the Partnership's
remaining Simulated Basis in such property. The Partnership shall compute
simulated gain ("SIMULATED GAIN") or simulated loss ("SIMULATED LOSS")
attributable to the sale or other disposition of a Depletable Property
based on the difference between the amount realized from such sale or
other disposition and the Simulated Basis of such property, as theretofore
adjusted. Any Simulated Gain shall be allocated to the Partners and shall
increase their respective capital accounts in the same manner as the
amount realized from such sale or other disposition in excess of Simulated
Basis shall have been allocated pursuant to SECTION 4.3(B). Any Simulated
Loss shall be allocated to the Partners and shall reduce their respective
capital accounts in the same percentages as the costs of the property sold
were allocated up to an amount equal to each Partner's share of the
Partnership's Simulated Basis in such property at the time of such sale.
(iii) Any adjustments of basis of Partnership property provided for
under Sections 734 and 743 of the Internal Revenue Code and comparable
provisions of state law (resulting from an election under Section 754 of
the Internal Revenue Code or comparable provisions of state law) and any
election by an individual Partner under Section 59(e)(4) of the Internal
Revenue Code to amortize such Partner's share of intangible drilling and
development costs shall not affect the capital accounts of the Partners
(unless otherwise required by applicable Treasury Regulations), and the
Partners' capital accounts shall be debited or credited pursuant to the
terms of this SECTION 8.1 as if no such election had been made.
(iv) Capital accounts shall be adjusted, in a manner consistent with
this SECTION 8.1, to reflect any adjustments in items of Partnership
income, gain, loss or deduction that result from amended returns filed by
the Partnership or pursuant to an agreement by the Partnership with the
Internal Revenue Service or a final court decision.
(v) If any property is carried on the books of the Partnership at a
value that differs from it adjusted tax basis, the Partners' capital
accounts shall be debited or credited for items of depreciation, cost
recovery, Simulated Depletion, amortization and gain or
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loss with respect to such property computed in the same manner as such
items would be computed if the adjusted tax basis of such property were
equal to such book value in lieu of the capital account adjustments
provided above for such items, all in accordance with Treasury Regulation
ss. 1.704-1(b)(2)(iv)(g).
(vi) It is the intention of the Partners that the capital accounts
of each Partner be kept in the manner required under Treasury Regulation
ss. 1.704-1(b)(2)(iv). To the extent any additional adjustment to the
capital accounts is required by such regulation, the General Partner is
hereby authorized to make such adjustment after notice to the Limited
Partners.
SECTION 8.2. REPORTS. The General Partner shall deliver to the Limited
Partners the following financial statements and reports at the times indicated
below:
(a) Daily, via facsimile, which the Partnership has any direct drilling
operations in progress, a drilling report detailing the progress as reported by
the subject drilling superintendent.
(b) Monthly, within 20 days after the end of the month for which such
report is given, while the Partnership has any direct drilling or enhanced
recovery operations in progress, a report disclosing in reasonable detail the
progress of such drilling operations on a well-by-well basis, such enhanced
recovery operations and such other information as the General Partner may
determine or a Limited Partner shall reasonably request.
(c) Monthly, within 20 days after the end of the month for which such
report is given, (i) a general description of the Properties, except succeeding
reports need contain only material changes (if any) regarding the Properties,
(ii) a list of wells in which the Partnership has an interest, a description of
the status thereof and the interest of the Partnership therein, except
succeeding reports need contain only material changes (if any) regarding any
such well, (iii) a statement of the cost of each well completed or abandoned and
an explanation of the abandonment of any well which has been abandoned after
production from such well has commenced and (iv) a description of each sale,
farmout or other transfer or disposition by the Partnership of any Lease
occurring during such month, including the reasons therefor, parties thereto and
terms thereof.
(d) Monthly, within 50 days after the end of each month for which such
report is given, a draft schedule prepared on a cash basis setting forth (i)
total 8/8ths production of oil and gas from the Properties net to the
Partnership, including the average price net to the Partnership, (ii) total
Partnership revenues, expenses and costs allocated to the Limited Partners,
(iii) the amount of the proposed cash distribution to the General Partner and
the Limited Partners and (iv) a description of any permitted Partnership
borrowing occurring during such month, including the reasons therefor, parties
thereto and terms thereof, together with total Partnership borrowings then
outstanding. A draft schedule describing the specific requirements outlined
above is attached hereto as EXHIBIT 8.2(D) which will be prepared by the General
Partner to the specific requirement of the Limited Partners. The Limited
Partners may request sales reports, production reports, invoices, cancelled
checks and other information by each operating expense item, severance, royalty,
production tax item or any other cost item to be included with such report. The
Limited
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Partners may request such information and reports at the property level in
addition to at the Partnership level. A final schedule of the type described in
this SECTION 8.2(D) shall be submitted no more than 55 days after the end of the
month for which such report is given. Notwithstanding anything else herein to
the contrary, any distribution not received within the 25th day of any month or,
if the 25th day is not a business day, the business day immediately preceding
the 25th day of the month, will be credited as if received in the following
month for the purpose of computing Payout No. 1, Payout No. 2 and Payout No. 3.
The distribution, if any, to the Limited Partners shall be submitted with the
final schedule.
(e) Quarterly within 30 days after the end of each fiscal quarter of the
Partnership and annually within 60 days after the end of each fiscal year of the
Partnership, (i) financial statements as of the end of and for such period,
including a balance sheet and the related statements of operations, of Partners'
capital and of cash flows, prepared in accordance with generally accepted
accounting principles and, with respect to the annual financial statements,
accompanied by a report of the Partnership's independent certified public
accountants stating that their examination was made in accordance with generally
accepted auditing standards and that in their opinion such financial statements
fairly present the Partnership's financial position, results of operations and
cash flow in accordance with generally accepted accounting principles
consistently applied, (ii) a schedule reflecting for such period the total costs
of the Partnership and the costs charged to the General Partner and the costs
charged to the Limited Partners, the total revenues of the Partnership and the
revenues credited to the account of the General Partner and to the account of
the Limited Partners and a reconciliation of such expenses and revenues to the
provisions of ARTICLE IV, (iii) a summary itemization by type and/or
classification of the total fees, compensation and reimbursement paid by the
Partnership (or indirectly on behalf of the Partnership) to the General Partner
and its Affiliates and a descriptive summary of each contract or agreement to
which SECTION 6.2(O) applies (which summary shall include a discussion of such
fees, compensation or reimbursement paid thereunder), which summaries shall be
accompanied by a report of the Partnership's independent certified public
accountants stating that in preparing such summaries nothing came to their
attention which caused them to believe that any transaction between the General
Partner or an Affiliate thereof and the Partnership did not comply with SECTION
6.6 or SECTION 6.2(O), or if they did so conclude, a statement specifying such
noncompliance, (iv) a schedule reflecting the capital account balances of each
Partner prepared pursuant to the provisions of SECTION 8.1(B), and (v) in the
event that an event has occurred within the preceding 90 days which has led to a
reduction of the Partnership's oil and gas reserves of more than 10% as most
recently reported, excluding reduction resulting from normal production or
changes in oil or gas prices, an updated estimate of such reserves from the
Partnership's independent petroleum engineer. With respect to the annual
financial statements, the Limited Partners may, at their election, request a
report from the independent certified public accountants stating that in the
normal course of making the examination and reporting on the financial
statements described above, nothing came to their attention which caused them to
believe that (1) the revenues and costs and expenses allocated to the Partners
hereunder were not allocated in accordance with the specific allocation
provisions of this Agreement and (2) the General Partner failed to comply in any
material respect with this Agreement, or, if they did conclude that the General
Partner so failed, a statement specifying the nature and period of existence of
such failure. The independent certified public accountants for the Partnership
shall be Price Waterhouse or such
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other firm of independent certified public accountants as shall be designated by
the General Partner and approved by the Limited Partners.
(f) Annually within 60 days after the end of each fiscal year beginning
with the fiscal year ending December 31, 1996, a report containing (i) an
estimation of the oil and gas reserves, classified by appropriate categories, as
of the end of the preceding fiscal year attributable to the interest of the
Partnership and of the Limited Partners therein, (ii) a projection of the rate
of production of and net income from such reserves with respect to each such
interest, (iii) a calculation of the present worth of such net income discounted
at a rate of 10% and at any other rates designated from time to time by the
Limited Partners, and (iv) a schedule or complete description of all
assumptions, estimates and projections made or used in the preparation of such
report. Each such report shall be prepared in accordance with customary and
generally accepted standards and practices for petroleum engineers, and shall be
based on (1) prices determined by the Limited Partners (however, it is
contemplated that such determination will likely be based upon projected futures
market prices reduced by (x) the historical average basis differential between
such NYMEX prices and posted and/or spot prices actually received by the
Partnership and (y) any gathering, transportation and processing fees),
escalated at a rate reasonably designated by the Limited Partners (not to exceed
3% per annum), (2) lease operating expenses and production taxes derived from
and consistent with those actually incurred by the Partnership, escalated at the
same rate, if any, being applied to prices, and (3) such other assumptions as
shall be designated by the Limited Partners. In addition to the foregoing, the
Limited Partners shall have the right from time to time to cause the independent
petroleum engineer referenced below to prepare an additional report of the type
described above, not to exceed two additional reports in any one calendar year,
in which event all fees and expenses incurred in connection with obtaining such
additional report shall be paid by the Partnership as a Partnership expense.
Each such report contemplated above by this SUBSECTION (F) shall be prepared by
T.J. Smith & Company, Inc. or such other independent petroleum engineer mutually
agreed upon by the Partners and shall herein be called an "ENGINEERING REPORT".
Each annual report referenced above shall also include an estimate of the
Partnership's proved oil and gas reserves (as defined in Regulation S-X
promulgated by the Securities and Exchange Commission) and a calculation of the
"present value of estimated future net revenues" from such proved oil and gas
reserves, with such present worth calculation to be made in accordance with
Regulation S-X, as promulgated by the Securities and Exchange Commission
(provided that the estimate referenced in this sentence shall not be deemed to
be an Engineering Report for purposes of this Agreement).
(g) Quarterly, within 30 days after the end of each quarter, unaudited
financial statements of the General Partner for such quarter.
(h) Such other reports and financial statements as the General Partner
shall determine or as any Limited Partner shall reasonably request from time to
time.
The cost of such reporting paid to third parties (except for the financial
statements referenced in SUBSECTION (G) above) shall be paid by the Partnership
as a Partnership expense.
SECTION 8.3. BANK ACCOUNTS.
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(a) The General Partner shall cause one or more accounts to be maintained
in the name of the Partnership in Comerica Bank, Houston, Texas, or in such
other bank or banks approved by the Limited Partners which each have capital,
surplus and undivided profits of at least $250,000,000, which accounts shall be
used for the payment of expenditures incurred by the Partnership in connection
with the conduct of its business and in which shall be deposited any and all
receipts of the Partnership. All amounts shall be and remain the property of the
Partnership and the General Partner shall cause the Partnership to receive, hold
and disburse such amounts for the purposes specified in this Agreement. There
shall not be deposited in any of such accounts any funds other than funds
belonging to the Partnership, and no other funds shall in any way be commingled
with such funds.
(b) The General Partner may invest the Partnership funds only in (i)
readily marketable securities issued by the United States or any agency or
instrumentality thereof and backed by the full faith and credit of the United
States maturing within 12 months or less from the date of acquisition, (ii)
readily marketable securities issued by any state or municipality within the
United States of America or any political subdivision, agency or instrumentality
thereof, maturing within 12 months or less from the date of acquisition and
rated "A" or better by Moody's and/or Standard and Poor's (or comparably rated
by such organizations or any successors thereto if the rating system is changed
or there are such successors), (iii) readily marketable commercial paper rated
"Prime-1" by Moody's and "A-1" by Standard and Poor's (or comparably rated by
such organizations or any successors thereto if the rating system is changed or
there are such successors) and maturing in not more than 12 months after the
date of acquisition, or (iv) certificates of deposit issued by any incorporated
bank organized and doing business under the laws of the United States of America
or of any state thereof and approved by the Limited Partners, provided such
investments do not exceed 3% of the combined capital and surplus of such bank
and mature within 12 months or less from the date of acquisition.
SECTION 8.4. INFORMATION RELATING TO THE PARTNERSHIP. Upon request, the
General Partner shall supply to any Limited Partner any information requested
regarding the Partnership or its activities. During ordinary business hours,
each Limited Partner and its authorized agents and representatives shall have
reasonable access to all books, records and materials in the Partnership's
offices regarding the Partnership or its activities and, at the risk of the
Limited Partner, to the drill site of each Partnership well.
SECTION 8.5. CERTAIN NOTICES. The General Partner shall promptly notify
the Limited Partners (a) of any default by the General Partner in the
performance of any of its obligations hereunder, (b) in the event the Limited
Partners become entitled to dissolve the Partnership pursuant to SECTION 10.1,
immediately after the General Partner becomes aware of such event or (c) if the
Partnership is no longer treated as a partnership for tax purposes.
ARTICLE IX
ASSIGNMENTS OF INTERESTS AND SUBSTITUTIONS
SECTION 9.1. ASSIGNMENTS BY LIMITED PARTNER.
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(a) The interest of each Limited Partner in the Partnership shall be
assignable in whole or in part, subject to the following: (i) no such assignment
shall be made if such assignment would result in the violation of any applicable
federal or state securities laws and (ii) the Partnership shall not be required
to recognize any such assignment until the instrument conveying such interest
has been delivered to the General Partner for recordation on the books of the
Partnership. Any costs incurred by the Partnership or the General Partner in
connection with any assignment by a Limited Partner of all or a part of its
interest in the Partnership shall be borne by such Limited Partner.
(b) Unless an assignee becomes a substituted Limited Partner in accordance
with the provisions set forth below, such assignee shall not be entitled to any
of the rights granted to a Limited Partner hereunder, other than the right to
receive allocations of income, gain, loss, deduction, credit and similar items
and distributions to which the assignor would otherwise be entitled, to the
extent such items are assigned.
(c) An assignee of the interest of a Limited Partner, or any portion
thereof, shall become a substituted Limited Partner entitled to all of the
rights of the Limited Partner if, and only if (i) the assignor gives the
assignee such right, (ii) the General Partner, in its sole and absolute
discretion, consents to such substitution and (iii) the assignee executes and
delivers such instruments, in form and substance reasonably satisfactory to the
General Partner, as the General Partner may deem necessary or desirable to
effect such substitution and to confirm the agreement of the assignee to be
bound by all of the terms and provisions of this Agreement. Upon the
satisfaction of such requirements, the General Partner shall concurrently (or as
of such later date as shall be provided for in any applicable written
instruments furnished to the General Partner) admit any such assignee as a
substituted Limited Partner of the Partnership and reflect such admission and
the date thereof in the records of the Partnership.
(d) The Partnership and the General Partner shall be entitled to treat the
record owner of any Partnership interest as the absolute owner thereof in all
respects and shall incur no liability for distributions of cash or other
property made in good faith to such owner until such time as a written
assignment of such interest that complies with the terms of this Agreement has
been received by the General Partner.
SECTION 9.2. ASSIGNMENT BY GENERAL PARTNER. The interest of the General
Partner in the Partnership shall not be assigned, mortgaged, pledged, subjected
to a security interest or otherwise encumbered, in whole or in part, without the
prior written consent of the Limited Partners in their sole and absolute
discretion.
SECTION 9.3. MERGER OR CONSOLIDATION. Notwithstanding the provisions of
SECTIONS 9.1 or 9.2, the merger or consolidation by a Partner with another
corporation or entity shall not be considered an assignment of an interest in
the Partnership, and upon the merger or consolidation of such Partner, the
resulting corporation or entity shall continue as a Partner.
SECTION 9.4. REMOVAL OF GENERAL PARTNER. Subject to the provisions hereof,
the Limited Partners may remove the General Partner with cause and select a new
General Partner to operate and carry on the business and affairs of the
Partnership. As used in this SECTION 9.4 and in SECTION
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9.5, "WITH CAUSE" shall include the occurrence of any of the following: (a) the
commission by the General Partner of fraud, willful or intentional misconduct or
gross negligence in the performance of its duties hereunder; (b) a default by
the General Partner in the performance of its obligation hereunder to make a
distribution of cash or properties due and owing to the Limited Partners, which
default must have continued for not less than five days after the date on which
such distribution was due; (c) a default by the General Partner in the
performance or observation of any other agreement, covenant, term, condition or
obligation hereunder, which default must have continued for not less than 30
days after the General Partner has knowledge thereof or after written notice
thereof given by the Limited Partners has been received by the General Partner,
whichever first occurs; (d) a representation or warranty made by the General
Partner herein or by the General Partner or any of its officers or
representatives in any writing furnished in connection with or pursuant to this
Agreement shall be false in any material respect on the date as of which made;
(e) the occurrence of any of the events described in Section 4.02(a)(4) or
Section 4.02(a)(5) of the Act (except that with respect to Section 4.02(a)(5),
the operative number of days shall be 60 instead of the numbers set forth in
such Section) with respect to the General Partner; (f) if, (i) a Revenue
Allocation Adjustment is effected, (ii) such Revenue Allocation Adjustment is in
effect for a period of at least six consecutive months and (iii) after the
expiration of such six month period, the Proved Producing Investment Coverage is
less than 1.25 to 1; (g) (i) the insanity, legal disability, bankruptcy or
insolvency of Frank A. Lodzinski or the resignation of Frank A. Lodzinski as an
executive officer (or similar position) of the General Partner or the Parent or
(ii) the failure or inability for any reason whatsoever of Frank A. Lodzinski to
be actively involved in the business and affairs of the General Partner or the
Parent other than upon the occurrence of an event described in CLAUSE (I) above
(which failure or inability shall be determined by the Limited Partners in good
faith); (h) foreclosure on the General Partner's interest in the Partnership;
(i) a default by the Parent in the performance or observation of any agreement,
covenant, term, condition or obligation under any Parent Agreement; (j) a
representation or warranty made by the Parent in any Parent Agreement or by the
Parent or any of its officers or representatives in any writing furnished in
connection with or pursuant to any Parent Agreement shall be false in any
material respect on the date as of which made; (k) the occurrence of any of the
events described in Section 4.02(a)(4) or Section 4.02(a)(5) of the Act (except
that with respect to Section 4.02(a)(5), the operative number of days shall be
60 instead of the numbers set forth in such Section) with respect to the Parent;
(l) a default by either V&C Energy Limited Partnership or Energy Resource
Associates, Inc. in the performance or observation of any agreement, covenant,
term, condition or obligation under the Investors Agreement, which default must
have continued for not less than 10 days after V&C Energy Limited Partnership or
Energy Resource Associates, Inc. (as appropriate) has knowledge thereof or after
written notice thereof given by any of the other parties thereto has been
received by V&C Energy Limited Partnership or Energy Resource Associates, Inc.
(as appropriate), whichever first occurs; or (m) the General Partner is no
longer a wholly-owned subsidiary of the Parent. In the instance of an event
described in CLAUSE (G) above, the Limited Partners shall have twelve months
from the date of such event within which it may exercise it rights under this
SECTION 9.4. Any such successor General Partner will be named in, and his
appointment as such will be effective as of a date specified in, a notice to the
General Partner from the Limited Partners exercising their right to remove the
General Partner and select the successor General Partner. The removal of the
General Partner shall be effective only if and when the following conditions
have been satisfied:
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(1) A successor General Partner shall have been selected and shall have
agreed to accept the responsibilities of a General Partner and shall have made
arrangements to release the removed General Partner from personal liability on
all permitted Partnership indebtedness; and if the Partnership creditors will
not consent to such release, the new General Partner shall indemnify, in a
manner reasonably satisfactory to the removed General Partner, the removed
General Partner for such liability.
(2) This Agreement and the Certificate of Limited Partnership of the
Partnership shall have been duly amended to name the new General Partner. To the
extent required by the laws of any jurisdiction to which the Partnership or this
Agreement is subject, the Partners hereby unanimously consent to the admission
of such successor General Partner and hereby appoint such successor General
Partner as the agent and attorney in fact for each Partner (including without
limitation the retiring General Partner) for the purpose of signing, swearing to
and filing an amendment to the certificate of limited partnership of the
Partnership and all other necessary or appropriate documents in connection with
the substitution of such successor General Partner.
The provisions of this SECTION 9.4 shall not be the sole remedy of the
Limited Partners in the event the General Partner is removed with cause, and in
such event the Partnership and/or the Limited Partners shall have all other
rights and remedies as shall be available to them pursuant to this Agreement, at
law or in equity to redress any wrong or damage arising from the event or
circumstances giving rise to the General Partner's removal with cause.
SECTION 9.5. RIGHT OF GENERAL PARTNER UPON REMOVAL. In the event the
General Partner is removed in accordance with SECTION 9.4, the incoming General
Partner shall have the right to purchase from the removed General Partner a one
percent general partner interest in the Partnership at a price equal to the
appraised value thereof. Such appraised value shall be determined by a qualified
independent appraiser who is mutually agreed upon by both the removed General
Partner and the incoming General Partner within 30 days after the selection of
the incoming General Partner. If the removed General Partner and the incoming
General Partner cannot mutually agree upon a single independent appraiser within
such period, they shall each select their own independent appraiser and those
two appraisers shall select a third independent appraiser. The cost of such
appraisal shall be borne by the removed General Partner. The incoming General
Partner's option to acquire such interests must be exercised by notice in
writing to the removed General Partner not more than 20 days after the selection
of the incoming General Partner and the purchase price for such interest shall
be paid in cash not more than 30 days after receipt by the parties of the report
of the appraiser setting forth the appraised value. In the event the incoming
General Partner does not elect to purchase the one percent general partner
interest of the removed General Partner pursuant to the provisions of this
SECTION 9.5, such interest shall be converted to a limited partner interest in
the Partnership. Further, in any event any remaining general partner interest of
the removed General Partner in the Partnership shall be converted to a limited
partner interest in the Partnership and the removed General Partner shall
continue as a limited partner in accordance with Section 6.02 of the Act, but
without any right to vote, consent or approve or otherwise make any
determination under this Agreement; provided, that after such conversion any
amendment to this Agreement that would change (a) the status of the removed
General Partner as a limited partner hereof, (b) the removed General Partner's
participation in the
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income, gain, loss, credits or distributions of the Partnership, (c) the removed
General Partner's obligation to contribute capital to the Partnership or (d)
this proviso, shall require the consent of the removed General Partner.
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ARTICLE X
DISSOLUTION, LIQUIDATION AND TERMINATION
SECTION 10.1. DISSOLUTION. The Partnership shall be dissolved upon the
occurrence of any of the following:
(a) The occurrence of December 31, 2011.
(b) The consent in writing of the General Partner and the Limited
Partners.
(c) The election of the Limited Partners by written notice to the General
Partner if at the time such notice is given (i) the General Partner has
committed fraud, willful or intentional misconduct or gross negligence in the
performance of its duties hereunder, (ii) the General Partner has defaulted in
the performance of its obligation hereunder to make a distribution of cash or
properties due and owing to the Limited Partners, which default must have
continued for not less than 5 days after the date on which such distribution was
due, (iii) the General Partner has defaulted in the performance or observation
of any other agreement, covenant, term, condition or obligation hereunder, which
default must have continued for not less than 30 days after the General Partner
has knowledge thereof or after written notice thereof given by the Limited
Partners has been received by the General Partner, whichever first occurs or
(iv) a representation or warranty made by the General Partner herein or by the
General Partner or any of its officers or representatives in any writing
furnished in connection with or pursuant to this Agreement shall be false in any
material respect.
(d) The sale or other disposition of all or substantially all of the
assets of the Partnership.
(e) The occurrence of an event of withdrawal from the Partnership by the
General Partner as provided for in Section 4.02(a) of the Act.
(f) The election of the Limited Partners by written notice to the General
Partner if at the time such notice is given (i) the General Partner has breached
SECTION 9.2 or the General Partner's interest in the Partnership has been
foreclosed upon, (ii) the General Partner has merged or consolidated with
another entity, or (iii) the General Partner has become a subsidiary of another
entity.
(g) The election of the Limited Partners by written notice to the General
Partner at any time after the expiration of December 31, 2001.
(h) The election of the Limited Partners at any time if: (i) a Revenue
Allocation Adjustment is effected, (ii) such Revenue Allocation Adjustment is in
effect for a period of at least six consecutive months and (iii) after the
expiration of such six-month period, the Proved Producing Investment Coverage is
less than the ratio of 1.25 to 1.
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(i) The election of the Limited Partners by written notice to the General
Partner upon the occurrence of any of the following events: (i) the insanity,
legal disability, bankruptcy or insolvency of Frank A. Lodzinski or the
resignation of Frank A. Lodzinski as an executive officer (or similar position)
of the General Partner or the Parent; or (ii) the failure or inability for any
reason whatsoever of Frank A. Lodzinski to be actively involved in the business
and affairs of the General Partner or the Parent other than upon the occurrence
of an event described in CLAUSE (I) above (which failure or inability shall be
determined by the Limited Partners in good faith); (iv) a default by the Parent
in the performance or observation of any agreement, covenant, term, condition or
obligation under any Parent Agreement; (v) a representation or warranty made by
the Parent in any Parent Agreement or by the Parent or any of its officers or
representatives in any writing furnished in connection with or pursuant to any
Parent Agreement shall be false in any material respect on the date as of which
made; (vi) the occurrence of any of the events described in Section 4.02(a)(4)
or Section 4.02(a)(5) of the Act (except that with respect to Section
4.02(a)(5), the operative number of days shall be 60 instead of the numbers set
forth in such Section) with respect to the Parent; (vii) a default by either V&C
Energy Limited Partnership or Energy Resource Associates, Inc. in the
performance or observation of any agreement, covenant, term, condition or
obligation under the Investors Agreement, which default must have continued for
not less than 10 days after V&C Energy Limited Partnership or Energy Resource
Associates, Inc. (as appropriate) has knowledge thereof or after written notice
thereof given by any of the other parties thereto has been received by V&C
Energy Limited Partnership or Energy Resource Associates, Inc. (as appropriate),
whichever first occurs; or (viii) the General Partner is no longer a
wholly-owned subsidiary of the Parent.
(j) The occurrence of any other event which under the Act causes the
dissolution of a limited partnership.
SECTION 10.2. WITHDRAWAL BY GENERAL PARTNER AND RECONSTITUTION.
(a) Except as specifically permitted in SECTION 9.2, the General Partner
covenants and agrees not to (i) withdraw voluntarily from the Partnership,
either directly, by dissolution, by transfer of its Partnership interest or by
any other voluntary act (including without limitation any event of withdrawal
from the Partnership by the General Partner as provided in Section 4.02(a) of
the Act) prior to Payout No.1, Payout No. 2 and Payout No. 3, or (ii) allow
seizure, attachment, garnishment, foreclosure or other taking of its Partnership
interest. Notwithstanding anything to the contrary contained in this SECTION
10.2, in SECTION 10.1 or elsewhere in this Agreement, the General Partner shall
not merge or consolidate with, or assign or transfer its interest in the
Partnership to, any third party (including an Affiliate or any other party
related to the General Partner) if such merger, consolidation, assignment or
transfer will result in the termination of the Partnership for tax purposes. If
the General Partner breaches any provision of this SECTION 10.2 or SECTION 9.2,
if an event described in SECTION 10.1(E) occurs, or if an election is made by
the Limited Partners to dissolve the Partnership pursuant to SECTION 10.1(C),
SECTION 10.1(F) or CLAUSE (II), (III), (IV), (V), (VII) or CLAUSE (VIII) of
SECTION 10.1(I), all interests and amounts which the General Partner would
otherwise receive under SECTION 10.3 shall be reduced by 90% if the breach,
event or election occurs prior to Payout No.1; by 75% if the breach, event or
election occurs after Payout No 1 but prior to Payout No. 2; by 50% if the
breach, event or
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election occurs after Payout No.2 but prior to Payout No. 3; and by 15% if the
breach, event or election occurs after Payout No. 3. The distribution to the
Limited Partners of assets which would otherwise be distributable to the General
Partner in accordance with this SECTION 10.2 shall constitute liquidated damages
to the Limited Partners for a violation by the General Partner of the covenant
and agreement contained in the first sentence of this SECTION 10.2, the parties
having agreed that the amount of actual damages would be difficult or impossible
to calculate.
(b) Notwithstanding the foregoing SECTION 10.2(A) or any other provision
of this Agreement, (i) the Partnership may be reconstituted and its business
continued without being wound up as provided for in Section 8.03 of the Act upon
the written consent of the Limited Partners and (ii) the provisions of Section
6.02 (including without limitation SUBSECTION (B) thereof) of the Act shall be
applicable to the Partnership except that the right to recover damages from the
withdrawing General Partner pursuant to Section 6.02(a) of the Act shall be
governed by SECTION 10.2(A).
SECTION 10.3. LIQUIDATION AND TERMINATION. Upon dissolution of the
Partnership (unless it is reconstituted and its business continued without being
wound up as provided for in SECTION 10.2(B)), the General Partner shall act as
liquidator or may appoint in writing one or more liquidators who shall have full
authority to wind up the affairs of the Partnership and make final distribution
as provided herein; provided, however, that if one of the events specified in
SECTION 10.1(C), (E), (F), (H) or (I) has occurred as a result of an act by the
General Partner or the Parent or if the Partnership dissolves as a result of the
dissolution (or similar event) of the General Partner, the liquidator shall be a
person selected in writing by the Limited Partners. The liquidator shall
continue to operate the Partnership properties with all of the power and
authority of the General Partner. The steps to be accomplished by the liquidator
are as follows:
(a) As promptly as possible after dissolution and again after final
liquidation, the liquidator shall cause a proper accounting to be made by the
Partnership's independent accountants of the Partnership's assets, liabilities
and operations through the last day of the month in which the dissolution occurs
or the final liquidation is completed, as appropriate.
(b) The liquidator shall pay all of the debts and liabilities of the
Partnership (including all expenses incurred in liquidation) or otherwise make
adequate provision therefor (including without limitation the establishment of a
cash escrow fund for contingent liabilities in such amount and for such term as
the liquidator may reasonably determine). After making payment or provision for
all debts and liabilities of the Partnerships, the liquidator shall sell all
properties and assets of the Partnership for cash as promptly as is consistent
with obtaining the best price therefor. All gain, loss, and amount realized on
such sales shall be allocated to the Partners as provided in this Agreement, and
the capital accounts of the Partners shall be adjusted accordingly. The
liquidator shall then distribute the proceeds of such sale to the Partners as
provided in SECTION 4.4. If the Limited Partners so direct, the liquidator shall
distribute all or any portion of such properties to the Partners in kind in the
same percentages as the proceeds of any sale of such properties would be
distributed under the preceding sentence. In such event the liquidator shall
first adjust the capital accounts of the Partners by the amount of any gains or
losses that would have been recognized by the Partners if such properties had
been sold for their respective fair
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market values and the proceeds had been so distributed. It is intended that the
foregoing distributions to each Partner will be equal to each Partner's
respective positive capital account balance as determined after giving effect to
the foregoing adjustments and to all adjustments attributable to allocations of
items of income, gain, loss and deduction realized by the Partnership during the
taxable year in question and all adjustments attributable to contributions and
distributions of money and property effected prior to such distribution. To the
extent that any such Partner's positive capital account balance does not
correspond to such distribution, the allocations provided for in SECTION 4.3
shall be adjusted, to the least extent necessary, to produce a capital account
balance for the Partner which corresponds to the amount of such distribution.
Each Partner shall have the right to designate another person to receive any
property which otherwise would be distributed in kind to that Partner pursuant
to this SECTION 10.3 and SECTION 10.2 if that Section is applicable. Any
distributions to the Partners in liquidation of the Partnership shall be made by
the later of the end of the taxable year in which the liquidation occurs, or 90
days after the date of such liquidation. For purposes of the preceding sentence,
the term "liquidation" shall have the same meaning as set forth in Treasury
Regulation ss. 1.704-1(b)(2)(ii)(g) as in effect at such time.
(c) Any Leases distributed to the Partners shall be subject to the
operating agreements then in effect with respect to such Leases; provided,
however, that if any of such Leases is subject to an operating agreement to
which an unaffiliated third person is not a party, such Leases shall be subject
to a standard form operating agreement and accounting procedure as shall be
agreed upon by the Partners. Upon written request made by any Partner, the
liquidator shall sell the Partnership Leases and other properties and assets
that otherwise would be distributable to such Partner under this SECTION 10.3 at
the best cash price available therefor and distribute such cash (after deducting
all expenses reasonably relating to such sale) to such Partner. Such sale shall
be on behalf of such Partner and shall be treated as the sale by such Partner of
its interest in such properties, and any gain or loss attributable to such sale
and any proceeds therefrom shall be for the account of such Partner.
(d) The provisions of SUBSECTIONS (B) and (C) of this SECTION 10.3 shall
be subject to the effect of SECTION 10.2 if that Section is applicable.
(e) Except as expressly provided herein, the liquidator shall comply with
any applicable requirements of the Act and all other applicable laws pertaining
to the winding up of the affairs of the Partnership and the final distribution
of its assets.
The distribution of cash and/or property to the Limited Partners in
accordance with the provisions of this SECTION 10.3 shall constitute a complete
return to each Limited Partner of its Capital Contributions and a complete
distribution to each Limited Partner of its interests in the Partnership and all
Partnership property. No Partner with a negative balance in its capital account
shall be liable to the Partnership or any other Partner for the amount of such
negative balance upon dissolution and liquidation.
SECTION 10.4. CANCELLATION OF CERTIFICATE. Upon the completion of the
distribution of Partnership assets as provided herein, the Partnership shall be
terminated, and the liquidator (or
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the Partners if necessary) shall cause the cancellation of the certificate of
limited partnership of the Partnership and shall take such other actions as may
be necessary to terminate the Partnership.
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ARTICLE XI
REPRESENTATIONS AND WARRANTIES
SECTION 11.1. REPRESENTATIONS AND WARRANTIES OF GENERAL PARTNER. The
General Partner represents, warrants and covenants to the Limited Partners as
follows:
(a) The General Partner is a corporation duly formed, validly existing and
in good standing under the laws of the State of California.
(b) The General Partner is duly qualified to transact business in the
State of Texas and is or will qualify to transact business in every other
jurisdiction where the character of the properties owned or held by the
Partnership or where the nature of the business transacted by the Partnership
makes qualification by it necessary or appropriate in order for the Partnership
to conduct its business.
(c) The General Partner has the requisite power and authority to execute
and deliver this Agreement and to perform its obligations hereunder (including,
without limitation, the power and authority to act as General Partner of the
Partnership).
(d) The execution, delivery and performance by the General Partner of this
Agreement has been duly and validly authorized by all requisite corporate
action, and no other corporate or shareholder action is required to be taken to
authorize such execution, delivery and performance.
(e) The execution, delivery and performance by the General Partner of this
Agreement is within its corporate powers and will not (i) be in contravention of
or violate any provisions of its articles of incorporation, bylaws or other
governing documents, as amended to the date hereof, or (ii) be in contravention
of or result in any breach or constitute a default under any applicable law,
rule, regulation, judgment, license, permit or order or any loan, note or other
agreement or instrument to which the General Partner is a party or by which it
or any of its properties are bound.
(f) When delivered to the Limited Partners, this Agreement will have been
duly and validly executed and will be binding upon the General Partner and
enforceable in accordance with its terms.
(g) Except for a change of law over which the General Partner has no
control (and the General Partner shall immediately notify the Limited Partners
when the General Partner learns of such occurrence), the foregoing
representations, warranties and covenants shall remain true and accurate during
the term of the Partnership, and the General Partner will neither take action
nor permit action to be taken which would cause any of the foregoing
representations to become untrue or inaccurate.
(h) No consent, approval, authorization or order of any court or
governmental agency or authority or of any third party which has not been
obtained is required in connection with the
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execution, delivery and performance by the General Partner of this Agreement
except for (i) the filing of a certificate of limited partnership for the
Partnership with the Office of the Secretary of State of the State of Texas
pursuant to the Act and (ii) the filing of certain documents with respect to the
qualification or reformation and operation of the Partnership as a limited
partnership (or a partnership in which the Limited Partners have limited
liability) under the laws of any state in which the Partnership owns properties
or conducts business so as to require such qualification.
(i) Neither the General Partner nor any of its Affiliates has employed or
retained any broker, agent or finder in connection with this Agreement, the
Other Agreements or the transactions contemplated herein or therein, or paid or
agreed to pay any brokerage fee, finder's fee, commission or similar payment to
any person on account of this Agreement, the Parent Agreements or the
transactions provided for herein or therein, except for the Placement Fee of
$100,000 due and owing EnCap Investments L.C. by the General Partner at the
Delivery Date; and the General Partner shall indemnify and hold harmless the
Partnership and the Limited Partners from any costs, including attorneys' fees,
and liability arising from the claim of any broker, agent or finder employed or
retained by the General Partner in connection with the Partnership, this
Agreement or the Parent Agreements.
(j) As of the date hereof none of the financial statements or other
written documents or information delivered herewith or heretofore by or on
behalf of the General Partner to the Limited Partners in connection with the
General Partner, any Affiliate thereof, this Agreement, the Parent Agreements,
the Investors Agreement, the Properties and the operations to be conducted
hereunder contains any untrue statement of a material fact or omits to state any
material fact (other than facts which the Limited Partners recognize to be
industry risks normally associated with the oil and gas business) necessary to
keep the statements contained herein or therein from being misleading. There is
no fact peculiar to the General Partner, its Affiliates or the Properties (other
than facts which the Limited Partners recognize to be industry risks normally
associated with the oil and gas business) which materially adversely affects or
in the future may (so far as the General Partner can now foresee) materially
adversely affect (i) the business, property or assets, or financial condition of
the General Partner or its Affiliates, (ii) the Parent Agreements or the
Investors Agreement, or (iii) the Properties, and which has not been set forth
in this Agreement or in the other documents, certificates and statements
furnished to the Limited Partners by or on behalf of the General Partner or the
Parent prior to the date hereof in connection with the transactions contemplated
hereby, the Parent Agreements or the Investors Agreement.
(k) To the best knowledge of the General Partner, the General Partner and
its Affiliates and persons acting on their behalf have not taken any action, or
failed to take any action, which has caused the organization of the Partnership
and the issuance of the interests in the Partnership to come within the
registration requirements of the Securities Act of 1933, as amended, or any
applicable state blue sky laws.
(l) There is no pending or, to the best of the General Partner's
knowledge, threatened judicial, administrative or arbitral action, suit or
proceeding against or investigation of the General Partner which is not fully
insured against (except standard deductible amounts) and which might
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materially and adversely affect the financial condition of the General Partner
or its ability to perform its obligations under this Agreement. Agreements.
(m) During the preceding 12-month period, the General Partner and its
Affiliates and persons acting on their behalf have not sold (except to a limited
number of persons who have represented themselves to be accredited investors, as
defined in Rule 501 promulgated by the Securities and Exchange Commission) any
interest in the Partnership or similar interests; with respect to any sales of
interests similar to the Partnership by the General Partner and its Affiliates
and persons acting on their behalf subsequent to the Delivery Date, the General
Partner shall do nothing which would require the registration of these interests
under the Securities Act of 1933, and the rules and regulations promulgated
thereunder, as well as applicable state securities laws.
(n) (i) The General Partner is acting on its own behalf as a General
Partner of the Partnership and is not acting merely as the agent of the Limited
Partners; (ii) the Partnership will be operated in accordance with the Act and
this Agreement; (iii) the Limited Partners do not own any beneficial interest or
voting rights in the General Partner; and (iv) interests in the Partnership will
not be traded on an established securities market or any secondary market (or
the substantial equivalent thereof).
SECTION 11.2. REPRESENTATIONS AND WARRANTIES OF LIMITED PARTNER. Each
Limited Partner severally represents, warrants and covenants to the General
Partner with respect to such Limited Partner only and not as to any other
Limited Partner, as follows:
(a) It is duly organized and validly existing under the laws of its state
of formation.
(b) It has all requisite power and authority to execute and deliver this
Agreement and to perform its obligations hereunder.
(c) The execution, delivery and performance of this Agreement are within
its powers and do not (i) contravene or violate any provisions of its charter or
other governing documents, as amended to the date hereof, or (ii) contravene or
result in any breach of or constitute a default under any applicable law, rule
or regulation or any loan, note or other agreement or instrument to which it is
a party or by which it or any of its properties are bound.
(d) When delivered to the General Partner, this Agreement will be duly and
validly executed by such Limited Partner and will be binding upon it in
accordance with the terms hereof.
(e) Except for a change of law over which such Limited Partner has no
control (and such Limited Partner shall immediately notify the General Partner
when such Limited Partner learns of such occurrence), the foregoing
representations, warranties and covenants shall remain true and accurate during
the term of the Partnership, and such Limited Partner will neither take action
nor permit action to be taken which would cause any of the foregoing
representations to become untrue or inaccurate.
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(f) Neither it nor any person acting on its behalf has employed or
retained any broker, agent or finder in connection with the transactions
provided for herein, or agreed to pay any brokerage fee, finder's fee,
commission or similar payment to any person on account of the transactions
provided for herein; and such Limited Partner shall indemnify and hold harmless
the Partnership and the General Partner from any costs, including attorneys'
fees, and liability arising from the claim of any broker, agent or finder
employed or retained by such Limited Partner in connection with the Partnership
or this Agreement.
(g) It is acquiring its interest in the Partnership as an investment and
not with a view to the resale or other distribution to the public; provided,
however, that the disposition of its interest shall at all times be and remain
within its control. It has not been formed for the sole and specific purpose of
making an investment in the Partnership.
(h) No consent, approval, authorization or order of any court or
governmental agency or authority or of any third party which has not been
obtained is required in connection with the execution, delivery and performance
by such Limited Partner of this Agreement.
(i) There is no pending or, to the best of such Limited Partner's
knowledge, threatened judicial, administrative or arbitral action, suit or
proceeding against or investigation of such Limited Partner which might
materially and adversely affect its ability to perform its obligations under
this Agreement.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1. NOTICES. All notices, elections, demands or other
communications required or permitted to be made or given pursuant to this
Agreement shall be in writing and shall be considered as properly given or made
if given by (a) personal delivery, (b) expedited delivery service with proof of
delivery, (c) first class mail postage prepaid, or (d) prepaid telegram, telex
or facsimile (provided that such telegram, telex or facsimile is confirmed by
expedited delivery service in the manner previously described). Each Partner's
address for notices and other communications hereunder shall be that set forth
below such Partner's signature hereto; provided, however, that when in this
Agreement it is provided that a time period shall commence when a notice is
received, such time period shall commence upon actual receipt by the addressee
regardless of when the notice is given or made. Any Limited Partner may change
its address by giving notice in writing to the General Partner of its new
address, and the General Partner may change its address by giving notice in
writing to the Limited Partners of its new address.
SECTION 12.2. AMENDMENTS. This Agreement may be changed, modified, or
amended only by an instrument in writing duly executed by the General Partner
and the Limited Partners.
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SECTION 12.3. PARTITION. Each of the Partners hereby irrevocably waives
for the term of the Partnership any right that such Partner may have to maintain
any action for partition with respect to the Partnership property.
SECTION 12.4. ENTIRE AGREEMENT. This Agreement and the other documents
contemplated hereunder constitute the full and complete agreement of the parties
hereto with respect to the subject matter hereof.
SECTION 12.5. NO WAIVER. The failure of any Partner to insist upon strict
performance of a covenant hereunder or of any obligation hereunder, irrespective
of the length of time for which such failure continues, shall not be a waiver of
such Partner's right to demand strict compliance in the future. No consent or
waiver, express or implied, to or of any breach or default in the performance of
any obligation hereunder shall constitute a consent or waiver to or of any other
breach or default in the performance of the same or any other obligation
hereunder.
SECTION 12.6. APPLICABLE LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND INTERPRETED,
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. THE
GENERAL PARTNER HEREBY IRREVOCABLY SUBMITS ITSELF TO THE NON-EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS IN THE STATE OF TEXAS AND AGREES
AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING
RELATED TO THIS AGREEMENT BY ANY MEANS ALLOWED UNDER THE LAWS OF THE STATE OF
TEXAS OR FEDERAL LAWS.
SECTION 12.7. SUCCESSORS AND ASSIGNS. Subject to ARTICLE IX, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns.
SECTION 12.8. EXHIBITS. EXHIBITS 2.1-PAYOUT NO. 1, 2.1--PAYOUT NO. 2,
2.1--PAYOUT NO. 3, 5.2, 6.8 AND 8.2(D) to this Agreement are attached hereto.
All of such Exhibits are incorporated herein by reference and made a part hereof
for all purposes and references to this Agreement shall also include such
Exhibits unless the context in which used shall otherwise require.
SECTION 12.9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations, warranties and covenants made by the General Partner or the
Limited Partners in this Agreement or any other document contemplated thereby or
hereby shall be considered to have been relied upon by the other parties hereto
and shall survive the execution and delivery of this Agreement or such other
document, regardless of any investigation made by or on behalf of any such
party.
SECTION 12.10. NO THIRD-PARTY BENEFIT. Except as provided in SECTION 6.4,
nothing in this Agreement, either express or implied, is intended to or shall
confer upon any person other than the parties hereto, and their respective
successors and permitted assigns, any rights, benefits, or remedies of any
nature whatsoever under or by reason of this Agreement.
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SECTION 12.11. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
constitute but one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
day and year first above written.
GENERAL PARTNER:
CLIFFWOOD ENERGY COMPANY
By: /S/ FRANK A. LODZINSKI
Frank A. Lodzinski, President
ADDRESS FOR NOTICE PURPOSES:
110 Cypress Station Dr.
Suite 220
Houston, Texas 77090
Attention: Frank A. Lodzinski
Telecopy No.: 713-537-8324
SIGNATURE PAGE--AGREEMENT OF LIMITED PARTNERSHIP PROVIDING FOR THE FORMATION OF
CLIFFWOOD ACQUISITION - 1996 LIMITED PARTNERSHIP
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<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
day and year first above written.
LIMITED PARTNER:
ENERGY CAPITAL INVESTMENT
COMPANY PLC
By: /S/ GARY R. PETERSEN
Gary R. Petersen, Director
ADDRESS FOR NOTICE PURPOSES:
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Robert L. Zorich
Telecopy No.: 713-659-6130
SIGNATURE PAGE--AGREEMENT OF LIMITED PARTNERSHIP PROVIDING FOR THE FORMATION OF
CLIFFWOOD ACQUISITION - 1996 LIMITED PARTNERSHIP
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<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
day and year first above written.
LIMITED PARTNER:
ENCAP EQUITY 1996 LIMITED
PARTNERSHIP
By: ENCAP INVESTMENTS L.C.
By: /S/ GARY R. PETERSEN
Gary R. Petersen, Managing Director
ADDRESS FOR NOTICE
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Robert L. Zorich
Telecopy No.: 713-659-6130
SIGNATURE PAGE--AGREEMENT OF LIMITED PARTNERSHIP PROVIDING FOR THE FORMATION OF
CLIFFWOOD ACQUISITION - 1996 LIMITED PARTNERSHIP
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<PAGE>
INVESTORS AGREEMENT
THIS INVESTORS AGREEMENT (this "AGREEMENT") is made and entered into as of
this 27th day of September, 1996, by and among V&C Energy Limited Partnership, a
Michigan limited partnership ("V&C"), Energy Resource Associates, Inc., a Texas
corporation ("ERA"), Energy Capital Investment Company PLC, an English
investment company ("ENERGY PLC"), and EnCap Equity 1996 Limited Partnership, a
Texas limited partnership ("ENCAP 96").
RECITALS:
A. Cliffwood Oil & Gas Corp. is a Texas corporation and is herein called
the "COMPANY". V&C and ERA are currently record and beneficial owners of the
common stock of the Company, par value $0.01 per share (the "COMMON STOCK"), and
are herein called the "PRINCIPAL SHAREHOLDERS".
B. The Company has entered into (i) a Stock Purchase Warrant dated as of
even date herewith with Energy PLC, which warrant entitles Energy PLC to
purchase on the terms set forth therein 75,000 shares of Common Stock and (ii) a
Stock Purchase Warrant dated as of even date herewith with EnCap 96, which
warrant entitles EnCap 96 to purchase on the terms set forth therein 225,000
shares of Common Stock. Energy PLC and EnCap 96 are herein called the "OTHER
PARTIES".
C. The Principal Shareholders and the Other Parties deem it in their
mutual best interests to make the representations, covenants and agreements
contained herein.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual
covenants and agreements contained herein, the sufficiency of which is hereby
acknowledged and confirmed, the parties hereto, intending to be legally bound,
do hereby agree as follows:
1. RIGHT TO JOIN IN SALE. If a Principal Shareholder (a "SELLING
SHAREHOLDER") proposes to sell, dispose of or otherwise transfer any shares
(whether currently owned or hereafter acquired) of Common Stock (the shares of
Common Stock proposed to be transferred being called the "SUBJECT SHARES"), the
Selling Shareholder shall refrain from effecting such transaction unless, prior
to the consummation thereof, the Other Parties shall have been afforded the
opportunity to join in such sale on the basis hereinafter described. Prior to
the consummation of any proposed sale, disposition or transfer of the Subject
Shares described in the immediately preceding sentence, the Selling Shareholder
shall cause the person or entity that proposes to acquire the Subject Shares
(the "PROPOSED PURCHASER") to offer (the "PURCHASE OFFER") in writing to each
Other Party to purchase the Pro Rata Percentage (as defined below) of the shares
of Common Stock owned by such Other Party (computed on a fully diluted basis).
As used in the immediately preceding sentence, the term "PRO RATA PERCENTAGE"
shall mean a percentage equal to X divided by Y, where "X" is equal to the
number of Subject Shares, and where "Y" is equal
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<PAGE>
to the total number of shares of Common Stock then owned by the Selling
Shareholder (computed on a fully diluted basis). Such purchase shall be made on
the same price and other terms and conditions as the Proposed Purchaser has
offered with respect to the Subject Shares. Each Other Party shall have 30 days
from the date of receipt of the Purchase Offer in which to accept such Purchase
Offer, and the closing of such purchase shall occur contemporaneously with the
purchase and sale of the Subject Shares or at such other time as such Other
Party and the Proposed Purchaser shall agree. Notwithstanding the foregoing, the
Principal Shareholders shall have no obligations under this SECTION 1 if the
proposed sale, disposition or transfer of the Subject Shares is to be effected
through a registration of such shares under the Securities Act of 1933, as
amended.
2. REPRESENTATIONS AND WARRANTIES. Each Principal Shareholder hereby
severally represents and warrants to the Other Parties, and each Other Party
hereby severally represents and warrants to the Principal Shareholders as
follows:
(a) It is duly formed and validly existing under the laws of the
jurisdiction of its formation.
(b) It has the requisite power and authority to execute and deliver this
Agreement and to perform its obligations hereunder.
(c) The execution, delivery and performance by it of this Agreement has
been duly and validly authorized.
(d) The execution, delivery and performance by it of this Agreement is
within its powers and will not (i) be in contravention of or violate any
provisions of its articles of incorporation, bylaws, partnership agreement or
other governing documents, as amended to the date hereof, or (ii) be in
contravention of or result in any breach or constitute a default under any
applicable law, rule, regulation, judgment, license, permit or order or any
loan, note or other agreement or instrument to which it is a party or by which
it or any of its properties are bound.
(e) Upon delivery of this Agreement by all of the parties hereto, this
Agreement will have been duly and validly executed and will be binding upon it
and enforceable in accordance with its terms.
3. NOTICES. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally or sent
by reputable express courier service (charges prepaid), or mailed to the
recipient by certified or registered mail, return receipt requested and postage
prepaid, or sent by telefax, to the parties at the following address (or to such
other address or to the attention of such other person as the recipient party
has specified by prior like notice to the sending party):
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<PAGE>
IF TO V&C OR ERA:
c/o Cliffwood Oil & Gas Corp.
110 Cypress Station Drive, Suite 220
Houston, Texas 77090
Telecopier No.: (713)537-8324
Attention: Frank A. Lodzinski, President
IF TO ENERGY PLC OR ENCAP LP:
c/o EnCap Investments L.C.
1100 Louisiana
Suite 3150
Houston, Texas 77002
Telecopier No.: (713)659-6130
Attention: Robert L. Zorich, Managing Director
4. AMENDMENTS. This Agreement may be changed, modified, or amended only by
an instrument in writing duly executed by the parties hereto.
5. ENTIRE AGREEMENT. This Agreement constitutes the full and complete
agreement of the parties hereto with respect to the subject matter hereof.
6. NO WAIVER. The failure of any party to insist upon strict performance
of any obligation hereunder, irrespective of the length of time for which such
failure continues, shall not be a waiver of such part's right to demand strict
compliance in the future. No consent or waiver, express or implied, to or of any
breach or default in the performance of any obligation hereunder shall
constitute a consent or waiver to or of any other breach or default in the
performance of the same or any other obligation hereunder.
7. APPLICABLE LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND
INTERPRETED, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF TEXAS.
8. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns.
9. REFERENCES. All references in this Agreement to sections, subsections
and other subdivisions refer to corresponding sections, subsections and other
subdivisions of this Agreement unless expressly provided otherwise. Titles
appearing at the beginning of any of such subdivisions are for convenience only
and shall not constitute part of such subdivisions and shall be disregarded in
construing the language contained herein. The words "this Agreement", "this
instrument", "herein", "hereof", "hereby", "hereunder" and words of similar
import refer to this Agreement as a whole and not to any particular subdivision
unless expressly so limited. Words in the singular
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<PAGE>
form shall be construed to include the plural and VICE VERSA, unless the context
otherwise requires and pronouns in masculine, feminine and neuter genders shall
be construed to include any other gender.
10. COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed an original and all of which shall constitute but
one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
V&C ENERGY LIMITED PARTNERSHIP
By: ENERGY RESOURCE ASSOCIATES, INC.
By: /S/ FRANK A. LODZINSKI
Name: Frank A. Lodzinski
Title: President
ENERGY RESOURCE ASSOCIATES, INC.
By: /S/ FRANK A. LODZINSKI
Name: Frank A. Lodzinski
Title: President
ENERGY CAPITAL INVESTMENT
COMPANY PLC
By: /S/ GARY R. PETERSEN
Name: Gary R. Petersen
Title: Director
ENCAP EQUITY 1996 LIMITED PARTNERSHIP
By: ENCAP INVESTMENTS L.C.
By:/S/ GARY R. PETERSEN
Name: Gary R. Petersen
Title: Managing Director
-5-
EXHIBIT 10.24
GUARANTY AND SUPPORT AGREEMENT
THIS GUARANTY AND SUPPORT AGREEMENT (this "AGREEMENT") dated as of
September 27, 1996, is made by Cliffwood Oil & Gas Corp., a Texas corporation.
RECITALS:
A. Reference is herein made to that certain Agreement of Limited
Partnership of even date herewith by and between Cliffwood Energy Company, a
California corporation, Energy Capital Investment Company PLC, an English
investment company, and EnCap Equity 1996 Limited Partnership, a Texas limited
partnership, establishing Cliffwood Acquisition - 1996 Limited Partnership, a
Texas limited partnership (the "PARTNERSHIP AGREEMENT"). Terms not otherwise
defined herein shall have the respective meanings assigned to them in the
Partnership Agreement.
B. The undersigned hereby acknowledges and agrees that (i) it is the owner
of all of the outstanding shares of capital stock of the General Partner, (ii)
the representations, warranties, covenants and agreements of the undersigned can
reasonably be expected to be of benefit to the General Partner and that it is in
the undersigned's best interest to make this Agreement and (iii) it understands
that the Limited Partners would not be willing to enter into the Partnership
Agreement and to acquire interests as limited partners in the Partnership
without the execution and delivery by the undersigned of this Agreement, and the
undersigned is executing and delivering this Agreement to induce the Limited
Partners to enter into the Partnership Agreement and to acquire interests as
limited partners in the Partnership.
AGREEMENT:
NOW, THEREFORE, in view of the foregoing Recitals and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the undersigned hereby agrees as follows for the benefit of the
Partnership and the Limited Partners:
1. The undersigned hereby irrevocably, absolutely and unconditionally
guarantees to the Partnership and the Limited Partners the prompt, complete and
full performance, when due, of all obligations, agreements and undertakings of
the General Partner under the Partnership Agreement and any other agreement made
by the General Partner or an Affiliate thereof with the Partnership or the
Limited Partners (collectively, the "PARTNERSHIP DOCUMENTS"). In addition to,
but without limiting the foregoing, the undersigned agrees to provide or will
cause to be provided such funds as may be required from time to time by the
General Partner in order for the General Partner to pay its Capital
Contributions to the Partnership in accordance with the terms of the
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<PAGE>
Partnership Agreement. The obligations of the undersigned hereunder are
independent of the obligations of the General Partner and its Affiliates, and
the Partnership and the Limited Partners may proceed directly to enforce all
rights hereunder without proceeding against or joining the General Partner, any
of its Affiliates or any other person. The guaranty contemplated hereby is an
absolute, present and continuing guaranty and is in no way conditional or
contingent upon any other action or circumstance whatsoever.
2. The obligations of the undersigned hereunder shall commence as of the
date hereof and shall continue until the earlier to occur of (i) the termination
of the Partnership or (ii) the written waiver of the undersigned's obligations
hereunder by the Limited Partners.
3. The obligations of the undersigned under this Agreement shall be
irrevocable, absolute, unconditional and primary irrespective of the validity or
enforceability of the Partnership Agreement or any other Partnership Document,
shall not be subject to any counterclaim, set off or defense based upon any
claim the undersigned may have against the General Partner, the Partnership or
any Limited Partner and shall remain in full force and effect without regard to,
and shall not be affected or impaired by any of the following, although without
notice to or consent of the undersigned: (i) any amendment to or modification of
the Partnership Agreement or any other Partnership Document; (ii) any failure,
omission or delay to enforce, assert or exercise any right, power or remedy
conferred by the terms of the Partnership Agreement or any other Partnership
Document; (iii) any exercise or waiver of any right, power or remedy conferred
by the terms of the Partnership Agreement or any other Partnership Document;
(iv) the dissolution or termination of the General Partner; (v) the bankruptcy
or insolvency of the General Partner; or (vi) any other circumstance whether
similar or dissimilar to the foregoing. No action which the Partnership or the
Limited Partners may take or omit to take in connection with exercising any
right hereunder and no course of dealing by the Partnership or the Limited
Partners with any person who has entered into a similar agreement or any other
person, shall release or diminish the undersigned's obligations or agreements
hereunder or affect the agreements herein.
4. No delay on the part of the Partnership or the Limited Partners in
exercising any right hereunder or any failure to exercise such right shall
operate as a waiver of such right; nor shall any modification or waiver of
provisions hereof be effective unless in writing; nor shall any such waiver be
applicable except in the specific instance for which given.
5. The undersigned hereby expressly waives notice of acceptance of this
Agreement, notice of default and all other notices whatsoever with respect
thereto, any demand hereunder, the prosecution of any suits against the General
Partner or any other person, and any other act or omission or thing or delay to
do any other act or thing which might in any manner or to any extent vary the
risk of the undersigned or which otherwise might operate as a discharge of the
undersigned hereunder.
6. If any provision of this Agreement is held to be unenforceable, this
Agreement shall be considered divisible and such provision shall be held
inoperative to the extent it is deemed unenforceable, and in all other respects
this Agreement shall remain in full force and effect;
2
<PAGE>
provided, however, that if any such provision may be made enforceable by
limitation thereof, then such provision shall be deemed to be so limited and
shall be enforceable to the maximum extent permitted by applicable law.
7. If the undersigned fails to perform its obligations hereunder, the
undersigned shall pay to the Partnership and the Limited Partners all costs and
expenses, including without limitation, all court costs and reasonable
attorneys' fees, incurred by any of them in enforcing this Agreement.
8. The undersigned's rights and obligations hereunder may not be assigned
or delegated. This Agreement shall inure to the benefit of (i) the Partnership
and its successors and (ii) the Limited Partners and their respective successors
and assigns.
9. All notices or other communications to be given pursuant to the terms
hereof shall be in writing and shall be considered as properly given if given by
(i) personal delivery, (ii) expedited delivery service with proof of delivery,
(iii) first class mail postage prepaid, or (iv) prepaid telegram, telex or
facsimile (with signed confirmed copy to follow by mail in the same manner as
provided in CLAUSE (II) above). Each party's address for notices and other
communications shall be as set forth below or such other address as shall be
designated in writing by the applicable party sent in accordance herewith.
IF TO THE UNDERSIGNED:
110 Cypress Station, Suite 220
Houston, Texas 77090
Attention: Frank A. Lodzinski
Fax No.: 713/537-8324
IF TO THE PARTNERSHIP:
110 Cypress Station, Suite 220
Houston, Texas 77090
Attention: Frank A. Lodzinski
Fax No.: 713/537-8324
IF TO THE LIMITED PARTNERS:
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attn: Robert L. Zorich
Fax No.: 713/659-6130
10. The undersigned hereby represents and warrants to and for the benefit
of the Partnership and the Limited Partners as follows:
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<PAGE>
(i) The undersigned is a corporation duly formed, validly existing and in
good standing under the laws of the State of Texas.
(ii) The undersigned has all requisite power and authority to execute and
deliver this Agreement and to perform its obligations hereunder.
(iii) The execution, delivery and performance by the undersigned of this
Agreement has been duly and validly authorized by all requisite corporate
action, and no other corporate or shareholder action is required to be taken to
authorize such execution, delivery and performance.
(iv) The execution, delivery and performance of this Agreement is within
its corporate powers and will not (a) be in contravention of or violate any
provisions of the undersigned's charter or other governing documents, as amended
to the date hereof, or (b) be in contravention of or result in any breach of or
constitute a default under any applicable law, rule or regulation or any loan,
note or other agreement or instrument to which the undersigned is a party or by
which it or any of its properties are bound.
(v) When delivered to the Partnership and the Limited Partners, this
Agreement will be duly and validly executed by the undersigned and will be
binding upon it in accordance with the terms hereof.
(vi) No consent, approval, authorization or order of any court or
governmental agency or authority or of any third party which has not been
obtained is required in connection with the execution, delivery and performance
of this Agreement by the undersigned.
(vii) There is no pending or, to the best of the undersigned's knowledge,
threatened judicial, administrative or arbitral action, suit or proceeding
against or investigation of the undersigned which is not fully insured against
(except standard amounts) and which might materially and adversely affect the
financial condition of the undersigned or the undersigned's ability to perform
its obligations under this Agreement.
(viii)As of the date hereof, none of the financial statements or other
written documents or information delivered herewith or heretofore by or on
behalf of the undersigned to the Limited Partners in connection with this
Agreement, the Partnership Agreement or any other Partnership Document contains
any untrue statement of a material fact or omits to state a material fact
necessary to keep the statements contained therein from being misleading. There
is no fact peculiar to the undersigned which materially adversely affects or in
the future may (so far as the undersigned can now foresee) materially adversely
affect the business, property or assets, or financial condition of the
undersigned which has not been set forth in the financial statements or other
written documents or information furnished to the Limited Partners by or on
behalf of the undersigned prior to the date hereof in connection with the
transactions contemplated hereby.
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<PAGE>
The foregoing representations and warranties shall survive the execution and
delivery of this Agreement, regardless of any investigation made by or on behalf
of the Partnership or the Limited Partners.
11. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY AND INTERPRETED, CONSTRUED AND ENFORCED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF TEXAS.
12. The undersigned, the Partnership and the Limited Partners hereby
knowingly, voluntarily and intentionally waive any right to trial by jury the
undersigned, the Partnership and the Limited Partners may have in any action or
proceeding, in law or in equity, in connection with this Agreement or the
transactions related thereto. The undersigned represents and warrants that no
representative or agent of the Partnership or the Limited Partners has
represented, expressly or otherwise, the Partnership or the Limited Partners
will not, in the event of litigation, seek to enforce this jury trial waiver.
The undersigned acknowledges that the Partnership and the Limited Partners have
been induced to enter into the contractual arrangements contemplated hereby and
the Partnership Agreement by, among other things, the provisions of this
paragraph.
13. This Agreement may be executed in several counterparts, each of which
shall be deemed an original and all of which shall constitute but one and the
same instrument.
14. Nothing in this Agreement, either express or implied, is intended to
or shall confer upon any person other than the parties hereto, and their
respective successors and permitted assigns, any rights, benefits, or remedies
of any nature whatsoever under or by reason of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undesigned has executed this Agreement as of the
day and year first above written.
CLIFFWOOD OIL & GAS CORP.
By: /S/ FRANK A. LODZINSKI
Name: Frank A. Lodzinski
Title: President
6
EXHIBIT 10.25
INVESTMENT AGREEMENT
THIS INVESTMENT AGREEMENT is made and entered into as of the 27th day of
September, 1996, by and among Cliffwood Oil & Gas Corp., a Texas corporation
(the "COMPANY"), Energy Capital Investment Company PLC, an English investment
company ("ENERGY PLC"), and EnCap Equity 1996 Limited Partnership, a Texas
limited partnership ("ENCAP LP").
RECITALS:
A. Reference is herein made to (i) that certain Stock Purchase Warrant
dated as of even date herewith executed by the Company in favor of Energy PLC,
as such instrument may be amended or modified in accordance with the terms
thereof, and (ii) that certain Stock Purchase Warrant dated as of even date
herewith executed by the Company in favor of EnCap LP, as such instrument may be
amended or modified in accordance with the terms thereof. The Stock Purchase
Warrants described in the immediately preceding sentence are herein called the
"WARRANTS".
B. Cliffwood, Energy PLC and EnCap LP deem it in their mutual best
interests to make the representations, covenants and agreements contained herein
with respect to the shares of capital stock of the Company issuable upon the
exercise of the Warrants.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual
covenants and agreements contained herein, the sufficiency of which is hereby
acknowledged and confirmed, the parties hereto, intending to be legally bound,
agree as follows.
SECTION 1. DEFINITIONS AND REFERENCES.
(a) When used in this Agreement, the following terms shall have the
respective meanings assigned to them in this SECTION 1 or in the sections,
subsections or other subdivisions or other documents referred to below:
"AGREEMENT" shall mean this Investment Agreement, as hereafter amended or
modified in accordance with the terms hereof.
"COMMISSION" shall mean the Securities and Exchange Commission (or any
successor body thereto).
"COMMON STOCK" shall mean the common stock, par value $0.01 per share, of
the Company.
"COMPANY INDEMNIFIED PARTIES" shall have the meaning assigned to it in
SECTION 6(B).
"DEMAND REGISTRATION" shall have the meaning assigned to it in SECTION
2(A).
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"ELIGIBLE WARRANT SHARES" shall mean, at the point in time in question,
(i) the number of Warrant Shares purchased under the Warrants and not previously
sold pursuant to either SECTION 2 or SECTION 3 and (ii) the number of Warrant
Shares that remain purchasable under the terms of the Warrants.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended,
and all rules and regulations promulgated under such Act.
"HOLDER" shall mean any Person that holds Registrable Securities or, if
the context so requires, has the right to acquire such Registrable Securities,
whether or not such acquisition has actually been effected.
"HOLDER INDEMNIFIED PARTIES" shall have the meaning assigned to it in
SECTION 6(A).
"PERSON" shall mean any individual, corporation, partnership, joint
venture, limited partnership, limited liability company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"PIGGYBACK REGISTRATION" shall have the meaning assigned to it in SECTION
3.
"REGISTRABLE SECURITIES" shall mean (i) the Warrant Shares and (ii) any
securities issued or issuable with respect to the Warrant Shares by way of a
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
"REGISTRATION EXPENSES" shall mean all expenses incident to the Company's
performance of or compliance with the registration rights granted hereunder,
including (without limitation) all registration and filing fees, fees and
expenses of compliance with securities and blue sky laws, printing and engraving
expenses, messenger, telephone and delivery expenses, and fees and disbursements
of counsel for the Company, all independent certified public accountants and
underwriters (excluding discounts and commissions); provided, that Registration
Expenses shall not include any Selling Expenses.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and
all rules and regulations under such Act.
"SELLING EXPENSES" shall mean underwriting discounts or commissions, any
selling commissions and stock transfer taxes attributable to sales of
Registrable Securities and the fees and expenses of counsel for any Holder.
"WARRANTS" shall have the meaning assigned to such term in PARAGRAPH A of
the Recitals to this Agreement.
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"WARRANT SHARES" shall mean the shares of Common Stock purchasable under
the terms of the Warrants.
(b) All references in this Agreement to sections, subsections and other
subdivisions refer to corresponding sections, subsections and other subdivisions
of this Agreement unless expressly provided otherwise. Titles appearing at the
beginning of any of such subdivisions are for convenience only and shall not
constitute part of such subdivisions and shall be disregarded in construing the
language contained herein. The words "this Agreement", "this instrument",
"herein", "hereof", "hereby", "hereunder" and words of similar import refer to
this Agreement as a whole and not to any particular subdivision unless expressly
so limited. Words in the singular form shall be construed to include the plural
and VICE VERSA, unless the context otherwise requires.
SECTION 2. DEMAND REGISTRATION.
(a) Subject to SUBSECTIONS (B), (C) and (D) below of this SECTION 2 and
the other terms and provisions hereof, any Holder may request at any time a
registration by the Company under the Securities Act of all or a part of its
Registrable Securities (a "DEMAND REGISTRATION"). Within ten days after receipt
of such request, the Company will serve written notice of such registration
request to all Holders and will include in such registration all Registrable
Securities with respect to which the Company has received written requests for
inclusion therein within fifteen business days after the receipt by the
applicable Holder of the Company's notice. All requests made pursuant to this
SUBSECTION (A) will specify the number of Registrable Securities to be
registered and will specify the intended method of disposition thereof;
provided, that such method of disposition shall be an underwritten offering if
requested by the Holders of a majority of the Registrable Securities requested
to be included in such registration.
(b) Notwithstanding SUBSECTION (A) above or anything else herein to the
contrary, the Company shall have no obligations under this SECTION 2 (i) until
the earlier of May 1, 2000 or one year after the effective date of the first
registration statement filed by the Company covering an underwritten offering of
any of its securities to the general public and (ii) unless Holders of at least
66 2/3% of the Eligible Warrant Shares request that such Eligible Warrant Shares
be included in the registration. Notwithstanding SUBSECTION (A) above or
anything else herein to the contrary, in no event shall the Company be obligated
to effect more than one registration pursuant to this SECTION 3; provided,
however, that any registration requested pursuant to this SECTION 2 will not be
deemed to have been effected unless it has become effective and remained
effective until all of the Registrable Securities have been sold; provided,
further, that any such registration which does not become effective after the
Company has filed a registration statement in accordance with the provisions of
this SECTION 2 solely by reason of the refusal to proceed of the Holder or
Holders that have requested the Demand Registration pursuant to SUBSECTION (A)
above, including failure to comply with the provisions of this Agreement (other
than any refusal to proceed based upon the advice of counsel to such Holder or
Holders that the registration statement, or the prospectus contained therein,
contains an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing, or that such
registration statement or such prospectus, or the distribution contemplated
thereby, otherwise
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violates or would, if such distribution using such prospectus took place,
violate any applicable state or federal securities law) shall be deemed to have
been effected by the Company at the request of such Holder or Holders.
(c) Neither the Company nor any of its security holders (other than the
Holders of Registrable Securities in such capacity) shall have the right to
include any of the Company's securities in a registration statement initiated as
a Demand Registration under this SECTION 2 unless (i) such securities are of the
same class as of the Registrable Securities being registered, (ii) the Holders
of a majority of the Registrable Securities being registered in such
registration consent to such inclusion and (iii) if the Demand Registration is
an underwritten offering, (A) the Company and such security holders, as
applicable, agree in writing to sell their securities on the same terms and
conditions as apply to the Registrable Securities being sold and (B) the
managing underwriter(s) of such underwritten offering has reasonably determined
that inclusion of such securities will not adversely affect the marketability or
offering price of the Registrable Securities to be included.
(d) If a Demand Registration is an underwritten offering or a best efforts
underwritten offering, the investment banker or investment bankers and manager
or managers that will administer the offering shall be selected by the Holders
of a majority of the Registrable Securities to be registered in such
registration; provided, that such investment bankers and managers must be
reasonably satisfactory to the Company.
SECTION 3. PIGGYBACK REGISTRATION. If, at any time, the Company proposes
to register any of its securities under the Securities Act other than (a) under
employee compensation or benefit programs or (b) an exchange offer or an
offering of securities solely to the existing stockholders or employees of the
Company, and the registration form to be used may be used for the registration
of Registrable Securities, the Company will give prompt written notice to all
Holders of its intention to effect such a registration and will include in such
registration all Registrable Securities with respect to which the Company has
received written requests for inclusion therein within 15 days after the receipt
of the Company's notice (a "PIGGYBACK REGISTRATION"). The Company shall use its
reasonable best efforts to cause the managing underwriters of a proposed
underwritten offering to permit the Registrable Securities requested to be
included in the registration statement (or registration statements) for such
offering to be included therein on the same terms and conditions as any similar
securities of the Company included therein. Notwithstanding the foregoing, if
the Company gives notice of such a proposed registration, the total number of
Registrable Securities which shall be included in such registration shall be
reduced pro rata to such number, if any, as in the reasonable opinion of the
managing underwriters of such offering would not adversely affect the
marketability or offering price of all of the securities proposed to be offered
by the Company in such offering; provided however, that (i) if such Piggyback
Registration is incident to a primary registration on behalf of the Company, and
to the extent not prohibited by any registration rights agreements existing as
of the date hereof, the securities to be included in the registration statement
(or registration statements) for any person other than the Holders and the
Company shall be first reduced prior to any such pro rata reduction, and (ii) if
such Piggyback Registration is incident to a secondary registration on behalf of
holders of securities of the Company and to the extent not prohibited by any
registration rights agreements existing as of the date hereof, the securities to
be included in the registration statement (or registration
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statements) for any person not exercising "demand" registration rights other
than the Holders shall be first reduced prior to any such pro rata reduction.
SECTION 4. REGISTRATION PROCEDURES.
(a) Whenever Holders have requested that any Registrable Securities be
registered pursuant to SECTION 2 or SECTION 3, the Company will use its
reasonable best efforts to effect the registration of and permit the sale of
such Registrable Securities in accordance with the intended method of
disposition thereof, and pursuant thereto the Company will as expeditiously as
possible:
(i) prepare and file with the Commission a registration statement on
the appropriate form with respect to such Registrable 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 copies of all such documents proposed to be filed to any Holder of
Registrable Securities covered by such registration statement);
(ii) 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 for a period of not less than the period set forth in
such section or such shorter period which will terminate when Registrable
Securities covered by such registration statement have been sold (but not
before the expiration of the applicable prospectus delivery period) and
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement
during such period in accordance with the intended methods of disposition
by the sellers thereof set forth in such registration statement;
(iii) furnish to each seller of Registrable Securities such number
of copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement
(including, without limitation, each preliminary prospectus) and such
other documents as such seller may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such
seller;
(iv) use its reasonable best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of
such jurisdictions within the United States as any seller reasonably
requests and do any and all other acts and things which may be reasonably
necessary or advisable to enable such seller to consummate the disposition
in such jurisdictions of the Registrable Securities owned by such seller
(provided that the Company will not be required to qualify generally to do
business or subject itself to any general service of process in any
jurisdiction where it is otherwise not then so subject);
(v) notify each seller of such Registrable Securities, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event which requires the making of
any change in the prospectus included in such registration
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<PAGE>
statement so that such document will not contain an untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and,
at the request of any such seller, the Company will prepare a supplement
or amendment to such prospectus so that such prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading;
(vi) use its reasonable best efforts to cause all such Registrable
Securities to be listed on each securities exchange or exchanges,
automated quotation system or over-the-counter market upon which
securities of the Company of the same class are then listed;
(vii) enter into such customary agreements (including, without
limitation, underwriting agreements in customary form, substance, and
scope) and take all such other actions as the Holders of a majority of the
Registrable Securities being sold or the underwriters, if any, reasonably
request in order to expedite or facilitate the disposition of such
Registrable Securities;
(viii)otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders an earnings statement no later than 90
days after the end of the 12 month period beginning with the first day of
the Company's first full calendar quarter after the effective date of the
registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(ix) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the
disqualification of any common stock included in such registration
statement for sale in any jurisdiction, the Company will use its
reasonable best efforts promptly to obtain the withdrawal of such order;
and
(x) use its reasonable best efforts to cause such Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the Sellers thereof to consummate the disposition of
such Registrable Securities.
(b) Each Holder of Registrable Securities agrees with the Company as
follows:
(i) upon receipt of any notice from the Company of the happening of
any event of the kind described in SECTION 4(A)(V), the Holders of
Registrable Securities will forthwith discontinue disposition of any
Registrable Securities until the Holders of Registrable Securities receive
copies of the supplemented or amended prospectus contemplated by SECTION
4(A)(V), or until they are advised in writing by the Company that the use
of the applicable prospectus may be resumed, and they have received copies
of any additional or supplemental filings that are incorporated or deemed
to be incorporated by reference in such prospectus (it being the
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agreement of the parties hereto, however, that the obligation of the
Company with respect to maintaining the subject registration statement
current and effective shall be extended by a period of days equal to the
period the Holders of Registrable Securities are required by this SECTION
4(B)(I) to discontinue disposition of such Registrable Securities);
(ii) furnish to the Company such information regarding such Holder,
the Registrable Securities held by such Holder and the intended method of
disposition thereof as the Company shall reasonably request and as shall
be reasonably required in connection with the preparation of the
applicable registration statement and other actions taken by the Company
under this Agreement, and it shall be a condition precedent to the
obligation of the Company to take any action pursuant to this Agreement in
respect of the Registrable Securities that such information has been
furnished to the Company by the Holders of Registrable Securities; and
(iii) if any Registrable Securities are being registered in any
registration pursuant to this Agreement, such Holder thereof will comply
with all anti-stabilization, manipulation and similar provisions of
Section 10 of the Exchange Act, as amended, and any rules promulgated
thereunder by the Commission and, at the request of the Company, will
execute and deliver to the Company and to any underwriter participating in
such offering, an appropriate agreement to such effect.
SECTION 5. EXPENSES. the Company shall pay all Registration Expenses in
connection with each registration effected pursuant to SECTIONS 2 and 3 and, in
any event, shall pay its internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal and
accounting duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the securities to be registered on
each securities exchange on which similar securities issued by the Company are
then listed. All Selling Expenses incurred in connection with a registration
effected pursuant to the terms hereof shall be borne by the seller or sellers of
Registrable Securities pro rata based upon the number of Registrable Securities
included in such registration.
SECTION 6. INDEMNIFICATION.
(a) The Company shall indemnify and hold harmless, with respect to any
registration statement filed by it, to the full extent permitted by law, each
Holder of Registrable Securities covered by such registration statement, and
each other Person, if any, who controls such holder within the meaning of
Section 15 of the Securities Act (collectively, "HOLDER INDEMNIFIED PARTIES")
against all losses, claims, damages, liabilities and expenses, joint or several
to which any such Holder Indemnified Party may become subject under the
Securities Act, the Exchange Act, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of a material fact
contained in any registration statement in which such Registrable Securities
were included as contemplated hereby or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein
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not misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary, final or summary prospectus,
together with the documents incorporated by reference therein (as amended or
supplemented if the Company shall have filed with the Commission any amendment
thereof or supplement thereto), or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, or (iii) any violation by the Company of any federal,
state or common law rule or regulation applicable to the Company and relating to
action of or inaction by the Company in connection with any such registration;
and in each such case, the Company shall reimburse each such Holder Indemnified
Party for any reasonable legal or other expenses incurred by any of them in
connection with investigating or defending any such loss, claim, damage,
liability, expense, action or proceeding; provided, however, that the Company
shall not be liable to any such Holder Indemnified Party in any such case to the
extent, that any such loss, claim, damage, liability or expense (or action or
proceeding, whether commenced or threatened, in respect thereof) arises out of
or is based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement or amendment thereof or
supplement thereto or in any such preliminary, final or summary prospectus in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of any such Holder Indemnified Party for use in the
preparation thereof. Such indemnity and reimbursement of expenses and other
obligations shall remain in full force and effect regardless of any
investigation made by or on behalf of the Holder Indemnified Parties and shall
survive the transfer of such securities by such Holder Indemnified Parties.
(b) Each Holder of Registrable Securities participating in any
registration hereunder shall severally (and not jointly or jointly and
severally) indemnify and hold harmless, to the fullest extent permitted by law,
the Company, its directors, officers, employees and agents, and each Person who
controls the Company (within the meaning of Section 15 of the Securities Act)
(collectively, the "COMPANY INDEMNIFIED PARTIES") against all losses, claims,
damages, liabilities and expenses to which any the Company Indemnified Party may
become subject under the Securities Act, the Exchange Act, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in any registration statement in which
such holder's Registrable Securities were included or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary, final or summary prospectus, together with the documents
incorporated by reference therein (as amended or supplemented if the Company
shall have filed with the Commission any amendment thereof or supplement
thereto), or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading to the extent in the cases described in CLAUSES (I) and (II), that
such untrue statement or omission was furnished in writing by such holder for
use in the preparation thereof, or (iii) any violation by such holder of any
federal, state or common law rule or regulation applicable to such holder and
relating to action of or inaction by such holder in connection with any such
registration. Such indemnity obligation shall remain in full force and effect
regardless of any investigation made by or on behalf
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of the Company Indemnified Parties (except as provided above) and shall survive
the transfer of such securities by such holder.
(c) Promptly after receipt by an indemnified party under SUBSECTION (A) or
(B) of written notice of the commencement of any action, suit, proceeding,
investigation or threat thereof made in writing with respect to which a claim
for indemnification may be made pursuant to this SECTION 6, such indemnified
party shall, if a claim in respect thereof is to be made against an indemnifying
party, give written notice to the indemnifying party of the threat or
commencement thereof; provided, however, that the failure to so notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice. If any such claim or action
referred to under SUBSECTION (A) or (B) is brought against any indemnified party
and it then notifies the indemnifying party of the threat or commencement
thereof, the indemnifying party shall be entitled to participate therein and, to
the extent that it wishes, jointly with any other indemnifying party similarly
notified, to assume the defense thereof with counsel reasonably satisfactory to
such indemnified party. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense of any such claim or
action, the indemnifying party shall not be liable to such indemnified party
under this SECTION 6 for any legal expenses of counsel or any other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation unless the indemnifying
party has failed to assume the defense of such claim or action or to employ
counsel reasonably satisfactory to such indemnified party. Under no
circumstances will the indemnifying party be obligated to pay the fees and
expenses of more than one law firm for all indemnified parties. The indemnifying
party shall not be required to indemnify the indemnified party with respect to
any amounts paid in settlement of any action, proceeding or investigation
entered into without the written consent of the indemnifying party, which
consent shall not be unreasonably withheld. No indemnifying party shall consent
to the entry of any judgment or enter into any settlement without the consent of
the indemnified party unless (i) such judgment or settlement does not impose any
obligation or liability upon the indemnified party other than the execution,
delivery or approval thereof, and (ii) such judgment or settlement includes as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a full release and discharge from all liability in respect
of such claim for all persons that may be entitled to or obligated to provide
indemnification or contribution under this SECTION 6.
(d) Indemnification similar to that specified in the preceding subsections
of this SECTION 6 (with appropriate modifications) shall be given by the Company
and each seller of Registrable Securities with respect to any required
registration or qualification of securities under any state securities or blue
sky laws.
(e) If the indemnification provided for in this SECTION 6 is unavailable
to or insufficient to hold harmless an indemnified party under SUBSECTION (A) or
(B), then each indemnifying party shall contribute to the amount paid or payable
by such indemnified party as a result of the losses, claims, damages,
liabilities or expenses (or actions or proceedings in respect thereof) referred
to in SUBSECTION (A) or (B) in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and the indemnified
party on the other in connection with the statements, omissions,
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actions or inactions which resulted in such losses, claims, damages, liabilities
or expenses as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and the indemnified party shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or the indemnified
party, any action or inaction by any such party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement, omission, action or inaction. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities or
expenses (or actions or proceedings in respect thereof) pursuant to this
SUBSECTION (E) shall be deemed to include, without limitation, any reasonable
legal or other expenses incurred by such indemnified party in connection with
investigating or defending any such action or claim (which shall be limited as
provided in SUBSECTION (C) if the indemnifying party has assumed the defense of
any such action in accordance with the provisions thereof) which is the subject
of this SUBSECTION (E). No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. Promptly after receipt by an indemnified party under this
SUBSECTION (E) of written notice of the commencement of any action, suit,
proceeding, investigation or threat thereof made in writing with respect to
which a claim for contribution may be made against an indemnifying party under
this SUBSECTION (E), such indemnified party shall, if a claim for contribution
in respect thereof is to be made against an indemnifying party, give written
notice to the indemnifying party in writing of the commencement thereof (if the
notice specified in SUBSECTION (C) has not been given with respect to such
action); provided, however, that the failure to so notify the indemnifying party
shall not relieve it from any obligation to provide contribution which it may
have to any indemnified party under this SUBSECTION (E) except to the extent
that the indemnifying party is actually prejudiced by the failure to give
notice.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this paragraph were determined by pro rata allocation
or by any other method of allocation which does not take account the equitable
considerations referred to in the immediately preceding paragraph.
If indemnification is available under SECTION 6, the indemnifying parties
shall indemnify each indemnified party to the fullest extent provided in
SUBSECTIONS (A) and (B), without regard to the relative fault of said
indemnifying party or any other equitable consideration provided for in this
paragraph. The provisions of this paragraph shall be in addition to any other
rights to indemnification or contribution which any indemnified party may have
pursuant to law or contract, shall remain in full force and effect regardless of
any investigation made by or on behalf of any indemnified party, and shall
survive the transfer of securities by any such party.
(f) In connection with any underwritten offering contemplated by this
Agreement which includes Registrable Securities, the Company and all sellers of
Registrable Securities included in any registration statement shall agree to
customary provisions for indemnification and contribution (consistent with the
other provisions of this SECTION 6) in respect of losses, claims, damages,
liabilities and expenses of the underwriters of such offering.
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SECTION 7. RULE 144. The Company covenants to each Holder that, to the
extent that the Company shall be required to do so under the Exchange Act, the
Company shall (a) timely file the reports required to be filed by it under the
Exchange Act or the Securities Act (including, but not limited to, the reports
under Section 13 and 15(d) of the Exchange Act referred to in subparagraph (c)
(1) of Rule 144 adopted by the Commission under the Securities Act) and the
rules and regulations adopted by the Commission thereunder, and (b) take such
further action as any Holder may reasonably request, all to the extent required
from time to time to enable such Holder to sell Registrable Securities without
registration under the Securities Act within the limitations of the exemption
provided by Rule 144 under the Securities Act, as such Rule may be amended from
time to time, or any similar rule or regulation hereafter adopted by the
Commission. Upon the request of any Holder, the Company shall deliver to such
Holder a written statement as to whether it has complied with such requirements.
SECTION 8. PUT RIGHTS. If, a Holder determines in good faith during the
period commencing May 27, 2001 and ending September 27, 2001 (in this SECTION 8,
the "PUT PERIOD"), that (a) there is no reasonable prospect that a public market
for the Common Stock is likely to develop or (b) the Registrable Securities held
by such Holder cannot be sold pursuant to SECTIONS 2 and 3 at a price per share
equal to or greater than a price per share equal to the Net Asset Value, then
the terms and provisions of this SECTION 8 shall be operative. Specifically, in
the instance described in the immediately preceding sentence, the subject Holder
shall have the right to sell all or a portion of its Registrable Securities to
the Company, and the Company shall be obligated to purchase such Registrable
Securities, at a price per share equal to the Net Asset Value. To exercise its
rights to sell under this SECTION 8, the subject Holder shall give written
notice to that effect to the Company during the Put Period, which notice (in
this SECTION 8, called the "EXERCISE NOTICE") shall also specify the number of
Registrable Securities (in this SECTION 8, the "SUBJECT SHARES") the subject
Holder is electing to sell. The Company and the subject Holder shall consummate
any purchase and sale contemplated under this SECTION 8 at a place and time
mutually determined by the Company and the subject Holder, but in any event
within 15 days after receipt by the Company of the Exercise Notice. At the
closing of any purchase and sale contemplated under this SECTION 8, the Company
shall tender cash to the subject Holder in an amount equal to the number of the
Subject Shares multiplied by the Net Asset Value and the subject Holder shall
deliver to the Company certificate(s) evidencing the Subject Shares. For
purposes of this SECTION 8, the term "NET ASSET VALUE" shall mean, as of the
date of the Exercise Notice, an amount determined by dividing X by Y, where "X"
is (i) the total assets of the Company and its subsidiaries which would be shown
as assets on a consolidated balance sheet of the Company and its subsidiaries as
of such time prepared in accordance with generally accepted accounting
principles (exclusive, however, of oil and gas properties), PLUS (ii) the
"Calculated Market Value" (as defined below) of such oil and gas properties,
MINUS (iii) the total liabilities of the Company and its subsidiaries which
would be shown as liabilities on a consolidated balance sheet of the Company and
it subsidiaries as of such time prepared in accordance with generally accepted
accounting principles, and where "Y" is the total number of shares of Capital
Stock outstanding as of such time. In computing Net Asset Value, the "CALCULATED
MARKET VALUE" of oil and gas properties of the Company and its consolidated
subsidiaries shall be determined in accordance ss.210.4-10 of Regulation S-X, as
promulgated by the Securities and Exchange Commission, except that in making
such computation only the following categories (and portions of such categories)
of reserves shall be utilized: 90% of proved developed producing reserves; 65%
of proved behind pipe reserves; and 50%
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<PAGE>
of proved undeveloped reserves; provided, that the independent petroleum
engineers to be used in making the valuation contemplated by this sentence shall
be T.J. Smith & Company, Inc., Ryder Scott Company, Netherland Sewell &
Associates, Inc. or such other independent petroleum engineers as shall be
designated by the Company and acceptable to the subject Holder. Notwithstanding
the foregoing, however, should the Company determine in good faith that the
Calculated Market Value of the oil and gas properties of the Company and its
consolidated subsidiaries exceeds, at the date of the Exercise Notice, the fair
market value of such properties based on then current industry conditions, the
Company may, with the consent of the subject Holder (such consent not to be
unreasonably withheld) use such lesser fair market value in computing Net Asset
Value.
9. REPRESENTATIONS AND WARRANTIES.
(a) The Company is a corporation duly formed, validly existing and in good
standing under the laws of the State of Texas.
(b) The Company is duly qualified or will qualify to transact business in
every jurisdiction where the character of the properties owned or held by it
where the nature of the business transacted by it makes qualification by it
necessary or appropriate.
(c) The Company has the requisite power and authority to execute and
deliver this Agreement and to perform its obligations hereunder.
(d) The execution, delivery and performance by the Company of this
Agreement has been duly and validly authorized by all requisite corporate
action, and no other corporate or shareholder action is required to be taken to
authorize such execution, delivery and performance.
(e) The execution, delivery and performance by the Company of this
Agreement is within its corporate powers and will not (i) be in contravention of
or violate any provisions of its articles of incorporation, bylaws or other
governing documents, as amended to the date hereof, or (ii) be in contravention
of or result in any breach or constitute a default under any applicable law,
rule, regulation, judgment, license, permit or order or any loan, note or other
agreement or instrument to which the Company is a party or by which it or any of
its properties are bound.
(f) When delivered to Energy PLC and EnCap LP, this Agreement will have
been duly and validly executed and will be binding upon the Company and
enforceable in accordance with its terms.
(g) The authorized capital stock of the Company consists of 3,000,000
shares of Common Stock of which 2,258,000 shares are outstanding. All
outstanding shares of capital stock of the Company have been validly issued and
are fully paid and nonassessable, and no shares of capital stock of the Company
are subject to, nor have any been issued in violation of, preemptive or similar
rights. All issuances, sales, and repurchases by the Company of shares of its
capital stock have been effected in compliance with all applicable laws,
including without limitation applicable federal and state securities laws.
Except as set forth above in this Section and the Warrants, there are
outstanding (i) no
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shares of capital stock or other voting securities of the Company, (ii) no
securities of the Company convertible into or exchangeable for shares of capital
stock or other voting securities of the Company, (iii) no options or other
rights to acquire from the Company, and no obligation of the Company to issue or
sell, any shares of capital stock or other voting securities of the Company or
any securities of the Company convertible into or exchangeable for such capital
stock or voting securities, and (iv) no equity equivalents, interests in the
ownership or earnings, or other similar rights of or with respect to the
Company. There are no outstanding obligations of the Company to repurchase,
redeem, or otherwise acquire any of the foregoing shares, securities, options,
equity equivalents, interests, or rights.
(h) The Warrants have been duly authorized for issuance, have been validly
issued and constitute valid and legally binding obligations of the Company,
enforceable against the Company in accordance with their respective terms. The
shares of Common Stock issuable upon exercise of the Warrants have been duly
reserved for such issuance and, when issued and delivered by the Company in
accordance with the provisions of the Warrants, will be validly issued, fully
paid, and nonassessable.
(i) The Company has not previously entered into any agreement with respect
to its securities granting any registration rights to any Person.
SECTION 10. MISCELLANEOUS.
(a) From and after the date of this Agreement, the Company will not,
without the prior written consent of the holders of a majority of the number of
Eligible Warrant Shares then outstanding, enter into any agreement with respect
to its securities which is inconsistent with or violates the rights granted to
the Holders of Registrable Securities in this Agreement.
(b) All questions concerning the construction, validity and interpretation
of this Agreement shall be governed by the internal law, and not the law of
conflicts, of the State of Texas.
(c) All covenants and agreements in this Agreement by or on behalf of any
of the parties hereto will bind and inure to the benefit of the respective
successors and assigns of the parties hereto whether expressed or not.
(d) This Agreement is intended by the parties as a final expression of
their agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter herein contained. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
(e) All notices, demands or other communications to be given or delivered
under or by reason of the provisions of this Agreement shall be in writing and
shall be deemed to have been given when delivered personally or sent by
reputable express courier service (charges prepaid), or mailed to the recipient
by certified or registered mail, return receipt requested and postage prepaid,
or sent by telefax, to the parties at the following address (or to such other
address or to the attention of such other person as the recipient party has
specified by prior like notice to the sending party):
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<PAGE>
IF TO THE COMPANY:
Cliffwood Oil & Gas Corp.
110 Cypress Station Drive, Suite 220
Houston, Texas 77090
Telecopier No.: (713)537-8324
Attention: Frank A. Lodzinski, President
IF TO ENERGY PLC OR ENCAP LP:
EnCap Investments L.C.
1100 Louisiana
Suite 3150
Houston, Texas 77002
Telecopier No.: (713)659-6130
Attention: Robert L. Zorich, Managing Director
(f) If any provision of this Agreement is held to be unenforceable, this
Agreement shall be considered divisible and such provision shall be deemed
inoperative to the extent it is deemed unenforceable, and in all other respects
this Agreement shall remain in full force and effect; provided, however, that if
any such provision may be made enforceable by limitation thereof, then such
provision shall be deemed to be so limited and shall be enforceable to the
maximum extent permitted by applicable law.
(g) This Agreement may be executed by the parties hereto in any number of
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same agreement. Each counterpart may consist of a number
of copies hereof each signed by less than all, but together signed by all, the
parties hereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
CLIFFWOOD OIL & GAS CORP.
By: /S/ FRANK A. LODZINSKI
Name: Frank A. Lodzinski
Title: President
ENERGY CAPITAL INVESTMENT
COMPANY PLC
By: /S/ GARY R. PETERSEN
Name: Gary R. Petersen
Title: Director
ENCAP EQUITY 1996 LIMITED PARTNERSHIP
By: ENCAP INVESTMENTS L.C.
By: /S/ GARY R. PETERSEN
Name: Gary R. Petersen
Title: Managing Director
-15-
EXHIBIT 10.26
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES
OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD,
ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER SAID ACT AND UNDER APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR
EXEMPTIONS FROM SUCH REGISTRATION. THIS WARRANT MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT UPON THE CONDITIONS SPECIFIED IN
THIS WARRANT, AND NO SALE, ASSIGNMENT, TRANSFER, OR OTHER DISPOSITION OF THIS
WARRANT SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE
BEEN COMPLIED WITH.
No. -002- Right to Purchase 225,000 Shares
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, EnCap Equity 1996 Limited
Partnership, or registered assigns, is entitled to purchase from Cliffwood Oil &
Gas Corp., a Texas corporation (the "COMPANY"), at any time or from time to time
during the period specified in PARAGRAPH 2 hereof, Two Hundred Twenty Five
Thousand (225,000) fully paid and nonassessable shares of the Company's Common
Stock, par value $0.01 per share (the "COMMON STOCK"), at an exercise price per
share of $1.25 (the "EXERCISE PRICE"). The term "WARRANT SHARES", as used
herein, refers to the shares of Common Stock purchasable hereunder. The Warrant
Shares and the Exercise Price are subject to adjustment as provided in PARAGRAPH
4 hereof.
This Warrant is subject to the following terms, provisions, and
conditions:
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part by the surrender of this Warrant, together with a
completed Exercise Agreement in the form attached hereto, to the Company during
normal business hours on any business day at the Company's principal office in
Houston, Texas (or such other office or agency of the Company as it may
designate by notice to the holder hereof), and upon payment to the Company in
cash or by certified or official bank check of the Exercise Price for the
Warrant Shares specified in said Exercise Agreement. The Warrant Shares so
purchased shall be deemed to be issued to the holder hereof or its designee as
the record owner of such shares as of the close of business on the date on which
this Warrant shall have been surrendered, the completed Exercise Agreement
delivered, and payment made for such shares as aforesaid. Certificates for the
Warrant Shares so purchased, representing the aggregate number of shares
specified in said Exercise Agreement, shall be delivered to the holder hereof
within a reasonable time, not exceeding seven business days, after
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this Warrant shall have been so exercised. The certificates so delivered shall
be in such denominations as may be requested by the holder hereof and shall be
registered in the name of said holder or such other name as shall be designated
by said holder. If this Warrant shall have been exercised only in part, then,
unless this Warrant has expired, the Company shall, at its expense, at the time
of delivery of said certificates, deliver to said holder a new Warrant
representing the number of shares with respect to which this Warrant shall not
then have been exercised. The Company shall pay all taxes and other expenses and
charges payable in connection with the preparation, execution, and delivery of
stock certificates (and any new Warrants) pursuant to this PARAGRAPH 1 except
that, in case such stock certificates shall be registered in a name or names
other than the holder of this Warrant, funds sufficient to pay all stock
transfer taxes which shall be payable in connection with the execution and
delivery of such stock certificates shall be paid by the holder hereof to the
Company at the time of the delivery of such stock certificates by the Company as
mentioned above.
2. PERIOD OF EXERCISE. This Warrant is exercisable at any time or from
time to time after September 27, 1996, and before 5:00 p.m., local time on
September 27, 2001.
3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants and
agrees as follows:
(A) SHARES TO BE FULLY PAID. All Warrant Shares will, upon issuance, be
validly issued, fully paid, and nonassessable and free from all taxes, liens,
and charges with respect to the issue thereof.
(B) RESERVATION OF SHARES. During the period within which this Warrant may
be exercised, the Company will at all times have authorized, and reserved for
the purpose of issue upon exercise of this Warrant, a sufficient number of
shares of Common Stock to provide for the exercise of this Warrant.
(C) CERTAIN ACTIONS PROHIBITED. The Company will not, by amendment of its
charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. Without limiting the generality of the foregoing, (i) the Company
will not increase the par value of the shares of Common Stock receivable upon
the exercise of this Warrant above the Exercise Price then in effect, (ii)
before taking any action which would cause an adjustment reducing the Exercise
Price below the then par value of the shares of Common Stock so receivable, the
Company will take all such corporate action as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
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<PAGE>
nonassessable shares of Common Stock at such adjusted Exercise Price upon the
exercise of this Warrant.
(D) REGISTRATION. If the issuance of any Warrant Shares required to be
reserved for purposes of exercise of this Warrant requires registration with or
approval of any governmental authority under any federal or state law (other
than any registration under the Securities Act of 1933, as amended, or under
applicable state securities or blue sky laws) or listing on any national
securities exchange, before such shares may be issued upon exercise of this
Warrant, the Company will, at its expense, use its best efforts to cause such
shares to be duly registered or approved, or listed on the relevant national
securities exchange, as the case may be, at such time, so that such shares may
be issued in accordance with the terms hereof.
4. ANTIDILUTION PROVISIONS. The Exercise Price shall be subject to
adjustment from time to time as provided in this PARAGRAPH 4. Upon each
adjustment of the Exercise Price, the holder of this Warrant shall thereafter be
entitled to purchase, at the Exercise Price resulting from such adjustment, the
largest number of Warrant Shares obtained by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Shares
purchasable hereunder immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment. For
purposes of this PARAGRAPH 4, the term "CAPITAL STOCK", as used herein, includes
the Common Stock and any additional class of stock of the Company having no
preference as to dividends or distributions on liquidation which may be
authorized in the future, provided that the shares purchasable pursuant to this
Warrant shall include only shares of Common Stock, or shares resulting from any
subdivision or combination of the Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or sale of the
character referred to in PARAGRAPH 4(G) hereof, the stock or other securities or
property provided for in said Paragraph. For purposes of this PARAGRAPH 4, the
term "NET ASSET VALUE" shall mean, at a point in time, an amount determined by
dividing X by Y, where "X" is (i) the total assets of the Company and its
subsidiaries which would be shown as assets on a consolidated balance sheet of
the Company and its subsidiaries as of such time prepared in accordance with
generally accepted accounting principles (exclusive, however, of oil and gas
properties), PLUS (ii) the "Calculated Market Value" (as defined below) of such
oil and gas properties, MINUS (iii) the total liabilities of the Company and its
subsidiaries which would be shown as liabilities on a consolidated balance sheet
of the Company and it subsidiaries as of such time prepared in accordance with
generally accepted accounting principles, and where "Y" is the total number of
shares of Capital Stock outstanding as of such time. In computing Net Asset
Value, the "CALCULATED MARKET VALUE" of oil and gas properties of the Company
and its consolidated subsidiaries shall be determined in accordance ss.210.4-10
of Regulation S-X, as promulgated by the Securities and Exchange Commission,
except that in making such computation only the following categories (and
portions of such categories) of reserves shall be utilized: 90% of proved
developed producing reserves; 65% of proved behind pipe reserves; and 50% of
proved undeveloped reserves; provided, that the independent petroleum engineers
to be used in making the valuation contemplated by this sentence shall be T.J.
Smith & Company, Inc., Ryder Scott Company, Netherland Sewell & Associates, Inc.
or such other independent petroleum engineers
3
<PAGE>
as shall be designated by the Company and acceptable to the holder hereof.
Notwithstanding the foregoing, however, should the Company determine in good
faith that the Calculated Market Value of the oil and gas properties of the
Company and its consolidated subsidiaries exceeds, at the date of determination,
the fair market value of such properties based on then current industry
conditions, the Company may, with the consent of the holder (such consent not to
be unreasonably withheld) use such lesser fair market value in computing Net
Asset Value.
(A) ISSUANCE OF CAPITAL STOCK. If and whenever the Company shall issue or
sell any shares of Capital Stock without consideration or for a consideration
per share less than the Exercise Price in effect immediately prior to the time
of such issue or sale, and/or the Company shall issue or sell any shares of its
Capital Stock for a consideration per share less than the Net Asset Value on the
date of such issue or sale, then, forthwith upon such issue or sale, the
Exercise Price shall be reduced to a price (calculated to the nearest cent)
determined as provided in PARAGRAPH (I) below (in the case of a consideration
per share less than the Exercise Price), or the price (calculated to the nearest
cent) determined as provided by PARAGRAPH (II) below (in the case of a
consideration per share less than the Net Asset Value), or the lower of the
prices (calculated to the nearest cent) determined as provided in PARAGRAPHS (I)
and (II) below (in the case of a consideration per share which is less than both
the Exercise Price and the Net Asset Value):
(i) by dividing X by Y, where "X" is an amount equal to the sum of
(i) the total number of shares of Capital Stock outstanding immediately
prior to such issue or sale multiplied by the then existing Exercise
Price, and (ii) the consideration, if any, received by the Company upon
such issue or sale, and where "Y" is the total number of shares of Capital
Stock outstanding immediately after such issue or sale; and
(ii) by multiplying the Exercise Price in effect immediately prior
to the time of such issue or sale by X/Y, where "X" is an amount equal to
the sum of (i) the number of shares of Capital Stock outstanding
immediately prior to such issue or sale multiplied by the Net Asset Value
immediately prior to such issue or sale and (ii) the consideration
received by the Company upon such issue or sale, and where "Y" is equal to
the product of (i) the total number of shares of Capital Stock outstanding
immediately after such issue or sale and (ii) the Net Asset Value
immediately prior to such issue or sale.
(B) TREATMENT OF OPTIONS AND CONVERTIBLE SECURITIES; COMPUTATION OF
CONSIDERATION. For purposes of PARAGRAPH 4(A) hereof the following provisions
shall also be applicable:
(i) In case the Company shall grant any rights to subscribe for or
purchase, or any options for the purchase of, Capital Stock or securities
convertible into or exchangeable for Capital Stock (such rights and
options being herein called "OPTIONS" and such convertible or exchangeable
securities being herein called "CONVERTIBLE SECURITIES"), whether or not
such Options or the rights to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per share for which
Capital Stock is
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<PAGE>
issuable upon the exercise of such Options or upon the conversion or
exchange of such Convertible Securities (as determined in accordance with
the following sentence) shall be less than the greater of (A) the Exercise
Price in effect immediately prior to the time of the granting of such
Options and (B) the Net Asset Value, determined as of the date of granting
such options, then the total maximum number of shares of Capital Stock
issuable upon the exercise of such Options or upon the conversion or
exchange of the total maximum amount of such Convertible Securities
issuable upon the exercise of such Options shall (as of the date of
granting of such Options) be deemed to be outstanding and to have been
issued and sold for such price per share. The price per share for which
the Capital Stock is issuable, as provided in the preceding sentence,
shall be determined by dividing (x) the total amount, if any, received or
receivable by the Company as consideration for the granting of such
Options, plus the minimum aggregate amount of additional consideration
payable to the Company upon the exercise of such Options, plus, in the
case of any such Options which relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any, payable to
the Company upon the conversion or exchange of such Convertible
Securities, by (y) the total maximum number of shares of Capital Stock
issuable upon the exercise of such Options or upon the conversion or
exchange of all such Convertible Securities issuable upon the exercise of
such Options. Except as provided in PARAGRAPH 4(B)(VI) hereof, no further
adjustments of the Exercise Price shall be made upon the actual issue of
such Capital Stock or of such Convertible Securities upon the exercise of
such Options or upon the actual issue of such Capital Stock upon the
conversion or exchange of such Convertible Securities.
(ii) In case the Company shall issue or sell Convertible
Securities, whether or not the rights to convert or exchange such
Convertible Securities are immediately exercisable, and the price per
share for which Capital Stock is issuable upon the conversion or exchange
of such Convertible Securities (as determined in accordance with the
following sentence) shall be less than the greater of (A) the Exercise
Price in effect immediately prior to the time of the issue or sale of such
Convertible Securities or (B) the Net Asset Value, determined as of the
date of such issue or sale of such Convertible Securities, then the total
maximum number of shares of Capital Stock issuable upon the conversion or
exchange of all such Convertible Securities shall (as of the date of the
issue or sale of such Convertible Securities) be deemed to be outstanding
and to have been issued and sold for such price per share, provided that
(a) except as provided in PARAGRAPH 4(B)(VI) hereof, no further
adjustments of the Exercise Price shall be made upon the actual issue of
such Capital Stock upon the conversion or exchange of such Convertible
Securities, and (b) if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustments of
the Exercise Price have been or are to be made pursuant to other
provisions of this PARAGRAPH 4(B), no further adjustment of the Exercise
Price shall be made by reason of such issue or sale. The price per share
for which the Capital Stock is issuable, as provided in the preceding
sentence, shall be determined by dividing (x) the total amount received or
receivable by the Company as consideration for the issue or sale of such
Convertible Securities, plus the minimum
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aggregate amount of additional consideration, if any, payable to the
Company upon the conversion or exchange thereof, by (y) the total maximum
number of shares of Capital Stock issuable upon the conversion or exchange
of all such Convertible Securities.
(iii) In case at any time the Company shall pay a dividend or make
any other distribution upon the Capital Stock payable in Capital Stock,
Options or Convertible Securities, any Capital Stock, Options or
Convertible Securities, as the case may be, issuable in payment of such
dividend or distribution shall be deemed to have been issued without
consideration.
(iv) In case at any time any Capital Stock, Convertible
Securities, or Options shall be issued or sold for cash, the consideration
received therefor shall be deemed to be the amount received by the Company
therefor, without deduction therefrom of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Company in
connection therewith. In case any Capital Stock, Convertible Securities,
or Options shall be issued or sold for a consideration other than cash,
the amount of the consideration other than cash received by the Company
therefor shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the Company, except
where such consideration consists of securities, in which case the amount
of consideration received by the Company shall be the market price thereof
(determined as provided in PARAGRAPH 4(E) hereof) as of the date of
receipt, but in each such case without deduction therefrom of any expenses
incurred or any underwriting commissions or concessions paid or allowed by
the Company in connection therewith. In computing the market price of a
note or other obligation that is not listed or admitted to trading on any
securities exchange or quoted in the National Association of Securities
Dealers, Inc. Automated Quotation System or reported by the National
Quotation Bureau, Inc. or a similar reporting organization, the total
consideration to be received by the Company thereunder (including
interest) shall be discounted to present value at the prime rate of
interest of NationsBank of Texas, N.A., in effect at the time the note or
obligation is deemed to have been issued. In case any Capital Stock,
Convertible Securities, or Options shall be issued in connection with any
merger of another corporation into the Company, the amount of
consideration therefor shall be deemed to be the fair value as determined
in good faith by the Board of Directors of the Company of such portion of
the assets of such merged corporation as the Board shall determine to be
attributable to such Capital Stock, Convertible Securities, or Options.
(v) In case at any time the Company shall take a record of the
holders of Capital Stock for the purpose of entitling them (a) to receive
a dividend or other distribution payable in Capital Stock, Options or
Convertible Securities, or (b) to subscribe for or purchase Capital Stock,
Options or Convertible Securities, then such record date shall be deemed
to be the date of the issue or sale of such Capital Stock, Options or
Convertible Securities.
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(vi) If the purchase price provided for in any Option referred to
in PARAGRAPH 4(B)(I) hereof, or the price at which any Convertible
Securities referred to in PARAGRAPH 4(B)(I) or (II) hereof are convertible
into or exchangeable for Capital Stock, shall change at any time (whether
by reason of provisions designed to protect against dilution or
otherwise), the Exercise Price then in effect hereunder shall forthwith be
increased or decreased to such Exercise Price as would have obtained had
the adjustments made upon the issuance of such Options or Convertible
Securities been made upon the basis of (a) the issuance of the number of
shares of Capital Stock theretofore actually delivered upon the exercise
of such Options or upon the conversion or exchange of such Convertible
Securities, and the total consideration received therefor, and (b) the
number of shares of Capital Stock to be issued for the consideration, if
any, received by the Company therefor and to be received on the basis of
such changed price.
(vii) If any adjustment has been made in the Exercise Price
because of the issuance of Options or Convertible Securities and if any of
such Options or rights to convert or exchange such Convertible Securities
expire or otherwise terminate, then the Exercise Price shall be readjusted
to eliminate the adjustments previously made in connection with the
Options or rights to convert or exchange Convertible Securities which have
expired or terminated.
(viii) The number of shares of Capital Stock outstanding at any
given time shall not include shares owned or held by or for the account of
the Company, and the disposition of any such shares shall be considered an
issue or sale of Capital Stock.
(C) SUBDIVISIONS AND COMBINATIONS. In case at any time the Company shall
subdivide the outstanding shares of Capital Stock into a greater number of
shares, the Exercise Price in effect immediately prior to such subdivision shall
be proportionately reduced, and conversely, in case the outstanding shares of
Capital Stock shall be combined into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination shall be proportionately
increased. An adjustment made pursuant to this PARAGRAPH 4(C) shall become
effective immediately after the effective date of such subdivision or
combination.
(D) EXTRAORDINARY DIVIDENDS AND DISTRIBUTIONS. In case at any time the
Company shall pay a dividend or make a distribution to all holders of Capital
Stock, as such, of shares of its stock, evidences of its indebtedness, assets,
or rights, options, or warrants to subscribe for or purchase such shares,
evidences of indebtedness, or assets, other than (i) a dividend or distribution
payable in Capital Stock, Options, or Convertible Securities or (ii) a dividend
or distribution payable in cash out of earnings or earned surplus, then in each
such case the Exercise Price shall be adjusted so that the same shall equal the
price determined by multiplying the Exercise Price in effect immediately prior
to the record date mentioned below by a fraction, the numerator of which shall
be the total number of shares of Capital Stock outstanding on such record date
multiplied by the market price per share of Capital Stock (determined as
provided in PARAGRAPH 4(E) hereof) on such record date, less the fair market
value (as determined in good faith by the Board of Directors
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of the Company) as of such record date of such shares of stock, evidences of
indebtedness, assets, or rights, options, or warrants so paid or distributed,
and the denominator of which shall be the total number of shares of Capital
Stock outstanding on such record date multiplied by the market price per share
of Capital Stock (determined as provided in PARAGRAPH 4(E) hereof) on such
record date. Such adjustment shall be made whenever such dividend is paid or
such distribution is made and shall become effective immediately after the
record date for the determination of shareholders entitled to receive such
dividend or distribution.
(E) COMPUTATION OF MARKET PRICE. For the purpose of any computation under
PARAGRAPH 4(B) or (D) hereof, the market price of the security in question on
any day shall be deemed to be the average of the last reported sale prices for
the security for the 20 consecutive Trading Days (as defined below) commencing
30 Trading Days before the day in question. The last reported sale price for
each day shall be (i) the last reported sale price of the security on the
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation System, or any similar system of automated dissemination of
quotations of securities prices then in common use, if so quoted, or (ii) if not
quoted as described in CLAUSE (I) above, the mean between the high bid and low
asked quotations for the security as reported by the National Quotation Bureau,
Inc. if at least two securities dealers have inserted both bid and asked
quotations for such security on at least 10 of such 20 consecutive Trading Days,
or (iii) if the security is listed or admitted for trading on any national
securities exchange, the last sale price, or the closing bid price if no sale
occurred, of such class of security on the principal securities exchange on
which such class of security is listed or admitted to trading. If the security
is quoted on a national securities or central market system, in lieu of a market
or quotation system described above, the last reported sale price shall be
determined in the manner set forth in CLAUSE (II) of the preceding sentence if
bid and asked quotations are reported but actual transactions are not, and in
the manner set forth in CLAUSE (III) of the preceding sentence if actual
transactions are reported. If none of the conditions set forth above is met, the
last reported sale price of the security on any day or the average of such last
reported sale prices for any period shall be the fair market value of such
security as determined by a member firm of the New York Stock Exchange, Inc.
selected by the Company. The term "TRADING DAYS", as used herein, means (i) if
the security is quoted on the National Market of the National Association of
Security Dealers, Inc. Automated Quotation System, or any similar system of
automated dissemination of quotations of securities prices, days on which trades
may be made on such system or (ii) if the security is listed or admitted for
trading on any national securities exchange, days on which such national
securities exchange is open for business.
(F) RECORD DATE ADJUSTMENTS. In any case in which this PARAGRAPH 4
requires that a downward adjustment of the Exercise Price shall become effective
immediately after a record date for an event, the Company may defer until the
occurrence of such event issuing to the holder of this Warrant exercised after
such record date and before the occurrence of such event the additional Warrant
Shares issuable upon such exercise by reason of the adjustment required by such
event over and above the Warrant Shares issuable upon such exercise before
giving effect to such adjustment.
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(G) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER, OR SALE. If
any capital reorganization of the Company, or any reclassification of the
Capital Stock, or any consolidation or merger of the Company with or into
another corporation or entity, or any sale of all or substantially all the
assets of the Company to another corporation or entity, shall be effected in
such a way that the holders of Common Stock (or any other securities of the
Company then issuable upon the exercise of this Warrant) shall be entitled to
receive stock or other securities or property (including cash) with respect to
or in exchange for Common Stock (or such other securities), then, as a condition
of such reorganization, reclassification, consolidation, merger, or sale, lawful
and adequate provision shall be made whereby the holder of this Warrant shall
thereafter have the right to purchase and receive upon the basis and upon the
terms and conditions specified in this Warrant, and in lieu of the shares of
Common Stock (or such other securities) immediately theretofore purchasable and
receivable upon the exercise hereof, such stock or other securities or property
(including cash) as may be issuable or payable with respect to or in exchange
for a number of outstanding shares of Common Stock (or such other securities)
equal to the number of shares of Common Stock (or such other securities)
immediately theretofore purchasable and receivable upon the exercise of this
Warrant, had such reorganization, reclassification, consolidation, merger, or
sale not taken place. In any such case appropriate provision shall be made with
respect to the rights and interests of the holder of this Warrant to the end
that the provisions hereof (including, without limitation, the provisions for
adjustments of the Exercise Price and of the number of Warrant Shares
purchasable upon exercise hereof) shall thereafter be applicable, as nearly as
reasonably may be, in relation to the stock or other securities or property
thereafter deliverable upon the exercise hereof (including an immediate
adjustment of the Exercise Price if by reason of or in connection with such
consolidation, merger, or sale any securities are issued or event occurs which
would, under the terms hereof, require an adjustment of the Exercise Price). In
the event of a consolidation or merger of the Company with or into another
corporation or entity as a result of which a greater or lesser number of shares
of common stock of the surviving corporation or entity are issuable to holders
of Capital Stock in respect of the number of shares of Capital Stock outstanding
immediately prior to such consolidation or merger, then the Exercise Price in
effect immediately prior to such consolidation or merger shall be adjusted in
the same manner as though there were a subdivision or combination of the
outstanding shares of Capital Stock. The Company shall not effect any such
consolidation, merger, or sale unless prior to or simultaneously with the
consummation thereof the successor corporation or entity (if other than the
Company) resulting from such consolidation or merger or the corporation or
entity purchasing such assets and any other corporation or entity the shares of
stock or other securities or property of which are receivable thereupon by the
holder of this Warrant shall expressly assume, by written instrument executed
and delivered (and satisfactory in form) to the holder of this Warrant, (i) the
obligation to deliver to such holder such stock or other securities or property
as, in accordance with the foregoing provisions, such holder may be entitled to
purchase and (ii) all other obligations of the Company hereunder.
(H) NO FRACTIONAL SHARES. No fractional shares of Common Stock are to be
issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the
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current market value of a share of Common Stock, which current market value
shall be the last reported sale price (determined as provided in PARAGRAPH 4(E)
hereof) on the Trading Day immediately preceding the date of the exercise.
(I) NOTICE OF ADJUSTMENT. Upon the occurrence of any event which requires
any adjustment of the Exercise Price, then and in each such case the Company
shall give notice thereof to the holder of this Warrant, which notice shall
state the Exercise Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
(J) OTHER NOTICES. In case at any time:
(i) the Company shall declare any dividend upon the Capital Stock
payable in shares of stock of any class or make any other distribution
(other than dividends or distributions payable in cash out of earnings or
earned surplus) to the holders of the Capital Stock;
(ii) the Company shall offer for subscription pro rata to the holders
of the Capital Stock any additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization of the Company, or
reclassification of the Capital Stock, or consolidation or merger of the
Company with or into, or sale of all or substantially all its assets to,
another corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation, or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Capital Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Capital Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Capital Stock shall be entitled to receive such
dividend, distribution, or subscription rights or to exchange their Capital
Stock for stock or other securities or property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding-up, as the case may be. Such notice shall be given at
least 20 days prior to the record date or the date on which the Company's books
are closed in respect thereto. Failure to give any such notice or any defect
therein shall not affect the validity of the proceeding referred to in CLAUSES
(I), (II), (III), and (IV) above.
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(K) CERTAIN EVENTS. If any event occurs as to which, in the good faith
judgment of the Board of Directors of the Company, the other provisions of this
PARAGRAPH 4 are not strictly applicable or if strictly applicable would not
fairly protect the exercise rights of the holder of this Warrant in accordance
with the essential intent and principles of such provisions, then the Board of
Directors of the Company shall appoint the Company's regular independent
auditors or another firm of independent public accountants of recognized
national standing who are satisfactory to the holder of this Warrant which shall
give their opinion upon the adjustment, if any, on a basis consistent with such
essential intent and principles, necessary to preserve, without dilution, the
rights of the holder of this Warrant. Upon receipt of such opinion, the Board of
Directors of the Company shall forthwith make the adjustments described therein;
provided that no such adjustment shall have the effect of increasing the
Exercise Price as otherwise determined pursuant to this PARAGRAPH 4. The Company
may make such reductions in the Exercise Price or increase in the number of
shares of Common Stock purchasable hereunder as it deems advisable, including
any reductions or increases, as the case may be, necessary to ensure that any
event treated for federal income tax purposes as a distribution of stock rights
not be taxable to recipients.
5. ISSUE TAX. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax in respect thereof, provided that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than the holder of this Warrant.
6. AVAILABILITY OF INFORMATION. The Company will cooperate with the holder
of this Warrant and each holder of any Warrant Shares in supplying such
information as may be necessary for such holder to complete and file any
information reporting forms presently or hereafter required by the Securities
and Exchange Commission as a condition to the availability of an exemption from
the Securities Act of 1933, as amended, for the sale of this Warrant or any
Warrant Shares. The Company will deliver to the holder of this Warrant, promptly
upon their becoming available, copies of all financial statements, reports,
notices, and proxy statements sent or made available generally by the Company to
its shareholders, and copies of all regular and periodic reports and all
registration statements and prospectuses filed by the Company with any
securities exchange or with the Securities and Exchange Commission.
7. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
8. TRANSFER, EXCHANGE, AND REPLACEMENT OF WARRANT.
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(A) WARRANT TRANSFERABLE. The transfer of this Warrant and all rights
hereunder, in whole or in part, is registrable at the office or agency of the
Company referred to in PARAGRAPH 8(E) hereof by the holder hereof in person or
by his duly authorized attorney, upon surrender of this Warrant properly
endorsed. Each taker and holder of this Warrant, by taking or holding the same,
consents and agrees that this Warrant, when endorsed in blank, shall be deemed
negotiable, and that the holder hereof, when this Warrant shall have been so
endorsed, may be treated by the Company and all other persons dealing with this
Warrant as the absolute owner and holder hereof for any purpose and as the
person entitled to exercise the rights represented by this Warrant and to the
registration of transfer hereof on the books of the Company; but until due
presentment for registration of transfer on such books the Company may treat the
registered holder hereof as the owner and holder hereof for all purposes, and
the Company shall not be affected by any notice to the contrary.
(B) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This Warrant is
exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in PARAGRAPH 8(E) hereof, for new Warrants of
like tenor representing in the aggregate the right to purchase the number of
shares of Common Stock which may be purchased hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by said holder hereof at the time of such surrender.
(C) REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
(D) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of this Warrant
in connection with any transfer, exchange, or replacement as provided in this
PARAGRAPH 8, this Warrant shall be promptly canceled by the Company. The Company
shall pay all taxes (other than securities transfer taxes) and all other
expenses and charges payable in connection with the preparation, execution, and
delivery of Warrants pursuant to this PARAGRAPH 8.
(E) REGISTER. The Company shall maintain, at its principal office in
Houston, Texas, (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
(F) EXERCISE OR TRANSFER WITHOUT REGISTRATION. Anything in this Warrant to
the contrary notwithstanding, if, at the time of the surrender of this Warrant
in connection with any exercise, transfer, or exchange of this Warrant, this
Warrant shall not be registered under the Securities Act of 1933, as amended,
and under applicable state securities or blue sky laws, the
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Company may require, as a condition of allowing such exercise, transfer, or
exchange, that (i) the holder or transferee of this Warrant, as the case may be,
furnish to the Company a written opinion of counsel, which opinion and counsel
are acceptable to the Company, to the effect that such exercise, transfer, or
exchange may be made without registration under said Act and under applicable
state securities or blue sky laws and (ii) the holder or transferee execute and
deliver to the Company an investment letter in form and substance acceptable to
the Company. The first holder of this Warrant, by taking and holding the same,
represents to the Company that such holder is acquiring this Warrant for
investment and not with a view to the distribution thereof.
9. NOTICES. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the holder of this Warrant or to
the holder of shares acquired upon exercise of this Warrant shall be in writing,
and shall be personally delivered, or shall be sent by certified or registered
mail, postage prepaid and addressed, to such holder at the address shown for
such holder on the books of the Company, or at such other address as shall have
been furnished to the Company by notice from such holder. All notices, requests,
and other communications required or permitted to be given or delivered
hereunder to the Company shall be in writing, and shall be personally delivered,
or shall be sent by certified or registered mail, postage prepaid and addressed,
to the office of the Company at 110 Cypress Station Drive, Suite 220, Houston,
Texas 77090, Attention: President, or at such other address as shall have been
furnished to the holder of this Warrant or to the holder of shares acquired upon
exercise of this Warrant by notice from the Company. Any such notice, request,
or other communication may be sent by telegram or telex, but shall in such case
be subsequently confirmed by a writing personally delivered or sent by certified
or registered mail as provided above. All notices, requests, and other
communications shall be deemed to have been given either at the time of the
delivery thereof to (or the receipt by, in the case of a telegram or telex) the
person entitled to receive such notice at the address of such person for
purposes of this PARAGRAPH 9, or, if mailed, at the completion of the third full
day following the time of such mailing thereof to such address, as the case may
be.
10. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
11. MISCELLANEOUS.
(A) AMENDMENTS. This Warrant and any provision hereof may not be changed,
waived, discharged, or terminated orally, but only by an instrument in writing
signed by the party (or any predecessor in interest thereof) against which
enforcement of the same is sought.
(B) DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof.
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(C) SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon any entity
succeeding to the Company by merger, consolidation, or acquisition of all or
substantially all the Company's assets.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer under its corporate seal, on this 27th day of
September, 1996.
CLIFFWOOD OIL & GAS CORP.
By:/S/ FRANK A. LODZINSKI
Name: Frank A. Lodzinski
Title: President
[CORPORATE SEAL]
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FORM OF EXERCISE AGREEMENT
Dated: , ____.
To:
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase shares of Common Stock covered by such
Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant in cash or by certified or official bank check in the
amount of $ . Please issue a certificate or certificates for such shares of
Common Stock in the name of and pay any cash for any fractional share to:
Name:
Signature:
Title of Signing Officer or Agent (if any):
Note: The above signature should correspond exactly with the name on the
face of the within Warrant or with the name of the assignee
appearing in the assignment form.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
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FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
, and hereby irrevocably constitutes and appoints _________________ as agent and
attorney-in-fact to transfer said Warrant on the books of the within-named
corporation, with full power of substitution in the premises.
Dated: ________, ___.
In the presence of
Name:
Signature:
Title of Signing Officer or Agent (if any):
Address:
Note: The above signature should correspond
exactly with the name on the face of the
within Warrant.
17
EXHIBIT 10.27
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES
OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD,
ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER SAID ACT AND UNDER APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR
EXEMPTIONS FROM SUCH REGISTRATION. THIS WARRANT MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT UPON THE CONDITIONS SPECIFIED IN
THIS WARRANT, AND NO SALE, ASSIGNMENT, TRANSFER, OR OTHER DISPOSITION OF THIS
WARRANT SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE
BEEN COMPLIED WITH.
No. -001- Right to Purchase 75,000 Shares
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Energy Capital Investment Company
PLC, or registered assigns, is entitled to purchase from Cliffwood Oil & Gas
Corp., a Texas corporation (the "COMPANY"), at any time or from time to time
during the period specified in PARAGRAPH 2 hereof, Seventy Five Thousand
(75,000) fully paid and nonassessable shares of the Company's Common Stock, par
value $0.01 per share (the "COMMON STOCK"), at an exercise price per share of
$1.25 (the "EXERCISE PRICE"). The term "WARRANT SHARES", as used herein, refers
to the shares of Common Stock purchasable hereunder. The Warrant Shares and the
Exercise Price are subject to adjustment as provided in PARAGRAPH 4 hereof.
This Warrant is subject to the following terms, provisions, and
conditions:
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part by the surrender of this Warrant, together with a
completed Exercise Agreement in the form attached hereto, to the Company during
normal business hours on any business day at the Company's principal office in
Houston, Texas (or such other office or agency of the Company as it may
designate by notice to the holder hereof), and upon payment to the Company in
cash or by certified or official bank check of the Exercise Price for the
Warrant Shares specified in said Exercise Agreement. The Warrant Shares so
purchased shall be deemed to be issued to the holder hereof or its designee as
the record owner of such shares as of the close of business on the date on which
this Warrant shall have been surrendered, the completed Exercise Agreement
delivered, and payment made for such shares as aforesaid. Certificates for the
Warrant Shares so purchased, representing the aggregate number of shares
specified in said Exercise Agreement, shall be delivered to the holder hereof
within a reasonable time, not exceeding seven business days, after
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this Warrant shall have been so exercised. The certificates so delivered shall
be in such denominations as may be requested by the holder hereof and shall be
registered in the name of said holder or such other name as shall be designated
by said holder. If this Warrant shall have been exercised only in part, then,
unless this Warrant has expired, the Company shall, at its expense, at the time
of delivery of said certificates, deliver to said holder a new Warrant
representing the number of shares with respect to which this Warrant shall not
then have been exercised. The Company shall pay all taxes and other expenses and
charges payable in connection with the preparation, execution, and delivery of
stock certificates (and any new Warrants) pursuant to this PARAGRAPH 1 except
that, in case such stock certificates shall be registered in a name or names
other than the holder of this Warrant, funds sufficient to pay all stock
transfer taxes which shall be payable in connection with the execution and
delivery of such stock certificates shall be paid by the holder hereof to the
Company at the time of the delivery of such stock certificates by the Company as
mentioned above.
2. PERIOD OF EXERCISE. This Warrant is exercisable at any time or from
time to time after September 27, 1996, and before 5:00 p.m., local time on
September 27, 2001.
3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants and
agrees as follows:
(A) SHARES TO BE FULLY PAID. All Warrant Shares will, upon issuance, be
validly issued, fully paid, and nonassessable and free from all taxes, liens,
and charges with respect to the issue thereof.
(B) RESERVATION OF SHARES. During the period within which this Warrant may
be exercised, the Company will at all times have authorized, and reserved for
the purpose of issue upon exercise of this Warrant, a sufficient number of
shares of Common Stock to provide for the exercise of this Warrant.
(C) CERTAIN ACTIONS PROHIBITED. The Company will not, by amendment of its
charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. Without limiting the generality of the foregoing, (i) the Company
will not increase the par value of the shares of Common Stock receivable upon
the exercise of this Warrant above the Exercise Price then in effect, (ii)
before taking any action which would cause an adjustment reducing the Exercise
Price below the then par value of the shares of Common Stock so receivable, the
Company will take all such corporate action as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
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<PAGE>
nonassessable shares of Common Stock at such adjusted Exercise Price upon the
exercise of this Warrant.
(D) REGISTRATION. If the issuance of any Warrant Shares required to be
reserved for purposes of exercise of this Warrant requires registration with or
approval of any governmental authority under any federal or state law (other
than any registration under the Securities Act of 1933, as amended, or under
applicable state securities or blue sky laws) or listing on any national
securities exchange, before such shares may be issued upon exercise of this
Warrant, the Company will, at its expense, use its best efforts to cause such
shares to be duly registered or approved, or listed on the relevant national
securities exchange, as the case may be, at such time, so that such shares may
be issued in accordance with the terms hereof.
4. ANTIDILUTION PROVISIONS. The Exercise Price shall be subject to
adjustment from time to time as provided in this PARAGRAPH 4. Upon each
adjustment of the Exercise Price, the holder of this Warrant shall thereafter be
entitled to purchase, at the Exercise Price resulting from such adjustment, the
largest number of Warrant Shares obtained by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Shares
purchasable hereunder immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment. For
purposes of this PARAGRAPH 4, the term "CAPITAL STOCK", as used herein, includes
the Common Stock and any additional class of stock of the Company having no
preference as to dividends or distributions on liquidation which may be
authorized in the future, provided that the shares purchasable pursuant to this
Warrant shall include only shares of Common Stock, or shares resulting from any
subdivision or combination of the Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or sale of the
character referred to in PARAGRAPH 4(G) hereof, the stock or other securities or
property provided for in said Paragraph. For purposes of this PARAGRAPH 4, the
term "NET ASSET VALUE" shall mean, at a point in time, an amount determined by
dividing X by Y, where "X" is (i) the total assets of the Company and its
subsidiaries which would be shown as assets on a consolidated balance sheet of
the Company and its subsidiaries as of such time prepared in accordance with
generally accepted accounting principles (exclusive, however, of oil and gas
properties), PLUS (ii) the "Calculated Market Value" (as defined below) of such
oil and gas properties, MINUS (iii) the total liabilities of the Company and its
subsidiaries which would be shown as liabilities on a consolidated balance sheet
of the Company and it subsidiaries as of such time prepared in accordance with
generally accepted accounting principles, and where "Y" is the total number of
shares of Capital Stock outstanding as of such time. In computing Net Asset
Value, the "CALCULATED MARKET VALUE" of oil and gas properties of the Company
and its consolidated subsidiaries shall be determined in accordance ss.210.4-10
of Regulation S-X, as promulgated by the Securities and Exchange Commission,
except that in making such computation only the following categories (and
portions of such categories) of reserves shall be utilized: 90% of proved
developed producing reserves; 65% of proved behind pipe reserves; and 50% of
proved undeveloped reserves; provided, that the independent petroleum engineers
to be used in making the valuation contemplated by this sentence shall be T.J.
Smith & Company, Inc., Ryder Scott Company, Netherland Sewell & Associates, Inc.
or such other independent petroleum engineers
3
<PAGE>
as shall be designated by the Company and acceptable to the holder hereof.
Notwithstanding the foregoing, however, should the Company determine in good
faith that the Calculated Market Value of the oil and gas properties of the
Company and its consolidated subsidiaries exceeds, at the date of determination,
the fair market value of such properties based on then current industry
conditions, the Company may, with the consent of the holder (such consent not to
be unreasonably withheld) use such lesser fair market value in computing Net
Asset Value.
(A) ISSUANCE OF CAPITAL STOCK. If and whenever the Company shall issue or
sell any shares of Capital Stock without consideration or for a consideration
per share less than the Exercise Price in effect immediately prior to the time
of such issue or sale, and/or the Company shall issue or sell any shares of its
Capital Stock for a consideration per share less than the Net Asset Value on the
date of such issue or sale, then, forthwith upon such issue or sale, the
Exercise Price shall be reduced to a price (calculated to the nearest cent)
determined as provided in PARAGRAPH (I) below (in the case of a consideration
per share less than the Exercise Price), or the price (calculated to the nearest
cent) determined as provided by PARAGRAPH (II) below (in the case of a
consideration per share less than the Net Asset Value), or the lower of the
prices (calculated to the nearest cent) determined as provided in PARAGRAPHS (I)
and (II) below (in the case of a consideration per share which is less than both
the Exercise Price and the Net Asset Value):
(i) by dividing X by Y, where "X" is an amount equal to the sum of
(i) the total number of shares of Capital Stock outstanding immediately
prior to such issue or sale multiplied by the then existing Exercise
Price, and (ii) the consideration, if any, received by the Company upon
such issue or sale, and where "Y" is the total number of shares of Capital
Stock outstanding immediately after such issue or sale; and
(ii) by multiplying the Exercise Price in effect immediately prior
to the time of such issue or sale by X/Y, where "X" is an amount equal to
the sum of (i) the number of shares of Capital Stock outstanding
immediately prior to such issue or sale multiplied by the Net Asset Value
immediately prior to such issue or sale and (ii) the consideration
received by the Company upon such issue or sale, and where "Y" is equal to
the product of (i) the total number of shares of Capital Stock outstanding
immediately after such issue or sale and (ii) the Net Asset Value
immediately prior to such issue or sale.
(B) TREATMENT OF OPTIONS AND CONVERTIBLE SECURITIES; COMPUTATION OF
CONSIDERATION. For purposes of PARAGRAPH 4(A) hereof the following provisions
shall also be applicable:
(i) In case the Company shall grant any rights to subscribe for or
purchase, or any options for the purchase of, Capital Stock or securities
convertible into or exchangeable for Capital Stock (such rights and
options being herein called "OPTIONS" and such convertible or exchangeable
securities being herein called "CONVERTIBLE SECURITIES"), whether or not
such Options or the rights to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per share for which
Capital Stock is
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issuable upon the exercise of such Options or upon the conversion or
exchange of such Convertible Securities (as determined in accordance with
the following sentence) shall be less than the greater of (A) the Exercise
Price in effect immediately prior to the time of the granting of such
Options and (B) the Net Asset Value, determined as of the date of granting
such options, then the total maximum number of shares of Capital Stock
issuable upon the exercise of such Options or upon the conversion or
exchange of the total maximum amount of such Convertible Securities
issuable upon the exercise of such Options shall (as of the date of
granting of such Options) be deemed to be outstanding and to have been
issued and sold for such price per share. The price per share for which
the Capital Stock is issuable, as provided in the preceding sentence,
shall be determined by dividing (x) the total amount, if any, received or
receivable by the Company as consideration for the granting of such
Options, plus the minimum aggregate amount of additional consideration
payable to the Company upon the exercise of such Options, plus, in the
case of any such Options which relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any, payable to
the Company upon the conversion or exchange of such Convertible
Securities, by (y) the total maximum number of shares of Capital Stock
issuable upon the exercise of such Options or upon the conversion or
exchange of all such Convertible Securities issuable upon the exercise of
such Options. Except as provided in PARAGRAPH 4(B)(VI) hereof, no further
adjustments of the Exercise Price shall be made upon the actual issue of
such Capital Stock or of such Convertible Securities upon the exercise of
such Options or upon the actual issue of such Capital Stock upon the
conversion or exchange of such Convertible Securities.
(ii) In case the Company shall issue or sell Convertible
Securities, whether or not the rights to convert or exchange such
Convertible Securities are immediately exercisable, and the price per
share for which Capital Stock is issuable upon the conversion or exchange
of such Convertible Securities (as determined in accordance with the
following sentence) shall be less than the greater of (A) the Exercise
Price in effect immediately prior to the time of the issue or sale of such
Convertible Securities or (B) the Net Asset Value, determined as of the
date of such issue or sale of such Convertible Securities, then the total
maximum number of shares of Capital Stock issuable upon the conversion or
exchange of all such Convertible Securities shall (as of the date of the
issue or sale of such Convertible Securities) be deemed to be outstanding
and to have been issued and sold for such price per share, provided that
(a) except as provided in PARAGRAPH 4(B)(VI) hereof, no further
adjustments of the Exercise Price shall be made upon the actual issue of
such Capital Stock upon the conversion or exchange of such Convertible
Securities, and (b) if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustments of
the Exercise Price have been or are to be made pursuant to other
provisions of this PARAGRAPH 4(B), no further adjustment of the Exercise
Price shall be made by reason of such issue or sale. The price per share
for which the Capital Stock is issuable, as provided in the preceding
sentence, shall be determined by dividing (x) the total amount received or
receivable by the Company as consideration for the issue or sale of such
Convertible Securities, plus the minimum
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aggregate amount of additional consideration, if any, payable to the
Company upon the conversion or exchange thereof, by (y) the total maximum
number of shares of Capital Stock issuable upon the conversion or exchange
of all such Convertible Securities.
(iii) In case at any time the Company shall pay a dividend or make
any other distribution upon the Capital Stock payable in Capital Stock,
Options or Convertible Securities, any Capital Stock, Options or
Convertible Securities, as the case may be, issuable in payment of such
dividend or distribution shall be deemed to have been issued without
consideration.
(iv) In case at any time any Capital Stock, Convertible
Securities, or Options shall be issued or sold for cash, the consideration
received therefor shall be deemed to be the amount received by the Company
therefor, without deduction therefrom of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Company in
connection therewith. In case any Capital Stock, Convertible Securities,
or Options shall be issued or sold for a consideration other than cash,
the amount of the consideration other than cash received by the Company
therefor shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the Company, except
where such consideration consists of securities, in which case the amount
of consideration received by the Company shall be the market price thereof
(determined as provided in PARAGRAPH 4(E) hereof) as of the date of
receipt, but in each such case without deduction therefrom of any expenses
incurred or any underwriting commissions or concessions paid or allowed by
the Company in connection therewith. In computing the market price of a
note or other obligation that is not listed or admitted to trading on any
securities exchange or quoted in the National Association of Securities
Dealers, Inc. Automated Quotation System or reported by the National
Quotation Bureau, Inc. or a similar reporting organization, the total
consideration to be received by the Company thereunder (including
interest) shall be discounted to present value at the prime rate of
interest of NationsBank of Texas, N.A., in effect at the time the note or
obligation is deemed to have been issued. In case any Capital Stock,
Convertible Securities, or Options shall be issued in connection with any
merger of another corporation into the Company, the amount of
consideration therefor shall be deemed to be the fair value as determined
in good faith by the Board of Directors of the Company of such portion of
the assets of such merged corporation as the Board shall determine to be
attributable to such Capital Stock, Convertible Securities, or Options.
(v) In case at any time the Company shall take a record of the
holders of Capital Stock for the purpose of entitling them (a) to receive
a dividend or other distribution payable in Capital Stock, Options or
Convertible Securities, or (b) to subscribe for or purchase Capital Stock,
Options or Convertible Securities, then such record date shall be deemed
to be the date of the issue or sale of such Capital Stock, Options or
Convertible Securities.
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(vi) If the purchase price provided for in any Option referred to
in PARAGRAPH 4(B)(I) hereof, or the price at which any Convertible
Securities referred to in PARAGRAPH 4(B)(I) or (II) hereof are convertible
into or exchangeable for Capital Stock, shall change at any time (whether
by reason of provisions designed to protect against dilution or
otherwise), the Exercise Price then in effect hereunder shall forthwith be
increased or decreased to such Exercise Price as would have obtained had
the adjustments made upon the issuance of such Options or Convertible
Securities been made upon the basis of (a) the issuance of the number of
shares of Capital Stock theretofore actually delivered upon the exercise
of such Options or upon the conversion or exchange of such Convertible
Securities, and the total consideration received therefor, and (b) the
number of shares of Capital Stock to be issued for the consideration, if
any, received by the Company therefor and to be received on the basis of
such changed price.
(vii) If any adjustment has been made in the Exercise Price
because of the issuance of Options or Convertible Securities and if any of
such Options or rights to convert or exchange such Convertible Securities
expire or otherwise terminate, then the Exercise Price shall be readjusted
to eliminate the adjustments previously made in connection with the
Options or rights to convert or exchange Convertible Securities which have
expired or terminated.
(viii) The number of shares of Capital Stock outstanding at any
given time shall not include shares owned or held by or for the account of
the Company, and the disposition of any such shares shall be considered an
issue or sale of Capital Stock.
(C) SUBDIVISIONS AND COMBINATIONS. In case at any time the Company shall
subdivide the outstanding shares of Capital Stock into a greater number of
shares, the Exercise Price in effect immediately prior to such subdivision shall
be proportionately reduced, and conversely, in case the outstanding shares of
Capital Stock shall be combined into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination shall be proportionately
increased. An adjustment made pursuant to this PARAGRAPH 4(C) shall become
effective immediately after the effective date of such subdivision or
combination.
(D) EXTRAORDINARY DIVIDENDS AND DISTRIBUTIONS. In case at any time the
Company shall pay a dividend or make a distribution to all holders of Capital
Stock, as such, of shares of its stock, evidences of its indebtedness, assets,
or rights, options, or warrants to subscribe for or purchase such shares,
evidences of indebtedness, or assets, other than (i) a dividend or distribution
payable in Capital Stock, Options, or Convertible Securities or (ii) a dividend
or distribution payable in cash out of earnings or earned surplus, then in each
such case the Exercise Price shall be adjusted so that the same shall equal the
price determined by multiplying the Exercise Price in effect immediately prior
to the record date mentioned below by a fraction, the numerator of which shall
be the total number of shares of Capital Stock outstanding on such record date
multiplied by the market price per share of Capital Stock (determined as
provided in PARAGRAPH 4(E) hereof) on such record date, less the fair market
value (as determined in good faith by the Board of Directors
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of the Company) as of such record date of such shares of stock, evidences of
indebtedness, assets, or rights, options, or warrants so paid or distributed,
and the denominator of which shall be the total number of shares of Capital
Stock outstanding on such record date multiplied by the market price per share
of Capital Stock (determined as provided in PARAGRAPH 4(E) hereof) on such
record date. Such adjustment shall be made whenever such dividend is paid or
such distribution is made and shall become effective immediately after the
record date for the determination of shareholders entitled to receive such
dividend or distribution.
(E) COMPUTATION OF MARKET PRICE. For the purpose of any computation under
PARAGRAPH 4(B) or (D) hereof, the market price of the security in question on
any day shall be deemed to be the average of the last reported sale prices for
the security for the 20 consecutive Trading Days (as defined below) commencing
30 Trading Days before the day in question. The last reported sale price for
each day shall be (i) the last reported sale price of the security on the
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation System, or any similar system of automated dissemination of
quotations of securities prices then in common use, if so quoted, or (ii) if not
quoted as described in CLAUSE (I) above, the mean between the high bid and low
asked quotations for the security as reported by the National Quotation Bureau,
Inc. if at least two securities dealers have inserted both bid and asked
quotations for such security on at least 10 of such 20 consecutive Trading Days,
or (iii) if the security is listed or admitted for trading on any national
securities exchange, the last sale price, or the closing bid price if no sale
occurred, of such class of security on the principal securities exchange on
which such class of security is listed or admitted to trading. If the security
is quoted on a national securities or central market system, in lieu of a market
or quotation system described above, the last reported sale price shall be
determined in the manner set forth in CLAUSE (II) of the preceding sentence if
bid and asked quotations are reported but actual transactions are not, and in
the manner set forth in CLAUSE (III) of the preceding sentence if actual
transactions are reported. If none of the conditions set forth above is met, the
last reported sale price of the security on any day or the average of such last
reported sale prices for any period shall be the fair market value of such
security as determined by a member firm of the New York Stock Exchange, Inc.
selected by the Company. The term "TRADING DAYS", as used herein, means (i) if
the security is quoted on the National Market of the National Association of
Security Dealers, Inc. Automated Quotation System, or any similar system of
automated dissemination of quotations of securities prices, days on which trades
may be made on such system or (ii) if the security is listed or admitted for
trading on any national securities exchange, days on which such national
securities exchange is open for business.
(F) RECORD DATE ADJUSTMENTS. In any case in which this PARAGRAPH 4
requires that a downward adjustment of the Exercise Price shall become effective
immediately after a record date for an event, the Company may defer until the
occurrence of such event issuing to the holder of this Warrant exercised after
such record date and before the occurrence of such event the additional Warrant
Shares issuable upon such exercise by reason of the adjustment required by such
event over and above the Warrant Shares issuable upon such exercise before
giving effect to such adjustment.
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(G) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER, OR SALE. If
any capital reorganization of the Company, or any reclassification of the
Capital Stock, or any consolidation or merger of the Company with or into
another corporation or entity, or any sale of all or substantially all the
assets of the Company to another corporation or entity, shall be effected in
such a way that the holders of Common Stock (or any other securities of the
Company then issuable upon the exercise of this Warrant) shall be entitled to
receive stock or other securities or property (including cash) with respect to
or in exchange for Common Stock (or such other securities), then, as a condition
of such reorganization, reclassification, consolidation, merger, or sale, lawful
and adequate provision shall be made whereby the holder of this Warrant shall
thereafter have the right to purchase and receive upon the basis and upon the
terms and conditions specified in this Warrant, and in lieu of the shares of
Common Stock (or such other securities) immediately theretofore purchasable and
receivable upon the exercise hereof, such stock or other securities or property
(including cash) as may be issuable or payable with respect to or in exchange
for a number of outstanding shares of Common Stock (or such other securities)
equal to the number of shares of Common Stock (or such other securities)
immediately theretofore purchasable and receivable upon the exercise of this
Warrant, had such reorganization, reclassification, consolidation, merger, or
sale not taken place. In any such case appropriate provision shall be made with
respect to the rights and interests of the holder of this Warrant to the end
that the provisions hereof (including, without limitation, the provisions for
adjustments of the Exercise Price and of the number of Warrant Shares
purchasable upon exercise hereof) shall thereafter be applicable, as nearly as
reasonably may be, in relation to the stock or other securities or property
thereafter deliverable upon the exercise hereof (including an immediate
adjustment of the Exercise Price if by reason of or in connection with such
consolidation, merger, or sale any securities are issued or event occurs which
would, under the terms hereof, require an adjustment of the Exercise Price). In
the event of a consolidation or merger of the Company with or into another
corporation or entity as a result of which a greater or lesser number of shares
of common stock of the surviving corporation or entity are issuable to holders
of Capital Stock in respect of the number of shares of Capital Stock outstanding
immediately prior to such consolidation or merger, then the Exercise Price in
effect immediately prior to such consolidation or merger shall be adjusted in
the same manner as though there were a subdivision or combination of the
outstanding shares of Capital Stock. The Company shall not effect any such
consolidation, merger, or sale unless prior to or simultaneously with the
consummation thereof the successor corporation or entity (if other than the
Company) resulting from such consolidation or merger or the corporation or
entity purchasing such assets and any other corporation or entity the shares of
stock or other securities or property of which are receivable thereupon by the
holder of this Warrant shall expressly assume, by written instrument executed
and delivered (and satisfactory in form) to the holder of this Warrant, (i) the
obligation to deliver to such holder such stock or other securities or property
as, in accordance with the foregoing provisions, such holder may be entitled to
purchase and (ii) all other obligations of the Company hereunder.
(H) NO FRACTIONAL SHARES. No fractional shares of Common Stock are to be
issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the
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current market value of a share of Common Stock, which current market value
shall be the last reported sale price (determined as provided in PARAGRAPH 4(E)
hereof) on the Trading Day immediately preceding the date of the exercise.
(I) NOTICE OF ADJUSTMENT. Upon the occurrence of any event which requires
any adjustment of the Exercise Price, then and in each such case the Company
shall give notice thereof to the holder of this Warrant, which notice shall
state the Exercise Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
(J) OTHER NOTICES. In case at any time:
(i) the Company shall declare any dividend upon the Capital Stock
payable in shares of stock of any class or make any other distribution
(other than dividends or distributions payable in cash out of earnings or
earned surplus) to the holders of the Capital Stock;
(ii) the Company shall offer for subscription pro rata to the holders
of the Capital Stock any additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization of the Company, or
reclassification of the Capital Stock, or consolidation or merger of the
Company with or into, or sale of all or substantially all its assets to,
another corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation, or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Capital Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Capital Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Capital Stock shall be entitled to receive such
dividend, distribution, or subscription rights or to exchange their Capital
Stock for stock or other securities or property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding-up, as the case may be. Such notice shall be given at
least 20 days prior to the record date or the date on which the Company's books
are closed in respect thereto. Failure to give any such notice or any defect
therein shall not affect the validity of the proceeding referred to in CLAUSES
(I), (II), (III), and (IV) above.
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(K) CERTAIN EVENTS. If any event occurs as to which, in the good faith
judgment of the Board of Directors of the Company, the other provisions of this
PARAGRAPH 4 are not strictly applicable or if strictly applicable would not
fairly protect the exercise rights of the holder of this Warrant in accordance
with the essential intent and principles of such provisions, then the Board of
Directors of the Company shall appoint the Company's regular independent
auditors or another firm of independent public accountants of recognized
national standing who are satisfactory to the holder of this Warrant which shall
give their opinion upon the adjustment, if any, on a basis consistent with such
essential intent and principles, necessary to preserve, without dilution, the
rights of the holder of this Warrant. Upon receipt of such opinion, the Board of
Directors of the Company shall forthwith make the adjustments described therein;
provided that no such adjustment shall have the effect of increasing the
Exercise Price as otherwise determined pursuant to this PARAGRAPH 4. The Company
may make such reductions in the Exercise Price or increase in the number of
shares of Common Stock purchasable hereunder as it deems advisable, including
any reductions or increases, as the case may be, necessary to ensure that any
event treated for federal income tax purposes as a distribution of stock rights
not be taxable to recipients.
5. ISSUE TAX. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax in respect thereof, provided that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than the holder of this Warrant.
6. AVAILABILITY OF INFORMATION. The Company will cooperate with the holder
of this Warrant and each holder of any Warrant Shares in supplying such
information as may be necessary for such holder to complete and file any
information reporting forms presently or hereafter required by the Securities
and Exchange Commission as a condition to the availability of an exemption from
the Securities Act of 1933, as amended, for the sale of this Warrant or any
Warrant Shares. The Company will deliver to the holder of this Warrant, promptly
upon their becoming available, copies of all financial statements, reports,
notices, and proxy statements sent or made available generally by the Company to
its shareholders, and copies of all regular and periodic reports and all
registration statements and prospectuses filed by the Company with any
securities exchange or with the Securities and Exchange Commission.
7. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
8. TRANSFER, EXCHANGE, AND REPLACEMENT OF WARRANT.
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(A) WARRANT TRANSFERABLE. The transfer of this Warrant and all rights
hereunder, in whole or in part, is registrable at the office or agency of the
Company referred to in PARAGRAPH 8(E) hereof by the holder hereof in person or
by his duly authorized attorney, upon surrender of this Warrant properly
endorsed. Each taker and holder of this Warrant, by taking or holding the same,
consents and agrees that this Warrant, when endorsed in blank, shall be deemed
negotiable, and that the holder hereof, when this Warrant shall have been so
endorsed, may be treated by the Company and all other persons dealing with this
Warrant as the absolute owner and holder hereof for any purpose and as the
person entitled to exercise the rights represented by this Warrant and to the
registration of transfer hereof on the books of the Company; but until due
presentment for registration of transfer on such books the Company may treat the
registered holder hereof as the owner and holder hereof for all purposes, and
the Company shall not be affected by any notice to the contrary.
(B) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This Warrant is
exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in PARAGRAPH 8(E) hereof, for new Warrants of
like tenor representing in the aggregate the right to purchase the number of
shares of Common Stock which may be purchased hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by said holder hereof at the time of such surrender.
(C) REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
(D) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of this Warrant
in connection with any transfer, exchange, or replacement as provided in this
PARAGRAPH 8, this Warrant shall be promptly canceled by the Company. The Company
shall pay all taxes (other than securities transfer taxes) and all other
expenses and charges payable in connection with the preparation, execution, and
delivery of Warrants pursuant to this PARAGRAPH 8.
(E) REGISTER. The Company shall maintain, at its principal office in
Houston, Texas, (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
(F) EXERCISE OR TRANSFER WITHOUT REGISTRATION. Anything in this Warrant to
the contrary notwithstanding, if, at the time of the surrender of this Warrant
in connection with any exercise, transfer, or exchange of this Warrant, this
Warrant shall not be registered under the Securities Act of 1933, as amended,
and under applicable state securities or blue sky laws, the
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Company may require, as a condition of allowing such exercise, transfer, or
exchange, that (i) the holder or transferee of this Warrant, as the case may be,
furnish to the Company a written opinion of counsel, which opinion and counsel
are acceptable to the Company, to the effect that such exercise, transfer, or
exchange may be made without registration under said Act and under applicable
state securities or blue sky laws and (ii) the holder or transferee execute and
deliver to the Company an investment letter in form and substance acceptable to
the Company. The first holder of this Warrant, by taking and holding the same,
represents to the Company that such holder is acquiring this Warrant for
investment and not with a view to the distribution thereof.
9. NOTICES. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the holder of this Warrant or to
the holder of shares acquired upon exercise of this Warrant shall be in writing,
and shall be personally delivered, or shall be sent by certified or registered
mail, postage prepaid and addressed, to such holder at the address shown for
such holder on the books of the Company, or at such other address as shall have
been furnished to the Company by notice from such holder. All notices, requests,
and other communications required or permitted to be given or delivered
hereunder to the Company shall be in writing, and shall be personally delivered,
or shall be sent by certified or registered mail, postage prepaid and addressed,
to the office of the Company at 110 Cypress Station Drive, Suite 220, Houston,
Texas 77090, Attention: President, or at such other address as shall have been
furnished to the holder of this Warrant or to the holder of shares acquired upon
exercise of this Warrant by notice from the Company. Any such notice, request,
or other communication may be sent by telegram or telex, but shall in such case
be subsequently confirmed by a writing personally delivered or sent by certified
or registered mail as provided above. All notices, requests, and other
communications shall be deemed to have been given either at the time of the
delivery thereof to (or the receipt by, in the case of a telegram or telex) the
person entitled to receive such notice at the address of such person for
purposes of this PARAGRAPH 9, or, if mailed, at the completion of the third full
day following the time of such mailing thereof to such address, as the case may
be.
10. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF TEXAS.
11. MISCELLANEOUS.
(A) AMENDMENTS. This Warrant and any provision hereof may not be changed,
waived, discharged, or terminated orally, but only by an instrument in writing
signed by the party (or any predecessor in interest thereof) against which
enforcement of the same is sought.
(B) DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof.
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(C) SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon any entity
succeeding to the Company by merger, consolidation, or acquisition of all or
substantially all the Company's assets.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer under its corporate seal, on this 27th day of
September, 1996.
CLIFFWOOD OIL & GAS CORP.
By:/S/ FRANK A. LODZINSKI
Name: Frank A. Lodzinski
Title: President
[CORPORATE SEAL]
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FORM OF EXERCISE AGREEMENT
Dated: , ____.
To:
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase shares of Common Stock covered by such
Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant in cash or by certified or official bank check in the
amount of $ . Please issue a certificate or certificates for such shares of
Common Stock in the name of and pay any cash for any fractional share to:
Name:
Signature:
Title of Signing Officer or Agent (if any):
Note: The above signature should correspond exactly with the name on the
face of the within Warrant or with the name of the assignee
appearing in the assignment form.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
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FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
, and hereby irrevocably constitutes and appoints as agent and attorney-in-fact
to transfer said Warrant on the books of the within-named corporation, with full
power of substitution in the premises.
Dated: , ____.
In the presence of
Name:
Signature:
Title of Signing Officer or Agent (if any):
Address:
Note: The above signature should correspond exactly
with the name on the face of the within Warrant.
17
EXHIBIT 10.28
TO: Frank A. Lodzinski
FROM: Jerry M. Crews
DATE: July 21, 1997
SUBJECT: V & C Interest Sale to COGC
I make the following purchase offer based on our prior discussions,
current reserve estimates and accounting data:
Cash and stock offer for all V & C properties, with exception
of
the Sandy Creek property, which was purchased prior to COGC
existence;
$2,500,000 cash;
Effective date 08/01/97 on a cash basis, closing on or before
08/15/97;
An additional 100,000 shares of COGC common stock and 50,000
warrants at $4.50.
This purchase offer is based on the following exceptions:
1. V & C will not participate in the Belleview Capital acquisition,
LOMA ATLA acquisition or Wildhorse/Countyline Mobil purchase.
2. All acquisitions after 08/15/97 will be open to V & C, as
previously approved by the Board of Directors.
3. V & C will retain the option to participate in the deep prospect
+ 6,000' associated with the Huff-McFaddin acquisition.
Respectfully,
/S/ JERRY M. CREWS
Jerry M. Crews
Vice President,
Acquisitions
AGREED AND ACCEPTED
THIS /S/ 24TH DAY OF JULY, 1997
/S/ FRANK A. LODZINSKI
Frank A. Lodzinski, President
Energy Resource Associates, Inc.
General Partner
EXHIBIT 10.29
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES
OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD,
ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER SAID ACT AND UNDER APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR
EXEMPTIONS FROM SUCH REGISTRATION. THIS WARRANT MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT UPON THE CONDITIONS SPECIFIED IN
THIS WARRANT, AND NO SALE, ASSIGNMENT, TRANSFER, OR OTHER DISPOSITION OF THIS
WARRANT SHALL BE VALUED OR EFFECTIVE UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE
BEEN COMPLIED WITH.
No. -005- Right to Purchase 50,000 Shares
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, V & C Energy Limited Partnership
or registered assigns, is entitled to purchase from Cliffwood Oil & Gas Corp., a
Texas corporation (the "Company"), at any time or from time to time during the
period specified in PARAGRAPH 2 hereof, Fifty Thousand (50,000) fully paid and
nonassessable shares of the Company's Class A Common Stock, par value $0.01 per
share (the "Class A Common"), at a price per share of $4.50 (the "Exercise
Price"). The term "Warrant Shares", as used herein, refers to the shares of
Class A Common purchasable hereunder. The Warrant Shares and the Exercise Price
are subject to adjustment as provided in PARAGRAPH 4 hereof.
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR Shares.
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part by the surrender of this Warrant, together with a
completed Exercise Agreement in the form attached hereto, to the Company during
normal business hours on any business day at the Company's principal office in
Houston, Texas (or such other office or agency of the Company as it may
designate by notice to the holder hereof), and upon payment to the Company in
cash or by certified or official bank check of the Exercise Price for the
Warrant Shares specified in said Exercise Agreement. The Warrant Shares so
purchased shall be deemed to be issued to the holder hereof or its designee as
the record owner of such shares as of the close of business on the date on which
this Warrant shall have been surrendered, the completed Exercise Agreement
delivered, and payment made for such shares as aforesaid. Certificates for the
Warrant Shares so purchased, representing the aggregate number of shares
specified in said Exercise Agreement, shall be delivered to the holder hereof
within a reasonable time, not exceeding seven business days, after this Warrant
shall have been so exercised. The certificates so delivered shall be in such
denominations as may be requested by the holder hereof and shall be registered
in the name of said holder or such other name as shall be designated by said
holder. If this Warrant shall have been exercised only in part, then, unless
this Warrant has expired, the Company shall, at its expense, at the time of
delivery of said certificates, deliver to said holder a new Warrant representing
the number of shares with respect to which this Warrant shall not then have been
exercised. The Company shall pay all taxes and other expenses and charges
payable in connection with the preparation, execution, and delivery of stock
certificates (and any new Warrants) pursuant to this PARAGRAPH 1 except that, in
case such stock certificates shall be registered in a name or names other than
the holder of this Warrant, funds sufficient to pay all stock transfer taxes
which shall be payable in connection with the execution and delivery of such
stock certificates shall be paid by the holder hereof to the Company at the time
of the delivery of such stock certificates by the Company as mentioned above.
2. PERIOD OF EXERCISE. This Warrant is exercisable at any time or from
time to time after August 5, 1997, and before 5:00 p.m., local time on August 5,
2002.
3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants and
agrees as follows:
(a) SHARES TO BE FULLY PAID. All Warrant Shares will, upon issuance, be
validly issued, fully paid, and nonassessable and free from all taxes, liens,
and charges with respect to the issue thereof.
(b) RESERVATION OF SHARES. During the period within which this Warrant may
be exercised, the Company will at all times have authorized, and reserved for
the purpose of issue upon exercise of this Warrant, (i) a sufficient number of
shares of Class A Common to provide for the exercise of this Warrant.
(c) CERTAIN ACTIONS PROHIBITED. The Company will not, by amendment of its
charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. Without limiting the generality of the foregoing, (i) the Company
will not increase the par value of the shares of Class A Common receivable upon
the exercise of this Warrant above the Exercise Price then in effect, and (ii)
before taking any action which would cause an adjustment reducing the Exercise
Price below the then par value of the shares of Class A Common so receivable,
the Company will take all such corporate action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Class A Common at such adjusted Exercise Price upon
the exercise of this Warrant.
(d) REGISTRATION. If the issuance of any Warrant Shares required to be
reserved for purposes of exercise of this Warrant requires registration with or
approval of any governmental authority under any federal or state law (other
than any registration under the Securities Act of 1933, as amended, or under
applicable state securities or blue sky laws) or listing on any national
securities exchange, before such shares may be issued upon exercise of this
Warrant, the Company will, at its expense, use its best efforts to cause such
shares to be duly registered or approved, or listed on the relevant national
securities exchange, as the case may be, at such time, so that such shares may
be issued in accordance with the terms hereof.
4. ANTIDILUTION PROVISIONS. The Exercise Price shall be subject to
adjustment from time to time as provided in this PARAGRAPH 4. Upon each
adjustment of the Exercise Price, the holder of this Warrant shall thereafter be
entitled to purchase, at the Exercise Price resulting from such adjustment, the
largest number of Warrant Shares obtained by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Shares
purchasable hereunder immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment. For
purposes of this PARAGRAPH 4, the term "Capital Stock", as used herein, includes
the Class A Common Stock of the Company, and any additional class of stock of
the Company having no preference as to dividends or distributions on liquidation
which may be authorized in the future, provided that the shares purchasable
pursuant to this Warrant shall include only shares of Class A Common, or shares
resulting from any subdivision or combination of the Class A Common, or in the
case of any reorganization, reclassification, consolidation, merger, or sale of
the character referred to in PARAGRAPH 4(G) hereof, the stock or other
securities or property provided for in said Paragraph. For purposes of this
PARAGRAPH 4, the term "Net Asset Value" shall mean, at a point in time, an
amount determined by dividing X by Y, where "X" is (i) the total assets of the
Company and its subsidiaries which would be shown as assets on a consolidated
balance sheet of the Company and its subsidiaries as of such time prepared in
accordance with generally accepted accounting principles (exclusive, however, of
oil and gas properties), PLUS (ii) the "Calculated Market Value" (as defined
below) of such oil and gas properties, MINUS (iii) the total liabilities of the
Company and its subsidiaries which would be shown as liabilities on a
consolidated balance sheet of the Company and its subsidiaries as of such time
prepared in accordance with generally accepted accounting principles, and where
"Y" is the total number of shares of Capital Stock outstanding as of such time.
In computing Net Asset Value, the "Calculated Market Value" of oil and gas
properties of the Company and its consolidated subsidiaries shall be the value
determined in accordance with ss. 210.4-10 of Regulation S-X, aS promulgated by
the Securities and Exchange Commission, with the following adjustments to
certain parameters: (i) applicable future prices for commodities shall be
determined as follows: (A) for crude oil the beginning price shall be calculated
using the average of one full calendar year forward prices, and (B) for natural
gas the beginning price shall be calculated using the average of the first
twelve month forward prices, each as reported on the New York Mercantile
Exchange; PROVIDED, that such prices shall be adjusted for product quality and
for basis differentials resulting from product location, as determined by the
holder of this Warrant by obtaining market quotes from at least two mutually
agreeable major independent third party dealers for each pipeline or point of
delivery; PROVIDED, FURTHER, that such prices shall escalate at 3% per annum
thereafter; (ii) beginning lease operating expenses, as determined by ss.
210.4-10 of Regulation S-X, shalL escalate at 3% per annum thereafter; (iii) the
resulting cashflow stream, as determined by ss. 210.4-10 of Regulation S-X,
after giving effect to thE adjustments to commodity price and lease operating
expense assumptions, shall be discounted for a present value at a 15% discount
rate; and (iv) that in making such computation, only the following categories
(and portions of such categories) of reserves shall be utilized: 100% of proved
developed producing reserves; 80% of proved developed non-producing reserves;
and 40% of proved undeveloped reserves. The foregoing discount rate and
percentages of reserves categories shall also apply to the Company's (or its
subsidiary's) direct 10% interest in the reserves owned by the Cliffwood
Acquisitions - 1996 Limited Partnership ("CALP") formed pursuant to that certain
Agreement of Limited Partnership by and among Cliffwood Energy Company (a wholly
owned subsidiary of the Company), EnCap Equity 1996 Limited Partnership and
Energy Capital Investment Company Plc. dated September 27, 1996 ("CALP
Agreement") as provided in the CALP Agreement, provided however, that if, when
and to the extent that the Company (or its subsidiary(ies)) earns additional
interest in the CALP, then and to the extent of such additional interest, all
reserves categories shall be risked at 80%.
(a) ISSUANCE OF CAPITAL STOCK. If and whenever the Company shall issue or
sell any shares of Capital Stock without consideration or for a consideration
per share less than the Exercise Price in effect immediately prior to the time
of such issue or sale, and/or the Company shall issue or sell any shares of its
Capital Stock for a consideration per share less than the Net Asset Value on the
date of such issue or sale, then, forthwith upon such issue or sale, the
Exercise Price shall be reduced to a price (calculated to the nearest cent)
determined as provided in PARAGRAPH (I) below (in the case of a consideration
per share less than the Exercise Price), or the price (calculated to the nearest
cent) determined as provided by PARAGRAPH (II) below (in the case of a
consideration per share less than the Net Asset Value), or the lower of the
prices (calculated to the nearest cent) determined as provided in PARAGRAPHS (I)
and (II) below (in the case of a consideration per share which is less than both
the Exercise Price and the Net Asset Value):
(i) by dividing X by Y, where "X" is an amount equal to the sum
of (A) the total number of shares of Capital Stock outstanding immediately
prior to such issue or sale multiplied by the then existing Exercise
Price, and (B) the consideration, if any, received by the Company upon
such issue or sale, and where "Y" is the total number of shares of Capital
Stock outstanding immediately after such issue or sale; and
(ii) by multiplying the Exercise Price in effect immediately prior
to the time of such issue or sale by X/Y, where "X" is an amount equal to
the sum of (A) the number of shares of Capital Stock outstanding
immediately prior to such issue or sale multiplied by the Net Asset Value
immediately prior to such issue or sale and (B) the consideration received
by the Company upon such issue or sale, and where "Y" is equal to the
product of (A) the total number of shares of Capital Stock outstanding
immediately after such issue or sale and (B) the Net Asset Value
immediately prior to such issue or sale.
(b) TREATMENT CONVERTIBLE SECURITIES; COMPUTATION OF CONSIDERATION. For
purposes of PARAGRAPH 4(A) hereof, the following provisions shall also be
applicable:
(i) In case the Company shall grant any rights to subscribe for
or purchase for the purchase of, Capital Stock or securities convertible
into or exchangeable for Capital Stock (such convertible or exchangeable
securities being herein called "Convertible Securities"), whether or not
such Convertible Securities are immediately exercisable, and the price per
share for which Capital Stock is issuable upon exchange of such
Convertible Securities (as determined in accordance with the following
sentence) shall be less than the greater of (A) the Exercise Price in
effect immediately prior to the time of issuance of such Convertible
Securities and (B) the Net Asset Value, determined as of the date of
issuance of such Convertible Securities, then the total maximum number of
shares of Capital Stock issuable upon the exchange of such Convertible
Securities shall (as of the date issuance of such Convertible Securities)
be deemed to be outstanding and to have been issued and sold for such
price per share. The price per share for which the Capital Stock is
issuable, as provided in the preceding sentence, shall be determined by
dividing (x) the total amount, if any, received or receivable by the
Company as consideration for the issuance of such Convertible Securities,
plus the minimum aggregate amount, if any, of additional consideration
payable to the Company upon the conversion or exchange of such Convertible
Securities by (y) the total maximum number of shares of Capital Stock
issuable upon the conversion or exchange of all such Convertible
Securities. Except as provided in PARAGRAPH 4(B)(VI) hereof, no further
adjustments of the Exercise Price shall be made upon the actual issue of
such Capital or upon the actual issue of such Capital Stock upon the
conversion or exchange of such Convertible Securities.
(ii) In case at any time the Company shall pay a dividend or make
any other distribution upon the Capital Stock payable in Capital Stock,
Options or Convertible Securities, any Capital Stock, Options or
Convertible Securities, as the case may be, issuable in payment of such
dividend or distribution shall be deemed to have been issued without
consideration.
(iii) In case at any time any Capital Stock, Convertible
Securities, or Options shall be issued or sold for cash, the consideration
received therefor shall be deemed to be the amount received by the Company
therefor, without deduction therefrom of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Company in
connection therewith. In case any Capital Stock, Convertible Securities,
or Options shall be issued or sold for a consideration other than cash,
the amount of the consideration other than cash received by the Company
therefor shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the Company, except
where such consideration consists of securities, in which case the amount
of consideration received by the Company shall be the market price thereof
(determined as provided in PARAGRAPH 4(E) hereof) as of the date of
receipt, but in each such case without deduction therefrom of any expenses
incurred or any underwriting commissions or concessions paid or allowed by
the Company in connection therewith. In computing the market price of a
note or other obligation that is not listed or admitted to trading on any
securities exchange or quoted in the National Association of Securities
Dealers, Inc. Automated Quotation System or reported by the National
Quotation Bureau, Inc. or a similar reporting organization, the total
consideration to be received by the Company thereunder (including
interest) shall be discounted to present value at the prime rate of
interest of NationsBank of Texas, N.A., in effect at the time the note or
obligation is deemed to have been issued. In case any Capital Stock or
Convertible Securities shall be issued in connection with any merger of
another corporation into the Company, the amount of consideration therefor
shall be deemed to be the fair value as determined in good faith by the
Board of Directors of the Company of such portion of the assets of such
merged corporation as the Board shall determine to be attributable to such
Capital Stock or Convertible Securities.
(iiii) In case at any time the Company shall take a record of the
holders of Capital Stock for the purpose of entitling them (A) to receive
a dividend or other distribution payable in Capital Stock or Convertible
Securities, or (B) to subscribe for or purchase Capital Stock, or
Convertible Securities, then such record date shall be deemed to be the
date of the issue or sale of such Capital Stock or Convertible Securities.
(v) If the price at which any Convertible Securities referred to
in PARAGRAPH 4(B)(I) hereof are convertible into or exchangeable for
Capital Stock, shall change at any time (whether by reason of provisions
designed to protect against dilution or otherwise), the Exercise Price
then in effect hereunder shall forthwith be increased or decreased to such
Exercise Price as would have obtained had the adjustments made upon the
issuance of Convertible Securities been made upon the basis of (A) the
issuance of the number of shares of Capital Stock theretofore actually
delivered upon the conversion or exchange of such Convertible Securities,
and the total consideration received therefor, and (B) the number of
shares of Capital Stock to be issued for the consideration, if any,
received by the Company therefor and to be received on the basis of such
changed price.
(iv) If any adjustment has been made in the Exercise Price because
of the issuance Convertible Securities and if any of such rights to
convert or exchange such Convertible Securities expire or otherwise
terminate, then the Exercise Price shall be readjusted to eliminate the
adjustments previously made in connection with the rights to convert or
exchange Convertible Securities which have expired or terminated.
(v) The number of shares of Capital Stock outstanding at any
given time shall not include shares owned or held by or for the account of
the Company, and the disposition of any such shares shall be considered an
issue or sale of Capital Stock.
(c) SUBDIVISIONS AND COMBINATIONS. In case at any time the Company shall
subdivide the outstanding shares of Capital Stock into a greater number of
shares, the Exercise Price in effect immediately prior to such subdivision shall
be proportionately reduced, and conversely, in case the outstanding shares of
Capital Stock shall be combined into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination shall be proportionately
increased. An adjustment made pursuant to this PARAGRAPH 4(c) shall become
effective immediately after the effective date of such subdivision or
combination.
(d) EXTRAORDINARY DIVIDENDS AND DISTRIBUTIONS. In case at any time the
Company shall pay a dividend or make a distribution to all holders of Capital
Stock, as such, of shares of its stock, evidences of its indebtedness, assets,
or rights, options, or warrants to subscribe for or purchase such shares,
evidences of indebtedness, or assets, other than (i) a dividend or distribution
payable in Capital Stock, Convertible Securities or (ii) a dividend or
distribution payable in cash out of earnings or earned surplus, then in each
such case the Exercise Price shall be adjusted so that the same shall equal the
price determined by multiplying the Exercise Price in effect immediately prior
to the record date mentioned below by a fraction, the numerator of which shall
be the total number of shares of Capital Stock outstanding on such record date
multiplied by the market price per share of Capital Stock (determined as
provided in PARAGRAPH 4(E) hereof) on such record date, less the fair market
value (as determined in good faith by the Board of Directors of the Company) as
of such record date of such shares of stock, evidences of indebtedness, assets,
or rights, options, or warrants so paid or distributed, and the denominator of
which shall be the total number of shares of Capital Stock outstanding on such
record date multiplied by the market price per share of Capital Stock
(determined as provided in PARAGRAPH 4(E) hereof) on such record date. Such
adjustment shall be made whenever such dividend is paid or such distribution is
made and shall become effective immediately after the record date for the
determination of shareholders entitled to receive such dividend or distribution.
(e) COMPUTATION OF MARKET PRICE. For the purpose of any computation under
PARAGRAPHS 4(B), 4(D) OR 5 hereof, the market price of the security in question
on any day shall be deemed to be the average of the last reported sale prices
for the security for the twenty (20) consecutive Trading Days (as defined below)
commencing thirty (30) Trading Days before the day in question. The last
reported sale price for each day shall be (i) the last reported sale price of
the security on the National Market of the National Association of Securities
Dealers, Inc. Automated Quotation System, or any similar system of automated
dissemination of quotations of securities prices then in common use, if so
quoted, or (ii) if not quoted as described in CLAUSE (I) above, the mean between
the high bid and low asked quotations for the security as reported by the
National Quotation Bureau, Inc. if at least two securities dealers have inserted
both bid and asked quotations for such security on at least ten (10) of such
twenty (20) consecutive Trading Days, or (iii) if the security is listed or
admitted for trading on any national securities exchange, the last sale price,
or the closing bid price if no sale occurred, of such class of security on the
principal securities exchange on which such class of security is listed or
admitted to trading. If the security is quoted on a national securities or
central market system, in lieu of a market or quotation system described above,
the last reported sale price shall be determined in the manner set forth in
CLAUSE (II) of the preceding sentence if bid and asked quotations are reported
but actual transactions are not, and in the manner set forth in CLAUSE (III) of
the preceding sentence if actual transactions are reported. If none of the
conditions set forth above is met, the last reported sale price of the security
on any day or the average of such last reported sale prices for any period shall
be the fair market value of such security as determined by a member firm of the
New York Stock Exchange, Inc. selected by the Company. The term "Trading Days",
as used herein, means (i) if the security is quoted on the National Market of
the National Association of Security Dealers, Inc. Automated Quotation System,
or any similar system of automated dissemination of quotations of securities
prices, days on which trades may be made on such system or (ii) if the security
is listed or admitted for trading on any national securities exchange, days on
which such national securities exchange is open for business.
(f) RECORD DATE ADJUSTMENTS. In any case in which this PARAGRAPH 4
requires that a downward adjustment of the Exercise Price shall become effective
immediately after a record date for an event, the Company may defer until the
occurrence of such event issuing to the holder of this Warrant exercised after
such record date and before the occurrence of such event the additional Warrant
Shares issuable upon such exercise by reason of the adjustment required by such
event over and above the Warrant Shares issuable upon such exercise before
giving effect to such adjustment.
(g) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER, OR Sale. If
any capital reorganization of the Company, or any reclassification of the
Capital Stock, or any consolidation or merger of the Company with or into
another corporation or entity, or any sale of all or substantially all the
assets of the Company to another corporation or entity, shall be effected in
such a way that the holders of Class A Common (or any other securities of the
Company then issuable upon the exercise of this Warrant) shall be entitled to
receive stock or other securities or property (including cash) with respect to
or in exchange for Class A Common (or such other securities), then, as a
condition of such reorganization, reclassification, consolidation, merger, or
sale, lawful and adequate provision shall be made whereby the holder of this
Warrant shall thereafter have the right to purchase and receive upon the basis
and upon the terms and conditions specified in this Warrant, and in lieu of the
shares of Class A Common (or such other securities) immediately theretofore
purchasable and receivable upon the exercise hereof, such stock or other
securities or property (including cash) as may be issuable or payable with
respect to or in exchange for a number of outstanding shares of Class A Common
(or such other securities) equal to the number of shares of Class A Common (or
such other securities) immediately theretofore purchasable and receivable upon
the exercise of this Warrant, had such reorganization, reclassification,
consolidation, merger, or sale not taken place. In any such case appropriate
provision shall be made with respect to the rights and interests of the holder
of this Warrant to the end that the provisions hereof (including, without
limitation, the provisions for adjustments of the Exercise Price and of the
number of Warrant Shares purchasable upon exercise hereof) shall thereafter be
applicable, as nearly as reasonably may be, in relation to the stock or other
securities or property thereafter deliverable upon the exercise hereof
(including an immediate adjustment of the Exercise Price if by reason of or in
connection with such consolidation, merger, or sale any securities are issued or
event occurs which would, under the terms hereof, require an adjustment of the
Exercise Price). In the event of a consolidation or merger of the Company with
or into another corporation or entity as a result of which a greater or lesser
number of shares of common stock of the surviving corporation or entity are
issuable to holders of Capital Stock in respect of the number of shares of
Capital Stock outstanding immediately prior to such consolidation or merger,
then the Exercise Price in effect immediately prior to such consolidation or
merger shall be adjusted in the same manner as though there were a subdivision
or combination of the outstanding shares of Capital Stock. The Company shall not
effect any such consolidation, merger, or sale unless prior to or simultaneously
with the consummation thereof the successor corporation or entity (if other than
the Company) resulting from such consolidation or merger or the corporation or
entity purchasing such assets and any other corporation or entity the shares of
stock or other securities or property of which are receivable thereupon by the
holder of this Warrant shall expressly assume, by written instrument executed
and delivered (and satisfactory in form) to the holder of this Warrant, (i) the
obligation to deliver to such holder such stock or other securities or property
as, in accordance with the foregoing provisions, such holder may be entitled to
purchase and (ii) all other obligations of the Company hereunder.
(h) NO FRACTIONAL SHARES. No fractional shares of Class A Common are to be
issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the current market value of a share
of Class A Common, which current market value shall be the last reported sale
price (determined as provided in PARAGRAPH 4(E) hereof) on the Trading Day
immediately preceding the date of the exercise.
(i) NOTICE OF ADJUSTMENT. Upon the occurrence of any event which requires
any adjustment of the Exercise Price, then and in each such case the Company
shall give notice thereof to the holder of this Warrant, which notice shall
state the Exercise Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
(j) OTHER NOTICES. In case at any time:
(i) the Company shall declare any dividend upon the Capital Stock
payable in shares of stock of any class or make any other distribution
(other than dividends or distributions payable in cash out of earnings or
earned surplus) to the holders of the Capital Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Capital Stock any additional shares of stock of any class
or other rights;
(iii) there shall be any capital reorganization of the Company, or
reclassification of the Capital Stock, or consolidation or merger of the
Company with or into, or sale of all or substantially all its assets to,
another corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation, or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(A) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Capital Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Capital Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up and (B) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Capital Stock shall be entitled to receive such
dividend, distribution, or subscription rights or to exchange their Capital
Stock for stock or other securities or property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding-up, as the case may be. Such notice shall be given at
least 20 days prior to the record date or the date on which the Company's books
are closed in respect thereto. Failure to give any such notice or any defect
therein shall not affect the validity of the proceeding referred to in CLAUSES
(I), (II), (III), and (IV) above.
(k) CERTAIN EVENTS. If any event occurs as to which, in the good faith
judgment of the Board of Directors of the Company, the other provisions of this
PARAGRAPH 4 are not strictly applicable or if strictly applicable would not
fairly protect the exercise rights of the holder of this Warrant in accordance
with the essential intent and principles of such provisions, then the Board of
Directors of the Company shall appoint the Company's regular independent
auditors or another firm of independent public accountants of recognized
national standing who are satisfactory to the holder of this Warrant which shall
give their opinion upon the adjustment, if any, on a basis consistent with such
essential intent and principles, necessary to preserve, without dilution, the
rights of the holder of this Warrant. Upon receipt of such opinion, the Board of
Directors of the Company shall forthwith make the adjustments described therein;
provided that no such adjustment shall have the effect of increasing the
Exercise Price as otherwise determined pursuant to this PARAGRAPH 4. The Company
may make such reductions in the Exercise Price or increase in the number of
shares of Class A Common purchasable hereunder as it deems advisable, including
any reductions or increases, as the case may be, necessary to ensure that any
event treated for federal income tax purposes as a distribution of stock rights
not be taxable to recipients.
5. MANDATORY EXERCISE. Notwithstanding anything herein to the contrary
herein, this Warrant must be exercised in full, and shall be deemed to be
exercised in full without any notice from the holder of this Warrant, if and
when the Class A Common Stock is publicly traded and the market price, as
computed pursuant to PARAGRAPH 4(E) hereof equal to or greater than $6.50 per
share. The foregoing price of $6.50 per share shall be subject to the same
adjustments as provided for herein for the Exercise Price and shall be adjusted
in proportion to the Exercise Price whenever the Exercise Price is adjusted.
6. ISSUE TAX. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax in respect thereof, provided that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than the holder of this Warrant.
7. AVAILABILITY OF INFORMATION. The Company will cooperate with the holder
of this Warrant and each holder of any Warrant Shares in supplying such
information as may be necessary for such holder to complete and file any
information reporting forms presently or hereafter required by the Securities
and Exchange Commission as a condition to the availability of an exemption from
the Securities Act of 1933, as amended, for the sale of this Warrant or any
Warrant Shares. Nothing in this Section 6 obligates the Company to register any
Warrant Shares or other securities under federal or state securities laws or
incur any other unreasonable expense. The Company will deliver to the holder of
this Warrant, promptly upon their becoming available, copies of all financial
statements, reports, notices, and proxy statements sent or made available
generally by the Company to its shareholders, and copies of all regular and
periodic reports and all registration statements and prospectuses filed by the
Company with any securities exchange or with the Securities and Exchange
Commission.
8. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
9. TRANSFER, EXCHANGE, AND REPLACEMENT OF WARRANT.
(a) WARRANT TRANSFERABLE. The transfer of this Warrant and all rights
hereunder, in whole or in part, is registrable at the office or agency of the
Company referred to in PARAGRAPH 9(E) hereof by the holder hereof in person or
by his duly authorized attorney, upon surrender of this Warrant properly
endorsed. Each taker and holder of this Warrant, by taking or holding the same,
consents and agrees that this Warrant, when endorsed in blank, shall be deemed
negotiable, and that the holder hereof, when this Warrant shall have been so
endorsed, may be treated by the Company and all other persons dealing with this
Warrant as the absolute owner and holder hereof for any purpose and as the
person entitled to exercise the rights represented by this Warrant and to the
registration of transfer hereof on the books of the Company; but until due
presentment for registration of transfer on such books the Company may treat the
registered holder hereof as the owner and holder hereof for all purposes, and
the Company shall not be affected by any notice to the contrary.
(b) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This Warrant is
exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in PARAGRAPH 9(E) hereof, for new Warrants of
like tenor representing in the aggregate the right to purchase the number of
shares of Class A Common which may be purchased hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by said holder hereof at the time of such surrender.
(c) REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
(d) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of this Warrant
in connection with any transfer, exchange, or replacement as provided in this
PARAGRAPH 9, this Warrant shall be promptly canceled by the Company. The Company
shall pay all taxes (other than securities transfer taxes) and all other
expenses and charges payable in connection with the preparation, execution, and
delivery of Warrants pursuant to this PARAGRAPH 9.
(e) REGISTER. The Company shall maintain, at its principal office in
Houston, Texas, (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
(f) EXERCISE OR TRANSFER WITHOUT REGISTRATION. Anything in this Warrant to
the contrary notwithstanding, if, at the time of the surrender of this Warrant
in connection with any exercise, transfer, or exchange of this Warrant, this
Warrant shall not be registered under the Securities Act of 1933, as amended,
and under applicable state securities or blue sky laws, the Company may require,
as a condition of allowing such exercise, transfer, or exchange, that (i) the
holder or transferee of this Warrant, as the case may be, furnish to the Company
a written opinion of counsel, which opinion and counsel are acceptable to the
Company, to the effect that such exercise, transfer, or exchange may be made
without registration under said Act and under applicable state securities or
blue sky laws and (ii) the holder or transferee execute and deliver to the
Company an investment letter in form and substance acceptable to the Company.
The first holder of this Warrant, by taking and holding the same, represents to
the Company that such holder is acquiring this Warrant for investment and not
with a view to the distribution thereof.
10. NOTICES. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the holder of this Warrant or to
the holder of shares acquired upon exercise of this Warrant shall be in writing,
and shall be personally delivered, or shall be sent by certified or registered
mail, postage prepaid and addressed, to such holder at the address shown for
such holder on the books of the Company, or at such other address as shall have
been furnished to the Company by notice from such holder. All notices, requests,
and other communications required or permitted to be given or delivered
hereunder to the Company shall be in writing, and shall be personally delivered,
or shall be sent by certified or registered mail, postage prepaid and addressed,
to the office of the Company at 110 Cypress Station Drive, Suite 220, Houston,
Texas 77090, Attention: President, or at such other address as shall have been
furnished to the holder of this Warrant or to the holder of shares acquired upon
exercise of this Warrant by notice from the Company. Any such notice, request,
or other communication may be sent by telegram or telex, but shall in such case
be subsequently confirmed by a writing personally delivered or sent by certified
or registered mail as provided above. All notices, requests, and other
communications shall be deemed to have been given either at the time of the
delivery thereof to (or the receipt by, in the case of a telegram or telex) the
person entitled to receive such notice at the address of such person for
purposes of this PARAGRAPH 10, or, if mailed, at the completion of the third
full day following the time of such mailing thereof to such address, as the case
may be.
11. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
12. MISCELLANEOUS.
(a) AMENDMENTS. This Warrant and any provision hereof may not be changed,
waived, discharged, or terminated orally, but only by an instrument in writing
signed by the party (or any predecessor in interest thereof) against which
enforcement of the same is sought.
(b) DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof.
(c) SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon any entity
succeeding to the Company by merger, consolidation, or acquisition of all or
substantially all the Company's assets.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer under its corporate seal, on this fifth day of
August, 1997.
CLIFFWOOD OIL & GAS CORP.
By: /S/ FRANK A. LODZINSKI
Name: Frank A. Lodzinski
Title: President
[CORPORATE SEAL]
EXHIBIT 10.30
COMMON STOCK AND WARRANT
PURCHASE AGREEMENT
between
CLIFFWOOD OIL & GAS CORP.
and
FIRST UNION CAPITAL PARTNERS, INC.
Dated as of May 30, 1997
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TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS.......................................................1
1.1 DEFINITIONS......................................................1
1.2 ACCOUNTING TERMS; FINANCIAL STATEMENTS...........................8
ARTICLE 2
PURCHASE AND SALE OF COMMON STOCK AND WARRANTS....................8
2.1 PURCHASE AND SALE OF COMMON STOCK................................8
2.2 PURCHASE AND SALE OF WARRANTS....................................8
2.3 PURCHASE PRICE...................................................8
2.4 CLOSING..........................................................8
2.5 RESERVATION OF SHARES............................................8
ARTICLE 3
CONDITIONS TO THE OBLIGATION OF THE PURCHASER TO CLOSE............9
3.1 REPRESENTATIONS AND WARRANTIES...................................9
3.2 COMPLIANCE WITH THIS AGREEMENT...................................9
3.3 OFFICERS' CERTIFICATE............................................9
3.4 SECRETARY'S CERTIFICATE..........................................9
3.5 TRANSACTION DOCUMENTS...........................................10
3.6 FINANCIAL MATTERS...............................................10
3.7 PURCHASE PERMITTED BY APPLICABLE LAWS...........................10
3.8 APPROVAL OF COUNSEL TO THE PURCHASER............................10
3.9 CONSENTS AND APPROVALS..........................................10
3.10 SBA DOCUMENTS...................................................11
3.11 ARTICLES OF INCORPORATION AND BYLAWS, ETC.......................11
3.12 AMENDMENT TO SHAREHOLDERS' AGREEMENT............................11
3.13 CO-SALE AGREEMENT...............................................11
3.14 INSURANCE.......................................................11
3.15 DISBURSEMENT INSTRUCTIONS.......................................11
3.16 NO MATERIAL ADVERSE CHANGE......................................11
3.17 OPINION OF COUNSEL..............................................11
ARTICLE 4
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CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE.............12
4.1 REPRESENTATIONS AND WARRANTIES TRUE.............................12
4.2 COMPLIANCE WITH THIS AGREEMENT..................................12
4.3 ISSUANCE PERMITTED BY APPLICABLE LAWS...........................12
4.4 APPROVAL OF COUNSEL TO THE COMPANY..............................12
4.5 CONSENTS AND APPROVALS..........................................12
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................12
5.1 CORPORATE EXISTENCE AND POWER...................................13
5.2 CORPORATE AUTHORIZATION; NO CONTRAVENTION.......................13
5.3 CAPITALIZATION..................................................13
5.4 SUBSIDIARIES....................................................13
5.5 GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENTS................14
5.6 BINDING EFFECT..................................................14
5.7 LITIGATION......................................................14
5.8 NO DEFAULT OR BREACH............................................14
5.9 ERISA...........................................................14
5.10 SMALL BUSINESS CONCERN..........................................14
5.11 DISCLOSURE......................................................15
5.12 PRIVATE OFFERING................................................15
5.13 BROKER'S, FINDER'S OR SIMILAR FEES..............................15
5.14 OIL AND GAS MATTERS.............................................15
5.15 MATERIAL CONTRACTS..............................................19
5.16 SENIOR LOAN DOCUMENTS...........................................19
5.17 OTHER TRANSACTION DOCUMENTS.....................................19
5.18 USE OF PROCEEDS.................................................19
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER..................20
6.1 AUTHORIZATION; NO CONTRAVENTION.................................20
6.2 BINDING EFFECT..................................................20
6.3 PURCHASE FOR OWN ACCOUNT........................................20
6.4 ERISA...........................................................21
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6.5 BROKER'S, FINDER'S OR SIMILAR FEES..............................21
6.6 GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENT.................21
ARTICLE 7
COVENANTS........................................................21
7.1 FINANCIAL STATEMENTS AND OTHER INFORMATION......................21
7.2 NOTICES.........................................................23
7.3 PRESERVATION OF EXISTENCE AND RELATED MATTERS...................23
7.4 MAINTENANCE OF PROPERTY.........................................23
7.5 MAINTENANCE OF INSURANCE........................................23
7.6 PAYMENT AND PERFORMANCE OF OBLIGATIONS..........................24
7.7 ACCOUNTING METHODS AND FINANCIAL RECORDS........................24
7.8 VISITS AND INSPECTIONS..........................................24
7.9 BOARD VISITATION RIGHTS.........................................24
7.10 CONFIDENTIALITY.................................................24
7.11 COMPLIANCE WITH LAWS; ENVIRONMENTAL LAWS........................25
7.12 TRANSACTIONS WITH AFFILIATES....................................25
7.13 CAPITAL EXPENDITURES............................................25
7.14 COORDINATION OF REGISTRATION RIGHTS.............................25
7.15 NO INCONSISTENT AGREEMENTS......................................25
7.16 SHAREHOLDERS' AGREEMENT.........................................26
ARTICLE 8
PREEMPTIVE RIGHTS................................................26
8.1 ELIGIBLE OFFERING...............................................26
8.2 NOTICE OF AN ELIGIBLE OFFERING..................................26
8.3 SALE TO THIRD PARTIES...........................................26
8.4 EXCEPTIONS TO ELIGIBLE OFFERING.................................26
ARTICLE 9
PUT RIGHTS.......................................................27
9.1 OPTION TO PUT...................................................27
9.2 SALE OF PUT SECURITIES..........................................27
9.3 PRICE PER SHARE.................................................28
9.4 LIMITATION ON OTHER PUT RIGHTS..................................28
ARTICLE 10
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REGISTRATION RIGHTS..............................................29
10.1 DEMAND REGISTRATION.............................................29
10.2 PIGGYBACK REGISTRATION..........................................30
10.3 FORM S-3 REGISTRATION...........................................30
10.4 REGISTRATION PROCEDURES.........................................31
10.5 EXPENSES........................................................33
10.6 LIMITATION ON REGISTRATION RIGHTS OF OTHERS.....................33
10.7 LOCK-UP AGREEMENTS..............................................33
ARTICLE 11
INDEMNIFICATION..................................................34
11.1 INDEMNIFICATION.................................................34
11.2 SECURITIES LAWS VIOLATIONS......................................34
11.3 INDEMNIFICATION BY PURCHASER....................................35
11.4 NOTIFICATION....................................................36
ARTICLE 12
MISCELLANEOUS....................................................37
12.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES......................37
12.2 NOTICES.........................................................37
12.3 SUCCESSORS AND ASSIGNS..........................................38
12.4 AMENDMENT AND WAIVER............................................38
12.5 COUNTERPARTS....................................................38
12.6 HEADINGS........................................................38
12.7 GOVERNING LAW...................................................39
12.8 JURISDICTION....................................................39
12.9 SEVERABILITY....................................................39
12.10 RULES OF CONSTRUCTION...........................................39
12.11 ENTIRE AGREEMENT................................................39
12.12 CERTAIN EXPENSES................................................39
12.13 REGULATORY REQUIREMENTS.........................................39
12.14 PUBLICITY.......................................................40
12.15 FURTHER ASSURANCES..............................................40
EXHIBITS
Exhibit A - Articles of Incorporation
Exhibit B - Bylaws
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Exhibit D - Shareholders' Agreement
Exhibit E - Co-Sale Agreement
Exhibit F - Form of Legal Opinion
SCHEDULES
Schedule 1.1 - Oil & Gas Interests
Schedule 3.6 - Financial Statements
Schedule 5.3 - Capitalization
Schedule 5.4 - Subsidiaries
Schedule 5.14(a) - Oil and Gas Contracts and Leases
Schedule 5.14(b) - Oil and Gas Operations
Schedule 5.14(c) - Oil and Gas Reversionary Rights
Schedule 5.14(d) - Sales and Transportation Agreements
Schedule 5.14(e) - Tax Partnerships
Schedule 5.14(f) - Prepayments
Schedule 5.14(h) - Calls on Production
Schedule 5.14(i) - Reserve Report Exceptions
Schedule 5.15 - Material Contracts
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COMMON STOCK AND WARRANT
PURCHASE AGREEMENT
THIS COMMON STOCK AND WARRANT PURCHASE AGREEMENT (this
"Agreement") is dated as of May 30, 1997, between CLIFFWOOD OIL & GAS CORP., a
Texas corporation (the "Company") and FIRST UNION CAPITAL PARTNERS, INC., a
Virginia corporation (the "Purchaser").
STATEMENT OF PURPOSE
The Company proposes to issue to the Purchaser shares of its Class B
Non-Voting Common Stock and warrants to purchase additional shares of its Class
B Non-Voting Common Stock, all for an aggregate purchase price of $1,000,000 and
on the other terms and conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. For the purposes of this Agreement, in addition to the
terms defined elsewhere in this Agreement, the following terms shall have the
meanings set forth below:
"AFFILIATE" means, with respect to a Person, any other Person (other than
a Subsidiary) which directly or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such Person. The
term "control" means (a) the power to vote 10% or more of the securities or
other equity interests of a Person having ordinary voting power, or (b) the
possession, directly or indirectly, of any other power to direct or cause the
direction of the management and policies of a Person, whether through ownership
of voting securities, by contract or otherwise.
"AGREEMENT" means this Common Stock and Warrant Purchase Agreement, as
amended or supplemented from time to time.
"ARTICLES OF INCORPORATION" means the Amended and Restated Articles of
Incorporation of the Company as in effect on the date hereof, a copy of which is
attached hereto as EXHIBIT A, as amended from time to time.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other day on
which commercial banks in Houston, Texas are authorized or required by law or
executive order to close.
"BYLAWS" means the Bylaws of the Company as in effect on the date hereof,
a copy of which
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is attached hereto as EXHIBIT B, as amended from time to time.
"CALCULATED MARKET VALUE" has the meaning assigned thereto in Section
9.3(b) hereof.
"CASH-OUT TRANSACTION" means any transaction in which (a) all of the
holders of Common Stock are offered the opportunity to sell at least 75% of
their shares of Common Stock to a third Person which is not an Affiliate of the
Company; (b) the Purchaser may elect to sell all of its shares and may further
elect to receive cash in payment for its shares; (c) all of the holders of
Common Stock are offered the same per share consideration; and (d) at least 75%
of the shares of Common Stock, on a fully diluted basis, are actually sold to
the offeror.
"CHANGE IN CONTROL" means a transaction pursuant to which (i) a Person or
group of Persons (within the meaning of Section 13(d) of the Exchange Act) other
than V & C Energy Limited Partnership or Energy Resource Associates, Inc.
acquires directly or indirectly and in one or a series of transactions all or
substantially all of the assets of the Company or any Subsidiary, (ii) a Person
or group of Persons (within the meaning of Section 13(d) of the Exchange Act)
other than V & C Energy Limited Partnership or Energy Resource Associates, Inc.
acquires directly or indirectly and in one or a series of transactions more than
50% of the capital stock of the Company, on a fully diluted basis (whether by
merger, consolidation or sale or transfer of the Company's capital stock), (iii)
Frank A. Lodzinski (A) ceases to own directly or indirectly a minimum of 200,000
shares of Common Stock (excluding shares issuable upon the exercise of such
options but not yet issued), (B) ceases to own, directly or indirectly, more
than 50% of the capital stock and voting interests of Energy Resource
Associates, Inc. or the general partnership interest in V & C Energy Limited
Partnership or (C) ceases to have the title and responsibilities of the Chief
Executive Officer of the Company, or (iv) Senior Management of the Company in
the aggregate ceases to own directly or indirectly a minimum of 300,000 shares
of Common Stock (excluding shares issuable upon the exercise of such options but
not yet issued). The minimum share requirements in clauses (iii)(A) and (iv)
above shall be adjusted proportionately in the event of any stock split or stock
dividend by the Company after the Closing Date.
"CLASS A COMMON" means the Class A Voting Common Stock of the Company as
described in the Articles of Incorporation.
"CLASS B COMMON" means the Class B Non-Voting Common Stock of the Company
as described in the Articles of Incorporation.
"CLOSING" has the meaning assigned thereto in Section 2.4 hereof.
"CLOSING DATE" has the meaning assigned thereto in Section 2.4 hereof.
"CODE" means the Internal Revenue Code of 1986, as amended, or any
successor statute thereto.
"COMMISSION" means the Securities and Exchange Commission or any similar
agency then having jurisdiction to enforce the Securities Act.
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"COMMON STOCK" means collectively, the Class A Common and the Class B
Common, or any other capital stock of the Company into which such stock is
reclassified or reconstituted.
"COMPANY INDEMNIFIED PARTY" has the meaning assigned thereto in Section
11.3 hereof.
"CONTRACTUAL OBLIGATIONS" means, with respect to a Person, any provision
of any security issued by such Person or of any agreement, undertaking,
contract, indenture, mortgage, deed of trust or other instrument to which such
Person is a party or by which it or any of its property is bound.
"CO-SALE AGREEMENT" means the agreement to be entered into between the
Company and the Purchaser in substantially the form attached hereto as EXHIBIT
E.
"DEMAND REGISTRATION" has the meaning assigned thereto in Section 10.1
hereof.
"EARLIER TIME" has the meaning assigned thereto in Section 9.1 hereof.
"ELIGIBLE OFFERING" has the meaning assigned thereto in Section 8.1
hereof.
"ENVIRONMENTAL LAWS" means any and all federal, state and local laws,
statutes, ordinances, rules, regulations, permits, licenses, approvals,
interpretations and orders of courts or Governmental Authorities, relating to
the protection of human health or the environment, including but not limited to,
requirements pertaining to the manufacture, processing, distribution, use,
treatment, storage, disposal, transportation, handling, reporting, licensing,
permitting, investigation or remediation of Hazardous Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"EXERCISE NOTICE" has the meaning assigned thereto in Section 9.2 hereof.
"FISCAL YEAR" means the fiscal year of the Company and its Subsidiaries
ending on December 31.
"GAAP" means generally accepted United States accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board that are applicable
to the circumstances as of the date of determination.
"GOVERNMENTAL AUTHORITY" means the government of any nation, state, city,
locality or other political subdivision of any thereof, any entity having
jurisdiction and exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, and any corporation or
other entity owned or controlled, through stock or capital ownership or
otherwise, by any of the foregoing.
3
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"HAZARDOUS MATERIALS" means any substances or materials (a) which are or
become defined as hazardous wastes, hazardous substances, pollutants,
contaminants or toxic substances under any Environmental Law, (b) which are
toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic,
mutagenic or otherwise harmful to human health or the environment and are or
become regulated by any Governmental Authority, (c) the presence of which
require investigation or remediation under any Environmental Law or common law,
(d) the discharge or emission or release of which requires a permit or license
under any Environmental Law or other Governmental Approval or (e) which are
deemed to constitute a nuisance, a trespass or pose a health or safety hazard to
persons or neighboring properties.
"HOLDER INDEMNIFIED PARTY" has the meaning assigned thereto in Section
11.2 hereof.
"HYDROCARBONS" means oil, gas and/or other liquid and gaseous hydrocarbons
or any combination thereof.
"INDEMNIFIED PARTY" has the meaning assigned thereto in Section 11.1
hereof.
"INTERESTS" means the collective reference to:
(a) the Oil and Gas Interests; and
(b) all of the Company's or applicable Subsidiary's rights, titles and
interests, whether direct or indirect, in and to all of the property, rights and
interests incident to the Oil and Gas Interests, including without limitation
all of the Company's or such Subsidiary's rights, titles and interests in and to
all Oil and Gas Contracts, leases, rights-of-way, easements, options, orders and
rulings of any applicable Governmental Authority, wells, lease and well
equipment, machinery, production facilities, processing facilities, gathering
systems, transportation systems, disposal systems, fixtures and other items of
personal property and improvements now or as of the Closing Date appurtenant to
the Oil and Gas Interests or with the production, treatment, sale or disposal of
Hydrocarbons or water produced therefrom or attributable thereto.
"INVESTMENT AGREEMENT" means the Investment Agreement, dated as of
September 27, 1996, by and among the Company, Energy Capital Investment Company
PLC, an English investment company, and EnCap Equity 1996 Limited Partnership, a
Texas limited partnership, as amended or supplemented from time to time.
"INVESTORS AGREEMENT" means the Investors Agreement, dated as of September
27, 1996, by and among V & C Energy Limited Partnership, a Michigan limited
partnership, Energy Resource Associates, Inc., a Texas corporation, Energy
Capital Investment Company PLC, an English investment company, and EnCap Equity
1996 Limited Partnership, a Texas limited partnership, as amended or
supplemented from time to time.
"LEASES" means oil, gas and mineral leases, oil and gas leases, oil
leases, gas leases, other mineral leases, subleases, assignments of operating
rights and similar agreements, and any extensions or renewals thereof.
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"LIABILITIES" has the meaning assigned thereto in Section 11.1 hereof.
"LIEN" means any lien, mortgage, pledge, security interest, charge or
encumbrance of any kind.
"MATERIAL CONTRACT" means (a) any contract or other agreement, written or
oral, of the Company or any of its Subsidiaries involving monetary liability of,
or to such Person in an amount in excess of $100,000 per annum, (b) any contract
between or among the Company or any Subsidiary and any securityholders of the
Company or such Subsidiary or (c) any other contract or agreement, written or
oral, of the Company or any Subsidiary the failure to comply with which could
have a material adverse effect on the business, operations, properties, assets
or condition (financial or otherwise) of the Company or any Subsidiary.
"NET ASSET VALUE" has the meaning assigned thereto in Section 9.3(b)
hereof.
"NET REVENUE INTEREST" means the decimal interest in and to all production
of the Hydrocarbons produced and saved or sold from the Oil and Gas Interests
after giving effect to all valid lessors' royalties, overriding royalties and/or
other non-expense bearing burdens against production.
"OIL AND GAS CONTRACTS" means all Leases, permits, licenses, farm-out or
farm-in agreements, bottom hole or acreage contribution agreements, operating
agreements, unit agreements, water flood agreements, declarations or orders,
joint venture, exploration, participation or acquisition agreements, division
orders, production, sales, purchase, exchange, processing or transportation
agreements and all other contracts and agreements in effect or in existence on
the date hereof and affecting or relating to the ownership or operation of the
Interests or the disposition of the Hydrocarbons produced therefrom.
"OIL AND GAS INTERESTS" means (a) all of the Company's and any of its
Subsidiaries' rights, titles and interests, whether direct or indirect, in and
to the Wells described on SCHEDULE 1.1 and in and to the leases and lands
(whether or not described on SCHEDULE 1.1) upon which such Wells have been
drilled or which have been pooled or unitized with Leases upon which such Wells
have been drilled, and (b) all of the Company's and any of its Subsidiaries'
rights, titles and interests, including leasehold interests, whether direct or
indirect, in and to the non-producing lands and Leases described on SCHEDULE
1.1.
"PERSON" means any individual, firm, corporation, partnership, trust,
limited liability company, incorporated or unincorporated association, joint
venture, joint stock company, Governmental Authority or other entity of any
kind, and shall include any successor (by merger or otherwise) of such entity.
"PIGGYBACK REGISTRATION" has the meaning assigned thereto in Section 10.2
hereof.
"PUBLIC OFFERING" means a public offering of the Common Stock pursuant to
a registration statement declared effective under the Securities Act,
underwritten on a firm commitment basis by
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an investment banking firm acceptable to the Company.
"PURCHASE PRICE" has the meaning assigned thereto in Section 2.3 hereof.
"PUT SECURITIES" means the Shares, the Warrants, any shares of Common
Stock issued upon conversion or exercise of the Shares or Warrants, and any
securities issued or issuable with respect to the foregoing securities by way of
a stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
"QUALIFIED PUBLIC OFFERING" means a Public Offering resulting in gross
proceeds to the Company of at least $20,000,000.
"REGISTRABLE SECURITIES" means the Shares, the Warrant Shares, any
securities issued upon conversion of the Shares or Warrant Shares, and any
securities issued or issuable with respect to the foregoing securities by way of
a stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
"REGISTRATION EXPENSES" means all expenses incident to the Company's
performance of or compliance with the registration rights granted hereunder,
including (without limitation) all registration and filing fees, fees and
expenses of compliance with securities and blue sky laws, printing and engraving
expenses, messenger, telephone and delivery expenses, and fees and disbursements
of counsel for the Company and reasonable fees and disbursements of a single
attorney or firm representing the Purchaser, all independent certified public
accountants and underwriters (excluding discounts and commissions); PROVIDED,
that Registration Expenses shall not include any Selling Expenses.
"REGULATORY REQUIREMENT" has the meaning assigned thereto in Section 12.13
hereof.
"REQUIREMENTS OF LAW" means with respect to a Person, the articles of
incorporation and bylaws or other organizational or governing documents of such
Person, and any law, treaty, rule, regulation, right, privilege, qualification,
license or franchise or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is subject
or pertaining to any or all of the transactions contemplated or referred to
herein.
"RESERVE REPORT" means the report and property evaluation of the type
specified in Section 7.1(d)(i) hereof effective as of December 31, 1996.
"SALES AGREEMENTS" has the meaning assigned thereto in Section 5.14(d)
hereof.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SELLING EXPENSES" means underwriting discounts or commissions and any
selling commissions and stock transfer taxes attributable to sales of
Registrable Securities.
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"SENIOR LOAN AGREEMENT" means the Credit Agreement dated as of September
17, 1996 by and among the Company, Cliffwood Energy Company, Cliffwood
Production Co. and Comerica Bank - Texas, as amended or supplemented from time
to time.
"SENIOR LOAN DOCUMENTS" means the Senior Loan Agreement and each other
document and instrument executed pursuant thereto, as amended or supplemented
from time to time.
"SENIOR MANAGEMENT" means the Chief Executive Officer, President,
Secretary, Treasurer, Chief Operating Officer, Chief Financial Officer, Chief
Legal Officer, and any Vice-President of the Company, and any other management
position in the Company occupied by Jerry M. Crews, Francis M. Mury or Peggy C.
Simpson.
"SHAREHOLDERS' AGREEMENT" means the Shareholders' Agreement dated as of
May 21, 1996 by and among the Company and certain shareholders of the Company,
as amended or supplemented from time to time.
"SHARES" has the meaning assigned thereto in Section 2.1 hereof.
"SUBSIDIARY" means, with respect to a Person, (i) a corporation or other
entity of which more than 50% of the voting power of the equity securities or
other equity interests is owned, directly or indirectly, by such Person and (ii)
any general partnership, limited partnership or limited liability company in
which such Person or an entity specified in clause (i) above is a managing
partner, manager or otherwise exercises any controlling influence over such
general partnership, limited partnership or limited liability company. Unless
otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in
this Agreement shall refer to a Subsidiary or Subsidiaries of the Company.
"TRANSACTION DOCUMENTS" means, collectively, this Agreement, the Warrants,
the Articles of Incorporation, the Bylaws, the Shareholders' Agreement and the
Co-Sale Agreement.
"WARRANT SHARES" means the shares of Class B Common issuable upon exercise
of the Warrants and the shares of Class A Common issuable upon conversion
thereof.
"WARRANTS" mean the common stock purchase warrants issued by the Company
to the Purchaser pursuant to this Agreement substantially in the form attached
hereto as EXHIBIT C.
"WELLS" means the wells set forth on SCHEDULE 1.1.
1.2 ACCOUNTING TERMS; FINANCIAL STATEMENTS. All accounting terms used
herein not expressly defined in this Agreement shall have the respective
meanings given to them in accordance with sound accounting practice. The term
"sound accounting practice" shall mean such accounting practice as, in the
opinion of the independent certified public accountants regularly retained by
the Company, conforms at the time to GAAP applied on a consistent basis except
for changes with which such accountants concur. If any changes in accounting
principles are hereafter occasioned by promulgation of rules, regulations,
pronouncements or opinions of or are otherwise required by, the Financial
Accounting Standards Board or the American Institute of Certified Public
Accountants (or
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successors thereto or agencies with similar functions), and any of such changes
results in a change in the method of calculation of, or affects the results of
such calculation of, any of the financial covenants, standards or terms found
herein, then the parties hereto agree to enter into and diligently pursue
negotiations in order to amend such financial covenants, standards or terms so
as to reflect fairly and equitably such changes, with the desired result that
the criteria for evaluating the Company's financial condition and results of
operations shall be the same after such changes as if such changes had not been
made.
ARTICLE 2
PURCHASE AND SALE OF COMMON STOCK AND WARRANTS
2.1 PURCHASE AND SALE OF COMMON STOCK. Subject to the terms and conditions
hereof, the Company agrees to issue to the Purchaser, and the Purchaser agrees
that it will purchase from the Company, on the Closing Date, 333,334 shares of
Class B Common (the "Shares"). The Shares shall have all the powers, rights and
preferences of Class B Common as set forth in the Articles of Incorporation.
2.2 PURCHASE AND SALE OF WARRANTS. Subject to the terms and conditions
hereof, the Company agrees to issue to the Purchaser and the Purchaser agrees
that it will purchase from the Company, on the Closing Date, in the form
attached hereto as EXHIBIT C, warrants to purchase 167,500 shares of Class B
Common (the "Warrants").
2.3 PURCHASE PRICE. The aggregate purchase price of the Shares and
Warrants (the "Purchase Price") shall be $1,000,000.
2.4 CLOSING. The issuance and purchase of the Shares and the Warrants
shall take place at the closing (the "Closing") to be held at such time and
place as mutually agreed upon by the Company and the Purchaser, (the "Closing
Date"). At the Closing, the Company shall deliver to the Purchaser the Shares
and the Warrants against delivery to the Company by the Purchaser of the
Purchase Price therefor by wire transfer of immediately available funds.
2.5 RESERVATION OF SHARES. The Company shall at all times reserve and keep
available out of its authorized Class A Common and Class B Common, solely for
the purpose of issue or delivery upon conversion of the Class B Common as
provided in the Articles of Incorporation and the exercise of the Warrants as
provided therein, the maximum number of shares of Class A Common and Class B
Common that may be issuable or deliverable upon such conversion or exercise.
Such shares of Class A Common and Class B Common shall, when issued or delivered
in accordance with the provisions of the Articles of Incorporation or the
Warrants, as the case may be, be duly and validly issued and fully paid and
non-assessable. The Company shall issue such Class A Common and Class B Common
in accordance with the provisions of the Articles of Incorporation and the
Warrants, and shall otherwise comply with the terms thereof.
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ARTICLE 3
CONDITIONS TO THE OBLIGATION
OF THE PURCHASER TO CLOSE
The obligation of the Purchaser to purchase the Shares and the Warrants,
to pay the Purchase Price therefor at the Closing and to perform any obligations
hereunder shall be subject to the satisfaction as determined by the Purchaser of
the following conditions on or before the Closing Date:
3.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company contained in Section 5 hereof shall be true and correct on and as of
the Closing Date as if made on and as of such date.
3.2 COMPLIANCE WITH THIS AGREEMENT. The Company shall have performed and
complied with all of its agreements and conditions set forth or contemplated
herein that are required to be performed or complied with by the Company on or
before the Closing Date.
3.3 OFFICERS' CERTIFICATE. The Purchaser shall have received a certificate
dated as of the Closing Date from the President and any Vice President of the
Company, in form and substance satisfactory to the Purchaser, to the effect that
(a) all representations and warranties of the Company contained in this
Agreement are true, correct and complete, (b) neither the Company nor any
Subsidiary is in violation of any of the covenants contained in this Agreement,
and (c) all conditions precedent to the Closing of this Agreement to be
performed by the Company have been duly performed.
3.4 SECRETARY'S CERTIFICATE. The Purchaser shall have received a
certificate from the Company, dated the Closing Date and signed by the Secretary
or an Assistant Secretary of the Company, certifying (a) that the attached
copies of the Articles of Incorporation and Bylaws of the Company (and the
appropriate charter or other governing documents for each Subsidiary of the
Company which is a corporation), and resolutions of the Board of Directors of
the Company approving this Agreement and the transactions contemplated hereby,
are all true, complete and correct and remain unamended and in full force and
effect and (b) as to the incumbency and specimen signature of each officer of
the Company executing this Agreement and any other document delivered in
connection herewith on behalf of the Company. Attached to such certificate shall
be certificates of good standing and qualification or authorization to do
business of the Company and its Subsidiaries which are corporations from their
respective states of organization and, except with respect to the qualification
of Cliffwood Energy Company, a California corporation, in the State of Texas,
each other jurisdiction where any such Person is required to be so qualified or
authorized.
3.5 TRANSACTION DOCUMENTS. The Purchaser shall have received true,
complete and correct copies of the Transaction Documents and such other
documents as it may reasonably request in writing in connection with or relating
to the sale of the Shares and the Warrants and the transactions contemplated
hereby, all in form and substance reasonably satisfactory to the Purchaser.
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3.6 FINANCIAL MATTERS.
(a) FINANCIAL STATEMENTS. The Purchaser shall have received financial
statements, certificates and other information concerning the Company and its
Subsidiaries, and each predecessor thereto, as set forth on SCHEDULE 3.6 hereto,
including a copy of the Reserve Report.
(b) PAYMENT AT CLOSING. There shall have been paid by the Company to the
Purchaser any reasonable accrued and unpaid fees due hereunder (including,
without limitation, legal fees and expenses), and to any other Person such
amount as may be due, including all taxes, fees and other charges in connection
with the execution, delivery, recording, filing and registration of any of the
Transaction Documents.
3.7 PURCHASE PERMITTED BY APPLICABLE LAWS. The acquisition of and payment
for the Shares and the Warrants to be acquired by the Purchaser hereunder and
the consummation of the transactions contemplated hereby (a) shall not be
prohibited by any Requirement of Law, (b) shall not subject the Purchaser to any
penalty or other onerous condition under or pursuant to any Requirement of Law,
and (c) shall be permitted by all Requirements of Law to which it or the
transactions contemplated by or referred to herein are subject and the Purchaser
shall have received such certificates or other evidence as it may reasonably
request to establish compliance with this condition.
3.8 APPROVAL OF COUNSEL TO THE PURCHASER. All actions and proceedings
hereunder and all documents required to be delivered by the Company or any of
its Subsidiaries hereunder or in connection with the consummation of the
transactions contemplated hereby, and all other related matters, shall be in
form and substance acceptable to Kennedy Covington Lobdell & Hickman, L.L.P.,
counsel to the Purchaser, in its reasonable judgment.
3.9 CONSENTS AND APPROVALS. All consents, exemptions, authorizations or
other actions by, or notices to, or filings with, Governmental Authorities and
other Persons in respect of all Requirements of Law and with respect to
Contractual Obligations of the Company and its Subsidiaries necessary, desirable
or required in connection with the execution, delivery or performance by, or
enforcement against, the Company of this Agreement and the other Transaction
Documents shall have been obtained and be in full force and effect, and the
Purchaser shall have been furnished with appropriate evidence thereof, and all
waiting periods shall have lapsed without extension or the imposition of any
conditions or restrictions.
3.10 SBA DOCUMENTS. The Company shall have executed and delivered to the
Purchaser forms and information required by the rules and regulations of the
United States Small Business Administration, including without limitation, a
Size Status Declaration on SBA Form 480 and an Assurance of Compliance on SBA
Form 652 and information necessary for the preparation of a Portfolio Financing
Report on SBA Form 1031.
3.11 ARTICLES OF INCORPORATION AND BYLAWS, ETC. The Articles of
Incorporation and Bylaws of the Company (and the appropriate charter or other
governing documents for each Subsidiary of the Company) shall be in form and
substance reasonably satisfactory to the Purchaser.
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3.12 AMENDMENT TO SHAREHOLDERS' AGREEMENT. The Company shall have (i)
delivered to the Purchaser a copy of the Shareholders' Agreement, a copy of
which is attached hereto as EXHIBIT D, amended and restated to include the
Purchaser as a signatory, such copy to be executed by Frank A. Lodzinski and V &
C Energy Limited Partnership, and (ii) provided the Purchaser with evidence that
such Shareholders' Agreement has been circulated to each other party thereto
requesting their signatures.
3.13 CO-SALE AGREEMENT. The Company and the Purchaser shall have executed
the Co-Sale Agreement, a copy of which is attached hereto as EXHIBIT E.
3.14 INSURANCE. The Company shall have delivered to the Purchaser (a) a
detailed list of all insurance maintained by the Company as of the Closing Date,
stating the names of the insurance companies, the amounts and rates of the
insurance, the dates of expiration thereof and the properties and risks covered
thereby and (b) certificates of insurance relating to all insurance referenced
on such list.
3.15 DISBURSEMENT INSTRUCTIONS. The Purchaser shall have received written
instructions from the Company to the Purchaser directing the payment of the
proceeds of the Shares and the Warrants that are to be paid on the Closing Date.
3.16 NO MATERIAL ADVERSE CHANGE. On and prior to the Closing Date, no
event or change shall have occurred which could reasonably be expected to have a
material adverse effect on the business, operations, properties, assets or
condition (financial or otherwise) of the Company or any Subsidiary or otherwise
could reasonably be expected to impair the ability of the Company or any
Subsidiary to perform its obligations under this Agreement or any of the other
Transaction Documents.
3.17 OPINION OF COUNSEL. The Purchaser shall have received an opinion of
Stephenson & Snokhous, dated the Closing Date, in the form attached hereto as
EXHIBIT F.
ARTICLE 4
CONDITIONS TO THE OBLIGATION
OF THE COMPANY TO CLOSE
The obligations of the Company to issue and sell the Shares and the
Warrants and to perform its other obligations hereunder shall be subject to the
satisfaction as determined by the Company of the following conditions on or
before the Closing Date:
4.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of the Purchaser contained in Section 6 hereof shall be true and
correct on and as of the Closing Date as if made on and as of such date.
4.2 COMPLIANCE WITH THIS AGREEMENT. The Purchaser shall have performed and
complied with all of the agreements and conditions set forth or contemplated
herein that are required to be
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performed or complied with by the Purchaser on or before the Closing Date.
4.3 ISSUANCE PERMITTED BY APPLICABLE LAWS. The issuance of the Shares and
the Warrants hereunder and the consummation of the transactions contemplated
hereby (a) shall not be prohibited by any Requirement of Law, (b) shall not
subject the Company to any penalty or, in its reasonable judgment, other onerous
condition under or pursuant to any Requirement of Law and (c) shall be permitted
by all Requirements of Law to which the Company is subject.
4.4 APPROVAL OF COUNSEL TO THE COMPANY. All actions and proceedings
hereunder and all documents required to be delivered by the Purchaser hereunder
or in connection with the consummation of the transactions contemplated hereby,
and all other related matters, shall be in form and substance acceptable to
Stephenson & Snokhous, counsel to the Company, in its reasonable judgment.
4.5 CONSENTS AND APPROVALS. All consents, exemptions, authorizations or
other actions by, or notices to, or filings with, Governmental Authorities and
other Persons in respect of all Requirements of Law necessary or required in
connection with the execution, delivery or performance by the Purchaser or
enforcement against the Purchaser of this Agreement shall have been obtained and
be in full force and effect, and the Company shall have been furnished with
appropriate evidence thereof.
ARTICLE 5
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser before and
after giving effect to the transactions contemplated by this Agreement and the
other Transaction Documents as follows:
5.1 CORPORATE EXISTENCE AND POWER. Except as indicated on Schedule 5.4,
each of the Company and those Subsidiaries listed on Schedule 5.4 (a) is duly
organized, validly existing and in good standing under the laws of the State of
Texas and (b) has all requisite power and authority to own, lease and operate
its assets, properties and business and to conduct the business in which it is
currently, or is currently proposed to be, engaged. The Company has the power
and authority to execute, deliver and perform its obligations under this
Agreement and each other Transaction Document to which it is or will be a party.
5.2 CORPORATE AUTHORIZATION; NO CONTRAVENTION. The execution, delivery and
performance by the Company of this Agreement and each other Transaction Document
to which it is or will be a party and the transactions contemplated hereby and
thereby, including, without limitation, the issuance of the Shares and the
Warrants (a) have been duly authorized by all necessary corporate, and if
required, stockholder action, (b) do not contravene the terms of the Articles of
Incorporation or Bylaws of the Company (or any charter or other governing
document for any Subsidiary of the Company), and (c) will not violate, conflict
with or result in any breach or contravention of or the creation of any Lien
under, any Contractual Obligation of the Company, or any Requirement of Law
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applicable to the Company or any of its Subsidiaries.
5.3 CAPITALIZATION. As of the Closing Date, the authorized capital stock
of the Company consists of 25,000,000 shares of Common Stock, including
20,000,000 shares of Class A Common and 5,000,000 shares of Class B Common, and
10,000,000 shares of Preferred Stock. As of the Closing Date, and after giving
effect to the transactions contemplated by this Agreement, (a) 2,505,588 shares
of Class A Common will be issued and outstanding, (b) at least 500,834 shares of
Class A Common will be reserved for issuance upon conversion of the Class B
Common, (c) 333,334 shares of Class B Common will be issued and outstanding, (d)
at least 167,500 shares of Class B Common will be reserved for issuance upon
exercise of the Warrants, and (e) no shares of Preferred Stock will be issued
and outstanding, all as shown on SCHEDULE 5.3 hereto. As of the Closing Date,
and upon the consummation of the transactions contemplated by this Agreement,
(i) all outstanding shares of Common Stock of the Company will be duly
authorized and (ii) all outstanding shares of Common Stock of the Company will
be, and the shares of Common Stock issuable upon exercise of the Warrants, when
issued, will be, validly issued, fully paid, nonassessable and free and clear of
any Lien. Except as described in SCHEDULE 5.3, no other class of capital stock
or other ownership interests of the Company are authorized or outstanding and
the Company does not have outstanding any rights (either preemptive or other) or
options to subscribe for or purchase from the Company, or any warrants or other
agreements providing for or requiring the issuance by the Company of, any of its
capital stock or any securities convertible into or exchangeable for its capital
stock.
5.4 SUBSIDIARIES. Each Subsidiary of the Company is listed on SCHEDULE
5.4. The capitalization of all Subsidiaries consists of the number of shares or
other equity interests, authorized, issued and outstanding, of such classes and
series, with or without par value, described on SCHEDULE 5.4. All such
outstanding shares or other equity interests have been duly authorized and
validly issued and are fully paid and nonassessable. The shareholders or other
owners of the Subsidiaries and the number of shares or other equity interests
owned by each are described on SCHEDULE 5.4. There are no outstanding stock
purchase warrants, subscriptions, options, securities, instruments or other
rights of any type or nature whatsoever, which are convertible into,
exchangeable for or otherwise provide for or permit the issuance of capital
stock or other equity interests of the Subsidiaries, except as described on
SCHEDULE 5.4.
5.5 GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENTS. Except as
contemplated by the Transaction Documents, no approval, consent, compliance,
exemption, authorization or other action by, or notice to, or filing with, any
Governmental Authority or any other Person in respect of any Requirement of Law
or Contractual Obligation, and no lapse of a waiting period under any
Requirement of Law or Contractual Obligation, is necessary or required in
connection with the execution, delivery or performance by, or enforcement
against, the Company of this Agreement and the other Transaction Documents or
the transactions contemplated hereby or thereby.
5.6 BINDING EFFECT. This Agreement and each of the other Transaction
Documents to which the Company is a party will, upon the due execution and
delivery thereof by the Company, constitute the legal, valid and binding
obligation of the Company enforceable against the Company in accordance with
their respective terms except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement
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of creditors' rights generally and by general principles of equity relating to
enforceability.
5.7 LITIGATION. There are no legal actions, suits, proceedings, claims or
disputes pending, or to the knowledge of the Company, threatened, at law, in
equity, in arbitration or before any Governmental Authority against or affecting
the Company or any Subsidiary (a) with respect to this Agreement or any of the
other Transaction Documents, or any of the transactions contemplated hereby or
thereby, or (b) which would, if adversely determined, have an adverse effect on
the ability of the Company or any Subsidiary to perform its obligations under
this Agreement or any of the other Transaction Documents. No injunction, writ,
temporary restraining order, decree or any order of any nature has been issued
by any court or other Governmental Authority purporting to enjoin or restrain
the execution, delivery or performance of this Agreement or any of the other
Transaction Documents.
5.8 NO DEFAULT OR BREACH. Neither the Company nor any Subsidiary is in
default under or with respect to any Contractual Obligation in any respect,
which, individually or together with all such defaults, could have a material
adverse effect on the condition of the Company or any Subsidiary, or which could
adversely affect the ability of the Company or any Subsidiary to perform its
obligations under this Agreement or any of the other Transaction Documents.
5.9 ERISA. The execution and delivery of this Agreement and each of the
other Transaction Documents, the purchase and sale of the Shares and the
Warrants hereunder and the consummation of the transactions contemplated hereby
and thereby will not result in any prohibited transaction within the meaning of
Section 406 of ERISA or Section 4975 of the Code or any other violation of ERISA
or any other Requirement of Law related thereto.
5.10 SMALL BUSINESS CONCERN. The Company, together with its "affiliates"
(as that term is defined in 13 C.F.R. Part 121), is a "small business concern"
within the meaning of the Small Business Investment Act of 1958, as amended, and
the regulations thereunder, including 13 C.F.R. Part 121. The information set
forth in the documents provided to the Purchaser pursuant to Section 3.10 is
true, correct and complete.
5.11 DISCLOSURE.
(a) AGREEMENT AND OTHER DOCUMENTS. This Agreement and the documents and
certificates furnished to the Purchaser by the Company on or prior to the
Closing do not contain any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which they were made, not
misleading.
(b) MATERIAL ADVERSE EFFECT. Other than general market conditions
affecting companies similar to the Company, there is no fact known to the
Company which the Company has not disclosed to the Purchaser in writing (such
written disclosure to include, without limitation, the Reserve Report, financial
statements set forth on Schedule 3.6, Exhibits A, B, D, E and F hereto, the
Transaction Documents, the Investment Agreement, the Senior Loan Documents, the
Investors Agreement, any document defined herein or in the Transaction Documents
or in the exhibits or schedules hereto), which materially adversely affects, or
insofar as the Company can reasonably foresee could materially
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adversely affect, the ability of the Company or any of its Subsidiaries to
perform its obligations under this Agreement or any other Transaction Document,
or any document contemplated thereby.
5.12 PRIVATE OFFERING. No form of general solicitation or general
advertising was used by the Company or its representatives in connection with
the offer or sale of the Shares, the Warrants or other securities. No
registration of the Shares, the Warrants, or the Common Stock issuable upon
conversion or exercise thereof pursuant to the provisions of the Securities Act
or any state securities or "blue sky" laws will be required by the offer, sale
or issuance of the Shares and the Warrants pursuant to this Agreement.
5.13 BROKER'S, FINDER'S OR SIMILAR FEES. There are no brokerage
commissions, finder's fees or similar fees or commissions payable in connection
with the transactions contemplated hereby or any other Transaction Document to
which the Company is a party, based on any agreement, arrangement or
understanding with the Company or any action taken by the Company.
5.14 OIL AND GAS MATTERS.
(a) OIL AND GAS CONTRACTS AND LEASES. Except as set forth on SCHEDULE
5.14(A):
(i) All of the material Leases included in the Oil and Gas Interests
are in full force and effect (insofar as such Leases cover the lands and depths
described on SCHEDULE 1.1) and are the valid and legally binding obligations of
the parties to those agreements and are enforceable in all material respects in
accordance with their respective terms, except as limited by bankruptcy,
insolvency, reorganization, moratorium, or other similar laws affecting
creditors' rights generally and by general principles of equity relating to
enforceability;
(ii) Neither the Company nor any Subsidiary is in breach or default with
respect to any of its material representations, warranties or obligations
pursuant to any of the Oil and Gas Contracts or with respect to any regulations
incorporated in or governing the Oil and Gas Contracts;
(iii) No lessor under any of the Leases included in the Oil and Gas
Interests has notified the Company that such lessor considers any lease to be
terminated or in default or other jeopardy because of lessee's failure to
perform. To the Company's best knowledge, all payments (including without
limitation royalties, delay rentals, shut-in royalties, payments due under unit
or operating agreements) due under the Leases included in the Oil and Gas
Interests and relating to the lands described on SCHEDULE 1.1 have been properly
and timely made (except to the extent that the failure to make any such payment
would not have a material adverse affect on the ownership, use or value of such
Interest), all conditions necessary to keep such Leases in force as to the lands
and depths described on SCHEDULE 1.1 have been fully performed and no notices
have been received by the Company or any Subsidiary of any claim to the
contrary;
(iv) To the Company's best knowledge, there are no material obligations
to engage in continuous development operations in order to maintain any Lease
included in the Oil and Gas Interests in full force and effect as to the lands
and depths described on SCHEDULE 1.1;
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(v) The execution and delivery of this Agreement and the other
Transaction Documents and the consummation of the transactions as contemplated
hereby and thereby will not result in a breach of, constitute a default under,
result in a violation of or entitle any party to a right of first refusal or
preferential right to purchase under any of the Oil and Gas Contracts relating
to the Oil and Gas Interests; and
(vi) The Company and its Subsidiaries have fulfilled, or will fulfill
within the applicable time periods, all material requirements for filings,
certificates, disclosures of parties in interest and other similar matters
contained in (or otherwise, by law, rule or regulation, applicable to) the
Leases included in the Oil and Gas Interests and are fully qualified to own and
hold all such Leases.
(b) OIL AND GAS OPERATIONS. Except as set forth on SCHEDULE 5.14(B):
(i) The Oil and Gas Interests operated by the Company and its
Subsidiaries are being developed, operated and maintained in material compliance
with the Oil and Gas Contracts and to the Company's best knowledge, the Oil and
Gas Interests operated by third parties are being developed, operated and
maintained in material compliance with the Oil and Gas Contracts. In operating
the Interests, the Company and its Subsidiaries are not dependent on the right
to use the property of others, except under valid and enforceable agreements,
rights or other arrangements included in the Oil and Gas Contracts;
(ii) Since January 1, 1997, neither the Company nor any of its
Subsidiaries has operated or in any manner dealt with, incurred obligations with
respect to, or undertaken any transactions relating to, the Oil and Gas
Interests other than in the ordinary course of business consistent with past
practice or other than sales of property in any single transaction having a
value of less than $100,000, and the Oil and Gas Interests have not suffered any
material destruction, damage, or loss (except depreciation of equipment through
ordinary wear and tear and depletion through ordinary production) not covered by
insurance;
(iii) There are no outstanding authorities for expenditures covering work
in progress or work not yet started covering the Interests other than in the
ordinary course of business of the Company and its Subsidiaries; and
(iv) No condition, obligation or other circumstance, including any prior
overproduction under a gas balancing agreement, not reflected in the Reserve
Report, exists that could materially adversely affect the right of the Company
or any Subsidiary to receive its full share of production and full payment of
proceeds from the sale of Hydrocarbons produced from any Oil and Gas Interests.
(c) NO REVERSIONARY INTERESTS. Except as set forth on SCHEDULE 5.14(C) or
as reflected in the Reserve Report, the Oil and Gas Interests are not subject to
any reversionary, back-in or similar rights, the exercise of which would reduce
the Net Revenue Interests of the Company or any of its Subsidiaries to less than
the Net Revenue Interests set forth on SCHEDULE 1.1.
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(d) SALES AND TRANSPORTATION AGREEMENTS. Except as set forth on SCHEDULE
5.14(D), (i) there are no material crude oil and condensate sales, arrangements
or gas purchase and sales agreements or division orders relating to the Oil and
Gas Interests (collectively "Sales Agreements"), and no material transportation
agreements relating to the Oil and Gas Interests that cannot be terminated by
the Company or any Subsidiary upon sixty (60) days' or less notice without
penalty or detriment to the Company and its Subsidiaries and (ii) there are no
Sales Agreements pursuant to which Hydrocarbons are being sold at less than the
prevailing market price therefor.
(e) TAX PARTNERSHIPS. The Company and its Subsidiaries have not filed any
federal or state income tax returns identifying the Interests as held by any tax
partnership other than the partnerships set forth on SCHEDULE 5.14(E).
(f) PREPAYMENTS. Except as set forth on SCHEDULE 5.14(F) or as reflected
in the Reserve Report, there exists no material imbalance regarding production
taken or marketed from any Lease included in the Oil and Gas Interests or
otherwise affecting the Company or any Subsidiary which could result in (i) a
portion of its interest in production therefrom to be taken or delivered after
January 1, 1997 without the Company or applicable Subsidiary receiving full
payment therefor and at the price it would have received absent such imbalance,
(ii) the Company and its Subsidiaries being obligated to make payment to any
Person as a result of such imbalance or (iii) production being shut-in or
curtailed after January 1, 1997 due to non-compliance with allowables,
production quotas, proration rules or similar orders or regulations of any
applicable Governmental Authority; and neither the Company nor any of its
Subsidiaries is obligated, by virtue of any prepayment arrangement, take-or-pay
agreement or similar arrangement, to deliver Hydrocarbons produced from the Oil
and Gas Interests at some future time without then receiving full payment
therefor in all material respects.
(g) GAS CONTRACTS. The buyers under all gas sales contracts pursuant to
which the Company or any Subsidiary is selling natural gas produced from the Oil
and Gas Interests are in compliance in all material respects with all the
material terms of such contracts. Neither the Company nor any Subsidiary has
received a notice from any such buyer of such party's intention or desire to
modify, renegotiate or repudiate any such contract or any of the material terms
thereof.
(h) CALLS. Except as set forth on Schedule 5.14(h), no person has any call
upon, option to purchase, or similar right to purchase any material portion of
the Hydrocarbons from the Oil and Gas Interests at a price less than the
prevailing market price therefor.
(i) RESERVE REPORT. Except as set forth on SCHEDULE 5.14(I), (i) the
Company information utilized in the preparation of the Reserve Report was true
and correct in all material respects, (ii) the calculations utilized in the
preparation of the Reserve Report are consistent with generally accepted
standards of petroleum reservoir engineering at the dates of their preparation,
(iii) neither the Company nor any Subsidiary has any knowledge that the oil,
condensate, natural gas liquids and gas reserves attributable to the Interests
as of the date of the Reserve Report are materially less than the estimate of
quantities of those reserves shown in the Reserve Report, (iv) neither the
Company nor any Subsidiary has any knowledge of any change occurring since the
date of the Reserve Report that would result in a material change in the
information contained in the Reserve Report, and (v) neither the Company nor any
Subsidiary nor the Interests are subject to any agreements, consents, orders or
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regulations that would materially reduce the rate of production of Hydrocarbons
or other substances from the Interests below that reflected in the Reserve
Report.
(j) WELLS.
(i) All of the Wells have been drilled and completed within the
boundaries of the Leases or within the limits otherwise permitted by the Oil and
Gas Contracts, and by applicable law.
(ii) All drilling and completion of the Wells and all development and
operations of the Interests have been conducted in material compliance with all
Requirements of Law and permits, and all judgments, orders and decrees of any
Governmental Authority.
(iii) Except as reflected in the Reserve Report, no Well is subject to
material penalties on allowable production after the date of this Agreement
because of any overproduction or any other violation of applicable laws, rules,
regulations or permits or judgments, orders or decrees of any Governmental
Authority that would prevent any Well from being entitled to its full legal and
regular allowable production from and after January 1, 1997 as prescribed by any
Governmental Authority.
(k) NO FUNDS IN SUSPENSE. All material proceeds from the sale of
Hydrocarbons produced from the Oil and Gas Interests are currently being paid to
the Company or a Subsidiary and no portion of such proceeds is currently being
held in suspense by any purchaser thereof or any other party by whom proceeds
are paid except for immaterial amounts and with respect to the one well which
was recently completed with no division order yet issued.
(l) PHYSICAL CONDITION OF FACILITIES. The physical facilities on the Oil
and Gas Interests (including facilities held under lease) have been and are in a
state of repair that is adequate for the intended use of such facilities in the
ordinary course of the business conducted thereon.
5.15 MATERIAL CONTRACTS. SCHEDULE 5.15 sets forth a complete and accurate
list of all Material Contracts of the Company and its Subsidiaries (other than
Oil and Gas Contracts and the Transaction Documents) in effect as of the Closing
Date. Except as set forth on SCHEDULE 5.15, each such Material Contract is, and
after giving effect to the consummation of the transactions contemplated by the
Transaction Documents will be, in full force and effect in accordance with the
terms thereof. The Company and each Subsidiary have delivered to the Purchaser a
true and complete copy of each Material Contract required to be listed on
SCHEDULE 5.15.
5.16 SENIOR LOAN DOCUMENTS. The Company has delivered to the Purchaser
true, complete and correct copies of the Senior Loan Documents, together with
all amendments and modifications thereto. Such documents (including the
schedules and exhibits thereto) comprise a full and complete copy of all
agreements between the parties thereto with respect to the subject matter
thereof and all transactions related thereto, and there are no agreements or
understandings, oral or written, or side agreements not contained therein that
related to or modify the substance thereof. The representations and warranties
of the Company made in Article IV of the Senior Loan Agreement are true,
complete and correct in all material respects.
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5.17 OTHER TRANSACTION DOCUMENTS. The Company has delivered to the
Purchaser true, complete and correct copies of each other Transaction Document
together with all amendments and modifications thereto. Such documents
(including the schedules and exhibits thereto) comprise a full and complete copy
of all agreements between the parties thereto with respect to the subject matter
thereof and all transactions related thereto, and there are no agreements or
understandings, oral or written, or side agreements not contained therein that
relate to or modify the substance thereof. Such Transaction Documents have been
duly authorized by all necessary corporate action on the part of the Company and
when executed and delivered by the Company will be the legal, valid and binding
obligations of the Company and its successors, enforceable in accordance with
their terms, except as limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and by
general principles of equity relating to enforceability.
5.18 USE OF PROCEEDS. The proceeds from the sale of the Shares and the
Warrants will be used for general corporate purposes of the Company. No portion
of such proceeds will be used for any purpose prohibited by the Small Business
Investment Act of 1958, as amended, or the regulations promulgated thereunder
including 13 CFR Part 107.
ARTICLE 6
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants as follows:
6.1 AUTHORIZATION; NO CONTRAVENTION. The execution, delivery and
performance by the Purchaser of this Agreement (a) is within the Purchaser's
power and authority and has been duly authorized by all necessary action, (b)
does not contravene the terms of the Purchaser's organizational documents or any
amendment thereof, and (c) will not violate, conflict with or result in any
breach or contravention of any material Contractual Obligation of the Purchaser,
or any material Requirement of Law directly relating to the Purchaser.
6.2 BINDING EFFECT. This Agreement has been duly executed and delivered by
the Purchaser, and this Agreement constitutes the legal, valid and binding
obligation of the Purchaser enforceable against it in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws
affecting the enforcement of creditors' rights generally or by general equitable
principles relating to enforceability.
6.3 PURCHASE FOR OWN ACCOUNT. The Shares, the Warrants and the shares of
Common Stock to be issued upon conversion or exercise thereof are being or will
be acquired for the Purchaser's own account and with no intention of
distributing or reselling such securities or any part thereof in any transaction
that would be in violation of the Securities Act or the securities laws of any
state, without prejudice, however, to the rights of the Purchaser at all times
to sell or otherwise dispose of all or any part of its Shares, the Warrants or
its shares of Common Stock under an effective registration statement under the
Securities Act, or under an exemption from such
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registration available under the Securities Act. If the Purchaser should in the
future decide to dispose of any of its Shares, the Warrants or its shares of
Common Stock issued upon the exercise or conversion thereof, the Purchaser
understands and agrees that it may do so only in compliance with the Securities
Act and applicable state securities laws as then in effect. The Purchaser agrees
to the imprinting, so long as required by law, of a legend on certificates
representing all of its Shares, the Warrants and its shares of Common Stock to
be issued upon conversion or exercise thereof to the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS."
6.4 ERISA. No part of the funds used by such Purchaser to purchase the
Shares or the Warrants hereunder constitutes assets of any "employee benefit
plan" (as defined in Section 3(3) of ERISA) or "plan" (as defined in Section
4975 of the Code).
6.5 BROKER'S, FINDER'S OR SIMILAR FEES. There are no brokerage
commissions, finder's fees or similar fees or commissions payable in connection
with the transactions contemplated hereby or by any other Transaction Document
to which the Purchaser is a party, based on any agreement, arrangement or
understanding with the Purchaser or any action taken by the Purchaser.
6.6 GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENT. Except as
contemplated by the Transaction Documents, no approval, consent, compliance,
exemption, authorization or other action by, or notice to, or filing with, any
Governmental Authority or any other Person in respect of any Requirement of Law,
and no lapse of a waiting period under any Requirement of Law, is necessary or
required in connection with the execution, delivery or performance by such
Purchaser or enforcement against such Purchaser of this Agreement or the
transactions contemplated hereby.
ARTICLE 7
COVENANTS
Until such time as the Shares, the Warrants and the Common Stock issued
upon the conversion or exercise thereof are no longer outstanding or the
Purchaser (or its assigns) is no longer the holder of any of the Shares, the
Warrants or the Common Stock issued upon the conversion or exercise thereof
(PROVIDED, that the Purchaser may not transfer the covenants in Sections 7.9 and
7.13 to a Person materially active in any of the businesses described in Section
7.3), the Company hereby covenants and agrees with the Purchaser as follows:
7.1 FINANCIAL STATEMENTS AND OTHER INFORMATION. Except as provided below,
the Company
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shall deliver to the Purchaser:
(a) ANNUAL FINANCIAL STATEMENTS. As soon as available and in any event
within 130 days after the end of each Fiscal Year of the Company, an audited
consolidated and consolidating balance sheet as at the close of such year, and
statements of profit and loss, cash flow and reconciliation of surplus of the
Company and its Subsidiaries for such year (including tax financial statements),
audited by independent public accountants selected by the Company and reasonably
satisfactory to the Purchaser, together with each management letter provided by
such accountants with such financial statements.
(b) QUARTERLY FINANCIAL STATEMENTS. Within 45 days after the end of each
fiscal quarter of the Company, an unaudited consolidated and consolidating
balance sheet as at the end of such period and statements of profit and loss,
cash flow and surplus of the Company and its Subsidiaries, for such quarter and
for the fiscal period then ended (including tax financial statements), certified
by an authorized financial or accounting officer of the Company and compared to
the prior year's fiscal quarter and fiscal period and applicable budget
projections for such quarter and fiscal period.
(c) ANNUAL BUDGET. Within 30 days prior to any Fiscal Year end, a
preliminary twelve month budget for the succeeding Fiscal Year.
(d) INFORMATION CONCERNING OIL AND GAS INTERESTS.
(i) No later than April 1 of each Fiscal Year, engineering reports in
form and substance satisfactory to the Purchaser, certified by any nationally-
or regionally-recognized independent consulting petroleum engineers reasonably
acceptable to the Purchaser, fairly and accurately setting forth (A) the proven
and producing, shut-in, behind-pipe, and undeveloped oil and gas reserves
(separately classified as such) attributable to the Interests as of December 31
of the Fiscal Year for which such reserve reports are furnished, (B) the
aggregate present value of the future net income with respect to such Interests,
discounted at a stated per annum discount rate of proven and producing reserves,
(C) projections of the annual rate of production, gross income, and net income
with respect to such proven and producing reserves, and (D) information with
respect to the "take-or-pay" "prepayment," and gas-balancing liabilities of the
Company and its Subsidiaries.
(ii) Should the Company prepare, or cause to be prepared, engineering
reports in addition to the annual reserve reports described in Section
7.1(d)(i), the Company shall promptly provide the Purchaser with copies of such
reports.
(iii) Such additional data concerning pricing, quantities of production
from the Interests, volumes of production sold, purchasers of production, gross
revenues, expenses, and such other information and engineering and geological
data with respect thereto as the Purchaser may reasonably request from time to
time.
(e) OTHER FINANCIAL INFORMATION. From time to time, such further
information regarding the business affairs and financial condition of the
Company and its Subsidiaries as the Purchaser may request.
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(f) NOTICE OF SHAREHOLDERS MEETINGS. Deliver to the Purchaser written
notice of any meeting of the shareholders of the Company at the same time and in
the same form as is delivered to holders of Class A Common.
(g) COMPLIANCE CERTIFICATE. With each financial statement which the
Company is required to submit pursuant to Sections 7.1(a) and (b), an officers'
certificate, signed by the President and any Vice President of the Company,
pursuant to which such officers must certify that such financial statement
fairly and accurately represents in all material respects the financial
condition of the Company and its Subsidiaries at the end of the particular
accounting period, as well as the operating results of the Company and its
Subsidiaries during such accounting period, subject to year-end audit
adjustments.
At any time after a Qualified Public Offering, so long as the Company has
a class of equity securities registered under Section 12 of the Exchange Act,
the financial reporting requirements set forth in paragraphs (a) through (d) of
this Section shall be replaced with the requirement that the Company deliver to
the Purchaser a copy of each document, including without limitation all reports
on Form 10-K and Form 10-Q, filed with the Commission as soon as practicable
after such filing.
7.2 NOTICES. The Company shall deliver to the Purchaser prompt (but in no
event later than 5 Business Days after an officer of the Company obtains
knowledge thereof) telephonic and written notice of: (a) the commencement of all
proceedings and investigations by or before any Governmental Authority
(including any notice of violation of any Requirement of Law) and all actions
and proceedings in any court or before any arbitrator against or involving the
Company, any Subsidiary or any of their respective properties, assets or
businesses, in each case involving a claim or liability in excess of $250,000
and not fully covered by insurance, (b) any labor controversy that has resulted
in or threatens to result in, a strike or other work action against the Company
or any Subsidiary, (c) any attachment, judgment, levy or order exceeding
$250,000 that may be assessed against the Company or any Subsidiary, (d) any
event which constitutes or which with the passage of time or giving of notice or
both would constitute a default or event of default under the Senior Loan
Agreement and (e) any act or condition arising under ERISA that might constitute
grounds for the termination of any Employee Benefit Plan (as defined in Section
3(3) of ERISA) or for the appointment by the appropriate United States District
Court of a trustee to administer such plan.
7.3 PRESERVATION OF EXISTENCE AND RELATED MATTERS. Each of the Company and
its Subsidiaries shall preserve and maintain its separate existence and all
rights, franchises, licenses and privileges necessary to the conduct of its
business; and qualify and remain qualified and authorized to do business in each
jurisdiction in which the character of its properties or the nature of its
business requires such qualification or authorization. Each of the Company and
its Subsidiaries shall engage only in business consisting of the businesses in
which the Company is currently engaged, including without limitation Hydrocarbon
acquisition, exploration, exploitation, development, gathering, transmission,
processing and marketing and the acquisition of Persons engaged in such
businesses, or any other business reasonably incidental thereto.
7.4 MAINTENANCE OF PROPERTY. Each of the Company and its Subsidiaries
shall protect and
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preserve all properties material to its business.
7.5 MAINTENANCE OF INSURANCE. Each of the Company and its Subsidiaries
shall maintain insurance with responsible insurance companies against such risks
and in such amounts as are customarily maintained by businesses of similar size
and business activity or as may be required by any Requirement of Law, and on
the Closing Date and from time to time thereafter deliver to the Purchaser upon
its request a detailed list of the insurance then in effect, stating the names
of the insurance companies, the amounts and rates of the insurance, the dates of
the expiration thereof and the properties and risks covered thereby.
7.6 PAYMENT AND PERFORMANCE OF OBLIGATIONS. Each of the Company and its
Subsidiaries shall perform all obligations under this Agreement and the other
Transaction Documents, and pay or perform (a) all material taxes, assessments
and other governmental charges that may be levied or assessed upon it or any of
its property, and (b) all other material indebtedness, obligations and
liabilities in accordance with customary trade practices including without
limitation all notifications to lessors; PROVIDED, that the Company or such
Subsidiary may contest any item described in clause (a) or (b) of this Section
7.6 (other than such notifications) in good faith so long as adequate reserves
are maintained with respect thereto in accordance with GAAP.
7.7 ACCOUNTING METHODS AND FINANCIAL RECORDS. Each of the Company and its
Subsidiaries shall maintain a system of accounting and keep such books, records
and accounts (which shall be true and complete in all material respects) as may
be required or as may be necessary to permit the preparation of financial
statements in accordance with GAAP consistently applied and in compliance with
the regulations of any Governmental Authority having jurisdiction over it or any
of its properties.
7.8 VISITS AND INSPECTIONS. Each of the Company and its Subsidiaries shall
permit representatives of the Purchaser, from time to time, as often as may be
reasonably requested, but only during normal business hours, to visit and
inspect its properties; inspect, audit and make extracts from its books, records
and files, including, but not limited to, management letters prepared by
independent accountants; and discuss with its principal officers and its
independent accountants, its business, assets, liabilities, financial condition,
results of operations and business prospects. Any such visits, inspections or
audits shall be at the Purchaser's sole cost, risk and expense; PROVIDED, that
the Purchaser shall receive the same reimbursement granted to any shareholder or
member of the Board of Directors of the Company in connection with any such
visit, inspection or audit.
7.9 BOARD VISITATION RIGHTS. The Company shall permit the Purchaser to
designate two advisory non-voting observers, each of whom shall be an officer of
the Purchaser or any of its Affiliates and shall be entitled to attend each
meeting of the Board of Directors and Executive Committee of the Company and its
Subsidiaries. Any such attendance shall be at the Purchaser's sole cost, risk
and expense; PROVIDED, that the Purchaser shall receive the same reimbursement
granted to all members of the Board of Directors and Executive Committee of the
Company and its Subsidiaries in connection with the attendance of any meeting of
the Board of Directors or Executive Committee of the Company and its
Subsidiaries not held in Houston, Texas. The Company shall provide the Purchaser
with written notice of any meeting of the Board of Directors or Executive
Committee of
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the Company and its Subsidiaries at least 10 Business Days in advance of such
meeting.
7.10 CONFIDENTIALITY. The Purchaser shall keep all documents, data and
information furnished by the Company or received by the Purchaser pursuant to
this Agreement strictly confidential and shall not disclose such documents, data
or information to any third party unless such disclosure (i) is required by
applicable laws, (ii) is made with respect to information generally available to
the public, or (iii) is made to an Affiliate of the Purchaser. The provisions of
this 7.10 shall survive the expiration or termination of this Agreement.
7.11 COMPLIANCE WITH LAWS; ENVIRONMENTAL LAWS. Each of the Company and its
Subsidiaries shall observe and remain in material compliance with all
Requirements of Law and Contractual Obligations in each case applicable or
necessary to the conduct of its business. Without limitation of the foregoing,
each of the Company and its Subsidiaries shall (a) comply in all material
respects with, and use its best efforts to ensure such compliance by all tenants
and subtenants, if any, with, all applicable Environmental Laws and obtain and
comply with and maintain, and ensure that all tenants and subtenants obtain and
comply with and maintain, any and all licenses, approvals, notifications,
registrations or permits required by applicable Environmental Laws; and (b)
conduct and complete all investigations, studies, sampling and testing, and all
remedial, removal and other actions required under Environmental Laws, and
promptly comply with all lawful orders and directives of any Governmental
Authority regarding Environmental Laws.
7.12 TRANSACTIONS WITH AFFILIATES. Except as contemplated by the
Transaction Documents, neither the Company nor any of its Subsidiaries shall
enter into any transaction with any Affiliate of the Company or any of its
Subsidiaries or any stockholder (or any Affiliate of such stockholder) of the
Company or any of its Subsidiaries (including any employee stockholder), except
transactions permitted pursuant to Section 6.10 of the Senior Loan Agreement as
in effect on the date hereof.
7.13 CAPITAL EXPENDITURES. The Company shall not alter or amend, or pass
any resolution or enter into any Contractual Obligation inconsistent with, the
Resolutions of the Board of Directors of the Company dated May 23, 1997 relating
to the authorization of capital expenditures, without the prior written consent
of the Purchaser, which shall not be unreasonably withheld.
7.14 COORDINATION OF REGISTRATION RIGHTS. The Company shall use its best
efforts to cause Energy Capital Investment Company PLC and EnCap Equity 1996
Limited Partnership to enter into an agreement with the Purchaser providing for
the coordination of registration rights and procedures in the event that (i) the
Purchaser wishes to exercise its demand registration rights pursuant to Section
10.1 of this Agreement or (ii) Energy Capital Investment Company PLC or EnCap
Equity 1996 Limited Partnership wishes to exercise its demand registration
rights pursuant to Section 2 of the Investment Agreement. The Company shall use
its best efforts to cause any future holder of demand registration rights with
respect to securities of the Company to enter into a letter agreement with the
Purchaser and all other holders of demand registration rights on terms
substantially similar to those contained in any such agreement by and among the
Purchaser, Energy Capital Investment Company PLC and EnCap Equity 1996 Limited
Partnership.
7.15 NO INCONSISTENT AGREEMENTS. Neither the Company nor any of its
Subsidiaries shall
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enter into any Contractual Obligation, or enter into any amendment or other
modification to any currently existing Contractual Obligation or to the Articles
of Incorporation or Bylaws, which by its terms restricts or prohibits the
ability of the Company to issue Class B Common upon exercise of the Warrants or
to issue Class A Common upon conversion of the Class B Common or otherwise
results in a material adverse effect to the Purchaser or materially impairs any
rights of the Purchaser under any of the Transaction Documents.
7.16 SHAREHOLDERS' AGREEMENT. The Company shall use its best efforts to
provide the Purchaser with a fully executed copy of the Shareholders' Agreement
within 30 days after the Closing Date.
ARTICLE 8
PREEMPTIVE RIGHTS
8.1 ELIGIBLE OFFERING. Except as otherwise provided in Section 8.4, the
Company hereby grants to the Purchaser the right to purchase any future offering
of equity securities of the Company or of any security or other obligation
convertible into or exchangeable for or carrying rights or options to purchase
equity securities of the Company (an "Eligible Offering"); PROVIDED, that the
portion of any Eligible Offering which the Purchaser may purchase shall bear the
same ratio to the aggregate amount of securities covered by such Eligible
Offering as the number of shares of Common Stock owned by the Purchaser, on a
fully diluted basis, bears to the total number of shares of Common Stock owned
by all shareholders of the Company, on a fully diluted basis, at the time of
such Eligible Offering.
8.2 NOTICE OF AN ELIGIBLE OFFERING. Before issuing any securities pursuant
to an Eligible Offering, the Company shall give written notice thereof to the
Purchaser. Such notice must specify the security or securities the Company
proposes to issue and the consideration that the Company intends to receive for
such security or securities. For a period of ten (10) Business Days following
the delivery of such notice, the Purchaser shall be entitled, by written notice
to the Company, to elect to purchase up to the portion of the securities being
sold in the Eligible Offering calculated in accordance with Section 8.1. In the
event of a material change in the terms of such Eligible Offering during the ten
(10) Business Days following such notice, the Purchaser shall have an additional
ten (10) Business Days following the Purchaser's notice of such material change
to make its election. If any such election is made by the Purchaser, the Company
shall sell to the Purchaser, and the Purchaser shall purchase from the Company,
for the consideration and on the terms set forth in the Company's notice of such
Eligible Offering, the number of securities that the Purchaser has elected to
purchase. The Company may sell the remainder of the securities to be sold in the
Eligible Offering, if any, pursuant to the provisions set forth in Section 8.3.
8.3 SALE TO THIRD PARTIES. If any election to exercise the rights pursuant
to Section 8.1 is not made with respect to any securities included in an
Eligible Offering within the period of ten (10) Business Days described in
Section 8.2, or if there remain securities to be sold after the sale of
securities to the Purchaser, then the Company may issue such securities to third
persons, but only for a consideration not less than that set forth in the
Company's notice and only within a period of 120
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days thereafter.
8.4 EXCEPTIONS TO ELIGIBLE OFFERING. The Purchaser shall not have any
preemptive right to purchase any of the following securities issued by the
Company:
(a) Securities issued to employees of the Company in the ordinary course
of business pursuant to a stock option plan of the Company; PROVIDED, that the
aggregate amount of Common Stock available for employee stock options shall not
exceed 20% of the outstanding Common Stock determined on a fully diluted basis;
PROVIDED, FURTHER, that the exercise price of such options shall not be less
than $3.25 per share;
(b) Securities issued to the acquiree or to shareholders in connection
with any merger, consolidation or acquisition to which the Company is a party;
(c) Securities issued for consideration other than cash;
(d) Securities issued pursuant to a Qualified Public Offering;
(e) Securities issued pursuant to the proposal dated May 7, 1997 from the
Company to Belleview Capital Corp., as modified by the response dated May 13,
1997; or
(f) Securities issued after the Purchaser (or its assigns) ceases to be a
holder of any of the Shares, the Warrants, or the Common Stock issued upon the
conversion or exercise thereof.
ARTICLE 9
PUT RIGHTS
9.1 OPTION TO PUT. Upon the earlier to occur of (i) May 27, 2001 or (ii) a
Change in Control (the "Earlier Time"), and, in the event of a Change in Control
caused by the death or disability of Frank A. Lodzinski, through the 90th day
after the Purchaser receives written notice of such Change in Control, and in
all other events, until May 31, 2005, the Purchaser shall have the right to sell
all or a portion of its Put Securities to the Company, and the Company shall be
obligated to purchase such Put Securities, at a price per share determined in
accordance with Section 9.3 below; PROVIDED, that all of the Purchaser's put
rights under this Article 9 shall expire and terminate upon the consummation of
a Qualified Public Offering or a Cash-Out Transaction.
9.2 SALE OF PUT SECURITIES. To exercise its right to sell all or any
portion of the Put Securities under Section 9.1, the Purchaser shall give
written notice to that effect to the Company, which notice (the "Exercise
Notice") shall also specify the number of Put Securities the Purchaser is
electing to sell. The Company and the Purchaser shall consummate any purchase
and sale contemplated under this Article 9 at a place and time mutually
determined by the Company and the Purchaser, but in any event within fifteen
(15) days after receipt by the Company of the Exercise Notice. At the closing of
any purchase and sale contemplated under this Article 9, the Company shall
tender immediately available funds to the Purchaser in an amount equal to the
number of the Put
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Securities to be sold multiplied by the price per share determined in accordance
with Section 9.3 below and the Purchaser shall deliver to the Company
certificate(s) or instrument(s) evidencing such securities.
9.3 PRICE PER SHARE.
(a) PURCHASE PRICE. The Company shall be obligated to purchase the Put
Securities pursuant to Sections 9.1 and 9.2 at a price per share equal to (i)
the Net Asset Value LESS (ii) in the case of a purchase of all or any portion of
the Warrants, the exercise price per share of such Warrants.
(b) NET ASSET VALUE. For purposes of this Article 9, the term "Net Asset
Value" shall mean, as of the date of the Exercise Notice, an amount determined
by dividing X by Y, where "X" is (i) the total assets of the Company and its
Subsidiaries which would be shown as assets on a consolidated balance sheet of
the Company and its Subsidiaries as of such time prepared in accordance with
GAAP (exclusive, however, of oil and gas properties), PLUS (ii) the "Calculated
Market Value" (as hereinafter defined) of such oil and gas properties, MINUS
(iii) the total liabilities of the Company and its Subsidiaries which would be
shown as liabilities on a consolidated balance sheet of the Company and its
Subsidiaries as of such time prepared in accordance with GAAP and where "Y" is
the total number of shares of Common Stock outstanding as of such time
determined on a fully diluted basis (except for options which have not yet
vested or are not immediately exercisable). In computing Net Asset Value, the
"Calculated Market Value" of oil and gas properties of the Company and its
Subsidiaries shall be the value determined by a nationally recognized
independent engineering firm acceptable to the Company and the Purchaser, and
calculated in accordance with ss.210.4-10 of Regulation S-X, as promulgated by
the Commission, with the following adjustments to certain parameters: (i)
applicable future prices for commodities shall be determined as follows: (A) for
crude oil the beginning price shall be calculated using the average of one full
calendar year forward prices, and (B) for natural gas the beginning price shall
be calculated using the average of the first twelve month forward prices, each
as reported on the New York Mercantile Exchange; PROVIDED, that such prices
shall be adjusted for product quality and for basis differentials resulting from
product location, as determined by the Purchaser by obtaining market quotes from
at least two mutually agreeable major independent third party dealers for each
pipeline or point of delivery; PROVIDED, FURTHER, that such prices shall
escalate at 3% per annum thereafter; (ii) beginning lease operating expenses, as
determined by ss.210.4-10 of Regulation S-X, shall escalate at 3% per annum
thereafter; (iii) the resulting cashflow stream, as determined by ss.210.4-10 of
Regulation S-X, after giving effect to the adjustments to commodity price and
lease operating expense assumptions, shall be discounted for a present value at
a 12% discount rate; and (iv) that in making such computation, only the
following categories (and portions of such categories) of reserves shall be
utilized: 100% of proved developed producing reserves; 80% of proved developed
non-producing reserves; and 50% of proved undeveloped reserves.
9.4 LIMITATION ON OTHER PUT RIGHTS. The Company covenants and agrees that,
except as provided in the other Transaction Documents, from and after the date
hereof, so long as the Purchaser holds Put Securities in respect of which any
put rights provided for in this Article 9 have not terminated, the Company shall
not grant, directly or indirectly, to any Person or agree to otherwise become
obligated in respect of (i) any rights to require the Company to purchase or
redeem
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securities of the Company upon the demand of any Person or (ii) rights in the
nature or substantially in the nature of those set forth in Article 9 of this
Agreement; in each case, without the prior written consent of the Purchaser,
which shall not be unreasonably withheld, or unless such rights are expressly
subject and subordinated to the put rights of the Purchaser pursuant to Article
9 hereof on terms reasonably satisfactory to the Purchaser.
ARTICLE 10
REGISTRATION RIGHTS
10.1 DEMAND REGISTRATION
(a) FORM OF DEMAND REQUEST. Subject to paragraphs (b), (c) and (d) below
and the other terms and provisions hereof, until May 31, 2005, the Purchaser may
request at any time a registration by the Company under the Securities Act of
all or a part of its Registrable Securities (a "Demand Registration"). Any
request made pursuant to this paragraph (a) will specify the number of
Registrable Securities to be registered and will specify the intended method of
disposition thereof; PROVIDED, that such method of disposition shall be an
underwritten offering if requested by the Purchaser.
(b) LIMITATIONS ON REGISTRATION RIGHTS OF THE PURCHASER. Notwithstanding
paragraph (a) above or anything else herein to the contrary, the Company shall
have no obligations under this Section 10.1 until the earlier of (i) May 1, 2000
or (ii) one year after the date any class of the Company's Common Stock becomes
subject to the reporting requirements under the Exchange Act. Notwithstanding
paragraph (a) above or anything else herein to the contrary, in no event shall
the Company be obligated to effect more than one registration pursuant to this
Section 10.1; PROVIDED, that any registration requested pursuant to this Section
10.1 will not be deemed to have been effected unless it has become effective and
remained effective until all of the Registrable Securities have been sold;
PROVIDED, FURTHER, that any such registration which does not become effective
after the Company has filed a registration statement in accordance with the
provisions of this Section 10.1 solely by reason of the refusal to proceed of
the Purchaser after having requested the Demand Registration pursuant to
paragraph (a) above, including failure to comply with the provisions of this
Agreement (other than any refusal to proceed based upon the advice of counsel to
the Purchaser that the registration statement, or the prospectus contained
therein, contains an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing, or that
such registration statement or such prospectus, or the distribution contemplated
thereby, otherwise violates or would, if such distribution using such prospectus
took place, violate any applicable state or federal securities law) shall be
deemed to have been effected by the Company at the request of the Purchaser.
(c) INCLUSION OF OTHER SECURITIES. Neither the Company nor any of its
securityholders (other than the Purchaser) shall have the right to include any
of the Company's securities in a registration statement initiated as a Demand
Registration under this Section 10.1 unless (i) the Purchaser consents to such
inclusion and (ii) if the Demand Registration is an underwritten offering, (A)
the Company and such securityholders, as applicable, agree in writing to sell
their securities on
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the same terms and conditions as apply to the Registrable Securities being sold
and (B) the managing underwriter(s) of such underwritten offering has reasonably
determined that inclusion of such securities will not adversely affect the
marketability or offering price of the Registrable Securities to be included.
(d) UNDERWRITERS. If a Demand Registration is an underwritten offering or
a best efforts underwritten offering, the investment banker or investment
bankers and manager or managers that will administer the offering shall be
selected by the Purchaser; PROVIDED, that such investment bankers and managers
must be reasonably satisfactory to the Company.
10.2 PIGGYBACK REGISTRATION. If, at any time before May 31, 2005, the
Company proposes to register any of its securities under the Securities Act for
its own account or for the account of any other holder of its securities other
than (a) under employee compensation or benefit programs or (b) an exchange
offer or an offering of securities solely to the existing stockholders or
employees of the Company, and the registration form to be used may be used for
the registration of Registrable Securities, the Company will give prompt written
notice to the Purchaser of its intention to effect such a registration and will
include in such registration all Registrable Securities with respect to which
the Company has received written requests for inclusion therein within fifteen
(15) days after the receipt of the Company's notice (a "Piggyback
Registration"). The Company shall use its reasonable best efforts to cause the
managing underwriters of a proposed underwritten offering to permit the
Registrable Securities requested to be included in the registration statement
(or registration statements) for such offering to be included therein on the
same terms and conditions as any similar securities of the Company included
therein. Notwithstanding the foregoing, if the Company gives notice of such a
proposed registration, the total number of Registrable Securities which shall be
included in such registration shall be reduced to such number, if any, as in the
reasonable opinion of the managing underwriters of such offering would not
adversely affect the marketability or offering price of all of the securities
proposed to be offered by the Company in such offering; PROVIDED, that (i) if
such Piggyback Registration is incident to a primary registration on behalf of
the Company, the securities to be included in the registration statement (or
registration statements) for any person other than the Purchaser and the Company
shall be first reduced prior to any such reduction applicable to the Purchaser,
and (ii) if such Piggyback Registration is incident to a secondary registration
on behalf of holders of securities of the Company, the securities to be included
in the registration statement (or registration statements) for any person not
exercising "demand" registration rights other than the Purchaser, as currently
in effect, shall be first reduced prior to any such pro rata reduction
applicable to the Purchaser.
10.3 FORM S-3 REGISTRATION.
(a) REQUESTS FOR REGISTRATION ON FORM S-3. After the initial Public
Offering of Common Stock pursuant to an effective registration statement under
the Securities Act and until May 31, 2005, the Company shall use its best
efforts to qualify to register securities on Form S-3 (or any successor to such
form). After the Company has qualified for the use of Form S-3, in addition to
the rights contained in the foregoing provisions of this Agreement, the
Purchaser shall have the right to request the registration of any such
Registrable Securities on Form S-3. All such requests shall be in writing and
shall state the number of shares of Registrable Securities to be disposed of and
the intended
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methods of disposition of such shares by the Purchaser; PROVIDED, that the
Company shall not be required to effect a registration pursuant to this Section
10.3(a) unless the Purchaser proposes to dispose of Registrable Securities
having an aggregate price to the public (before deducting underwriting discounts
and expenses of sale) of at least $500,000. Registrations effected pursuant to
this Section 10.3 shall not be counted as a Demand Registration for purposes of
Section 10.1.
(b) UNDERWRITING PROCEDURES. If the Purchaser so elects, the offering of
such Registrable Securities pursuant to a registration effected pursuant to
Section 10.3(a) shall be in the form of a firm commitment underwritten offering
and the managing underwriter or underwriters selected for such offering shall be
selected by the Purchaser in the same manner as described in Section 10.1(d).
10.4 REGISTRATION PROCEDURES.
(a) Whenever the Purchaser has requested that any Registrable Securities
be registered pursuant to Section 10.1, 10.2 or 10.3, the Company will use its
reasonable best efforts to effect the registration of and permit the sale of
such Registrable Securities in accordance with the intended method of
disposition thereof, and pursuant thereto the Company will as expeditiously as
possible:
(i) prepare and file with the Commission a registration statement on
the appropriate form with respect to such Registrable 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 copies of all such
documents proposed to be filed to the Purchaser);
(ii) 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 for
a period which will terminate when Registrable Securities covered by such
registration statement have been sold (but not before the expiration of the
applicable prospectus delivery period) and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such registration
statement;
(iii) furnish to the Purchaser such number of copies of such registration
statement, each amendment and supplement thereto, the prospectus included in
such registration statement (including, without limitation, each preliminary
prospectus) and such other documents as such seller may reasonably request in
order to facilitate the disposition of the Registrable Securities owned by the
Purchaser;
(iv) use its reasonable best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions within the United States as the Purchaser reasonably requests and
do any and all other acts and things which may be reasonably necessary or
advisable to enable the Purchaser to consummate the disposition in such
jurisdictions of the Registrable Securities owned by the Purchaser (provided
that the Company will not be required to qualify generally to do business or
subject itself to any general service of process in any jurisdiction
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where it is otherwise not then so subject);
(v) notify the Purchaser, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the happening
of any event which requires the making of any change in the prospectus included
in such registration statement so that such document will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and,
at the request of the Purchaser, the Company will prepare a supplement or
amendment to such prospectus so that such prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading;
(vi) use its reasonable best efforts to cause all such Registrable
Securities to be listed on each securities exchange or exchanges, automated
quotation system or over-the-counter market upon which securities of the Company
of the same class are then listed or which are recommended for listing by the
Purchaser or any underwriters;
(vii) enter into such customary agreements (including, without
limitation, underwriting agreements in customary form, substance, and scope) and
take all such other actions as the Purchaser or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities;
(viii) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make generally available
to its security holders an earnings statement no later than 90 days after the
end of the 12 month period beginning with the first day of the Company's first
full calendar quarter after the effective date of the registration statement,
which earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder;
(ix) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the disqualification
of any common stock included in such registration statement for sale in any
jurisdiction, the Company will use its reasonable best efforts promptly to
obtain the withdrawal of such order; and
(x) use its reasonable best efforts to cause such Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the Purchaser to consummate the disposition of such Registrable
Securities.
(b) The Purchaser agrees with the Company as follows:
(i) upon receipt of any notice from the Company of the happening of
any event of the kind described in Section 10.4(a)(v), the Purchaser will
forthwith discontinue disposition of any Registrable Securities until the
Purchaser receives copies of the supplemented or amended prospectus contemplated
by Section 10.4(a)(v), or until it is advised in writing by the Company that
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the use of the applicable prospectus may be resumed, and it has received copies
of any additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such prospectus;
(ii) furnish to the Company such information regarding the
Purchaser, the Registrable Securities held by it and the intended method of
disposition thereof as the Company shall reasonably request and as shall be
reasonably required in connection with the preparation of the applicable
registration statement and other actions taken by the Company under this
Agreement, and it shall be a condition precedent to the obligation of the
Company to take any action pursuant to this Agreement in respect of the
Registrable Securities that such information has been furnished to the Company
by the Purchaser; and
(iii) if any Registrable Securities are being registered in any
registration pursuant to this Agreement, the Purchaser will comply with all
anti-stabilization, manipulation and similar provisions of Section 10 of the
Exchange Act, as amended, and any rules promulgated thereunder by the Commission
and, at the request of the Company, will execute and deliver to the Company and
to any underwriter participating in such offering, an appropriate agreement to
such effect.
10.5 EXPENSES. The Company shall pay all Registration Expenses in
connection with each registration effected pursuant to Section 10.1, 10.2 and
10.3 and, in any event, shall pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal and accounting duties), the expense of any annual audit and the fees and
expenses incurred in connection with the listing of the securities to be
registered on each securities exchange on which similar securities issued by the
Company are then listed. All Selling Expenses incurred in connection with a
registration effected pursuant to the terms hereof shall be borne by the
Purchaser and any other holder of Registrable Securities participating in such
registration pro rata, based upon the number of Registrable Securities included
in such registration.
10.6 LIMITATION ON REGISTRATION RIGHTS OF OTHERS. The Company covenants
and agrees that, except as provided in the other Transaction Documents, from and
after the date hereof, so long as the Purchaser holds any Registrable Securities
in respect of which any registration rights provided for in this Article 10
remain in effect, the Company will not, directly or indirectly, grant to any
Person or agree to or otherwise become obligated in respect of rights of Demand
Registration in the nature or substantially in the nature of those set forth in
Section 10.1.
10.7 LOCK-UP AGREEMENTS. In the event V & C Energy Limited Partnership or
Energy Resource Associates, Inc. enters into any "lock-up" or similar agreement
not to dispose of any securities of the Company during registration, the
Purchaser covenants and agrees to enter into a substantially similar agreement;
PROVIDED, that such restrictive period does not exceed 180 days.
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ARTICLE 11
INDEMNIFICATION
11.1 INDEMNIFICATION. In addition to all other sums due hereunder or
provided for in this Agreement, the Company agrees to indemnify and hold
harmless the Purchaser and its Affiliates and their respective officers,
directors, agents, employees, subsidiaries, partners and controlling persons
(each, together with each Holder Indemnified Party, an "Indemnified Party") to
the fullest extent permitted by law from and against any and all losses, claims,
damages, expenses (including reasonable fees, disbursements and other charges of
counsel) or other liabilities (collectively, "Liabilities") resulting from or
arising out of any breach of any representation or warranty, covenant or
agreement of the Company in this Agreement or in any of the other Transaction
Documents or any legal, administrative or other actions (including actions
brought by the Purchaser or the Company or any equity holders of the Company or
derivative actions brought by any Person claiming through or in the Company's
name), proceedings or investigations (whether formal or informal), or written
threats thereof, based upon, relating to or arising out of this Agreement or any
of the other Transaction Documents; PROVIDED, that (a) the Company shall not be
liable under this Section 11.1 to an Indemnified Party (i) for any amount paid
in settlement of claims without the Company's consent (which consent shall not
be unreasonably withheld), (ii) to the extent that it is finally judicially
determined that such Liabilities resulted primarily from the willful misconduct
or gross negligence of such Indemnified Party or (iii) to the extent that it is
finally judicially determined that such Liabilities resulted primarily from the
material breach by such Indemnified Party of any representation, warranty,
covenant or other agreement of such Indemnified Party contained in this
Agreement or in the applicable Transaction Document, and (b) if and to the
extent that such indemnification is unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of such
Liabilities which shall be permissible under applicable laws. In connection with
the obligation of the Company to indemnify for expenses as set forth above, the
Company further agrees, upon presentation of appropriate invoices containing
reasonable detail, to reimburse each Indemnified Party for all such expenses
(including reasonable fees, disbursements and other charges of counsel) as they
are incurred by such Indemnified Party; PROVIDED, that if an Indemnified Party
is reimbursed hereunder for any expenses, such reimbursement of expenses shall
be refunded to the extent it is finally judicially determined that the
Liabilities in question resulted primarily from (i) the willful misconduct or
gross negligence of such Indemnified Party or (ii) the material breach by such
Indemnified Party of any representation, warranty, covenant or other agreement
of such Indemnified Party contained in this Agreement or any of the other
Transaction Documents.
11.2 SECURITIES LAWS VIOLATIONS. The Company shall indemnify and hold
harmless, with respect to any registration statement filed by it, to the full
extent permitted by law, the Purchaser and each other Person, if any, who
controls the Purchaser within the meaning of Section 15 of the Securities Act
(collectively, "Holder Indemnified Parties") against all losses, claims,
damages, liabilities and expenses, joint or several to which any such Holder
Indemnified Party may become subject under the Securities Act, the Exchange Act,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged
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untrue statement of a material fact contained in any registration statement in
which such Registrable Securities were included as contemplated hereby or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii)
any untrue statement or alleged untrue statement of a material fact contained in
any preliminary, final or summary prospectus, together with the documents
incorporated by reference therein (as amended or supplemented if the Company
shall have filed with the Commission any amendment thereof or supplement
thereto), or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or (iii) any violation by the Company of any federal, state or
common law rule or regulation applicable to the Company and relating to action
of or inaction by the Company in connection with any such registration; and in
each such case, the Company shall reimburse each such Holder Indemnified Party
for any reasonable legal or other expenses incurred by any of them in connection
with investigating or defending any such loss, claim, damage, liability,
expense, action or proceeding; PROVIDED, that the Company shall not be liable to
any such Holder Indemnified Party in any such case to the extent that any such
loss, claim, damage, liability or expense (or action or proceeding, whether
commenced or threatened, in respect thereof) arises out of or is based upon any
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement or amendment thereof or supplement thereto
or in any such preliminary, final or summary prospectus in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
any such Holder Indemnified Party for use in the preparation thereof, except to
the extent such loss, claim, damage, liability or expense exceeds the net
proceeds paid or payable to such Holder Indemnified Party in connection with
such transfer of securities. If and to the extent that such indemnification is
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of such liabilities which shall be permissible
under applicable laws. Such indemnity and reimbursement of expenses and other
obligations shall remain in full force and effect regardless of any
investigation made by or on behalf of the Holder Indemnified Parties and shall
survive the transfer of such securities by such Holder Indemnified Parties.
11.3 INDEMNIFICATION BY PURCHASER. The Purchaser shall indemnify and hold
harmless, to the fullest extent permitted by law, the Company, its directors,
officers, employees and agents, and each Person who controls the Company (within
the meaning of Section 15 of the Securities Act) (collectively, the "Company
Indemnified Parties") against all losses, claims, damages, liabilities and
expenses to which the Company Indemnified Party may become subject under the
Securities Act, the Exchange Act, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of a material fact
contained in any registration statement in which the Purchaser's Registrable
Securities were included or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) any untrue statement or alleged untrue statement of
a material fact contained in any preliminary, final or summary prospectus,
together with the documents incorporated by reference therein (as amended or
supplemented if the Company shall have filed with the Commission any amendment
thereof or supplement thereto), or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading
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to the extent in the cases described in CLAUSES (I) and (II), that such untrue
statement or omission was furnished in writing by the Purchaser for use in the
preparation thereof, or (iii) any violation by the Purchaser of any federal,
state or common law rule or regulation applicable to the Purchaser and relating
to action of or inaction by such holder in connection with any such
registration, except to the extent such loss, claim, damage, liability or
expense exceeds the net proceeds paid or payable to the Purchaser in connection
with such transfer of securities. Such indemnity obligation shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Company Indemnified Parties (except as provided above) and shall survive the
transfer of such securities by the Purchaser.
11.4 NOTIFICATION. Each Indemnified Party under this Article 11 will,
promptly after the receipt of notice of the commencement of any action,
investigation, claim or other proceeding against such Indemnified Party in
respect of which indemnity may be sought from the Company under this Article 11,
notify the Company in writing of the commencement thereof. The omission of any
Indemnified Party so to notify the Company of any such action shall not relieve
the Company from any liability which it may have to such Indemnified Party (a)
other than pursuant to this Article 11 or (b) under this Article 11 unless, and
only to the extent that, such omission results in the Company's forfeiture of
substantive rights or defenses. In case any such action, claim or other
proceeding shall be brought against any Indemnified Party and it shall notify
the Company of the commencement thereof, the Company shall be entitled to assume
the defense thereof at its own expense, with counsel satisfactory to such
Indemnified Party in its reasonable judgment; PROVIDED, that any Indemnified
Party may, at its own expense, retain separate counsel to participate in such
defense. Notwithstanding the foregoing, in any action, claim or proceeding in
which both the Company, on the one hand, and an Indemnified Party, on the other
hand, is, or is reasonably likely to become, a party, such Indemnified Party
shall have the right to employ separate counsel at the Company's expense and to
control its own defense of such action, claim or proceeding if, in the
reasonable opinion of counsel to such Indemnified Party, a conflict or potential
conflict exists between the Company, on the one hand, and such Indemnified
Party, on the other hand, that would make such separate representation
advisable. The Company agrees that it will not, without the prior written
consent of the Purchaser, which consent shall not be unreasonably withheld,
settle, compromise or consent to the entry of any judgment in any pending or
threatened claim, action or proceeding relating to the matters contemplated
hereby (if any Indemnified Party is a party thereto or has been actually
threatened to be made a party thereto) unless such settlement, compromise or
consent includes an unconditional release of the Purchaser and each other
Indemnified Party from all liability arising or that may arise out of such
claim, action or proceeding. The Company shall not be liable for any settlement
of any claim, action or proceeding effected against an Indemnified Party without
its written consent, which consent shall not be unreasonably withheld. The
rights accorded to Indemnified Parties hereunder shall be in addition to any
rights that any Indemnified Party may have at common law, by separate agreement
or otherwise.
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ARTICLE 12
MISCELLANEOUS
12.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties made herein shall survive the execution and
delivery of this Agreement, any investigation by or on behalf of the Purchaser,
acceptance of the Shares and the Warrants and payment therefor, conversion of
the Shares, and exercise of the Warrants.
12.2 NOTICES. All notices, demands and other communications provided for
or permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telecopy, recognized
overnight courier service or personal delivery:
(a) if to the Company:
Cliffwood Oil & Gas Corp.
110 Cypress Station Drive, Suite 220
Houston, Texas 77090
Attention: Frank A. Lodzinski
Telephone No.: (281) 537-9920
Telecopy No.: (281) 537-8324
with a copy to:
Stephenson & Snokhous
4544 Post Oak Place, Suite 378
Houston, Texas 77027
Attention: Juli Fournier
Telephone No.: (713) 629-6961
Telecopy No.: (713) 629-9606
(b) if to the Purchaser:
First Union Capital Partners, Inc.
One First Union Center
301 South College Street, 5th Floor
Charlotte, North Carolina 28202
Attention: Kevin J. Roche
Stephen J. Antal
Telephone No.: (704) 374-4768
Telecopy No.: (704) 374-6711
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with a copy to:
First Union Corporation of North Carolina
1001 Fannin Street, Suite 2255
Houston, Texas 77002-6709
Attention: Jay Chernosky
Telephone No.: (713) 650-6344
Telecopy No.: (713) 650-6354
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; five Business
Days after being deposited in the mail, postage prepaid, if mailed; and when
receipt is acknowledged, if telecopied.
12.3 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of the parties hereto.
Subject to applicable securities laws and except as otherwise set forth in the
Transaction Documents, the Purchaser may assign any of its rights under this
Agreement. The Company may not assign any of its rights under this Agreement
without the prior written consent of the Purchaser. Except as provided in
Article 11, no Person other than the parties hereto and their successors and
permitted assigns is intended to be a beneficiary of any of the Transaction
Documents.
12.4 AMENDMENT AND WAIVER.
(a) No failure or delay on the part of the Company or the Purchaser in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the Company or
the Purchaser at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any provision of
this Agreement, any waiver of any provision of this Agreement, and any consent
to any departure from the terms of any provision of this Agreement, shall be
effective (i) only if it is made or given in writing and signed by the Company
and the Purchaser, and (ii) only in the specific instance and for the specific
purpose for which made or given. Except where notice is specifically required by
this Agreement, no notice to or demand in any case shall entitle either party to
any other or further notice or demand in similar or other circumstances.
12.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
12.6 HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
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12.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO THE PRINCIPLES
OF CONFLICTS OF LAW OF SUCH STATE.
12.8 JURISDICTION. Each party to this Agreement hereby irrevocably agrees
that any legal action or proceeding arising out of or relating to this Agreement
or any agreements or transactions contemplated hereby may be brought in the
courts of the State of Texas or of the United States of America for the Southern
District of Texas and hereby expressly submits to the personal jurisdiction and
venue of such courts for the purposes thereof and expressly waives any claim of
improper venue and any claim that such courts are an inconvenient forum. Each
party hereby irrevocably consents to the service of process of any of the
aforementioned courts in any such suit, action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to the address
set forth in Section 12.2, such service to become effective 10 days after such
mailing.
12.9 SEVERABILITY. If any one or more of the provisions contained herein,
or the application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
12.10 RULES OF CONSTRUCTION. Unless the context otherwise requires, "or"
is not exclusive, and references to sections or subsections refer to sections or
subsections of this Agreement. All pronouns and any variations thereof refer to
the masculine, feminine or neuter, singular or plural, as the context may
require.
12.11 ENTIRE AGREEMENT. This Agreement, together with the exhibits and
schedules hereto and the other Transaction Documents, is intended by the parties
as a final expression of their agreement and is intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and therein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein or therein. This Agreement, together with the exhibits and
schedules hereto, and the other Transaction Documents supersede all prior
agreements and understandings between the parties with respect to such subject
matter.
12.12 CERTAIN EXPENSES. The Company will pay all reasonable legal,
accounting and environmental due diligence expenses of the Purchasers (including
reasonable fees, charges and disbursements of counsel) in connection with
transactions contemplated by this Agreement and the other Transaction Documents.
12.13 REGULATORY REQUIREMENTS. In the event of any reasonable
determination by the Purchaser that, by reason of any existing or future Federal
or state rule, regulation, guideline, order, request or directive (whether or
not having the force of law and whether or not failure to comply therewith would
be unlawful) (collectively, a "Regulatory Requirement"), it is effectively
restricted or prohibited from holding any of the Shares, Warrants, Warrant
Shares or shares of Common Stock issued upon conversion thereof (including any
shares of capital stock or other securities distributable
38
<PAGE>
to the Purchaser in any merger, reorganization, readjustment or other
reclassification of Shares), the Company shall take, and shall cause the other
stockholders of the Company to take, such action, at the Company's expense, as
may be deemed reasonably necessary by the Purchaser to permit the Purchaser to
comply with such Regulatory Requirement. Such action to be taken may include,
without limitation, the Company's authorization of one or more new classes of
capital stock and the modification or amendment of the Articles of Incorporation
or any other documents or instruments executed in connection with the Shares,
Warrants, Warrant Shares or shares of Common Stock issued upon conversion
thereof (including any shares of capital stock or other securities distributable
to the Purchaser in any merger, reorganization, readjustment or other
reclassification of Shares) held by the Purchaser. The Purchaser shall give
written notice to the Company and the other stockholders of the Company of any
such determination and the action or actions necessary to comply with such
Regulatory Requirement, and the Company and such other stockholders shall take
all steps necessary to comply with such determination as expeditiously as
possible.
12.14 PUBLICITY. Except as may be required by applicable law, none of the
parties hereto shall issue a publicity release or announcement or otherwise make
any public disclosure concerning this Agreement or the transactions contemplated
hereby without prior approval by the other parties hereto. If any announcement
is required by law to be made by any party hereto, prior to making such
announcement such party will deliver a draft of such announcement to the other
parties and shall give the other parties an opportunity to comment thereon.
12.15 FURTHER ASSURANCES. Each of the parties shall execute such documents
and perform such further acts (including, without limitation, obtaining any
consents, exemptions, authorizations, or other actions by, or giving any notices
to, or making any filings with, any Governmental Authority or any other Person)
as may be reasonably required or desirable to carry out or to perform the
provisions of this Agreement.
39
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized as
of the date first above written.
CLIFFWOOD OIL & GAS CORP.
By: /S/ FRANK A. LODZINSKI
Name: Frank A. Lodzinski
Title: President
FIRST UNION CAPITAL PARTNERS, INC.
By:
Name:
Title:
40
<PAGE>
EXHIBIT 10.31
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES
OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD,
ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER SAID ACT AND UNDER APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR
EXEMPTIONS FROM SUCH REGISTRATION. THIS WARRANT MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT UPON THE CONDITIONS SPECIFIED IN
THIS WARRANT, AND NO SALE, ASSIGNMENT, TRANSFER, OR OTHER DISPOSITION OF THIS
WARRANT SHALL BE VALUED OR EFFECTIVE UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE
BEEN COMPLIED WITH.
No. -003- Right to Purchase 167,500 Shares
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, First Union Capital Partners,
Inc., or registered assigns, is entitled to purchase from Cliffwood Oil & Gas
Corp., a Texas corporation (the "Company"), at any time or from time to time
during the period specified in PARAGRAPH 3 hereof, One Hundred Sixty-Seven
Thousand Five Hundred (167,500) fully paid and nonassessable shares of the
Company's Class B Non-Voting Common Stock, par value $0.01 per share (the "Class
B Common"), at a price per share of $4.25 (the "Exercise Price"). The term
"Warrant Shares", as used herein, refers to the shares of Class B Common
purchasable hereunder. The Warrant Shares and the Exercise Price are subject to
adjustment as provided in PARAGRAPH 5 hereof.
This Warrant is subject to the terms of a Common Stock and Warrant
Purchase Agreement dated as of May 30, 1997 (the "Purchase Agreement") between
the Company and First Union Capital Partners, Inc., and to the following terms,
provisions, and conditions:
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES. Subject to
the provisions hereof, this Warrant may be exercised by the holder hereof, in
whole or in part by the surrender of this Warrant, together with a completed
Exercise Agreement in the form attached hereto, to the Company during normal
business hours on any business day at the Company's principal office in Houston,
Texas (or such other office or agency of the Company as it may designate by
notice to the holder hereof), and upon payment to the Company in cash or by
certified or official bank check of the Exercise Price for the Warrant Shares
specified in said Exercise Agreement. The Warrant Shares so purchased shall be
deemed to be issued to the holder hereof or its designee as the record owner of
such shares as of the close of business on the date on which this Warrant shall
have been surrendered, the completed Exercise Agreement delivered, and payment
made for such shares as
<PAGE>
aforesaid. Certificates for the Warrant Shares so purchased, representing the
aggregate number of shares specified in said Exercise Agreement, shall be
delivered to the holder hereof within a reasonable time, not exceeding seven
business days, after this Warrant shall have been so exercised. The certificates
so delivered shall be in such denominations as may be requested by the holder
hereof and shall be registered in the name of said holder or such other name as
shall be designated by said holder. If this Warrant shall have been exercised
only in part, then, unless this Warrant has expired, the Company shall, at its
expense, at the time of delivery of said certificates, deliver to said holder a
new Warrant representing the number of shares with respect to which this Warrant
shall not then have been exercised. The Company shall pay all taxes and other
expenses and charges payable in connection with the preparation, execution, and
delivery of stock certificates (and any new Warrants) pursuant to this PARAGRAPH
1 except that, in case such stock certificates shall be registered in a name or
names other than the holder of this Warrant, funds sufficient to pay all stock
transfer taxes which shall be payable in connection with the execution and
delivery of such stock certificates shall be paid by the holder hereof to the
Company at the time of the delivery of such stock certificates by the Company as
mentioned above.
2. CASHLESS EXERCISE. The holder of this Warrant shall have the right to
pay all or a portion of the Exercise Price by making a cashless exercise, in
which case such holder shall not pay the Exercise Price in cash and the number
of shares of Class B Common otherwise issuable pursuant to the Exercise
Agreement shall be reduced by the total number of shares of Class B Common
otherwise issuable to such holder multiplied by the Exercise Price and divided
by the fair market value per share of a share of Class B Common on the date of
the Exercise Notice, as such fair market value shall be determined in good faith
by the Board of Directors of the Company.
3. PERIOD OF EXERCISE. This Warrant is exercisable at any time or from
time to time after May 31, 1997, and before 5:00 p.m., local time on May 31,
2002.
4. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants and
agrees as follows:
(a) SHARES TO BE FULLY PAID. All Warrant Shares will, upon issuance, be
validly issued, fully paid, and nonassessable and free from all taxes, liens,
and charges with respect to the issue thereof.
(b) RESERVATION OF SHARES. During the period within which this Warrant may
be exercised, the Company will at all times have authorized, and reserved for
the purpose of issue upon exercise of this Warrant, (i) a sufficient number of
shares of Class B Common to provide for the exercise of this Warrant, and (ii) a
sufficient number of shares of Class A Common Stock to provide for the
conversion of the Warrant Shares.
(c) CERTAIN ACTIONS PROHIBITED. The Company will not, by amendment of its
charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may
<PAGE>
reasonably be requested by the holder of this Warrant in order to protect the
exercise privilege of the holder of this Warrant against dilution or other
impairment, consistent with the tenor and purpose of this Warrant. Without
limiting the generality of the foregoing, (i) the Company will not increase the
par value of the shares of Class B Common receivable upon the exercise of this
Warrant above the Exercise Price then in effect, and (ii) before taking any
action which would cause an adjustment reducing the Exercise Price below the
then par value of the shares of Class B Common so receivable, the Company will
take all such corporate action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares of
Class B Common at such adjusted Exercise Price upon the exercise of this
Warrant.
(d) REGISTRATION. If the issuance of any Warrant Shares required to be
reserved for purposes of exercise of this Warrant requires registration with or
approval of any governmental authority under any federal or state law (other
than any registration under the Securities Act of 1933, as amended, or under
applicable state securities or blue sky laws) or listing on any national
securities exchange, before such shares may be issued upon exercise of this
Warrant, the Company will, at its expense, use its best efforts to cause such
shares to be duly registered or approved, or listed on the relevant national
securities exchange, as the case may be, at such time, so that such shares may
be issued in accordance with the terms hereof.
5. ANTIDILUTION PROVISIONS. The Exercise Price shall be subject to
adjustment from time to time as provided in this PARAGRAPH 5. Upon each
adjustment of the Exercise Price, the holder of this Warrant shall thereafter be
entitled to purchase, at the Exercise Price resulting from such adjustment, the
largest number of Warrant Shares obtained by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Shares
purchasable hereunder immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment. For
purposes of this PARAGRAPH 5, the term "Capital Stock", as used herein, includes
the Class B Common, the Class A Voting Common Stock of the Company, and any
additional class of stock of the Company having no preference as to dividends or
distributions on liquidation which may be authorized in the future, provided
that the shares purchasable pursuant to this Warrant shall include only shares
of Class B Common, or shares resulting from any subdivision or combination of
the Class B Common, or in the case of any reorganization, reclassification,
consolidation, merger, or sale of the character referred to in PARAGRAPH 5(G)
hereof, the stock or other securities or property provided for in said
Paragraph. For purposes of this PARAGRAPH 5, the term "Net Asset Value" shall
mean, at a point in time, an amount determined by dividing X by Y, where "X" is
(i) the total assets of the Company and its subsidiaries which would be shown as
assets on a consolidated balance sheet of the Company and its subsidiaries as of
such time prepared in accordance with generally accepted accounting principles
(exclusive, however, of oil and gas properties), PLUS (ii) the "Calculated
Market Value" (as defined below) of such oil and gas properties, MINUS (iii) the
total liabilities of the Company and its subsidiaries which would be shown as
liabilities on a consolidated balance sheet of the Company and its subsidiaries
as of such time prepared in accordance with generally accepted accounting
principles, and where "Y" is the total number of shares of Capital Stock
outstanding as of such time. In computing Net Asset Value, the "Calculated
Market Value" of oil and gas properties of the Company and its consolidated
subsidiaries shall be the value determined in accordance with ss. 210.4-10 of
Regulation S-X, as promulgated by the Securities and Exchange Commission, with
the following adjustments to certain parameters: (i) applicable future
<PAGE>
prices for commodities shall be determined as follows: (A) for crude oil the
beginning price shall be calculated using the average of one full calendar year
forward prices, and (B) for natural gas the beginning price shall be calculated
using the average of the first twelve month forward prices, each as reported on
the New York Mercantile Exchange; PROVIDED, that such prices shall be adjusted
for product quality and for basis differentials resulting from product location,
as determined by the holder of this Warrant by obtaining market quotes from at
least two mutually agreeable major independent third party dealers for each
pipeline or point of delivery; PROVIDED, FURTHER, that such prices shall
escalate at 3% per annum thereafter; (ii) beginning lease operating expenses, as
determined by ss. 210.4-10 of Regulation S-X, shall escalate at 3% per annum
thereafter; (iii) the resulting cashflow stream, as determined by ss. 210.4-10
of Regulation S-X, after giving effect to the adjustments to commodity price and
lease operating expense assumptions, shall be discounted for a present value at
a 12% discount rate; and (iv) that in making such computation, only the
following categories (and portions of such categories) of reserves shall be
utilized: 100% of proved developed producing reserves; 80% of proved developed
non-producing reserves; and 50% of proved undeveloped reserves.
(a) ISSUANCE OF CAPITAL STOCK. Other than securities issued (x) in a
transaction described in Sections 8.4(a) or 8.4(e) of the Purchase Agreement, or
(y) pursuant to the private offering which was authorized by the Board of
Directors of the Company pursuant to resolutions dated February 13, 1997
(provided such securities are offered for at least $3.00 per share and such sale
of securities is closed and funded no later than July 31, 1997), if and whenever
the Company shall issue or sell any shares of Capital Stock without
consideration or for a consideration per share less than the Exercise Price in
effect immediately prior to the time of such issue or sale, and/or the Company
shall issue or sell any shares of its Capital Stock for a consideration per
share less than the Net Asset Value on the date of such issue or sale, then,
forthwith upon such issue or sale, the Exercise Price shall be reduced to a
price (calculated to the nearest cent) determined as provided in PARAGRAPH (I)
below (in the case of a consideration per share less than the Exercise Price),
or the price (calculated to the nearest cent) determined as provided by
PARAGRAPH (II) below (in the case of a consideration per share less than the Net
Asset Value), or the lower of the prices (calculated to the nearest cent)
determined as provided in PARAGRAPHS (I) and (II) below (in the case of a
consideration per share which is less than both the Exercise Price and the Net
Asset Value):
(i) by dividing X by Y, where "X" is an amount equal to the sum
of (A) the total number of shares of Capital Stock outstanding immediately
prior to such issue or sale multiplied by the then existing Exercise
Price, and (B) the consideration, if any, received by the Company upon
such issue or sale, and where "Y" is the total number of shares of Capital
Stock outstanding immediately after such issue or sale; and
(ii) by multiplying the Exercise Price in effect immediately prior
to the time of such issue or sale by X/Y, where "X" is an amount equal to
the sum of (A) the number of shares of Capital Stock outstanding
immediately prior to such issue or sale multiplied by the Net Asset Value
immediately prior to such issue or sale and (B) the consideration received
by the Company upon such issue or sale, and where "Y" is equal to the
product of (A) the total number of shares of Capital Stock outstanding
immediately after such issue or sale and (B) the Net Asset Value
immediately prior to such issue or sale.
<PAGE>
(b) TREATMENT OF OPTIONS AND CONVERTIBLE SECURITIES; COMPUTATION OF
CONSIDERATION. For purposes of PARAGRAPH 5(A) hereof, the following provisions
shall also be applicable:
(i) In case the Company shall grant any rights to subscribe for
or purchase, or any options for the purchase of, Capital Stock or
securities convertible into or exchangeable for Capital Stock (such rights
and options being herein called "Options" and such convertible or
exchangeable securities being herein called "Convertible Securities"),
whether or not such Options or the rights to convert or exchange any such
Convertible Securities are immediately exercisable, and the price per
share for which Capital Stock is issuable upon the exercise of such
Options or upon the conversion or exchange of such Convertible Securities
(as determined in accordance with the following sentence) shall be less
than the greater of (A) the Exercise Price in effect immediately prior to
the time of the granting of such Options and (B) the Net Asset Value,
determined as of the date of granting such Options, then the total maximum
number of shares of Capital Stock issuable upon the exercise of such
Options or upon the conversion or exchange of the total maximum amount of
such Convertible Securities issuable upon the exercise of such Options
shall (as of the date of granting of such Options) be deemed to be
outstanding and to have been issued and sold for such price per share. The
price per share for which the Capital Stock is issuable, as provided in
the preceding sentence, shall be determined by dividing (x) the total
amount, if any, received or receivable by the Company as consideration for
the granting of such Options, plus the minimum aggregate amount of
additional consideration payable to the Company upon the exercise of such
Options, plus, in the case of any such Options which relate to Convertible
Securities, the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the conversion or exchange of such
Convertible Securities, by (y) the total maximum number of shares of
Capital Stock issuable upon the exercise of such Options or upon the
conversion or exchange of all such Convertible Securities issuable upon
the exercise of such Options. Except as provided in PARAGRAPH 5(B)(VI)
hereof, no further adjustments of the Exercise Price shall be made upon
the actual issue of such Capital Stock or of such Convertible Securities
upon the exercise of such Options or upon the actual issue of such Capital
Stock upon the conversion or exchange of such Convertible Securities.
(ii) In case the Company shall issue or sell Convertible
Securities, whether or not the rights to convert or exchange such
Convertible Securities are immediately exercisable, and the price per
share for which Capital Stock is issuable upon the conversion or exchange
of such Convertible Securities (as determined in accordance with the
following sentence) shall be less than the greater of (A) the Exercise
Price in effect immediately prior to the time of the issue or sale of such
Convertible Securities or (B) the Net Asset Value, determined as of the
date of such issue or sale of such Convertible Securities, then the total
maximum number of shares of Capital Stock issuable upon the conversion or
exchange of all such Convertible Securities shall (as of the date of the
issue or sale of such Convertible Securities) be deemed to be outstanding
and to have been issued and sold for such price per share, provided that
(a) except as provided in PARAGRAPH 5(B)(VI) hereof, no further
adjustments of the Exercise Price shall be made upon the actual issue of
such Capital Stock upon the conversion or exchange of such Convertible
Securities, and (b) if any such issue or
<PAGE>
sale of such Convertible Securities is made upon exercise of any Options
for which adjustments of the Exercise Price have been or are to be made
pursuant to other provisions of this PARAGRAPH 5(B), no further adjustment
of the Exercise Price shall be made by reason of such issue or sale. The
price per share for which the Capital Stock is issuable, as provided in
the preceding sentence, shall be determined by dividing (x) the total
amount received or receivable by the Company as consideration for the
issue or sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon
the conversion or exchange thereof, by (y) the total maximum number of
shares of Capital Stock issuable upon the conversion or exchange of all
such Convertible Securities.
(iii) In case at any time the Company shall pay a dividend or make
any other distribution upon the Capital Stock payable in Capital Stock,
Options or Convertible Securities, any Capital Stock, Options or
Convertible Securities, as the case may be, issuable in payment of such
dividend or distribution shall be deemed to have been issued without
consideration.
(iv) In case at any time any Capital Stock, Convertible
Securities, or Options shall be issued or sold for cash, the consideration
received therefor shall be deemed to be the amount received by the Company
therefor, without deduction therefrom of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Company in
connection therewith. In case any Capital Stock, Convertible Securities,
or Options shall be issued or sold for a consideration other than cash,
the amount of the consideration other than cash received by the Company
therefor shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the Company, except
where such consideration consists of securities, in which case the amount
of consideration received by the Company shall be the market price thereof
(determined as provided in PARAGRAPH 5(E) hereof) as of the date of
receipt, but in each such case without deduction therefrom of any expenses
incurred or any underwriting commissions or concessions paid or allowed by
the Company in connection therewith. In computing the market price of a
note or other obligation that is not listed or admitted to trading on any
securities exchange or quoted in the National Association of Securities
Dealers, Inc. Automated Quotation System or reported by the National
Quotation Bureau, Inc. or a similar reporting organization, the total
consideration to be received by the Company thereunder (including
interest) shall be discounted to present value at the prime rate of
interest of NationsBank of Texas, N.A., in effect at the time the note or
obligation is deemed to have been issued. In case any Capital Stock,
Convertible Securities, or Options shall be issued in connection with any
merger of another corporation into the Company, the amount of
consideration therefor shall be deemed to be the fair value as determined
in good faith by the Board of Directors of the Company of such portion of
the assets of such merged corporation as the Board shall determine to be
attributable to such Capital Stock, Convertible Securities, or Options.
(v) In case at any time the Company shall take a record of the
holders of Capital Stock for the purpose of entitling them (A) to receive
a dividend or other distribution
<PAGE>
payable in Capital Stock, Options or Convertible Securities, or (B) to
subscribe for or purchase Capital Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the
issue or sale of such Capital Stock, Options or Convertible Securities.
(vi) If the purchase price provided for in any Option referred to
in PARAGRAPH 5(B)(I) hereof, or the price at which any Convertible
Securities referred to in PARAGRAPH 5(B)(I) or (II) hereof are convertible
into or exchangeable for Capital Stock, shall change at any time (whether
by reason of provisions designed to protect against dilution or
otherwise), the Exercise Price then in effect hereunder shall forthwith be
increased or decreased to such Exercise Price as would have obtained had
the adjustments made upon the issuance of such Options or Convertible
Securities been made upon the basis of (A) the issuance of the number of
shares of Capital Stock theretofore actually delivered upon the exercise
of such Options or upon the conversion or exchange of such Convertible
Securities, and the total consideration received therefor, and (B) the
number of shares of Capital Stock to be issued for the consideration, if
any, received by the Company therefor and to be received on the basis of
such changed price.
(vii) If any adjustment has been made in the Exercise Price because
of the issuance of Options or Convertible Securities and if any of such
Options or rights to convert or exchange such Convertible Securities
expire or otherwise terminate, then the Exercise Price shall be readjusted
to eliminate the adjustments previously made in connection with the
Options or rights to convert or exchange Convertible Securities which have
expired or terminated.
(viii) The number of shares of Capital Stock outstanding at any
given time shall not include shares owned or held by or for the account of
the Company, and the disposition of any such shares shall be considered an
issue or sale of Capital Stock.
(c) SUBDIVISIONS AND COMBINATIONS. In case at any time the Company shall
subdivide the outstanding shares of Capital Stock into a greater number of
shares, the Exercise Price in effect immediately prior to such subdivision shall
be proportionately reduced, and conversely, in case the outstanding shares of
Capital Stock shall be combined into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination shall be proportionately
increased. An adjustment made pursuant to this PARAGRAPH 5(C) shall become
effective immediately after the effective date of such subdivision or
combination.
(d) EXTRAORDINARY DIVIDENDS AND DISTRIBUTIONS. In case at any time the
Company shall pay a dividend or make a distribution to all holders of Capital
Stock, as such, of shares of its stock, evidences of its indebtedness, assets,
or rights, options, or warrants to subscribe for or purchase such shares,
evidences of indebtedness, or assets, other than (i) a dividend or distribution
payable in Capital Stock, Options, or Convertible Securities or (ii) a dividend
or distribution payable in cash out of earnings or earned surplus, then in each
such case the Exercise Price shall be adjusted so that the same shall equal the
price determined by multiplying the Exercise Price in effect immediately prior
to the record date mentioned below by a fraction, the numerator of which shall
be the total number
<PAGE>
of shares of Capital Stock outstanding on such record date multiplied by the
market price per share of Capital Stock (determined as provided in PARAGRAPH
5(E) hereof) on such record date, less the fair market value (as determined in
good faith by the Board of Directors of the Company) as of such record date of
such shares of stock, evidences of indebtedness, assets, or rights, options, or
warrants so paid or distributed, and the denominator of which shall be the total
number of shares of Capital Stock outstanding on such record date multiplied by
the market price per share of Capital Stock (determined as provided in PARAGRAPH
5(E) hereof) on such record date. Such adjustment shall be made whenever such
dividend is paid or such distribution is made and shall become effective
immediately after the record date for the determination of shareholders entitled
to receive such dividend or distribution.
(e) COMPUTATION OF MARKET PRICE. For the purpose of any computation under
PARAGRAPH 5(B) or (D) hereof, the market price of the security in question on
any day shall be deemed to be the average of the last reported sale prices for
the security for the twenty (20) consecutive Trading Days (as defined below)
commencing thirty (30) Trading Days before the day in question. The last
reported sale price for each day shall be (i) the last reported sale price of
the security on the National Market of the National Association of Securities
Dealers, Inc. Automated Quotation System, or any similar system of automated
dissemination of quotations of securities prices then in common use, if so
quoted, or (ii) if not quoted as described in CLAUSE (I) above, the mean between
the high bid and low asked quotations for the security as reported by the
National Quotation Bureau, Inc. if at least two securities dealers have inserted
both bid and asked quotations for such security on at least ten (10) of such
twenty (20) consecutive Trading Days, or (iii) if the security is listed or
admitted for trading on any national securities exchange, the last sale price,
or the closing bid price if no sale occurred, of such class of security on the
principal securities exchange on which such class of security is listed or
admitted to trading. If the security is quoted on a national securities or
central market system, in lieu of a market or quotation system described above,
the last reported sale price shall be determined in the manner set forth in
CLAUSE (II) of the preceding sentence if bid and asked quotations are reported
but actual transactions are not, and in the manner set forth in CLAUSE (III) of
the preceding sentence if actual transactions are reported. If none of the
conditions set forth above is met, the last reported sale price of the security
on any day or the average of such last reported sale prices for any period shall
be the fair market value of such security as determined by a member firm of the
New York Stock Exchange, Inc. selected by the Company. The term "Trading Days",
as used herein, means (i) if the security is quoted on the National Market of
the National Association of Security Dealers, Inc. Automated Quotation System,
or any similar system of automated dissemination of quotations of securities
prices, days on which trades may be made on such system or (ii) if the security
is listed or admitted for trading on any national securities exchange, days on
which such national securities exchange is open for business.
(f) RECORD DATE ADJUSTMENTS. In any case in which this PARAGRAPH 5
requires that a downward adjustment of the Exercise Price shall become effective
immediately after a record date for an event, the Company may defer until the
occurrence of such event issuing to the holder of this Warrant exercised after
such record date and before the occurrence of such event the additional Warrant
Shares issuable upon such exercise by reason of the adjustment required by such
event over and above the Warrant Shares issuable upon such exercise before
giving effect to such adjustment.
<PAGE>
(g) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER, OR SALE. If
any capital reorganization of the Company, or any reclassification of the
Capital Stock, or any consolidation or merger of the Company with or into
another corporation or entity, or any sale of all or substantially all the
assets of the Company to another corporation or entity, shall be effected in
such a way that the holders of Class B Common (or any other securities of the
Company then issuable upon the exercise of this Warrant) shall be entitled to
receive stock or other securities or property (including cash) with respect to
or in exchange for Class B Common (or such other securities), then, as a
condition of such reorganization, reclassification, consolidation, merger, or
sale, lawful and adequate provision shall be made whereby the holder of this
Warrant shall thereafter have the right to purchase and receive upon the basis
and upon the terms and conditions specified in this Warrant, and in lieu of the
shares of Class B Common (or such other securities) immediately theretofore
purchasable and receivable upon the exercise hereof, such stock or other
securities or property (including cash) as may be issuable or payable with
respect to or in exchange for a number of outstanding shares of Class B Common
(or such other securities) equal to the number of shares of Class B Common (or
such other securities) immediately theretofore purchasable and receivable upon
the exercise of this Warrant, had such reorganization, reclassification,
consolidation, merger, or sale not taken place. In any such case appropriate
provision shall be made with respect to the rights and interests of the holder
of this Warrant to the end that the provisions hereof (including, without
limitation, the provisions for adjustments of the Exercise Price and of the
number of Warrant Shares purchasable upon exercise hereof) shall thereafter be
applicable, as nearly as reasonably may be, in relation to the stock or other
securities or property thereafter deliverable upon the exercise hereof
(including an immediate adjustment of the Exercise rice if by reason of or in
connection with such consolidation, merger, or sale any securities are issued or
event occurs which would, under the terms hereof, require an adjustment of the
Exercise Price). In the event of a consolidation or merger of the Company with
or into another corporation or entity as a result of which a greater or lesser
number of shares of common stock of the surviving corporation or entity are
issuable to holders of Capital Stock in respect of the number of shares of
Capital Stock outstanding immediately prior to such consolidation or merger,
then the Exercise Price in effect immediately prior to such consolidation or
merger shall be adjusted in the same manner as though there were a subdivision
or combination of the outstanding shares of Capital Stock. The Company shall not
effect any such consolidation, merger, or sale unless prior to or simultaneously
with the consummation thereof the successor corporation or entity (if other than
the Company) resulting from such consolidation or merger or the corporation or
entity purchasing such assets and any other corporation or entity the shares of
stock or other securities or property of which are receivable thereupon by the
holder of this Warrant shall expressly assume, by written instrument executed
and delivered (and satisfactory in form) to the holder of this Warrant, (i) the
obligation to deliver to such holder such stock or other securities or property
as, in accordance with the foregoing provisions, such holder may be entitled to
purchase and (ii) all other obligations of the Company hereunder.
(h) NO FRACTIONAL SHARES. No fractional shares of Class B Common are to be
issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the current market value of a share
of Class B Common, which current market value shall be the last reported sale
price (determined as provided in PARAGRAPH 5(E) hereof) on the Trading Day
immediately preceding the date of the exercise.
<PAGE>
(i) NOTICE OF ADJUSTMENT. Upon the occurrence of any event which requires
any adjustment of the Exercise Price, then and in each such case the Company
shall give notice thereof to the holder of this Warrant, which notice shall
state the Exercise Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
(j) OTHER NOTICES. In case at any time:
(i) the Company shall declare any dividend upon the Capital Stock
payable in shares of stock of any class or make any other distribution
(other than dividends or distributions payable in cash out of earnings or
earned surplus) to the holders of the Capital Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Capital Stock any additional shares of stock of any class
or other rights;
(iii) there shall be any capital reorganization of the Company, or
reclassification of the Capital Stock, or consolidation or merger of the
Company with or into, or sale of all or substantially all its assets to,
another corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation, or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(A) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Capital Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Capital Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up and (B) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Capital Stock shall be entitled to receive such
dividend, distribution, or subscription rights or to exchange their Capital
Stock for stock or other securities or property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding-up, as the case may be. Such notice shall be given at
least 20 days prior to the record date or the date on which the Company's books
are closed in respect thereto. Failure to give any such notice or any defect
therein shall not affect the validity of the proceeding referred to in CLAUSES
(I), (II), (III), and (IV) above.
(k) CERTAIN EVENTS. If any event occurs as to which, in the good faith
judgment of the Board of Directors of the Company, the other provisions of this
PARAGRAPH 5 are not strictly applicable or if strictly applicable would not
fairly protect the exercise rights of the holder of this Warrant in accordance
with the essential intent and principles of such provisions, then the Board of
Directors of the Company shall appoint the Company's regular independent
auditors or another firm
<PAGE>
of independent public accountants of recognized national standing who are
satisfactory to the holder of this Warrant which shall give their opinion upon
the adjustment, if any, on a basis consistent with such essential intent and
principles, necessary to preserve, without dilution, the rights of the holder of
this Warrant. Upon receipt of such opinion, the Board of Directors of the
Company shall forthwith make the adjustments described therein; provided that no
such adjustment shall have the effect of increasing the Exercise Price as
otherwise determined pursuant to this PARAGRAPH 5. The Company may make such
reductions in the Exercise Price or increase in the number of shares of Class B
Common purchasable hereunder as it deems advisable, including any reductions or
increases, as the case may be, necessary to ensure that any event treated for
federal income tax purposes as a distribution of stock rights not be taxable to
recipients.
6. ISSUE TAX. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax in respect thereof, provided that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than the holder of this Warrant.
7. AVAILABILITY OF INFORMATION. The Company will cooperate with the holder
of this Warrant and each holder of any Warrant Shares in supplying such
information as may be necessary for such holder to complete and file any
information reporting forms presently or hereafter required by the Securities
and Exchange Commission as a condition to the availability of an exemption from
the Securities Act of 1933, as amended, for the sale of this Warrant or any
Warrant Shares. Nothing in this Section 7 obligates the Company to register any
Warrant Shares or other securities under federal or state securities laws or
incur any other unreasonable expense. The Company will deliver to the holder of
this Warrant, promptly upon their becoming available, copies of all financial
statements, reports, notices, and proxy statements sent or made available
generally by the Company to its shareholders, and copies of all regular and
periodic reports and all registration statements and prospectuses filed by the
Company with any securities exchange or with the Securities and Exchange
Commission.
8. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
9. TRANSFER, EXCHANGE, AND REPLACEMENT OF WARRANT.
(a) WARRANT TRANSFERABLE. The transfer of this Warrant and all rights
hereunder, in whole or in part, is registrable at the office or agency of the
Company referred to in PARAGRAPH 9(E) hereof by the holder hereof in person or
by his duly authorized attorney, upon surrender of this Warrant properly
endorsed. Each taker and holder of this Warrant, by taking or holding the same,
consents and agrees that this Warrant, when endorsed in blank, shall be deemed
negotiable, and that the holder hereof, when this Warrant shall have been so
endorsed, may be treated by the Company and all other
<PAGE>
persons dealing with this Warrant as the absolute owner and holder hereof for
any purpose and as the person entitled to exercise the rights represented by
this Warrant and to the registration of transfer hereof on the books of the
Company; but until due presentment for registration of transfer on such books
the Company may treat the registered holder hereof as the owner and holder
hereof for all purposes, and the Company shall not be affected by any notice to
the contrary.
(b) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This Warrant is
exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in PARAGRAPH 9(E) hereof, for new Warrants of
like tenor representing in the aggregate the right to purchase the number of
shares of Class B Common which may be purchased hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by said holder hereof at the time of such surrender.
(c) REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
(d) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of this Warrant
in connection with any transfer, exchange, or replacement as provided in this
PARAGRAPH 9, this Warrant shall be promptly canceled by the Company. The Company
shall pay all taxes (other than securities transfer taxes) and all other
expenses and charges payable in connection with the preparation, execution, and
delivery of Warrants pursuant to this PARAGRAPH 9.
(e) REGISTER. The Company shall maintain, at its principal office in
Houston, Texas, (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
(f) EXERCISE OR TRANSFER WITHOUT REGISTRATION. Anything in this
Warrant to the contrary notwithstanding, if, at the time of the surrender of
this Warrant in connection with any exercise, transfer, or exchange of this
Warrant, this Warrant shall not be registered under the Securities Act of 1933,
as amended, and under applicable state securities or blue sky laws, the Company
may require, as a condition of allowing such exercise, transfer, or exchange,
that (i) the holder or transferee of this Warrant, as the case may be, furnish
to the Company a written opinion of counsel, which opinion and counsel are
acceptable to the Company, to the effect that such exercise, transfer, or
exchange may be made without registration under said Act and under applicable
state securities or blue sky laws and (ii) the holder or transferee execute and
deliver to the Company an investment letter in form and substance acceptable to
the Company. The first holder of this Warrant, by taking and holding the same,
represents to the Company that such holder is acquiring this Warrant for
investment and not with a view to the distribution thereof.
<PAGE>
10. NOTICES. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the holder of this Warrant or to
the holder of shares acquired upon exercise of this Warrant shall be in writing,
and shall be personally delivered, or shall be sent by certified or registered
mail, postage prepaid and addressed, to such holder at the address shown for
such holder on the books of the Company, or at such other address as shall have
been furnished to the Company by notice from such holder. All notices, requests,
and other communications required or permitted to be given or delivered
hereunder to the Company shall be in writing, and shall be personally delivered,
or shall be sent by certified or registered mail, postage prepaid and addressed,
to the office of the Company at 110 Cypress Station Drive, Suite 220, Houston,
Texas 77090, Attention: President, or at such other address as shall have been
furnished to the holder of this Warrant or to the holder of shares acquired upon
exercise of this Warrant by notice from the Company. Any such notice, request,
or other communication may be sent by telegram or telex, but shall in such case
be subsequently confirmed by a writing personally delivered or sent by certified
or registered mail as provided above. All notices, requests, and other
communications shall be deemed to have been given either at the time of the
delivery thereof to (or the receipt by, in the case of a telegram or telex) the
person entitled to receive such notice at the address of such person for
purposes of this PARAGRAPH 10, or, if mailed, at the completion of the third
full day following the time of such mailing thereof to such address, as the case
may be.
11. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
12. MISCELLANEOUS.
(a) AMENDMENTS. This Warrant and any provision hereof may not be changed,
waived, discharged, or terminated orally, but only by an instrument in writing
signed by the party (or any predecessor in interest thereof) against which
enforcement of the same is sought.
(b) DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction
of any of the provisions hereof.
(c) SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon any entity
succeeding to the Company by merger, consolidation, or acquisition of all or
substantially all the Company's assets.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer under its corporate seal, on this ____ day of June,
1997.
CLIFFWOOD OIL & GAS CORP.
By: /S/ FRANK A. LODZINSKI
Name: Frank A. Lodzinski
Title: President
[CORPORATE SEAL]
<PAGE>
FORM OF EXERCISE AGREEMENT
Dated: ___________, ____.
To:
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby (A) agrees to purchase _________ shares of Class B Common Stock
covered by such Warrant, and makes payment herewith in full therefor at the
price per share provided by such Warrant in cash or by certified or official
bank check in the amount of $_________, and/or (B) agrees to exercise this
Warrant for the purchase of __________ shares of Class B Common Stock, pursuant
to the cashless exercise provisions of Paragraph 2 of the within Warrant. Please
issue a certificate or certificates for such shares of Class B Common Stock in
the name of and pay any cash for any fractional share to:
Name:
Signature:
Title of Signing Officer or Agent (if any):
Note: The above signature should correspond exactly with the name on the
face of the within Warrant or with the name of the assignee
appearing in the assignment form.
and, if said number of shares of Class B Common Stock shall not be all the
shares purchasable under the within Warrant, a new Warrant is to be issued in
the name of said undersigned covering the balance of the shares purchasable
thereunder less any fraction of a share paid in cash.
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all the rights of the undersigned under the within Warrant, with respect to the
number of shares of Class B Common Stock covered thereby set forth hereinbelow,
to:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
and hereby irrevocably constitutes and appoints ______________________ as agent
and attorney-in-fact to transfer said Warrant on the books of the within-named
corporation, with full power of substitution in the premises.
Dated: _______________, ____.
In the presence of
Name:
Signature:
Title of Signing
Officer or Agent (any):
Address:
Note: The above signature should correspond
exactly with the name on the face of the
within Warrant.
Exhibit 10.32
AGREEMENT
This letter agreement ("Agreement") is entered into this 30th day of June 1997,
by and among Cliffwood Exploration Company ("CEXCO"), Cliffwood Production Co.
("CPCO"), Bechtel Exploration Company ("Bechtel") and Blue Moon Exploration
Company ("Blue Moon").
WHEREAS, Blue Moon and CEXCO intend to acquire certain 3-D seismic data ("Data")
pursuant to the terms and conditions of a contract with Seitel Data Ltd.,
Contract # 97-06-015 EPC ("Contract"), a full and complete copy of which is
attached hereto as Exhibit A; and
WHEREAS, Blue Moon requires funding for the acquisition of the Data and further
requires funding to hire or otherwise secure the services of certain technical
personnel, which will be used to generate or otherwise acquire drilling
prospects in, but not limited to, the area over which the Data has been or will
be acquired; and
Whereas, CEXCO desires to fund the hydrocarbon prospecting efforts of Blue Moon
as described herein, and Blue Moon desires to perform such hydrocarbon
prospecting efforts;
NOW THEREFORE, CEXCO, CPCO and Blue Moon hereby agree as follows.
1. CEXCO and Blue Moon will form Cliffwood-Blue Moon Joint Venture, Inc.
("CBJV") for the purpose of acquiring the data and to conduct hydrocarbon
prospecting efforts. CBJV will execute the Contract. CBJV will initially have
one class of capital stock, that being Common Stock. CBJV will issue 800,000
shares of Common Stock to CEXCO and 200,000 shares of Common Stock to Blue Moon.
The Board of Directors of CBJV ("Board") shall initially be Frank A. Lodzinski,
Francis M. Mury and Michel J. Bechtel. CEXCO agrees that should Blue Moon
request that Thomas A. McWhorter be appointed to the Board, CEXCO shall vote for
his appointment as an additional director. Blue Moon agrees that CEXCO shall
have the right to appoint up to three additional members to the Board. The
officers of CBJV shall initially be Frank A. Lodzinski, Chief Executive Officer,
Michel J. Bechtel, President and Treasurer and Thomas A. McWhorter, Vice
President and Secretary and Francis M. Mury, Vice President. Blue Moon and CEXCO
agree that, if allowed under by the Internal Revenue Code, CBJV may elect to be
a limited liability company (LLC) or a Subchapter S corporation under the
Internal Revenue Code.
2. CEXCO will fund the acquisition of the Data in the amount of $500,000 plus
nominal costs of reproduction shipping, etc., not to exceed $ 2,500, by making
cash payments to CBJV three days prior to the due dates for payments established
by the Contract.
3. CEXCO and Blue Moon will enter into a shareholders agreement substantially in
the form attached as Exhibit B hereto.
4. In addition to the payments specified in Section 1 above, CEXCO will fund up
to $500,000 over one year commencing August 1, 1997, specifically for the
funding of additional technical staff for CBJV including, a geologist,
geophysicist and geo-tech and the cost of additional data acquisition,
professional fees and other costs directly associated with the prospect
generation or acquisition. CEXCO shall make this payment in installments. The
first installment shall be $41,666 and shall be paid to CBJV on or before August
1, 1997. The second installment shall be $41,666 and shall be paid to CVJV on or
before September 1, 1997. Thereafter, CEXCO shall reimburse CBJV monthly for
expenses actually incurred pursuant to a budget to be agreed upon by CEXCO and
Blue Moon prior to August 1, 1997. Expenses for any single item in excess of
$5,000 must be approved by CEXCO prior to being incurred
5. All funds advanced by CEXCO and payments made by CEXCO pursuant to this
Agreement, including without limitation the outstanding portion of Lease Fund
(as defined below), shall be recorded on the books and records of CBJV as a debt
payable to CEXCO, and shall be evidenced by a promissory note, in a form
acceptable to CBJV, from CBJV to CEXCO. Payment of the promissory note shall be
secured by all of the issued and outstanding shares of the capital stock of
CBJV.
6. Blue Moon will be granted a 3 % overriding royalty interest in each prospect
generated or acquired hereunder.
7. All prospects generated or acquired by CBJV, its officers, staff, employees,
contract employees, consultants (except to the extent that said consultants are
performing services for others and/or themselves using data and information of
others) or any affiliates of CBJV, whether or not as a result of the Data, shall
be the property of CBJV. Prospects shall be identified and reported monthly to
the CEXCO along with a brief status report related to lease availability,
economic analysis, reserve potential, etc. CBJV shall submit all prospects to
CEXCO for review. Within 15 days of submittal of a prospect, CEXCO shall either
(i) accept such prospect for further evaluation, sale, leasing, exploration or
development or, (ii) defer making a decision on the prospect, (iii) reject such
prospect. Should CEXCO reject any prospect, such prospect shall thereafter no
longer be subject to this Agreement and shall thereafter no longer be the
property of CBJV.
8. Upon the full repayment of all debt owed by CBJV to CEXCO pursuant to this
Agreement, CEXCO shall transfer and assign 50,000 shares of the Common Stock of
CBJV to Blue Moon.
9. CEXCO will use commercially reasonably efforts to dedicate or otherwise raise
$1,000,000 for a revolving lease fund ("Lease Fund") to be loaned by CEXCO to
CBJV when and to the extent necessary for the acquisition of prospects acquired
or generated pursuant to this Agreement and to be used exclusively for those
purposes.
10. CPCO shall operate all prospects generated or acquired pursuant to the terms
of this Agreement, provided however that CPCO will, if so requested by Blue
Moon, relinquish operations to reputable third party industry operators who
acquire interests in prospects greater than those owned or controlled by CEXCO.
CEXCO, Blue Moon and CPCO shall enter into an operating agreement for each
prospect. All such operating agreements shall contain provisions with respect to
consents to assign and preferential rights whereby all parties to the operating
agreement must consent to any assignment of an interest in the prospect and/or
operating agreement, providing that such consent shall not be unreasonably
withheld and whereby each party to the operating agreement shall have the
preferential right to acquire the interest being offered for sale to a third
party under the same terms and conditions as offered to such third party.
11. The parties acknowledge that the funds referred to in Section 4 above are
estimated to be sufficient to pay for the items set forth in Section 4 above for
one year from August 1, 1997. It is the intent of the parties that prospect
generation continue under this Agreement after July 31, 1998. Accordingly, it
will be necessary at that time to agree upon how the cost of the items referred
to in Section 4 above will be funded. The parties agree that it is their present
intent to continue to fund this Agreement and to pay for the cost of such items
from proceeds from prospects theretofore generated and in proportion to their
ownership of CBJV, provided however that neither party shall be obligated to do
so. If the parties are unable to agree upon continued funding for the cost of
the items referred to in Section 4 above after July 31, 1998, then all unspent
cash advanced or paid by CEXCO to CBJV pursuant to this Agreement, including
without limitation cash remaining in the Lease Fund shall immediately be
returned to CEXCO and the debt of CBJV to CEXCO shall be reduced by the amount
of such cash returned.
12. The parties agree that this Agreement delineates the major provisions of
their agreement and acknowledge that time is of the essence due to time
constraints imposed by the Contract. The parties agree to enter into any and all
reasonable amendments to this Agreement or additional agreements and to execute
all documents and instruments which counsel to CEXCO deems necessary or
appropriate to memorialize the intent of the parties hereto.
13. CPCO will provide all accounting services, including accounting, financial
statements, payroll, accounts payable etc. to CBJV at no cost during the first
year of this Agreement; thereafter such services will be provided at cost. CPCO
shall also provide land and engineering services at cost. Bechtel will provide
services to CBJV, including but not limited to geological, geophysical and other
technical services. The parties agree that such services shall be provided to
CBJV at Bechtel's cost.
The agreement of the parties are evidenced by their signatures below.
Blue Moon Exploration Company Cliffwood Production Co.
/S/ MICHAEL J. BECHTEL /S/ FRANK A. LODZINSKI
Michel J. Bechtel , President Frank A. Lodzinski,President
Cliffwood Exploration Company Bechtel Exploration Company
/S/ FRANK A. LODZINSKI /S/ MICHEL J. BECHTEL
Frank A. Lodzinski, President Michel J. Bechtel, President
EXHIBIT 10.34
CLIFFWOOD OIL & GAS CORP.
1997 STOCK OPTION PLAN
I. PURPOSE
The purpose of the CLIFFWOOD OIL & GAS CORP. 1997 STOCK OPTION PLAN (the
"Plan") is to provide a means through which CLIFFWOOD OIL & GAS CORP., a Texas
corporation (the "Company"), and its subsidiaries may enable persons to enter
the employ of the Company and to provide a means whereby key employees upon whom
the responsibilities of the successful administration and operation of the
Company rest, and whose present and potential contributions to the success of
the Company are of importance, can acquire and maintain stock ownership, thereby
strengthening their concern for the welfare of the Company and their desire to
continue in its employ. A further purpose of the Plan is to provide such key
employees with additional incentive and reward opportunities designed to enhance
the profitable growth of the Company. Accordingly, the Plan provides for
granting Incentive Stock Options, options which do not constitute Incentive
Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Performance
Awards, Phantom Stock Awards, or any combination of the foregoing as is best
suited to the circumstances of the particular employee as provided HEREIN.
II. DEFINITIONS
The following definitions shall be applicable throughout the Plan unless
specifically modified by any paragraph:
(a)"Award" means, individually or collectively, any Option, Restricted
Stock Award, Phantom Stock Award, Performance Award or Stock Appreciation
Right.
(b)"Board" means the Board of Directors of the Company.
(c)"Change of Control" means the occurrence of any of the following events:
(I) the Company shall not be the surviving entity in any merger, consolidation
or other reorganization (or survives only as a subsidiary of an entity other
than a previously wholly owned subsidiary of the Company), (ii) the Company
sells, leases or exchanges all or substantially all of its assets to any other
person or entity (other than a wholly-owned subsidiary of the Company), (iii)
the Company is to be dissolved and liquidated, (iv) any person or entity,
including a "group" as contemplated by Section 13(d)(3) of the 1934 Act,
acquires or gains ownership or control (including without limitation, power to
vote) of more than 50% of the outstanding shares of the Company's voting stock
(based upon voting, power), or (v) as a result of or in connection with a
contested election of directors, the persons who were directors of the Company
before such election shall cease to constitute majority of the Board.
(d)"Change of Control Value" shall mean (i) the per share price offered to
stockholders of the Company In any such merger. consolidation, reorganization,
sale of assets or dissolution transaction, (i) the price per share offered to
stockholders of the company in any tender offer or exchange offer whereby a
Change of Control takes place, (iii) if such Change of Control occurs other than
pursuant to a tender or exchange offer, (iv) the Fair Market Value per share of
the shares into which Awards are exercisable, as determined by the Committee,
whichever is applicable. In the event that the consideration offered to
stockholders of the Company consists of anything other than cash, the Committee
shall determine the fair cash equivalent of the portion of the consideration
offered which is other then cash.
(e)"Code" means the Internal Revenue Code of 1986, as amended. Reference in
the Plan to any section of the Code shall be deemed to include any amendments or
successor provisions to any section and any regulations under such section.
(f)"Committee" means the Compensation Committee of the Board which shall be
(i) constituted so as to permit the Plan to comply with Rule 16b-3 and (ii)
constituted solely of "outside directors," within the meaning of section 162(m)
of the Code and applicable interpretive authority thereunder.
(g)"Company" means Cliffwood Oil & Gas Corp.
(H) "Director" means an individual elected to the Board by the
stockholders of the Company or by the Board under applicable corporate law who
is serving on the Board on the date the Plan is adopted by the Board or is
elected to the Board after such date.
(i)An "employee" means any person (including an officer or a Director) in an
employment relationship with the Company or any parent or subsidiary corporation
(as defined in section 424 of the Code).
(j)"1934 Act" means the Securities Exchange Act of 1934, as amended.
(k)"Fair Market Value" means, as of any specified date, the last sales price
of the Stock (i) reported by the National Market System of NASDAQ on that date
or (ii) if the Stock is listed on a national stock exchange, reported on the
stock exchange composite tape on that date; or, in either case, if no prices are
reported on that date, on the last preceding date on which such prices of the
Stock are so reported. If the Stock is traded over the counter at the time a
determination of its fair market value is required to be made hereunder, its
fair market value shall be deemed to be equal to the last sales price of Stock
on the most recent date on which Stock was publicly traded. In the event the
Stock is not publicly traded at the time a determination of its fair market
value is required to be made hereunder, determination of its fair market value
shall be made by the Committee in such manner as it deems appropriate.
(l)"Holder" means an employee who has been granted an Award.
<PAGE>
(m)"Incentive Stock Option" means an incentive stock option within the
meaning of section 422(b) of the Code.
(N) "Option" means an Award granted under Paragraph VII of the Plan and
includes both Incentive Stock Options to purchase Stock and Options which do not
qualify as Incentive Stock Options to purchase Stock.
(o)"Option Agreement" means a written agreement between the Company and a
holder with respect to an Option.
(p)"Performance Award" means an Award granted under Paragraph X of the
Plan.
(q)"Performance Award Agreement" means a written agreement between the
Company and a Holder with respect to a Performance Award.
(r)"Phantom Stock Award" means an Award granted under Paragraph XI of the
Plan.
(s)"Phantom Stock Award Agreement" means a written agreement between the
Company and a Holder with respect to a Phantom Stock Award
(t)"Plan" means the Cliffwood Oil & Gas Corp. 1997 Stock Option Plan, as
amended from time to time.
(u)"Restricted Stock Agreement" means a written agreement between the
Company and a holder with respect to a Restricted Stock Award.
(v)"Restricted Stock Award" means an Award granted under Paragraph IX of
the Plan.
(w)"Rule 16b-3" means SEC Rule 16b-3 promulgated under the 1934 Act, as
such may be amended from time to time, and any successor rule, regulation or
statute fulfilling the same or a similar function.
(x)"Spread" means, in the case of a Stock Appreciation Right an amount
equal to the excess, if any, of the Fair Market Value of a share of Stock on the
date such right is exercised over the exercise price of such Stock Appreciation
Right.
(y)"Stock" means the common stock of the Company.
(z)"Stock Appreciation Right" means an Award granted under Paragraph VIII
of the Plan.
(aa) "Stock Appreciation Rights Agreement" means a written agreement
between the Company and a Holder with respect to an Award of Stock Appreciation
Rights.
<PAGE>
III. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall be effective upon the date of its adoption by the Board,
provided that the Plan is approved by the stockholders of the Company within
twelve months thereafter. No further Awards may be granted under the Plan after
the expiration of ten years from the date of its adoption by the Board. The Plan
shall remain in effect until all Awards granted under the Plan have been
satisfied or expired.
IV. ADMINISTRATION
(a) COMMITTEE. The Plan shall be administered by the Committee.
(b) POWERS. Subject to the provisions of the Plan, the Committee shall have
sole authority in its discretion, to determine which employees shall receive an
Award, the time or times when such Award shall be made, whether an Incentive
Stock Option, non-qualified Option or Stock Appreciation Right shall be granted,
the number of shares of Stock which may be issued under each Option. Stock
Appreciation Right or Restricted Stock Award, and the value of each Performance
Award and Phantom Stock Award. In making such determinations the Committee may
take into account the nature of the services rendered by the respective
employees, their present and potential contribution to the Company's success and
such other factors as the Committee in its discretion shall deem relevant.
(c) ADDITIONAL POWERS. The Committee shall have such additional powers as
are delegated to it by the other provisions of the Plan. Subject to the express
provisions of the Plan, the Committee is authorized to construe the Plan and the
respective agreements executed thereunder, to prescribe such rules and
regulations relating to the Plan as it may deem advisable to carry out the Plan,
and to determine the terms, restrictions and provisions of each Award, including
such terms, restrictions and provisions as shall be requisite in the judgment of
the Committee to cause designated Options to quality as Incentive Stock Options,
and to make all other determinations necessary or advisable for administering
the Plan. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in any agreement relating to an Award in the manner
and to the extent it shall deem expedient to carry it into effect. The
determinations of the Committee on the matters referred to in this Article IV
shall be conclusive.
V. GRANT OF OPTIONS, STOCK APPRECIATION RIGHTS,
RESTRICTED STOCK AWARDS,
PERFORMANCE AWARDS,
AND PHANTOM STOCK AWARDS;
SHARES SUBJECT TO THE PLAN
(a) Stock Grant and Award Limits. The Committee may from time to time
grant to one or more employees determined by it to be eligible for participation
in the Plan in accordance with the provisions of Paragraph VI. Subject to
Paragraph XII, the total number of shares of Stock that may be issued under the
Plan shall not exceed 1,000,000 shares. Shares shall be deemed to have been
issued under the Plan only (i) to the extent actually issued and delivered
pursuant to an Award, or (ii) to the extent an Award exercised under Paragraph
VII, VIII, IX or XI is settled in cash. To the extent that an Award lapses or
the rights of its Holder terminate, any shares of Stock subject to such Award
shall again be available for the grant of an Award. Separate stock certificates
shall be issued by the Company for those shares acquired pursuant to the
exercise of an Incentive Stock Option and for those shares acquired pursuant to
the exercise of any Option which does not constitute an Incentive Stock Option.
Notwithstanding any provision in the Plan to the contrary, the maximum number of
shares of Stock that may be subject to Awards granted to any one employee during
any calendar year is 100,000 shares of Stock (subject to adjustment in the same
manner as provided in Paragraph XII with respect to shares of Stock subject to
Awards then outstanding). The limitation set forth in the preceding sentence
shall be applied in a manner which will permit compensation generated in
connection with the exercise of Options and Stock Appreciation Rights and, if
determined by the Committee, Restricted Stock Awards to constitute
"performance-based" compensation for purposes of section 162(m) of the Code,
including, without limitation, counting against such maximum number of shares,
to the extent required under section 162(m) of the Code and applicable
interpretive authority thereunder, any shares subject to Options, Stock
Appreciation Rights and, if applicable, Restricted Stock Awards, that are
canceled or expire.
(b) STOCK OFFERED. The stock to be offered pursuant to the grant of an
Award may be authorized but unissued Stock or Stock previously issued and
outstanding and reacquired by the Company.
VI. ELIGIBILITY
Awards may be granted only to persons who, at the time of grant, are key
employees. Awards may not be granted to any Director who is not an employee. An
Award may be granted on more than one occasion to the same person, and, subject
to the limitations set forth in the Plan, such Award may include an Incentive
Stock Option or an Option which is not an Incentive Stock Option, a Stock
Appreciation Right, a Restricted Stock Award, a Performance Award, a Phantom
Stock Award or any combination thereof.
VII. STOCK OPTIONS
(a) OPTION PERIOD. The term of each Option shall be as specified by
the committee at the date OF grant.
(b) LIMITATIONS ON EXERCISE OF OPTION. An Option shall be exercisable in
whole or in such installments and at such times as determined by the Committee.
(c) SPECIAL LIMITATIONS ON INCENTIVE STOCK OPTIONS. To the extent that the
aggregate Fair Market Value (determined at the time the respective Incentive
Stock Option is granted) of Stock with respect to which Incentive Stock Options
granted after 1986 are exercisable for the first time by an individual during
any calendar year under all incentive stock option plans of the Company and its
parent and subsidiary corporations exceeds $100,000, such Incentive Stock
Options shall be treated as options which do not constitute Incentive Stock
Options. The Committee shall determine, in accordance with applicable provisions
of the Code, Treasury Regulations and other administrative pronouncements, which
of all optionee's Incentive Stock Options will not constitute Incentive Stock
Options because of such limitation and shall notify the optionee of such
determination as soon as practicable after such determination. No Incentive
Stock Option shall be granted to an individual if, at the time the Option is
granted, such individual owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or of its parent or
subsidiary corporation, within the meaning of section 422(b)(6) of the Code,
unless (i) at the time such Option is granted the option price is at least 110%
of the Fair Market Value of the Stock subject to the Option and (ii) such Option
by its terms is not exercisable after the expiration of five years from the date
of grant.
(d) OPTION AGREEMENT. Each Option shall be evidenced by an Option Agreement
in such form and containing such provisions not inconsistent with the provisions
of the Plan as the Committee from time to time shall approve, including, without
limitation, provisions to qualify an Incentive Stock Option under section 422 of
the Code. An Option Agreement may provide for the payment of the option price,
in whole or in part. by the delivery of a number of shares of Stock (plus cash
if necessary) having a Fair Market Value equal to such option price. Each Option
Agreement shall provide that the Option may not be exercised earlier than six
months from the date of grant and shall specify the effect of termination of
employment on the exercisability of the Option. Moreover, an Option Agreement
may provide for a "cashless exercise" of the Option by establishing procedures
whereby the Holder, by a properly-executed written notice, directs (i) an
immediate market sale or margin loan respecting all or a part of the shares of
Stock to which he is entitled upon exercise pursuant to an extension of credit
by the Company to the Holder of the option price, (ii) the delivery of the
shares of Stock from the Company directly to a brokerage firm and (iii) the
delivery of the option price from sale or margin loan proceeds from the
brokerage firm directly to the Company. Such Option Agreement may also include,
without limitation, provisions relating to (i) subject to the provisions hereof
accelerating such vesting on a Change of Control, vesting of Options, (ii) tax
matters (including provisions (y) permitting the delivery of additional shares
of Stock or the withholding of shares of Stock from those acquired upon exercise
to satisfy federal or state income tax withholding requirements and (z) dealing
with any other applicable employee wage withholding requirements). and (iii) any
other matters not inconsistent with the terms and provisions of the Plan that
the Committee shall in its sole discretion determine. 'The terms and provisions
of the respective Option Agreements need not be identical.
(e) OPTION PRICE AND PAYMENT. The price at which a share of Stock may be
purchased upon exercise of an Option shall be determined by the Committee, but
(i) such price shall not be less than the Fair Market Value of Stock subject to
the Option on the date the Option is granted and (ii) such purchase price shall
be subject to adjustment provided in Paragraph XII. The Option or portion
thereof may be exercised by delivery irrevocable notice of exercise to the
Company. The purchase price of the Option or portion thereof shall be paid in
full in the manner prescribed by the Committee.
(f) STOCKHOLDER RIGHTS AND PRIVILEGES. The Holder shall be entitled to all
the privileges and rights of a stockholder only with respect to such shares of
Stock as have been purchased under the Option and for which certificates of
stock have been registered in the Holder's name.
(g) OPTIONS AND RIGHTS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY OTHER
CORPORATIONS. Options and Stock Appreciation Rights may be granted under the
Plan from time to time in substitution for stock options held by individuals
employed by corporations who become employees as a result of a merger or
consolidation of the employing corporation with the Company or any subsidiary,
or the acquisition by the Company or a subsidiary of the assets of the employing
corporation, or the acquisition by the Company or a subsidiary of stock of the
employing corporation with the result that such employing corporation becomes a
subsidiary.
VIII. STOCK APPRECIATION RIGHTS
(A) STOCK APPRECIATION RIGHTS. A Stock Appreciation Right is the right to
receive an amount equal to the Spread with respect to a share of Stock upon the
exercise of such Stock Appreciation Right. Stock Appreciation Rights may be
granted in connection with the grant of an Option, in which case the Option
Agreement will provide that exercise of Stock Appreciation Rights will result in
the surrender of the right to purchase the shares under the Option as to which
the Stock Appreciation Rights were exercised. Alternatively, Stock Appreciation
Rights may be granted independently of Options in which case each Award of Stock
Appreciation Rights shall be evidenced by a Stock Appreciation Rights Agreement
which shall contain such terms and conditions as may be approved by the
Committee. The terms and conditions of the respective Stock Appreciation Rights
Agreements need not be identical. The Spread with respect to a Stock
Appreciation Right may be payable either in cash, shares of Stock with a Fair
Market Value equal to the Spread or in a combination of cash and shares of
Stock. With respect to Stock Appreciation Rights that are subject to Section 16
of the 1934 Act however, the Committee shall except as provided in Paragraph XII
(c), retain sole discretion (i) to determine the form in which payment of the
Stock Appreciation Right will be made (I.E., cash, securities or any combination
thereof or (ii) to approve an election by a Holder to receive cash in full
settlement of Stock Appreciation Rights. Each Stock Appreciation Rights
Agreement shall provide that the Stock Appreciation Rights may not be exercised
earlier than six months from the date of grant and shall specify the effect of
termination of employment on the exercisability of the Stock Appreciation
Rights.
(B) EXERCISE PRICE. The exercise price of each Stock Appreciation Right shall
be determined by the Committee, but such exercise price (i) shall not be less
than the Fair Market Value of a share of Stock on the date the Stock
Appreciation Right is granted (or such greater exercise price as may be required
if such Stock Appreciation Right is granted in connection with an Incentive
Stock Option that must have an exercise price equal to 110% of the Fair Market
Value of the Stock on the date of grant pursuant to Paragraph VII(c), and (ii)
shall be subject to adjustment as provided in Paragraph XII.
(C) EXERCISE PERIOD. The term of each Stock
Appreciation Right shall be as specified by the Committee at the date of
grant.
(D) LIMITATIONS ON EXERCISE of STOCK APPRECIATION RIGHT. A Stock Appreciation
Right shall be exercisable in whole or in such installments and at such times as
determined by the Committee.
IX. RESTRICTED STOCK AWARDS
(a) FORFEITURE RESTRICTIONS TO BE ESTABLISHED BY THE COMMITTEE. Shares of
Stock that are the subject of a Restricted Stock Award shall be subject to
restrictions on disposition by the Holder and an obligation of the Holder to
forfeit and surrender the shares to the Company under certain circumstances (the
"Forfeiture Restrictions"). The Forfeiture Restrictions shall be determined by
the Committee in its sole discretion, and the Committee may provide that the
Forfeiture Restrictions shall lapse upon (i) the attainment of targets
established by the Committee that are based on (i) the price of a share of
Stock, (2) the Company's earnings per share, (3) the Company's revenue, (4) the
revenue of a business unit of the Company designated by the Committee, (5) the
return on stockholders' equity achieved by the Company, or (6) the Company's
pre-tax cash flow from operations (ii) the Holder's continued employment with
the Company for a specified period of time, or (iii) a combination of any two or
more of the factors listed in clauses (i) and (ii) of this sentence. Each
Restricted Stock Award may have different Forfeiture Restrictions, in the
discretion of the Committee. The Forfeiture Restrictions applicable to a
particular Restricted Stock Award shall not be changed except as permitted by
Paragraph IX(b) or Paragraph XII.
(b) OTHER TERMS AND CONDITIONS. Stock awarded pursuant to a Restricted Stock
Award shall be represented by a stock certificate registered in the name of the
Holder of such Restricted Stock Award. The Holder shall have the right to
receive dividends with respect to Stock subject to a Restricted Stock Award, to
vote Stock subject thereto and to enjoy all other stockholder rights, except
that (i) the Holder shall not be entitled to delivery of the stock certificate
until the Forfeiture Restrictions shall have expired, (ii) the Company shall
retain custody of the Stock until the Forfeiture Restrictions shall have
expired, and (iii) the Holder may not sell, transfer, pledge, exchange,
hypothecate or otherwise dispose of the shares until the Forfeiture Restrictions
shall have expired, and (iv) a breach of the terms and conditions established by
the Committee pursuant to the Restricted Stock Agreement. shall constitute
forfeiture of the Restricted Stock Award. At the time of such Award, the
Committee may, in its sole discretion, prescribe additional terms, conditions or
restrictions with respect to Restricted Stock Awards, including, but not limited
to, rules pertaining to the termination of employment (by retirement,
disability, death or otherwise) of a Holder prior expiration of the Forfeiture
Restrictions. Such additional terms, conditions or restrictions shall be set
forth in a Restricted Stock Agreement made in conjunction with the Award. The
Restricted Stock Agreement may also include, without limitation, provisions
relating to (i) subject to the provisions hereof regarding accelerating vesting
on a Change of Control, vesting of Awards, (ii) tax matters (including
provisions (y) covering any applicable employee wage withholding requirements
and (z) prohibiting an election by the Holder under section 83(b)of the Code,
and (iii) any other matters not inconsistent with the terms and provisions of
the Plan that the Committee shall in its sole discretion determine. The terms
conditions of the respective Restricted Stock Agreements need not be identical.
(C) PAYMENT FOR RESTRICTED STOCK. The Committee shall determine the amount
and method of any payment for Stock received pursuant to a Restricted Stock
Award, provided that in the absence of such a determination, a Holder shall not
be required to make any payment for Stock received pursuant to a Restricted
Stock Award, except to the extent otherwise required by law.
(d) AGREEMENTS. At the time any Award is made under this Paragraph IX, the
Company and the Holder shall enter into a Restricted Stock Agreement setting
forth each of the matters contemplated hereby and such other matters as the
Committee may determine to be appropriate. The terms and provisions of the
respective Restricted Stock Agreements need not be identical.
X. PERFORMANCE AWARDS
(a) PERFORMANCE PERIOD. The Committee shall establish, with respect to and at
the time of each Performance Award, a performance period over which the
performance of the Holder shall be measured.
(b) PERFORMANCE AWARDS. Each Performance Award shall have a maximum value
established by the Committee at the time of such Award.
(c) PERFORMANCE MEASURES. A Performance Award shall be awarded to an employee
contingent upon future performance of the employee. the Company or any
subsidiary, division or department thereof by or in which he is employed during
the performance period. The Committee shall establish the performance measures
applicable to such performance prior to the beginning of the performance period
but subject to such later revisions as the Committee shall deem appropriate to
reflect significant, unforeseen events or changes.
(D) AWARDS CRITERIA. In determining the value of Performance Awards, the
committee shall take into account an employee's responsibility level,
performance, potential, Awards and such other considerations it deems
appropriate.
(E) PAYMENT. Following the end of the performance period, the Holder of a
Performance Award shall be entitled to receive payment of an amount, not
exceeding the fair market value of the Performance Award, based on the
achievement of the performance measures for such performance period, as
determined by the Committee. Payment of a Performance Award may be made in cash,
Stock or a combination thereof, as determined by the Committee. Payment shall be
made in a lump sum or in installments as prescribed by the Committee. Any
payment to be made in Stock shall be based on the Fair Market Value of the Stock
on the payment date. If a payment of cash is to be made on a deferred basis the
Committee shall establish whether interest shall be credited, the rate thereof
and any other terms and conditions applicable thereto.
(F) TERMINATION OF EMPLOYMENT. A Performance Award shall terminate if the
Holder does not remain continuously in the employ of the Company at all times
during the applicable performance period, except as may be determined by the
Committee or as may otherwise be provided in the Award at the time granted.
(g) AGREEMENTS. At the time any Award is made under this Paragraph X, the
Company and the Holder shall enter into a Performance Award Agreement setting
forth each of the matters contemplated hereby, and, in addition such matters as
are set forth in Paragraph IX(b) as the Committee may determine to be
appropriate. The terms and provisions of the respective agreements need not be
identical.
XI. PHANTOM STOCK AWARDS
(A) PHANTOM STOCK AWARDS. Phantom Stock Awards are rights to receive shares
of Stock (or cash in an amount equal to the Fair Market Value thereof), or
rights to receive an amount equal to any appreciation in the Fair Market Value
of Stock (or portion thereof) over a specified period of time, which vest over a
period of time or upon the occurrence of an event (including without limitation
a Change of Control) as established by the Committee, without payment of any
amounts by the Holder thereof (except to the extent otherwise required by law)
or satisfaction of any performance criteria or objectives. Each Phantom Stock
Award shall have a maximum value established by the Committee at the time of
such Award.
(b) AWARD PERIOD. The Committee shall establish, with respect to and at the
time of each Phantom Stock Award, a period over which or the event upon which
the Award shall vest with respect to the Holder.
(c) AWARDS CRITERIA. In determining the value of Phantom Stock Awards, the
Committee shall take into account an employee's responsibility level,
performance, potential, other Awards and such other considerations as it deems
appropriate.
(d) PAYMENT. Following the end of the vesting period for a Phantom Stock
Award the Holder of a Phantom Stock Award shall be entitled to receive payment
of an amount not exceeding the maximum value of the Phantom Stock Award, based
on the then vested portion of the Award. Payment of a Phantom Stock Award may be
made in cash, Stock or a combination thereof as determined by the Committee.
Payment shall be made in a lump sum or in installments as prescribed by the
Committee in its sole discretion. Any payment made in Stock shall be based on
the Fair Market Value of the Stock on the payment date. Cash dividend
equivalents may be paid during or after the vesting period with respect any
Phantom Stock Award, as determined by the Committee. If a payment of cash is to
be made on a deferred basis, the Committee shall establish whether interest
shall be credited, the rate thereof and any other terms and conditions
applicable thereto.
(e) TERMINATION OF EMPLOYMENT. A Phantom Stock Award shall terminate if the
Holder. does not remain continuously in the employ of the Company at all times
during the applicable vesting period, except as may be otherwise determined by
the Committee or as set forth in the Award at the time of grant.
(f) AGREEMENTS. At the time any Award is made under this Paragraph XI, the
COMPANY and the Holder shall enter into a Phantom Stock Award Agreement setting
forth each of the matters contemplated hereby and, in addition such matters as
are set forth in Paragraph IX(b) as the Committee may determine to be
appropriate. The terms and provisions of the respective agreements need not be
identical.
XII. RECAPITALIZATION OR REORGANIZATION
(a) The shares with respect to which Awards may be granted are shares of
Stock as presently constituted, but if, and whenever, prior to the expiration of
an Award theretofore granted, the Company shall effect a subdivision or
consolidation of shares of Stock or the payment of a stock dividend on Stock
without receipt of consideration by the Company, the number of shares of Stock
with respect to which such Award may thereafter be exercised or satisfied, as
applicable, (i) in the event of an increase in the number of outstanding shares
shall be proportionately increased, and the purchase price per share shall be
proportionately reduced, and (ii) in the event of a reduction in the number of
outstanding shares shall be proportionately reduced, and the purchase price per
share shall be proportionately increased.
(b) If the Company recapitalizes or otherwise changes its capital
structure, thereafter upon any exercise or satisfaction, as applicable, of an
Award theretofore granted the Holder shall be entitled to (or entitled to
purchase, if applicable) under such Award, in lieu of the number of shares of
Stock then covered by such Award, the number and class of shares of stock and
securities to which the Holder would have been entitled pursuant to the terms of
the recapitalization if, immediately prior to such recapitalization, the Holder
had been the holder of record of the number of shares of Stock then covered by
such Award.
(c) In the event of a Change of Control, outstanding Awards other than
Options immediately vest and become exercisable or satisfiable, as applicable.
The Committee, in its discretion, may determine that upon the occurrence of a
Change of Control, each award other than an Option outstanding hereunder shall
terminate within a specified number of days after notice to the Holder, and such
Holder shall receive, with respect to each share of Stock subject to such Award,
cash in an amount equal to the excess, if any, of the Change of Control Value.
Further, in the event of a Change of Control, the Committee, in its discretion
shall act to effect one or more of the following alternatives with respect to
outstanding Options, which may vary among individual Holders and which may vary
among Options held by any individual Holder: (1) accelerate the time at which
Options outstanding may be exercised so that such Options may be exercised in
full for a specified period of time on or before a specified date (before or
after such Change of Control value is fixed by the Committee, after which
specified date all unexercised Options and all rights of Holders thereunder
shall terminate, (2) require the mandatory surrender to the Company by selected
Holders of some or all of the outstanding Options held by such Holder
(irrespective of whether such Options are then exercisable under the provisions
of the Plan) as of a date, before or after such Change of Control, specified by
the Committee, in which event the Committee shall thereupon cancel such Options
and the Company shall pay to each Holder an amount of cash per share equal to
the excess, it any, of the Change of Control Value of the shares subject to such
Option over the exercise price(s) under such Options for such shares, (3) make
such adjustments to Options then outstanding as the Committee deems appropriate
to reflect such Change of Control (provided, however, that the Committee may
determine in its sole discretion that no adjustment is necessary to Options then
outstanding) or (4) provide that thereafter upon any exercise of an Option
theretofore granted the Holder shall be entitled to purchase under such Option,
in lieu of the number of shares of Stock then covered by such Option the number
and class of shares of stock or other securities or property (including, without
limitation, cash) to which the Holder would have been entitled pursuant to the
terms of the agreement of merger, consolidation or sale of assets and
dissolution if, immediately prior to such merger, consolidation or sale of
assets and dissolution the Holder had been the holder of record of the number of
shares of Stock then covered by such Option. The provisions contained in this
paragraph shall be inapplicable to an Award granted within six (6) months before
the occurrence of a Change Of Control if the Holder of such Award is subject to
the reporting requirements of Section 16(a) of the 1934 Act. The provisions
contained in this paragraph shall not terminate any rights of the Holder to
further payments pursuant to any other agreement with the Company following a
Change of Control.
(d) In the event of changes in the outstanding Stock by reason of
recapitalization, reorganization, mergers, consolidations, combinations,
exchanges or other relevant changes in capitalization occurring after the date
of the grant of any Award and not otherwise provided for by this Paragraph XII,
any outstanding Awards and any agreements evidencing such Awards shall be
subject to adjustment by the Committee at its discretion as to the number and
price of shares of Stock or other consideration subject to such Awards. In the
event of any such change in the outstanding Stock, the aggregate number of
shares available under the Plan may be appropriately adjusted by the Committee,
whose determination shall be conclusive.
(e) The existence of the Plan and the Awards granted hereunder shall not
affect in any way the right or power of the Board or the stockholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company any issue of debt or equity securities ahead of or
affecting Stock or the rights thereof, the dissolution or liquidation of the
Company or any sale, lease, exchange or other disposition of all or any part of
its assets or business or any other corporate act of proceeding.
(f) Any adjustment provided for in Subparagraphs (a), (b), (c) or (d) above
shall be subject to any required stockholder action.
(g) Except as hereinbefore expressly provided, the issuance by the Company
of shares of stock of any class or securities convertible into shares of stock
of any class, for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefore, or upon conversion of
shares of obligations of the Company convertible into such shares or other
securities, and in any case whether or not for fair value, shall not affect, and
no adjustment by reason thereof shall be made with respect to the number of
shares of Stock subject to Awards theretofore granted or the purchase price per
share, if applicable.
XIII. AMENDMENT AND TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with respect
to any shares for which Awards have not theretofore been granted. The Board
shall have the right to alter or amend the Plan or any part thereof from time to
time; provided that no change in any Award theretofore granted may be made which
would impair the rights of the Holder without the consent of the Holder (unless
such change is required in order to cause the benefits under the Plan to quality
as performance-based compensation within the meaning of section 162(m) of the
Code and applicable interpretive authority thereunder), and provided, further,
that the Board may not, without approval of the stockholders, amend the Plan:
(a) to increase the maximum number of shares which may be issued on
exercise or surrender of an Award, except as provided in Paragraph XII;
(b) to change the Option price;
(c) to change the class of employees eligible to receive Awards or
materially modify the benefits accruing to employees under the Plan;
(d) to extend the maximum period during which Awards may be granted under the
Plan;
(e) to modify materially the requirements as to eligibility for participation
in the Plan; or
(f) to decrease any authority granted to the Committee hereunder in
contravention of Rule 16b-3.
XIV. MISCELLANEOUS
(a) NO RIGHT TO AN AWARD. Neither the adoption of the Plan by the Company
nor any action of the Board or the Committee shall be deemed to give an employee
any right to be granted an Award to purchase Stock, A right to a Stock
Appreciation Right, a Restricted Stock Award, a Performance Award or a Phantom
Stock Award or any of the rights hereunder except as may be evidenced by an
Award or by an Option Agreement, Stock Appreciation Rights Agreement, Restricted
Stock Agreement. Performance Award Agreement or Phantom Stock Award Agreement
duly executed on behalf of the Company and then only to the extent and on the
terms and conditions expressly set forth therein. The Plan shall be unfunded.
The Company shall not be required to establish any special or separate fund or
to make any other segregation of funds or assets to assure the payment of any
Award.
(b) NO EMPLOYMENT RIGHTS CONFERRED. Nothing contained in the Plan shall (i)
confer upon any employee any right with respect to continuation of employment
with the Company or any subsidiary or (ii) interfere in any way with the right
of the Company or any subsidiary to terminate his or her employment at any time.
(c) OTHER LAWS; WITHHOLDING. The Company shall not be obligated to issue any
Stock pursuant to any Award granted under the Plan at any time when the shares
covered by such Award have not been registered under the Securities Act of 1933
and such other state and federal laws, rules or regulations as the Company or
the Committee deems applicable and, in the opinion of legal counsel for the
Company, there is no exemption from the registration requirements of such laws,
rules or regulations available for the issuance and sale of such shares. No
fractional shares of Stock shall be delivered, nor shall any cash in lieu of
fractional shares be paid. The Company shall have the right to deduct in
connection with all Awards any taxes required by law to be withheld and to
require any payments required to enable it to satisfy its withholding
obligations.
(d) NO RESTRICTION ON CORPORATE ACTION. Nothing contained in the Plan shall
be construed to prevent the Company or any subsidiary from taking any corporate
action which is deemed by the Company or such subsidiary to be appropriate or in
its best interest whether or not such action would have an adverse effect on the
Plan or any Award made under the Plan. No employee, beneficiary or other person
shall have any claim against the Company or any subsidiary as a result of any
such action.
(E) RESTRICTIONS ON TRANSFER. An Award shall not be transferable
otherwise than by will or the laws of decent and distribution or pursuant to a
"qualified domestic relations order" as defined by the Code or Title I of the
Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder, and shall be exercisable during the Holder's lifetime only by such
Holder or the Holder's guardian or legal representative.
(F) RULE 16B-3. It is intended that the Plan and any grant of an
Award made to a person subject to Section 16 of the 1934 Act meet all of the
requirements of Rule 16b-3. If any provision of the Plan or any such Award would
disqualify the Plan or such Award under, or would otherwise not comply with,
Rule 16b-3, such provision or Award shall be construed or deemed amended to
conform to Rule 16b-3.
(G) SECTION 162(M). It is intended that the Plan comply fully with and
meet all requirements Section 162(m) of the Code so that Options and Stock
Appreciation rights granted hereunder and, if determined by the Committee,
Restricted Stock Awards, constitute "performance-based" compensation within the
meaning of such section. If any provision of the Plan would disqualify the Plan
or would not otherwise permit the Plan to comply with Section 162(m) as so
intended, such provision shall be construed or deemed amended to conform to the
requirements or provisions of Section 162(m); provided that no construction or
amendment shall have an adverse effect on the economic value to a Holder of any
Award previously granted hereunder.
(H) GOVERNING LAW. This Plan shall be construed in accordance with the
laws of the state of Texas.
EXHIBIT 10.35
INCENTIVE STOCK OPTION AGREEMENT
AGREEMENT made this day of , 1997, between CLIFFWOOD OIL & GAS CORP. a
Texas corporation (the "Company"), and _____________.
("Employee").
To carry out the purposes of the CLIFFWOOD OIL & GAS CORP. 1997 STOCK
OPTION PLAN (the "Plan"), by affording Employee the opportunity to purchase
shares of the common stock of the Company ("Stock"), and in consideration of the
mutual agreements and other matters set forth herein and in the Plan, the
Company and Employee hereby agree as follows:
1. GRANT OF OPTION. The Company hereby grants to Employee the right and
option ("Option") to purchase all or any part of an aggregate of shares of
Stock, on the terms and conditions set forth herein and in the Plan, which Plan
is incorporated herein by reference as a part of this Agreement. This Option is
intended to constitute an incentive stock option, within the meaning of Section
422(b) of the Internal Revenue Code of 1986, as amended (the "Code").
2. PURCHASE PRICE. The purchase price of Stock purchased pursuant to the
exercise of this Option shall be per share, which has been determined to be not
less than the Fair Market Value of the Stock at the date of grant of this
Option. For all purposes of this Agreement, Fair Market Value of Stock shall be
determined in accordance with the provisions of the Plan.
3. EXERCISE OF OPTION. Subject to the earlier expiration of this Option as
herein provided, this Option may be exercised, by written notice to the Company
at its principal executive office addressed to the attention of its Secretary,
at any time and from time to time after the date of grant hereof, but, except as
otherwise provided below, this Option shall not be exercisable for more than a
percentage of the aggregate number of shares offered by this Option determined
by the number of full years from the date of grant hereof to the date of such
exercise, in accordance with the following schedule:
PERCENTAGE OF SHARES
NUMBER OF FULL YEARS THAT MAV BE PURCHASED
Less than - 1 years 0%
1 years 33.33%
2 years 66.66%
3 years or more 100.00%
<PAGE>
This Option may be exercised only while Employee remains an employee
of the Company and will terminate and cease to be exercisable upon Employee's
termination of employment with the Company, except that:
(a) If Employee's employment with the Company terminates by reason
of disability (within the meaning of Section 22(e)(3) of the Code), this Option
may be exercised in full by Employee (or Employee's estate or the person who
acquires this Option by will or the laws of descent and distribution or
otherwise by reason of the death of Employee) at any time during the period of
one year following such termination.
(b) If Employee dies while in the employ of the Company, Employee's
estate, or the person who acquires this Option by will or the laws of descent
and distribution or otherwise by reason of the death of Employee, may exercise
this Option in full at any time during the period of one year following the date
of Employee's death.
(c) If Employee's employment with the Company terminates for any
reason other than as described in (a) or (b) above, unless Employee voluntarily
terminates such employment or such employment is terminated for cause, this
Option may be exercised by Employee at any time during the period of three
months following such termination, or by Employee's estate (or the person who
acquires this Option by will or the laws of descent and distribution or
otherwise by reason of the death of Employee) during a period of one year
following Employee's death if Employee dies during such three-month period, but
in each case only as to the number of shares Employee was entitled to purchase
hereunder upon exercise of this Option as of the date Employee's employment so
terminates. The Committee appointed by the Board of Directors of the Company to
administer the Plan (the "Committee") may, in it sole discretion, advise
Employee in writing, prior to a voluntary termination of Employee's employment,
that such termination will be treated for purposes of this paragraph as an
involuntary termination for a reason other than cause. As used in this
paragraph, the term "cause" shall mean Employee's gross negligence or willful
misconduct in performance of the duties of his employment, or Employee's final
conviction of a felony or of a misdemeanor involving moral turpitude.
This Option shall not be exercisable in any event after the expiration of ten
years from the date of grant hereof. The purchase price of shares as to which
this Option is exercised shall be paid in full at the time of exercise (a) in
cash (including check, bank draft or money order payable to the order of the
Company), or (b) by delivering to the Company shares of Stock having a fair
market value equal to the purchase price, or (c) a combination of cash and
Stock. No fraction of a share of Stock shall be issued by the Company upon
exercise of an Option or accepted by the Company in payment of the exercise
price thereof; rather, Employee shall provide a cash payment for such amount as
is necessary to effect the issuance and acceptance of only whole share of Stock.
Unless and until a certificate or certificates representing such shares shall
have
<PAGE>
been issued by the Company to Employee, Employee (or the person permitted to
exercise this Option in the event of Employee's death) shall not be or have any
of the rights or privileges of a shareholder of the Company with respect to
shares acquirable upon an exercise of this Option.
4. WITHHOLDING OF TAX. To the extent that the exercise of this Option or
the disposition of shares of Stock acquired by exercise of this Option results
in compensation income to Employee for federal or state income tax purposes,
Employee shall deliver to the Company at the time of such exercise or
disposition such amount of money or shares of Stock as the Company may required
to meet its obligation under applicable tax laws or regulations, and, if
Employee fails to do so, the Company is authorized to withhold from any cash or
Stock remuneration then or thereafter payable to Employee any tax required to be
withheld by reason of such resulting compensation income. Upon an exercise of
this Option, the Company is further authorized in its discretion to satisfy any
such withholding requirement out of any cash or shares of Stock distributable to
Employee upon such exercise.
5. STATUS OF STOCK. The Company may, but shall not be obligated to,
register for issuance under the Securities Act of 1933, as amended (the "Act")
the shares of Stock acquirable upon exercise of this Option. In the absence of
such effective registration or an available exemption from registration under
the Act, issuance of shares of Stock acquirable upon exercise of this Option
will be delayed until registration of such shares is effective or an exemption
from registration under the Act is available. In the event exemption under the
Act is available upon an exercise of this Option, Employee (or the person
permitted to exercise this Option in the event of Employee's death or
incapacity), if requested by the Company to do so, will execute and deliver to
the Company in writing an agreement containing such provisions as the Company in
writing an agreement containing such provisions as the Company may require to
assure compliance with applicable securities laws.
Employee agrees that the shares of Stock which Employee may acquire
by exercising this Option will not be sold or otherwise disposed of in any
manner which would constitute a violation of any applicable securities laws,
whether federal or state. Employee also agrees (i) that the certificates
representing the shares of Stock purchased under this Option may bear such
legend or legends as the Committee deems appropriate in order to assure
compliance with applicable securities laws, and (ii) that the Company may refuse
to register the transfer of the shares of Stock purchase under this Option on
the stock transfer records of the Company in such proposed transfer would in the
opinion of counsel satisfactory to the Company constitute a violation of an
applicable securities laws and (iii) that the Company may give related
instructions to its transfer agent, if any, to stop registration of the transfer
of the shares of Stock purchased under this Option.
6. EMPLOYMENT RELATIONSHIP. For purposes of this Agreement, Employee shall
be considered to be in the employment of the Company as long as Employee remains
an employee of either the Company, a parent or subsidiary corporation (as
defined in Section 424 of the Code) of the Company, or a corporation or a parent
or subsidiary of such corporation assuming or substituting a new option for this
Option. Any question as to whether and when there has been a termination of such
employment, and the cause of such termination, shall be determined by the
Committee and its determination shall be final.
7. BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of any successors to the Company and all persons lawfully
claiming under Employees.
8. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Texas.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officer thereunto duly authorized, and Employee has executed
this Agreement, all as of the day and year first above written.
CLIFFWOOD OIL & GAS CORP.
BY: ____________________________________
Frank A. Lodzinski, President
BY: ______________________________________
_______________, Employee
EXHIBIT 10.36
CLIFFWOOD OIL & GAS CORP.
1997 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
I. PURPOSE OF THE PLAN
The CLIFFWOOD OIL & GAS CORP., 1997 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
(the "Plan") is intended to promote the interests of CLIFFWOOD OIL & GAS CORP.,
a Texas corporation (the "Company"), and its stockholders by attempting to award
and retain highly-qualified independent directors, and allowing them to develop
a sense of proprietorship and personal involvement in the development and
financial success of the Company. Accordingly, the Company shall grant to
directors of the Company who are not and who never have been employees of the
Company or any of its subsidiaries ("Nonemployee Directors") the option
("Option") to purchase shares of the Class A common stock of the Company
("Stock"), as hereinafter set forth. Options granted under the Plan shall be
options which do not constitute incentive stock options, within the meaning of
section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code").
II. OPTION AGREEMENTS
Each Option shall be evidenced by a written agreement in the form attached
to the Plan.
III. ELIGIBILITY OF OPTIONEE
Options may be granted only to individuals who are Nonemployee Directors
of the Company. Each Nonemployee Director who serves in such capacity on the
effective date of the Plan shall receive, as of such effective date and without
the exercise of the discretion of any person or persons, an Option exercisable
for 5,000 shares of Stock. Each Nonemployee Director who is elected or appointed
to the Board of Directors of the Company (the "Board") for the first time after
the effective date of the Plan shall receive, as of the date of his or her
election or appointment and without the exercise of the discretion of any person
or persons, an option exercisable for 5,000 shares of stock (subject to
adjustment in the same manner as provided in Paragraph VII hereof with respect
to shares of Stock subject to Options then outstanding). As of the date of the
annual meeting of the stockholders of the Company in each year that the Plan is
in effect as provided in Paragraph VI hereof, each Nonemployee Director who is
in office immediately after such meeting and who is not then entitled to receive
an option pursuant to the preceding provisions of this Paragraph III shall
receive, without the exercise of the discretion of any person or persons, an
Option exercisable for 1,000 shares of the Stock (subject to adjustment in the
same manner as provided in Paragraph VII hereof with respect to shares of Stock
subject to Options then outstanding). If, as of any date that the Plan is in
effect, there are not sufficient shares of Stock available under the Plan to
allow for the award to each Nonemployee Director of an Option for the number of
shares provided herein, the Plan shall terminate as provided in Paragraph VI
hereof. All Options granted under the Plan shall be at the Option price set
forth in Paragraph V hereof and shall be subject to adjustment as provided in
Paragraph VII hereof.
IV. SHARES SUBJECT TO THE PLAN
The aggregate number of shares which may be issued under Options granted
under the Plan shall not exceed 150,000 shares of Stock. Such shares may consist
of authorized but unissued shares of Stock or previously issued shares of Stock
reacquired by the Company. Any of such shares which remain unissued and which
are not subject to outstanding Options at the termination of the Plan shall
cease to be subject to the Plan, but, until termination of the Plan, the Company
shall at all times make available a sufficient number of shares to meet the
requirements of the Plan. Should any Option hereunder expire or terminate prior
to its exercise in full, the shares theretofore subject to such Option may again
be subject to an Option granted under the Plan. The aggregate number of shares
which may be issued under the Plan shall be subject to adjustment in the same
manner as provided in Paragraph VII hereof with respect to shares of Stock
subject to Options then outstanding. Exercise of an Option shall result in a
decrease in the number of shares of Stock which may thereafter be available, for
purposes of the Plan, by the number of shares as to which the Option is
exercised.
V. OPTION PRICE
The purchase price of Stock issued under each Option shall be the fair
market value of Stock subject to the Option on the date the Option is granted.
For all purposes under the Plan, the fair market value of a share of Stock on a
particular date shall be equal to the last sales price of the Stock (i) reported
by the National Market System of NASDAQ on the date or (ii) if the Stock is
listed on a national stock exchange, reported on the stock exchange composite
tape on that date; or, in either case, if no prices are reported on that date,
on the last preceding date on which such prices of the Stock are so reported. If
the Stock is traded over the counter at the time a determination of its fair
market value is required to be made hereunder, its fair market value shall be
deemed to be equal to the last sales price of Stock on the most recent date on
which Stock was publicly traded. In the event the Stock is not publicly traded
at the time a determination of its fair market value is required to be made
hereunder, determination of its fair market value as of such date shall be made
by the members of the Board of Directors of the Company other than the
Nonemployee Directors, in such manner as they deem appropriate.
VI. TERM OF PLAN
The Plan shall be effective on the date the Plan is approved by the Board
of Directors of the Company. Except with respect to Options then outstanding, if
not sooner terminated under the provisions of Paragraph VIII, the Plan shall
terminate upon and no further Options shall be granted as of the date that the
remaining number of shares of Stock which may be issued under the Plan pursuant
to Paragraph IV is not sufficient to cover the Options required to be granted
under Paragraph III, or the earlier termination of the Plan by resolution of the
Board of Directors pursuant to Section VIII.
VII. RECAPITALIZATION OR REORGANIZATION
(a) The existence of the Plan and the Options granted hereunder shall not
affect in any way the right or power of the Board or the stockholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of debt or equity securities, the
dissolution or liquidation of the Company or any sale, lease, exchange or other
disposition of all or any part of its assets or business or any other corporate
act or proceeding.
(b) The shares with respect to which Options may be granted are shares of
Stock of the Company as presently constituted, but if, and whenever, prior to
the expiration of an Option theretofore granted, the Company shall effect a
subdivision or consolidation of shares of Stock or that payment of a stock
dividend on Stock without receipt of consideration by the Company, the number of
shares of Stock with respect to which such Option may thereafter be exercised
(i) in the event of an increase in the number of outstanding shares shall be
proportionately increased and the purchase price per share shall be
proportionately reduced, and (ii) in the event of a reduction in the number of
outstanding shares shall be proportionately reduced and the purchase price per
share shall be proportionately increased.
(c) If the Company recapitalizes or otherwise changes its capital
structure, thereafter upon any exercise of an Option theretofore granted the
optionee shall be entitled to purchase under such Option, in lieu of the number
and class of shares of Stock then covered by such Option, the number and class
of shares of stock and securities to which the optionee would have been entitled
pursuant to the terms of the recapitalization if, immediately prior to such
recapitalization, the optionee had been the holder of record of the number of
shares of Stock then covered by such Option. If (i) the Company shall not be the
surviving entity in any merger or consolidation (or survives only as a
subsidiary of an entity other than a previously wholly-owned subsidiary of the
Company), (ii) the Company sells, leases or exchanges or agrees to sell, lease
or exchange all or substantially all of its assets to any person or entity
(other than a wholly-owned subsidiary of the Company) or (iii) the Company is to
be dissolved and liquidated (each such event is referred to herein as a
"Corporate Change"), then effective as of the date of such Corporate Change, (A)
in the event of any such merger or consolidation upon any exercise of an Option
theretofore granted the optionee shall be entitled to purchase under such
Option, in lieu of the number of shares of Stock as to which such Option shall
then be exercisable, the number and class of shares of stock or other securities
or property to which the optionee would have been entitled pursuant to the terms
of the agreement or merger or consolidation if, immediately prior to such merger
or consolidation the optionee had been the holder of record of the number of
shares of Stock as to which such Option is then exercisable and (b) in the event
of any such sale, lease or exchange of assets or dissolution, all outstanding
Options shall be fully vested and each optionee shall surrender his or her
Options to the Company and the Company shall cancel such Options and pay to each
optionee an amount of cash per share equal to the excess of the per share price
offered to stockholders of the Company in any such sale, lease or exchange of
assets or dissolution transaction for the shares subject to such Options over
the exercise price(s) for such shares under such Options.
(d) Any adjustment provided for in Subparagraphs (b) or (c) above shall be
subject to any required shareholder action.
(e) Except as expressly provided herein, the issuance by the Company of
shares of stock of any class or securities convertible into shares of stock of
any class, for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefore, other securities, and in
any case whether or not for fair value, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number of shares of Stock
subject to Options theretofore granted or the purchase price per share.
VIII. AMENDMENT OR TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with
respect to any shares for which Options have not theretofore been granted. The
Board shall have the right to alter or amend the Plan or any part thereof from
time to time; provided, that the Plan shall not be amended more than once every
six months, other than to comport with changes in the Code, the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder; and
provided, further, that no change in any Option theretofore granted may be made
which would impair the rights of the optionee without the consent of such
optionee; and provided, further, that the Board may not make any alteration or
amendment which would materially increase the benefits accruing to participants
under the Plan, increase the aggregate number of shares which may be issued
pursuant to the provisions of the Plan, increase or decrease the number of
shares subject to each Option, change the schedule of the grants, extend the
term of the Options, change the class of individuals eligible to receive Options
under the Plan or amend the term of the Plan, without the approval of the
stockholders of the Company.
IX. SECURITIES LAWS
(a) The Company shall not be obligated to issue any Stock pursuant to any
Option granted under the Plan at any time when the offering of the shares
covered by such Option have not been registered under the Securities Act of
1933, as amended, and such other state and federal laws, rules or regulations as
the Company deems applicable and, in the opinion of legal counsel for the
Company, there is no exemption from the registration requirements of such laws,
rules or regulations available for the offering and sale of such shares.
(b) It is intended that, when the Stock becomes publicly traded, the Plan
and any grant of an Option made to a person subject to Section 16 of the
Securities Exchange Act of 1934, as amended (the "1934 Act") meet all of the
requirements of Rule 16b-3, as currently in effect or as hereinafter modified or
amended 16b-3, promulgated under the 1934 Act. If any provision of the Plan or
any such Option would disqualify the Plan or such Option under, or would
otherwise not comply with, Rule 16b-3, such provision or Option shall be
construed or deemed amended to conform to Rule 16b-3.
EXHIBIT 10.37
NONEMPLOYEE DIRECTOR STOCK OPTION AGREEMENT
AGREEMENT made as of the _____ day of ______________, 19___, between
CLIFFWOOD OIL & GAS CORP., a Texas corporation (the "Company") and ___________
_________________________ ("Director").
To carry out the purposes of the CLIFFWOOD OIL & GAS CORP. 1997
NONEMPLOYEE DIRECTOR STOCK OPTION PLAN (the "Plan"), a copy of which is attached
hereto as Exhibit A, by affording Director the opportunity to purchase shares of
the Class A common stock of the Company ("Stock"), and in consideration of the
mutual agreements and other matters set forth herein and in the Plan, the
Company and Director hereby agree as follows:
1. 952421076GRANT OF OPTION. The Company hereby irrevocably grants to
Director the right and option ("Option") to purchase all or any part of an
aggregate of shares of Stock, on the terms and conditions set forth herein and
in the Plan, which Plan is incorporated herein by reference as a part of this
Agreement. This Option shall not be treated as an incentive stock option within
the meaning of section 422(b) of the Internal Revenue Code of 1986, as amended.
2. PURCHASE PRICE. The purchase price of Stock purchased pursuant to the
exercise of this Option shall be $ per share, which has been determined to be
the fair market value of the Stock at the date of grant of this Option. For all
purposes of this Agreement, fair market value of Stock shall be determined in
accordance with the provisions of the Plan.
3. EXERCISE OF OPTION. (FOR INITIAL GRANTS TO DIRECTORS AS OF THE
EFFECTIVE DATE OF THE PLAN: Subject to the earlier expiration of this Option as
herein provided, this Option may be exercised, by written notice to the Company
at its principle executive office addressed to the attention of its Chairman,
President and Chief Executive Officer, at any time and from time to time after
the date of grant hereof, but, except as otherwise provided below, this Option
shall not be exercisable for more than a percentage of the aggregate number of
shares offered by this Option determined by the number of full years from the
date of grant hereof to the date of such exercise, in accordance with the
following schedule:
PERCENTAGE OF SHARES
NUMBER OF FULL YEARS THAT MAY BE PURCHASED
- -------------------- ---------------------
LESS THAN 1 YEAR 0%
1 YEAR 33.33%
2 YEARS 66.66%
3 YEARS OR MORE 100.00%
(SUBSEQUENT GRANTS TO DIRECTORS AS OF ANNUAL MEETINGS OF THE STOCKHOLDERS OF THE
COMPANY:) Subject to the earlier expiration of this Option as herein provided,
this Option may be exercised, by written notice to the Company at its principal
executive office addressed to the attention of Chairman, President and Chief
Executive Officer, at any time from time to time following six months after the
date of grant hereof.
This Option is not transferable by Director otherwise than by will or the
laws of descent and distribution, and may be exercised only by Director (or
Director's guardian or legal representative) during Director's lifetime. If a
Director's membership on the Board of Directors of the Company (the "Board")
terminates, this Option may be exercised as follows:
(a) If Director's membership on the Board terminates for cause or
voluntarily by Director (other than by reason of mandatory retirement pursuant
to the policy of the Board) not at the request of the Board, this Option may be
exercised by Director at any time during the period of three months following
such termination, or by Director's estate (or the person who acquires this
Option by will or the laws of descent and distribution or otherwise by reason of
the death of Director) during a period of one year following Director's death if
Director dies during such three-month period, but in each case only as to the
number of shares Director was entitled to purchase hereunder upon exercise of
this Option as of the date Director's membership of the Board so terminates. For
purposes of this Agreement, "cause" shall mean Director's gross negligence or
willful misconduct in performance of his duties as a director, or Director's
final conviction of a felony or of a misdemeanor involving moral turpitude.
(b) If Director's membership on the Board terminates by reason of
disability, this option may be exercised in full by Director (or Director's
guardian or legal representative or Director's estate or the person who acquires
this Option by will or the laws of descent and distribution or otherwise by
reason of the death of Director) at any time during the period of one year
following such termination.
(c) If Director dies while a member of the Board, Director's estate, or
the person who acquires this Option by will or the laws of descent and
distribution or otherwise by reason of the death of Director, may exercise this
Option in full at any time during the period of one year following the date of
Director's death.
(d) If Director's membership on the Board terminates for any reason other
than as described in (a), (b), or (c) above, this Option may be exercised in
full by Director at any time during the period of three months following such
termination, or by Director's estate (or the person who acquires this Option by
will or the laws of descent and distribution or otherwise by reason of the death
of Director) during a period of one year following Director's death if Director
dies during such three-month period.
No Option shall not be exercisable in any event after the expiration of
ten years from the date thereof. The purchase price of shares as to which this
Option is exercised shall be paid at the time of exercise (A) in cash (including
check, bank draft or money order payable by order of the Company), (B) by
delivering to the Company shares of Stock having a fair market value equal to
the purchase price, or (C) any combination of cash or Stock. No fractional share
of Stock shall be issued by the Company upon exercise of an Option or accepted
by Company in payment of the purchase price thereof; rather, Director shall
provide a cash payment for such amount as is necessary to effect the issuance
and acceptance of only whole shares of Stock. Unless and until a certificate or
certificates representing such shares shall have been issued by the Company to
Director, Director (or the person permitted to exercise this Option in the event
of Director's death) shall not be or have any rights or privileges of
shareholder of the Company with respect to shares acquirable upon an exercise of
this Option.
4. WITHHOLDING OF TAX. To the extent that the exercise of this Option or
the disposition of shares of Stock acquired by exercise of this Option results
in compensation income to Director for federal or state income tax purposes,
Director shall deliver to the Company at the time of each exercise or
disposition such amount of money or shares of Stock as the Company may required
to meet its obligation under applicable tax laws ore regulations, and, if
Director fails to do so, the Company is authorized to withhold from any cash or
Stock remuneration then or thereafter payable to Director any tax required to be
withheld by reason of such resulting compensation income. Upon an exercise of
this Option, the Company is further authorized in its discretion to satisfy any
such withholding requirement out of any cash of shares of Stock distributable to
Director upon such exercise.
5. STATUS OF STOCK. The Company may, but shall not be required to,
register for issuance under Securities Act of 1933, as amended (the "Act"), the
shares of Stock acquirable upon exercise of this Option. In the absence of such
effective registration or an available exemption from registration under the
Act, issuance of shares of Stock acquirable upon exercise of this Option will be
delayed until registration of such shares is effective or an exemption from
registration under the Act is available. In the event exemption from
registration under the Act is available upon an exercise of this Option,
Director (or the person permitted to exercise this Option in the event of
Director's death or incapacity), if requested by the Company to do so, will
execute and deliver to the Company in writing an agreement containing such
provisions as the Company may required to assure compliance with applicable
securities laws.
Director agrees that the shares of stock which Director may acquire by
exercising this Option will not be sold or otherwise disposed of in any manner
which would constitute a violation of any applicable federal or state securities
laws. Director also agrees (i) that the certificates representing the shares of
Stock purchased under this Option may bear such legend as the Company deems
appropriate in order to assure compliance with applicable laws, (ii) that the
Company may refuse to register the transfer of the shares of Stock under this
Option on the stock transfer records of the Company if such proposed transfer
would in the opinion of counsel satisfactory to the Company constitute a
violation of applicable securities law and (iii) that the Company may give
related instructions to its transfer agent, if any, to stop registration of the
transfer of the shares of stock purchased under option.
6. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of successors to the Company and all persons lawfully claiming under
Director.
7. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
COMPLIANCE WITH, THE LAWS OF THE STATE OF TEXAS.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officer thereunto duly authorized, and Director has executed
this Agreement, all as of the day and year first above written.
CLIFFWOOD OIL & GAS CORP.
By: _____________________________________
Frank A. Lodzinski, President
________________, DIRECTOR
EXHIBIT 10.38
EXHIBIT B to
Letter Agreement Dated June 30, 1997, by and among
Cliffwood Exploration Company, Cliffwood
Production Co., Bechtel Exploration Company and
Blue Moon Exploration Company
CLIFFWOOD OIL & GAS CORP.
SHAREHOLDERS' AGREEMENT
THIS SHAREHOLDERS' AGREEMENT ("Agreement") is dated as of May 21, 1996 by
and among Cliffwood Oil & Gas Corp., a Texas corporation (the "Company"), and
each of the persons signatory hereto who are all shareholders of the Company
(each a "Shareholder" and together the "Shareholders").
SECTION 1. DEFINITIONS. As used in this Agreement:
(a) "Stock" means all shares of stock of the Company, regardless of
differing classes, which may now or hereafter be issued.
(b) "Disposition" means each transaction, voluntary or involuntary and
whether occurring by operation of law or otherwise, which has the purpose and/or
effect of making (1) a change in ownership of Stock; or (2) a change in the
identity of the holder or owner of legal or beneficial title to any Stock
including, without limitation, any transfer or pledge of Stock.
(c) "Persons" means any individual, legal representative, estate, trust,
partnership, limited liability company, corporation, unincorporated association,
joint venture, or other entity.
(d) "Personal Representative" means, with respect to any Person, the
conservator, executor, executrix, administrator, administratrix, attorney in
fact, trustee, or agent of such Person or such Person's estate.
SECTION 2. GENERAL RESTRICTION ON DISPOSITION OF STOCK. Except with the prior
written consent of at least two-thirds of the Shareholders, no Shareholder may
make any Disposition, or allow any Disposition to be made, except in compliance
with this Agreement. Any attempted Disposition in breach of this Agreement shall
be void and of no effect. Notwithstanding the foregoing, Shareholders who are
employed by the Company shall be permitted to sell, transfer or otherwise convey
Stock to other employees of the Company.
SECTION 3. RIGHT OF FIRST REFUSAL.
1
<PAGE>
(a) Any Shareholder may make a Disposition at any time to the Company or
another Shareholder.
(b) Any Shareholder desiring to make a Disposition to a Person other than
the Company or another Shareholder shall first deliver a Sale Notice offering to
sell his Stock to the Company and/or the other Shareholders, whereupon the
Company and the Shareholders shall have the right and option (but not the
obligation) to purchase all the Stock which is referenced in the Sale Notice in
accordance with this Section 3.
(c) The Shareholder shall simultaneously deliver the written Sale Notice
to the Company and to each other Shareholder. The Sale Notice shall identify (i)
the Shareholder delivering it, (ii) its date, (iii) the relevant number of
shares of Stock, (iv) the name or names of, and the proposed purchase price per
share to be paid by, any proposed purchaser(s) or transferee(s), and (v) the
terms for payment of the proposed purchase price.
(d) The Company shall have the right and option (but not the obligation),
for a period of thirty (30) days following the date of the Sale Notice, to
purchase all or any portion of the Stock which is the subject of the Sale
Notice.
(e) The Company may only purchase less than all of the relevant Stock if
it receives the written commitment of the Shareholders that they will purchase
the balance of such Stock. If the Company does not exercise its option to
purchase all of the Stock which is the subject of a Sale Notice for any reason,
the Company, within the thirty (30) day period referenced in Section (_), shall
notify the selling Shareholder and the other Shareholders in writing of such
fact, the Company shall specify the number of shares of the Stock which the
Company will not purchase.
(f) In the event the Company purchases less than all of the Stock which is
the subject of the Sale Notice, the other Shareholders shall have the option to
purchase all of the shares of the Stock which the Company does not to purchase.
If the Company purchases some Stock, but not all, then the other Shareholders
shall have the obligation to purchase the balance in accordance with their
written commitment described above.
(g) If more than one of such other Shareholders elects to purchase Stock
pursuant to the Sale Notice and they fail to agree among themselves as to the
proportions in which they shall purchase such Stock, each such electing
Shareholder shall purchase that portion of such Stock which bears the same ratio
to all of such Stock as the number of shares of Stock owned by such electing
Shareholder (as of the date of the Sale Notice) bears to the aggregate number of
shares of Stock then owned by all of such electing Shareholders.
(h) The Company and other Shareholders shall exercise any option granted
hereunder by giving written notice to the selling Shareholder of their intent to
purchase such Stock.
(i) The closing of a purchase and sale of Stock hereunder shall take
place, unless otherwise mutually agreed upon between the seller and the
purchaser(s), on the ninetieth (90th) day
2
<PAGE>
after the date of the Sale Notice. The closing shall be at the principal office
of the Company, and payment of the purchase price and delivery of all required
documents shall occur at the closing. The selling Shareholder shall deliver to
the purchasing party or parties (i) the certificate(s) evidencing the Stock
being sold, (ii) an executed assignment of such Stock containing general
warranties of title, no liens and authority of the assignor to make such
assignment, and (iii) an executed stock power, all in proper form for the valid
transfer of the purchased Stock on the records of the Company.
(j) The price per share to be paid upon the purchase of Stock pursuant to
this Agreement shall be the amount set forth in the Sale Notice, payable in
accordance with the terms described in the Sale Notice.
(k) No selling Shareholder shall be obligated to consummate a sale after a
Sale Notice has been accepted, unless the following conditions have been
satisfied by the purchasing parties or waived by the selling Shareholder:
(1) The Company has fully repaid any loans made by the selling
Shareholder to the Company ("Shareholder Loan"); and
(2) In the event the selling Shareholder is not repaid a Shareholder
Loan, the purchasing parties, prior to or contemporaneously with the
consummation of such sale, shall indemnify, defend and hold the selling
Shareholder harmless from any and all liability or loss with respect to
the Shareholder Loan.
SECTION 4. NOTICES. Any Sale Notice or other notice ("notice") required or
permitted to be given to any Person, must be given in writing and may be given
(i) by certified or registered U.S. mail, return receipt requested, postage
prepaid, or (ii) by delivery in person. A notice deposited in the United States
mail in the manner above described shall be effective three (3) days after
deposit. Notice given in any other manner shall be deemed delivered and
effective only if and when received by the party to be notified. For purposes of
notice hereunder, the addresses of the parties shall be those as set out in the
corporate records of the Company. Any party to this Agreement shall have the
right to change his address for notice by giving at least three (3) days written
notice of such change of address to each other party hereto.
SECTION 5. ENDORSEMENT OF STOCK CERTIFICATES. All certificates representing
Stock now owned or hereafter acquired by the Shareholders shall be endorsed on
the back thereof as follows:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A SHAREHOLDERS' AGREEMENT, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THE COMPANY, AND SAID SHARES MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT IN
STRICT ACCORDANCE WITH THE TERMS OF THAT SHAREHOLDERS' AGREEMENT. A
COPY OF THE SHAREHOLDERS' AGREEMENT WILL BE FURNISHED WITHOUT CHARGE
TO THE HOLDER OF THIS CERTIFICATE UPON RECEIPT BY THE
3
<PAGE>
COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED
OFFICE OF A WRITTEN REQUEST FROM THE HOLDER REQUESTING
SUCH COPY."
Such certificate shall be endorsed an the front thereof as follows:
"SEE RESTRICTIONS ON TRANSFER ON REVERSE SIDE."
SECTION 6. SUPERMAJORITY VOTE. The Shareholders acknowledge that the Texas
Business Corporation Act currently requires the affirmative vote of holders of
at least two-thirds of the outstanding shares of each class with respect to any
proposed merger, share exchange,-- or disposition (other than by pledge, deed of
trust or trust indenture) of all or substantially all of the property and assets
of the Company outside the usual and regular course of business.
SECTION 7. MISCELLANEOUS.
(a) This Agreement shall be subject to and governed by the laws of the
State of Texas and each of the parties hereto hereby irrevocably attorns to
jurisdiction and venue in Harris County, Texas.
(b) Whenever the context requires, the gender of all words used herein
shall include the masculine, feminine, and neuter, and the number of all words
shall include the singular and the plural.
(c) This Agreement shall be binding upon and inure to the benefit of the
Company and all of the Shareholders, and their respective heirs, devisees,
Personal Representative, successors and permitted assigns.
(d) This Agreement may be amended from time to time by an instrument in
writing signed by all those who are parties to this Agreement at the time of
such amendment, such instrument being designated on its face as an amendment to
this Agreement.
(e) This Agreement shall terminate automatically upon the bankruptcy,
receivership or dissolution of the Company, upon the occurrence of any event
which reduces the number of Shareholders to one. This Agreement may also be
terminated by an instrument in writing signed by all those Persons who are
parties to this Agreement at the time of the signing of such instrument.
(f) Any Shareholder who sells or otherwise transfers such Shareholder's
Stock shall cease to be a party to this Agreement and shall have no further
rights hereunder, except as otherwise specified herein.
(g) Each party hereto acknowledges that a remedy at law far any breach or
attempted breach of this Agreement hereof will be inadequate, agrees that each
other party hereto shall be entitled to specific performance and injunctive and
other equitable relief (without the necessity of proof of actual damages) in
case of any such breach or attempted breach, and further agrees to waive
4
<PAGE>
ny requirement for the securing or posting of any band in connection with the
obtaining of any such injunctive or other equitable relief.
(h) This instrument constitutes the entire agreement of the parties hereto
with respect to the ownership of the Stock and there are no other agreements,
whether oral or written, between the parties hereto with respect to the
ownership of such Stock.
(i) The captions of this Agreement are for convenience only and shall not
be considered a part of, nor effect the construction of interpretation of, any
provision of this Agreement.
(j) The various terms, provisions, and covenants herein contained shall be
deemed to be separate and severable, and the invalidity or unenforceability of
any of them shall in no manner effect or impair the validity or enforceability
of the remainder of such terms, provisions, and covenants.
(k) This Agreement may be executed simultaneously in two or more
counterparts, each of which shall in such event be deemed an original but all of
which together shall constitute one and the same instrument.
(l) Time shall be conclusively deemed to be of the essence of this
Agreement whenever time limits are imposed herein for the performance of any
obligations by any of the parties hereto, or whenever the accrual of any rights
to any party depends on the passage of time.
(m) If any action at law or in equity is necessary to enforce the
provisions of this Agreement, the prevailing parties shall be reimbursed by the
other party for all reasonable attorney's fees, costs and necessary
disbursements incurred by the prevailing party in enforcing this Agreement in
addition to any and all other relief to which such prevailing party may be
entitled.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
effective as of the dates first above written.
/S/ PAUL KAMENY
PAUL KAMENY
5
EXHIBIT 10.39
CLIFFWOOD OIL & GAS CORP.
FIRST AMENDMENT TO SHAREHOLDERS' AGREEMENT
THIS FIRST AMENDMENT TO SHAREHOLDERS' AGREEMENT ("Amendment") is dated as
of May 30, 1997 by and among Clifford Oil & Gas Corp., a Texas corporation (the
"Company"), and each the persons signatory hereto who are all shareholders of
the Company. This Amendment is the first amendment to the Shareholders'
Agreement dated as of May 21, 1996, by and among the Company and all of the
persons and entities who were shareholders of the Company on such date
("Original Agreement"). This Amendment adds as a party to the Original Agreement
one entity which became a holder of the Company's stock after the date of the
Original Agreement. Capitalized terms used and not otherwise defined in this
Amendment have the meanings assigned to them in the Original Agreement. The
Original Agreement, as modified by this Amendment and any subsequent amendments
which may hereafter be executed and delivered by all parties, is hereinafter
designated the "Amended Agreement." Reference is hereby made (i) to that certain
Common Stock and Warrant Purchase Agreement by and between the Company and First
Union Capital Partners, Inc., a Virginia corporation ("First Union"), dated as
of May 30, 1997 (the "Purchase Agreement"), and (ii) to that certain Co-Sale
Agreement by and among First Union, V&C Energy Limited Partnership, a Michigan
limited partnership, and Energy Resource Associates, Inc., a Texas corporation,
dated as of May 30, 1997 (the "Co-Sale Agreement").
SECTION 1. ADDITIONAL SHAREHOLDER. By its signature below, First Union Capital
Partners, Inc. hereby agrees to be bound by the terms of the Original Agreement.
SECTION 2. ACCEPTANCE OF ADDITIONAL PARTIES TO ORIGINAL AGREEMENT. Each of the
parties to the Original Agreement hereby accepts the addition of the entity
listed in Section 1 above as an additional Shareholder, effective as of the date
of this Amendment for all purposes.
SECTION 3. FUTURE ADDITIONAL SHAREHOLDERS. From time to time additional Persons
may become Shareholders and become subject to and bound by the terms of the
Amended Agreement solely by executing and delivering to the Company an
Additional Signature Page to Shareholders' Agreement in the form attached hereto
as Exhibit "A". No further amendment to this Agreement or the Original Agreement
shall be necessary to effect such action.
SECTION 4. ENDORSEMENT OF STOCK CERTIFICATES. All certificates representing
Stock now owned by the Persons listed in Section 1 above shall be endorsed on
the back thereof as required by Section 5 of the Original Agreement as soon as
practicable following execution of this Amendment by all parties. Similarly, all
certificates representing Stock owned by any Person who becomes a Shareholder in
the future by delivering an Additional Signature Page to Shareholders' Agreement
in accordance with Section 3 of this Amendment shall be endorsed on the back
thereof as required by Section 5 of the Original Agreement as soon as
practicable following delivery of such Additional Signature Page to
Shareholders' Agreement.
1
<PAGE>
SECTION 5. FIRST UNION EXCEPTIONS. Sections 2 and 3 of the Original Agreement
shall not apply to First Union in the event that First Union makes a Disposition
(a) to any of its Affiliates or Subsidiaries (as such terms are defined in the
Purchase Agreement) or employees, (b) pursuant to Article 9 or 10 of the
Purchase Agreement, (c) pursuant to the Co-Sale Agreement, (d) to any person or
entity pursuant to an offering registered under the Securities Act of 1933 or
through a broker, dealer or market maker pursuant to the provisions of Rule 144
adopted under the Securities Act of 1933 (or any successor rule then in effect),
or (e) pursuant to a Cash-Out Transaction (as that term is defined in the
Purchase Agreement).
SECTION 6. MISCELLANEOUS.
(a) This Amendment shall be subject to and governed by the laws of the
State of Texas and each of the parties hereto hereby irrevocably attorns to
jurisdiction and venue in Harris County, Texas.
(b) This Amendment shall be binding upon and inure to the benefit of the
Company and the Shareholders, and their respective heirs, devisees, Personal
Representatives, successors and permitted assigns.
(c) This instrument and the Original Agreement constitute the entire
agreement of the parties hereto with respect to the ownership of Stock and there
are no other agreements, whether oral or written, among all the parties hereto
with respect to the ownership of such Stock.
(d) The captions of this Amendment are for convenience only and shall not
be considered a part of, nor effect the construction of interpretation of, any
provision of this Agreement.
(e) This Amendment may be executed simultaneously in two or more
counterparts, each of which shall in such event be deemed an original but all of
which together shall constitute one and the same instrument.
/S/ PAUL KAMENY
PAUL KAMENY, Trustee
/S/ DICK GLOVER
DICK GLOVER
2
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Texoil, Inc:
As independent public accountants, we hereby consent to the incorporation by
reference of our report included in this Form 10-KSB, into the Company's
previously filed Registration Statements on Form S-8 (File Nos. 33-62175 and
33-15449).
ARTHUR ANDERSON LLP
Houston, Texas
April 8, 1998
T.J. SMITH & COMPANY, INC.
OIL AND GAS CONSULTING
1331 LAMAR, SUITE 1340
HOUSTON, TEXAS 77010-3027
TEL: (713) 651-0651
FAX: (713) 655-7613
EXHIBIT 23.2
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
To the Stockholders and Board of Directors
of Texoil, Inc.
As independent petroleum engineers, we hereby consent to the incorporation by
reference of our report to Texoil, Inc. dated March 10, 1998 and used in this
1997 Form 10-KSB, into the Company's previously filed Registration Statements
on Form S-8 (File Nos. 33-62175 and 33-15449).
T.J. Smith & Company, Inc.
By________________________
Name: Timothy J. Smith
Title: President
Houston, Texas
April 8, 1998
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,059
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<RECEIVABLES> 3,104
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<CURRENT-ASSETS> 7,628
<PP&E> 21,063
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0
0
<COMMON> 367
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<TOTAL-LIABILITY-AND-EQUITY> 27,784
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