UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
AMERICAN RESOURCES OFFSHORE, INC.
(Name of Issuer)
Common Stock, par value $0.00001 per share
(Title of Class of Securities)
029280104
(CUSIP Number)
Nick D. Nicholas
Porter & Hedges, L.L.P.
700 Louisiana, Suite 3500
Houston, Texas 77002-2764
(713) 226-0600
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
October 22, 1999
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
NOTE: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 13d-7(b) for
other parties to whom copies are to be sent.
Page 1 of 26
<PAGE>
SCHEDULE 13D
CUSIP NO. 029280104
- --------------------------------------------------------------------------------
| 1 | NAME OF REPORTING PERSON
| | S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
| |
| | BLUE DOLPHIN EXPLORATION COMPANY
| |
- --------------------------------------------------------------------------------
| 2 | CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP * (a)[ ]
| | (b)[ ]
| | INAPPLICABLE
| |
- --------------------------------------------------------------------------------
| 3 | SEC USE ONLY
| |
- --------------------------------------------------------------------------------
| 4 | SOURCE OF FUNDS*
| |
| | WC;AF;OO
| |
- --------------------------------------------------------------------------------
| 5 | CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
| | ITEMS 2(d) or 2(e) [ ]
| |
- --------------------------------------------------------------------------------
| 6 | CITIZENSHIP OR PLACE OF ORGANIZATION
| |
| | DELAWARE
| |
- --------------------------------------------------------------------------------
| 7 | SOLE VOTING POWER
NUMBER OF | | INAPPLICABLE
SHARES ---------------------------------------------------------
BENEFICIALLY | 8 | SHARED VOTING POWER
OWNED BY EACH | | 7,088,982
REPORTING ---------------------------------------------------------
PERSON WITH | 9 | SOLE DISPOSITIVE POWER
| | INAPPLICABLE
---------------------------------------------------------
|10 | SHARED DISPOSITIVE POWER
| | INAPPLICABLE
- --------------------------------------------------------------------------------
| 11 | AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
| |
| | 7,088,982
| |
- --------------------------------------------------------------------------------
| 12 | CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
| | SHARES * [ ]
| |
- --------------------------------------------------------------------------------
| 13 | PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
| |
| | 51.59%
| |
- --------------------------------------------------------------------------------
| 14 | TYPE OF REPORTING PERSON *
| |
| | CO
- --------------------------------------------------------------------------------
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<PAGE>
CUSIP NO. 029280104
- --------------------------------------------------------------------------------
| 1 | NAME OF REPORTING PERSON
| | S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
| |
| | BLUE DOLPHIN ENERGY COMPANY
| |
- --------------------------------------------------------------------------------
| 2 | CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP * (a)[ ]
| | (b)[ ]
| | INAPPLICABLE
| |
- --------------------------------------------------------------------------------
| 3 | SEC USE ONLY
| |
- --------------------------------------------------------------------------------
| 4 | SOURCE OF FUNDS*
| |
| | WC;AF;OO
| |
- --------------------------------------------------------------------------------
| 5 | CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
| | ITEMS 2(d) or 2(e) [ ]
| |
- --------------------------------------------------------------------------------
| 6 | CITIZENSHIP OR PLACE OF ORGANIZATION
| |
| | DELAWARE
| |
- --------------------------------------------------------------------------------
| 7 | SOLE VOTING POWER
NUMBER OF | | INAPPLICABLE
SHARES ---------------------------------------------------------
BENEFICIALLY | 8 | SHARED VOTING POWER
OWNED BY EACH | | 7,088,982
REPORTING ---------------------------------------------------------
PERSON WITH | 9 | SOLE DISPOSITIVE POWER
| | INAPPLICABLE
---------------------------------------------------------
|10 | SHARED DISPOSITIVE POWER
| | INAPPLICABLE
- --------------------------------------------------------------------------------
| 11 | AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
| |
| | 7,088,982
| |
- --------------------------------------------------------------------------------
| 12 | CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
| | SHARES * [ ]
| |
- --------------------------------------------------------------------------------
| 13 | PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
| |
| | 51.59%
| |
- --------------------------------------------------------------------------------
| 14 | TYPE OF REPORTING PERSON *
| |
| | CO
- --------------------------------------------------------------------------------
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<PAGE>
ITEM 1. SECURITY AND ISSUER.
Title of Security: common stock, par value $0.0001 per share
(the "Common Stock")
Name and Address of Issuer's American Resources Offshore, Inc.
Principal Executive Offices: 3141 Beaumont Centre Circle
Suite 203
Lexington, Kentucky 40513
ITEM 2. IDENTITY AND BACKGROUND.
ITEM 2(A) Name of Persons Filing and Place of Organization:
This Schedule 13D is being filed on behalf of Blue Dolphin
Energy Company, a Delaware corporation ("BDCO"), and its
wholly-owned subsidiary Blue Dolphin Exploration Company, a
Delaware corporation ("Investor").
ITEM 2(B) Address of Principal Business Office:
801 Travis, Suite 2100
Houston, Texas 77002
ITEM 2(C) Principal Business:
BDCO through its subsidiaries, including the Investor, is
primarily engaged in gathering and transportation of natural
gas and condensate and in the acquisition and exploration of
oil and gas properties. The Investor's operations are
conducted principally offshore in the Gulf of Mexico and
along the Texas Gulf Coast.
ITEM 2(D) Criminal Convictions:
None
ITEM 2(E) Civil Proceedings:
None
Page 4 of 26
<PAGE>
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
The cash purchase price for the shares of the Common Stock of American
Resources Offshore, Inc. ("ARO") to be purchased by Investor as described in
Item 4 is initially set at $4,736,315, but is subject to being adjusted at the
closing of the purchase transaction in the manner described in Item 4 of this
Schedule 13D.
Investor currently intends to fund the purchase price for the Common Stock
from one or more of the following sources: (1) its own working capital; (2) cash
contributed or lent to it by its parent corporation, BDCO; and (3) certain fees
and expense reimbursements described below that are to be received by Investor
in connection with the proposed transactions reported herein.
BDCO currently intends to obtain any funds that it may need to contribute
or loan to Investor in connection with the transactions reported herein from one
or more of the following sources: (1) its own working capital; (2) distributions
or loans from its subsidiary corporations; and (3) through a future private
offering of its equity securities.
ITEM 4. PURPOSE OF THE TRANSACTION.
GENERAL PURPOSES OF THE PROPOSED TRANSACTIONS
ARO is a financially distressed, independent oil and gas company. Its
principal oil and gas properties are located in the Gulf of Mexico, offshore
Louisiana and Texas, and in Tennessee and Kentucky. As reported in its quarterly
report on Form 10-Q for the quarter ended June 30, 1999, ARO's current
liabilities exceeded its current assets by approximately $6.3 million, excluding
the current portion of ARO's long-term debt and debt in default. In the same
report, ARO reiterated that it is in default under its primary credit facility
and bridge loans with DNB Energy Assets, Inc. ("DnB"), successor to Den norske
Bank, ASA, in the approximate amount of $48.0 million and $15.6 million,
respectively, and that it is also in default under $18.5 million of purchase
money indebtedness incurred for the purchase of oil and gas properties from TECO
Oil & Gas, Inc ("TECO"). ARO also reported that it had insufficient cash to meet
its capital budget for the development of its oil and gas properties.
The general purposes of the proposed transactions described below are to:
1. Improve ARO's financial condition by substantially reducing its
liabilities to trade creditors and its secured lenders, thus better
positioning ARO to develop its Gulf of Mexico oil and gas properties,
which will then be its remaining oil and gas assets; and
2. Place Investor in a position to control the management and
policies of ARO by causing Investor to become the owner of 75% or more of
the voting securities of ARO and replacing ARO's current officers and
directors with persons selected by Investor.
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<PAGE>
If the transactions described below are completed, it is Investor's
current intention that ARO will continue to operate as an independent oil and
gas company, but that its primary focus will be on the exploration, development
and production of oil and gas properties located in the coastal or offshore
waters of the Gulf of Mexico.
Investor intends to evaluate and review ARO's business affairs and
financial condition from time to time. Based on its evaluation and review, as
well as general economic and industry conditions, including, but not limited to,
the price of oil and gas, existing at the time, the Investor may consider from
time to time various alternative courses of action. Such actions may include the
acquisition of additional shares of Common Stock through open market purchases,
privately negotiated transactions, tender offer, exchange offer, merger or
otherwise.
Investor may cause ARO to raise capital by borrowing, including the use of
its remaining oil and gas properties as collateral for any such borrowings,
sales of its remaining oil and gas properties, the issuance of debt or equity
securities or by other available means.
OVERVIEW OF PROPOSED TRANSACTIONS
If the closing of the transactions described below occurs, Investor
expects that the following transactions, among others, will take place:
1. ARO will sell to Investor a number of shares of Common Stock that
will result in the Investor owning at least 75% of the combined voting
power of all classes of ARO's voting securities, after giving effect to
the Investor's purchase of the Common Stock. The purchase price for the
Common Stock is initially set at $4,736,315 but will likely be increased
or decreased based on certain contractual price adjustments to be
determined at the closing of the purchase. Investor expects that it will
hold sole voting and dispositive power over the Common Stock it purchases.
2. All proceeds to ARO from the Common Stock sale to Investor will
be applied to reduce ARO's liabilities or for working capital. In part,
these proceeds will be used to settle ARO's indebtedness to TECO for a
final payment of approximately $990,400 and to substantially reduce ARO's
indebtedness to DnB (" the DnB Note").
3. ARO will cause Southern Gas Co. of Delaware, Inc., a wholly-owned
subsidiary of ARO ("Southern Gas"), to sell all of its Appalachian oil and
gas properties located in Kentucky and Tennessee to Nami Resources Company
L.L.C. ("Nami Resources") in exchange for the assumption by the Nami
Resources of $12.5 million of Southern Gas' indebtedness to DnB and ARO's
release from its guarantee of Southern Gas' indebtedness and performance
guarantee with Austin Energy Funding Partners.
4. ARO will sell the stock of Southern Gas to an affiliate of
Leonard K. Nave, a director of ARO in exchange for ARO's release from
certain liabilities it owes to Mr. Nave
Page 6 of 26
<PAGE>
and the buyer's agreement to indemnify ARO for past operations and
activities of Southern Gas.
5. ARO will sell to Fidelity Oil Holdings, Inc. ("Fidelity") 80% of
ARO's interest in all its oil and gas properties located in the Gulf of
Mexico. The purchase price for the 80% interest is initially set at
$25,313,685 but will likely be increased or decreased based on certain
contractual price adjustments to be determined at the closing of the
purchase.
6. All proceeds to ARO from the sale to Fidelity will be applied to
reduce ARO's indebtedness under the DnB Note.
7. Investor will purchase the DnB Note and all related security
interests and liens securing that indebtedness for a purchase price of
approximately $27.0 million subject to certain adjustments and the right
to receive a contingent, future payment. The purchase price for the DnB
Note will be considered paid in full if Investor and Fidelity cause ARO to
repay to DnB an amount equal to:
(a) all of the proceeds to ARO from its sale to Fidelity; and
(b) a portion of the proceeds to ARO from the sale of Common Stock
to Investor.
8. DnB will also be entitled to receive a possible future payment
for its sale of the DnB Note if the combined, cumulative net revenues
received by Investor and Fidelity that are attributable to the proved oil
and gas resources in ARO's Gulf of Mexico properties as of January 1, 1999
exceed $30.0 million during the period from January 1, 1999 through
December 31, 2001. If that occurs, DnB will be entitled to an amount equal
to 50% of those net revenues in excess of $30.0 million during that
three-year period. If any contingent amount becomes payable to DnB, 80% of
it will be paid by Fidelity and ARO will pay 20%.
9. Investor will modify the DnB Note and related loan documents to:
(a) reduce the principal amount ARO owes under the DnB Note to $5.0
million;
(b) defer its right to receive payments under the DnB Note through
December 31, 2000, if ARO remains in compliance with the
modified loan documents and the Investment Agreement (as
hereinafter defined) through that same date;
(c) forgive all of ARO's remaining indebtedness, including all
principal and interest, under the DnB Note, if ARO remains in
compliance with the modified loan documents and the Investment
Agreement through December 31, 2000; and
Page 7 of 26
<PAGE>
(d) refrain from exercising or enforcing through December 31,
2001, any of its rights that arose because of ARO's defaults
under the DnB Note and related liens and loan documentation
before they were modified, if ARO remains in compliance with
the modified loan documents and the Investment Agreement
through December 31, 2001.
10. The majority of holders of ARO's outstanding preferred stock
will convert their preferred stock into Common Stock in accordance with
the existing terms of the preferred stock.
11. ARO's certificate of incorporation will be amended to increase
the number of shares of Common Stock that it is authorized to issue from
50,000,000 shares to 70,000,000 shares in order for ARO to have available
a sufficient number of shares for issuance to Investor and for issuance
upon exercise of outstanding options and warrants.
12. ARO's certificate of incorporation will be amended to eliminate
the staggered, three-year terms of office for ARO's board of directors.
13. ARO's officers and directors will be replaced by persons
selected by Investor and the division of ARO's board of directors into
three classes will eliminated
14. ARO will enter into a consulting arrangement with Map II, L.L.C.
("Map II") under which certain of ARO's former management personnel will
assist ARO's new management with transition matters. For those consulting
services, ARO will pay MAP II an aggregate of $35,000 per month, plus
reimbursable expenses, through February 2001. Fidelity will bear 80% of
the fees paid by ARO under the consulting arrangement.
15. ARO and Blue Dolphin Services Co. ("BD Services"), a subsidiary
of BDCO, will enter into a contractual arrangement pursuant to which BD
Services will provide management and administrative services to ARO for
which BD Services will be compensated by ARO at a rate of $83,000 per
month.
16. Investor will agree to modify the DnB Note so as to (A) defer
its right to receive payments under the DnB Note for a period to be
negotiated, (B) waive certain defaults and events of default under the
terms of the DnB Note existing at the closing date of the transactions,
and (C) forgive all or a portion of the indebtedness under the DnB Note at
a later date, all on terms and conditions to be negotiated between ARO and
Investor.
These proposed transactions, which are described further below, are subject to
many contingencies. There is no assurance, therefore, that the transactions will
be successfully concluded or that, if concluded, the proposed transactions will
have the intended effect on ARO's financial condition and operations.
Page 8 of 26
<PAGE>
POSSIBLE CONSEQUENCES IF THE TRANSACTIONS ARE NOT SUCCESSFULLY COMPLETED
ARO recently reported its management's beliefs as to the possible
consequences to ARO if the transactions described in this filing are not
successfully concluded. The discussion was contained in Item 2 of ARO's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, under the
caption "Liquidity and Capital Resources."
In that report, ARO stated that if it is unable to complete the
restructuring transactions discussed in this filing, other measures could be
taken which might include, but not be limited to:
1. ARO's creditors could file an involuntary bankruptcy petition
against ARO;
2. ARO could file a voluntary petition for reorganization under
the protection of the United States Bankruptcy Code;
3. ARO could be unable to pursue acquisitions or exploit its oil
and gas properties;
4. ARO could lose business opportunities due to doubt about ARO's
ability to satisfy its obligations;
5. ARO could be unable to realize the maximum value of its
assets, and
6. ARO could be unable to adequately capitalize its business.
In the same discussion, ARO stated that if a restructuring is not
completed, ARO will most likely file a petition for reorganization and
restructuring under the protection of the United States Bankruptcy Code. ARO
said that it could give no assurances that a bankruptcy proceeding would result
in reorganization, rather than liquidation, of ARO.
ARO also stated in its Form 10-Q for the quarter ended June 30, 1999, that
if a liquidation of ARO were to occur, there is a substantial risk that little
or no value would be available for distribution to the stockholders of ARO.
THE INVESTMENT AGREEMENT BETWEEN ARO AND INVESTOR
On August 3, 1999, Investor and ARO entered into an Investment Agreement
dated as of July 30, 1999 (the "Investment Agreement"). The Investment Agreement
contains the terms and conditions under which Investor will purchase, and ARO
will sell, Common Stock. It also describes a number of related transactions that
must also occur on or before the closing of the Investment Agreement and imposes
material restrictions on ARO's management and operations in the meantime. A copy
of the Investment Agreement, without schedules, including Exhibits 1.4(b)(1),
5.14 and 5.15 of the Investment Agreement, is attached as Exhibit 7.1 and is
incorporated herein by reference. The
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<PAGE>
following summaries of the terms and conditions of the Investment Agreement are
qualified in their entirety by reference to the text of the Investment Agreement
and accompanying exhibits attached hereto as Exhibit 7.1.
NUMBER OF SHARES ISSUABLE TO INVESTOR
Investor has contracted to purchase directly from ARO, and ARO agreed to
sell to Investor upon closing of the Investment Agreement, a number of shares of
Common Stock that will result in the Investor owning, immediately after the
closing, 75% of the combined voting power of all classes of ARO's voting
securities, after giving effect to (1) the sale of Common Stock to Investor, (2)
the conversion of ARO's preferred stock into Common Stock by two principal
stockholders of ARO, Rick G. Avare and Douglas L. Hawthorne, and (3) the
issuance of any other shares of Common Stock that ARO becomes obligated to issue
as a result of the sale of the Common Stock to Investor at closing, including
antidilution rights. These shares of Common Stock are referred to as the
"Primary Shares."
POSSIBLE ADDITIONAL ISSUANCES OF COMMON STOCK
ARO may be obligated to issue to Investor shares of Common Stock in
addition to the Primary Shares under three circumstances, none of which would
require Investor to pay additional consideration to ARO for the additional
shares. The first is that if Investor becomes entitled to a downward adjustment
of the cash purchase price for the Primary Shares under the terms of the
Investment Agreement, then Investor may choose to receive additional shares of
Common Stock in lieu of all or a portion of the downward cash price adjustment
to which Investor would otherwise be entitled. The conditions under which
Investor would be entitled to a downward adjustment in the purchase price for
the Common Stock are discussed further below.
The second circumstance is that if Investor becomes contractually entitled
under the terms of Article 9 of the Investment Agreement to be indemnified by
ARO following the closing, then Investor may elect to receive additional shares
of Common Stock in full or partial satisfaction of cash indemnification payments
to which it would otherwise be entitled. The shares of Common Stock issuable
under the first and second circumstances are referred to as the "Additional
Shares."
The calculation of the number of Additional Shares to be received by
Investor is to be determined by dividing the monetary benefit to which Investor
is entitled by the lesser of:
1. $0.16;
2. the closing price of the Common Stock on the principal
exchange or trading system on which the Common Stock is traded
on the first full business day following the closing of the
Investment Agreement; or
Page 10 of 26
<PAGE>
3. the average of the high and low price of the Common Stock on
the above referenced date.
Additionally, if Additional Shares are issued for post-closing indemnity
claims of Investor against ARO, the resulting number of shares will also be
further increased in order to offset the dilution of the Investor's post-closing
ownership of the Primary Shares that would be incurred if no such adjustment
were made. The provisions of the Investment Agreement pertaining to the issuance
of Additional Shares are set forth in Section 1.3 and Section 9.4 of the
Investment Agreement.
The third circumstance under which additional shares of Common Stock may
be issued to Investor is if ARO issues shares of Common Stock after the closing
of the Investment Agreement under the terms of any options, warrants,
convertible securities, subscription rights, or antidilution rights that were
outstanding on the closing date of the Investment Agreement. In that event, the
Investor will be entitled to receive an additional number of shares of Common
Stock equal to the amount that Investor would have received if the post-closing
issuance of Common Stock by ARO had occurred prior to the closing of the
Investment Agreement. The provisions of the Investment Agreement pertaining to
the issuance of such shares of Common Stock are set forth in Section 8.1 of the
Investment Agreement.
PURCHASE PRICE AND ADJUSTMENTS
The cash purchase price for the Common Stock to be purchased by Investor
is $4,736,315 but is subject to upward or downward adjustment.
The purchase price may be adjusted based on the revenues and expenses
attributable to the operation of ARO's Gulf of Mexico oil and gas properties
during the period from January 1, 1999 through the closing date of the
Investment Agreement. This adjustment generally increases the price to be paid
by Investor by the amount of permissible expenses (including capital
expenditures approved by Investor) paid to operate ARO's Gulf of Mexico oil and
gas properties. Conversely, the adjustment decreases the price to be paid by
Investor for revenues received by ARO. Additional downward price adjustments are
provided for in the event that unexpected environmental and title defects are
discovered by Investor and are not timely cured. These price adjustments are
collectively referred to as the "GOM Operation Adjustment" in the Investment
Agreement and is contained in Exhibit 1.4(b)(1) of the Investment Agreement.
The Investment Agreement also states the purchase price to be paid by
Investor will be decreased by the amount of all Transaction Costs incurred by
ARO. The term "Transaction Costs" is defined in Article 10 of the Investment
Agreement and generally includes all costs relating to the transactions
contemplated by the Investment Agreement.
Finally, the Investment Agreement provides that the purchase price may be
reduced by the amount, if any, by which the total liabilities of ARO on the
closing of the Investment Agreement (excluding certain "Permitted Liabilities")
exceed $3,802,000 by more than $50,000. Permitted
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<PAGE>
Liabilities include amounts owed by ARO under the DnB Note (discussed below),
costs included in the GOM Operations Adjustment and capital expenditures on
ARO's Gulf of Mexico properties that are approved by Investor.
Neither Investor nor ARO is obligated to close the Investment Agreement if
ARO's liabilities, other than the Permitted Liabilities, exceed 3,802,000 by
more than $50,000.
CERTAIN CONDITIONS TO CLOSING OF INVESTMENT AGREEMENT
The obligation of Investor to purchase the Common Stock is conditioned
upon the occurrence at or prior to the closing of the Investment Agreement of a
number of other transactions. Section 6.1 of the Investment Agreement and
related definitions of terms contained in Section 10.1 of the Investment
Agreement set forth the full text of Investor's closing conditions. Certain of
these transactions are summarized below:
PURCHASE AND SALE AGREEMENT.
Simultaneously with the execution and delivery of the Investment
Agreement, ARO and Fidelity entered into a Purchase and Sale Agreement under
which ARO agreed to sell to Fidelity, and Fidelity agreed to purchase from ARO,
an 80% interest in ARO's Gulf of Mexico oil and gas properties (the "Purchase
and Sale Agreement"). The purchase price under the Purchase and Sale Agreement
is initially $25,313,685 million but is subject to upward or downward adjustment
based certain costs and revenues attributable to properties sold during the
period from January 1, 1999 to closing of the Purchase and Sale Agreement. The
purchase price is also subject to downward adjustment for title failures and
undisclosed environmental liabilities, if any. The closing of the Purchase and
Sale Agreement is conditioned upon the simultaneous closing of the Investment
Agreement, and vice versa.
DNB NOTE PAYDOWN
Investor's obligation to close under the Investment Agreement is also
conditioned on ARO's reduction of the principal amount of the DnB Note by $27.0
million. This partial repayment of the DnB Note is expected to be funded from
the proceeds of ARO's sale of an 80% interest in its Gulf of Mexico oil and gas
properties to Fidelity and ARO's cash on hand, including a portion of the
proceeds from the sale of Common Stock to Investor.
DNB NOTE PURCHASE
Investor's obligation to close the Investment Agreement is also
conditioned on its purchase from DnB of all indebtedness of ARO to DnB remaining
after the indebtedness has been reduced by the DnB Note Paydown described above,
and after an additional $12.5 million reduction in the principal balance of the
DnB Note in connection with the sale by Southern Gas of its Appalachian oil and
gas properties and the release of ARO from its guarantee of this indebtedness,
both as described
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<PAGE>
further below. Investor currently estimates that the unpaid principal balance of
the DnB Note at the time it is purchased by Investor will be approximately $27.0
million. All security interests and liens securing the DnB Note will be acquired
by Investor. Investor will purchase the DnB Note concurrently with the closing
of the Investment Agreement. The purchase price for the DnB Note will be
approximately $27.0 million, subject to adjustments. The purchase price for the
DnB Note will be considered paid in full if Investor and Fidelity cause ARO to
repay to DnB an amount equal to:
(a) all of the proceeds to ARO from its sale to Fidelity; and
(b) a portion of the proceeds to ARO from the sale of Common Stock
to Investor.
In connection with the purchase of the DnB Note, Investor believes that
purchase agreement for the DnB Note will entitle DnB to receive an additional,
contingent payment for its sale of the DnB Note if the combined, cumulative net
revenues received by ARO and Fidelity that are attributable to proved oil and
gas reserves that ARO owns in the Gulf of Mexico as of January 1, 1999, exceed
$30.0 million during the period from January 1, 1999 through December 31, 2001.
Investor anticipates that the additional payment will be equal to 50% of the net
revenues in excess of $30.0 million during that period. Any contingent
compensation that is due to DnB is payable on or before March 15, 2002. Investor
expects to into an agreement with Fidelity and ARO which will provide that if
any contingent compensation is payable to DnB, 80% of that amount will be borne
by Fidelity. Investor expects to enter into a separate agreement with ARO and
Fidelity under which ARO will be obligated to the remaining 20% any contingent
compensation is payable to DnB.
Investor's principal reasons for purchasing the DnB Note are to: (1)
protect its investment in ARO from the adverse consequences that could attend
the possible foreclosure of the DnB Note if it continued to be held by DnB or
another unrelated party; (2) to similarly protect its investment from adverse
action against ARO by its unsecured creditors by becoming the senior, secured
creditor of ARO, thus having creditor's rights generally superior to those of
unsecured creditors; and (3) place Investor and ARO in a position whereby they
are able modify the terms of the DnB Note in a manner favorable to ARO as
discussed below.
DNB NOTE MODIFICATION
Contemporaneously with Investor's acquisition of the DnB Note, Investor
expects to enter into an agreement with ARO to modify the DnB Note and related
loan and security documentation in a manner favorable to ARO. These
modifications will be accomplished by amending the loan documents relating to
the DnB Note to:
1. reduce ARO's indebtedness under the DnB Note to $5.0 million in
principal amount;
Page 13 of 26
<PAGE>
2. modify the events of default to which ARO is now subject under the
existing loan documentation with Den norske Bank so that an event of
default will occur only if:
(a) ARO breaches a representation, warranty, certification or
statement in the amended loan documentation or in the
Investment Agreement and, in either case, the breach is not
cured within 10 days after ARO is given written notice of the
breach;
(b) ARO fails to repay the indebtedness when due, if not forgiven
at December 31, 2000; or
(c) ARO fails to pay to DnB any contingent compensation that it
may be obligated to pay under the agreement among ARO,
Investor and Fidelity.
Additionally, the events of default to which ARO is now subject under the
loan documentation with DnB would be restored, and would again become binding on
ARO, if it defaults under the modified loan documentation or breaches, the
Investment Agreement.
If ARO remains in compliance with the modified loan documents through
December 31, 2000:
1. ARO will not have to make payments of principal or interest
under the DnB Note during that period; and
2. ARO will be released from any further liability under the DnB
Note on January 1, 2001.
Furthermore, Investor expects the liens on ARO's assets securing the DnB
Note will be assigned to Investor in connection with the purchase of the DnB
Note. These liens will also be modified so that they secure ARO's obligation to
pay its share of the contingent compensation, if any, that may become due to DnB
in connection with the purchase of the DnB Note. These liens will therefore
remain in place until ARO's liability for the contingent amount, if any, is
known and is paid.
Investor expects that it will refrain from exercising or enforcing through
December 31, 2001, any of its rights as a lien holder that may arise because of
ARO's defaults under the DnB Note and related loan documentation before they are
modified, if ARO does not default under the modified loan documents.
Investor expects to subordinate its lien on ARO's assets to the right of
DnB to be paid the amount of any contingent compensation that ARO may in the
future may arise from Investors purchase of the DnB Note.
SALE OF APPALACHIAN PROPERTIES AND STOCK OF SOUTHERN GAS
Page 14 of 26
<PAGE>
Another condition to the Investor's obligations under the Investment
Agreement is that ARO will cause Southern Gas to sell its Appalachian properties
located in Kentucky and Tennessee and ARO will sell or otherwise dissolve its
subsidiaries so that immediately after the closing ARO will have no subsidiaries
and its only oil and gas properties will be those located in the Gulf of Mexico.
The Investment Agreement also requires that ARO be released from its guarantee
of Southern Gas' $12.5 million indebtedness under the DnB Note. Investor has
been advised by ARO that ARO has entered into an agreement to sell the oil and
gas properties owned by its subsidiary, Southern Gas to Nami Resources. ARO has
advised Investor that in connection with the Appalachian property sale by
Southern Gas, DnB is expected to release ARO from its guarantee of Southern Gas'
$12.5 million of indebtedness under the DnB Note which will be assumed by Nami
Resources simultaneously with the release of ARO. ARO has also informed Investor
that it plans to sell the stock of Southern Gas to an entity controlled by
Leonard K. Nave, an affiliate of ARO, in a separate transaction.
CLOSING DATE LIABILITIES
The obligations of Investor under the Investment Agreement are contingent
upon the compromise and settlement by ARO of certain past due trade accounts
payable, notes payable, litigation proceedings and other liabilities such that
the total liabilities of ARO will be substantially reduced as of the closing of
the Investment Agreement. In this regard, the Investment Agreement excuses
Investor's obligation to close unless either: (1) all liabilities of ARO will
have been paid or otherwise discharged, except for certain agreed upon
liabilities such as the DnB Note, or (2) ARO will have sufficient cash resources
on the closing date (after giving effect to closing transactions) to pay any
remaining liabilities in accordance with their respective terms. ARO is also
obligated to obtain releases of any liens and encumbrances against its oil and
gas properties, other than those securing the DnB Note to be purchased by
Investor.
CONVERSION OF PREFERRED STOCK
The conversion by Rick G. Avare and Douglas L Hawthorne, both affiliates
of ARO, of all shares of ARO's preferred stock owned by them into Common Stock
is also a condition of Investor's obligation to close the Investment Agreement.
It is anticipated that the conversion will be made in accordance with the terms
of the ARO preferred stock.
STOCKHOLDER APPROVALS
The prior approval of certain matters by the stockholders of ARO at the
annual meeting of stockholders is a condition to the obligation of Investor to
close the Investment Agreement. The matters which the Investment Agreement calls
for to be submitted to ARO stockholders are referred to as the "Proxy Items,"
and include proposals to approve the following matters: (1) the Investment
Agreement with Investor and the various transactions contemplated by the
Investment to occur; (2) the Purchase and Sale Agreement with Fidelity; (3) the
sale of ARO's Appalachian oil and gas properties owned by Southern Gas; (4) the
sale of all of the outstanding stock of Southern Gas to an entity controlled by
Leonard K. Nave; (5) and amendment to ARO's certificate of incorporation to
Page 15 of 26
<PAGE>
increase in the number of shares of Common Stock ARO is authorized to issue from
50,000,000 shares to 70,000,000; (6) amendment to ARO's certificate of
incorporation to eliminate the staggering of the terms of office of the members
of its board of directors; and (7) the election of directors designated by
Investor. Without an increase in authorized shares, ARO would not have enough
shares of Common Stock to issue to Investor and to cover exercises of
outstanding options and warrants.
VOTING AND SUPPORT AGREEMENTS
The Investment Agreement also contemplates that Investor will receive
irrevocable proxies to vote for the Proxy Items from nine of ARO's major
stockholders holding, in the aggregate, approximately 52% of the voting power of
ARO's securities. The Voting and Support Agreements are described further in
Item 5, below.
CHANGES IN ARO'S BOARD OF DIRECTORS AND MANAGEMENT
Upon execution of the Investment Agreement, ARO became obligated to
increase the number of directors serving on its board of directors from seven to
nine members and to appoint two nominees of Investor to the newly-created
vacancies. Investor has nominated for election to ARO's board of directors, Ivar
Siem, Chairman of BDCO and Michael J. Jacobson, President and Chief Executive
Officer of BDCO. Messrs. Siem and Jacobson were appointed to ARO's board of
directors in October 1999.
Effective as of the closing, Investor expects to cause ARO's board of
directors to be reduced from nine to five members at closing of the Investment
Agreement. Investor's nominees for election to ARO's board of directors are Ivar
Siem, Chairman of BDCO, Michael J. Jacobson, President and Chief Executive
Officer of BDCO, John P. Atwood, Vice President, Finance and Corporate
Development of BDCO, Andrew R. Agosto, Chief Operating Officer of CCNG, Inc. and
Douglas Hawthorne, currently, a member of ARO's board of directors and one of
its largest stockholders. All proposed changes in ARO's board of directors are
conditions to Investor's obligations to close the Investment Agreement.
Set forth below is certain information with respect to each of Investor's
nominees for election to ARO's board of directors.
Ivar Siem, age 53, has served as a director and Chairman of the
Board of Blue Dolphin Energy Company since 1989 and a director of Blue
Dolphin Exploration since 1989. Mr. Siem is currently a member of the
boards of directors of Avenir A/S and Grey Wolf, Inc. Since 1995, he has
served on the board of directors of Grey Wolf, Inc., during which time he
served as Chairman from 1995 to 1998 and interim President in 1995 during
its restructuring. Since 1985, he has been an international consultant in
energy, technology and finance. He has served as Director of Business
Development for Norwegian Petroleum Consultants and as an independent
consultant
Page 16 of 26
<PAGE>
to the oil and gas exploration and production industry based in London,
England. Mr. Siem holds a Bachelor of Science Degree in Mechanical
Engineering from the University of California, Berkley, and an executive
MBA from Amos Tuck School of Business, Dartmouth University.
MICHAEL J. JACOBSON, age 53, has served as President and Chief
Executive Officer of Blue Dolphin Energy Company since 1990 and a director
of Blue Dolphin Exploration since 1990. Mr. Jacobson has been a member of
several Boards of Directors, including Volvo Petroleum, Inc., W.L. Somner
Company, Inc., and Flagstaff Corporation. He has been associated with the
energy industry since 1968, serving in various senior management
capacities since 1980. Mr. Jacobson served as Senior Vice President and
Chief Financial and Administrative Officer for Creole International, Inc.,
as well as Vice President of Operations for the parent holding company,
from 1985 until joining the Company in 1990. He has also served as Vice
President and Chief Financial Officer of Volvo Petroleum, Inc., and for
certain Fred. Olsen oil and gas interests. Mr. Jacobson holds a Bachelor
of Science Degree in Finance from the University of Colorado.
JOHN P. ATWOOD, age 47, is Vice President, Finance and Corporate
Development of Blue Dolphin Energy Company. Mr. Atwood has been associated
with the energy industry since 1974, serving in various management
capacities since 1981. Prior to joining Blue Dolphin Energy Company in
April 1991, he served as Senior Vice President for Glickenhaus Energy
Corporation. Mr. Atwood was a member of the senior management team,
directly responsible for the financial reporting, land and administrative
functions of the company. He has also served as Area Land Manager for CSX
Oil & Gas Corporation and Division Land Manager for Hamilton Brothers Oil
Company/Volvo Petroleum, Inc. Mr. Atwood served in various land capacities
for Tenneco Oil Company from 1977 to 1981. Mr. Atwood is a Certified
Professional Landman and holds a Bachelor of Arts Degree from Oklahoma
City University and a Master of Business Administration Degree from
Houston Baptist University. Mr. Atwood served as Vice President of Land of
Blue Dolphin Energy Company from 1991 until his appointment as Vice
President of Finance and Corporate Development in 1998.
ANDREW R. AGOSTO, age 38, is Senior Vice President and Chief
Operating Officer of CCNG, Inc. Mr. Agosto has been associated with the
energy industry in various capacities since 1982. Mr. Agosto in his
capacity as Chief Operating Officer of CCNG, Inc. is responsible for the
company's activities in the energy sector including exploration and
production, natural gas transportation and marketing and new business
development. Prior to joining CCNG, Inc., Mr. Agosto served in various
capacities with Shell Exploration and Production Company from 1986 to
1997, including Area Manager - Williston Basin, Continental Division. Mr.
Agosto
Page 17 of 26
<PAGE>
is a Registered Professional Petroleum Engineer. He holds a Bachelor of
Science Degree in Chemical Engineering from Texas A&M University.
DOUGLAS L. HAWTHORNE, age 57, has served as a director and Chairman
of the Board of American Resources Offshore, Inc, since March 1993 and a
director of Southern Gas Co. of Delaware, Inc. since February 1994. Mr.
Hawthorne has served on the Executive Committee (since April 1997), the
Compensation Committee (since August 1996) and the Audit Committee (from
August 1996 until July 1997) of American Resources Offshore, Inc. Mr.
Hawthorne has served as a director of Bullet Sports International, Inc.
since 1995 and he has been a principal of Carillon Capital, Inc., a
Dayton, Ohio investment banking firm, since 1992.
Additionally, Investor will seek to eliminate the division of ARO's
directors into three classes, subject to approval of ARO's stockholders at ARO's
stockholder meeting to approve the other transactions.
Furthermore, upon closing of the Investment agreement the Investor expects
to cause ARO to elect the following individuals as officers of ARO to the
positions set forth opposite their names:
NAME POSITION
------ -----------
Ivar Siem........................... President
John P. Atwood...................... Vice President and Secretary
G. Brian Lloyd...................... Vice President and Treasurer
Biographical information on Messrs. Siem and Atwood appears above.
G. BRIAN LLOYD, age 40, is Vice President, Treasurer and Secretary
of Blue Dolphin Energy Company. Mr. Lloyd is a Certified Public Accountant
and has been employed by Blue Dolphin Energy Company since December 1985.
Prior to joining Blue Dolphin Energy Company, he was an accountant for
DeNovo Oil and Gas Inc., an independent oil and gas company. Mr. Lloyd
received a Bachelor of Science Degree in Finance from Miami University,
Oxford, Ohio in 1982 and attended the University of Houston in 1983 and
1984. Mr. Lloyd has served as Secretary of the Blue Dolphin Energy Company
since May 1989, Treasurer since September 1989 and Vice President since
March 1998.
COST SAVING MEASURES BEFORE CLOSING
ARO is obligated by the Investment Agreement to implement certain cost
saving measures prior to closing of the Investment Agreement. These include
terminating the employment of five specifically identified officers and
employees of ARO, the reduction of ARO's Metaire, Louisiana
Page 18 of 26
<PAGE>
office lease to approximately 1,000 square feet. Section 5.9 of the Investment
Agreement sets forth the full text of cost saving measures ARO is obligated to
implement. ARO's completion of the cost saving measures on terms reasonably
satisfactory to Investor is a condition to Investor's obligation to close.
CERTAIN RESTRICTIONS ON ARO'S OPERATIONS PENDING CLOSING
ARO has agreed to observe certain restrictions on its operations and
expenditures until the closing of the Investment Agreement. Among these is ARO's
agreement not to make any expenditure or incur any liability in excess of $500,
unless agreed to by Investor or unless the expenditure relates to a request by
an operator of ARO's wells for an authority for expenditure (an "AFE").
With respect to AFEs prior to closing, ARO is required to attempt to
farmout the operations to which the AFE relates on the best terms obtainable. If
ARO is unable to obtain an acceptable farmout arrangement, then ARO is obligated
to decline to participate in the operation unless it receives the consent of
Investor to do so or unless ARO's commercial bank lends the necessary funds on
terms approved by Investor. The failure of ARO to participate in operations for
which it has received an AFE may result in ARO becoming subject to contractual
penalties for the benefit of other working interest owners, possibly including
temporary or permanent forfeiture to the other working interest owners of rights
to production from the well or wells to which the proposed AFE pertains.
The Investment Agreement also prohibits, unless otherwise consented to by
Investor, sales of assets outside the ordinary course of ARO's business,
issuances or purchase of ARO's securities, or action or inaction by ARO that
would cause ARO's representations and warranties in the Investment Agreement to
become untrue prior to or at closing.
The full text of these restrictions and others are contained in Section
5.8 and Section 5.12 of the Investment Agreement.
MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT
Investor currently expects that the substantial cost-saving reductions in
ARO's management and staff leading up to and at the closing will thereafter
require ARO to obtain supplemental general and administrative services from an
outside source. Accordingly, the Investment Agreement provides that ARO and BD
Services, will enter into a Management and Administrative Services Agreement at
the closing, the form of which is attached to the Investment Agreement as
Exhibit 5.15.
The Management and Administrative Services Agreement generally
contemplates that the day-to-day management of ARO will be delegated to BD
Services, subject to the ultimate control and supervision of ARO's board of
directors. Among the specific management services to be provided by BD Services
are the following services: (1) day-to-day accounting functions; (2) cash
management functions, (3) general land and title functions, such as maintaining
oil and gas lease records;
Page 19 of 26
<PAGE>
(4) contract administration; (5) preparation of drafts of reports to the United
States Securities and Exchange Commission; (6) assisting ARO with the
preparation of other reports and filings required by law; (7) technical oil and
gas operations consulting, including review and evaluation of capital
expenditures for oil and gas lease development; (8) marketing of ARO's oil and
gas production; and (9) assisting ARO in evaluating legal and taxation matters;
and (10) reporting to ARO's senior management regarding matters within BD
Services scope of engagement. BD Services is entitled to a monthly fee of
$83,333 for its services. Execution of the Management and Administrative
Services Agreement is a condition to the obligations of Investor under the
Investment Agreement.
CONSULTING AGREEMENT
In order to assure that ARO's new management following the closing will
have access to the advice and services of certain of ARO' current management,
the Investment Agreement required ARO to enter into a Consulting Agreement in
the form attached to the Investment Agreement as Exhibit 5.14. Accordingly, ARO,
concurrently with its execution of the Investment Agreement, also entered into
the Consulting Agreement with MAP II., a recently-formed limited liability
company. Investor has been advised that Rick G. Avare is the Administrative
Member of MAP II and that other members of ARO's current management may have
interests in MAP II. Under the Consulting Agreement, the services to be provided
will commence upon closing of the Investment Agreement and will continue until
February 28, 2001. MAP II has agreed to make the services of the following
members of ARO's management available to ARO, subject to their continued
employment by MAP II and to the death or incapacity of the individuals: Rick G.
Avare; David Stetson, Ralph Currie and Karen Underwood. The services required of
MAP II generally include advising and consulting with ARO's new management in
connection with: (1) ARO's ongoing business; (2) filings with the Unites States
Securities and Exchange Commission; and (3) the conduct of audits of ARO by its
independent auditors.
MAP II is entitled to receive a fee from ARO of $35,000 per month during
the term of the Consulting Agreement. However, pursuant to the Participation
Agreement between Fidelity and Investor (described below), Fidelity has agreed
to bear 80% of the fees paid by ARO to MAP II under the Consulting Agreement.
Accordingly, the net monthly cost to ARO for fees under the Consulting Agreement
is expected to be only $7,000 per month.
INDEMNITY AGREEMENTS
Promptly after the closing of the Investment Agreement and the election of
Investor's nominees for election to ARO's board of directors, ARO will enter
into Indemnity Agreements with those directors, which will provide that ARO will
hold harmless and indemnify each director against any and all expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by the director in connection with any
threatened, pending, or completed action suit or proceeding, whether civil or
criminal, administrative or investigative (including any action by us or in our
right) to which the director is, or was or at any time becomes ARO's director,
employee or agent, or is or was serving or at any time serves at ARO's request
as
Page 20 of 26
<PAGE>
a director, employee or agent or another corporation, partnership, joint
venture, trust or other enterprise.
ARO will not be required to indemnify a director:
1. except to the extent that the aggregate losses to be indemnified
exceeds the amount of the losses for which the director is
indemnified under any policy of insurance purchased and maintained
by ARO;
2. in respect to remuneration paid to a director if it is determined by
a final judgment or other final adjudication that the remuneration
was paid in violation of the law;
3. on account of any suit in which the final judgment is rendered
against the director for an accounting of profits made from the
purchase or sale by the director of ARO's securities pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934,
as amended;
4. on account of an action or omission of the director which is finally
adjudged to constitute willful misconduct or to have been knowingly
fraudulent or deliberately dishonest; or
5. if a final decision by a court having jurisdiction in the matter
determines that the indemnification is unlawful.
TRANSACTIONS BETWEEN INVESTOR AND FIDELITY
Investor was instrumental in bringing to the attention of Fidelity the
possibility of purchasing a substantial portion of ARO's Gulf of Mexico oil and
gas properties. Investor and Fidelity have also participated together in other
oil and gas property acquisitions prior to their respective proposed
transactions with ARO. For these reasons, Investor and Fidelity chose to work in
close cooperation with each other in investigating and negotiating their
respective contractual arrangements with ARO, all with the knowledge of ARO's
management. Investor expects that the cooperative relationship between Investor
and Fidelity with respect to their proposed transactions with ARO will continue
through the closing of the Investment Agreement and the Purchase and Sale
Agreement. Fidelity will not, however, share any voting or dispositive control
over the Common Stock of ARO to be purchased by Investor from ARO pursuant to
the Investment Agreement.
PARTICIPATION AGREEMENT
Page 21 of 26
<PAGE>
Fidelity and Investor have entered into certain contractual arrangements
with each other concerning their respective transactions with ARO. The first of
these is a Participation Agreement which provides, among other things, that:
1. Investor will share with Fidelity any due diligence investigation
materials obtained by Investor concerning ARO and its properties.
2. Investor and Fidelity agree to use commercially reasonable
efforts to close the transactions contemplated by the Investment
Agreement, the Purchase and Sale Agreement and Note Purchase Agreement.
3. Investor and Fidelity agree that neither of them will (A) amend
or agree to amend the Investment Agreement, Purchase and Sale Agreement or
Note Purchase Agreement without consent of the other, or (B) waive or
agree to waive any condition to closing under the Investment Agreement,
Purchase and Sale Agreement or Note Purchase Agreement without consent of
the other.
4. Investor will be entitled to receive an assignment from Fidelity
of a 10% interest in all proved oil and gas properties purchased by
Fidelity from ARO, but only after Fidelity has recovered from the proceeds
of production from the proved properties the full amount of certain agreed
upon categories of costs incurred by Fidelity in connection with the
acquisition of, and operations on, the proved oil and gas properties.
5. Investor will also be entitled to receive an assignment from
Fidelity of a 15% interest in all exploratory oil and gas properties
purchased by Fidelity from ARO, but only after Fidelity has recovered from
the proceeds of production, determined on block-by-block basis, the full
amount of certain agreed upon categories of drilling and other exploration
costs incurred by Fidelity in connection with obtaining production from
the exploratory properties.
6. Upon closing of the Purchase and Sale Agreement, Fidelity will
pay to Investor a finder's fee of 1% of the adjusted purchase price paid
by Fidelity for the properties purchased from ARO under the Purchase and
Sale Agreement.
7. In addition to the finder's fee, Fidelity has also agreed to
reimburse Investor from time-to-time for a portion of the transaction
costs incurred by Investor in connection with the various transactions
contemplated by the Investment Agreement, the Purchase Agreement and the
Note Purchase Agreement. Fidelity is to reimburse 80% of Investor's
transaction costs, except for transaction costs relating to compliance
with federal securities laws (such as, for example, the preparation of
this Schedule 13D filing) for which Fidelity will reimburse 50% of
Investor's costs.
8. Fidelity will bear 80% of the fees payable by ARO under the
Consulting Agreement between ARO and MAP II. The Participation Agreement
specifically provides
Page 22 of 26
<PAGE>
that ARO is entitled to separately enforce this obligation against
Fidelity, even though ARO is not a party to the Participation Agreement.
9. The Participation Agreement provides that it neither creates a
partnership between Investor and Fidelity nor makes one party the general
agent of the other.
10. Contemporaneously with the closing of the Purchase and Sale
Agreement, Fidelity and Investor will enter into a Management Services
Agreement, the principal terms of which are summarized below.
MANAGEMENT SERVICES AGREEMENT
Concurrently with the closing of the Purchase and Sale Agreement, Investor
expects that it will enter into a Management Services Agreement with Fidelity.
Under that agreement, Investor will act as an independent contractor to Fidelity
and provide various administrative, technical and regulatory compliance services
to Fidelity concerning the Gulf of Mexico oil and gas properties to be purchased
by Fidelity from ARO under the Purchase and Sale Agreement. Fidelity will
retain, however, substantial decision making authority over these properties.
For its services, Investor will receive a management fee from Fidelity of
$40,000 per month. The Management Services Agreement also contemplates that
Investor and Fidelity may in the future agree upon additional special services
to be provided to Fidelity that are not covered by the agreement for which
Investor would receive additional compensation to be negotiated at the time such
additional special services are requested.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
Investor has entered into contractual arrangements with certain of ARO's
largest stockholders under which the stockholders have agreed to support, and
vote at ARO's annual meeting for, the Proxy Items described above, including
approval of the Investment Agreement, the Purchase and Sale Agreement and the
various other transactions contemplated by those agreements. By the same
document, those stockholders have also each granted Investor an irrevocable
proxy to vote their respective shares in connection with any vote to approve the
Proxy Items. The ARO stockholders have, however, retained their voting rights
with respect to any other matters submitted to a vote of ARO's stockholders.
As a consequence of contractual voting agreements and irrevocable proxies
received by Investor, Investor and BDCO has 7,088, 982 votes in connection with
the Proxy Items. This number of shares represents approximately 51.59% of ARO's
outstanding voting stock based on the number of shares of Common Stock and
preferred stock reflected in ARO's Quarterly Report on Form 10-Q for the period
ended June 30, 1999. Because each person granting voting rights retained voting
rights on matters other than the Proxy Items, Investor's and BDCO's voting power
is shared with that person. Neither Investor nor BDCO has a right to acquire
ownership any of the shares of Common Stock over which they have shared voting
power.
Page 23 of 26
<PAGE>
The voting agreements and proxies referred to in this Item were granted
pursuant to a document entitled "Voting and Support Agreement and Irrevocable
Proxy."
Each of the persons set forth in the table below have entered into a
Voting and Support Agreement and Irrevocable Proxy covering the number of shares
indicated.
<TABLE>
<CAPTION>
COMBINED VOTING POWER
-----------------------------
NUMBER OF SHARES NUMBER OF SHARES NUMBER PERCENTAGE
NAME OF COMMON STOCK OF PREFERRED STOCK OF VOTES OF VOTES
---- --------------- ------------------ ----------- ------------
<S> <C> <C> <C> <C>
Rick G. Avare 1,429,046 187,500 2,179,046 15.86%
Douglas L. Hawthorne 202,589 3,334 215,925 1.57%
Leonard K. Nave 447,659 0 447,659 3.26%
Ralph A. Currie 289,500 0 289,500 2.11%
Don Poole 505,000 0 505,000 3.67%
Howard A. Settle 150,000 0 150,000 1.09%
Len Aldridge 50,000 0 50,000 0.36%
Den norske Bank 500,000 0 500,000 3.64%
TECO Oil & Gas, Inc.(1) 2,751,852 0 2,751,852 20.03%
--------- --------- --------- -----
Total 6,325,646 190,834 7,088,982 51.59%
========= ========= ========= =====
</TABLE>
- ----------------------
(1) TECO granted Hale Energy an option to purchase the shares of ARO's Common
Stock that it owns. Hale Energy has entered into Voting and Support
Agreement with Blue Dolphin Exploration.
Each Voting and Support Agreement and Irrevocable Proxy executed by the
persons listed in Table 1 are in substantially the form attached as Exhibit 7.4,
with the exception of that executed by DnB Energy Assets. The form of agreement
with DnB Energy Assets has been modified to reflect its status as both a
stockholder and secured creditor of ARO, and to protect its interests as a
secured creditor pending closing. The form of Voting and Support Agreement and
Irrevocable Proxy executed by DnB Energy Assets is attached hereto as Exhibit
7.5. Exhibits 7.4 and 7.5 are hereby incorporated by reference.
The Investor intends to vote the shares of ARO Common Stock subject to the
Voting Agreements for the approval of:
1. the Investment Agreement;
2. the Purchase and Sale Agreement;
3. the disposition of the Southern Gas and its assets;
4. the increase in the number of shares ARO is authorized to
issue;
5. the elimination of ARO's classified board of directors;
Page 24 of 26
<PAGE>
6. the election of Investor's nominees to ARO's nominees to ARO's
Board of directors; and
7. all other transactions contemplated by the Investment
Agreement and Purchase and Sale Agreement.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO SECURITIES OF ARO.
The responses to Items 3, 4, and 5 are hereby incorporated by reference in
response to this Item.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
EXHIBIT NO. DESCRIPTION OF EXHIBIT
------------ --------------------------
7.1 Investment Agreement by and between American Resources
Offshore, Inc. and Blue Dolphin Exploration Investor
7.2 Purchase and Sale Agreement by and between American Resources
Offshore, Inc. and Fidelity Oil Holdings, Inc.
7.3 Participation Agreement
7.4 Voting and Support Agreement and Irrevocable, general form
7.5 Voting and Support Agreement and Irrevocable Proxy executed by
DnB Energy Assets
[SIGNATURE PAGE FOLLOWS]
Page 25 of 26
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Date: October 22, 1999
Blue Dolphin Energy Company
By: /s/ G. BRIAN LLOYD
G. Brian Lloyd
Vice President and Treasurer
Blue Dolphin Exploration Company
By: /s/ JOHN P. ATWOOD
John P. Atwood
Vice President Finance and
Corporate Development
Page 26 of 26
EXHIBIT 7.1
INVESTMENT AGREEMENT
BY AND BETWEEN
AMERICAN RESOURCES OFFSHORE, INC.
AND
BLUE DOLPHIN EXPLORATION COMPANY
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1
PURCHASE AND SALE............................................................1
1.1 CERTAIN DEFINITIONS....................................................1
1.2 CLOSING ..............................................................1
1.3 ISSUANCE OF THE SHARES.................................................2
1.4 PURCHASE PRICE FOR THE SHARES..........................................3
1.5 CLOSING DELIVERIES.....................................................4
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY...............................................................4
2.1 ORGANIZATION AND STATUS................................................4
2.2 SUBSIDIARIES AND JOINT VENTURES........................................4
2.3 CAPITALIZATION.........................................................4
2.4 AUTHORITY..............................................................5
2.5 NO VIOLATION OF AGREEMENTS OR GOVERNING DOCUMENTS......................5
2.6 COMPANY SEC REPORTS AND FINANCIAL STATEMENTS...........................6
2.7 GOVERNMENTAL FILINGS...................................................6
2.8 YEAR 2000..............................................................6
2.9 LIABILITIES OF THE COMPANY.............................................7
2.10 ABSENCE OF CERTAIN CHANGES OR EVENTS...................................7
2.11 PROCEEDINGS............................................................8
2.12 EMPLOYEES..............................................................8
2.13 EMPLOYEE BENEFIT PLANS.................................................9
2.14 TITLE TO AND CONDITION OF REAL PROPERTY...............................11
2.15 INTELLECTUAL PROPERTY.................................................12
2.16 CERTAIN CONTRACTS AND ARRANGEMENTS....................................12
2.17 STATUS OF CONTRACTS...................................................13
2.18 INSURANCE.............................................................13
2.19 PERMITS AND LICENSES..................................................13
2.20 BANK ACCOUNT BALANCES; POWERS OF ATTORNEY.............................14
2.21 TAXES .............................................................14
2.22 RELATED PARTY INTERESTS...............................................15
2.23 TRANSACTIONS WITH MANAGEMENT..........................................15
2.24 NO OPERATING RESTRICTIONS.............................................15
2.25 BROKERS AND FINDERS...................................................15
2.26 INVESTMENT COMPANY; PUBLIC UTILITY HOLDING ACT........................15
2.27 REGISTRATION RIGHTS...................................................15
2.28 SCHEDULES; UNTRUE STATEMENTS..........................................16
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES
RELATING TO THE PROPERTIES..................................................16
3.1 PROCEEDS OF PRODUCTION................................................16
3.2 INVOICES .............................................................16
3.3 GAS IMBALANCES........................................................16
3.4 GAS PREPAYMENTS.......................................................16
3.5 WELLS .............................................................17
3.6 AFES .............................................................17
3.7 CASUALTY .............................................................17
3.8 TITLE .............................................................17
3.9 PRICING .............................................................17
3.10 EQUIPMENT.............................................................17
3.11 LEASES .............................................................18
3.12 GOVERNMENTAL QUALIFICATION............................................18
3.13 ADVERSE CHANGES IN PRODUCTION RATES OR OIL AND GAS RESERVES...........18
3.14 ENVIRONMENTAL LAWS....................................................18
3.15 RESERVE INFORMATION...................................................18
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF INVESTOR..................................19
4.1 ORGANIZATION..........................................................19
4.2 AUTHORITY.............................................................19
4.3 NO VIOLATIONS.........................................................19
4.4 BROKERS .............................................................19
4.5 BANKRUPTCY............................................................20
4.6 INVESTMENT EXPERIENCE.................................................20
4.7 INVESTMENT INTENT.....................................................20
4.8 REGISTRATION OR EXEMPTION REQUIREMENTS................................20
4.9 SEC REPORTS OF INVESTOR'S PARENT......................................20
ARTICLE 5
OBLIGATIONS PENDING CLOSING.................................................21
5.1 INSPECTION OF THE COMPANY.............................................21
5.2 RETURN OF DATA........................................................21
5.3 ACQUISITION PROPOSALS.................................................21
5.4 OPERATION IN THE ORDINARY COURSE OF BUSINESS..........................22
5.5 BREACHES OF REPRESENTATIONS AND WARRANTIES............................22
5.6 MATERIAL ADVERSE EFFECT...............................................22
5.7 PROXY MATERIALS.......................................................22
5.8 NEGATIVE COVENANTS....................................................23
5.9 OVERHEAD REDUCTION MEASURES DURING INTERIM PERIOD.....................24
5.10 WAIVERS OF AFFILIATE CLAIMS...........................................25
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5.11 CANCELLATION OR EXERCISE OF OPTIONS...................................25
5.12 AFE'S PRIOR CLOSING...................................................25
5.13 VOTING AND SUPPORT AGREEMENT..........................................25
5.14 CONSULTING AGREEMENT..................................................26
5.15 MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT......................26
5.16 BOARD OF DIRECTORS APPOINTMENTS.......................................26
ARTICLE 6
CONDITIONS TO CLOSING.......................................................26
6.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF INVESTOR.......................26
6.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY....................31
6.3 COMMERCIALLY REASONABLE EFFORTS.......................................32
ARTICLE 7
TERMINATION AND WAIVER......................................................32
7.1 TERMINATION...........................................................32
7.2 EFFECT OF TERMINATION.................................................33
7.3 WAIVER .............................................................33
7.4 EXPENSE ON TERMINATION................................................33
ARTICLE 8
OTHER COVENANTS.............................................................33
8.1 ANTIDILUTION PROTECTION...............................................33
8.2 REGISTRATION RIGHTS...................................................34
8.3 FILING EXPENSES.......................................................37
ARTICLE 9
INDEMNIFICATION.............................................................37
9.1 INDEMNIFICATION OF INVESTOR...........................................37
9.2 INDEMNIFICATION OF THE COMPANY........................................37
9.3 INDEMNIFICATION PROCEDURE.............................................37
9.4 INDEMNITY SHARES......................................................38
9.5 INDEMNIFICATION THRESHOLD.............................................39
ARTICLE 10
MISCELLANEOUS...............................................................39
10.1 CERTAIN DEFINITIONS...................................................39
10.2 FURTHER ASSURANCES....................................................49
10.3 PUBLIC ANNOUNCEMENTS..................................................49
10.4 EXPENSES .............................................................49
10.5 NOTICES AND WAIVERS...................................................49
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10.6 SURVIVAL .............................................................50
10.7 GENDER AND CERTAIN REFERENCES.........................................50
10.8 SUCCESSORS AND ASSIGNS................................................50
10.9 APPLICABLE LAW........................................................50
10.10 DISPUTES .............................................................51
10.11 ARBITRATION...........................................................51
10.12 SEVERABILITY; JUDICIAL MODIFICATION...................................52
10.13 AMENDMENT AND ENTIRETY................................................52
10.14 RIGHTS OF PARTIES.....................................................53
10.15 TIME OF ESSENCE.......................................................53
10.16 COUNTERPARTS..........................................................53
EXHIBIT 1.4(B)(1) GOM OPERATIONS ADJUSTMENT........................
EXHIBIT 5.13 VOTING AND SUPPORT AGREEMENT.....................
EXHIBIT 5.14 CONSULTING AGREEMENT.............................
EXHIBIT 5.15 MANAGEMENT AND ADMINISTRATIVE SERVICES
AGREEMENT........................................
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INVESTMENT AGREEMENT
This INVESTMENT AGREEMENT (this "AGREEMENT") is entered into on this 30th
day of July 1999, by and between American Resources Offshore, Inc., a Delaware
corporation (the "COMPANY") with its principal office at 160 Morgan Street,
Versailles, Kentucky 40383, and Blue Dolphin Exploration Company, a Delaware
corporation (the "INVESTOR") (collectively, the "PARTIES" or individually, a
"PARTY").
R E C I T A L S:
WHEREAS, Investor desires to purchase from the Company and the Company
desires to sell to Investor, on the terms and conditions herein set forth,
shares of the Company's common stock, par value $.00001 per share (the "COMMON
STOCK"); and
WHEREAS, the transactions contemplated by this Agreement represents one of
several substantially contemporaneous and mutually contingent transactions
whereby the Company intends to Transfer substantially all of its assets and
properties, subject to, among other things, the approval of such Transfers by
the shareholders of the Company.
NOW, THEREFORE, for and in consideration of the premises, and the mutual
and dependent promises contained herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE
1.1 CERTAIN DEFINITIONS. As used in this Agreement, each parenthetically
capitalized term in the introduction, recitals and other Sections of this
Agreement has the meaning so ascribed to it, and other capitalized terms have
the meaning given them in SECTION 10.1.
1.2 CLOSING. Consummation of the transactions contemplated by this
Agreement (the "CLOSING") shall take place at the offices of Porter & Hedges,
L.L.P., at 700 Louisiana, Suite 3500, Houston, Texas 77002 immediately following
the Shareholders Meeting or at such other time and place as all parties hereto
may mutually agree in writing. The date upon which the Closing occurs is
referred to herein as the "CLOSING DATE."
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1.3 ISSUANCE OF THE SHARES.
(a) Subject to the terms and conditions of this Agreement, the
Company agrees to issue to Investor at the Closing, free and clear of all
Encumbrances, and Investor agrees to purchase and accept from the Company the
number of shares of Common Stock described below:
(1) The Company shall issue to Investor a number of shares of
Common Stock that will result in Investor owning, immediately after the
Closing, 75% of the combined voting power of all classes of the Company's
voting securities after giving effect to:
(A) the issuance of such shares to Investor at Closing;
(B) the conversion of all shares of Preferred Stock
owned beneficially or of record by Rick G. Avare and Douglas
L. Hawthorne into Common Stock pursuant to their respective
Voting and Support Agreements; and
(C) the issuance or deemed issuance at Closing of voting
securities that the Company becomes obligated to issue as a
result of the issuance to Investor of shares of Common Stock
at Closing, including pursuant to antidilution rights or other
rights to of any Person to acquire Common Stock.
The shares of Common Stock issuable to Investor pursuant to this SECTION
1.3(A)(1) are referred to as the "PRIMARY SHARES."
(2) In addition to the Primary Shares, the Company shall also
issue to Investor at Closing and from time-to-time thereafter shares of
Common Stock if Investor elects to receive additional shares of Common
Stock:
(A) in lieu of all or any portion of the downward cash
adjustments to which Investor would otherwise be entitled
pursuant to SECTION 1.4(B); or
(B) in full or partial satisfaction of any right of the
Investor to indemnification from the Company pursuant to
ARTICLE 9.
Such additional shares of Common Stock that Investor chooses to receive,
if any, are referred to as the "ADJUSTMENT SHARES." Investor shall not be
required to accept any Adjustment Shares in lieu of cash. If Investor
chooses to receive Adjustment Shares, the number of shares of Adjustment
Shares shall be determined by dividing the dollar amount of the aggregate
downward cash adjustment in the Purchase Price or indemnification amount,
as the case may be, by the price per share of Common Stock described in
SECTION 9.4(B). The Primary Shares and the Adjustment Shares, if any, are
collectively referred to herein as the "SHARES."
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1.4 PURCHASE PRICE FOR THE SHARES.
(a) In consideration for the issuance of the Shares and the other
representations, warranties, covenants and agreements contained herein, Investor
shall pay to the Company a purchase price of $4,736,315 which amount shall be
subject to adjustments set forth in SECTION 1.4(B) (the purchase price, as
adjusted pursuant to this Agreement, being referred to as the "PURCHASE PRICE").
The Purchase Price shall be payable at closing by wire transfer on the Closing
Date of immediately available funds to such of the Company's creditors and in
such amounts as the Company shall direct in writing and the balance of the
Purchase Price not so directed to the Company's creditors shall be paid into the
Company's bank account as designated by the Company. The Company shall provide
written directions to Investor for payment of the Purchase Price (including all
pertinent wire transfer instructions) at least five Business Days before the
Closing Date.
(b) The $4,736,315 price payable by Investor to the Company pursuant
to SECTION 1.4(A)(1) shall be subject to each of the following adjustments at
Closing:
(1) The Purchase Price shall be adjusted in accordance with
the GOM Operations Adjustment, which shall be calculated as set
forth on EXHIBIT 1.4(B)(1) hereto.
(2) The Purchase Price shall be reduced by all Transaction
Costs.
(3) The Purchase Price shall be reduced by the amount, if any,
by which the total liabilities of the Company at the Closing Date,
other than Permitted Liabilities (defined below) exceed $3,802,000.
(c) "PERMITTED LIABILITIES" shall mean and include:
(1) amounts due under the Residual Note;
(2) costs included in the calculation of the GOM Operations
Adjustment; and
(3) AFEs which the Company has committed to pay and which are
approved by Investor pursuant to SECTION 5.12.
(d) The determination of the Purchase Price shall be made in
accordance with generally accepted accounting principles as consistently applied
by the Company.
1.5 CLOSING DELIVERIES. On the Closing Date: (a) the Company shall deliver
to Investor duly and validly issued certificates representing the Shares, in
such denominations as Investor shall request no later than five Business Days
prior to Closing or if no such request is made, in a single certificate; (b) the
Company and Investor shall deliver to one another all other documents,
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instruments and agreements as required under this Agreement; and (c) Investor
shall pay to the Company the Purchase Price for the Shares.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
As material inducements for the execution, delivery and performance of
this Agreement and the transactions contemplated hereby, the Company hereby
makes to Investor the representations and warranties set forth in this ARTICLE 2
and ARTICLE 3 as of the date hereof and the Closing Date, except as specifically
set forth in the "EXCEPTION SCHEDULE" in a numbered paragraph that corresponds
to the section for which disclosure is made.
2.1 ORGANIZATION AND STATUS. The Company is a corporation duly organized,
validly existing and in good standing under the Laws of the State of Delaware,
and is duly qualified and in good standing as a foreign corporation in each
jurisdiction where its properties (whether owned, leased or operated) or its
business conducted require such qualification, except where the failure to be so
qualified would not have a Material Adverse Effect. The Company has all
requisite corporate power and authority to own, operate and lease its property
and to carry on its businesses as is now being conducted. The Company has
delivered to Investor complete and accurate copies of its Certificate of
Incorporation ("CERTIFICATE OF INCORPORATION") and Bylaws ("BYLAWS"), and the
charter documents and bylaws of each of its subsidiaries, each as amended to the
date hereof.
2.2 SUBSIDIARIES AND JOINT VENTURES. Except as disclosed on SECTION 2.2 of
the EXCEPTION SCHEDULE the Company has no subsidiaries and owns no stock or
other interest in any other corporation or in any partnership or limited
liability Company, or other venture or entity. Except as disclosed on SECTION
2.2 of the EXCEPTION SCHEDULE, the Company owns all of the issued and
outstanding capital stock and other ownership interests of each of its
subsidiaries, free and clear of all Encumbrances, and there are no existing
options, warrants, calls, subscriptions, convertible securities or other
securities, commitments or obligations of any character relating to the
securities of any such subsidiary. As of the Closing, the Company will have no
subsidiaries.
2.3 CAPITALIZATION. (a) The Company has authorized capital stock
consisting of 50,000,000 shares of Common Stock, of which 12,811,036 shares are
issued and 210,890 shares are held in treasury on the date hereof and 3,000,000
shares of Preferred Stock, of which 230,516 shares are issued and outstanding on
the date hereof. The shares of Preferred Stock are convertible into an aggregate
of 230,516 shares of Common Stock and have voting rights of four votes per share
of Preferred Stock. Except as described in SECTION 2.3(A),of the EXCEPTION
SCHEDULE there are no arrearages in the payment of dividends on the Preferred
Stock. All of the outstanding shares of capital stock of the Company have been
duly authorized and are validly issued, fully paid and nonassessable, and no
shares were issued, and no options were granted, in violation of preemptive or
similar rights of any shareholder or in violation of any applicable Securities
Act.
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(b) Except as set forth on SECTION 2.3(B) of the EXCEPTION SCHEDULE,
there are no preemptive rights or any outstanding subscriptions, options,
warrants, rights, convertible securities or other agreements or commitments of
the Company of any character relating to the issued or unissued capital stock or
other securities of the Company. All shares of capital stock issuable by the
Company under the terms of antidilution agreements have been issued. The
occurrence of the transactions contemplated by this Agreement will not give rise
to any obligation of the Company to issue additional capital stock or other
securities pursuant to antidilution rights or any other arrangement, except as
contemplated by this Agreement. There are no outstanding obligations of the
Company to repurchase, redeem or otherwise acquire any of its outstanding
securities.
2.4 AUTHORITY. The Company has the corporate power and authority and,
except for the approval of its stockholders, has taken all corporate action
necessary to execute and deliver this Agreement and the Purchase and Sale
Agreement and to consummate the transactions contemplated by such agreements.
This Agreement and the Purchase and Sale Agreement and the transactions
contemplated by such agreements have been duly and validly authorized by the
Board of Directors of the Company, validly executed and delivered by the Company
and, as of the Closing Date, will have been duly and validly approved by the
shareholders of the Company. This Agreement and the Purchase and Sale Agreement,
and the documents and instruments required pursuant to such agreements,
constitute the valid and binding obligations of the Company, enforceable in
accordance with their respective terms, except as enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar Laws in
effect relating to the rights and remedies of creditors, as well as to general
principles of equity (regardless of whether such enforceability is considered in
a Proceeding in equity or at law).
2.5 NO VIOLATION OF AGREEMENTS OR GOVERNING DOCUMENTS. Except as described
in SECTION 2.5 of the EXCEPTION SCHEDULE, neither the execution and delivery of
this Agreement or the Purchase and Sale Agreement by the Company nor
consummation of transactions contemplated hereby and thereby by the Company will
(a) conflict with the Certificate of Incorporation or the Bylaws of the Company
or the charter documents or bylaws of any of its subsidiaries, (b) result in any
breach or termination of, or constitute an event which with notice or lapse of
time, or both, would become a default under, or result in the creation of any
Encumbrance upon any asset of the Company under, or create any rights of
termination, cancellation, modification, amendment, or acceleration in any
person under, any Contract, (c) violate any Order, (d) require the consent,
approval, authorization, or order of any person or Governmental Authority (other
than the shareholders of the Company at the Shareholders Meeting) not heretofore
obtained other than those consents or approvals specifically contemplated
hereby, or (e) result in the loss or modification or any license, franchise,
permit or other authorization granted to or otherwise held by the Company.
2.6 COMPANY SEC REPORTS AND FINANCIAL STATEMENTS. To the Knowledge of the
Company, the Company has filed with the SEC, and has made available to Investor
true and complete copies of, all forms, reports, schedules, statements, and
other documents required to be filed by it since December 31, 1995 under the
Securities Exchange Act of 1934 (the "EXCHANGE ACT") or the Securities Act (each
of such forms, reports, schedules, statements, and other documents, to the
extent
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filed and publicly available before the date of this Agreement, other than
preliminary filings, is referred to as a "SEC DOCUMENT"). Each SEC Document has
been timely filed from May 31, 1998 through the Closing Date. Each SEC Document,
at the time filed, (a) did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading and (b) complied in all material respects with
the applicable requirements of the Exchange Act and the Securities Act, as the
case may be, and the applicable rules and regulations of the SEC thereunder. The
financial statements included in the SEC Documents (the "FINANCIAL STATEMENTS")
comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto or, in the case of the
unaudited statements, as permitted by Form 10-Q of the SEC) and fairly present
(subject, in the case of the unaudited statements, to normal, recurring audit
adjustments) the consolidated financial position of the Company and its
consolidated subsidiaries as at the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended. The certified
public accountants who have certified certain financial statements of the
Company included in the SEC Documents are independent public accountants as
required by the Securities Act and the rules and regulations thereunder.
Investor acknowledges that the Independent Auditors' Report with respect to the
Financial Statements as of and for the period ended December 31, 1998 reflects
that substantial doubts exist about the Company's ability to continue as a going
concern.
2.7 GOVERNMENTAL FILINGS. To the Knowledge of the Company, no notices,
reports or other filings are required to be made by the Company or its
subsidiaries with, nor are any consents, registrations, approvals, permits or
authorizations required to be obtained by the Company or its subsidiaries from,
any Governmental Authority in connection with the execution and delivery of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby.
2.8 YEAR 2000. To the Knowledge of the Company, all computer systems and
computers software used by the Company recognize and manipulate date information
relating to dates on or after January 1, 2000 and the operation and
functionality of such computer systems and such computer software will not be
adversely affected by the advent of the year 2000 or any manipulation of data
featuring information relating to dates before, on or after January 1, 2000
("MILLENNIUM FUNCTIONALITY"), except in each case of such computer systems and
computer software, the failure of which to achieve Millennium Functionality,
individually or in the aggregate, would not be reasonably likely to have a
Material Adverse Effect. The costs of the adaptions necessary to achieve
Millennium Functionality are not reasonably likely to have a Material Adverse
Effect.
2.9 LIABILITIES OF THE COMPANY. The Company does not have any liabilities
or obligations, either accrued, absolute, contingent, or otherwise, other than
those (a) reflected or reserved against in the December 31, 1998 audited
consolidated balance sheet of the Company, or (b) incurred in the
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ordinary course of business since December 31, 1998 and which individually and
in the aggregate would not have a Material Adverse Effect.
2.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the January 1, 1999,
the Company has not:
(a) suffered any event, condition or circumstance that has had, or
is reasonably likely to have, a Material Adverse Effect;
(b) changed any accounting methods, principles or practices;
(c) conducted any business which is outside the ordinary course of
business or not substantially in the manner that the Company previously
conducted its business; or
(d) mortgaged, pledged or subjected to lien, charge, security
interest or to any other Encumbrance other than Permitted Encumbrances any of
its assets, or amended, modified, or extended any existing lien on or security
interest in any such assets;
(e) Transferred or agreed to Transfer of any of its assets other
than oil and gas leases abandoned as non-commercial, and oil and gas equipment
sold for fair market value in the ordinary course of business for consideration
not in excess of $5,000 in the aggregate;
(f) waived or released any rights, including cancellation of any
debt or accounts receivable;
(g) settled any claims or Proceedings involving (i) any payment by
the Company of an amount over $5,000 in the aggregate, (ii) any stipulations of
fact or admissions of liability in any Proceeding, or (iii) any obligation on
the part of the Company of a continuing nature;
(h) except as set forth in SECTION 2.23 of the EXCEPTION SCHEDULE,
entered into any agreement with any of its shareholders, directors, officers,
employees, or other Affiliates;
(i) permitted or suffered any amendment, cancellation, modification
or termination of any contract, agreement, license, permit or arrangement to
which it is a party or to which any of its properties or assets is subject,
other than with respect to pricing changes in spot market gas purchase Contracts
having a term of 30 days or less;
(j) lost, canceled, terminated, amended or modified any material
lease to which it is a party;
(k) failed to pay when due any lease obligation, obligation for
borrowed money, or failed to pay any trade account payable within 60 days of its
due date, or defaulted in respect of any
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other contractual obligation to which the Company is subject, except for
billings and invoices being contested in good faith which are described in
SECTION 2.11 of the EXCEPTION SCHEDULE; or
(l) loaned or advanced any funds to its directors, officers,
employees, agents, shareholders, or other Affiliates or to any of its
shareholders except for loans or advances made in accordance with customary
practices of the Company (consistent with good business practice) for the
purpose of defraying ordinary and necessary business expenses incurred by
employees in the usual course and scope of their employment and for which proper
supporting documentation has been obtained by the Company.
2.11 PROCEEDINGS. Except as listed on SECTION 2.11 of the EXCEPTION
SCHEDULE, no Proceeding is pending or, to the Company's Knowledge, threatened
against or relating to the Company, its officers or directors in their
capacities as such, or any of the Company's properties, businesses or
subsidiaries.
2.12 EMPLOYEES.
(a) Each of the Company and each of its subsidiaries has complied
with all Laws relating to the employment of labor, including, without
limitation, provisions thereof relating to wages, hours, equal
opportunity, collective bargaining, the payment of social security and
other employment-related taxes, and occupational safety and health.
(b) Each individual who is currently performing or has performed
services to or for either the Company or any ERISA Affiliate as an
independent contractor could not reasonably be found by the Internal
Revenue Service or any Governmental Authority to be an employee of either
the Company or such ERISA Affiliate, as applicable, while such individual
was providing services as an independent contractor. The term "ERISA
Affiliate" means any other employer that is, or at any relevant time was,
together with the Company, treated as a "single employer" under Section
414 of the Internal Revenue Code of 1986, as amended (the "CODE").
(c) Neither the Company nor any subsidiary is a party to or bound by
any collective bargaining or other labor agreement. Neither the Company
nor any subsidiary has any labor relations problem pending. To the
Knowledge of the Company and any subsidiary, there are no union organizing
efforts involving any employees of the Company or any subsidiary.
(d) There are no workers' compensation claims pending against the
Company or any subsidiary at the Closing Date and, to the Knowledge of the
Company or any subsidiary at the Closing Date, there exists no set of
circumstances that is reasonably likely to give rise to such a claim.
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(e) To Knowledge of the Company, no employee of the Company or any
subsidiary of the Company at the Closing Date is subject to any
confidentiality or noncompetition agreement or any other Contract or
restriction of any kind that would impede in any way the ability of such
employee to carry out fully all activities of such employee in furtherance
of the business of the Company or any subsidiary or that would conflict
with the business of the Company.
2.13 EMPLOYEE BENEFIT PLANS.
(a) The only "employee pension benefit plans," (as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") including, without limitation, any "multiemployer plan" as defined in
Section 3(37) of ERISA), employee welfare benefit plans (as defined in Section
3(1) of ERISA), maintained, contributed to, or required to be contributed to by
the Company or any ERISA Affiliate with respect to any employees of the Company
or any ERISA Affiliate, or pursuant to which the Company or any ERISA Affiliate
may have any liability with respect to any employees of the Company or any ERISA
Affiliate, any former employees of the Company or any ERISA Affiliate or any
current or former director or officer of the Company (each, a "PLAN") are listed
on SCHEDULE 2.13. Without liming the generality of the preceding sentence, the
term "Plan" shall include all arrangements, contracts, policies, or practices
(whether written or unwritten, qualified or unqualified, funded or unfunded and
including any that have been frozen or terminated) relating to any of the
following benefits: pension, profit sharing, retirement, supplemental
retirement, stock, stock option, basic and supplemental accidental death and
dismemberment, basic and supplemental life and health insurance, post-retirement
medical or life, welfare, dental, vision, savings, bonus, deferred compensation,
incentive compensation, business travel and accident, holiday, vacation,
severance pay, salary continuation, sick pay, sick leave, short and long term
disability, tuition refund, service award, company car, scholarship, relocation,
patent award, fringe benefit, or other employee benefits.
(b) Set forth on SCHEDULE 2.13 is a true and complete list of: (i)
each employment or consulting agreement, arrangement or other understanding that
is currently in effect to which the Company or any ERISA Affiliate is a party,
by which such entity is bound or pursuant to which such entity is an obligator
or a beneficiary, (ii) each agreement, arrangement or other understanding that
could result in any severance payment or benefit payable by the Company or any
ERISA Affiliate, whether as a result of the Company's execution and performance
of the transactions contemplated by this Agreement or otherwise, to any
employee, former employee, director, or officer of the Company or any ERISA
Affiliate and (iii) each agreement, arrangement or other understanding that
could result in a "parachute payment" as defined in Section 280G of the Code
(each, an "EXECUTIVE COMPENSATION PLAN"), whether as a result of the Company's
execution and performance of the transactions contemplated by this Agreement or
otherwise.
(c) As applicable, with respect to each of the Plans, the Company
has delivered to Investor true and complete copies of (i) all Plan documents
(including all amendments and modifications thereof) and, in the case of an
unwritten Plan, a written description thereof, and in
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either case all related agreements including, without limitation, trust
agreements and amendments thereto, insurance contracts, and investment
management agreements, (ii) the two most recent annual reports (Form 5500 and
all schedules thereto) filed with the Internal Revenue Service, actuarial
reports, financial reports or trustee reports, (iii) the current summary plan
descriptions and all modifications thereto and (iv) copies of any private letter
rulings, requests and applications for determination and determination letters
issued with respect to the Plans within the past five years. As applicable, with
respect to each of the Executive Compensation Plans, the Company has delivered
to Investor true and complete copies of all Executive Compensation Plan
documents (including all amendments and modifications thereof), and, in the case
of an unwritten Executive Compensation Plan, a written description thereof, and
in either case related agreements including, without limitation, trust
agreements and amendments thereto, insurance contracts, and investment
management agreements.
(d) The Company and each ERISA Affiliate are in compliance in all
respects with all Laws, including ERISA and the Code, applicable to the Plans.
Each Plan has been maintained, operated and administered in compliance in all
respects with its terms and any related documents or agreements and the
applicable provisions of ERISA and the Code.
(e) Any Plan which is an "employee pension benefit plan" within the
meaning of Section 3(2) of ERISA and which are intended to meet the
qualification requirements of Section 401(a) of the Code (each a "PENSION PLAN")
now meet, and at all times since their inception have met, the requirements for
such qualification and the related trusts are now, and at all times since their
inception have been, exempt from taxation under Section 501(a) of the Code.
(f) All Pension Plans have received determination letters from the
IRS to the effect that such Pension Plans are qualified and the related trust
are exempt from federal income Taxes and no determination letter with respect to
any Pension Plan has been revoked nor, to the Knowledge of the Company and any
subsidiary, is there any reason for such revocation, nor has any Pension Plan
been amended since the date of its most recent determination letter in any
respect which would adversely affect its qualification. Neither the Company nor
any ERISA Affiliate has ever contributed to, or been required to contribute to
any "multiemployer plan" (within the meaning of Section 3(37) of ERISA) and
neither the Company nor any ERISA Affiliate has any liability (contingent or
otherwise) relating to the withdrawal or partial withdrawal from a multiemployer
plan.
(g) No Plan is (or at any time has been) subject to Part 3, Subtitle
B of Title I of ERISA or Title IV of ERISA.
(h) There are no currently pending audits or investigations by any
Governmental Authority involving the Plans, no threatened or currently pending
claims (except for individual claims for benefits payable in the normal
operation of the Plans), Proceedings involving any Plan, any fiduciary thereof
or service provider thereto and, to the Knowledge of the Company and any
subsidiary, there is no set of circumstances which exists that will give rise to
any such claim or Proceeding.
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(i) None of the Company, any ERISA Affiliate, or any employee of the
Company or any ERISA Affiliate has engaged in or, in connection with the
transactions contemplated by this Agreement, will engage in a "prohibited
transaction" within the meaning of Section 406 of ERISA or Section 4975 of the
Code and no such person or entity has breached any duty imposed by Title I of
ERISA with respect to any Plan. To the Knowledge of the Company and any
subsidiary, no other person or entity has engaged or will engage in such a
prohibited transaction or breach with respect to any Plan. None of the assets of
any Plan is invested in any property constituting "employer real property" or an
"employer security" within the meaning of Section 407 of ERISA.
(j) Any insurance premium under any insurance policy related to a
Plan for any period up to and including the Closing shall have been paid or
accrued and booked on or before the Closing, and, with respect to any such
insurance policy or premium payment obligation, none of the Company, any ERISA
Affiliate or Investor shall be subject to a retroactive rate adjustment, loss
sharing arrangement or other actual or contingent liability.
(k) No Plan provides benefits, including, without limitation, death
or medical benefits, beyond termination of service or retirement, other than (i)
coverage mandated by law or (ii) death or retirement benefits under a Plan
qualified under Section 401(a) of the Code.
(l) With respect to each Plan that is a "group health plan" within
the meaning of Section 607 of ERISA and that is subject to Section 4980B of the
Code, the Company and each ERISA Affiliate comply, and have complied, in all
respects with the continuation coverage requirements (including, without
limitation, any requirement to provide any notice to any individual) of those
provisions and Part 6 of Title I of ERISA.
2.14 TITLE TO AND CONDITION OF REAL PROPERTY. The Company does not own any
real property other than the Properties. SCHEDULE 2.14 contains a list of all
real property (other than the Properties) currently leased or occupied by the
Company or its subsidiaries (the "LEASED REAL PROPERTY"), including the dates of
and parties to all leases and any amendments thereof and a list of all real
property previously leased or occupied by the Company or its subsidiaries. All
Leased Real Property (including improvements thereon) is in satisfactory
condition and repair consistent with its present use, and is available for
immediate use in the conduct of the Company business. Neither the operations of
the Company or its subsidiaries on any Leased Real Property, nor any
improvements on the Leased Real Property, violates any applicable Law, except
where such violation would not have a Material Adverse Effect on the Company.
The Leased Real Property includes all real property necessary to conduct the
business of the Company and its subsidiaries. None of the Leased Real Property
has been condemned or otherwise taken by public authority and no such
condemnation is, to the Knowledge of the Company, threatened or contemplated.
2.15 INTELLECTUAL PROPERTY. The Company owns, or has a valid license to
use, all software, seismic data and interpretations, maps, well logs, patents,
trademarks, service marks, trade names, copyrights, trade secrets, technology,
know-how and other intellectual property (collectively, the "INTELLECTUAL
PROPERTY") that is or has been used on the premises of the Company in the
conduct of
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the business of the Company. SCHEDULE 2.15 contains a complete and accurate list
of all patents, patent applications, trademarks and service marks and related
applications, trade names and copyrights owned by or licensed to the Company.
SCHEDULE 2.15 also contains a description of all agreements or licenses relating
to the acquisition by, or license to the Company of, such Intellectual Property
or under which the Company has sold or granted a right to use any Intellectual
Property. All Intellectual Property owned by the Company is owned by it free and
clear of any Encumbrance. The conduct of the Company's business does not
conflict with or infringe upon any Intellectual Property rights of any other
person and no claims of conflict or infringement are pending or threatened
against the Company or its subsidiaries. The Company has made all necessary
filings and recordations and has paid all required fees and Taxes to maintain
ownership of the Intellectual Property.
2.16 CERTAIN CONTRACTS AND ARRANGEMENTS. SCHEDULE 2.16, contains a
complete and accurate list of each of the following types of Contracts:
(a) Contracts, including any mortgage, note or other instrument,
relating to the borrowing of money or the incurrence of indebtedness or
the guaranty of any obligation for the borrowing of money;
(b) any Contract, purchase order or acknowledgment form for the
purchase, sale, lease or other disposition of equipment, products,
materials or capital assets, or for the performance of services, with
respect to which the annual aggregate dollar amount either due to, or
payable by, the Company or exceeds $5,000;
(c) Contracts for the joint performance of work or services, joint
venture agreements and all other Contracts pertaining to investments by
the Company in other Entities;
(d) Contracts with respect to the sale or disposition of the
Company's capital stock or other securities;
(e) any Contracts or understandings with outside advisors,
consultants, or investment bankers, including any agreements or
understandings with Jefferies & Co., Inc. and M2 Capital, Inc.;
(f) Contracts with parties other than employees of the Company
pursuant to which the Company or any of its employees are subject to
confidentiality or noncompetition obligations; and
(g) any other Contract not described in any other Schedule which
contains unfulfilled obligations, is not terminable without payment of
premium or penalty upon 30 days' notice or less and the annual amount
either due to or payable by the Company or any of its subsidiaries exceeds
$25,000 for any single contract or $50,000 in the aggregate.
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Complete and accurate copies of all such Contracts that are in written form have
been delivered to Investor.
2.17 STATUS OF CONTRACTS. Except as set forth in SECTION 2.17 of the
EXCEPTION SCHEDULE, the Company is not in violation of, in default under, or to
its Knowledge, in alleged violation of or in alleged default under any Contract,
and there has not occurred any event which with lapse of time or giving of
notice or both would constitute such a violation or default. The Company is not
aware of any default by any other party to any Contract or of any event which
(whether with or without notice, lapse of time or both) would constitute a
material default by any other party with respect to obligations of that party
under any Contract, and, to the Knowledge of the Company, there are no facts
that exist indicating that any of the Contracts may be totally or partially
terminated or suspended by the other parties. Neither the Company nor any of its
subsidiaries at the Closing Date has granted any waiver or forbearance with
respect to any of the Contracts. Neither the Company nor any of its subsidiaries
is a party to, or bound by, any Contract that the Company can reasonably foresee
will result in any material loss to the Company upon the performance thereof
(including any liability for penalties or damages, whether liquidated, direct,
indirect, incidental or consequential). The Company has not guaranteed, and is
not otherwise liable for, the payment or performance by any of its subsidiaries
under contract, instrument or other obligation.
2.18 INSURANCE. SCHEDULE 2.18 contains a complete and accurate list of all
policies of fire, liability, worker's compensation and other forms of insurance
insuring the Company, its officers or directors, its assets or its operations
(the "POLICIES"), setting forth the applicable deductible amounts. All of the
Policies are valid, enforceable and in full force and effect, all premiums with
respect to the Policies covering all periods up to and including the date as of
which this representation is being made have been paid and no notice of
cancellation or termination has been received with respect to any Policy. The
Policies are sufficient for compliance with all requirements of Law and
Contracts to which the Company or any of its subsidiaries is a party and provide
insurance for the risks and in the amounts and types of coverage usually
obtained by persons using or holding similar properties in similar businesses.
Complete and accurate copies of the Policies and all endorsements thereto have
been delivered to Investor. The Company has not been refused any insurance
coverage and no insurance coverage has been canceled during the three years
preceding the date of this Agreement. None of the Policies permit the insurer to
retroactively increase or assess premiums based on subsequent claims history.
There are no pending Claims made by the Company under the Policies or any other
insurance Contracts.
2.19 PERMITS AND LICENSES. SCHEDULE 2.19 contains a complete and accurate
list of all Permits held by the Company, listed by Governmental Authority
issuing such Permits. Each of the Company and its subsidiaries holds, and at all
times has held, all Permits necessary for the lawful conduct of its business
pursuant to all applicable Laws. Each of the Company and its subsidiaries is in
compliance with each of the terms of the applicable Permits, and there are no
claims of violation by the Company or any of its subsidiaries of any of such
Permits. Complete and accurate copies of all Permits held by the Company and its
subsidiaries have been delivered to Investor. All Governmental Authorities that
have issued any Permits to or with respect to the Company, its
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business, or subsidiaries have consented or prior to the Closing will have
consented (where such consent is necessary) to the consummation of the
transactions contemplated by this Agreement without requiring modification of
the rights or obligations of the Company or its subsidiaries under any of such
Permits.
2.20 BANK ACCOUNT BALANCES; POWERS OF ATTORNEY. SCHEDULE 2.20 lists (a)
the name, address and contact person of each bank or other financial institution
in which the Company has an account, safe deposit box or line of credit; (b) the
account number, account name and type of account; (c) the dollar amount of each
account including any restrictions on the account; and (d) the names of all
persons authorized to draw thereon or have access thereto; and the names of all
persons, if any, holding powers of attorney to act for the Company.
2.21 TAXES. The Company and its subsidiaries have filed on a timely basis
all federal, state, local, foreign and other returns, reports, forms,
declarations and information returns required to be filed by them with respect
to Taxes (as defined below) which relate to the business, results of operations,
financial condition, properties or assets of the Company or its subsidiaries for
all periods (collectively, the "RETURNS") and have paid on a timely basis all
Taxes shown to be due on the Returns. All Returns filed are complete and
accurate in all material respects and no additional Taxes are owed by the
Company or its subsidiaries with respect to the periods covered by the Returns
or for any other period. The Company has provided Investor with complete and
accurate copies of all Returns for each of the Company's fiscal years ended on
or after December 31, 1992. Neither the Company nor any of its subsidiaries has
any liability for Taxes of any person (other than themselves), whether arising
under federal, state, local or foreign law, as a transferee or successor, by
contract, or otherwise. Except as set forth on SECTION 2.21 of the EXCEPTION
SCHEDULE, neither the Company nor any of its subsidiaries is currently the
beneficiary of any extension of time within which to file any Return. Except as
set forth on SECTION 2.21 of the EXCEPTION SCHEDULE, no Returns have been
examined by the applicable taxing authorities for any period and, except as set
forth on SECTION 2.21 of the EXCEPTION SCHEDULE, the Company has not received
any notice of audit with respect to any Return or any fiscal year and there are
no outstanding agreements or waivers extending the applicable statutory periods
of limitation for Taxes for any period. No claim has ever been made by an
authority in a jurisdiction where the Company or its subsidiaries do not file
Returns that they are or may be subject to taxation by that jurisdiction. All
Taxes that are or have been required to be withheld or collected by the Company
or any of its subsidiaries or predecessors have been duly withheld and collected
and, to the extent required, have been properly paid or deposited as required by
applicable laws.
2.22 RELATED PARTY INTERESTS. Except as described in reasonable detail in
SECTION 2.13 or SECTION 2.22 of the EXCEPTION SCHEDULE, no shareholder, officer
or director, or former officers or directors of the Company (or any entity owned
or controlled by one or more of such parties) (a) has any interest in any
property, real or personal, tangible or intangible, used in or pertaining to the
Company's business, (b) is indebted to the Company or its subsidiaries, or (c)
has any financial interest, direct or indirect, in any outside business which
has significant transactions with the Company. True and complete copies of all
agreements listed on SECTION 2.13 and SECTION 2.22 of the
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EXCEPTION SCHEDULE have been provided to Investor. The Company is not indebted
to any of its shareholders, directors or officers (or any entity owned or
controlled by one or more of such parties), except for amounts due under normal
salary arrangements and for reimbursement of ordinary business expenses. The
consummation of the transactions contemplated by this Agreement or the Purchase
and Sale Agreement will not (either alone or upon the occurrence of any act or
event, or with the lapse of time, or both) result in any payment (severance or
other) becoming due from the Company to any of its shareholders, officers,
directors or employees (or any entity owned or controlled by one or more of such
parties).
2.23 TRANSACTIONS WITH MANAGEMENT. Except as set forth in SECTION 2.13 or
SECTION 2.22 of the EXCEPTION SCHEDULE, the Company is not a party to any
Contract with any of its shareholders, directors, officers, employees, or
agents, or with any former shareholder, director, officer, employee, or agent of
the Company.
2.24 NO OPERATING RESTRICTIONS. No power of attorney or similar
authorization given by the Company or any of its subsidiaries is presently in
effect or outstanding. No Contract (i) limits or burdens the freedom of the
Company to compete in any line of business or with any person or (ii) limits or
burdens the operations of the Company in, or creates rights in favor of other
persons with respect to, the ownership of property or conduct of operations
within, any area of mutual interest or other geographic area or geological zone.
2.25 BROKERS AND FINDERS. The Company has incurred no obligation or
liability, contingent or otherwise, for brokers', finders' or investment
bankers' fees in respect of the matters contemplated by this Agreement,
including the Southern Disposition.
2.26 INVESTMENT COMPANY; PUBLIC UTILITY HOLDING ACT. The Company is not an
"investment company" as defined in the Investment the Company Act of 1940, as
amended, and the rules and regulations promulgated thereunder, and the Company
is not a "holding company" or and "affiliate" of a holding company or public
utility as defined in the Public Utility Holding Company Act of 1940, as
amended, and the rules and regulations promulgated thereunder.
2.27 REGISTRATION RIGHTS. Except for the registration rights granted
herein, or set forth in SECTION 2.27 of the EXCEPTION SCHEDULE, the Company has
not agreed to register under the Securities Act the sale of any of securities
issued or guaranteed by it.
2.28 SCHEDULES; UNTRUE STATEMENTS. All schedules furnished by the Company
pursuant to this Agreement are true, complete and accurate in all respects and
neither omit or contain items required by this Agreement to be contained therein
or omitted therefrom, respectively. This Agreement and all other documents and
information furnished by the Company or any of their Affiliates or their
respective representatives to Investor and its Affiliates or their respective
representatives pursuant hereto or in connection with the transactions
contemplated by this Agreement do not include any untrue statement of a material
fact or omit to state any material fact necessary to make the statements made
herein and therein not misleading.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES
RELATING TO THE PROPERTIES
As additional material inducements for the execution, delivery and
performance of this Agreement and the transactions contemplated hereby, the
Company hereby makes to Investor the representations and warranties set forth in
this ARTICLE 3, except as specifically set forth in Exception Schedule in a
numbered paragraph that corresponds to the section for which disclosure is made,
that as of the date hereof and the Closing Date. Such representations and
warranties are in addition to, and not in lieu of, other representations and
warranties of the Company contained herein.
3.1 PROCEEDS OF PRODUCTION. To the Company's Knowledge, (a) all proceeds
of production of Hydrocarbons from the Properties are currently being paid to
the operator of such Properties, for the Company's account, without the
furnishing of indemnity (other than customary warranties contained in division
orders, transfer orders or production sales contracts); and (b) no material
portion of such proceeds are being held in suspense. SCHEDULE 3.1 describes all
Hydrocarbon properties owned by the Company after giving effect to the closing
of the Purchase and Sale Agreement and the Southern Disposition.
3.2 INVOICES. Except as set forth in SECTION 3.2 of the EXCEPTION
SCHEDULE, the Company has paid all joint-interest billings and other invoices
Attributable to the ownership or operation of the Properties, to the extent that
such billings and invoices have been received by the Company and have become due
and payable.
3.3 GAS IMBALANCES. To the Company's Knowledge, there exist no
production imbalances affecting the Properties.
3.4 GAS PREPAYMENTS. Except as set forth in SECTION 3.4 of the EXCEPTION
SCHEDULE, the Company is not obligated, by virtue of a prepayment, take-or-pay,
production payment or other arrangement, to deliver Hydrocarbons produced from
the Properties on or after the January 1, 1999, without receiving full price for
such production.
3.5 WELLS. SCHEDULE 3.5 lists all wells located on the Properties. To the
Company's Knowledge, (a) all of the wells located on the Properties have been
drilled and completed within the boundaries of the applicable Leases or within
the limits otherwise permitted by contract, pooling or unitization agreement or
applicable Law, (b) all drilling, completion, development, operation, plugging
and abandonment of the wells located on the Properties have been conducted in
material compliance with all applicable Laws and (c) except as set forth in
SECTION 3.5 of the EXCEPTION SCHEDULE, there are no wells located on the
Properties that (i) the Company is currently obligated by law or contract to
plug and abandon; (ii) the Company will be obligated by law or contract to plug
and abandon with the lapse of time or notice or both because the well is not
currently capable of
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producing Hydrocarbons in commercial quantities; or (iii) are subject to
exceptions to a requirement to plug and abandon issued by a Governmental
Authority having jurisdiction over the Properties.
3.6 AFES. Except as set forth on SECTION 3.6 of the EXCEPTION SCHEDULE,
there are no outstanding authorizations for expenditure (approved or proposed)
that (a) require the drilling of wells or other material development operations
to earn or to continue to hold all or any portion of the Properties or (b)
obligate the Company to make payments of any material amounts in connection with
the drilling of wells or other material capital expenditures affecting the
Properties.
3.7 CASUALTY. To the Company's Knowledge, no Casualty Event has occurred
on or since January 1, 1999.
3.8 TITLE.
(a) Except as provided in SECTION 3.8(A) of the EXCEPTION SCHEDULE,
after giving effect to the transactions contemplated by the Purchase and Sale
Agreement, the Company has Marketable Title to the Properties and shall defend
title to the Properties against all claims and demands of all Persons whomsoever
claiming title to the Properties, or any part thereof, by, through or under the
Company, but not otherwise.
(b) Except as provided in SECTION 3.8(B) of the EXCEPTION SCHEDULE,
after giving effect to the transactions contemplated by the Purchase and Sale
Agreement, the Company has good and indefeasible title to the Platforms
entitling the Company to an undivided ownership interest in each Platform equal
to the Company's Working Interest for the Property upon which each Platform is
located and the Company shall defend title to the Platforms against all claims
and demands of all Persons whomsoever claiming title to the Company's undivided
ownership in the Platforms, or any part thereof, by, through or under the
Company, but not otherwise.
3.9 PRICING. To the Company's Knowledge, the prices being received for the
production of Hydrocarbons from the Properties do not violate any Contract or
Law.
3.10 EQUIPMENT. To the Company's Knowledge, the Equipment is in good
repair, working order and operating condition and is adequate for the operation
of the Properties.
3.11 LEASES. To the Company's Knowledge, (a) the Leases are in full force
and effect, by operations approved by the MMS in accordance with applicable Law;
(b) the Company has made available to the Investor true and correct copies of
the Leases, including any amendments thereto; (c) the Company has duly performed
all of the material obligations under the Leases that are now or will prior to
the Closing be required to be performed by the Company; (d) the Company has not
received any notice of default under the Leases, nor is any such notice pending;
and (e) all rentals and royalties (including minimum royalties, shut-in or
otherwise) required to be paid to perpetuate the Leases to the Execution Date
have been timely and properly paid to the proper Persons and in the proper
amounts.
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3.12 GOVERNMENTAL QUALIFICATION. The Company is qualified with the MMS to
own interests in federal Hydrocarbon leases on the Outer Continental Shelf,
including the Properties.
3.13 ADVERSE CHANGES IN PRODUCTION RATES OR OIL AND GAS RESERVES. (a) From
the date of this Agreement until the day immediately preceding the Closing Date,
the average daily production from the Properties (in all cases net to the
Company's interest in the Properties) shall not be less than (i) 14,000 Mcf. per
day of natural gas, and (ii) 950 barrels per day of oil and other liquid
Hydrocarbons. True and complete copies of the report of each of Netherland,
Sewell & Associates, Inc. and Ryder Scott Company Petroleum Engineers estimating
the Hydrocarbon reserves attributable to the Company's interest in the
Properties as of January 1, 1999, have been given to the Investor prior to the
date of this Agreement.
(b) Since January 1, 1999, there has been no material loss of, or
decline in, any proved category of Hydrocarbon reserves attributable to the
Company's interest in the Properties below that estimated for the Company's
interest in the Properties in either of the reserve reports of Netherland,
Sewell & Associates, Inc. or Ryder Scott Company Petroleum Engineers as of
January 1, 1999, other than declines in reserve volumes as a result of actual
production of Hydrocarbons since January 1, 1999 or a reduction in the prices
used to calculate reserve volumes.
3.14 ENVIRONMENTAL LAWS. To the Company's Knowledge, (a) the Company's and
each of its subsidiary's assets have been, and are being, operated in material
compliance with all applicable Environmental Laws except for minor matters of
non-compliance for which potential fines or costs of compliance do not exceed
$50,000; and (b) there exists no condition or circumstance whereby the Company
or the Company's successor would be obligated to expend any sum of money in
excess of $50,000 in connection with any remedial action relating to any
environmental condition which, if not performed, would result in a violation of
applicable Environmental Laws.
3.15 RESERVE INFORMATION. The information supplied by the Company to the
independent petroleum engineering consultants for the Company for purposes of
preparing the reserve reports and estimates of such consultants included in the
SEC Reports ("RESERVE REPORTS"), including, without limitation, production,
costs of operation and development, current prices for production, agreements
relating to current and future operations and sales of production (including all
financial hedging arrangements), was true and correct in all material respects
on the date supplied and was prepared in accordance with customary industry
practices. Netherland, Sewell & Associates, Inc. and Ryder Scott Company
Petroleum Engineers, who prepared estimates of the amount and value of proved
reserves of the Company as set forth in the SEC Reports, are independent with
respect to the Company. The information with respect to the estimated quantities
of the Company's proved reserves and the present value of such reserves included
in the SEC Reports was prepared in accordance with the rules and guidelines set
forth in the rules and regulations of the SEC for inclusion of reserve
information in financial statements filed with the SEC.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF INVESTOR
As material inducements for the execution, delivery and performance of
this Agreement by the Company, Investor hereby represents and warrants to the
Company that as of the date hereof and the Closing Date:
4.1 ORGANIZATION. Investor is a corporation duly organized, validly
existing and in good standing under the Laws of Delaware, and has all the
necessary powers to own its business as now owned and operated by it.
4.2 AUTHORITY. Investor has the absolute and unrestricted right, and all
requisite corporate power and authority to enter into and perform its
obligations under this Agreement. This Agreement and the transactions
contemplated hereby have been duly authorized by the Board of Director's of
Investor, validly executed and delivered by Investor This Agreement, and the
documents and instruments required hereunder constitutes the valid and binding
obligations of Investor enforceable in accordance with their respective terms,
except as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar Laws in effect relating to the rights and
remedies of creditors, as well as to general principles of equity (regardless of
whether such enforceability is considered in a Proceeding in equity or at law.
4.3 NO VIOLATIONS. Neither the execution and delivery of this agreement by
Investor nor the consummation of the transactions contemplated hereby will (i)
violate any order, writ, injunction or decree, to which the Investor is subject
or by which Investor or any of its assets, business or operations may be bound
or affected, or (ii) require the consent, approval, authorization or order of
any person or Governmental Authority or court under any agreement, arrangement,
commitment, order, writ, injunction or decree not heretofore obtained.
4.4 BROKERS. Investor has incurred no obligation or liability, contingent
or otherwise, for brokers', finders' or investment bankers' fees in respect of
the matters provided for in this Agreement that will be the responsibility of
the Company; and any such obligation or liability that might exist shall be the
sole obligation of Investor.
4.5 BANKRUPTCY. There are no bankruptcy, reorganization or arrangement
Proceedings pending, being contemplated by or, to Investor's knowledge,
threatened against Investor.
4.6 INVESTMENT EXPERIENCE. Investor is an "accredited investor" as defined
in Rule 501(a) of Regulation D under the Securities Act. Investor is aware of
the Company's business affairs and financial condition and has had access to and
has acquired sufficient information about the Company to reach an informed and
knowledgeable decision to acquire the Shares. Investor has such business and
financial experience as is required to give it the capacity to protect its own
interests in connection with the purchase of the Shares.
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4.7 INVESTMENT INTENT. Investor has not been formed for the purpose of
acquiring the Shares. Investor is purchasing the Shares for its own account as
principal, for investment purposes only, and not with a present view to, or for,
resale, distribution or fractionalization thereof, in whole or in part, within
the meaning of the Securities Act. Investor understands that its acquisition of
the Shares has not been registered under the Securities Act or registered or
qualified under any state securities law in reliance on specific exemptions
therefrom, which exemptions may depend upon, among other things, the bona fide
nature of Investor's investment intent as expressed herein. Investor will not,
directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of
(or solicit any offers to buy, purchase or otherwise acquire or take a pledge
of) any of the Shares except in compliance with the Securities Act, applicable
state Securities Act, and the rules and regulations promulgated thereunder.
4.8 REGISTRATION OR EXEMPTION REQUIREMENTS. Investor further acknowledges
and understands that the Shares may not be resold or otherwise transferred
except in a transaction registered under the Securities Act or unless an
exemption from such registration is available. Investor understands that the
certificate(s) evidencing the Shares will be imprinted with a legend that
prohibits the transfer of the Shares unless (i) they are registered or such
registration is not required, and (ii) if the transfer is pursuant to an
exemption from registration other than Rule 144 under the Securities Act and, if
the Company shall so request in writing, an opinion of counsel reasonably
satisfactory to the Company is obtained to the effect that the transaction is so
exempt.
4.9 SEC REPORTS OF INVESTOR'S PARENT. Investor has made available to the
Company true and complete copies of its parent corporation's Annual Report on
Form 10-K for the year ended December 31, 1998 and its Quarterly Report on Form
10-Q for the quarter ended March 31, 1999. The financial statements included in
such SEC reports comply as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto or, in the case of the
unaudited statements, as permitted by Form 10-Q of the SEC) and fairly present
(subject, in the case of the unaudited statements, to normal, recurring audit
adjustments) the consolidated financial position of the Investor's parent and
its parent's consolidated subsidiaries as at the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended. The certified public accountants who have certified certain financial
statements included in such SEC filings of Investor's parent are independent
public accountants as required by the Securities Act and the rules and
regulations thereunder.
ARTICLE 5
OBLIGATIONS PENDING CLOSING
The Company covenants and agrees that during the Interim Period it will in
good faith observe and perform the obligations set forth in this ARTICLE 5.
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5.1 INSPECTION OF THE COMPANY. Investor and its officers, attorneys,
accountants and authorized representatives shall continue to have the right,
during normal business hours, to inspect the Company's assets, properties, books
and records, and to consult with the Company's officers, directors, employees,
suppliers, customers, creditors, agents, attorneys and accountants concerning
the Company's assets, properties, ownership and operation, as long as such
access is not unreasonably disruptive to the Company's operations. Such
inspections may reasonably include, for example, environmental and other
physical inspections of the Company's properties, review of the Company's books,
records of account, tax records, and stock books and records, and a review of
records of corporate proceedings, contracts, trademarks, interment records and
other business activities and matters in which Investor may have an interest in
light of the transactions contemplated by this Agreement. Investor agrees to
maintain all information it learns from such inspections in confidence and will
not disclose such information except to its officers, directors, employees,
attorneys, accountants, creditors, prospective lenders and their attorneys, and
other authorized representatives unless such information is or becomes public
knowledge through no fault of Investor.
5.2 RETURN OF DATA. Investor agrees that if this Agreement is terminated
for any reason whatsoever, Investor shall, at the Company's request, promptly
return to the Company all information and data furnished by or on behalf of the
Company to Investor or Investor's Affiliates in connection with this Agreement
or Investor's investigation of the Company, and Investor shall deliver to the
Company or destroy all copies, extracts or excerpts of such information and data
and all documents generated by Investor that contain any portion of such
information or data.
5.3 ACQUISITION PROPOSALS. Except for the Purchase and Sale Agreement, the
Company shall not directly or indirectly (i) solicit, initiate or encourage any
inquiries or Acquisition Proposals from any Person or (ii) participate in any
discussions or negotiations regarding, furnish to any Person other than Investor
or its representatives any information with respect to, or otherwise assist,
facilitate or encourage any Acquisition Proposal by any other Person.
"ACQUISITION PROPOSAL" means any proposal for a merger, consolidation or other
business combination involving the Company or for the Transfer of any interest
in, or a material portion of, the assets or securities of the Company. The
Company shall promptly communicate to Investor the terms of any such written
Acquisition Proposals which any the Company or the Company may receive or any
written inquiries made to any of them or any of their respective directors,
officers, representatives or agents.
5.4 OPERATION IN THE ORDINARY COURSE OF BUSINESS. The Company shall
continue to operate in the usual and ordinary course, and shall not take or fail
to take any action which would cause or permit any representation, warranty or
covenant of the Company contained in this Agreement to be untrue, inaccurate or
incomplete as of the Closing Date. Without limiting the generality of the
immediately preceding sentence, the Company shall maintain the goodwill the
Company and its business now enjoy, preserve intact the Company's present
organization and the manner in which it heretofore has conducted business, and
preserve the Company's relationships with others having business dealings with
the Company. The Company shall also maintain insurance on
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all its properties and with respect to the conduct of its business of such kinds
and in such amounts as is customary in the type of business in which it is
engaged, but not less than that carried by it on December 31, 1998. The Company
shall, however, be excused from its obligations under this SECTION 5.4 if, and
to the extent that, other provisions of this Agreement specifically require the
Company to conduct its affairs in a manner contrary to this SECTION 5.4.
5.5 BREACHES OF REPRESENTATIONS AND WARRANTIES. The Company shall notify
Investor of the discovery by the Company that any representation or warranty of
the Company contained in this Agreement is or becomes untrue or will be untrue
on the Closing Date. Such disclosure shall be made in writing and within the
earlier of 48 hours after discovery or the Closing.
5.6 MATERIAL ADVERSE EFFECT. The Company shall promptly notify Investor in
writing of, and describe in reasonable detail, the occurrence of any event, or
the existence of any condition or circumstance, that may have a Material Adverse
Effect.
5.7 PROXY MATERIALS.
(a) The Company covenants and agrees that promptly after execution
of this Agreement, the Company will prepare and file with the SEC a notice of
shareholders meeting and proxy statement in form and substance satisfactory to
Investor (the "NOTICE AND PROXY STATEMENT") for a meeting of the shareholders of
the Company at which the following shall be submitted to the shareholders of the
Company for approval (the "SHAREHOLDERS MEETING"):
(1) the Agreement;
(2) the Purchase and Sale Agreement;
(3) an increase in the authorized shares of capital stock
and Common Stock;
(4) an elimination of the staggered board of directors;
(5) election of new directors designated by Investor;
(6) sale of capital stock of SGC;
(7) sale of substantially all the assets of SGC; and
(8) each of the transactions contemplated hereby
(collectively, the "PROXY ITEMS").
(b) The Company further covenants and agrees that it will use
Commercially Reasonable Efforts to promptly answer any questions and comply with
any comments to the Notice and Proxy Statement which are rendered by the staff
of the SEC (and are not subsequently withdrawn or abandoned), and shall
otherwise use its Commercially Reasonable Efforts to cause the Notice and Proxy
Statement to be cleared by the staff of the SEC for mailing to the Company
shareholders at the earliest possible date.
(c) The Company further represents and warrants to the Investor that
the Notice and Proxy Statement: (i) will be prepared and circulated by the
Company at least 21 days prior to
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the Shareholders Meeting; (ii) will be prepared and circulated pursuant to and
in compliance with Section 14(a) of the Exchange Act, Regulation 14A of the SEC,
all Nasdaq Requirements and all other applicable Laws; (iii) will contain all
notices and disclosures to shareholders required by the Delaware General
Corporation Law with respect to the Proxy Items and the transactions
contemplated thereby; and (iv) will not contain any statement which, at the time
and in the light of the circumstances under which it is made, is false or
misleading with respect to any material fact, or which omits to state any
material fact necessary in order to make the statements therein not false or
misleading or necessary to correct any statement in any earlier communication
with respect to the solicitation of a proxy for the same meeting or subject
matter which has become false or misleading.
(d) The Company covenants and agrees that: (i) all Common Stock and
Preferred Stock owned of record or beneficially by Management will be voted in
favor of the approval of all Proxy Items and all transactions contemplated by
the Proxy Items at the Shareholders Meeting or any adjournment thereof; (ii) the
Board of Directors of the Company shall recommend in the Notice and Proxy
Statement that all shareholders of the Company vote for approval of the Proxy
Items and all transactions contemplated thereby, and such recommendation will
not be revoked or modified.
(e) The Company covenants and agrees that the approval by a majority
of the voting power represented by the outstanding shares of the Common Stock
and the Preferred Stock are the only votes of the holders of any class or series
of the Company capital stock necessary to approve the Proxy Items. The Preferred
Stock have no rights to vote as a class on any of the Proxy Items.
5.8 NEGATIVE COVENANTS. Except as expressly permitted by this Agreement,
from the date hereof until the Closing Date, without first obtaining the express
written consent of Investor, the Company will not:
(a) PROHIBITION OF CERTAIN EMPLOYMENT CONTRACTS. Enter into any
contracts of employment;
(b) PROHIBITION OF CERTAIN LOANS. Borrow for any purpose or issue
debt securities, except as is otherwise agreed to in writing by Investor;
(c) PROHIBITION OF CERTAIN COMMITMENTS. Make any expenditure or
incur any liability (whether or not in the ordinary course of business) of more
than $500 except (i) pursuant to SECTION 5.12 (AFEs Prior to Closing) with
respect to certain AFE's, or (ii) as is otherwise agreed to in writing Investor;
(d) DISPOSAL OF ASSETS. Sell, dispose of, or encumber, any property
or assets, except (i) sales of oil and gas production in the usual and ordinary
course of business; (ii) as disclosed in Schedules to this Agreement; or (iii)
as may be approved in writing by Investor;
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(e) NO AMENDMENT TO CERTIFICATE OF INCORPORATION. Amend its
Certificate of Incorporation or Bylaws or merge or consolidate with or into any
other corporation or change in any manner the rights of its Common Stock or
Preferred Stock or the character of its business;
(f) NO ISSUANCE, SALE, OR PURCHASE OF SECURITIES. Issue or sell, or
issue options or rights to subscribe to, or enter into any contract or
commitment to issue or sell (upon conversion or otherwise), any shares of its
equity securities, except upon exercise of employee stock options or warrants
that were outstanding as of the date hereof and except for the issuance of
Common Stock to pay accrued regular dividends on Preferred Stock;
(g) RECLASSIFICATIONS. Subdivide or in any way reclassify any shares
of its equity securities, or acquire, or agree or acquire, any shares of its
equity securities;
(h) PROHIBITION ON DIVIDENDS. Declare or pay any dividend on shares
of its equity securities (other than as required by Preferred Stock) or make any
other distribution of assets to the holders thereof;
(i) SEVERANCE ARRANGEMENTS. Increase the compensation payable to,
or grant any severance arrangements to any officer, director, employee,
consultant except as disclosed in SECTION 2.23 of the EXCEPTION SCHEDULE;
(j) BONUS PAYMENTS. Pay any bonuses to any officer, director,
employee, consultant or agent; and
(k) OTHER CHANGES. Take or fail to take any action that would cause
its representations and warranties in ARTICLE 2 or ARTICLE 3 hereof (including
SECTION 2.10) to become untrue at or prior to Closing.
5.9 OVERHEAD REDUCTION MEASURES DURING INTERIM PERIOD. Within five
Business Days after the date of this Agreement, the Company shall implement and
not rescind the following measures to reduce its expenses:
(a) The Company shall enter into agreements with certain of its
employees including William Gray, Jon Garrett, Jack Bryant, Daniel Hall, and
Susan Frisard pursuant to which such the Company and each such employee agree to
(1) terminate the employment of such person, (2) terminate any employment or
indemnity agreements with such employee, and (3) release each one another from
any further liabilities or obligation. The terms and conditions of each such
termination arrangement shall be in form and substance reasonably satisfactory
to Investor.
(b) The Company shall close its office in Metairie, Louisiana and
shall terminate its office lease there except with approximately 1,500 square
feet currently leased by the Company on the 11th Floor of the building in which
its Metairie office located, all on terms reasonably satisfactory to the
Investor.
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5.10 WAIVERS OF AFFILIATE CLAIMS. The Company shall obtain and deliver to
Investor at Closing copies of written waivers in form and substance satisfactory
to Investor from each of the Company's Affiliates (including officers,
directors, employees and consultants whose employment or consulting arrangement
is terminated during the Interim Period) pursuant to which such persons waive
and relinquish any and all rights and causes of action, including without
limitation indemnification or contribution rights and claims, whether then known
or unknown, that such person may have or that may arise after the Closing Date,
against any of the Company's Affiliates which in any way arise out of or in
connection with events or circumstances existing on or prior to the Closing
Date, including, but not limited to those agreements set forth in SECTION 2.23
of the EXCEPTION SCHEDULE.
5.11 CANCELLATION OR EXERCISE OF OPTIONS. The Company covenants and agrees
that it will, not later than forty-five (45) days prior to Closing, send written
notice to each holder of options granted pursuant to its 1994 Compensatory Stock
Option Plan that (i) the Company has entered into an agreement to sell
substantially all of its assets as part of a reorganization, (ii) the holder has
forty-five (45) days to exercise such holder's options granted pursuant to that
plan, and (iii) any unexercised options will be canceled prior to the Closing,
all in accordance with the applicable terms of the grant agreements pursuant to
which such options were granted.
5.12 AFE'S PRIOR CLOSING. The Company shall notify Investor of any
authority for expenditures ("AFE") received by the Company, and the Company
shall attempt to farmout the operations to which the AFE relates on the best
terms obtainable, failing which the Company shall not consent to the AFE unless:
(i) it receives written consent from Investor to approve the AFE, or the
Company's commercial bank advances the necessary cost of the AFE to the Company
on terms approved by Investor.
5.13 VOTING AND SUPPORT AGREEMENT. Within seven (7) days after the date of
this Agreement, the Company shall cause each of the stockholders named below to
execute and deliver to the Investor a Voting and Support Agreement in
substantially the form attached hereto as EXHIBIT 5.13: Rick G. Avare; Douglas
Hawthorne; Leonard Nave; Ralph Currie; D. Poole; H. Settle; L. Aldridge; DnB;
and TECO. The Company represents and warrants that such stockholders own and
have the right to vote Common Stock or Preferred Stock, or both, which in the
aggregate represents at least 52% of the voting power of all classes of the
Company's voting securities.
5.14 CONSULTING AGREEMENT. Contemporaneously with the execution and
delivery of this Agreement, the Company and the other parties thereto shall
enter into the Consulting Agreement in substantially the form attached hereto as
EXHIBIT 5.14 and the Company shall perform its obligations under the Consulting
Agreement in accordance with its terms.
5.15 MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT. On or before the
Closing Date, the Company and the other parties thereto shall enter into the
Management and Administrative Services Agreement in substantially the form
attached hereto as EXHIBIT 5.15 and the Company shall
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perform its obligations under the Management and Administrative Services
Agreement in accordance with its terms.
5.16 BOARD OF DIRECTORS APPOINTMENTS. Upon execution and delivery of this
Agreement, by the Company and Investor, the Company shall cause the following to
occur in a manner satisfactory to Investor in form and substance: (a) the number
of directors constituting the Board of Directors of the Company shall be
increased to nine members; and (b) two nominees selected by Investor shall be
appointed to the Company's Board of Directors to serve until the next meeting of
the Company's stockholders at which directors are elected.
ARTICLE 6
CONDITIONS TO CLOSING
6.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF INVESTOR.
(a) The obligations of Investor to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction of the
following conditions, or to the waiver thereof by Investor in the manner
contemplated by SECTION 7.3 at or before the Closing:
(1) REPRESENTATIONS AND WARRANTIES OF THE COMPANY TRUE AT
CLOSING. The representations and warranties of the Company herein
contained shall be true as of and at the Closing with the same effect as
though made at such date, except as affected by transactions permitted or
contemplated by this Agreement;
(2) COVENANTS AND AGREEMENTS TO HAVE BEEN PERFORMED. The
Company shall have performed and complied with all covenants and other
agreements required by this Agreement to be performed or complied with by
the Company before the Closing Date;
(3) CLOSING CERTIFICATE. The Company shall have delivered to
Investor a truthful certificate at the Closing dated as of the Closing
Date and executed by the Company's chief executive officer, chief
financial officer and chief legal officer confirming the matters in
SECTION 6.1(A)(1) AND (2);
(4) ISSUANCE OF STOCK. The Company shall have tendered for
delivery to Investor certificates representing the Shares, free and clear
of any Encumbrance;
(5) PURCHASE PRICE ADJUSTMENTS. The total reduction in the
Purchase Price pursuant to SECTION 1.4(B)(3) shall not exceed $50,000;
(6) CLOSING DATE LIABILITIES. All liabilities of the Company
other than Permitted Liabilities shall have been paid or otherwise
discharged, or the Company shall have sufficient cash resources on the
Closing Date (after giving effect to the consummation of the
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transactions contemplated by this Agreement and the Purchase Agreement) to
pay any remaining liabilities in full in accordance with their respective
terms;
(7) PROCEEDINGS. No Proceeding by any private person or entity
or a Governmental Authority shall be pending or threatened that seeks to
restrain, enjoin or otherwise prohibit, the consummation of the
transactions contemplated hereby or to seek damages therefrom;
(8) CASUALTY EVENT. No Casualty Event shall have occurred
during the Interim Period that materially and adversely affects the value
of (a) a Property that is producing Hydrocarbons at the time such Casualty
Event occurs, (b) any other material Property or (c) a Platform;
(9) PURCHASE AND SALE AGREEMENT. All conditions precedent have
been satisfied without waiver and the transactions contemplated in the
Purchase and Sale Agreement shall close simultaneously with the Closing;
(10) SOUTHERN ASSUMPTION AND RELEASE. The transactions
contemplated by the Southern Assumption and Release shall have been
completed in such a manner that is in form and substance satisfactory to
Investor;
(11) SOUTHERN DISPOSITION. The transactions contemplated by
the Southern Disposition shall have been completed in a manner that is in
form and substance satisfactory to Investor;
(12) TECO SETTLEMENT. The transactions contemplated by the
TECO Settlement shall have been completed in such manner that is in form
and substance satisfactory to Investor;
(13) DNB NOTE PAYDOWN. The DnB Note Paydown shall occur
simultaneously with the Closing;
(14) RESIDUAL NOTE. The DnB Note shall have been purchased by
Investor at or before the Closing on terms and conditions satisfactory to
Investor;
(15) NOTE MODIFICATION AGREEMENT. The Note Modification
Agreement shall have been executed and delivered by the Company and all
other parties thereto;
(16) VOTING AND SUPPORT AGREEMENT. Each party that has
delivered a Voting and Support Agreement to Investor shall have performed
his obligations thereunder in accordance with its terms;
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(17) NEW DIRECTOR INDEMNITY AGREEMENTS. The Company shall have
entered into an Indemnity Agreement with each new director elected at the
Shareholders Meeting, such agreements to be in substantially the form of
the Indemnity Agreements to which previously elected directors of the
Company are parties and otherwise in form and substance satisfactory to
Investor;
(18) OPTION AND WARRANT TERMINATION. All of the stock options
outstanding under the Company's 1994 Compensatory Stock Option Plan and
each other option or warrant to purchase any of the Company's securities
held by any member of Management shall have been canceled or terminated in
form and substance satisfactory to Investor prior to the Closing;
(19) VENTURE ARRANGEMENTS. The Company shall have either
terminated or reduced its interest in each of its Joint Ventures, as
instructed by Investor, all in form and substance satisfactory to
Investor;
(20) SPLIT-DOLLAR PLAN TERMINATION. The Split-Dollar Agreement
dated June 30, 1998 by and among the Company, Rick G. Avare, and Diane L.
Avare, Trustee of the Rick G. Avare Irrevocable Life Insurance Trust dated
April 6, 1995 shall have been terminated or assigned to Rick G. Avare, all
in form and substance satisfactory to Investor;
(21) INCENTIVE BONUS PLAN. The Company's Incentive Bonus Plan
dated November 12, 1996 shall have been terminated;
(22) SUBSIDIARIES. Any subsidiaries of the Company after
giving effect to the Southern Disposition, shall have been dissolved or
sold in form and substance satisfactory to Investor;
(23) SHAREHOLDER APPROVAL. The Company shall have received
Shareholder Approval for the transactions contemplated by each of the
Proxy Items, including the election of Investor's nominees to the
Company's Board of Directors, effective as of the Closing;
(24) DIRECTOR RESIGNATIONS. The Company shall have received
and accepted the resignation of each the following individuals as
directors of the Company, in each case effective as of the Closing:
(A) Douglas Hawthorne
(B) Leonard Nave
(C) David Fox
(D) Joe Shields
(E) Len Aldridge
(F) Robert McIntyre;
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(25) EMPLOYMENT AGREEMENTS. The Company's employment of, and
employment agreements with, each of the following individuals shall have
been terminated, such termination to be in form and substance satisfactory
to Investor:
(A) Rick G. Avare
(B) William Gray
(C) Ralph Currie
(D) David Stetson
(E) Jon Garrett
(F) Jack Bryant
(G) Daniel Hall
(H) Karen Underwood;
(26) AT-WILL EMPLOYEES. Each of the following at-will
employees of the Company shall have been terminated from their respective
positions with the Company:
(A) Susan Frisard
(B) Tammy Farris
(C) Diana Highley
(D) Debbie Mullins;
(27) PREFERRED STOCK. All shares of the Preferred Stock
reflected in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 as being owned by Rick G. Avare or Douglas L. Hawthorne
shall have been converted on a one-for-one basis to shares of Common
Stock, such conversion to be in form and substance satisfactory to
Investor;
(28) OPINIONS OF COUNSEL. Investor shall have received a
favorable opinion, dated as of the Closing Date, from (i) David J.
Stetson, general counsel of the Company, (ii) Phillip E. Allen, counsel to
the Company, as to certain securities laws matters, and (iii) from
Schully, Roberts, Slattery & Jaubert with respect to any preferential
rights to purchase and title matters, each in form and substance
satisfactory to Investor;
(29) CERTIFICATES OF PUBLIC OFFICIALS. The Company shall have
delivered to Investor certificates of existence and good standing with
respect to the Company issued by the Secretary of State of their
respective states of incorporation or other appropriate Governmental
Authority;
(30) RESOLUTIONS. The Company shall have delivered to Investor
copies of resolutions, certified as of the Closing Date by the President
and Chief Executive Officer and Secretary of the Company, duly adopted by
the Company's Board of Directors approving this Agreement and the
transactions contemplated hereby, and approving and authorizing the
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Company's execution and delivery of, and performance of its obligations
under this Agreement and Purchase and Sale Agreement;
(31) SATISFACTION OF ENCUMBRANCES. With respect to any
Encumbrances against any of the Company's assets or Properties (whether or
not reflected on the Exception Schedule), (i) the indebtedness or
liabilities underlying such Encumbrances (other than the Residual Note)
shall have been paid or otherwise satisfied in full and, (ii) the
Encumbrances (other than those securing the Residual Note) shall have been
released of record or Investor shall have received originally executed
releases thereof in recordable form satisfactory to Investor, all in form
and substance satisfactory to Investor;
(32) MCCLINDON EMPLOYMENT AGREEMENT. Effective as of the
Closing Date, that certain employment contract between the Company and
Christopher McClindon shall be amended to reduce the term of the agreement
to one year from the Closing Date, all in form and substance satisfactory
to Investor;
(33) DISMISSAL FROM WRIGHT LITIGATION. The litigation filed in
the United States Bankruptcy Court in Lexington, Kentucky, case No.
98-05023, styled CASTIL WILLIAMS V. ALPHA GAS DEVELOPMENT INC., ALPHA GAS
DEVELOPMENT OF TEXAS, INC., AMERICAN RESOURCES OF DELAWARE, INC., ET al.
alleging, among other things, that the transfer of assets of Southern Gas
Company Inc. to Southern Gas Co. of Delaware, Inc., was fraudulent, shall
have been either settled or dismissed, all in form and substance
satisfactory to Investor; and
(34) SETTLEMENT OF CHEVRON CONTRACT LIABILITIES. All
liabilities of the Company shall have been paid in full or otherwise
discharged, all in form and substance satisfactory to Investor, that arise
out of or in connection with that certain Contract entitled "Well Drilling
and Completion Services Contract South Timbalier 21 Field Offshore,
Louisiana" by and between the Company and Chevron U.S.A. Inc. and the
Company's performance of such contract, including liabilities or alleged
liabilities to Sundowner Offshore Services, Inc.
(b) OTHER. The items set forth in SECTION 6.1(A) and all other items
required to be delivered hereunder, or as may be reasonably requested by
Investor to facilitate the Closing, shall be in form and substance satisfactory
to Investor.
6.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY.
(a) The obligations of the Company to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction of the
following conditions, or to the waiver thereof by the Company in the manner
contemplated by SECTION 7.3 at or before the Closing:
(1) REPRESENTATIONS AND WARRANTIES OF INVESTOR TRUE AT
CLOSING.
The representations and warranties of the Investor herein contained shall
be true as of and at
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the Closing with the same effect as though made at such date, except as
affected by transactions permitted or contemplated by this Agreement;
(2) COVENANTS AND AGREEMENTS TO HAVE BEEN PERFORMED. The
Investor shall have performed and complied with all covenants and other
agreements required by this Agreement to be performed or complied with by
the Investor before the Closing Date;
(3) CLOSING CERTIFICATE. The Investor shall have delivered to
Investor a truthful certificate at the Closing dated as of the Closing
Date and executed by the Company's duly authorized officer of Investor
confirming the matters in SECTION 6.1(B)(1) AND (2);
(4) PERFORMANCE. Investor shall have performed in all material
respects the obligations, covenants and agreements required hereunder to
be performed by it at or prior to the Closing;
(5) SIMULTANEOUS CLOSING OF PURCHASE AND SALE AGREEMENT. All
conditions precedent have been satisfied and the transactions contemplated
in the Purchase and Sale Agreement shall close simultaneously with the
transactions contemplated by this Agreement;
(6) NOTE MODIFICATION AGREEMENT. The Note Modification
Agreement shall have been executed and delivered by the Investor;
(7) SHAREHOLDER APPROVAL. The Company shall have received
Shareholder Approval for the transactions contemplated by this Agreement
and;
(8) RESOLUTIONS. Investor shall have delivered to the Company
copies of resolutions, certified as of the Closing Date by the President
and Secretary of Investor, duly adopted by Investor's Board of Directors
approving this Agreement and consummation of the transactions contemplated
hereby, and approving and authorizing Investor's execution and delivery
of, and performance of its obligations under this Agreement;
(9) OPINION OF INVESTOR'S COUNSEL. The Company shall have
received a favorable opinion, dated the Closing Date, from Porter &
Hedges, L.L.P., counsel to Investor, with respect to the matters set forth
in SECTION 4.1, SECTION 4.2, and SECTION 4.3;
(10) PROCEEDINGS. No Proceeding by any private person or
entity or a Governmental Authority shall be pending or threatened that
seeks to restrain, enjoin or otherwise prohibit, the consummation of the
transactions contemplated hereby or to seek damages therefrom;
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(11) VENTURE ARRANGEMENTS. If Investor shall require the
Company to either terminate or reduce its interest in each of its Joint
Ventures, such action shall be taken in form and substance satisfactory to
the Company;
(12) PURCHASE PRICE ADJUSTMENTS. The total reduction in the
Purchase Price pursuant to SECTION 1.4(B)(3) shall not exceed $50,000,
excluding (i) any reductions waived by Investor and (ii) any reductions
for liabilities of the Company the incurrence or existence of which a
constitute breach of this Agreement by the Company; and
(13) TENDER OF PURCHASE PRICE. On the Closing Date, Investor
shall have tendered to the Company the Purchase Price for the Shares
payable at Closing as provided in SECTION 1.4.
(b) OTHER. The items in SECTION 6.2(A) and all other items required
to be delivered hereunder by the Investor or as may be reasonably requested by
the Company to facilitate the Closing, shall be in form and substance
satisfactory to the Company.
6.3 COMMERCIALLY REASONABLE EFFORTS. Each of Company and the Investor
shall use Commercially Reasonable Efforts to cause the occurrence of the events
contained in SECTION 6.1 and SECTION 6.2, respectively, to be satisfied at or
before the Closing, to the extent that the occurrence of such events is within
the control of any such Party.
ARTICLE 7
TERMINATION AND WAIVER
7.1 TERMINATION. Anything contained in this Agreement to the contrary
notwithstanding, this Agreement may be terminated and the transactions
contemplated hereby abandoned at any time (whether before or after the
Shareholder Approval) prior to the Closing Date:
(a) BY MUTUAL CONSENT. By mutual consent of Investor and the
Company.
(b) BY INVESTOR BECAUSE OF FAILURE TO PERFORM AGREEMENTS OR
CONDITIONS PRECEDENT. By Investor, if the Company has failed to perform any
material agreement set forth herein, or if any condition set forth in SECTION
6.1 hereof has not been met and has not been waived;
(c) BY THE COMPANY BECAUSE OF FAILURE TO PERFORM AGREEMENTS OR
CONDITIONS PRECEDENT. By the Company, if Investor has failed to perform any
material agreement set forth herein, or if any condition set forth in SECTION
6.2 hereof has not been met and has not been waived;
(d) BY THE COMPANY OR INVESTOR BECAUSE OF LEGAL PROCEEDINGS. By
either Investor, or the Company if any Proceeding shall be pending or threatened
by a Governmental
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Authority or before any court or Governmental Authority, in which it is sought
to restrain, prohibit, or otherwise affect the consummation of the transactions
contemplated hereby; and
(e) BY INVESTOR OR THE COMPANY. By either Investor or the Company if
the terminating party is not in material breach of any of its obligations
hereunder and if the transactions contemplated by this Agreement have not been
consummated on or before December 31, 1999.
7.2 EFFECT OF TERMINATION. In the event of the termination and abandonment
of this Agreement pursuant to and in accordance with the provisions of SECTIONS
7.1(A), (D), OR (E) hereof, this Agreement shall become void and have no effect,
without any liability on the part of any party hereto (or its shareholders or
controlling persons or directors or officers), except as provided in SECTION
7.4. Upon termination of this Agreement pursuant to SECTION 7.1(B) OR (C), the
parties hereto shall be entitled to exercise any rights and remedies at law or
in equity to which they may be entitled.
7.3 WAIVER. Subject to the requirements of any applicable Law, any of the
terms or conditions of this Agreement may be waived at any time by the party
which is entitled to the benefit thereof. The failure of any party at any time
or times to require performance of any provision hereof shall in no manner
affect the right to enforce the same. No waiver by any party of any condition,
or of the breach of any provision of this Agreement in one or more instances
shall be deemed to be or construed as a further or continuing waiver of any such
condition or breach or a waiver of any other condition or the breach of any
other provision.
7.4 EXPENSE ON TERMINATION. If the transactions contemplated hereby are
abandoned pursuant to and in accordance with the provisions of SECTION 7.1(A),
(D) OR (E) hereof, all expenses will be paid by the party incurring them.
ARTICLE 8
OTHER COVENANTS
8.1 ANTIDILUTION PROTECTION. The Shares purchased hereunder and shall be
subject to the following adjustments:
(a) The number of shares of Common Stock held by Investor shall be
adjusted upon issuance of any shares of Common Stock issued on or after the
Closing Date pursuant to any options, warrants, convertible securities,
subscription rights, or antidilution rights outstanding as of
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the Closing Date. The additional number of shares to be issued to Investor
under this provision (the "ANTIDILUTION SHARES") shall be determined as follows:
X = .75
---
X+Y
X = number of Antidilution Shares.
Y = number of shares issued by the Company on or after the
Closing Date pursuant to any options, warrants,
convertible securities, subscription rights, or
antidilution rights outstanding as of the Closing Date.
8.2 REGISTRATION RIGHTS. The Company covenants and agrees that with
respect to the Shares (including any shares issued pursuant to SECTION 8.1 or
SECTION 8.4) that:
(a) DEMAND REGISTRATION RIGHTS. The Company covenants and agrees
with Investor that within thirty (30) days after receipt of a written request
from Investor, the Company shall file a registration statement (and thereafter
use its best efforts to cause such registration statement to become effective
under Securities Act) with respect to the offering and sale or other disposition
of the Shares (all such securities, together with the Piggy Back Securities,
when the context requires, the "REGISTRABLE SECURITIES"). The Company shall
continuously maintain the effectiveness of such registration statement for the
lesser of (i) 180 days after the effective date of the registration statement or
(ii) the consummation of the distribution by the holders of the Registrable
Securities covered by such registration statement (the "TERMINATION DATE");
PROVIDED, HOWEVER, that if at the Termination Date, the securities offered are
covered by a registration statement which also covers other securities and which
is required to remain in effect beyond the Termination Date, the Company shall
maintain in effect such registration statement as it relates to the Registrable
Securities for so long as such registration statement (or any subsequent
registration statement) remains or is required to remain in effect for any of
such other securities. Except with respect to requests to register on Form S-3
(or any successor or similar short-form registration statement ("SHORT-FORM
REGISTRATION")), the Company shall not be required to comply with more than
three requests for registration pursuant to this SECTION 8.2. The Company shall
be required to comply with an unlimited number of Short-form Registrations. All
expenses of such registration shall be borne by the Company, including
Investor's attorney's fees, if any. Investor hereby acknowledges that it has
been advised by the Company that the Company is not currently eligible to use
Form S-3 for resales of Registrable Securities.
(b) PIGGY-BACK REGISTRATION RIGHTS. The Company covenants and agrees
with Investor that, in the event the Company proposes to file a registration
statement under the Act with respect to the firm commitment offering of Common
Stock (other than in connection with an exchange offer or a registration
statement on Form S-4 or S-8 or other similar registration statements not
available to register securities so requested to be included), the Company shall
in
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each case give written notice of such proposed filing to the Investor at least
30 days before the earlier of the anticipated or the actual effective date of
the registration statement and at least ten days before the initial filing of
such registration statement and such notice shall offer to Investor the
opportunity to include in such registration statement the Shares (the
"PIGGY-BACK SECURITIES"). If Investor desires inclusion of Piggy-back Securities
in such registration statement, it shall so inform the Company by written
notice, given within 10 days of the giving of such notice by the Company in
accordance with the provisions herein. The Company shall permit, or shall cause
the managing underwriter of a proposed offering to permit, the holders of
Piggy-back Securities requested to be included in the registration to include
such securities in the proposed offering on the same terms and conditions as
applicable to securities of the Company, if any, included therein for the
account of any Person other than the Company and Investor. Notwithstanding the
foregoing, if any such managing underwriter shall advise the Company in writing
that, in its opinion, the distribution of securities by holders thereof,
including all or a portion of the Piggy-back Securities, requested to be
included in the registration concurrently with the securities being registered
by the Company would materially adversely affect the distribution of such
securities by the Company for its own account, then Investor shall delay their
offering and sale of Piggy-back Securities (or the portions thereof so
designated by such managing underwriter) for such period, not to exceed 90 days,
as the managing underwriter shall request, provided that if any other securities
are included in such registration statement for the account of any Person other
than the Company and Investor, then such securities so included shall be
apportioned among holders who wish to be included therein pro rata according to
amounts so requested to be included by each such Person. No such delay shall in
any event impair any right granted hereunder to make subsequent requests for
inclusion pursuant to the terms of this SECTION 8.2(B). The Company shall
continuously maintain in effect any registration statement with respect to which
the Piggy-back Securities have been requested to be included (and so included)
for a period of not less than (i) 180 days after the effectiveness of such
registration statement or (ii) the consummation of the distribution by the
Investor ("PIGGY-BACK TERMINATION DATE"); PROVIDED, HOWEVER, that if at the
Piggy-back Termination Date, the Piggy-back Securities are covered by a
registration statement which is, or is required to remain, in effect beyond the
Piggy-back Termination Date, then the Company shall maintain in effect the
registration statement as it relates to the Piggy-back Securities for so long as
such registration statement remains or is required to remain in effect for any
of such other securities. All expenses of such registration shall be borne by
the Company, other than underwriters and brokers fees and commissions.
(c) OTHER MATTERS. In connection with the registration of
Registrable Securities in accordance with Paragraph (a) or (b) above, the
Company agrees to:
(i) use its best efforts to register or qualify the
Registrable Securities for offer or sale under state securities or
Blue Sky laws of such jurisdictions in which Investor shall
designate; provided, that in no event shall the Company be obligated
to qualify to do business in any jurisdiction where it is not now so
qualified or to take any action which would subject it to general
service of process in any jurisdiction where it is not now so
subject, and use its best efforts to do any and all other acts and
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things which may be necessary or advisable to enable Investor to
consummate the Transfer of such securities in any jurisdiction;
(ii) enter into indemnity and contribution agreements, each in
customary form, with each underwriter, if any, and Investor included
in such registration statement; and, if requested, enter into an
underwriting agreement containing customary representations,
warranties, covenants, allocation of expenses, and customary closing
conditions including opinions of counsel, accountants' cold comfort
letters and petroleum engineers' reports, with any underwriter who
participates in the offering of Registrable Securities;
(iii) not issue or create any Registrable Securities with
registration rights superior to or in parity with the Registrable
Securities granted hereunder;
(iv) pay all expenses in connection with the registration of
the Shares under the Securities Act and compliance with the
provisions of clause (i) above; and
In connection with the registration of Registrable Securities in
accordance with Paragraph (b) above, the Investor agrees to enter into an
underwriting agreement containing customary representations, warranties,
covenants, allocation of expenses, and customary closing conditions, with any
underwriter who participates in the offering of Registrable Securities.
(d) RESTRICTIONS ON PUBLIC SALE BY THE COMPANY. The Company agrees
(i) not to effect any public sale or distribution of any securities similar to
the Registrable Securities or any securities convertible into or exchangeable or
exercisable for such securities (or any option or other right for such
securities)during the 15-day period prior to, and during the 90-day period
beginning on the effective date of any registration statement under which the
Registrable Securities are registered in accordance with SECTION 8(A) (other
than as part of such registration).
(e) RULE 144. With a view to making available to the Investor the
benefits of certain rules of the SEC that may permit the sale of Registrable
Securities to the public without registration, the Company hereby covenants and
agrees to use its best efforts to: (i) file in a timely manner all reports and
other documents required to be filed by it under the Securities Act and the
Exchange Act and the rules and regulations adopted by the SEC thereunder
necessary to permit sales under Rule 144 under the Securities Act, and the
Company will take such further action to the extent required from time to time
to enable Investor to sell Registrable Securities (whether or not any such
securities have been the subject of a demand or piggy-back request under SECTION
8 hereof) without registration under the Securities Act within the limitation of
the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule
may be amended from time to time, or (b) any similar rule or regulation
hereafter adopted by the SEC and (ii) promptly furnish Investor a copy of all
such reports and documents. Upon the request of Investor, the Company will
deliver to the Investor a written statement as to whether it has complied with
such requirements.
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8.3 FILING EXPENSES. The Company agrees to pay all expenses of, or
relating to, any reports required to be filed by Investor with the SEC pursuant
to Section 13(d) or Section 16(a) of the Exchange Act and regulations thereunder
with respect this Agreement and its ownership of the Company's Common Stock.
ARTICLE 9
INDEMNIFICATION
9.1 INDEMNIFICATION OF INVESTOR. In addition to any other remedies
available to Investor under this Agreement, at law or in equity, the Company
shall indemnify, defend and hold harmless Investor and its Affiliates against
and in respect of any and all Claims that such indemnified persons shall incur
or suffer, which arise, result from or relate to (a) any breach of, or failure
by the Company to perform, any of its representations, warranties, covenants or
agreements in or under this Agreement, and (b) any act or omission occurring, or
event or circumstance existing, in whole or in part, before the Closing Date
which relates to the Company (including, without limitation, its business and
properties).
9.2 INDEMNIFICATION OF THE COMPANY. In addition to any other remedies
available to the Company under this Agreement, at law or in equity, Investor
shall indemnify, defend and hold harmless the Company against and in respect of
any and all Claims that the Company shall incur or suffer, which arise, result
from or relate to any breach of, or failure by Investor to perform, any of its
representations, warranties, covenants or agreements in or under this Agreement.
9.3 INDEMNIFICATION PROCEDURE. Promptly upon the discovery of facts giving
rise to a claim for indemnity under this ARTICLE 9 or the receipt of notice of
any Claim, judicial or otherwise, with respect to any matter as to which
indemnification may be claimed under this ARTICLE 9 the indemnified party shall
give written notice thereof to the indemnifying party together with such
information respecting such matter as the indemnified party shall then have;
PROVIDED, HOWEVER, that the failure of the indemnified party to give notice as
provided herein shall not relieve the indemnifying party of any obligations, to
the extent the indemnifying party is not materially prejudiced thereby. If
indemnification is sought with respect to a third-party (I.E., one who is not a
party to this Agreement) Claim asserted or brought against an indemnified party,
the indemnifying party shall be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party similarly notified,
to the extent that it may wish, with counsel reasonably acceptable to such
indemnified party. After an indemnifying party notifies an indemnified party of
the former's election to so assume the defense of such a third-party Claim, the
indemnifying party, shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof, other than reasonable and necessary costs of investigation,
unless the indemnifying party has failed to assume and diligently prosecute the
defense of such third-party Claim and to employ counsel reasonably acceptable to
such indemnified person. An indemnifying party who elects not to assume the
defense of a third-party Claim shall not be liable for the fees and expenses of
more than one counsel in any single jurisdiction for all parties indemnified by
such indemnifying party with
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respect to such Claim or with respect to Claims separate but similar or related
in the same jurisdiction arising out of the same general allegations.
Notwithstanding any of the foregoing to the contrary, the indemnified party will
be entitled to select its own counsel and assume the defense of any action
brought against it if the indemnifying party fails to select counsel reasonably
acceptable to the indemnified party of if counsel fails to diligently prosecute,
the expenses of such defense to be paid by the indemnifying party. No
indemnifying party shall consent to entry of any judgment or enter into any
settlement with respect to a claim without the consent of the indemnified party,
which consent shall not be unreasonably withheld. No indemnified party shall
consent to entry of any judgment or enter into any settlement of any such action
the defense of which has been assumed by an indemnifying party without the
consent of such indemnifying party, which consent shall not be unreasonably
withheld.
9.4 INDEMNITY SHARES.
(a) If Investor incurs any Claims resulting from the breach by the
Company of any representation, warranty, covenant or agreement contained in this
Agreement, Investor shall be entitled to additional shares of Common Stock in
satisfaction of such Claims (the "INDEMNITY SHARES").
(b) The Indemnity Shares shall be calculated as follows:
N = D x 1 x A
--- ---
P 1-B
where:
N = number of Indemnity Shares;
D = the dollar amount of Claims for which Investor is
entitled to indemnity;
P = the price per share of the Common Stock shall be the
lesser of (i) $0.16 or (ii) the Closing price of the
Common Stock on the principal exchange or trading system
on which the Common Stock is then traded on the first
full Business Day following the Closing of the
Agreement, or if transaction reporting in the Common
Stock is not then available for the Common Stock, the
average of the high bid and low ask price for the same
date;
B = the decimal equivalent of the fully diluted percentage
of the Common Stock owned by the Investor at the time
the Indemnity Shares are issued for "D"; and
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A = a factor necessary to prevent dilution of Investor as
a result of antidilution rights triggered by the
Indemnity Shares.
9.5 INDEMNIFICATION THRESHOLD. Except as provided below, no party shall be
entitled to indemnification pursuant to this Article until such time as the
aggregate dollar amount of its indemnifiable Claims exceeds $25,000 (the
"INDEMNIFICATION THRESHOLD") after which the indemnified party shall be fully
indemnified in accordance with this Article for all indemnifiable Claims,
including Claims included in calculating the Indemnification Threshold.
Indemnification for Claims that should have properly been included in the
calculation of the Purchase Price shall not, however, be subject to the
Indemnification Threshold.
9.6 SURVIVAL OF INDEMNIFIABLE CLAIMS. No party shall be entitled to
indemnification pursuant to this Article unless demand for indemnification is
made on or before March 31, 2001, except that Investor's right to
indemnification for the breach of the following Sections which shall survive for
the applicable statute of limitations for Claims against the Company in respect
of the subject matter of such Sections: Section 2.13, Employee Benefit Plans;
Section 2.21, Taxes; and Section 3.14, Environmental Laws.
ARTICLE 10
MISCELLANEOUS
10.1 CERTAIN DEFINITIONS.
(a) As used in this Agreement, each of the following terms has the
meaning ascribed to it in this SECTION 10.1:
(1) "AAA" shall have the meaning set forth in
SECTION 10.11(A).
(2) "ACQUISITION PROPOSAL" shall have the meaning set forth in
SECTION 5.3.
(3) "AFE" shall have the meaning set forth in SECTION 5.12.
(4) "AFFILIATE" when used to indicate a relationship with any
Person, means: (i) any corporation or organization of which such Person is
an officer, director or partner or is directly or indirectly the
beneficial owner of at least 10% of the outstanding shares of any class of
equity securities or financial interest therein; (ii) any trust or other
estate in which such Person has a beneficial interest or as to which such
Person serves as trustee or in any similar fiduciary capacity; (iii) the
mother, father, brother, sister, child or spouse of such Person, or of
such Person's spouse; or (iv) any Person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is
under common control with, or is acting as agent on behalf of, or as an
officer or director of, such Person. As used in the
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definition of Affiliate, the term "control" (including the terms
"controlling," "controlled by" or "under common control with") means the
possession, direct or indirect, of the power to direct, cause the
direction of or influence the management and policies of a Person, whether
through the ownership of voting securities, by contract, through the
holding of a position as a director or officer of such Person, or
otherwise.
(5) "AGREEMENT" means and includes this Agreement and the
schedules and exhibits hereto.
(6) "ANTIDILUTION SHARES" shall have the meaning set forth in
SECTION 8.1.
(7) "ARBITRATOR" shall have the meaning set forth in SECTION
10.11(A).
(8) "ATTRIBUTABLE" shall mean reasonably and properly
allocable or attributable, using applicable rules of allocability,
attribution or causation.
(9) "BUSINESS DAY" means any day other than Saturday or Sunday
on which national banking associations in Houston, Texas are open for
business.
(10) "BYLAWS" shall have the meaning set forth in SECTION 2.1.
(11) "CASUALTY EVENT", with respect to any asset of the
Company, shall mean (a) a fire, explosion, hurricane or other catastrophic
casualty event affecting such asset, or (b) the taking of such asset by a
Governmental Authority through condemnation or eminent domain.
(12) "CERTIFICATE OF INCORPORATION" shall have the meaning set
forth in SECTION 2.1.
(13) "CLAIMS" mean any claims, demands, actions, costs,
damages, losses, diminution in value (including to the Shares), expenses,
obligations, liabilities, recoveries, judgments, settlements, Proceedings,
causes of action or deficiencies, including interest, penalties (including
civil and criminal penalties) and attorneys' fees.
(14) "CLOSING" shall have the meaning set forth in SECTION
1.2.
(15) "CLOSING DATE" shall have the meaning set forth in
SECTION 1.2.
(16) "CODE" shall have the meaning set forth in SECTION 2.12.
(17) "COMMERCIALLY REASONABLE EFFORTS" shall mean the efforts
(including the incurrence of reasonable out-of-pocket costs and expenses)
that would be undertaken by
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a reasonable, similarly-situated participant in the oil and gas industry,
taking into account all relevant commercial, legal and other
considerations.
(18) "COMMON STOCK" shall have the meaning set forth in the
recitals of this Agreement.
(19) "CONSULTING AGREEMENT" means that certain Consulting
Agreement referred to in SECTION 5.14.
(20) "CONTRACT" shall mean any agreement, commitments,
arrangements, leases, oil and gas leases, insurance policies or other
instruments (including notes, loans or borrowing agreements) listed or
described in any schedule hereto or any other contract, instrument,
commitment or arrangement to which the Company is a party or by which the
Company or its assets, businesses or operations may be bound or affected
or under which the Company or its assets, businesses or operations receive
benefits, in each case whether oral or written, and in each case that has
not been fully performed by all parties.
(21) "DISPUTE" shall have the meaning set forth in SECTION
10.10.
(22) "DNB" means DnB Energy Assets, Inc.
(23) " DNB NOTE" means those promissory notes issued in
connection with that certain First Amended and Restated Credit Agreement
dated November 1, 1997 among the Company, SGC and Den Norske Bank, as
amended by that certain First Amendment to First Amended and Restated
Credit Agreement dated March 5, 1998 among the Company, SGC and DnB.
(24) "DNB NOTE PAYDOWN" means a $27.0 million paydown by the
Company on the DnB Note.
(25) "ENCUMBRANCE" means any mortgage, deed of trust, lien,
privilege, security interest, pledge, collateral assignment, conditional
sales arrangement, or any other burden, adverse claim, or encumbrance.
(26) "ENTITY" means a corporation, general partnership
(including a limited liability partnership), limited partnership, joint
venture, limited liability the Company, trust, estate, Governmental
Authority or other entity.
(27) "ENVIRONMENTAL LAWS" mean all Laws or Orders of any
Governmental Authority pertaining to health, the environment, wildlife or
natural resources, including the Clean Air Act; the Comprehensive
Environmental, Response, Compensation, and Liability Act of 1980; the
Federal Water Pollution Control Act or Clean Water Act; the Rivers and
Harbors Act of 1899; the Occupational Safety and Health Act of 1970; the
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Resource Conservation and Recovery Act of 1976; the Safe Drinking Water
Act; the Toxic Substances Control Act; the Hazardous & Solid Waste
Amendments Act of 1984; the Superfund Amendments and Reauthorization Act
of 1986; the Hazardous Materials Transportation Act; and state and local
Laws, including common law, pertaining to health, the environment,
wildlife or natural resources.
(28) "ERISA" shall have the meaning set forth in SECTION 2.13.
(29) "EQUIPMENT" means all wells, wellbores, pipe, pipelines,
gathering lines, compressors, materials, inventory, facilities (other than
Platforms), supplies and equipment and any and all other personal, real,
movable and immovable property, fixtures or equipment that are located on,
or presently used in connection with, the drilling for, or operation,
production, treatment or transportation of, Hydrocarbons from the
Properties, and any replacements, attachments or accessories now or
hereafter attached, added or affixed.
(30) "EXCHANGE ACT" shall have the meaning set forth in
SECTION 2.6.
(31) "EXCEPTION SCHEDULE" shall have the meaning set forth in
the first paragraph of ARTICLE 2.
(32) "FIDELITY" means Fidelity Oil Holdings, Inc., a Delaware
corporation.
(33) "FINANCIAL STATEMENTS" shall have the meaning set forth
in SECTION 2.6.
(34) "GOM OPERATIONS ADJUSTMENT" shall mean the price
adjustment referred to in SECTION 1.4(B)(1) and calculated in accordance
with EXHIBIT 1.4(B)(1) hereto.
(35) "GOVERNMENTAL AUTHORITY" (OR "GOVERNMENTAL") means a
federal, state, tribal or local governmental body, agency, division,
board, department, commission, court or other authority, including the
MMS.
(36) "HAZARDOUS SUBSTANCE" means, without limitation, (i) any
flammable explosives, radon, radioactive materials, asbestos, urea
formaldehyde foam insulations, polychlorinated biphenyls, benzene,
petroleum and petroleum products, methane, or (ii) hazardous materials,
hazardous wastes, biomedical wastes, hazardous or toxic substances or
related materials defined as such in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended (42 U.S.C.
Sections 9601 ET SEQ.), the Resource Conservation and Recovery Act, as
amended (42 U.S.C. Sections 6901 ET SEQ.), or any other Environmental
Laws.
(37) "HYDROCARBON" shall mean gas, oil, casinghead gas, drip
gasoline, natural gasoline and all other liquid and gaseous hydrocarbons.
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(38) "INDEMNITY SHARES" shall have the meaning set forth in
SECTION 9.4.
(39) "INTELLECTUAL PROPERTY" shall have the meaning set forth
in SECTION 2.15.
(40) "INTERIM PERIOD" shall mean from the date hereof until
the Closing Date.
(41) "INVESTOR" shall have the meaning set forth in the
introductory paragraph of this Agreement.
(42) "KNOWLEDGE", when referring to the Company or any of its
subsidiaries, shall mean those facts that are actually known, or those
facts which should be known, to Rick Avare, David Stetson, Ralph Currie or
Karen Underwood after due and appropriate inquiry in the exercise of
reasonable diligence, taking into account the scope and nature of the
responsibilities of the individual in question, and includes any facts
that are known by such individuals regardless of whether such individuals
are adverse to the Company in respect of the matters as to which such
individual's knowledge is attributed to the Company.
(43) "JOINT VENTURES" means (i) that certain Program Agreement
dated January 1, 1994 among Aquila Energy resources, IP Petroleum,
Victoria Gas, Browning Offshore, MG Oil and Gas and Louisiana Offshore
Ventures, (ii) that certain Program Agreement dated April 1, 1995 among IP
Petroleum, The William G. Helis Co., MG Oil and Gas, TECO Gas & Oil,
Houston Energy & Development and Texas 3D Ventures, and (iii) that certain
Agreement of Limited Partnership of Texas 3D Ventures dated April 1, 1995.
(44) "LAW" means any constitutional provision, statute, act,
code, regulation, rule, ordinance, Order, court decision, common law, or
other law, ruling or Order of a Governmental Authority.
(45) "LEASED REAL PROPERTY" shall have the meaning set forth
in SECTION 2.14.
(46) "LEASES" means the leases described in SCHEDULE 3.1
(including record title, operating rights, overriding royalties, net
profits interests and all other types of interests).
(47) "MANAGEMENT" means as of the date hereof, all executive
officers and directors of the Company.
(48) "MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT" means
that certain agreement in substantially the form attached hereto as
EXHIBIT 5.15 to be executed on
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the Closing Date by and between Blue Dolphin Services, Inc. and the
Company providing for, among other things, the provision of certain
management and administrative services to the Company.
(49) "MARKETABLE TITLE" shall mean, in the case of each
Property, such right, title and interest (owned beneficially and of
record) that:
(i) entitles Company, with respect to a particular
Property, to receive not less than the percentage set forth on
SCHEDULE 3.1 as the Net Revenue Interest or NRI of such Property of
all Hydrocarbons produced from, or otherwise attributable to, such
Property, without reduction, suspension or termination throughout
the productive life of such Property (including reductions resulting
from gas imbalances);
(ii) obligates Company to bear not more than the
percentage set forth on SCHEDULE 3.1 as the Working Interest or WI
of such Property of all costs and expenses attributable to the
ownership or operation of such Property, without increase throughout
the productive life of such Property (unless Company's Net Revenue
Interest in such Property is proportionately increased); and
(iii) is free and clear of any Encumbrances, except for
Permitted Encumbrances.
(50) "MATERIAL ADVERSE EFFECT" means, when used with respect
to any person or Entity, any event, condition, circumstance or change that
is or is reasonably likely to be materially adverse to the business,
operations, business prospects, assets, liabilities, condition (financial
or otherwise) of such person or Entity. When used with respect to the
Company, the existence of a Material Adverse Effect shall be determined
(unless otherwise expressly provided) by reference to the Company only, on
an unconsolidated basis without regard to the ownership interest of the
Company in any subsidiary, and after giving effect to the transactions
contemplated by the Purchase and Sale Agreement.
(51) "MILLENNIUM FUNCTIONALITY" shall have the meaning set
forth in SECTION 2.8.
(52) "MMS" means the United States Minerals Management
Service.
(53) "NASDAQ REQUIREMENTS" means the published rules and
regulations of the National Association of Securities Dealers, Inc., as
amended, that are applicable to the Company from time-to-time in
connection with the quotation and trading of its capital stock on the
NASDAQ National Market, the NASDAQ Small Cap Market or the NASDAQ OTCBB
systems.
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(54) "NOTE MODIFICATION AGREEMENT" means an agreement to be
negotiated and entered between the Company and Investor on or before
August 6, 1999, addressing the terms and conditions on which the Investor
agrees that it will, on the terms and subject to the conditions to be
therein set forth: (i) defer its right to payments under the Residual Note
for a period to be determined; (ii) waive certain defaults and events of
default under the terms of the Residual Note and related loan
documentation existing as of the Closing; and (iii) forgive all or a
portion of the Company's indebtedness evidenced by the Residual Note.
(55) "NOTICE AND PROXY STATEMENT" shall have the meaning set
forth in SECTION 5.7.
(56) "NRI" or "NET REVENUE INTEREST" shall mean, with regard
to any Property, the decimal or percentage share of Hydrocarbon production
from or allowable to such Property, after deductions for all overriding
royalties and burdens on production (including lessor royalties)
applicable thereto, that an owner of a Working Interest is entitled to
receive.
(57) "ORDER" means a Governmental or arbitral order, judgment,
ruling, decree, decision, notice, writ, injunction or award.
(58) "PARTY" and "PARTIES" shall have the meanings set forth
in the introductory paragraph.
(59) "PERMIT" means a Governmental permit, certificate,
license, franchise or authorization.
(60) "PERMITTED ENCUMBRANCES" means, with respect to a
particular Property:
(A) lessors' royalties, overriding royalties,
reversionary interests and similar burdens affecting such
Property if the net cumulative effect of such burdens does not
reduce the Company's interest in all Hydrocarbons produced
from a particular Property below the "NET REVENUE INTEREST" or
"NRI" set forth on SCHEDULE 3.1 for such Property;
(B) division orders and sales contracts terminable
without penalty upon no more than 90 days' notice to the
purchaser of the Hydrocarbons from Investor;
(C) operator's, vendor's tax and similar liens or
Encumbrances securing obligations that were not due and
payable prior to the Closing Date, or if due, are being
contested in good faith by the Company;
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(D) any Encumbrances created by Law for royalty, bonus,
deferred bonus payments or rental or for compliance with the
terms of the Leases;
(E) the terms and provisions of (i) the Leases and
Contracts, and (ii) all Easements, Permits and Orders to the
extent such Leases, Contracts, Easements, Permits and Orders
do not operate to increase the Working Interest of the Company
in the Properties or decrease the Net Revenue Interest of the
Company in the Properties;
(F) Easements in favor of third parties so long as such
easements do not adversely affect the current and continuous
use and operation of the Properties;
(G) all rights reserved to or vested in any Governmental
Authority to control or regulate any of the Properties in any
manner, and all applicable Laws; and
(H) those items set forth on SCHEDULE 10.1(A)(60).
(61) "PERMITTED LIABILITIES" shall have the meaning set forth
in SECTION 1.4(C).
(62) "PERSON" means a natural person or Entity.
(63) "PLATFORMS" means all platforms that are located on, or
presently used in connection with, the drilling for, or operation,
production, treatment or transportation of, Hydrocarbons from the
Properties.
(64) "POLICIES" shall have the meaning set forth in SECTION
2.18.
(65) "PREFERRED STOCK" means the Company's preferred stock,
par value $12.00 per share, designated "1993 8% Convertible Preferred
Stock."
(66) "PROCEEDING" means a judicial, administrative or arbitral
proceeding, including a lawsuit or Governmental investigation.
(67) "PROPERTIES" mean the Leases;
(68) "PROXY ITEMS" shall have the meaning set forth in SECTION
5.7.
(69) "PURCHASE AND SALE AGREEMENT" means that certain
agreement by and between the Company and Fidelity in the form executed and
delivered on the date hereof.
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(70) "PURCHASE PRICE" shall have the meaning set forth in
SECTION 1.3.
(71) "RECORDS" means records (including software) in the
possession of the Company with respect to lease and land records,
geological and geophysical records, operations, production and engineering
records, accounting records, and facility and well records.
(72) "RESIDUAL NOTE" means that outstanding portion of the
Note purchased by Investor from DnB after the DnB Note Paydown and
Southern Assumption and Release.
(73) "RETURNS" shall have the meaning set forth in SECTION
2.21.
(74) "SEC" means the Securities and Exchange Commission.
(75) "SEC DOCUMENTS" shall have the meaning set forth in
SECTION 2.6.
(76) "SECURITIES ACT" means the Securities Act of 1933, the
Securities Exchange Act of 1934 and all other Laws concerning or
regulating the sale or registration of securities.
(77) "SGC" means Southern Gas Co. of Delaware, Inc., a
Delaware corporation and wholly-owned subsidiary of the Company.
(78) "SHAREHOLDER APPROVAL" means the approval at the
Shareholder meeting of each of the Proxy Items by the required vote of the
holders of the (i) Preferred Stock and (ii) Common Stock.
(79) "SHAREHOLDERS MEETING" shall have the meaning set forth
in SECTION 5.7.
(80) "SHARES" shall have the meaning set forth in the recitals
of this Agreement.
(81) "SOUTHERN ASSUMPTION AND RELEASE" means (i) the
assumption by SGC of $12.5 million in principal amount of indebtedness
payable on the DnB Note and (ii) the release of the Company by DnB of
$12.5 million due on the DnB Note.
(82) "SOUTHERN DISPOSITION" means (i) the sale of SGC's
capital stock or assets, or both, and (ii) the release of the Company from
all obligations and liabilities arising from that certain Performance
Guaranty dated May 22, 1996 between the Company and Austin Energy Funding
Partners, that provides for SGC's performance under a volumetric
production payment, such release in form and substance satisfactory to
Investor.
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(83) "STOCK" means the capital stock authorized by the
Certificate of Incorporation, as amended, of the Company.
(84) "TAXES" means all federal, state, local or foreign taxes,
charges, fees, levies or other assessments, including, without limitation,
all net income, gross income, gross receipts, premium, sales, use, ad
valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, estimated severance, stamp, occupation, property or
other taxes, fees, assessments or charges of any kind whatsoever, together
with any interest and any penalties (including penalties for failure to
file in accordance with applicable information reporting requirements),
and additions to tax.
(85) "TECO" TECO Oil & Gas, Inc., a Florida corporation.
(86) "TECO NOTE" means that certain promissory note dated
March 5, 1998, in the original principal amount of $18,500,000 by the
Company as maker and TECO as the original payee.
(87) "TECO SETTLEMENT" means the (i) release of all
liabilities of the Company pursuant to the TECO Note, (ii) cancellation of
the TECO Warrants, and (iii) cancellation of all other liabilities and
obligations of the Company to TECO or to any holder or transferee of the
TECO Note, the TECO Warrants or shares of Common Stock issued pursuant to
the TECO Warrants.
(88) "TECO WARRANTS" means (i) those 600,000 warrants
exercisable at $2.67 per share for Common Stock originally issued to TECO
and (ii) those warrants originally issued to TECO and exercisable at
$.00001 per share for Common Stock.
(89) "THIRD PARTY" means a Person other than the Company, the
Company's Affiliates, Investor, Investor's Affiliates, Fidelity,
Fidelity's Affiliates or a Governmental Authority.
(90) "TRANSACTION COSTS" means all costs, expenses, and fees
of the Company relating to the transactions contemplated by this
Agreement, and each transaction to be completed as a condition to closing
hereunder including closing costs, attorney's fees, accounting expenses or
termination fees. Transaction Costs shall not, however, include any
expenses associated with the exercise of registration rights pursuant to
ARTICLE 8.
(91) "TRANSFER" means a sale, assignment, transfer,
conveyance, gift, exchange, abandonment or other disposition (including an
assignment of contractual rights or a delegation of contractual
obligations), whether voluntary, involuntary or by operation of Law.
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(92) "VOTING AND SUPPORT AGREEMENT" means a Voting and
Conversion Agreement and Irrevocable Proxy dated the date hereof by and
among the Investor and certain owners of the Company's Common Stock and
Preferred Stock in substantially the form of EXHIBIT 5.13.
(93) "WI" or "WORKING INTEREST" shall mean the property
interest which entitles the owner thereof to explore and develop land for
Hydrocarbons, whether under any Lease, a compulsory pooling order or
otherwise.
(b) Grammatical variants of such definitions set forth herein shall
have correlative meanings.
10.2 FURTHER ASSURANCES. From time to time, as and when requested by any
party hereto, any other party hereto shall execute and deliver, or cause to be
executed and delivered, such documents and instruments and shall take, or cause
to be taken, such further or other actions as may be reasonably necessary to
effectuate the transactions contemplated hereby, including, without limitation,
the transfer to Investor of the entire legal and beneficial ownership of all
issued and outstanding capital stock of each the Company, free and clear of all
Encumbrances.
10.3 PUBLIC ANNOUNCEMENTS. The Company and Investor shall consult with
each other with regard to all publicity and other releases issued concerning
this Agreement and the transactions contemplated hereby and, except as required
by applicable Law or the stock exchange requirements, neither Party shall issue
any such publicity or other release without the prior written consent of the
other Party.
10.4 EXPENSES. Except as otherwise provided herein, each Party shall be
solely responsible for all costs and expenses incurred by it in connection with
the transactions contemplated hereby (including fees and expenses of its own
counsel and consultants).
10.5 NOTICES AND WAIVERS. Any notice, instruction, authorization, request,
demand or waiver hereunder shall be in writing, and shall be delivered either by
personal delivery, by telegram, telex, telecopy or similar facsimile means, by
certified or registered mail, return receipt requested, or by courier or
delivery service, addressed to the parties hereto at the address indicated
beneath their respective signatures on the execution pages of this Agreement, or
at such other address and number as a party shall have previously designated by
written notice given to the other parties in the manner hereinabove set forth.
Notices shall be deemed given when received, if sent by facsimile means
(confirmation of such receipt by confirmed facsimile transmission being deemed
receipt of communications sent by facsimile means); and when delivered and
receipted for (or upon the date of attempted delivery where delivery is
refused), if hand-delivered, sent by express courier or delivery service, or
sent by certified or registered mail, return receipt requested.
10.6 SURVIVAL. All representations and warranties contained in this
Agreement shall survive the Closing, and all covenants and agreements contained
in this Agreement shall survive the Closing
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in accordance with their terms. Any Claims asserted against the Company by
Investor or by the Company against Investor relative to this Agreement during
such periods shall survive the expiration thereof.
10.7 GENDER AND CERTAIN REFERENCES. 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 plural.
References to Articles or Sections shall be to Articles or Sections of this
Agreement unless otherwise specified. The headings and captions used in this
Agreement are solely for convenient reference and shall not affect the meaning
or interpretation of any article, section or paragraph herein, or this
Agreement. The terms "hereof," "herein" or "hereunder" shall refer to this
Agreement as a whole and not to any particular article, section or paragraph.
The terms "including" or "include" are used herein in an illustrative sense and
not to limit a more general statement. When computing time periods described by
a number of days before or after a stated date or event, the stated date or date
on which the specified event occurs shall not be counted and the last day of the
period shall be counted. Unless otherwise specified, all references herein to
days, weeks, months or years shall be to calendar days, weeks, months or years.
Unless otherwise specified herein, any obligation otherwise due on a
non-Business Day shall not be due until the next Business Day.
10.8 SUCCESSORS AND ASSIGNS. This Agreement shall bind, inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and permitted assigns, and if an individual, by his or her executors,
administrators, and beneficiaries of his or her estate by will or the laws of
descent and distribution. This Agreement and the rights and obligations
hereunder shall not be assignable or delegable by any party; PROVIDED, HOWEVER,
that before Closing Investor shall be entitled to assign its rights and delegate
its duties hereunder to any corporate Affiliate, and after Closing Investor
shall be entitled to assign its rights and delegate its duties hereunder to any
Person, but no such assignment or delegation shall have the effect of
terminating Investor's duties or obligations as provided herein.
10.9 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND OF THE UNITED STATES
APPLICABLE IN TEXAS, EXCLUDING, HOWEVER, (i) ANY PROVISION OF SUCH LAWS THAT
WOULD RENDER INVALID ANY PROVISION OF THIS AGREEMENT, AND (ii) ANY RULE OF
CONFLICT-OF-LAWS THAT WOULD DIRECT OR REFER THE RESOLUTION OF ANY ISSUE TO THE
LAWS OF ANY OTHER JURISDICTION. Each party hereto hereby acknowledges and agrees
that it has consulted legal counsel in connection with the negotiation of this
Agreement and that it has bargaining power equal to that of the other parties
hereto in connection with the negotiation and execution of this Agreement.
Accordingly, the parties hereto agree that the rule that an agreement shall be
construed against the draftsman shall have no application in the construction or
interpretation of this Agreement.
10.10 DISPUTES. This SECTION 10.10 shall apply to any dispute arising
under or otherwise Attributable to this Agreement or the transactions
contemplated hereby (whether arising in contract, tort or otherwise, and whether
arising at law or in equity), including (a) any dispute regarding
50
<PAGE>
the construction, interpretation, performance, validity or enforceability of any
provision of this Agreement or whether any Person is in compliance with, or
breach of, any provisions of this Agreement, and (b) the applicability of this
SECTION 10.10 to a particular dispute (collectively, a "DISPUTE"). The
provisions of this SECTION 10.10 shall be the exclusive method of resolving
Disputes.
10.11 ARBITRATION.
(a) If a Dispute arises, the Parties shall attempt to resolve it
through negotiations. If the Parties are unable to resolve the Dispute within 20
days of the commencement of such negotiations, either Party may submit the
Dispute to binding arbitration before a sole arbitrator (the "ARBITRATOR")
pursuant to this SECTION 10.11(A) by notifying the other Party and designating a
proposed Arbitrator. If the other Party objects to such proposed Arbitrator, it
may, on or before the 10th day following delivery of such notice, notify the
other Party of its objection. The Parties shall then attempt to agree upon a
mutually acceptable Arbitrator. If they are unable to do so within 10 days
following delivery of the notice described in the immediately-preceding
sentence, either Party may request the American Arbitration Association (or
successor body) (the "AAA") to designate the Arbitrator. Each Party and each
proposed Arbitrator shall disclose to the other Party any business, personal or
other relationship or Affiliation that may exist between such Party and such
proposed Arbitrator, and any Party may disapprove of such proposed Arbitrator on
the basis of such relationship or Affiliation. If the Arbitrator so chosen shall
die, resign or otherwise fail or become unable to serve as Arbitrator, a
replacement Arbitrator shall be chosen in accordance with this SECTION 10.11(A).
(b) The Arbitrator shall expeditiously (and, if possible, within 45
days after the Arbitrator's selection) hear and decide all matters concerning
the Dispute. Any arbitration hearing shall be held in Houston, Texas. The
arbitration shall be conducted in accordance with the then-current Commercial
Arbitration Rules of the AAA (excluding rules governing the payment of
arbitration, administrative or other fees or expenses to the Arbitrator or the
AAA), to the extent that such Rules do not conflict with the terms of this
Agreement. Except as expressly provided to the contrary in this Agreement, the
Arbitrator shall have the power (i) to gather such materials, information,
testimony and evidence as it deems relevant to the dispute before it (and each
Party will provide such materials, information, testimony and evidence requested
by the Arbitrator, except to the extent any information so requested is
proprietary, subject to a third-party confidentiality restriction or to an
attorney-client or other privilege) and (ii) to grant injunctive relief and
enforce specific performance.
(c) If it deems necessary, the Arbitrator may propose to the Parties
that one or more other experts be retained to assist it in resolving the
Dispute. The retention of such other experts shall require the consent of both
Parties, which shall not be unreasonably withheld. Each Party, the Arbitrator
and any proposed expert shall disclose to the other Party any business, personal
or other relationship or affiliation that may exist between such Party (or the
Arbitrator) and such
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proposed expert; and either Party may disapprove of such proposed expert on the
basis of such relationship or affiliation.
(d) The decision of the Arbitrator (which shall be rendered in
writing) shall be final, nonappealable and binding upon the Parties and may be
enforced in any court of competent jurisdiction. The responsibility for paying
the costs and expenses of the arbitration, including compensation to the
Arbitrator and any experts retained by the Arbitrator, shall be allocated
between the Parties in a manner determined by the Arbitrator to be fair and
reasonable under the circumstances. Each Party shall be responsible for the fees
and expenses of its respective counsel, consultants and witnesses, unless the
Arbitrator determines that compelling reasons exist for allocating all or a
portion of such costs and expenses to one or more other Parties.
10.12 SEVERABILITY; JUDICIAL MODIFICATION. If any term, provision,
covenant, or restriction of this Agreement (including any arbitration provision
of this Agreement) is held by a court of competent jurisdiction to be invalid,
void, or unenforceable, the remainder of this Agreement and the other terms,
provisions, covenants and restrictions hereof shall remain in full force and
effect and shall in no way be affected, impaired or invalidated. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed this Agreement had the terms, provisions, covenants and restrictions
which may be hereafter declared invalid, void, or unenforceable not initially
been included herein.
10.13 AMENDMENT AND ENTIRETY. This Agreement may be amended, modified, or
superseded only by written instrument executed by all parties hereto. This
Agreement sets forth the entire agreement and understanding of the parties with
respect to the transactions contemplated hereby and supersedes all prior
agreements, arrangements, and understandings relating to the subject matter
hereof. In the event of any conflict or inconsistency between the provisions of
this Agreement and the contents or provisions of any schedule or exhibit hereto,
the provisions of this Agreement shall control. Except as expressly permitted by
this Agreement, the contents of schedules and exhibits hereto shall not be
deemed to negate or modify any representation, warranty, covenant or agreement
contained in this Agreement. Without limiting the generality of the preceding
sentence, any representation, warranty, covenant or other agreement contained in
any document, instrument or agreement delivered pursuant hereto or entered into
in connection herewith is made in addition to, and not in lieu of, any
representation, warranty, covenant or other agreement contained herein.
10.14 RIGHTS OF PARTIES. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any Persons other than the parties hereto and their respective
successors and assigns, nor shall any provision give any third Persons any right
of subrogation or action over against any party to this Agreement. Without
limiting the generality of the foregoing, it is expressly understood that this
Agreement does not create any third party beneficiary rights.
10.15 TIME OF ESSENCE. Time is of the essence in the performance of this
Agreement.
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10.16 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all which together
shall constitute one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, this Investment Agreement is executed and delivered on
and as of the day first above written.
THE COMPANY:
AMERICAN RESOURCES OFFSHORE, INC.
By: /s/ DAVID STETSON
Name: David Stetson
Title: Vice President and General Counsel
Address: 160 Morgan Street
P.O. Box 87
Versailles, Kentucky 40383
Telecopy No.(606) 873-4689
INVESTOR:
BLUE DOLPHIN EXPLORATION COMPANY
By: /s/ JOHN P. ATWOOD
John P. Atwood
Vice President Finance and
Corporate Development
Address: 801 Travis, Suite 2100
Houston, Texas 77002
Telecopy No.(713) 227-7626
<PAGE>
EXHIBIT 1.4(B)(1)
PART I
GOM OPERATION ADJUSTMENTS CALCULATION
The GOM Operation Adjustments shall be calculated as follows:
The GOM Operation Adjustments shall equal the sum of (a) decreases to the
Purchase Price resulting from (i) the Title Defect Value Adjustment Amount, (ii)
the Environmental Defect Adjustment Amount or (iii) from a Casualty Event not
covered by insurance and (b) an increase or decrease to the Purchase Price
resulting from the Revenue Adjustment. For the period from January 1, 1999
through June 30, 1999, Investor and the Company agree and acknowledge that the
revenue and expense items (on a cash, not accrual basis) set forth in Disclosure
Schedule 1.4(b)(1) under the heading "1999" and the subheadings "G&A Expense"
and "Other Expense" are appropriate and shall be utilized for purposes of
calculating the Revenue Adjustment; PROVIDED, that Investor and the Company
further acknowledge and agree that there may be additional revenues and expenses
added to the existing revenues and expenses in Disclosure Schedule 1.4(b)(1)
which reflect items which actually accrued during the period from January 1,
1999 through June 30, 1999 but which are not listed thereon.
1. DEFINITIONS. As used in this Exhibit 1.4(b)(1), the following
capitalized terms shall have the following meanings:
"ALLOCATED VALUE" shall mean the value for the Properties as set
forth on PART III of this Exhibit 1.4(b)(1).
"CURE DEADLINE" shall mean September 15, 1999.
"ENVIRONMENTAL DEFECT" means a defect resulting from the
representations contained in SECTION 3.14 of the Investment Agreement not
being true and correct.
"ENVIRONMENTAL DEFECT ADJUSTMENT AMOUNT" means the downward
adjustment to the Purchase Price to account for Environmental Defects
which have not been cured by the Company by the Cure Deadline.
"REVENUE ADJUSTMENT" means the adjustment to the Purchase Price
equal to fifteen percent (15%) of the difference between (x) all revenue
of the Company attributable to its Gulf of Mexico assets from January 1,
1999 through and including the Closing Date LESS (y) (i) capital
expenditures paid by the Company relating to the Gulf of Mexico assets
(including, without limitation, drilling costs) from January 1, 1999
through and including the Closing Date, (ii) general and administrative
expenses of the Company as specified in PART II of EXHIBIT 1.4(B)(1),
(iii) lease operating expenses paid by the Company relating to the Gulf
<PAGE>
of Mexico assets from January 1, 1999 through and including the Closing
Date, and (iv) $67,800 (representing adjustments relating to hedging
arrangements from January 1, 1999 through the Closing Date).
"TITLE DEADLINE" shall mean August 20, 1999.
"TITLE DEFECT" shall meany any matter that would cause the Company's
title to the Properties or Platforms not to be Marketable Title.
"TITLE DEFECT ADJUSTMENT AMOUNT" shall mean the aggregate amount of
all adjustments to be made to the Purchase Price resulting from Title
Defects.
"TITLE DEFECT VALUE" shall mean, with respect to each Title Defect,
the reduction in the value of the affected Property and/or Platform that
results from the existence of the Title Defect taking into account all
relevant considerations other than the potential deductibility of such
Title Defect Value for federal, state or local income tax purposes.
2. NOTICE OF TITLE DEFECT. Investor shall notify the Company in
writing by the Title Deadline of any Title Defect together with a
reasonably detailed explanation of (a) the nature of such Title Defect,
(b) the Property or Platform affected thereby, (c) the Allocated Value for
such Property or Platform, and (d) Investor's proposed Title Defect Value
for such Title Defect. Any matters that would otherwise constitute Title
Defects but that are not specifically raised in writing (with the
explanation as contemplated in the immediately- preceding sentence) by
Investor on or before the Title Deadline shall conclusively be deemed
waived by Investor.
3. REMEDIES FOR TITLE DEFECTS; TITLE INCREASES. (a) Until the Cure
Deadline, the Company shall have the right, but not the obligation, to
attempt to cure any Title Defect for which it receives notice from
Investor on or before the Title Deadline.
(b) With respect to any Title Defect for which the Company receives notice
from Investor on or before the Title Deadline but which is not cured on or
before the Cure Deadline, the Purchase Price shall be reduced by the Title
Defect Value for such Title Defect.
Notwithstanding the foregoing, there shall be no reductions to the
Purchase Price for a Title Defect unless and until the aggregate amount of all
Title Defect Values shall exceed a threshold of $9,375, in which case the
deduction shall include the threshold amount.
4. VALUE OF PROPERTY; TITLE DEFECT. If the Company and Investor are
unable to agree upon (a) whether a Title Defect exists, (b) a Title Defect
Value, (c) the value allocated to a Title Increase or (d) the
Environmental Defect Adjustment Amount, then such Dispute shall be
resolved pursuant to SECTION 10.11 of the Investment Agreement, and the
Closing shall be postponed until the fifth Business Day following the
resolution of such Dispute PROVIDED,
Exhibit 1.4(b)(1) Page 2 of 6
<PAGE>
HOWEVER, no postponement of the Closing shall affect the rights of the
Company or Investor to terminate the Investment Agreement pursuant to
SECTION 7.1(E).
5. CASUALTY EVENTS. If a Casualty Event occurs during the Interim
Period, or it is determined that a Casualty Event has occurred since the
Effective Date, the Purchase Price shall not be reduced if there is
insurance for the full amount of any loss incurred by the Casualty Event.
If the full amount of the loss resulting from the Casualty Event is not
covered by insurance, a downward adjustment shall be made to the Purchase
Price equal to the difference between the loss resulting from the Casualty
Event and the amount of the insurance proceeds the Company will be
entitled to receive.
6. ENVIRONMENTAL ADJUSTMENTS. To the extent that Investor's due
diligence reveals the existence of an Environmental Defect, Investor shall
notify the Company of any Environmental Defect by the Title Deadline or
any Environmental Defect shall conclusively be deemed waived by Investor.
The Company shall have until the Cure Deadline to cure any Environmental
Defect, but if any Environmental Defect is not cured, the Parties shall,
with respect to each Property affected by an Environmental Defect which is
not cured by the Company by the Cure Deadline, attempt in good faith to
agree upon an appropriate downward adjustment to the Purchase Price to
account for such matters.
Exhibit 1.4(b)(1) Page 3 of 6
<PAGE>
EXHIBIT 1.4(B)(1)
PART II
GENERAL AND ADMINISTRATIVE EXPENSES
Notwithstanding the categories of expenses included under the subheading
"G&A Expense" and "Other Expense" in Disclosure Schedule 1.4(b)(1), for
the period from July 1, 1999 through Closing, only those general and
administrative expenses which are properly categorized in the following
categories shall be considered general and administrative expenses for
purposes of calculating the Revenue Adjustment and in no event shall the
general and administrative expenses for any month exceed $140,000, which
amount shall be prorated for any partial month:
1. Compensation
2. Employee Benefits
3. Audit and Tax
4. Auto/Truck
5. Bank Service Charges
6. Computer Expense
7. Consulting Fees
8. Director Fees
9. Contract Labor
10. Contributions
11. Equipment Rental
12. Insurance
13. Legal
14. Licenses/Permits
15. Meals & Entertainment
16. Memberships-Deductible
17. Memberships-Nondeduct
18. Miscellaneous
19. Office Supplies
20. Parking
21. Postage
22. Printing
23. Professional Fees
24. Rent
25. Repairs & Maintenance
26. SEC Expense
27. Seminars/Training
28. Storage
29. Subscriptions
30. Telephone
Exhibit 1.4(b)(1) Page 4 of 6
<PAGE>
31. Travel/Lodging
32. Franchise Tax
33. Property Tax
General and Administrative Expenses for the period July 1, 1999 through
Closing shall not include, however, any of the following categories of
expenses:
1. Payments of principal or interest on Company indebtedness;
2. General and Administrative Expenses attributable to the
ownership or sale of Southern Gas Co. of Delaware, Inc. or the
operation or sale of its assets.
Exhibit 1.4(b)(1) Page 5 of 6
<PAGE>
EXHIBIT 1.4(B)(1)
PART III
ALLOCATED VALUES
8/8THS
ALLOCATED
PROPERTY VALUE
------------ -------------
Galveston 213 $ 645,964
Galveston 394/395 $ 2,373,250
Ship Shoal 97 $ 1,669,655
Ship Shoal 150 $ 2,779,663
Ship Shoal 222/225 -
South Timbalier 148 $ 8,138,341
South Timbalier 211 $ 6,196,771
West Cameron 172 $ 7,735,943
West Cameron 368 $ 2,102,519
TOTALS $31,642,106
Exhibit 1.4(b)(1) Page 6 of 6
<PAGE>
EXECUTION VERSION
CONSULTING AGREEMENT
This Consulting Agreement (this "AGREEMENT"), is entered into as of the
30th day of July, 1999, by and between American Resources Offshore, Inc., a
Delaware corporation, ("ARO") and MAP II, L.L.C., a Kentucky limited liability
company ("CONSULTANT"). ARO and Consultant may be referred to herein as
collectively, the "PARTIES" or individually as a "PARTY".
RECITALS:
A. As a condition to closing the transactions between ARO and Blue Dolphin
Exploration Company pursuant to that certain Investment Agreement dated
effective as of July, 1999, (the "INVESTMENT AGREEMENT"), ARO has agreed to
enter into a consulting agreement with Consultant.
B. The Parties desire to enter into an agreement setting forth the terms
and conditions under which Consultant will provide services to ARO in
fulfillment of the conditions of the Investment Agreement.
NOW, THEREFORE, for and in consideration of these premises and of the
mutual covenants and agreements set out herein, the Parties agree as follows:
AGREEMENTS:
1. SERVICES AS A CONSULTANT. ARO does hereby agree to employ, and
Consultant agrees to provide, the services of Consultant, such services to be
performed in the capacity of a consulting representative in connection with the
ongoing business of ARO. The services to be provided by Consultant to ARO
pursuant to this Agreement shall include the following:
(a) Advising and consulting with ARO from time to time as reasonably
requested by ARO or its duly authorized representatives in connection with
the ongoing operations and development of the business of ARO;
(b) Advising and consulting with ARO in the preparation of filings
required with the Securities and Exchange Commission;
(c) Advising and consulting with ARO in connection with all
financial reporting;
(d) Advising and consulting with ARO in connection with the conduct
of audits of ARO by ARO's auditors; and
<PAGE>
(e) Make available, from time to time and with reasonable notice,
the services of Rick Avare, David Stetson, Ralph Curry and Karen Underwood
in connection with the consulting services provided for in (a)-(d) above.
Notwithstanding the foregoing, if any of the above referenced individuals
(i) terminates his or her employment with consultant or (ii) dies or
becomes incapacitated rendering such individual unable to perform the
services, this Agreement shall not be terminated and the compensation
provided for in paragraph 4 below shall not be reduced by ARO so long as
the services can be and are performed by any one of the individuals
specified.
2. NO MANAGEMENT Responsibility. Consultant assumes no responsibility
under this Agreement other than to render the consulting services provided for
herein in good faith. This Agreement does not delegate to Consultant any
management responsibility or decision-making powers with respect to ARO.
3. TERM. This Agreement shall commence upon the closing of the
transactions contemplated by the Investment Agreement and shall continue until
February 28, 2001 (the "TERM OF EMPLOYMENT") unless sooner terminated pursuant
to the provisions of this Agreement.
4. COMPENSATION. ARO shall pay to Consultant during the term of this
Agreement a fee of $35,000 per month for services rendered pursuant to this
Agreement by Consultant. In the event the term of this Agreement commences after
the first day of any month, the compensation to be paid to Consultant for the
partial month shall be proportionately reduced. Consultant shall not participate
in any group health, accident and life insurance plans, or any pension or other
benefit plan sponsored by ARO. In performing the consulting services, Consultant
shall not be required to incur any out-of-pocket expenses unless ARO has agreed
to reimburse Consultant for each out-of-pocket expense.
5. NON-EXCLUSIVE SERVICES. Consultant and ARO agree that the services
provided hereunder are not being provided on a "full time" basis and that,
during the term of this Agreement, Consultant shall be free to do any work,
perform any services, or serve as a consultant for a third party unless such
activity would cause or be a conflict of interest with ARO.
6. CONFIDENTIALITY. Consultant recognizes that during the term of this
Agreement, Consultant may have access to confidential and proprietary
information and trade secrets of ARO. Consultant agrees that he will not
divulge, distribute or disseminate any such information to any third party
during the term of this Agreement or for any period thereafter.
7. PERSONAL SERVICES CONTRACT. Consultant acknowledges and agrees that
this Agreement is a personal services contract and may not be assigned by
Consultant.
8. TERMINATION. This Agreement may be terminated prior to the end of the
Term of Employment as follows:
(a) By the Parties upon the mutual written consent of both Parties;
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(b) By ARO if Consultant (i) breaches any covenant, term or
condition contained in this Agreement (ii) commits an act of theft, fraud
or dishonesty against ARO or (iii) fails or refuses to perform the
services to be provided by Consultant pursuant to this Agreement;
(c) By Consultant if ARO breaches any covenant, term or condition of
this Agreement; and
(d) Pursuant to the terms of paragraph 4 above.
If this Agreement is terminated pursuant to (a), (b) or (c) above, any
obligations of ARO to pay consulting fees to Consultant as provided herein,
shall terminate effective as of the date of termination of this Agreement, said
fees to be prorated through the date of termination. If Consultant terminates
this Agreement pursuant (c) above, Consultant shall be entitled to the fees that
would be due to Consultant during the remainder of the term of this Agreement,
if, and only if, the breach of this Agreement by ARO which has occurred giving
rise to Consultant's termination pursuant to (c) above is the non-payment of
fees or expenses to which Consultant is entitled and such breach has continued
for a period of ninety (90) consecutive days.
9. MISCELLANEOUS.
9.1 INDEPENDENT Contractor. Nothing contained in this Agreement
shall be construed to as a partnership agreement and Consultant shall not be
deemed to be an employee or agent of ARO. Neither Party has any authority to
bind the other in any respect, it being intended that Consultant is an
independent contractor responsible for his own actions.
9.2 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. ARO AND CONSULTANT AGREE THAT
IN THE EVENT OF A DISPUTE ARISING BETWEEN THE PARTIES, THE PARTIES AGREE TO
SUBJECT THEMSELVES TO THE JURISDICTION OF THE DISTRICT COURTS OF HARRIS COUNTY,
TEXAS, AND THE FEDERAL DISTRICT COURTS FOR THE SOUTHERN DISTRICT OF TEXAS,
HOUSTON DIVISION.
9.3 MODIFICATIONS. No provision of this Agreement may be changed or
modified, except by written agreement signed by the Parties.
9.4 LEGAL COMPLIANCE. Consultant agrees to abide by all applicable
laws and regulations, both state and federal, in the performance of his duties
pursuant to this Agreement.
9.5 ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the Parties in connection with the subject matter hereof and
supersedes all previous verbal or written agreements.
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9.6 NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be considered to have been given if sent
by certified mail to Consultant at:
MAP II, L.L.C.
1532 Lakewood Drive
Lexington, Kentucky 40502
and to ARO at:
American Resources Offshore, Inc.
c/o Blue Dolphin Services, Inc.
801 Travis, Suite 2100
Houston, Texas 77002
Attention: John P. Atwood
Telecopier 713) 227-7626
9.7 INVALIDITY. If any of the provisions of this Agreement shall be
held invalid, such invalidity shall not affect any other provisions which can be
given effect without the invalid provisions and to this end, the provisions of
this Agreement are intended to be and shall be deemed severable.
9.8 DESCRIPTIVE HEADINGS. The descriptive headings of the several
sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any provision hereof.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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SIGNATURE PAGE FOR
CONSULTING AGREEMENT
IN WITNESS THEREOF, this Agreement has been executed as of the date first
written above.
AMERICAN RESOURCES OFFSHORE, INC.
By: /s/ DAVID STETSON
Printed Name: DAVID STETSON
TITLE: V.P. & GENERAL COUNSEL
MAP II, L.L.C.
By: /s/ RICK G. AVARE
Printed Name: RICK G. AVARE
Title: ADMINISTRATIVE MEMBER
The undersigned hereby executes this Agreement for the sole purpose of
guaranteeing the payments to be made by ARO to Consultant as provided in
paragraph 4.
BLUE DOLPHIN EXPLORATION COMPANY
/s/ JOHN P. ATWOOD
John P. Atwood, Vice President
Finance & Corporate Development
<PAGE>
DRAFT
FOR DISCUSSION
PURPOSESE ONLY
FRI, OCT 22, 1999
================================================================================
MANAGEMENT AND ADMINISTRATIVE
SERVICES AGREEMENT
BY AND BETWEEN
BLUE DOLPHIN SERVICES, INC.
AND
AMERICAN RESOURCES OFFSHORE, INC.
_____________, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1DEFINITIONS
1.1 DEFINED TERMS....................................................1
1.2 OTHER TERMS......................................................2
1.3 CONSTRUCTION.....................................................2
ARTICLE 2SERVICES PROVIDED BY BDSI
2.1 APPOINTMENT......................................................3
2.2 ACCEPTANCE.......................................................3
2.3 LEGAL OWNERSHIP..................................................3
2.4 DUTIES RETAINED BY ARO...........................................3
2.5 EVIDENCE OF AUTHORITY; ATTORNEY-IN-FACT..........................3
2.6 AUTHORIZED PERSONNEL.............................................3
ARTICLE 3MANAGEMENT SERVICES
3.1 GENERAL..........................................................3
3.2 MANAGEMENT SERVICES..............................................4
(a) ACCOUNTING.................................................4
(b) CASH MANAGEMENT............................................4
(c) GENERAL LAND FUNCTIONS; LAND TITLE AND LEASE RECORDS.......4
(d) CONTRACTS..................................................4
(e) CONTRACT ADMINISTRATION....................................4
(f) REPORTING TO AND MEETING WITH ARO..........................5
(g) MANAGEMENT REPORTS.........................................5
(h) SEC COMPLIANCE.............................................5
(i) RECORDS....................................................5
(j) AFE'S......................................................5
(k) TECHNICAL AND OPERATIONAL EXPERTISE........................6
(l) COMPLIANCE AND REGULATORY FILINGS..........................6
(m) INSURANCE..................................................6
(n) MARKETING..................................................6
(o) ADMINISTRATIVE FUNCTIONS...................................6
(p) TAX........................................................6
(q) LEGAL PROCEEDINGS..........................................6
(r) OTHER......................................................6
3.3 SUPERVISION OF BDSI..............................................6
3.4 SPECIAL SERVICES.................................................7
3.5 FILES AND RECORDS................................................7
3.6 BILLING AND PAYMENT..............................................7
ARTICLE 4MANAGEMENT FEE
4.1 MANAGEMENT FEE...................................................7
4.2 SUPPLEMENTAL SERVICES FEES.......................................7
4.3 MISCELLANEOUS EXPENSES...........................................7
4.4 REMEDIES FOR FAILURE TO PAY......................................8
(a) INTEREST...................................................8
(b) COST OF COLLECTION.........................................8
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ARTICLE 5INDEMNITY
5.1 BDSI'S INDEMNIFICATION...........................................8
5.2 ARO'S INDEMNIFICATION............................................8
5.3 NO ASSUMPTION OF LIABILITIES.....................................9
ARTICLE 6CONFIDENTIALITY
ARTICLE 7CONFLICTS
ARTICLE 8ACCESS AND AUDIT
8.1 BOOKS AND RECORDS...............................................10
8.2 RIGHT TO AUDIT..................................................10
8.3 MAINTENANCE OF RECORDS..........................................10
ARTICLE 9RELATIONSHIPS OF THE PARTIES
9.1 RELATIONSHIPS...................................................10
9.2 TAXATION........................................................10
ARTICLE 10REPRESENTATION AND WARRANTIES
10.1 REPRESENTATION AND WARRANTIES OF BDSI...........................11
(a) ORGANIZATION..............................................11
(b) AUTHORITY AND CONFLICTS...................................11
(c) AUTHORIZATION.............................................11
(d) ENFORCEABILITY............................................11
10.2 REPRESENTATIONS AND WARRANTIES OF ARO...........................12
(a) ORGANIZATION..............................................12
(b) AUTHORITY AND CONFLICTS...................................12
(c) AUTHORIZATION.............................................12
(d) ENFORCEABILITY............................................12
(e) COMPLIANCE WITH LAW AND PERMITS...........................12
ARTICLE 11TERM
11.1 TERM............................................................13
11.2 HOLD OVER.......................................................13
ARTICLE 12NOTICES
ARTICLE 13GENERAL
13.1 GOVERNING LAW...................................................14
13.2 ASSIGNMENT......................................................14
13.3 INTEGRATION.....................................................14
13.4 WAIVER OR MODIFICATION..........................................14
13.5 INVALID PROVISIONS..............................................14
13.6 FORCE MAJEURE...................................................15
13.7 MULTIPLE COUNTERPARTS...........................................15
13.8 DISPUTE RESOLUTION..............................................15
ii
<PAGE>
TABLE OF CONTENTS
(Continued)
PAGE
LIST OF EXHIBITS
Exhibit A Dispute Resolution Procedures
iii
<PAGE>
MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT
THIS MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT (this "Agreement")
is dated effective as of __________, 1999 and is by and between AMERICAN
RESOURCES OFFSHORE, INC., a Delaware corporation ("ARO"), and BLUE DOLPHIN
SERVICES, INC., a Delaware corporation ("BDSI"). ARO and BDSI may be referred to
collectively as the "PARTIES" or individually as a "PARTY".
RECITALS:
A. ARO is engaged in the business of exploring for and producing oil
and gas in the Gulf of Mexico.
B. Blue Dolphin Exploration Company ("BDEX"), an affiliate of BDSI, has
entered into that certain Investment Agreement dated July __, 1999
(the "INVESTMENT AGREEMENT") whereby BDEX will acquire 75% of the
issued and outstanding common stock of ARO.
C. It is the intention of the Parties that BDSI will manage the
business and operations of ARO.
NOW, THEREFORE, for and in consideration of the mutual and dependent
covenants, conditions, and agreements hereinafter set forth, the Parties agree
as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement, each of the following
capitalized terms shall have the meaning ascribed to them in this Section unless
otherwise specified or clearly required by the context in which such term is
used:
"AFE" shall mean authority for expenditures.
"AGREEMENT" shall have the meaning set forth in the introductory
paragraph hereof.
"AGREEMENT YEAR" shall have the meaning ascribed in SECTION 11.1.
"AARO" shall have the meaning set forth in the Recitals hereof.
"BDEX" shall have the meaning set forth in the Recitals hereof.
"BDSI" shall have the meaning set forth in the introductory
paragraph hereof.
"BUSINESS DAY" shall mean a day other than any day that banking
institutions are required or permitted to be closed under the laws of the
State of Texas.
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"CODE" shall have the meaning set forth in SECTION 9.2.
"COMMENCEMENT DATE" shall mean _________, 1999.
"CONFIDENTIAL INFORMATION" shall mean all information disclosed by
either Party to the other Party relating to the disclosing Party's
business and operations.
"ENFORCEABILITY LIMITATIONS" shall mean applicable bankruptcy,
reorganization or moratorium statutes, equitable principles or other
similar laws affecting the rights of creditors generally.
"HYDROCARBON" shall mean gas, oil, casinghead gas, drip gasoline,
natural gasoline and all other liquid and gaseous hydrocarbons.
"INVESTMENT AGREEMENT" shall have the meaning set forth in the
Recitals hereof.
"IRS" shall have the meaning set forth in SECTION 9.2.
"LIABILITY" shall have the meaning set forth in SECTION 5.1.
"MANAGEMENT FEE" shall have the meaning set forth in SECTION 4.1.
"MANAGEMENT SERVICES" shall have the meaning set forth in SECTION
3.2.
"ATERM" shall mean the term of this Agreement as set forth in
ARTICLE 11.1.
"TERMINATION DATE" shall have the meaning set forth in ARTICLE 11.1.
1.2 OTHER TERMS. Other capitalized terms used in this Agreement and not
defined in SECTION 1.1 shall have the meanings given them throughout this
Agreement.
1.3 CONSTRUCTION. The headings in this Agreement are inserted for
convenience of reference only and shall not affect the interpretation of this
Agreement. Whenever the context requires, each term stated in either the
singular or the plural shall include the singular or the plural, and the gender
of all words used in this Agreement includes the masculine, the feminine and the
neuter. Except as otherwise noted, references to Articles and Sections refer to
articles and sections of this Agreement, and all references to Exhibits are to
exhibits attached hereto, each of which is made a part hereof for all purposes.
Use of the word "including" shall mean, without limitation, by reason of
enumeration. The use of the words "hereof," "hereunder," "hereto," "herein,"
"hereinafter," "hereinabove" and "hereinbelow" shall be references to this
Agreement in its entirety and not only to a particular Article, Section or
Exhibit in which such reference appears.
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ARTICLE 2
SERVICES PROVIDED BY BDSI
2.1 APPOINTMENT. ARO hereby appoints BDSI to provide the Management
Services by and on behalf of, and for the account of, ARO, pursuant to and as
set forth in this Agreement
2.2 ACCEPTANCE. BDSI hereby accepts the appointment provided for above and
agrees to perform the duties and obligations herein imposed in a good and
workmanlike manner as a reasonable person in the industry in material compliance
with all applicable agreements, laws, rules and regulations and using a good
faith effort which BDSI reasonably believes advances and protects the interests
of ARO.
2.3 LEGAL OWNERSHIP. BDSI shall not take title to any properties owned of
record or beneficially by ARO during the Term of this Agreement. Any addition to
the assets of ARO by purchase, lease or otherwise on behalf of ARO shall be
acquired in the name of ARO.
2.4 DUTIES RETAINED BY ARO. ARO shall be responsible for all duties and
obligations which BDSI is not specifically required or authorized to perform on
behalf of ARO pursuant to the terms of this Agreement.
2.5 EVIDENCE OF AUTHORITY; ATTORNEY-IN-FACT. If BDSI determines it is
necessary to fulfill its obligations under this Agreement, BDSI shall prepare
and ARO shall execute and deliver to BDSI (i) letters of instruction to all
appropriate third parties instructing such third parties to deal with BDSI with
respect to all matters relating to ARO and to provide directly to BDSI all
payments, invoices, notices, requests, demands, and other communications
relating to ARO and its properties and assets; and (ii) powers of attorney
authorizing and empowering certain employees of BDSI to carry out the rights and
duties set forth herein.
2.6 AUTHORIZED PERSONNEL. With respect to any approval or consent required
from ARO pursuant to the terms of this Agreement, BDSI may rely on any
authorization, consent or other instructions received from either [___] or
[___]. ARO may remove the authority granted to the foregoing individuals and/or
authorize additional individuals to provide such consents, approvals or
instructions by providing BDSI with a written statement of authorization signed
by the president of ARO.
ARTICLE 3
MANAGEMENT SERVICES
3.1 GENERAL. BDSI will provide competent and suitable qualified personnel
to perform the Management Services and agrees to use all reasonable efforts to
fulfill such services diligently in accordance with the standards imposed on
BDSI in this Agreement.
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3.2 MANAGEMENT SERVICES. The managed, administrative and advisory services
to be provided by BDSI to ARO pursuant to this Agreement shall include the
following (the "MANAGEMENT SERVICES"):
(a) ACCOUNTING. BDSI shall maintain in good order the books and
accounts, ledgers and records of ARO shall perform all day-to-day
accounting functions of ARO including, without limitation, accounting
matters relating to paying and receiving, billing, gas balancing,
repayments under external or internal loan arrangements and contract
coordination. In addition, BDSI shall do all things necessary and usual
and customary in the industry to assist the outside auditors in completing
ARO's annual financial audit.
(b) CASH MANAGEMENT. BDSI shall deposit all monies received by ARO
into a centralized cash management account of ARO ("CASH Account").
Consistent with existing cash management practices of BDSI for managed
accounts, such Cash Account will be utilized for the receipt of monies to
satisfy obligations pertaining to ARO.
To the extent ARO has funds available in the Cash Account pertaining
to ARO and subject to the approval rights provided below, all costs,
expenditures, fees, and other payments due by ARO shall be paid out of the
Cash Account. BDSI shall never be obligated to make advances to ARO for
the purchase covering shortfalls in the Cash Account. Notwithstanding
BDSI's payment of expenses on behalf of ARO, ARO shall be responsible for
all amounts due and expenses incurred in connection with the organization
and operation of ARO. To the extent that BDSI becomes aware of a cash
shortfall with respect to ARO's funds in the Cash Account, BDSI shall
notify ARO of such shortfall.
(c) GENERAL LAND FUNCTIONS; LAND TITLE AND LEASE RECORDS. BDSI shall
perform all day-to-day general land functions relating to ARO's assets
including, without limitation, the maintenance of all oil and gas lease
and land files, title conveyances, payment of delay rentals and shut-in
well reports. BDSI shall liaise with any outside legal counsel approved by
ARO for land and related matters where required and shall provide land
information for audit and tax returns.
(d) CONTRACTS. BDSI shall negotiate all contracts for ARO including,
but not limited to loan agreements, leases, AFEs, proposed operations
under joint operating agreements, division orders, gas sales contracts,
pooling agreements, assignments, gas balancing agreements, farmout and
farmin agreements and unit declarations, the purchase of land and the
acquisition of permits, easements, rights-of-way and other property rights
necessary for ARO's assets, with such persons as may be reasonable or
necessary. BDSI shall notify ARO of any significant procurement of
materials.
(e) CONTRACT ADMINISTRATION. BDSI shall administer all agreements of
ARO including, without limitation:
(i) compliance with insurance requirements established by
ARO from time to time;
4
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(ii) establishment and maintenance of bank accounts;
(iii) review of all invoices, preparation of recommendations
for payment of all, or specified portions, of invoiced
costs;
(iv) settlement recommendations for any disputes arising from
invoices; and
(v) delivery of lien waivers, or releases, in form and
substance reasonably acceptable to ARO, to lenders under
any credit agreement or a title company issuing an
owner's or mortgagee's title insurance policy, as may be
applicable and compliance with all applicable federal,
state and local taxes (including excise and sales taxes)
which may be applicable to ARO's assets.
(f) REPORTING TO AND MEETING WITH ARO. BDSI shall prepare and
furnish periodic progress and status reports to ARO and such other reports
as ARO may from time to time request. All reports furnished to ARO by BDSI
shall be in a form acceptable to ARO, in ARO's reasonable discretion.
Additionally, BDSI shall cause its personnel to meet with representatives
of ARO from time to time as reasonably requested by ARO to review the
reports provided to ARO.
(g) MANAGEMENT REPORTS. BDSI shall provide ARO with reports which
are consistent, in form and substance, with reports prepared by ARO prior
to the Parties entering into this Agreement.
(h) SEC COMPLIANCE. BDSI shall prepare or cause to be prepared all
filings necessary or required by the Securities Laws and applicable laws
of any exchange upon which the shares of the Company's stock are traded.
(i) RECORDS. BDSI shall maintain on behalf of ARO all certificates,
licenses, permits and approvals from all governmental agencies with
jurisdiction over ARO's assets, all contracts (including, without
limitation, purchase orders) negotiated with persons providing services in
connection with ARO's assets, the results of any tests or analyses
obtained in connection with ARO's assets and copies of invoices, checks
and other accounting materials related to ARO's assets as may be
reasonably requested by ARO for tax and accounting purposes. BDSI shall
prepare revisions to the plans and specifications of ARO's assets to
reflect the final configuration of ARO's assets and maintain such
additional records relating to ARO's assets as may be reasonable or
necessary to permit ARO to operate, maintain and, if applicable, further
expand the existing ARO assets. All records shall be maintained in strict
compliance with all regulatory requirements of the FERC, DOT and any other
state, federal or local governmental agency having jurisdiction over all
or any portion of ARO's assets.
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(j) AFE'S. Review and make decisions with respect to AFE's proposed
by the operators or other interest owners of the properties owned by ARO.
(k) TECHNICAL AND OPERATIONAL EXPERTISE. Provide ARO with technical
and operational expertise to assist ARO in connection with decisions
regarding the operations of ARO's assets, including capital expenditures
and major repairs and maintenance requirements. BDSI's responsibility in
this regard shall include without limitation, the duty to review and
timely respond to election notices and AFEs sent by all operators of ARO's
assets.
(l) COMPLIANCE AND REGULATORY FILINGS. Use all reasonable efforts to
ensure that ARO complies fully with all federal, state and municipal laws,
ordinances, regulations and orders relative to ARO's assets and shall
prepare and file all regulatory filings required to be filed by ARO with
respect to its assets. BDSI shall use all reasonable efforts to cause the
appropriate parties to remedy any violation of any such law, ordinance,
rule, regulation or order which comes to its attention and shall promptly
notify ARO of any such violation.
(m) INSURANCE. Provide the necessary insurance for ARO as determined
by ARO's Board of Directors or as required under the insurance provisions
of the applicable operating agreement for properties owned by ARO to the
extent such insurance is not provided to ARO by the operator. Such
insurance shall be provided at ARO's cost and expense and the cost of such
insurance is not included in the Management Fee.
(n) MARKETING. Market or cause to be marketed ARO's share of
Hydrocarbon production from its properties to the extent ARO has the right
to market such production under the terms of the applicable operating
agreement. Any third-party costs and expenses incurred in connection with
such marketing efforts shall be borne by ARO.
(o) ADMINISTRATIVE FUNCTIONS. Perform all other reasonable or
necessary administrative functions relating to ARO and its assets not
specifically set forth in SECTION 3.2, including accounting, engineering,
planning, financial, reporting, public relations, governmental, technical
services and such other services necessary for ARO to continue its
business and operations.
(p) TAX. Prepare or cause to be prepared all required tax filings
and retain all legal and accounting professionals as deemed necessary by
BDSI.
(q) LEGAL PROCEEDINGS. Institute or defend claims and other legal
actions or proceedings relating to ARO or its accounts or operations. BDSI
shall have the right to select the legal counsel .
(r) OTHER. Provide such other services and support consistent with
the foregoing duties and obligations.
3.3 SUPERVISION OF BDSI. ARO has entered into this Agreement to delegate
the day-to-day management of ARO to BDSI as an agent of ARO subject to the
control and supervision of
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ARO's Board of Directors and subject to the various provisions contained within
this Agreement. The Parties agree that:
(a) All actions of BDSI undertaken pursuant to this Agreement shall
be subject to the general direction of ARO's Board of Directors, and BDSI
shall promptly respond to all notices, requests or inquiries from ARO's
Board of Directors to permit ARO to direct BDSI's performance of the
Management Services. ARO, however, shall not have the right to exercise
control over BDSI's day-to-day actions in providing Management Services
under this Agreement;
(b) BDSI shall not be obligated to perform the Management Services
or any other or additional act for, or on behalf of, ARO requiring it to
incur, directly or indirectly, any cost or expense which is not paid for,
or reimbursed by, ARO pursuant to ARTICLE hereof except as provided
herein; and
(c) All activities, duties and responsibilities not specifically
retained by ARO are hereby delegated to BDSI; PROVIDED, HOWEVER, that ARO
may at any time and from time to time perform activities, duties and
responsibilities not specifically delegated to BDSI in this Agreement by
notifying BDSI of such activity, duty and responsibility to be performed
by ARO.
3.4 SPECIAL SERVICES. In addition to the Management Services set out in
SECTION 3.2, ARO may request additional services which, if agreed to in writing
by BDSI, shall be subject to additional billing in an amount mutually agreed on
by BDSI and ARO.
3.5 FILES AND RECORDS. All files and records maintained by BDSI regarding
ARO's assets shall be the property of BDSI. However, ARO shall be entitled to
review BDSI's files from time to time during regular business hours and shall be
entitled (at ARO's sole cost and expense) to copies of such files to the extent
such files affect ARO's assets.
3.6 BILLING AND PAYMENT. BDSI shall submit an invoice on or before the
fifteenth (15th) day of each month. The invoice shall specify the amounts due to
BDSI by ARO including, without limitation, the Management Fee for the month and
any other amounts which may be due to BDSI by ARO pursuant to this Agreement.
All invoices rendered to ARO shall be due and payable within twenty (20) days
following receipt thereof.
ARTICLE 4
MANAGEMENT FEE
4.1 MANAGEMENT FEE. In consideration for the performance of the Management
Services by BDSI, ARO shall pay to BDSI a fee (the "MANAGEMENT Fee") equal to
ONE MILLION AND NO/100 DOLLARS ($1,000,000) per year, payable in monthly
installments of EIGHTY-THREE THOUSAND THREE HUNDRED THIRTY-THREE DOLLARS
($83,333).
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4.2 SUPPLEMENTAL SERVICES FEES. Fees, if any, for special services
pursuant to SECTION 3.4 are in addition to the Management Fee.
4.3 MISCELLANEOUS EXPENSES. The Management Fee shall be inclusive of all
reasonable out-of-pocket expenses, administrative support costs (including,
without limitation, costs related to the operation of ARO's Metairie, Louisiana
office) and other costs other than those specified in this Agreement or charged
by outside tax, legal, engineering and other professional advisers appointed by
BDSI pursuant to this Agreement or otherwise approved by ARO. Such charges by
outside consultants shall be borne directly by ARO or, if paid by BDSI, shall be
reimbursed by ARO on receipt of a copy of the relevant invoice from BDSI.
4.4 REMEDIES FOR FAILURE TO PAY. In the event that ARO shall fail to pay
any invoice for the Management Fee or any other amount due to BDSI under this
Agreement by the date it is due:
(a) INTEREST. Except as to any portions of the applicable past due
amounts that are subject to a bona fide dispute by ARO of which ARO has
advised BDSI in writing, BDSI shall be entitled to receive interest on any
such past due amounts at a monthly rate equal to the lesser of (x) the
prime rate (or reference rate, as the case may be) per annum of Chase Bank
of Texas plus two percent (2%) per annum or (y) the maximum non-usurious
rate permitted under applicable law; and
(b) COST OF COLLECTION. BDSI shall be entitled to receive
reimbursement from ARO for any and all costs and expenses incurred in
collecting past due amounts from ARO, including without limitation
attorney's fees, legal expenses and court costs.
ARTICLE 5
INDEMNITY
5.1 BDSI'S INDEMNIFICATION. TO THE EXTENT PERMITTED BY LAW AND
NOTWITHSTANDING ANY OTHER TERM OF THIS AGREEMENT OR ANY JOINT OPERATING
AGREEMENT TO THE CONTRARY, BDSI, FROM AND AFTER THE COMMENCEMENT DATE, SHALL
DEFEND, INDEMNIFY AND HOLD ARO HARMLESS FROM AND AGAINST ANY AND ALL DAMAGE,
LOSS, COST, EXPENSE, OBLIGATION, CLAIM OR LIABILITY, INCLUDING REASONABLE
COUNSEL FEES AND REASONABLE EXPENSES OF INVESTIGATING, DEFENDING AND PROSECUTING
LITIGATION (COLLECTIVELY, "LIABILITY") SUFFERED BY ARO AS A RESULT OF (i) ANY
MATERIAL BREACH OF THIS AGREEMENT BY BDSI EXCEPT TO THE EXTENT BDSI IS
EXCULPATED FROM LIABILITY FROM SUCH BREACH UNDER THE EXPRESS TERMS OF THIS
AGREEMENT WHICH PRESCRIBE STANDARDS OF CARE BY WHICH BDSI MUST PERFORM HEREUNDER
OR (ii) ANY ACT OF FRAUD, WILLFUL MISCONDUCT OR GROSS NEGLIGENCE OF BDSI.
5.2 ARO'S INDEMNIFICATION. TO THE EXTENT PERMITTED BY LAW AND
NOTWITHSTANDING ANY OTHER TERM OF THIS AGREEMENT OR ANY JOINT OPERATING
AGREEMENT TO THE CONTRARY, ARO, FROM AND AFTER THE
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COMMENCEMENT DATE, SHALL DEFEND, INDEMNIFY AND HOLD BDSI HARMLESS FROM AND
AGAINST ANY AND ALL LIABILITY SUFFERED BY BDSI AS A RESULT OF ITS PERFORMANCE
UNDER THIS AGREEMENT, OTHER THAN SUCH LIABILITY THAT ARISES AS A RESULT OF (i)
ANY MATERIAL BREACH OF THIS AGREEMENT BY BDSI OR (ii) ANY ACT OF FRAUD, WILLFUL
MISCONDUCT OR GROSS NEGLIGENCE OF BDSI, BUT INCLUDING WITHOUT LIMITATION
LIABILITIES ARISING OUT OF THE SOLE OR CONCURRENT NEGLIGENCE (BUT NOT GROSS
NEGLIGENCE) OF BDSI OR BDSI'S STRICT LIABILITY OR THE CONDITION OF THE ASSETS.
5.3 NO ASSUMPTION OF LIABILITIES. BDSI has not assumed or accepted any
liability for any of the obligations, debts or liabilities of ARO either related
to ARO's assets or otherwise. ARO has not assumed or accepted any liability for
any of the obligations, debts or liabilities of BDSI either related to ARO's
assets or otherwise.
ARTICLE 6
CONFIDENTIALITY
The Parties hereto agree to hold the Confidential Information in the
strictest of confidence and shall not disclose such Confidential Information to
any third Party. Further, each Party agrees not to copy or reproduce the
Confidential Information without the prior written consent of the other Party
hereto. However, a Party may disclose the Confidential Information to its
respective responsible officers, directors, employees, consultants, commercial
lenders, and legal counsel, but only to the extent necessary to carry out the
purposes for which the Confidential Information was disclosed, and each Party
agrees to instruct all such persons not to disclose such Confidential
Information to third Parties without the prior written consent of the other
Party hereto. The obligations set out in this ARTICLE 6 shall not apply to
Confidential Information (if any) which is already known to a Party hereto at
the time that it is disclosed, or which, before being divulged by the receiving
Party: (a) has become publicly known through no wrongful act of the receiving
Party; (b) has been rightfully received from a third Party without restriction
on disclosure and without breach of this ARTICLE 6; (c) has been independently
developed by the receiving Party; (d) has been approved for release by written
authorization of the non-receiving Party; or (e) has been disclosed pursuant to
requirements of a governmental agency, a law, or an order of a court having
competent jurisdiction. The Parties hereby acknowledge that the unauthorized
disclosure or use of such Confidential Information could cause irreparable harm
and significant injury, the extent of which may be difficult or impossible to
ascertain. Accordingly, the Parties agree that each shall have the right to seek
an immediate injunction enjoining any breach of this ARTICLE 6. The Parties
recognize and agree that nothing contained in this Agreement shall be construed
as granting any rights, by way of license or otherwise, to any Confidential
Information disclosed pursuant to this Agreement. All analyses, compilations,
studies and other documents which are prepared for the internal use of a Party
and which reflect any of the Confidential Information will be kept confidential
to the same extent as the Confidential Information.
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ARTICLE 7
CONFLICTS
ARO acknowledges that BDSI or its affiliates (other than ARO) may own,
manage and operate additional oil and gas properties and interest in the future
that may compete with ARO's business. Specifically, BDSI or its affiliates
(other than ARO) may own or acquire interest in the oil and gas properties
comprising ARO's assets or in oil and gas properties adjacent to or in the
vicinity of ARO's assets. ARO acknowledges and agrees that neither BDSI or its
affiliates shall have no liability or accountability to ARO for any such
competing activities or interests or any profits or value generated therefrom.
ARTICLE 8
ACCESS AND AUDIT
8.1 BOOKS AND RECORDS. All books, records, files, data and other
information relating to ARO's assets or the operation of this Agreement shall be
available for inspection by ARO and its employees and agents during normal
business hours on three (3) Business Days prior notice; provided, however, to
the extent possible, BDSI shall provide ARO's employees with inspection rights
for less substantial reviews upon receipt of reasonable notice.
8.2 RIGHT TO AUDIT. ARO by itself or through its appointed representatives
shall have the right to audit the above mentioned books and records not more
than once per year on sixty (60) days prior notice and for twenty four (24)
months after the termination of this Agreement.
8.3 MAINTENANCE OF RECORDS. BDSI shall maintain and make available for the
purposes of audit all books and records of account and supporting documentation
for a period of at least twenty four (24) months following the end of the year
to which they relate. Thereafter they shall be presumed to be correct save to
the extent that exceptions have been raised by ARO as a result of any audit. In
the event of any dispute, the Parties shall agree on the appointment of an
independent, nationally recognized firm of accountants who shall be appointed to
adjudicate the dispute and whose decision shall be final and binding in the
absence of manifest error. In connection with any such dispute, the unsuccessful
Party shall be responsible for all third Party costs incurred with respect to
such adjudication and each Party shall be responsible for their own costs
incurred in connection with the adjudication of such dispute.
ARTICLE 9
RELATIONSHIPS OF THE PARTIES
9.1 RELATIONSHIPS. BDSI shall perform its duties hereunder as an
independent contractor and it is expressly agreed that this Agreement shall not
create a partnership, joint venture or association. This Agreement shall not
impose a fiduciary duty, or any other heightened standard, upon BDSI in the
performance of its duties hereunder. All matters pertaining to the employment,
supervision, compensation, promotion and discharge of any employees or personnel
of BDSI are the responsibility of BDSI, which is in all respects the employer of
such employees. All such employment arrangements are solely BDSI's concern and
ARO shall have no liability with respect thereto.
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9.2 TAXATION. This Agreement is not intended to create, and shall not be
construed to create, a relationship, a partnership, or an association for profit
between or among the Parties. Notwithstanding any provisions herein that the
rights and liabilities hereunder are several and not joint or collective, or
that this Agreement and operations hereunder shall not constitute a partnership,
if for federal income tax purposes, this Agreement and the operation hereunder
are regarded as a partnership, each Party thereby affected elects to be excluded
from the application of all of the provisions of Subchapter "K", Chapter 1,
Subtitle "A", of the Internal Revenue Code of 1986, as amended (the "CODE"), as
permitted and authorized by Section 761 of the Code and the regulations
promulgated thereunder. BDSI is authorized and directed to execute on behalf of
each Party hereby affected such evidence of this election as may be required by
the Secretary of the Treasury of the United States or the Federal Internal
Revenue Service ("IRS"), including, specifically, but not by way of limitation,
all of the returns, statements, and the data required by Federal Regulation
1.761(2). Should there be any requirements that each Party hereby affected give
further evidence of this election, each such Party shall execute such documents
and furnish such other evidence as may be required by the IRS or as may be
necessary to evidence this election. No Party shall give any notices or take any
other action inconsistent with the election made hereby. If any present or
future income tax laws of the State or States in which the area covered by this
Agreement is located or any future income tax laws of the United States contain
provisions similar to those in Subchapter "K", Chapter 1, Subtitle "A", of the
Code, under which an election similar to that provided by Section 761 of the
Code is permitted, each Party hereby affected shall make such election as may be
permitted or required by such laws. In making the foregoing election, each Party
states that the income derived by such Party from operations hereunder can be
adequately determined without the computation of partnership taxable income.
ARTICLE 10
REPRESENTATION AND WARRANTIES
10.1 REPRESENTATION AND WARRANTIES OF BDSI. BDSI agrees and represents and
warrants to ARO as follows:
(a) ORGANIZATION. BDSI is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
(b) AUTHORITY AND CONFLICTS. BDSI has full corporate power and
authority to carry on its business as presently conducted, to enter into
this Agreement and to perform its obligations under this Agreement. The
execution and delivery of this Agreement by BDSI does not, and the
consummation of the transactions contemplated by this Agreement shall not,
(i) violate or be in conflict with, or require the consent of any person
or entity under, any provision of BDSI's Certificate of Incorporation or
other governing documents, (ii) conflict with, result in a breach of,
constitute a default (or an event that with the lapse of time or notice,
or both, would constitute a default) under, or require any consent,
authorization or approval under any
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agreement or instrument to which BDSI is a Party or is bound, or (iii)
violate any provision of or require any consent, authorization or approval
under any judgment, decree, judicial or administrative order, award, writ,
injunction, statute, rule or regulation applicable to BDSI.
(c) AUTHORIZATION. The execution and delivery of this Agreement have
been and the performance of this Agreement and the transactions
contemplated hereby shall be at the time required to be performed
hereunder, duly and validly authorized by all requisite corporate action
on the part of BDSI.
(d) ENFORCEABILITY. This Agreement has been duly executed and
delivered on behalf of BDSI, and constitutes a legal, valid and binding
obligation of BDSI enforceable in accordance with its terms, except as
enforceability may be limited by Enforceability Limitations.
10.2 REPRESENTATIONS AND WARRANTIES OF ARO. ARO represents and warrants to
BDSI as follows:
(a) ORGANIZATION. ARO is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and
is qualified to do business in and is in good standing under the laws of
each other state in which ARO's assets are located.
(b) AUTHORITY AND CONFLICTS. ARO has full corporate power and
authority to carry on its business as presently conducted, to enter into
this Agreement and to perform its obligations under this Agreement. The
execution and delivery of this Agreement by ARO does not, and the
consummation of the transactions contemplated by this Agreement shall not,
(i) violate or be in conflict with, or require the consent of any person
or entity under, any provision of ARO's Certificate of Incorporation or
other governing documents, (ii) conflict with, result in a breach of,
constitute a default (or an event that with the lapse of time or notice,
or both would constitute a default) under, or require any consent,
authorization or approval under any agreement or instrument to which ARO
is a Party that affects ARO's assets, or (iii) violate any provision of or
require any consent, authorization or approval under any judgment, decree,
judicial or administrative order, award, writ, injunction, statute, rule
or regulation applicable to ARO.
(c) AUTHORIZATION. The execution and delivery of this Agreement have
been, and the performance of this Agreement and the transactions
contemplated hereby shall be at the time required to be performed
hereunder, duly and validly authorized by all requisite corporate action
on the part of ARO.
(d) ENFORCEABILITY. This Agreement has been duly executed and
delivered on behalf of ARO and constitutes the legal, valid and binding
obligation of ARO enforceable in accordance with its terms, except as
enforceability may be limited by Enforceability Limitations.
(e) COMPLIANCE WITH LAW AND PERMITS. To the best of ARO's knowledge
except as disclosed in the Investment Agreement, ARO and its assets are in
compliance with the
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provisions and requirements of all laws, rules, regulations, ordinances,
orders, decisions and decrees of all governmental authorities having
jurisdiction with respect to its assets or the ownership or operation of
any thereof. To the best of ARO's knowledge, except as disclosed in the
Investment Agreement, all necessary governmental permits, licenses,
approvals, consents, certificates and other authorizations with regard to
the ownership of its assets have been obtained and maintained in effect
and no violations exist or have been recorded in respect of such permits,
licenses, approvals, consents, certificates or authorizations. To the best
of ARO's knowledge, except as disclosed in the Investment Agreement, none
of the documents or materials filed with or furnished to any governmental
authority with respect to its assets or the ownership thereof contains any
untrue statement of a material fact or omits any statement of a material
fact necessary to make the statements therein not misleading.
ARTICLE 11
TERM
11.1 TERM. Unless sooner terminated pursuant to this Section 11.1, this
Agreement shall be effective as of the Commencement Date and shall continue in
force for the remainder of 1999 and all of 2000 and shall continue thereafter
for each subsequent calendar year on a year-to-year basis (each calendar year
beginning with 1999 being an "AGREEMENT YEAR") until terminated by either BDSI
or ARO by providing written notice of such termination thirty (30) days prior to
the end of an Agreement Year. This Agreement shall terminate at the close of
business on the last day (the "TERMINATION DATE") of the Agreement Year in which
proper notice of termination was given by either Party hereto. In addition, in
the event either BDSI or ARO fails to comply with any of the terms and
conditions of this Agreement or breaches any representation contained herein and
such failure or breach continues for ten (10) days after the delivery of written
notice, the defaulting party will be liable for any and all costs, expenses,
losses or liabilities sustained or incurred by the non-defaulting party.
Notwithstanding any termination of this Agreement, BDSI and ARO expressly agree
that all provisions of this Agreement that contemplate performance after the
expiration or earlier termination hereof shall survive such expiration or
earlier termination of this Agreement.
11.2 HOLD OVER. Notwithstanding the terms of SECTION 12.1 above, if ARO
desires it and ARO notifies BDSI in writing of such desire at least fifteen (15)
days prior to the scheduled Termination Date, then this Agreement shall be
extended and not terminated for a period of up to six (6) calendar months in
order to allow ARO to identify and contract with a replacement service provider.
During such hold over period, all of the provisions of this Agreement shall
apply in a manner modified to be consistent with such shortened Agreement Year;
PROVIDED, HOWEVER, BDSI shall be entitled to receive an upwards adjustment of
the Management Fee of not less than ten percent (10%) should such period of the
extension of this Agreement exceed three (3) calendar months.
ARTICLE 12
NOTICES
All notices required or permitted under this Agreement shall be in writing
and, (i) if by air courier, shall be deemed to have been given one (1) Business
Day after the date deposited with a recognized carrier of overnight mail, with
all freight or other charges prepaid, (ii) if by telegram,
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shall be deemed to have been given one Business Day after delivered to the wire
service, (iii) if by telex, provided an answer back is received, shall be deemed
to have been given when sent, (iv) if mailed, shall be deemed to have been given
three (3) Business Days after the date when sent by registered or certified
mail, postage prepaid, and (v) if sent by telecopier, shall be deemed to have
been given when sent, addressed as follows:
ARO: American Resources Offshore, Inc.
160 Morgan Street
Versailles, Kentucky 40383
Attention: President
Telecopier: (606) 873-4689
BDSI: Blue Dolphin Services, Inc.
801 Travis, Suite 2100
Houston, Texas 77002
Attention: G. Brian Lloyd, Vice President
Telecopier: (713) 227-7626
Either Party to this Agreement may change the address provided for above
by notifying the other Party in writing at least thirty (30) days prior to the
date such address change shall become effective.
ARTICLE 13
GENERAL
13.1 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO
ANY PRINCIPLES OR CONFLICTS OR LAWS.
13.2 ASSIGNMENT. No assignment of this Agreement or any of the rights or
obligations set forth herein by either Party shall be valid without the specific
written consent of the other Party.
13.3 INTEGRATION. This Agreement, the Exhibits hereto and the other
agreements to be entered into by the Parties under the provisions of this
Agreement, if any, set forth the entire agreement and understanding of the
Parties in respect of the transactions contemplated hereby and supersede all
prior agreements, prior arrangements and prior understandings relating to the
subject matter hereof.
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13.4 WAIVER OR MODIFICATION. This Agreement may be amended, modified,
superseded or canceled, and any of the terms, covenants, representations,
warranties or conditions hereof may be waived, only by a written instrument
executed by a duly authorized officer of BDSI and ARO, or, in the case of a
waiver or consent, by or on behalf of the Party or Parties waiving compliance or
giving such consent. The failure of any Party at any time or times to require
performance of any provision hereof shall in no manner affect its right at a
later time to enforce the same. No waiver by any Party of any condition, or of
any breach of any covenant, agreement, representation or warranty contained in
this Agreement, in any one or more instances, shall be deemed to be or construed
as a further or continuing waiver of any such condition or breach or waiver of
any other condition or of any breach of any other covenant, agreement,
representation or warranty.
13.5 INVALID PROVISIONS. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, such provision shall be fully severable; this Agreement shall
be construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof; and the remaining provisions of this
Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance from this
Agreement.
13.6 FORCE MAJEURE. The Parties hereto shall be excused for failure to
perform the respective obligations hereunder (other than a failure relating to
payment obligations imposed hereunder) to the extent that such failure is
directly or indirectly caused by an occurrence commonly known as force majeure,
including, without limitation, delays arising from fire, earthquake, flood or
other acts of God, acts or orders of a government, agency or instrumentality
thereof, acts of a public enemy, riots, embargoes, strikes or other consorted
acts of workers, casualties or accidents, failure or delay in deliveries or
materials or transportation, shortages of labor or materials, communications
failure or any other causes, circumstances or contingencies, that are beyond the
reasonable control of the Party unable to perform. The Party claiming a force
majeure event shall, to the extent reasonably possible, remedy such force
majeure event with all reasonable dispatch.
13.7 MULTIPLE COUNTERPARTS. This Agreement may be executed in a number of
identical counterparts, each of which for all purposes is to be deemed an
original, and all of which constitute, collectively, one agreement; but in
making proof of this Agreement, it shall not be necessary to produce or account
for more than one such counterpart.
13.8 DISPUTE RESOLUTION. All disputes among BDSI and ARO arising out of
any matters which are the subject of this Agreement shall be resolved through
the mediation and binding arbitration procedure set forth in Exhibit A.
Compliance with this SECTION 14.8 and the procedures set forth in EXHIBIT A
shall constitute a condition precedent to either Party seeking judicial
enforcement of any provisions of this Agreement. The Parties agree that the
provisions of EXHIBIT A are a severable, independent arbitration agreement
separately enforceable from the remainder of this Agreement.
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EXECUTED as of the date first set forth above.
AMERICAN RESOURCES OFFSHORE, INC.
By: /s/ DAVID STETSON
Printed Name: David Stetson
Title: Vice President and General Counsel
BLUE DOLPHIN SERVICES, INC.
By: /s/ JOHN P. ATWOOD
Printed Name: John P. Atwood
Title: Vice President Finance and
Corporate Development
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EXHIBIT A
ATTACHED TO AND MADE A PART OF
MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT
DATED ________________, 1999,
BETWEEN BLUE DOLPHIN SERVICES, INC. AND AMERICAN RESOURCES OFFSHORE, INC.
DISPUTE RESOLUTION PROCEDURES
Upon the occurrence of any dispute between BDSI and ARO in connection with their
rights and obligations under this Agreement, BDSI and ARO will first attempt in
good faith to resolve all disputes by negotiations between management level
persons who have authority to settle the controversy. If either Party believes
further negotiations are futile, such Party may initiate mediation by so
notifying the other Party in writing. Both Parties shall then attempt in good
faith to resolve the dispute by mediation in Houston, Texas, employing
management level persons with authority to settle the dispute, in accordance
with the Center for Public Resources Model Procedure for Mediation of Business
Disputes, as such procedure may be modified by agreement of the Parties. If the
dispute has not been resolved pursuant to mediation within sixty (60) days after
initiating the mediation process, the dispute shall be finally resolved through
binding arbitration, as follows:
(1) If any dispute or controversy shall arise between the Parties out of this
Agreement, the alleged breach thereof or any tort in connection therewith,
or out of the refusal to perform the whole or any part thereof, and the
Parties shall be unable to agree with respect to the matter or matters in
dispute or controversy, the same shall be submitted to arbitration before
a panel of arbitrators in accordance with the Texas General Arbitration
Act, V.A.C.S. art. 224, ET. SEQ. and the provisions of this EXHIBIT A. The
panel of arbitrators shall be chosen as follows: Upon the written demand
of either Party and within ten (10) working days from the date of such
demand, each Party shall name an arbitrator and these two so named shall
promptly thereafter choose a third. If either Party shall fail to name an
arbitrator within ten (10) working days from such demand, the other Party
shall name the second arbitrator as well as the first, or if the two
arbitrators shall fail within ten (10) working days from their appointment
to agree upon and appoint the third arbitrator, then upon written
application by either Party such third arbitrator may be appointed by the
senior Judge in active service of the United States District Court for the
Southern District of Texas; and if said Judge shall fail to act, then such
third arbitrator shall be appointed by the President of the Center for
Public Resources, Inc. The arbitrators selected to act hereunder shall be
qualified by education, experience, and training to pass upon the
particular matter or matters in dispute.
(2) The panel of arbitrators so chosen shall proceed promptly to hear and
determine the matter or matters in dispute, after giving the Parties due
notice of hearing and a reasonable opportunity to be heard. The procedure
of the arbitration proceedings shall be in accordance with the Center for
Public Resources Rules for Non-Administered Arbitration of Business
Disputes, as may be modified by the panel of arbitrators. Unless otherwise
determined by the arbitrators, the hearing and presentations of the
Parties shall not exceed two days
Exhibit A, Page 0
<PAGE>
cumulative. The location of all arbitration proceedings hereunder shall be
Houston, Texas, unless the panel of arbitrators determines that another
venue is more appropriate. The award of the panel of arbitrators or a
majority thereof shall be made within forty-five (45) days after the
appointment of the third arbitrator, subject to any reasonable delay due
to unforeseen circumstances. In the event of the panel or a majority
thereof failing to make an award within sixty (60) days after the
appointment of the third arbitrator, new arbitrators may at the election
of either Party be chosen in like manner as if none had been previously
selected.
(3) The award of the arbitrators, or a majority thereof, shall be in writing
and shall be final and binding on the Parties as to the question or
questions submitted, and the Parties shall abide by such award and perform
the conditions thereof. The award of the arbitrators shall be based on the
applicable law and facts, the merits of the Parties' positions in the
controversy or dispute, and the arbitrators' assessment of the fairness
and reasonableness of any settlement proposal of any Party. The award
shall not provide or create any rights or benefits in any person or entity
which is not a Party to this Agreement, as this Agreement and any
arbitration thereunder shall not be construed as a third Party beneficiary
contract. Unless otherwise determined by the arbitrators, all expenses in
connection with such arbitration shall be divided equally between the
Parties thereto, except that the expenses of counsel, witnesses, and
employees of each Party shall be borne solely by the Party incurring them,
and the compensation of any arbitrator named by a Party shall be borne
solely by such Party; provided that if court proceedings to stay
litigation or compel arbitration are necessary, the Party who
unsuccessfully opposes such proceedings shall pay all reasonable
associated costs, expenses and attorney's fees of such court proceedings.
(4) The arbitrators shall not be required to explain reasons for the award,
but may do so. No transcript or other recording shall be made of the
arbitration proceedings. Except (i) in connection with a suit for
enforcement of the award, (ii) as required by law, court order or
regulation, (iii) when reasonably necessary to explain the terms and
conditions of the award to outside attorneys, auditors, and insurers, or
(iv) as part of good faith compliance with disclosure obligations under
applicable law, the arbitration proceedings, the award, and the Parties'
actions in connection with the arbitration are confidential and shall not
be disclosed to third Parties, and no disclosure of or reference to the
arbitration, the award, or of the Parties' statements or actions in
connection with the arbitration shall be made to any third Party. All
offers, promises, conduct, statements, and evidence, whether oral or
written, made in the course of the arbitration by any of the Parties,
their agents, employees, experts, or attorneys are confidential. Such
offers, promises, conduct, statements, and evidence shall be considered
inadmissible under Rule 408 of the Federal Rules of Evidence and any
similar state provisions, and shall be inadmissible for any purpose,
including impeachment. However, evidence that is otherwise admissible
shall not be rendered inadmissible as a result of its use in the
arbitration.
(5) The award of the panel of arbitrators and the obligation to abide by same
and perform the conditions thereof shall be enforceable in the state
district courts in Harris County, Texas, or in any federal court having
jurisdiction. Each Party shall bear its own attorneys' fees in
Exhibit A, Page 1
<PAGE>
connection with any appeal or enforcement of an arbitration award, or in
any other court litigation arising out of this Agreement.
(6) The provisions of this EXHIBIT A shall not limit the obligation of a Party
to defend, indemnify of hold harmless the other Party against court
proceedings or other claims, losses, damages or expenses as provided in
Article 5 of the Management and Administrative Services Agreement to which
this Agreement is attached as EXHIBIT B.
Exhibit A, Page 2
EXHIBIT 7.2
EXECUTION VERSION
================================================================================
PURCHASE AND SALE AGREEMENT
BETWEEN
AMERICAN RESOURCES OFFSHORE, INC.
AND
FIDELITY OIL HOLDINGS, INC.
JULY 30, 1999
================================================================================
<PAGE>
PURCHASE AND SALE AGREEMENT
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS......................................................1
1.2 RULES OF CONSTRUCTION............................................7
ARTICLE 2
PURCHASE AND SALE
2.1 PURCHASE AND SALE OF ASSETS......................................7
2.2 QUITCLAIMED ASSETS...............................................8
ARTICLE 3
PURCHASE PRICE
3.1 PURCHASE PRICE; METHOD OF PAYMENT................................9
3.2 ALLOCATION OF PURCHASE PRICE.....................................9
ARTICLE 4
TITLE AND ENVIRONMENTAL MATTERS
4.1 MARKETABLE TITLE.................................................9
4.2 PERMITTED ENCUMBRANCES..........................................10
4.3 NOTICE OF TITLE DEFECT..........................................11
4.4 REMEDIES FOR TITLE DEFECTS; TITLE INCREASES.....................11
4.5 VALUE OF PROPERTY; TITLE DEFECT................................12
4.6 CONSENTS........................................................12
4.7 CASUALTY EVENTS.................................................13
4.8 ENVIRONMENTAL ADJUSTMENTS.......................................13
4.9 OTHER ADJUSTMENTS...............................................14
4.10 FORWARD SALES...................................................14
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SELLER
i
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5.1 ORGANIZATION AND QUALIFICATION..................................14
5.2 POWER...........................................................14
5.3 AUTHORIZATION...................................................14
5.4 BROKERS.........................................................14
5.5 FOREIGN PERSON..................................................15
5.6 BANKRUPTCY......................................................15
5.7 LITIGATION......................................................15
5.8 GOVERNMENTAL QUALIFICATION......................................15
5.9 CONSENTS........................................................15
5.10 LEASES..........................................................15
5.11 CONTRACTS.......................................................15
5.12 PROCEEDS OF PRODUCTION..........................................16
5.13 INVOICES........................................................16
5.14 GAS IMBALANCES..................................................16
5.15 GAS PREPAYMENTS.................................................16
5.16 ACCESS..........................................................16
5.17 WELLS...........................................................16
5.18 PERMITS.........................................................16
5.19 ENVIRONMENTAL LAWS..............................................17
5.20 INSURANCE.......................................................17
5.21 AFES............................................................17
5.22 CASUALTY........................................................17
5.23 TITLE...........................................................17
5.24 PRICING.........................................................17
5.25 EQUIPMENT.......................................................17
5.26 ADVERSE CHANGES IN PRODUCTION RATES OR OIL AND GAS RESERVES.....18
5.27 ACCURACY OF REPRESENTATIONS.....................................18
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PURCHASER
6.1 EXISTENCE.......................................................18
6.2 POWER...........................................................18
6.3 AUTHORIZATION...................................................18
6.4 BROKERS.........................................................19
6.5 SECURITIES LAWS.................................................19
6.6 BANKRUPTCY......................................................19
6.7 GOVERNMENTAL QUALIFICATION......................................19
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ARTICLE 7
PRE-CLOSING COVENANTS OF SELLER
7.1 OPERATIONS......................................................19
7.2 ACCESS..........................................................19
7.3 NO SHOP.........................................................20
7.4 BREACHES OF REPRESENTATIONS AND WARRANTIES......................20
7.5 ESTIMATES OF ADJUSTED PURCHASE PRICE............................20
ARTICLE 8
PRE-CLOSING COVENANTS OF PURCHASER
8.1 CONFIDENTIALITY.................................................20
8.2 RETURN OF DATA..................................................20
8.3 INDEMNITY REGARDING ACCESS......................................20
ARTICLE 9
SELLER'S CONDITIONS OF CLOSING
9.1 REPRESENTATIONS AND WARRANTIES..................................21
9.2 PERFORMANCE.....................................................21
9.3 PROCEEDINGS.....................................................21
9.4 INVESTMENT AGREEMENT TRANSACTION................................21
9.5 SHAREHOLDER APPROVAL............................................21
9.6 GOVERNMENT APPROVALS............................................21
9.7 PREFERENTIAL PURCHASE RIGHTS....................................21
ARTICLE 10
PURCHASER'S CONDITIONS OF CLOSING
10.1 REPRESENTATIONS AND WARRANTIES..................................21
10.2 PERFORMANCE.....................................................22
10.3 PROCEEDINGS.....................................................22
10.4 INVESTMENT AGREEMENT TRANSACTION................................22
10.5 RELEASE OF LIENS................................................22
10.6 GOVERNMENTAL APPROVALS..........................................22
10.7 PREFERENTIAL PURCHASE RIGHTS....................................22
10.8 MATERIAL ADVERSE CHANGE.........................................22
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ARTICLE 11
CLOSING
11.1 TIME AND PLACE OF CLOSING.......................................23
11.2 CLOSING OBLIGATIONS.............................................23
11.3 ALLOCATION OF REVENUES AND EXPENSES.............................23
ARTICLE 12
POST-CLOSING COVENANTS
12.1 POST-CLOSING ADJUSTMENTS........................................24
12.2 PAYMENTS RECEIVED IN ERROR......................................24
12.3 SALES TAXES.....................................................24
12.4 RECORDATION OF ASSIGNMENT.......................................24
12.5 ACCESS TO EMPLOYEES.............................................24
12.6 FURTHER ASSURANCES..............................................25
12.7 CONFIDENTIALITY.................................................25
12.8 REVENUE REIMBURSEMENT OBLIGATIONS...............................25
ARTICLE 13
ASSUMED OBLIGATIONS; INDEMNIFICATION
13.1 ASSUMED OBLIGATIONS.............................................25
13.2 INDEMNIFICATION.................................................26
13.3 LIMITATIONS ON INDEMNIFICATION..................................27
ARTICLE 14
INDEPENDENT INVESTIGATION AND DISCLAIMER
14.1 INDEPENDENT INVESTIGATION AND DISCLAIMER........................28
ARTICLE 15
TERMINATION
15.1 RIGHT OF TERMINATION............................................29
15.2 EFFECT OF TERMINATION...........................................29
ARTICLE 16
ARBITRATION
16.1 DISPUTES........................................................30
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16.2 ARBITRATION.....................................................30
ARTICLE 17
GENERAL PROVISIONS
17.1 GOVERNING LAW...................................................31
17.2 ENTIRE AGREEMENT; AMENDMENTS....................................31
17.3 WAIVER..........................................................32
17.4 TRANSFERS.......................................................32
17.5 NOTICES.........................................................32
17.6 EXPENSES........................................................33
17.7 SEVERABILITY....................................................33
17.8 PUBLICITY.......................................................33
17.9 SPECIFIC PERFORMANCE............................................33
17.10 CONSEQUENTIAL AND PUNITIVE DAMAGES..............................33
17.11 NO THIRD-PARTY BENEFICIARY......................................33
17.12 COUNTERPARTS....................................................34
EXHIBITS
- --------
2.1(a) Leases
2.1(e) Contracts
2.1(i) Quitclaimed Assets
3.2 Allocated Value
4.1(a) Interest
4.1(b) Platforms
4.2(i) Terminable Sales Contracts
4.6(b) Pending MMS Consents
4.6(c) Pending MMS Approval
5.6 Bankruptcy
5.7 Litigation
5.10(e) Lease Rentals and Royalties
5.11 Contracts (in Default)
5.13 Unpaid Invoices
5.15 Prepayments
5.17 Wells
5.17(c) Plugging Obligations
5.20 Insurance
5.21 Outstanding AFEs
5.23 Liens and Encumbrances
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7.5 Form of Closing Settlement Statement
11.3 General and Administrative Expenses
12.8 Revenue Reimbursement Obligations
SCHEDULES
- ---------
11.3 1999 Revenue and Expenses
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PURCHASE AND SALE AGREEMENT
This PURCHASE AND SALE AGREEMENT (this "AGREEMENT") is entered into on
July 30, 1999 (the "EXECUTION DATE") by and between AMERICAN RESOURCES OFFSHORE,
INC., a Delaware corporation ("SELLER"), and FIDELITY OIL HOLDINGS, INC., a
Delaware corporation ("PURCHASER") (collectively, the "PARTIES" or individually,
a "PARTY").
RECITALS
A. Seller desires to sell to Purchaser, and Purchaser desires to purchase
from Seller, certain Hydrocarbon (defined below) properties and related assets
on the terms and conditions set forth in this Agreement.
B. The transaction contemplated by this Agreement represents one of
several substantially contemporaneous and mutually contingent transactions
whereby Seller intends to Transfer (defined below) substantially all of its
assets and properties, subject to, among other things, the approval of such
Transfers by the shareholders of Seller.
NOW, THEREFORE, for and in consideration of the mutual agreements
contained herein, Seller and Purchaser hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. As used herein, the following terms have the following
respective mean ings set forth below or in the provision referenced below (and
grammatical variants of such terms have correlative meanings):
"AAA" shall have the meaning set forth in SECTION 16.2(A).
"ADJUSTED PURCHASE PRICE shall have the meaning set forth in SECTION
3.1.
"AGREEMENT" shall have the meaning set forth in the introductory
paragraph.
"ALLOCATED VALUE" shall have the meaning set forth in SECTION 3.2.
"ARBITRATOR" shall have the meaning set forth in SECTION 16.2(A).
"ASSETS" shall have the meaning set forth in SECTION 2.1.
"ASSIGNMENTS" shall have the meaning set forth in SECTION 11.2(A).
"ASSUMED OBLIGATIONS" shall have the meaning set forth in SECTION
13.1.
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"BDSI" shall mean Blue Dolphin Services, Inc., a Delaware corporation.
"BUSINESS DAY" shall mean any day other than Saturday or Sunday on
which national banking associations in Houston, Texas are open for
business.
"CASUALTY EVENT", with respect to any Asset, shall mean (a) a fire,
hurricane or other catastrophic casualty event causing material damage to
such Asset, or (b) the taking of such Asset by a Governmental Authority
through condemnation or eminent domain which materially and adversely
impairs the value of such Asset.
"CLAIM NOTICE" shall have the meaning set forth in SECTION
13.2(C)(II).
"CLOSING" shall have the meaning set forth in SECTION 11.1.
"CLOSING DATE" shall have the meaning set forth in SECTION 11.1.
"CLOSING SETTLEMENT STATEMENT" shall have the meaning set forth in
SECTION 7.5.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMERCIALLY REASONABLE EFFORTS" shall mean the efforts (including
the incurrence of reasonable out-of-pocket costs and expenses) that would
be undertaken by a reasonable, similarly-situated participant in the oil
and gas industry, taking into account all relevant commercial, legal and
other considerations.
"CONFIDENTIALITY AGREEMENT" shall mean the Confidentiality Agreement,
dated January 4, 1999, between Seller and Blue Dolphin Exploration
Company, as confirmed by Purchaser on January 11, 1999.
"CONTRACTS" shall have the meaning set forth in SECTION 2.1(E).
"CONTROL" shall mean the possession, directly or indirectly, through
one or more intermediaries, of (a) more than 50% of the equity interests
in an Entity, or (b) the power or authority, through ownership of voting
securities, by contract or otherwise, to exercise a controlling influence
over the management of the Entity.
"CURE DEADLINE" shall have the meaning set forth in SECTION 4.4.
"DISPUTE" shall have the meaning set forth in SECTION 16.1.
"EASEMENT" shall mean easement, right-of-way or servitude.
"EFFECTIVE DATE" shall mean 12:01 a.m. Central Standard Time on
January 1, 1999.
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"ENCUMBRANCE" shall mean mortgage, deed of trust, lien, privilege,
security interest, pledge, collateral assignment, conditional sales
arrangement or other burden or encumbrance.
"ENTITY" shall mean a corporation, general partnership (including a
limited liability partnership), limited partnership, joint venture,
limited liability company, trust, estate, Governmental Authority or other
entity.
"ENVIRONMENTAL DEFECT" shall have the meaning set forth in SECTION
4.8.
"ENVIRONMENTAL DEFECT ADJUSTMENT AMOUNT" shall have the meaning set
forth in SECTION 4.8.
"ENVIRONMENTAL LAWS" shall mean all Laws or Orders of any Governmental
Authority pertaining to health, the environment, wildlife or natural
resources, including the Clean Air Act; the Comprehensive Environmental,
Response, Compensation, and Liability Act of 1980; the Federal Water
Pollution Control Act or Clean Water Act; the Rivers and Harbors Act of
1899; the Occupational Safety and Health Act of 1970; the Resource
Conservation and Recovery Act of 1976; the Safe Drinking Water Act; the
Toxic Substances Control Act; the Hazardous & Solid Waste Amendments Act
of 1984; the Superfund Amendments and Reauthorization Act of 1986; the
Hazardous Materials Transportation Act; and state and local Laws,
including common law, pertaining to health, the environment, wildlife or
natural resources.
"EQUIPMENT" shall have the meaning set forth in SECTION 2.1(C).
"EXECUTION DATE" shall have the meaning set forth in the introductory
paragraph.
"GOVERNMENTAL AUTHORITY" (or "GOVERNMENTAL") shall mean a federal,
state, tribal or local governmental body, agency, division, board,
department, commission, court or other authority, including the MMS.
"HEDGE AGREEMENTS" shall have the meaning set forth in SECTION 12.8.
"HYDROCARBON" shall mean gas, oil, casinghead gas, drip gasoline,
natural gasoline and all other liquid and gaseous hydrocarbons.
"INDEMNIFIED PERSON" shall have the meaning set forth in SECTION
13.2(C)(I).
"INDEMNIFY" shall mean to protect, defend, release and hold harmless.
"INDEMNIFYING PARTY" shall have the meaning set forth in SECTION
13.2(C)(I).
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"INTERIM PERIOD" shall mean the period from the Execution Date through
the Closing Date.
"INVESTMENT AGREEMENT" shall mean that certain Investment Agreement of
even date herewith between Seller and Blue Dolphin Exploration, Inc.
"LAW" shall mean a constitutional provision, statute, act, code,
regulation, rule, ordinance, Order, court decision, common law, or other
law or ruling.
"LEASES" shall have the meaning set forth in SECTION 2.1(A).
"LOSSES" shall mean losses; liabilities; demands; claims; causes of
action; Proceedings; assessments; cleanup, remediation and restoration
obligations; judgments; awards; damages; natural resource damages; fines;
fees; penalties; and costs and expenses (including litigation costs and
attorneys' and experts' fees and expenses).
"MARKETABLE TITLE" shall have the meaning set forth in SECTION 4.1.
"MMS" shall mean the United States Minerals Management Service.
"NRI" or "NET REVENUE INTEREST" shall mean, with regard to any
Property, the decimal or percentage share of Hydrocarbon production from
or allowable to such Property, after deductions for all overriding
royalties and burdens on production (including lessor royalties)
applicable thereto, that an owner of a Working Interest is entitled to
receive.
"NOTICE PERIOD" shall have the meaning set forth in SECTION
13.2(C)(II).
"OPERATING AGREEMENT CONSENTS" shall have the meaning set forth in
SECTION 4.6(A).
"ORDER" shall mean a Governmental or arbitral order, judgment, ruling,
decree, decision, notice, writ, injunction or award.
"PARTY" and "PARTIES" shall have the meanings set forth in the
introductory paragraph.
"PENDING MMS CONSENTS" shall have the meaning set forth in SECTION
4.6(C).
"PERMIT" shall mean a Governmental permit, certificate, license,
franchise or authorization.
"PERMITTED ENCUMBRANCES" shall have the meaning set forth in SECTION
4.2.
"PERSON" shall mean a natural person or an Entity.
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"PLATFORMS" shall have the meaning set forth in SECTION 2.1(B).
"POST-CLOSING MMS CONSENTS" shall have the meaning set forth in
SECTION 4.6(D).
"POST-CLOSING SETTLEMENT STATEMENT" shall have the meaning set forth
in SECTION 12.1.
"PROCEEDING" shall mean a judicial, administrative or arbitral
proceeding, including a lawsuit or Governmental investigation.
"PROPERTIES" shall have the meaning set forth in SECTION 2.1(A).
"PURCHASE PRICE" shall have the meaning set forth in SECTION 3.1(A).
"PURCHASE PRICE ADJUSTMENT AMOUNT" shall mean the sum of the Title
Defect Adjustment Amount, the Environmental Defect Adjustment Amount, the
Revenue Adjustment, any reduction resulting from a Casualty Event not
reimbursed by insurance and any other adjustments to the Purchase Price
required or contemplated by this Agreement or otherwise agreed to in
writing by the Parties, in each case subject to any limits or thresholds
set forth in this Agreement pertaining to the specified adjustment.
"PURCHASER" shall have the meaning set forth in the introductory
paragraph.
"PURCHASER'S AFFILIATES" shall mean (a) any other Entity that
Controls, is Controlled by, or is under common Control with, Purchaser;
(b) any director, officer or employee of Purchaser or of an Entity
described in clause (a) of this definition; and (c) any agent, consultant
or representative that Purchaser has engaged in connection with the
ownership or operation of the Assets or the transactions contemplated
hereby.
"QUITCLAIMED ASSETS" shall have the meaning set forth in SECTION
2.1(I).
"RECORDS" shall have the meaning set forth in SECTION 2.1(H).
"REQUIRED CONSENTS" shall mean the Operating Agreement Consents, the
Pending MMS Consents and the Post-Closing MMS consents.
"RESERVE MATTERS" shall mean the existence or extent of Hydrocarbon
reserves; the recoverability of (or the cost of recovering) any such
reserves; the value of such reserves; any product pricing assumptions; the
ability to sell Hydrocarbon production after the Closing or any conditions
thereon; and geological, geophysical and seismic matters.
"REVENUE ADJUSTMENT" shall have the meaning set forth in SECTION 11.3.
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"SECURITIES LAWS" shall mean the Securities Act of 1933, the
Securities Exchange Act of 1934, and all other Laws concerning or
regulating the sale or registration of securities.
"SELLER" shall have the meaning set forth in the introductory
paragraph.
"SELLER'S AFFILIATES" shall mean (a) any other Entity that Controls,
is Controlled by, or is under common Control with, Seller; (b) any
director, officer or employee of Seller or of an Entity described in
clause (a) of this definition; and (c) any agent, consultant or
representative that Seller has engaged in connection with the ownership or
operation of the Assets or the transactions contemplated hereby.
"SELLER'S KNOWLEDGE" shall mean those facts that are actually known,
or those facts which should be known, to Rick Avare, David Stetson, Ralph
Currie or Karen Underwood after due and appropriate inquiry in the
exercise of reasonable diligence, taking into account the scope and nature
of the responsibilities of the individual in question, and includes any
facts that are known by such individuals regardless of whether such
individuals are adverse to the Seller in respect of the matters as to
which such individual's knowledge is attributed to Seller.
"THIRD PARTY" shall mean a Person other than Seller, Seller's
Affiliates, Purchaser, Purchaser's Affiliates or a Governmental Authority.
"THIRD PARTY LOSS" shall mean a Loss that is asserted by a Third Party
or a Governmental Authority.
"TITLE DEADLINE" shall have the meaning set forth in SECTION 4.3.
"TITLE DEFECT" shall have the meaning set forth in SECTION 4.3.
"TITLE DEFECT ADJUSTMENT AMOUNT" shall have the meaning set forth in
SECTION 4.4(B).
"TITLE DEFECT VALUE" shall have the meaning set forth in SECTION 4.3.
"TITLE INCREASE" shall have the meaning set forth in SECTION 4.4(C).
"TITLE INCREASE ADJUSTMENT AMOUNT" shall have the meaning set forth in
SECTION 4.4(C).
"TRANSFER" shall mean a sale, assignment, transfer, conveyance, gift,
exchange or other disposition (including an assignment of contractual
rights or a delegation of contractual obligations), whether voluntary,
involuntary or by operation of Law.
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"WI" or "WORKING INTEREST shall mean the property interest which
entitles the owner thereof to explore and develop land for Hydrocarbons,
whether under a Lease, a compelling pooling order or otherwise.
1.2 RULES OF CONSTRUCTION. In construing this Agreement, the following
rules shall be used (unless the context clearly requires otherwise): (a) any
references to a Law, Lease, Contract, Order or Permit refer to such Lease,
Contract, Order or Permit as it has been amended, restated, modified or
supplemented; (b) any references to "Articles" or "Sections" refer to Articles
or Sections of this Agreement; (c) the titles of the Articles and Sections are
for convenience only and shall not be used in construing this Agreement; (d) any
references to "Exhibits" refer to the Exhibits attached hereto, each of which is
made a part hereof for all purposes; (e) if there is any conflict or
inconsistency between the text of this Agreement and any Exhibit, the text of
this Agreement shall control; and (f) because both Parties have participated in
the preparation and negotiation of this Agreement, the rule that ambiguities in
agreements are to be construed against the party that prepared them is
inapplicable.
ARTICLE 2
PURCHASE AND SALE
2.1 PURCHASE AND SALE OF ASSETS. On the Closing Date, but effective as of
the Effective Date, subject to the other provisions of this Agreement, Seller
agrees to sell, Transfer and deliver to Purchaser, and Purchaser agrees to
purchase and pay for, an undivided eighty percent (80%) of Seller's right, title
and interest in and to the following assets (said eighty percent (80%) undivided
interest being referred to as the "ASSETS"):
(a) the leases described on EXHIBIT 2.1(A) (including record title,
operating rights, overriding royalties, net profits interests and all
other types of interests) (the "LEASES", each of the Leases described in
this SECTION 2.1(A) is referred to individually as a "PROPERTY" and
collectively as the "PROPERTIES");
(b) all platforms that are located on, or presently used in
connection with, the drilling for, or operation, production, treatment or
transportation of, Hydrocarbons from the Properties and the caisson and
deck owned by Seller related to the OCS-G 12501 B-1 Well located on Block
297 Galveston Area (the "PLATFORMS");
(c) all wells, wellbores, pipe, pipelines, gathering lines,
compressors, materials, inventory, facilities (other than Platforms),
supplies and equipment and any and all other personal, real, movable and
immovable property, fixtures or equipment that are located on, or
presently used in connection with, the drilling for, or operation,
production, treatment or transportation of, Hydrocarbons from the
Properties, and any replacements, attachments or accessories now or
hereafter attached, added or affixed (the "EQUIPMENT");
7
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(d) all Hydrocarbons attributable to the Assets produced on and
after the Effective Date;
(e) all contracts and agreements (other than Leases) to the extent
transferable that are attributable to the ownership or operation of the
Assets, including, without limitation, the following (collectively, the
"CONTRACTS"):
(i) the contracts and agreements that are listed on EXHIBIT
2.1(E); and
(ii) any other operating agreements, participation agreements,
unit, pooling and communitization agreements and declarations,
Hydrocarbon purchase and sale agreements, farmin or farmout
agreements, bottom-hole contribution agreements, balancing
agreements, processing agreements, gathering agreements, compression
agreements, transportation agreements, and any other contracts and
agreements that are attributable to the ownership or operation of
the Assets whether or not set forth on EXHIBIT 2.1(E);
(f) all Orders, Permits and Easements that are attributable to the
Assets;
(g) all other rights, privileges, benefits, powers and obligations
conferred or imposed upon Seller as the owner of the Assets;
(h) to the extent attributable to the Assets and not prohibited by
Law or an agreement to which Seller is a party, the rights to copy the
following records in the possession of Seller: (i) lease and land records,
(ii) geological and geophysical records, (iii) operations, production and
engineering records, (iv) accounting records, and (v) facility and well
records (collectively, the "RECORDS"); and
(i) the other assets described on EXHIBIT 2.1(I) (the "QUITCLAIMED
ASSETS").
2.2 QUITCLAIMED ASSETS. NOTWITHSTANDING ANYTHING IN THIS AGREEMENT, THE
ASSIGNMENT OR THE OTHER CLOSING DOCUMENTS TO THE CONTRARY, SELLER MAKES NO
REPRESENTATIONS, WARRANTIES, COVENANTS OR INDEMNITIES OF ANY TYPE WHATSOEVER
WITH RESPECT TO THE QUITCLAIMED ASSETS (OR ANY OTHER ASSETS THAT ARE INCLUDED IN
THE DEFINITION OF "ASSETS" SOLELY BECAUSE THEY ARE ATTRIBUTABLE TO THE
QUITCLAIMED ASSETS), AND PURCHASER MAY NOT ASSERT ANY TITLE DEFECT OR OTHER
CLAIM WITH RESPECT TO ANY QUITCLAIMED ASSET; IT BEING AGREED BY PURCHASER THAT
IT IS ACQUIRING THE QUITCLAIMED ASSETS "AS- IS," "WHERE-IS," WITH ALL FAULTS.
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ARTICLE 3
PURCHASE PRICE
3.1 PURCHASE PRICE; METHOD OF PAYMENT. (a) The purchase price for the
Assets shall be Twenty-Five Million Three Hundred Thirteen Thousand Six Hundred
Eighty-Five and No/100 Dollars ($25,313,685) (the "PURCHASE PRICE"), which
amount shall be (i) increased by the Title Increase Adjustment Amount, (ii)
decreased or increased by an amount equal to the Purchase Price Adjustment
Amount and (iii) decreased by $271,200 (representing marketing adjustments) (the
purchase price, as so adjusted, is referred to herein as the "ADJUSTED PURCHASE
PRICE"). The Adjusted Purchase Price shall be either (a) paid by Purchaser to
Seller at Closing or (b) paid by Purchaser to the holder of the DnB Note to
reduce the principal balance thereof. All payments made by Purchaser to reduce
the outstanding principal balance of the DnB Note (whether prior to or
contemporaneous with Closing) shall be credited towards the amounts due by
Purchaser to Seller hereunder upon confirmation by Seller of any such payments
by Purchaser to the holder of the DnB Note.
(b) All amounts required under this Agreement to be paid by either Party
to the other Party shall be made by wire transfer of immediately-available funds
to Seller or Purchaser, as the case may be, at such bank account in the United
States as Seller or Purchaser may designate in writing to the other Party at
least five Business Days prior to the date on which such payment is to be made.
3.2 ALLOCATION OF PURCHASE PRICE. EXHIBIT 3.2 contains the allocation of
the value of each Property as mutually agreed by the Parties (the "ALLOCATED
VALUE"). Seller and Purchaser agree not to assert, in connection with any tax
return, tax audit or similar proceedings, any allocation of the consideration
that differs from any such agreed-upon in writing allocation. Seller and
Purchaser shall each prepare an IRS Form 8594 in accordance with such Allocated
Value.
ARTICLE 4
TITLE AND ENVIRONMENTAL MATTERS
4.1 MARKETABLE TITLE. (a) As used herein, the term "MARKETABLE TITLE"
shall mean, in the case of each Property, such right, title and interest (owned
beneficially and of record) that, except for Permitted Encumbrances and as
otherwise set forth on EXHIBIT 4.1(A):
(i) entitles Seller, with respect to a particular Property, now and
in the future to receive not less than eighty percent (80%) of the
percentage set forth on EXHIBIT 4.1(A) as the Net Revenue Interest or NRI
of such Property of all Hydrocarbons produced from, or otherwise
attributable to, such Property, without reduction, suspension or
termination (including reductions resulting from gas imbalances, if any);
(ii) obligates Seller, with respect to a particular Property, now
and in the future to bear not more than eighty percent (80%) of the
percentage set forth on EXHIBIT 4.1(A) as the Working Interest or WI of
such Property of all costs and expenses attributable to the
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ownership or operation of such Property, without increase (unless Seller's
Net Revenue Interest in such Property is proportionately increased); and
(iii) is free and clear of any Encumbrances;
(b) Except as set forth on EXHIBIT 4.1(B), in the case of a Property on
which there is currently located a Platform (other than the Platform on South
Timbalier Block 211, which Platform is not owned by Seller), the term
"MARKETABLE TITLE" shall also mean such right, title and interest that except
for Permitted Encumbrances and as otherwise set forth on EXHIBIT 4.1(A):
(i) entitles Seller, with respect to a particular Platform, now and
in the future, to an ownership interest in such Platform of not less than
eighty percent (80%) of the percentage set forth on EXHIBIT 4.1(A) as
Seller's Net Revenue Interest or NRI of the Property on which the Platform
is located, without reduction, suspension or termination throughout the
productive life of such Property;
(ii) obligates Seller, with respect to a particular Platform, now
and in the future to bear not more than the percentage set forth on
EXHIBIT 4.1(A) as the Working Interest or WI of the Property on which the
Platform is located of all costs and expenses attributable to the
ownership or operation of such Platform, without increase (unless Seller's
ownership interest in the Platform is proportionately increased); and
(iii) is free and clear of any Encumbrances.
4.2 PERMITTED ENCUMBRANCES. As used herein, the term "PERMITTED
ENCUMBRANCES" shall mean, with respect to a particular Property:
(a) lessors' royalties, overriding royalties, reversionary interests
and similar burdens affecting such Property if the net cumulative effect
of such burdens does not reduce Seller's interest in all Hydrocarbons
produced from a particular Property below the "NET REVENUE INTEREST" or
"NRI" set forth on EXHIBIT 4.1(A) for such Property;
(b) division orders and sales contracts terminable without penalty
upon no more than 30 days' notice to the purchaser of the Hydrocarbons
from the Properties;
(c) operator's, vendor's, tax and similar liens or Encumbrances
securing obligations that were not due and payable prior to the Closing
Date or, if due, are being contested by Seller in good faith;
(d) any Encumbrances created by Law for royalty, bonus, deferred
bonus payments or rental or for compliance with the terms of the Leases;
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(e) the terms and provisions of (i) the Leases and Contracts, and
(ii) all Easements, Permits and Orders that are included within the Assets
to the extent such Leases, Contracts, Easements, Permits and Orders do not
operate to increase the Working Interest of Seller in any of the
Properties or decrease the Net Revenue Interest of Seller in any of the
Properties;
(f) Easements in favor of third parties so long as such Easements do
not adversely affect the continued use and operation of the Properties;
(g) all rights reserved to or vested in any Governmental Authority
to control or regulate any of the Properties in any manner, and all
applicable Laws but in each case only to the extent such rights to control
or regulate or the enforcement of such Laws are not provoked by the breach
by Seller or its predecessor in interest of any Law;
(h) the Required Consents; PROVIDED, HOWEVER, that this SECTION
4.2(H) does not affect Purchaser's rights under SECTION 4.6 or SECTION
15.1(G); and
(i) those items set forth on EXHIBIT 4.2(I).
4.3 NOTICE OF TITLE DEFECT. Purchaser shall notify Seller in writing, by
5:00 p.m. Central Standard Time on August 20, 1999 (the "TITLE DEADLINE"), of
any matter ("TITLE DEFECT") that would cause Seller's title to any of the
Properties or Platforms not to be Marketable Title, in each case together with a
reasonably detailed explanation of (a) the nature of such Title Defect, (b) the
Property or Platform affected thereby, (c) the Allocated Value for such Property
or Platform, and (d) Purchaser's proposed Title Defect Value (as hereinafter
defined) for such Title Defect. Any matters that would otherwise constitute
Title Defects but that are not specifically raised in writing (with the
explanation as contemplated in the immediately-preceding sentence) by Purchaser
on or before the Title Deadline shall conclusively be deemed waived by
Purchaser. As used herein, the term "TITLE DEFECT VALUE" shall mean with respect
to each Title Defect, the reduction in the "Allocated Value" of the affected
Property or Platform that results from the existence of such Title Defect, as
determined pursuant to SECTION 4.5, taking into account all relevant
considerations, other than the potential deductibility of such Title Defect
Value for federal, state or local income tax purposes.
4.4 REMEDIES FOR TITLE DEFECTS; TITLE INCREASES. (a) Until September 15,
1999 (the "CURE DEADLINE"), Seller shall have the right, but not the obligation,
to attempt to cure any Title Defect for which it receives notice from Purchaser
on or before the Title Deadline.
(b) With respect to any Title Defect for which Seller receives notice from
Purchaser on or before the Title Deadline but which is not cured on or before
the Cure Deadline, the Purchase Price shall be reduced by the Title Defect Value
for such Title Defect. The aggregate amount of all reductions to the Purchase
Price under this Section 4.4(b) is referred to as the "TITLE DEFECT ADJUSTMENT
AMOUNT."
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Such remedy shall constitute Purchaser's sole remedy for Title Defects under
this Agreement. Notwithstanding the foregoing, there shall be no reductions to
the Purchase Price under this Section 4.4(b) unless and until the aggregate
amount of all Title Defect Values shall exceed a threshold of $50,000, in which
case the deduction shall include the threshold amount.
(c) To the extent that same are discovered by either Party prior to the
Title Deadline, the Purchase Price shall be increased (a "TITLE INCREASE") by an
amount equal to the value allocated to the following:
(i) any increase in Seller's interest in all Hydrocarbons produced
from, or otherwise attributable to, a Property or Platform above the Net
Revenue Interest or NRI set forth on EXHIBIT 4.1(A) for such Property; and
(ii) any reduction in Seller's obligation to bear costs and expenses
attributable to the ownership or operation of a Property or Platform below
the Working Interest or WI set forth on EXHIBIT 4.1(A) for such Property
(unless Seller's Net Revenue Interest in such Property or Platform is
proportionately reduced);
in each case with such values to be agreed upon by Seller and Purchaser (taking
into account the Allocated Value for such Property) or otherwise determined
pursuant to the procedures set forth in SECTION 4.5. The aggregate amount of all
increases to the Purchase Price under this SECTION 4.4(C) is referred to as the
"TITLE INCREASE ADJUSTMENT AMOUNT." Notwithstanding the other provisions of this
SECTION 4.4(C), there shall be no increases to the Purchase Price under this
SECTION 4.4(C) unless and until the aggregate amount of all Title Increases
shall exceed a threshold of $50,000, in which case the increase shall include
the threshold amount. Purchaser shall promptly notify Seller of any records or
other title documentation which would result in a Title Increase.
4.5 VALUE OF PROPERTY; TITLE DEFECT. If the Parties are unable to agree
upon (a) whether a Title Defect exists, (b) a Title Defect Value, (c) the value
allocated to a Title Increase or (d) the Environmental Defect Adjustment Amount,
then such Dispute shall be resolved pursuant to ARTICLE 16, and the Closing
shall be postponed until the fifth Business Day following the resolution of such
Dispute PROVIDED, however, no postponement of the Closing shall affect the
rights of Seller or Purchaser to terminate this Agreement pursuant to SECTION
15.1(D).
4.6 CONSENTS. The Parties acknowledge that the Transfer of certain Assets
to Purchaser requires the consent of Third Parties and Governmental Authorities,
and that the following provisions shall govern the Parties' efforts to obtain
such consents:
(a) OPERATING AGREEMENT CONSENTS. Although Seller believes that
there are no preferential purchase rights that are applicable to the
transactions contemplated by this Agreement because Seller is selling
substantially all of its assets, the Parties acknowledge that the Transfer
of Seller's interest in the Assets may require the consent and waiver of
preferential purchase rights of certain working interest owners
("OPERATING AGREEMENT
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CONSENTS"). Seller shall use Commercially Reasonable Efforts to obtain the
Operating Agreement Consents prior to Closing.
(b) PENDING MMS CONSENTS. The Parties acknowledge that with respect
to the Properties set forth on EXHIBIT 4.6(B), MMS approval for the
Transfer of the Properties in question has not been obtained because (i)
the MMS has not yet approved Transfers to Seller for certain Properties,
(ii) certain assignments have not yet been submitted to the MMS for
approval by the operator or (iii) the MMS has rejected certain Transfers
(collectively referred to as the "PENDING MMS CONSENTS"). The Parties
shall use Commercially Reasonable Efforts before and after the Closing to
obtain all of the Pending MMS Consents; PROVIDED, HOWEVER, the failure to
obtain a Pending MMS Consent prior to the Closing shall not cause the
Property affected thereby to be excluded from the sale hereunder or the
Purchase Price to be reduced.
(c) POST-CLOSING MMS CONSENTS. The Parties acknowledge that the
Transfer of the Properties that are located in federal offshore waters
requires the approval, after the Closing, of the MMS (the "POST-CLOSING
MMS CONSENTS"). The Parties shall use Commercially Reasonable Efforts to
obtain all of the Post-Closing MMS Consents after the Closing; PROVIDED,
however, the costs of all filing fees and supplemental bonds shall be
borne by Purchaser.
4.7 CASUALTY EVENTS. If a Casualty Event occurs during the Interim Period,
or it is determined that a Casualty Event has occurred since the Effective Date,
the Purchase Price shall not be reduced if there is insurance for the full
amount of any loss incurred by the Casualty Event, and Seller shall assign to
Purchaser the right to receive all insurance proceeds or condemnation awards
attributable to such Casualty Event. If the full amount of the loss resulting
from the Casualty Event is not covered by insurance, a downward adjustment shall
be made to the Purchase Price equal to the difference between the loss resulting
from the Casualty Event and the amount of the insurance proceeds Seller will be
entitled to receive.
4.8 ENVIRONMENTAL ADJUSTMENTS. To the extent that Purchaser due diligence
reveals the representation contained in SECTION 5.19 is not true and correct (an
"ENVIRONMENTAL DEFECT"). Purchaser shall notify Seller of any Environmental
Defect by the Title Deadline or any Environmental Defect shall conclusively be
deemed waived by Purchaser. Seller shall have until the Cure Deadline to cure
any Environmental Defect, but if any Environmental Defect is not cured, the
Parties shall, with respect to each Property affected by an Environmental Defect
which is not cured by Seller by the Cure Deadline, attempt in good faith to
agree upon an appropriate downward adjustment to the Purchase Price to account
for such matters (the "ENVIRONMENTAL DEFECT ADJUSTMENT AMOUNT").
PURCHASER SHALL HAVE INSPECTED OR WAIVED (AND UPON CLOSING SHALL BE DEEMED TO
HAVE BEEN WAIVED) ITS RIGHT TO INSPECT THE PROPERTIES AND SATISFIED ITSELF TO
THE ENVIRONMENTAL CONDITION OF THE PROPERTIES, INCLUDING, BUT NOT LIMITED TO,
CONDITIONS RELATED TO NATURALLY OCCURRING RADIOACTIVE MATERIALS.
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4.9 OTHER ADJUSTMENTS. Purchaser and Seller shall make other adjustments
that the Parties mutually agree upon based on other matters discovered by
Purchaser during the course of Purchaser's due diligence investigation of the
Assets.
4.10 FORWARD SALES. It is expressly agreed that forward sales of
Hydrocarbons related to the Properties shall not be considered a Title Defect,
however, an adjustment to the Purchase Price shall be made in accordance with
the provisions of SECTION 11.3.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser that:
5.1 ORGANIZATION AND QUALIFICATION. Seller is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Delaware, and it is duly qualified to carry on its business in all jurisdictions
where the Assets are located except to the extent to be so qualified will not
have a material adverse effect on the Assets or the ownership of the Assets by
Purchaser.
5.2 POWER. Seller has the corporate power and authority to enter into and
perform this Agreement and the transactions contemplated hereby. Subject to
receipt of approval of Seller's shareholders and the Required Consents, the
execution, delivery and performance of this Agreement by Seller, and the
transactions contemplated hereby, will not violate or result in a default or
breach of, or give rise to any rights or remedies in favor of any Person under,
(a) any provision of the certificate of incorporation or bylaws of Seller, (b)
any material agreement or instrument to which Seller is a party or by which
Seller or any of the Assets are bound (including any Lease or Contract), or (c)
any Permit, Order or Law applicable to Seller.
5.3 AUTHORIZATION. The execution, delivery and performance of this
Agreement and the transactions contemplated hereby have been duly and validly
authorized by all requisite corporate action on the part of Seller except for
approval of Seller's shareholders. This Agreement has been duly executed and
delivered on behalf of Seller, and at the Closing all documents and instruments
required hereunder to be executed and delivered by Seller will have been duly
executed and delivered. This Agreement does, and such documents and instruments
shall, constitute legal, valid and binding obligations of Seller enforceable in
accordance with their terms, subject, however, to the effect of bankruptcy,
insolvency, reorganization, moratorium and similar Laws from time to time in
effect relating to the rights and remedies of creditors, as well as to general
principles of equity (regardless of whether such enforceability is considered in
a Proceeding in equity or at law).
5.4 BROKERS. Seller has incurred no obligation or liability, contingent or
otherwise, for brokers', finders' or investment bankers' fees in respect of the
matters provided for in this Agreement that will be the responsibility of
Purchaser; and any such obligation or liability that might exist shall be the
sole obligation of Seller.
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5.5 FOREIGN PERSON. Seller is not a "foreign person" within the meaning of
Section 1445 and 7701 of the Code, because Seller is not a nonresident alien,
foreign corporation, foreign partnership, foreign trust or foreign estate, as
those terms are defined in the Code and any regulations promulgated thereunder.
5.6 BANKRUPTCY. Except as set forth in EXHIBIT 5.6, there are no
bankruptcy, reorganization or arrangement proceedings pending, being
contemplated by or, to Seller's Knowledge, threatened against Seller which
relate to current obligations of Seller.
5.7 LITIGATION. Except as set forth on EXHIBIT 5.7, there is no Proceeding
pending or, to Seller's Knowledge, threatened, against Seller or involving the
Assets, directly or indirectly.
5.8 GOVERNMENTAL QUALIFICATION. Seller is qualified with the MMS to own
interests in federal Hydrocarbon leases on the Outer Continental Shelf,
including the Properties.
5.9 CONSENTS. To Seller's Knowledge, except for the Required Consents and
approval of Seller's shareholders, the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby does not require
(a) a consent, approval or authorization of a Person or a Governmental
Authority, (b) a registration, declaration or other filing with a Governmental
Authority (except for filings with the Texas General Land Office for Leases
issued by the State of Texas), or (c) the offer of the Assets to any Person
pursuant to any preferential purchase right or right of first refusal and will
not result in any default under any agreement or instrument to which Seller is a
party or by which the Assets are owned. Seller has no reason to believe that the
MMS will not grant the Pending MMS Consents or the Post-Closing MMS Consents.
5.10 LEASES. To Seller's Knowledge, (a) the Leases are in full force and
effect, by operations approved by the MMS in accordance with applicable Law; (b)
Seller has made available to Purchaser true and correct copies of the Leases,
including any amendments thereto; (c) Seller or each operator of the Properties
has duly performed all of the material obligations under the Leases that are now
or will prior to the Closing be required to be performed by Seller or such
operator; (d) Seller nor any operator of the Properties has received any notice
of a default under the Leases, nor is any such notice pending; and (e) except as
set forth on EXHIBIT 5.10, all rentals and royalties (including minimum
royalties, shut-in or otherwise) required to be paid to perpetuate the Leases to
the Execution Date have been timely and properly paid to the proper Persons and
in the proper amounts.
5.11 CONTRACTS. The Contracts described in SECTION 2.1(E) represent all
contracts and agreements which are material to the ownership and operation of
the Assets and which individually obligate Seller to expend funds in excess of
$5,000 or perform acts in the future with respect to the Assets which require an
expenditure by Seller in excess of $5,000 and which are not contracts or
agreements which (a) are documents recorded of record in any parish or county
where the Properties are located or in counties or parishes adjacent to the
offshore blocks where the Properties are located; (b) are on file with the MMS,
General Land Office of Texas or the State of Louisiana; or (c) have not
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been terminated or expired by their own terms. Seller is not in default of any
such Contracts and, to Seller's Knowledge, no other party is in material breach
thereof. Seller has made available to Purchaser true and correct copies of the
Contracts, including any amendments thereto. Except as provided in EXHIBIT 5.11,
such Contracts are in full force and effect and Seller has received no notice or
threat regarding a default or any action to alter, terminate or rescind any such
Contract.
5.12 PROCEEDS OF PRODUCTION. To Seller's Knowledge, (a) all proceeds of
production of Hydrocarbons from the Properties are currently being paid to the
operator of such Properties, for Seller's account or to Seller, without the
furnishing of indemnity (other than customary warranties contained in division
orders, transfer orders, letters-in-lieu of transfer and division orders or
production sales contracts); and (b) no material portion of such proceeds are
being held in suspense.
5.13 INVOICES. Except as provided in SECTION 5.13, Seller has paid all
joint-interest billings and other invoices attributable to the ownership or
operation of the Properties, to the extent that such billings and invoices have
been received by Seller and have become due and payable.
5.14 GAS IMBALANCES. To Seller's Knowledge there exist no production
imbalances affecting the Properties.
5.15 GAS PREPAYMENTS. Except as provided in EXHIBIT 5.15, Seller is not
obligated, by virtue of a prepayment, take-or-pay, production payment or other
arrangement, to deliver Hydrocarbons produced from the Properties on or after
the Effective Date without receiving full price for such production.
5.16 ACCESS. Seller has afforded Purchaser access to all of the Records in
Seller's possession unless prohibited by agreements with a third party.
5.17 WELLS. EXHIBIT 5.17 lists all wells (producing and non-producing)
located on the Properties that have not previously been plugged and abandoned.
To Seller's Knowledge, (a) all of the wells located on the Properties have been
drilled and completed within the boundaries of the applicable Leases or within
the limits otherwise permitted by contract, pooling or unitization agreement or
applicable Law, (b) all drilling, completion, development, operation, plugging
and abandonment of the wells located on the Properties have been conducted in
material compliance with all applicable Laws and (c) except as set forth in
EXHIBIT 5.17(C), there are no wells located on the Properties that (i) Seller or
the operator of any Property is obligated by law or contract to commence
plugging and abandonment operations pursuant to any notice provided to Seller by
any operator of the Properties; or (ii) are subject to exceptions to a
requirement to plug and abandon issued by a Governmental Authority having
jurisdiction over the Properties.
5.18 PERMITS. To Seller's Knowledge, (a) either Seller or the current
operator of the Properties has all Permits that it requires, or is required to
have, to own and operate the Assets; (b) such Permits are in full force and
effect; (c) there exist no material violations of such Permits; and (d)
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there are no Proceedings that are pending or threatened that may result in a
civil or criminal penalty or the revocation, cancellation, suspension or adverse
modification of such Permits.
5.19 ENVIRONMENTAL LAWS. To Seller's Knowledge, (a) the Assets have been,
and are being, operated in compliance with all applicable Environmental Laws
except for minor matters of non-compliance for which potential fines or costs of
compliance do not exceed $50,000; and (b) there exists no condition or
circumstance whereby Seller or Seller's successor would be obligated to expend
any sum of money in excess of $50,000 in connection with any remedial action
relating to any environmental condition which, if not performed, would result in
a violation of applicable Environmental Laws.
5.20 INSURANCE. EXHIBIT 5.20 sets forth the insurance presently maintained
by Seller with respect to the Properties. Such insurance is in full force and
effect, and Seller has paid all premiums that have become due thereunder.
5.21 AFES. Except as set forth on EXHIBIT 5.21, there are no outstanding
authorizations for expenditure (approved or proposed) that (a) require the
drilling of wells or other material development operations to earn or to
continue to hold all or any portion of the Properties or (b) obligate Seller to
make payments of any material amounts in connection with the drilling of wells
or other material capital expenditures affecting the Properties.
5.22 CASUALTY. To Seller's Knowledge, no Casualty Event has occurred since
the Effective Date.
5.23 TITLE. Except as set forth on EXHIBIT 5.23, (a) Seller has not
Transferred or Encumbered the Properties or the Platforms which Transfer or
Encumbrance shall cause a reduction in Seller's interest in the Properties or
Platforms specified in EXHIBIT 4.1(A) AND (B), the Assets shall be conveyed to
Purchaser with no warranty whatsoever, implied, expressed or statutory;
PROVIDED, HOWEVER, subject to the Permitted Encumbrances, Seller shall warrant
and defend title to eighty percent (80%) of the interests specified on EXHIBIT
4.1(A) in the Properties, Equipment and Platforms against all claims and demands
of all Persons whomsoever claiming title to the Properties, Equipment and
Platforms, or any part thereof, by, through or under Seller, but not otherwise.
For purposes of clause (b) only, "Seller" shall include any subsidiary or
affiliate of Seller and any other Person in which Seller is a partner, investor
or otherwise invested or committed to invest.
5.24 PRICING. To Seller's Knowledge, the prices being received for the
production of Hydrocarbons from the Properties do not violate any agreement to
which Seller is a party or Law.
5.25 EQUIPMENT. To Seller's Knowledge, the Equipment comprising the Assets
is in good repair, working order and operating condition and is adequate for the
operation of the Properties.
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5.26 ADVERSE CHANGES IN PRODUCTION RATES OR OIL AND GAS RESERVES.
(a) From the date of this Agreement until the day immediately
preceding the Closing Date, the average daily production from the
Properties shall not be less than (i) 14,000 Mcf. per day of natural gas,
and (ii) 950 barrels per day of oil and other liquid Hydrocarbons. True
and complete copies of the report of each of Netherland, Sewell &
Associates, Inc. and Ryder Scott Company Petroleum Engineers estimating
the Hydrocarbon reserves attributable to the Properties as of January 1,
1999, have been given to the Purchaser prior to the date of this
Agreement.
(b) Since the Effective Date, there has been no material loss of, or
decline in, any proved category of Hydrocarbon reserves attributable to
the Properties below that estimated for the Properties in either of the
reserve reports of Netherland, Sewell & Associates, Inc. or Ryder Scott
Company Petroleum Engineers as of January 1, 1999, other than declines in
reserve volumes as a result of actual production of Hydrocarbons since the
Effective Date or a reduction in the prices used to calculate reserve
volumes.
5.27 ACCURACY OF REPRESENTATIONS. No representation or warranty by Seller
in this Agreement contains an untrue statement of a material fact or omits or
will omit to state a material fact necessary to make the statements contained in
any such representation or warranty not misleading. There is no fact known to
Seller that materially and adversely affects (or may materially and adversely
affect) the operation, prospects or condition of any portion of the Assets that
has not been set forth in this Agreement.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller that:
6.1 EXISTENCE. Purchaser is a corporation duly organized, validly existing
and in good standing under the Laws of the State of Delaware, and it is duly
qualified to carry on its business in the jurisdictions where the Assets are
located.
6.2 POWER. Purchaser has the corporate power and authority to enter into
and perform this Agreement and the transactions contemplated hereby. The
execution, delivery and performance of this Agreement by Purchaser, and the
transactions contemplated hereby, will not violate (a) any provision of the
certificate of incorporation or bylaws of Purchaser, (b) any material agreement
or instrument to which Purchaser is a party or by which Purchaser is bound, or
(c) any Permit, Order or Law applicable to Purchaser.
6.3 AUTHORIZATION. The execution, delivery and performance of this
Agreement and the transactions contemplated hereby have been duly and validly
authorized by all requisite corporate action on the part of Purchaser. This
Agreement has been duly executed and delivered on behalf of
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Purchaser, and at the Closing all documents and instruments required hereunder
to be executed and delivered by Purchaser will have been duly executed and
delivered. This Agreement does, and such documents and instruments shall,
constitute legal, valid and binding obligations of Purchaser enforceable in
accordance with their terms, subject, however, to the effect of bankruptcy,
insolvency, reorganization, moratorium and similar Laws from time to time in
effect relating to the rights and remedies of creditors, as well as to general
principles of equity (regardless of whether such enforce ability is considered
in a Proceeding in equity or at law).
6.4 BROKERS. Purchaser has incurred no obligation or liability, contingent
or otherwise, for brokers', finders' or investment bankers' fees in respect of
the matters provided for in this Agreement that will be the responsibility of
Seller; and any such obligation or liability that might exist shall be the sole
obligation of Purchaser.
6.5 SECURITIES LAWS. Purchaser is an experienced and knowledgeable
investor in the oil and gas business. Purchaser is not acquiring the Properties
with a view to, or for offer of resale in connection with, a non-exempt
distribution thereof within the meaning of the Securities Act of 1933, or a
distribution thereof in violation of any applicable Securities Laws.
6.6 BANKRUPTCY. There are no bankruptcy, reorganization or arrangement
proceedings pending, being contemplated by or, to Purchaser's Knowledge,
threatened against Purchaser.
6.7 GOVERNMENTAL QUALIFICATION. Purchaser is qualified with the MMS to own
the Properties.
ARTICLE 7
PRE-CLOSING COVENANTS OF SELLER
7.1 OPERATIONS. During the Interim Period, except as otherwise approved by
Purchaser in writing, Seller (a) shall, and shall use Commercially Reasonable
Efforts to cause the operators of the Properties to, maintain the Assets in the
ordinary course of business in accordance with past practices, (b) shall not
Transfer or Encumber any Assets other than (i) the sale of Hydrocarbons in the
ordinary course of business after production and (ii) the sale of Equipment and
other personal property or fixtures in the ordinary course of business where the
same has become obsolete, is no longer necessary for the operation of the
Properties or is replaced by an item or items of at least equal suitability, and
(c) shall maintain in full force and effect the insurance described in EXHIBIT
5.20.
7.2 ACCESS. During the Interim Period, Seller shall (a) provide Purchaser
access during Seller's normal business hours to the Assets (including the
Records) that are in Seller's possession and the employees of Seller, and (b)
use Commercially Reasonable Efforts to provide Purchaser access to the
Properties (it being acknowledged by Purchaser that Seller is not the operator
of any Property except Galveston Block 418) and any other Assets that are not in
Seller's possession.
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7.3 NO SHOP. During the Interim Period, Seller shall not, directly or
indirectly, initiate or participate in discussions with, or otherwise solicit
from, any Person any proposals or offers relating to, or deliver information to
any Person for purposes of evaluating, one or more transactions of the type
contemplated hereby involving the Assets.
7.4 BREACHES OF REPRESENTATIONS AND WARRANTIES. Seller shall promptly
notify Purchaser of the discovery by Seller that any representation or warranty
of Seller contained in this Agreement is or becomes untrue or will be untrue on
the Closing Date.
7.5 ESTIMATES OF ADJUSTED PURCHASE PRICE. Seller shall prepare and deliver
to Purchaser, at least five Business Days prior to the Closing Date, Seller's
estimate of the Adjusted Purchase Price (the "CLOSING SETTLEMENT STATEMENT")
which shall be prepared utilizing the form attached hereto as EXHIBIT 7.5. The
Closing Settlement Statement shall include, without limitation, the Title Defect
Adjustment Amount, the Environmental Defect Adjustment Amount and the Revenue
Adjustment amount as well as the sum of the Allocated Values of any Properties
excluded from the sale hereunder. The Parties shall negotiate in good faith and
attempt to agree on the Closing Settlement Statement prior to the Closing. If
the Parties are unable to agree on the Closing Settlement Statement, the
Adjusted Purchase Price shall be based upon the arithmetic average of the
Parties' respective proposed amounts with final adjustments to the Purchase
Price occurring within one hundred twenty (120) days of the Closing in
accordance with SECTION 12.1. Notwithstanding the foregoing or any disputes to
the value of any adjustments, if any proposed adjustment to the Purchase Price
proposed by Purchaser would entitle Purchaser or Seller to terminate this
Agreement in accordance with ARTICLE 15, Purchaser or Seller shall have the
right to terminate this Agreement prior to Closing.
ARTICLE 8
PRE-CLOSING COVENANTS OF PURCHASER
8.1 CONFIDENTIALITY. The Parties hereby ratify their obligations under the
Confidentiality Agreement.
8.2 RETURN OF DATA. Purchaser agrees that if this Agreement is terminated
for any reason whatsoever, Purchaser shall, at Seller's request, promptly return
to Seller all information and data furnished by or on behalf of Seller to
Purchaser or Purchaser's Affiliates in connection with this Agreement or
Purchaser's investigation of the Assets, and Purchaser shall deliver to Seller
or destroy all copies, extracts or excerpts of such information and data and all
documents generated by Purchaser that contain any portion of such information or
data except to the extent necessary to enforce Purchaser's rights hereunder.
8.3 INDEMNITY REGARDING ACCESS. Purchaser shall Indemnify Seller and
Seller's Affiliates from and against all Losses that are attributable to the
exercise by Purchaser or Purchaser's Affiliates of the access rights granted by
SECTION 7.2(B).
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ARTICLE 9
SELLER'S CONDITIONS OF CLOSING
Seller's obligation to consummate the transactions contemplated hereby is
subject to the satisfaction or waiver of the following conditions on or before
the scheduled date of the Closing:
9.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Purchaser contained in ARTICLE 6 shall be true and correct in all material
respects on the Closing Date as though made on and as of the Closing Date.
9.2 PERFORMANCE. Purchaser shall have performed in all material respects
the obligations, covenants and agreements required hereunder to be performed by
it at or prior to the Closing (including under SECTION 11.2).
9.3 PROCEEDINGS. No Proceeding by a Third Party or a Governmental
Authority shall be pending or threatened that seeks to restrain, enjoin or
otherwise prohibit, the consummation of the transactions contemplated hereby.
9.4 INVESTMENT AGREEMENT TRANSACTION. All conditions precedent have been
satisfied and the transaction contemplated in the Investment Agreement shall
close simultaneously with the transactions contemplated by this Agreement.
9.5 SHAREHOLDER APPROVAL. The transactions contemplated by this Agreement
have been approved by the Shareholders of Seller.
9.6 GOVERNMENT APPROVALS. All approvals of Governmental Authorities (other
than those required by the MMS) have been obtained.
9.7 PREFERENTIAL PURCHASE RIGHTS. All preferential purchase rights
relating to the Properties which Purchaser, in its sole discretion, has
determined are applicable to the transactions contemplated by this Agreement,
have been validly waived or the period for exercising such preferential purchase
rights have expired and there is no pending or threatened challenge or
proceeding disrupting or threatening to disrupt any such waiver or expiration.
ARTICLE 10
PURCHASER'S CONDITIONS OF CLOSING
Purchaser's obligation to consummate the transactions contemplated hereby
is subject to the satisfaction or waiver of the following conditions on or
before the scheduled date of the Closing:
10.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Seller contained in ARTICLE 5 shall be true and correct in all material respects
on the Closing Date as though made on and as of the Closing Date.
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10.2 PERFORMANCE. Seller shall have performed in all material respects the
obligations, covenants and agreements required hereunder to be performed by it
at or prior to the Closing (including under SECTION 11.2).
10.3 PROCEEDINGS. No Proceeding by a Third Party or a Governmental
Authority shall be pending or threatened that seeks to restrain, enjoin or
otherwise prohibit, the consummation of the transactions contemplated hereby.
10.4 INVESTMENT AGREEMENT TRANSACTION. No amendment of the Investment
Agreement shall have occurred except as consented to in writing by Purchaser and
the transactions contemplated in the Investment Agreement shall close
simultaneously with the transactions contemplated by this Agreement without
waiver of any conditions precedent to the obligation of any Party thereto,
except as shall have been consented to in writing by Purchaser.
10.5 RELEASE OF LIENS. The liens and encumbrances set forth on EXHIBIT
5.23 have been released.
10.6 GOVERNMENTAL APPROVALS. All approvals of Governmental Authorities
(other than those required from the MMS) have been obtained.
10.7 PREFERENTIAL PURCHASE RIGHTS. All preferential purchase rights
relating to the Properties which Purchaser, in its sole discretion, has
determined are applicable to the transactions contemplated by this Agreement,
have been validly waived or the period for exercising such preferential purchase
rights have expired and there is no pending or threatened challenge or
proceeding disrupting or threatening to disrupt any such waiver or expiration.
10.8 MATERIAL ADVERSE CHANGE. No material adverse change has occurred in
the condition of the Assets taken as a whole (excluding market conditions
affecting the industry generally).
10.9 LEGAL OPINION. Seller shall deliver to Purchaser (i) an opinion of
its General Counsel, as to customary corporate matters of Seller (including due
incorporation, existence, authorization, execution and delivery), in form and
substance acceptable to the Parties; and (ii) such other evidence of such
corporate matters (including good-standing certificates, certified
organizational documents and Board resolutions, and incumbency certificates) as
Purchaser may reasonably request.
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ARTICLE 11
CLOSING
11.1 TIME AND PLACE OF CLOSING. Subject to the conditions stated in this
Agreement, the consummation of the transactions contemplated hereby (the
"CLOSING") shall occur contemporaneously with the closing under the Investment
Agreement; PROVIDED, HOWEVER, that if all of the conditions to the Closing set
forth in ARTICLES 9 and 10 have not been satisfied or waived by such scheduled
date or any extended scheduled date for the Closing, the Party whose obligations
are subject to the conditions that have not been satisfied or waived shall have
the right to extend the scheduled date of the Closing for successive periods of
up to seven days each until such conditions shall have been satisfied or waived;
and provided further, that the Closing is subject to postponement pursuant to
SECTION 4.5. Notwithstanding any right to extend the Closing pursuant to this
SECTION 11.1 or SECTION 4.5, the right to terminate this Agreement pursuant to
SECTION 15.1(D) shall not be altered by any such extension. The date the Closing
actually occurs is referred to herein as the "CLOSING DATE." The Closing shall
be held in Houston, Texas at the offices of Porter & Hedges, L.L.P., or at such
other location as may be mutually agreed upon by Seller and Purchaser.
11.2 CLOSING OBLIGATIONS. At the Closing, the following events shall
occur:
(a) Seller shall execute, acknowledge and deliver to Purchaser,
assignments, conveyances and bills of sale, which shall (i) be in form and
substance acceptable to the Parties, (ii) contain a special warranty of
title, (iii) be in a form acceptable to the MMS (or the General Land
Office of the State of Texas), and (iii) Transfer the Assets to Purchaser
(collectively, the "ASSIGNMENTS");
(b) Seller and Purchaser shall execute and acknowledge, and Seller
shall deliver to Purchaser, transfer orders or letters in lieu thereof
directing all Third Parties paying for production of Hydrocarbons from the
Properties to make payment to Purchaser of proceeds attributable to such
production on and after the Effective Date;
(c) Purchaser shall pay the Adjusted Purchase Price;
(d) Seller shall deliver to Purchaser the releases of liens and
encumbrances set forth on EXHIBIT 5.23.
(e) Seller shall deliver to Purchaser the legal opinion required by
SECTION 10.10.
11.3 ALLOCATION OF REVENUES AND EXPENSES. Subject to the terms contained
in EXHIBIT 11.3, at Closing an adjustment shall be made to the Purchase Price
(the "REVENUE ADJUSTMENT") equal to the difference between (x) all revenue
attributable to the Assets received by Seller from the Effective Date through
and including the Closing Date LESS (y) (i) eighty percent (80%) of the capital
expenditures paid by Seller relating to the Properties (including, without
limitation, drilling costs) from the Effective Date through and including the
Closing Date, (ii) eighty
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percent (80%) of the general and administrative expenses of Seller as specified
in EXHIBIT 11.3 and (iii) eighty percent (80%) of the lease operating expenses
paid by Seller relating to the Properties from the Effective Date through and
including the Closing Date. The Revenue Adjustment shall be based on actual
receipts and payments where such information is available and, if not available,
estimates subject to the post-Closing adjustment as provided in SECTION 12.1.
ARTICLE 12
POST-CLOSING COVENANTS
12.1 POST-CLOSING ADJUSTMENTS. On or before ninety (90) days after
Closing, Seller and Purchaser shall review any additional information available
to prepare a settlement statement (the "POST-CLOSING SETTLEMENT STATEMENT")
pertaining to the Revenue Adjustment provided for in SECTION 11.3 to determine
if additional adjustments to the Purchase Price beyond the adjustments made at
Closing (whether to account for expenses and revenues not considered in making
the adjustments at Closing, correct errors made in the adjustments made at
Closing or to utilize actual data in cases where estimates were made) are
necessary. Within one hundred twenty (120) days after Closing, Seller and
Purchaser shall attend to finalizing the Post-Closing Settlement Statement and
Seller or Purchaser, as the case may be, shall immediately pay any sums due and
owing to the other Party.
12.2 PAYMENTS RECEIVED IN ERROR. Any revenue received by Purchaser
attributable to the Assets received by Purchaser for periods prior to the
Effective Date shall immediately be forwarded to the Seller. Any revenue
received by Seller attributable to the Assets for periods after the Effective
Date which have not been accounted for in the Closing Settlement Statement or
the Post-Closing Settlement Statement or which are attributable to any period
after the Closing Date shall immediately be forwarded to Purchaser.
12.3 SALES TAXES. The Parties intend that the sale hereunder be exempt
from any sales or use taxes, and the Purchase Price does not include any such
taxes. If the sale hereunder is found to be subject to any sales or use taxes,
however, Purchaser shall be liable for such taxes.
12.4 RECORDATION OF ASSIGNMENT. Purchaser shall (a) record each Assignment
in the appropriate county and parish records, (b) file each Assignment with the
MMS and any other appropriate Governmental Authorities, and (c) pay all
recordation fees and filing fees in connection therewith. Within a reasonable
period after the Closing, Purchaser shall furnish Seller with a schedule setting
forth recording or filing information for each county, parish or other
Governmental Authority in whose records each Assignment was recorded or filed.
12.5 ACCESS TO EMPLOYEES. Seller and Purchaser each shall use Commercially
Reasonable Efforts to afford the other access to (a), in the case of Seller,
employees of Seller who remain employees of Seller after the Closing and are
familiar with the ownership and operation of the Assets and (b) in the case of
Purchaser, employees of Purchaser that Seller shall reasonably request for its
proper corporate purposes, including the defense of Proceedings. Such access may
include interviews
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or attendance at depositions or legal proceedings; provided, however, that in
any event all out-of-pocket expenses (including wages and salaries) reasonably
incurred by either Party in connection with this SECTION 12.5 shall be paid or
promptly reimbursed by the Party requesting such services.
12.6 FURTHER ASSURANCES. After the Closing, Seller and Purchaser shall
take such further actions and execute, acknowledge and deliver such additional
documents and instruments as may be necessary or useful in carrying out the
transactions contemplated hereby.
12.7 CONFIDENTIALITY. After the Closing and until the third anniversary
thereof, Seller shall maintain as confidential, and shall not disclose or show
to any Third Party, any Records or other confidential information regarding the
Assets. This SECTION 12.7 shall not apply to the extent that any particular
information (a) becomes generally available to the oil and gas industry other
than through the breach of the foregoing obligation, or (b) must be disclosed by
Seller to comply with applicable Law, Orders or stock exchange requirements.
12.8 REVENUE REIMBURSEMENT OBLIGATIONS. Purchaser and Seller agree and
acknowledge that Seller will remain liable on those forward sales contracts and
other financial instruments described on SCHEDULE 12.8 (the "HEDGE AGREEMENTS"),
and from and after Closing Purchaser shall remit to Seller each month an amount
equal to the positive sum of (a) the total consideration received by Purchaser
from the sale of Hydrocarbons produced from the Properties for a particular
month LESS the product of (x) the volume of Hydrocarbons sold from the
Properties (calculated on an MMBtu equivalent basis) and (y) the price per MMBtu
equivalent received by Seller for the equivalent notional quantity of
Hydrocarbons for such month pursuant to the Hedge Agreements and (b) in the
event that the volume of Hydrocarbons produced from the Properties in any month
does not equal eighty percent (80%) of the notional quantities used to calculate
payments due under the Hedge Agreements, an amount equal to eighty percent (80%)
of the amounts due by Seller to the counterparties under the Hedge Agreements
resulting from the physical Hydrocarbon production shortfall (the "HEDGE
AGREEMENT ADJUSTMENT"). If the Hedge Agreement Adjustment amount is a negative
number, Seller shall remit to Purchaser the sum indicated by such number if it
was not negative with the invoice or statement forwarded to Purchaser pursuant
to this Section 12.8. Seller shall send Purchaser an invoice each month
indicating the amounts due to Seller by Purchaser and Purchaser shall pay such
amounts to Seller within fifteen (15) days of receipt of such invoice.
Purchaser's obligations pursuant to this SECTION 12.8 shall survive until the
termination of Seller's obligations under the Hedge Agreements as such Hedge
Agreements are in force and effect on the date hereof.
ARTICLE 13
ASSUMED OBLIGATIONS; INDEMNIFICATION
13.1 ASSUMED OBLIGATIONS. If the Closing occurs, Purchaser shall be deemed
to have assumed, and shall pay, perform or otherwise discharge all liabilities
and obligations that are attributable to the ownership or operation of the
Assets on and after the Effective Date, including such liabilities and
obligations arising under (i) the Leases and Contracts, (ii) the Easements,
Permits
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and Orders that are included in the Assets, and (iii) Laws (including
Environmental Laws) applicable to the Assets (collectively, the "ASSUMED
OBLIGATIONS").
13.2 INDEMNIFICATION.
(a) SELLER'S INDEMNITIES. Seller shall Indemnify Purchaser from and
against all Losses (i) for third party claims attributable to the Assets
and which relate to any period prior to the Effective Date and, except for
claims made under the special warranty contained in the Assignment, are
claims which do not relate to matters for which adjustments to the
Purchase Price were possible pursuant to the terms of this Agreement or
(ii) that are attributable to any breach or non-performance by Seller of
its covenants contained in ARTICLE 12.
(b) PURCHASER'S INDEMNITIES. Purchaser shall Indemnify Seller and
Seller's Affiliates from and against all Losses that (i) are attributable
to the Assets and that relate to any period after the Effective Date
(including, without limitation, the Assumed Obligations) or (ii) are
attributable to any breach or nonperformance by Purchaser of its covenants
contained in ARTICLE 12.
(c) EXCLUSIVITY; ASSERTION OF CLAIMS. The Indemnities in SECTION
13.2(A) shall constitute the sole and exclusive remedy of Purchaser and
Purchaser's Affiliates for the matters described therein; and the
Indemnities in SECTION 13.2(B) constitute the sole and exclusive remedy of
Seller and Seller's Affiliates for the matters described therein. All
claims for Indemnification by any Person that is Indemnified under SECTION
13.2(A) or (B) must be asserted and resolved in accordance with the
following provisions:
(i) Any Person claiming Indemnification hereunder is referred
to as the "INDEMNIFIED PERSON," and any Party from whom
Indemnification is sought is referred to as the "INDEMNIFYING
PARTY."
(ii) If any Third Party Losses are asserted against or sought
to be collected from an Indemnified Person, the Indemnified Person
shall with reasonable promptness notify the Indemnifying Party of
the Third Party Losses, specifying the nature of and specific basis
for such Losses and the amount or the estimated amount thereof to
the extent then feasible (the "CLAIM NOTICE"). The Indemnifying
Party will have 30 days from the date the Claim Notice is delivered
(the "NOTICE PERIOD") to notify the Indemnified Person (A) whether
or not it disputes the liability of the Indemnifying Party to the
Indemnified Person with respect to such Third Party Losses and (B)
whether or not it desires, at the sole cost and expense of the
Indemnifying Party, to defend the Indemnified Person against such
Third Party Losses; PROVIDED, HOWEVER, that any Indemnified Person
is hereby authorized prior to and during the Notice Period to file
any motion, answer or other pleading that it shall deem necessary or
appropriate to protect its interests or those of the Indemnifying
Party (and of which it has given notice and opportunity to comment
to the Indemnifying Party) and that
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are not prejudicial to the Indemnifying Party. If the Indemnifying
Party does not notify the Indemnified Person within the Notice
Period that it disputes its liability to the Indemnified Person with
respect to such Third Party Losses, the amount of such Third Party
Losses will be conclusively deemed a liability of the Indemnifying
Party. If the Indemnifying Party notifies the Indemnified Person
within the Notice Period that it desires to defend the Indemnified
Person against such Third Party Losses and except as hereinafter
provided, the Indemnifying Party will have the right to defend by
all appropriate Proceedings, and with counsel of its own choosing.
If the Indemnified Person desires to participate in, but not
control, any such defense or settlement, it may do so at its sole
cost and expense. If requested by the Indemnifying Party, the
Indemnified Person agrees to cooperate with the Indemnifying Party
and its counsel in contesting any Third Party Losses that the
Indemnifying Party elects to contest, or, if appropriate and related
to the claim in question, in making any counterclaim against the
Third Party or Governmental Authority asserting the Third Party
Losses, or any cross-complaint against any Person. No claim may be
settled or otherwise compromised without the prior consent of the
Indemnifying Party.
(iii) If any Indemnified Person has a claim for Losses against
any Indemnifying Party hereunder that does not involve a Third Party
Loss, the Indemnified Person must send a Claim Notice with respect
to such claim to the Indemnifying Party. If the Indemnifying Party
does not notify the Indemnified Person within the Notice Period that
it disputes its liability to the Indemnified Person with respect to
such Losses, the amount of such Losses will be conclusively deemed a
liability of the Indemnifying Party.
(d) EXCEPTIONS. The Indemnification obligations set forth in
SECTIONS 13.2(A) and (B) shall not apply to (i) a matter for which the
Indemnified Person has received credit as an adjustment to the Purchase
Price; (ii) either Party's costs and expenses with respect to the
negotiation and consummation of this Agreement and the transactions
contemplated hereby; or (iii) any Title Defect claims of Purchaser, which
are governed exclusively by SECTIONS 4.1 through 4.5 (but SECTION 13.2(A)
shall apply to the special warranty of title contained in the Assignment).
13.3 LIMITATIONS ON INDEMNIFICATION. The Parties' liabilities under this
ARTICLE 13 shall be limited as follows:
(a) THRESHOLDS. Seller shall have no liability under SECTION 13.2(A)
unless and until the aggregate amount paid by Seller thereunder shall
exceed a threshold of $25,000 and upon reaching such amount, the threshold
amount shall be included in any claim. Purchaser shall have no liability
under SECTION 13.2(B) unless and until the aggregate amount paid by
Purchaser thereunder shall exceed a threshold of $25,000 and upon reaching
such amount, the threshold amount shall be included in any claim
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(b) MAXIMUM LIABILITY. Seller's maximum aggregate liability under
SECTION 13.2(A) shall not exceed $1,000,000. Purchaser's maximum aggregate
liability under SECTION 13.2(B) shall not exceed $1,000,000.
(c) SURVIVAL PERIODS. The Indemnities in SECTIONS 13.2(A)(II) and
13.2(B)(II) with respect to covenants to be performed after the Closing
shall survive until March 31, 2001. Following the applicable date
described in the immediately-preceding sentence, neither Party shall have
any rights thereunder, except with respect to matters for which a Claim
Notice has been delivered on or prior to such date. There shall be no
similar limitations on the survival of the Indemnities in SECTIONS
13.2(A)(I) and 13.2(B)(I), which shall survive for the applicable
statute-of-limitations period. The representations and warranties of
Seller contained in this Agreement shall terminate at Closing.
ARTICLE 14
INDEPENDENT INVESTIGATION AND DISCLAIMER
14.1 INDEPENDENT INVESTIGATION AND DISCLAIMER.
(a) Purchaser acknowledges that (i) it has had, and pursuant to this
Agreement will have prior to the Closing, access to the Assets and the
employees of Seller and the opportunity to inspect the Assets, and (ii) in
making its decision to enter into this Agreement and consummate the
transactions contemplated hereby, Purchaser has relied solely on the basis
of its own independent investigation of the Assets and upon the
representations and warranties of Seller set forth in ARTICLE 5 and the
special warranty of title to be made by Seller in the Assignment.
Accordingly, Purchaser acknowledges that, except as expressly set forth
herein, Seller has not made, AND SELLER HEREBY EXPRESSLY DISCLAIMS AND
NEGATES, ANY REPRESENTATION OR WARRANTY, EXPRESSED (ORALLY OR IN WRITING),
IMPLIED, AT COMMON LAW, BY STATUTE, OR OTHER WISE, OR OTHER RIGHT OF
RECOURSE (EVEN AS TO RETURN OF THE PURCHASE PRICE) RELATING TO (A) THE
CONDITION OF THE ASSETS (INCLUDING ANY IMPLIED OR EXPRESSED WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, ABSENCE OF LATENT
DEFECTS OR REDHIBITORY VICES, OR OF CONFORMITY TO MODELS OR SAMPLES OF
MATERIALS, OR ENVIRONMENTAL CONDITION), (B) ANY INFRINGEMENT BY SELLER OF
ANY PATENT OR PROPRIETARY RIGHT OF ANY THIRD PARTY, AND (C) ACCURACY,
COMPLETENESS OR MATERIALITY OF ANY INFORMATION, DATA OR OTHER MATERIALS
(WRITTEN OR ORAL) FURNISHED TO PURCHASER BY OR ON BEHALF OF SELLER
(INCLUDING WITH RESPECT TO RESERVE MATTERS, SUCCESS OF WELLS (INCLUDING
WELLS THAT ARE DRILLED AFTER THE EFFECTIVE DATE), COMPLIANCE WITH LAWS,
ENVIRONMENTAL CONDITIONS AND OTHER MATTERS); IT BEING AGREED BY PURCHASER
THAT IT IS ACQUIRING THE ASSETS "AS-IS," "WHERE-IS," WITH ALL FAULTS;
PROVIDED,
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HOWEVER, that (a) the foregoing disclaimer and negation of representations
and warranties, (b) Purchaser's independent investigation of the Assets,
(c) any failure on Purchaser's part to conduct such investigation, or (d)
the occurrence of the Closing, shall not affect or impair the
representations, warranties, covenants, Indemnities or other obligations
of Seller under this Agreement or under the agreements to be executed by
Seller at the Closing, including the special warranty of title to be made
by Seller in the Assignment, and any other express rights of Purchaser
hereunder or thereunder.
(b) Each Party hereby waives any rights it may have under applicable
Law to rescind this transaction, including for failure of consideration,
redhibitory vices, lesion beyond moiety or otherwise.
ARTICLE 15
TERMINATION
15.1 RIGHT OF TERMINATION. This Agreement and the transactions
contemplated hereby may be terminated:
(a) by mutual consent of Seller and Purchaser, at any time at or
prior to the Closing;
(b) by Seller, at its option, if the conditions in ARTICLE 9 have
not been satisfied by the scheduled date of the Closing;
(c) by Purchaser, at its option, if the conditions in ARTICLE 10
have not been satisfied by the scheduled date of the Closing;
(d) by either Seller or Purchaser, by notice to the other Party at
any time on or after December 31, 1999, if the Closing shall not have
occurred by such date;
(e) by Purchaser or Seller if the sum of the aggregate downward
adjustment to the Purchase Price for Title Defects, Environmental Defects
and Casualty Events exceeds $200,000; or
(f) by Purchaser or Seller if the preferential purchase right
waivers required by Purchaser relating to the Properties have not been
obtained on or before September 1, 1999.
PROVIDED, HOWEVER, that a Party may not exercise any right of termination
pursuant to SECTION 15.1(B), (C) or (D) if the event giving rise to such
termination right shall be due to the breach by such Party of its obligations
under this Agreement.
15.2 EFFECT OF TERMINATION. If this Agreement is terminated pursuant to
SECTION 15.1, this Agreement shall become void and of no further force or effect
(except for the provisions of this
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SECTIONS 15.2, 5.4 and 6.4; and ARTICLES 8, 16 and 17; all of which shall
survive such termination and continue in full force and effect); PROVIDED,
HOWEVER, that, if either Party is in breach of its obligations under this
Agreement at the time this Agreement is so terminated, such defaulting Party
shall continue to be liable to the other Party for damages in respect of such
breach, and such liability shall not be affected by such termination.
ARTICLE 16
ARBITRATION
16.1 DISPUTES. This ARTICLE 16 shall apply to any dispute arising under or
otherwise attributable to this Agreement or the transactions contemplated hereby
(whether arising in contract, tort or otherwise, and whether arising at law or
in equity), including (a) any dispute regarding the construction,
interpretation, performance, validity or enforceability of any provision of this
Agreement or whether any Person is in compliance with, or breach of, any
provisions of this Agreement, and (b) the applicability of this ARTICLE 16 to a
particular dispute (collectively, a "DISPUTE"). The provisions of this ARTICLE
16 shall be the exclusive method of resolving Disputes.
16.2 ARBITRATION.
(a) If a Dispute arises, the Parties shall attempt to resolve it
through negotiations. If the Parties are unable to resolve the Dispute
within 20 days of the commencement of such negotiations, either Party may
submit the Dispute to binding arbitration before a sole arbitrator (the
"ARBITRATOR") pursuant to this ARTICLE 16 by notifying the other Party and
designating a proposed Arbitrator. If the other Party objects to such
proposed Arbitrator, it may, on or before the 10th day following delivery
of such notice, notify the other Party of its objection. The Parties shall
then attempt to agree upon a mutually-acceptable Arbitrator. If they are
unable to do so within 10 days following delivery of the notice described
in the immediately-preceding sentence, either Party may request the
American Arbitration Association (or successor body) (the "AAA") to
designate the Arbitrator. Each Party and each proposed Arbitrator shall
disclose to the other Party any business, personal or other relationship
or affiliation that may exist between such Party and such proposed
Arbitrator, and any Party may disapprove of such proposed Arbitrator on
the basis of such relationship or affiliation. If the Arbitrator so chosen
shall die, resign or otherwise fail or become unable to serve as
Arbitrator, a replacement Arbitrator shall be chosen in accordance with
this SECTION 16.2.
(b) The Arbitrator shall expeditiously (and, if possible, within 45
days after the Arbitrator's selection) hear and decide all matters
concerning the Dispute. Any arbitration hearing shall be held in Houston,
Texas. The arbitration shall be conducted in accordance with the
then-current Commercial Arbitration Rules of the AAA (excluding rules
governing the payment of arbitration, administrative or other fees or
expenses to the Arbitrator or the AAA), to the extent that such Rules do
not conflict with the terms of this Agreement. Except as expressly
provided to the contrary in this Agreement, the Arbitrator shall have the
power
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(i) to gather such materials, information, testimony and evidence as it
deems relevant to the dispute before it (and each Party will provide such
materials, information, testimony and evidence requested by the
Arbitrator, except to the extent any information so requested is
proprietary, subject to a third-party confidentiality restriction or to an
attorney-client or other privilege) and (ii) to grant injunctive relief
and enforce specific performance.
(c) If it deems necessary, the Arbitrator may propose to the Parties
that one or more other experts be retained to assist it in resolving the
Dispute. The retention of such other experts shall require the consent of
both Parties, which shall not be unreasonably withheld. Each Party, the
Arbitrator and any proposed expert shall disclose to the other Party any
business, personal or other relationship or affiliation that may exist
between such Party (or the Arbitrator) and such proposed expert; and
either Party may disapprove of such proposed expert on the basis of such
relationship or affiliation.
(d) The decision of the Arbitrator (which shall be rendered in
writing) shall be final, nonappealable and binding upon the Parties and
may be enforced in any court of competent jurisdiction. The responsibility
for paying the costs and expenses of the arbitration, including
compensation to the Arbitrator and any experts retained by the Arbitrator,
shall be allocated between the Parties in a manner determined by the
Arbitrator to be fair and reasonable under the circumstances. Each Party
shall be responsible for the fees and expenses of its respective counsel,
consultants and witnesses, unless the Arbitrator determines that
compelling reasons exist for allocating all or a portion of such costs and
expenses to one or more other Parties.
ARTICLE 17
GENERAL PROVISIONS
17.1 GOVERNING LAW. THIS AGREEMENT AND ALL INSTRUMENTS EXECUTED IN
ACCORDANCE WITH IT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO CONFLICT-OF-LAW RULES THAT WOULD
DIRECT APPLICATION OF THE LAWS OF ANOTHER JURISDICTION, EXCEPT TO THE EXTENT
THAT IT IS MANDATORY THAT THE LAW OF SOME OTHER JURISDICTION, WHEREIN THE ASSETS
ARE LOCATED, SHALL APPLY.
17.2 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, including all Exhibits
attached hereto and made a part hereof, together with the Confidentiality
Agreement, constitute the entire agreement between the Parties with respect to
the transactions contemplated hereby and supersede all prior agreements,
understandings, negotiations and discussions, whether oral or written, of the
Parties with respect to such transactions. No amendment of this Agreement shall
be binding unless executed in writing by both Parties.
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17.3 WAIVER. No waiver by a Party of any of the provisions of this
Agreement (a) shall be binding upon a Party unless executed in writing by such
Party, (b) shall be deemed or shall constitute a waiver by such Party of any
other provisions hereof (whether or not similar), and (c) shall not constitute a
continuing waiver by such Party.
17.4 TRANSFERS. Except as expressly provided herein to the contrary,
neither Party hereto shall Transfer this Agreement or any of its rights or
obligations hereunder without the prior written consent of the other Party, and
any such Transfer made without such consent shall be void. Except as otherwise
provided herein, this Agreement shall be binding upon and inure to the benefit
of the Parties and their respective successors and permitted Transferees. Seller
agrees that the restrictions in this SECTION 17.4 shall not, after the Closing,
obligate Purchaser to obtain the written consent of Seller prior to any Transfer
by Purchaser of its ownership interest in the Assets, and Purchaser agrees that
any such Transfer shall not release Purchaser from any of its liabilities or
obligations hereunder.
17.5 NOTICES. Any notice, request, consent, approval, waiver or other
communication provided or permitted to be given under this Agreement shall be in
writing and shall be delivered in person or sent by U.S. mail, overnight courier
or fax to the appropriate address set forth below. Any such communication shall
be effective upon actual receipt; provided, however, that, in the case of
delivery by fax after the normal business hours of the recipient, such
communication shall be effective on the next Business Day following the
transmission of such fax. For purposes of notice, the addresses of the parties
shall be as follows:
FOR SELLER:
American Resources Offshore, Inc.
160 Morgan Street
P. O. Box 87
Versailles, Kentucky 40383
Attention: Mr. David Stetson
Telecopy: (606) 873-4689
WITH A COPY TO:
Blue Dolphin Services, Inc.
801 Travis, Suite 2100
Houston, Texas 77002
Attention: Mr. John P. Atwood, Vice President
Telecopy: (713) 227-7626
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FOR PURCHASER:
Fidelity Oil Holdings, Inc.
Schuchart Building
918 East Divide-Suite 200
Bismarck, ND 58501
Attn: Mr. John F. Renner, President and Chief Executive Officer
Telecopy: (701) 221-3904
Each Party shall have the right, upon giving 10 days' prior notice to the other
Party in the manner provided in this SECTION 17.5, to change its address for
purposes of notice.
17.6 EXPENSES. Except as otherwise provided herein, each Party shall be
solely responsible for all costs and expenses incurred by it in connection with
the transactions contemplated hereby (including fees and expenses of its own
counsel and consultants).
17.7 SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of Law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any adverse manner with
respect to any Party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the Parties shall negotiate
in good faith to modify this Agreement so as to effect the original intent of
the Parties as closely as possible.
17.8 PUBLICITY. Seller and Purchaser shall consult with each other with
regard to all publicity and other releases issued concerning this Agreement and
the transactions contemplated hereby and, except as required by applicable Law
or the stock exchange requirements, neither Party shall issue any such publicity
or other release without the prior written consent of the other Party.
17.9 SPECIFIC PERFORMANCE. Because of the unique nature of the Assets and
the difficulty of calculating damages for breach of this Agreement, each Party
shall have the right (pursuant to SECTION 16.2(B)) to enforce specific
performance by the other Party of its obligations under this Agreement.
17.10 CONSEQUENTIAL AND PUNITIVE DAMAGES. THE PARTIES (FOR THEMSELVES AND
THEIR RESPECTIVE AFFILIATES) WAIVE ANY RIGHTS TO CONSEQUENTIAL, PUNITIVE OR
EXEMPLARY DAMAGES RESULTING FROM A BREACH OF THIS AGREEMENT, INCLUDING LOSS OF
PROFITS.
17.11 NO THIRD-PARTY BENEFICIARY. Except as expressly provided herein,
this Agreement is not intended to create, nor shall it be construed to create,
any rights in any Third Party, under doctrines concerning third-party
beneficiaries or otherwise.
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17.12 COUNTERPARTS. This Agreement may be executed in counterparts
(including faxed counterparts). Each such counterpart shall be deemed an
original, but all such counterparts together shall constitute one and the same
instrument.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the
Execution Date.
SELLER
AMERICAN RESOURCES OFFSHORE, INC.
By: /s/ DAVID J. STETSON
David J. Stetson, Vice President
PURCHASER
FIDELITY OIL HOLDINGS, INC.
By: /s/ JOHN F. RENNER
John F. Renner, President and
Chief Executive Officer
[SIGNATURE PAGE TO PURCHASE AND SALE AGREEMENT BETWEEN AMERICAN RESOURCES
OFFSHORE, INC. AND FIDELITY OIL HOLDINGS, INC.]
35
EXHIBIT 7.3
EXECUTION VERSION
================================================================================
PARTICIPATION AGREEMENT
BETWEEN
BLUE DOLPHIN EXPLORATION COMPANY
AND
FIDELITY OIL HOLDINGS, INC.
JULY 30, 1999
================================================================================
<PAGE>
PARTICIPATION AGREEMENT
TABLE OF CONTENTS
ARTICLE 1DEFINITIONS
1.1 DEFINED TERMS....................................................1
1.2 OTHER TERMS......................................................4
1.3 CONSTRUCTION.....................................................4
ARTICLE 2 OBLIGATIONS OF THE PARTIES WITH RESPECT TO THE TRANSACTIONS
2.1 CLOSING UNDER AGREEMENTS.........................................5
2.2 DUE DILIGENCE MATERIALS..........................................5
2.3 AMENDMENTS AND WAIVERS...........................................5
2.4 MANAGEMENT SERVICES AGREEMENT....................................5
2.5 CONSULTING AGREEMENT.............................................5
ARTICLE 3 BACK-IN RIGHTS OF BDEX
3.1 BACK-IN RIGHTS FOR PROVED PROPERTIES.............................6
3.2 BACK-IN RIGHTS FOR EXPLORATORY PROPERTIES........................6
3.3 PAYOUT CALCULATION...............................................6
3.4 ASSIGNMENT OF BACK-IN INTERESTS..................................6
ARTICLE 4 BDEX COMPENSATION
4.1 FINDER=S FEE.....................................................7
4.2 TRANSACTION COSTS................................................7
ARTICLE 5 REPRESENTATIONS AND WARRANTIES
5.1 REPRESENTATIONS AND WARRANTIES OF BDEX...........................7
5.2 REPRESENTATIONS AND WARRANTIES OF FIDELITY.......................8
ARTICLE 6 RELATIONSHIP OF PARTIES
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ARTICLE 7 NOTICES
7.1 NOTICES..........................................................9
7.2 GOVERNING LAW....................................................9
7.3 ASSIGNMENT.......................................................9
7.4 INTEGRATION.....................................................10
7.5 WAIVER OR MODIFICATION..........................................10
7.6 INVALID PROVISIONS..............................................10
7.7 FORCE MAJEURE...................................................10
7.8 MULTIPLE COUNTERPARTS...........................................10
7.9 DISPUTE RESOLUTION..............................................11
7.10 THIRD PARTY BENEFICIARIES.......................................13
ii
<PAGE>
EXHIBITS
EXHIBIT A-1 - EXPLORATORY PROPERTIES
EXHIBIT A-2 - PROVED PROPERTIES
EXHIBIT B - MANAGEMENT SERVICES AGREEMENT
iii
<PAGE>
PARTICIPATION AGREEMENT
This PARTICIPATION AGREEMENT (this AAGREEMENT@) is made and entered into
this 30th day of July, 1999, by and between BLUE DOLPHIN EXPLORATION COMPANY, a
Delaware corporation (ABDEX@) and FIDELITY OIL HOLDINGS, INC., a Delaware
corporation (AFIDELITY@). BDEX and Fidelity may be referred to herein
collectively as the APARTIES@ or individually as a APARTY@.
RECITALS:
A. BDEX and Fidelity desire to participate in certain transactions which
will result in the acquisition by BDEX of seventy-five percent (75%)
of the common stock of American Resources Offshore, Inc., a Delaware
corporation (AARO@) and the acquisition by Fidelity of eighty percent
(80%) of the oil and gas properties of ARO located in the Gulf of
Mexico.
B. The transactions will require BDEX and Fidelity to make certain
commitments in connection with the acquisition of the ARO common stock
by BDEX and the ARO Gulf of Mexico properties by Fidelity.
NOW, THEREFORE, for and in consideration of the mutual covenants,
conditions and agreements hereinafter set forth, the Parties agree as follows:
AGREEMENTS
ARTICLE 1
DEFINITIONS
1.1 DEFINED TERMS. The following capitalized terms shall have the
following meanings in this Agreement:
"AFFILIATE" shall mean, with respect to any Person, any other Person
that directly or indirectly, through one or more intermediaries, controls
or is controlled by or is under common control with the Person. The terms
Acontrols,@ Acontrolled by@ and Aunder common control with@ shall mean the
possession, directly or indirectly or through one or more intermediaries,
of more than fifty percent (50%) of the outstanding voting stock of, or
the
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power to direct or cause the direction of the management policies of any
Person, whether through ownership of Stock, as a general partner or
trustee, by contract or otherwise.
"AGREEMENT" has the meaning set forth in the introductory paragraph
hereof.
"ARO" shall have the meaning set forth in the recitals hereof.
"ASSIGNMENT" shall have the meaning set forth in SECTION 3.4.
"DNB" shall mean DnB Energy Assets, Inc.
"BDEX" has the meaning set forth in the introductory paragraph
hereof.
"BUSINESS DAY" shall mean a day other than any day that banking
institutions are required or permitted to be closed under the laws of the
State of Texas.
"EXPLORATORY PROPERTIES" shall mean those Properties identified on
EXHIBIT A-1 as AEXPLORATORY PROPERTIES@.
"EXPLORATORY PROPERTY BACK-IN INTEREST" shall mean an interest equal
to fifteen percent (15%) of all interests acquired by Fidelity in and to
each Exploratory Property pursuant to the Purchase and Sale Agreement.
"EXPLORATORY PROPERTY PAYOUT" shall mean that point in time when
Fidelity, from the Proceeds from the Exploratory Properties, has recovered
(a) the direct costs of drilling, redrilling, testing, completing,
recompleting, stimulating, sidetracking, workovers, equipping (including
platforms, facilities and pipelines) and operating wells attributable to
the Exploratory Properties, including an allocable portion of the
Management Fee (as defined in the Management Services Agreement) and (b)
all direct out-of-pocket third party charges incurred by Fidelity relating
to the Exploratory Properties as calculated for each Exploratory Property
on a block by block basis.
"FIDELITY" has the meaning set forth in the introductory paragraph
hereof.
"FINDERS FEE" shall have the meaning set forth in SECTION 4.1.
"HYDROCARBONS" shall mean gas, oil, casinghead gas, drip gasoline,
natural gasoline and all other liquid and gaseous hydrocarbons.
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"INVESTMENT AGREEMENT" means that certain Investment Agreement
entered into or to be entered into between BDEX and ARO regarding, inter
ALIA, the purchase of seventy-five percent (75%) of the common stock of
ARO, as the same may be amended from time to time.
"MANAGEMENT SERVICES AGREEMENT" shall mean an agreement in
substantially the form as the agreement attached hereto as EXHIBIT B, as
the same may be amended and modified from time to time.
"MMS" shall mean the United States Minerals Management Service.
"NOTE PURCHASE AGREEMENT" shall mean that certain note purchase
agreement or similar type of agreement between Fidelity, BDEX and DnB with
respect to the purchase by BDEX and Fidelity of the promissory note or
notes and liens and security interests securing such note or notes held by
DnB and issued and granted by ARO.
"PARTY" AND "PARTIES" shall have the meaning set forth in the
introductory paragraph hereto.
"PERSON" shall mean any natural person or a corporation, general
partnership, limited partnership, joint venture, limited liability
company, trust, estate or other entity.
"PROCEEDS" shall mean all proceeds from or attributable to
Fidelity=s ownership interest in the Properties after deducting applicable
royalties, overriding royalties and other burdens on production, but
excluding all burdens on production granted by, through or under Fidelity.
"PROPERTIES" shall mean the Hydrocarbon properties described in
EXHIBITS A-1 AND A-2, together with the leases creating such Hydrocarbon
properties (including record title, operating rights, overriding
royalties, net profits interests and all other types of interests) and all
personal property associated therewith.
"PROVED PROPERTIES" shall mean those Properties identified on
EXHIBIT A-2 as APROVED PROPERTIES@.
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"PROVED PROPERTY BACK-IN INTEREST" shall mean an interest equal to
ten percent (10%) of all interests acquired by Fidelity in and to the
Proved Properties pursuant to the Purchase and Sale Agreement.
"PROVED PROPERTY PAYOUT" shall mean that point in time when
Fidelity, from Proceeds from all Proved Properties, collectively, has
recovered, without duplication, (a) its total costs attributable to the
acquisition of all of the Properties, including, without limitation, the
consideration paid for its ownership interest in the Properties pursuant
to the Purchase and Sale Agreement, the Transaction Costs and the SEC
Transaction Costs, (b) the Finder=s Fee, (c) the direct costs of drilling,
redrilling, testing, completing, recompleting, stimulation, sidetracking,
workovers, equipping (including platforms, facilities and pipelines) and
operating wells attributable to the Proved Properties, including an
allocable portion of the Management Fee (as defined in the Management
Services Agreement) for the Proved Properties, (d) all direct
out-of-pocket third party charges incurred by Fidelity relating to the
Proved Properties and (e) the payments made by Fidelity pursuant to
SECTION 2.5 of this Agreement.
"PURCHASE AND SALE AGREEMENT" shall mean that certain Purchase and
Sale Agreement entered into or to be entered into between Fidelity and ARO
regarding the purchase of eighty percent (80%) of ARO=s interest in and to
the Properties by Fidelity.
"SEC TRANSACTION COSTS" shall mean Transaction Costs related solely
to compliance with the Securities Laws by BDEX or its Affiliates or the
officers and directors of BDEX and its Affiliates resulting from or
relating to the Transactions.
"SECURITIES LAWS" shall mean the Securities Act of 1933, as amended,
the Securities Exchange Act of 1934, as amended, all state securities laws
and all rules, regulations and orders promulgated thereunder.
"TRANSACTIONS" shall mean, collectively, all transactions
contemplated by the Purchase and Sale Agreement, the Investment Agreement
and the Note Purchase Agreement and all other transactions pertaining or
related to the transactions contemplated by the Purchase and Sale
Agreement, the Investment Agreement and the Note Purchase Agreement.
"TRANSACTION COSTS" shall mean all costs and expenses incurred by
BDEX in connection with the Transactions, including, without limitation,
attorneys= fees and expenses, third party expenses, direct out-of-pocket
expenses for travel and general and administrative
4
<PAGE>
expenses of BDEX related to the Transactions, but excluding SEC
Transaction Costs. The Transaction Costs shall include costs and expenses
incurred prior to or after the closing of the Transactions to the extent
related to the Transactions.
1.2 OTHER TERMS. Other capitalized terms in this Agreement not defined in
SECTION 1.1 shall have the meanings given them throughout this Agreement.
1.3 CONSTRUCTION. The headings in this Agreement are inserted for
convenience of reference only and shall not affect the interpretation of this
Agreement. Whenever the context requires, each term stated in either the
singular or the plural shall include the singular or the plural, and the gender
of all words used in this Agreement includes the masculine, the feminine and the
neuter. Except as otherwise noted, references to Articles and Sections refer to
articles and sections of this Agreement, and all references to Exhibits are to
exhibits attached hereto, each of which is made a part hereof for all purposes.
Use of the word Aincluding@ shall mean, without limitation, by reason of
enumeration. The use of the words Ahereof,@ Ahereunder,@ Ahereto,@ Aherein,@
Ahereinafter,@ Ahereinabove@ and Ahereinbelow@ shall be references to this
Agreement in its entirety and not only to a particular Exhibit, Section or
Article in which such reference appears.
ARTICLE 2
OBLIGATIONS OF THE PARTIES WITH RESPECT TO THE TRANSACTIONS
2.1 CLOSING UNDER AGREEMENTS. BDEX and Fidelity shall use commercially
reasonable efforts to close the Transactions contemplated by the Purchase and
Sale Agreement, the Investment Agreement and the Note Purchase Agreement,
respectively; PROVIDED, HOWEVER, that neither Party shall have any obligation to
waive any rights they may have under such agreements in order to fulfill their
obligations pursuant to this Agreement.
2.2 DUE DILIGENCE MATERIALS. BDEX shall make available to Fidelity any due
diligence materials obtained by BDEX in connection with the Transactions.
Additionally, BDEX shall instruct its counsel to make available to Fidelity any
and all materials, information, data and opinions provided to or for BDEX in
connection with the Transactions. FIDELITY AGREES THAT ALL MATERIALS,
INFORMATION AND DATA MADE AVAILABLE TO IT IN CONNECTION WITH THE TRANSACTIONS AS
CONTEMPLATED BY THIS SECTION 2.3 ARE MADE AVAILABLE AS AN ACCOMMODATION AND
WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND AS TO THE ACCURACY OR
COMPLETENESS OF SUCH MATERIALS AND FIDELITY AGREES THAT ANY
5
<PAGE>
CONCLUSIONS DRAWN THEREFROM SHALL BE THE RESULT OF FIDELITY=S OWN INDEPENDENT
REVIEW AND JUDGMENT.
2.3 AMENDMENTS AND WAIVERS. BDEX and Fidelity agree that, once executed,
neither Party shall (a) amend or agree to amend, respectively, the Purchase and
Sale Agreement, the Investment Agreement or the Note Purchase Agreement or (b)
waive or agree to waive any condition to closing under, respectively, the
Purchase and Sale Agreement, the Investment Agreement or the Note Purchase
Agreement, without the written consent of the other Party.
2.4 MANAGEMENT SERVICES AGREEMENT. Contemporaneously with the closing of
the Transactions, Fidelity and BDEX shall enter into the Management Services
Agreement.
2.5 CONSULTING AGREEMENT. In the event that the Transactions close,
Fidelity agrees that it will bear eighty percent (80%) of the amounts paid by
ARO under that certain Consulting Agreement (as that term is defined in the
Investment Agreement). Fidelity may fulfill its obligations pursuant to this
Section 2.5 by making adjustments to the purchase price to be paid by Fidelity
to ARO pursuant to the Purchase and Sale Agreement for amounts paid by ARO under
the Consulting Agreement prior to the closing of the Transactions. For all
amounts due by Fidelity to ARO pursuant to this Section 2.5 for payments made by
ARO under the Consulting Agreement after the closing of the Transactions,
Fidelity shall pay such sums to ARO on or before the 20th day of each month
following the closing of the Transactions.
ARTICLE 3
BACK-IN RIGHTS OF BDEX
3.1 BACK-IN RIGHTS FOR PROVED PROPERTIES. Upon the occurrence of Proved
Property Payout, BDEX shall be entitled to receive an Assignment from Fidelity
for the Proved Property Back-In Interest.
3.2 BACK-IN RIGHTS FOR EXPLORATORY PROPERTIES. Upon the occurrence of
Exploratory Property Payout, BDEX shall be entitled to receive an Assignment
from Fidelity for the Exploratory Property Back-In Interest for the Exploratory
Property for which Exploratory Payout has occurred.
3.3 PAYOUT CALCULATION. After the Closing of the Transactions Fidelity
shall be responsible for calculating the Proved Property Payout status and the
Exploratory Property Payout status. Fidelity shall provide BDEX with a statement
each calendar quarter showing the Proved
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Property Payout status and the Exploratory Property Payout status and shall
provide BDEX with any data and information supporting such statements as BDEX
may reasonably request.
3.4 ASSIGNMENT OF BACK-IN INTERESTS. Upon the occurrence of Proved
Property Payout or an Exploratory Property Payout, as the case may be, Fidelity
shall, within thirty (30) days after receipt of a written request from BDEX for
an assignment together with an executable version of such assignment prepared by
BDEX, execute and deliver to BDEX an assignment in a form acceptable to the MMS,
or the State of Texas, as may be applicable (the AASSIGNMENT@), of the Proved
Properties Back-In Interest or the Exploratory Property Back-In Interest,
subject to the following terms, conditions, reservations and limitations:
(a) The Assignment shall be made without warranty of any kind,
express or implied, except that Fidelity shall warrant title to the
Properties by, through and under itself, but not otherwise.
(b) The Assignment shall be made subject to the terms, covenants and
conditions of the following:
1. The terms and provisions of the applicable leases
comprising the Properties.
2. The terms and provisions of this Agreement and all other
contracts and agreements to which the applicable Properties are
subject immediately prior to the assignment of such Properties to
Fidelity pursuant to the Purchase and Sale Agreement, or otherwise
consented to by BDEX in writing.
3. Instruments recorded of public record (including any
applicable county or parish filings in Texas and Louisiana), or in
the records of the MMS, or the State of Texas, of any nature
whatsoever affecting or pertaining to the applicable Properties.
(c) The Assignment shall be effective for all purposes as of 7:00
a.m. Central Daylight Time on the first day following the date on which
Payout occurs, and shall be free and clear of all leasehold burdens and
burdens on production created by, through or under Fidelity.
ARTICLE 4
7
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BDEX COMPENSATION
4.1 FINDER=S FEE. Upon the closing of the Purchase and Sale Agreement,
Fidelity shall pay to BDEX, as a finder=s fee (the AFINDER=S FEE@) in an amount
equal to one percent (1%) of the purchase price, as adjusted, paid by Fidelity
for the interest purchased by Fidelity in and to the Properties pursuant to the
Purchase and Sale Agreement. The Finder=s Fee shall be payable to BDEX
contemporaneously with the closing under the Purchase and Sale Agreement and
shall be subject to being increased or decreased based upon any post-closing
purchase price adjustments made pursuant to the Purchase and Sale Agreement. If
the purchase price under the Purchase and Sale Agreement is increased or
decreased as the result of post-closing adjustments under the Purchase and Sale
Agreement, Fidelity or BDEX, as the case may be, shall pay to the other Party
any amounts due to the other within five (5) days following the final purchase
price adjustments under the Purchase and Sale Agreement.
4.2 TRANSACTION COSTS. In addition to the Finder=s Fee, Fidelity agrees to
pay to BDEX an amount equal to eighty percent (80%) of the Transaction Costs;
PROVIDED, HOWEVER, Fidelity shall only be obligated to pay BDEX fifty percent
(50%) of the SEC Transaction Costs. The Transaction Costs shall be paid to BDEX
whether or not the Transactions, or any part thereof, close. If the Transactions
do not close, Fidelity shall pay its share of the Transaction Costs and the SEC
Transaction Costs to BDEX within twenty (20) days after receipt of an invoice
from BDEX.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
5.1 REPRESENTATIONS AND WARRANTIES OF BDEX. BDEX represents and warrants
to Fidelity that:
(a) BDEX is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and is qualified to
conduct business under the laws of any state in which its operations may
be conducted except to the extent that the failure to so qualify will not
have a material adverse effect on the business or operations of BDEX.
(b) There is no litigation, judgment or outstanding order, writ,
injunction, decree, stipulation or award (whether rendered by a court or
administrative agency, or by arbitration) pending or to the knowledge of
BDEX threatened, to which BDEX is or would be a party or to which BDEX is
bound, that would have an adverse effect on the ability of BDEX to
consummate its duties and obligations contemplated under this Agreement.
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5.2 REPRESENTATIONS AND WARRANTIES OF FIDELITY. Fidelity represents and
warrants to BDEX that:
(a) Fidelity is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Delaware, has qualified to
conduct business under the laws of any state in which its operations may
be conducted hereunder, except to the extent that the failure to be
qualified will not have a material adverse effect on the business or
operations of Fidelity.
(b) There is no litigation, judgment or outstanding order, writ,
injunction, decree, stipulation or award (whether rendered by a court or
administrative agency, or by arbitration) pending, or to the knowledge of
Fidelity threatened, to which Fidelity is or would be a party, or to which
Fidelity is bound that would have an adverse effect on the ability of
Fidelity to consummate its duties and obligations contemplated under this
Agreement.
ARTICLE 6
RELATIONSHIP OF PARTIES
The Parties do not intend to create, nor shall this Agreement be construed
to create, a partnership between the Parties nor does this Agreement render the
Parties hereto liable as partners. Nothing herein shall be construed as an
authorization of one Party hereto to act as general agent for the other Party
nor to permit either Party to act for or on behalf of the other Party outside
the terms of this Agreement.
ARTICLE 7
NOTICES
7.1 NOTICES. All notices required or permitted under this Agreement shall
be in writing and, (i) if by air courier, shall be deemed to have been given one
(1) Business Day after the date deposited with a recognized carrier of overnight
mail, with all freight or other charges prepaid, (ii) if by telegram, shall be
deemed to have been given one Business Day after delivered to the wire service,
(iii) if by telex, provided an answer back is received, shall be deemed to have
been given when sent, (iv) if mailed, shall be deemed to have been given three
(3) Business Days after the date when sent by registered or certified mail,
postage prepaid, and (v) if sent by telecopier, shall be deemed to have been
given when sent, addressed as follows:
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Fidelity: Fidelity Oil Holdings, Inc.
918 East Divide Avenue, Suite 200
Bismarck, North Dakota 58501
Attention: John F. Renner, President and Chief Executive
Officer
Telecopier: (701) 221-3904
BDEX: Blue Dolphin Exploration Company
801 Travis, Suite 2100
Houston, Texas 77002
Attention: John P. Atwood
Vice President
Telecopier: (713) 227-7626
Either party to this Agreement may change the address provided for above
by notifying the other party in writing at least thirty (30) days prior to the
date such address change shall become effective.
7.2 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO ANY
PRINCIPLES OR CONFLICTS OR LAWS.
7.3 ASSIGNMENT..No assignment of this Agreement or any of the rights or
obligations set forth herein by either Party shall be valid without the specific
written consent of the other Party. Any purported assignment in violation of
this SECTION 7.3 shall be void.
7.4 INTEGRATION. This Agreement, the Exhibits hereto and the other
agreements to be entered into by the Parties under the provisions of this
Agreement, if any, set forth the entire agreement and understanding of the
Parties in respect of the transactions contemplated hereby and supersede all
prior agreements, prior arrangements and prior understandings relating to the
subject matter hereof, whether written or oral.
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7.5 WAIVER OR MODIFICATION. This Agreement may be amended, modified,
superseded or canceled, and any of the terms, covenants, representations,
warranties or conditions hereof may be waived, only by a written instrument
executed by a duly authorized officer of BDEX and Fidelity, or, in the case of a
waiver or consent, by or on behalf of the Party or Parties waiving compliance or
giving such consent. The failure of any party at any time or times to require
performance of any provision hereof shall in no manner affect its right at a
later time to enforce the same. No waiver by any party of any condition, or of
any breach of any covenant, agreement, representation or warranty contained in
this Agreement, in any one or more instances, shall be deemed to be or construed
as a further or continuing waiver of any such condition or breach or waiver of
any other condition or of any breach of any other covenant, agreement,
representation or warranty.
7.6 INVALID PROVISIONS. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, such provision shall be fully severable; this Agreement shall
be construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof; and the remaining provisions of this
Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance from this
Agreement.
7.7 FORCE MAJEURE. The Parties shall be excused for failure to perform the
respective obligations hereunder (other than a failure relating to payment
obligations imposed hereunder) to the extent that such failure is directly or
indirectly caused by an occurrence commonly known as force majeure, including,
without limitation, delays arising from fire, earthquake, flood or other acts of
God, acts or orders of a government, agency or instrumentality thereof, acts of
a public enemy, riots, embargoes, strikes or other consorted acts of workers,
casualties or accidents, failure or delay in deliveries or materials or
transportation, shortages of labor or materials, communications failure or any
other causes, circumstances or contingencies, that are beyond the reasonable
control of the Party unable to perform. The Party claiming a force majeure event
shall, to the extent reasonably possible, remedy such force majeure event with
all reasonable dispatch.
7.8 MULTIPLE COUNTERPARTS. This Agreement may be executed in a number of
identical counterparts, each of which for all purposes is to be deemed an
original, and all of which constitute, collectively, one agreement; but in
making proof of this Agreement, it shall not be necessary to produce or account
for more than one such counterpart.
7.9 DISPUTE RESOLUTION. (a) All disputes among BDEX and Fidelity arising
out of any matters which are the subject of this Agreement shall be resolved
through the mediation and binding
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arbitration procedure set forth below. Compliance with this SECTION 7.9 and the
procedures set forth in SECTION 7.9(B) shall constitute a condition precedent to
either Party seeking judicial enforcement of any provisions of this Agreement.
The Parties agree that the provisions of this SECTION 7.9 are a severable,
independent arbitration agreement separately enforceable from the remainder of
this Agreement.
(b) Upon the occurrence of any dispute between BDEX and Fidelity in
connection with their rights and obligations under this Agreement, BDEX and
Fidelity will first attempt in good faith to resolve all disputes by
negotiations between management level persons who have authority to settle the
controversy. If either Party believes further negotiations are futile, such
Party may initiate mediation by so notifying the other Party in writing. Both
Parties shall then attempt in good faith to resolve the dispute by mediation in
Houston, Texas, employing management level persons with authority to settle the
dispute, in accordance with the Center for Public Resources Model Procedure for
Mediation of Business Disputes, as such procedure may be modified by agreement
of the Parties. If the dispute has not been resolved pursuant to mediation
within sixty (60) days after initiating the mediation process, the dispute shall
be finally resolved through binding arbitration, as follows:
<PAGE>
(1) If any dispute or controversy shall arise between the Parties
out of this Agreement, the alleged breach thereof or any tort in
connection therewith, or out of the refusal to perform the whole or any
part thereof, and the Parties shall be unable to agree with respect to the
matter or matters in dispute or controversy, the same shall be submitted
to arbitration before a panel of arbitrators in accordance with the Texas
General Arbitration Act, V.A.C.S. art. 224, ET. SEQ. and the provisions of
this SECTION 7.9(B). The panel of arbitrators shall be chosen as follows:
Upon the written demand of either Party and within ten (10) working days
from the date of such demand, each Party shall name an arbitrator and
these two so named shall promptly thereafter choose a third. If either
Party shall fail to name an arbitrator within ten (10) working days from
such demand, the other Party shall name the second arbitrator as well as
the first, or if the two arbitrators shall fail within ten (10) working
days from their appointment to agree upon and appoint the third
arbitrator, then upon written application by either Party such third
arbitrator may be appointed by the senior Judge in active service of the
United States District Court for the Southern District of Texas; and if
said Judge shall fail to act, then such third arbitrator shall be
appointed by the President of the Center for Public Resources, Inc. The
arbitrators selected to act hereunder shall be qualified by education,
experience, and training to pass upon the particular matter or matters in
dispute.
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(2) The panel of arbitrators so chosen shall proceed promptly to
hear and determine the matter or matters in dispute, after giving the
Parties due notice of hearing and a reasonable opportunity to be heard.
The procedure of the arbitration proceedings shall be in accordance with
the Center for Public Resources Rules for Non-Administered Arbitration of
Business Disputes, as may be modified by the panel of arbitrators. Unless
otherwise determined by the arbitrators, the hearing and presentations of
the Parties shall not exceed two days cumulative. The location of all
arbitration proceedings hereunder shall be Houston, Texas, unless the
panel of arbitrators determines that another venue is more appropriate.
The award of the panel of arbitrators or a majority thereof shall be made
within forty-five (45) days after the appointment of the third arbitrator,
subject to any reasonable delay due to unforeseen circumstances. In the
event of the panel or a majority thereof failing to make a award within
sixty (60) days after the appointment of the third arbitrator, new
arbitrators may at the election of either Party be chosen in like manner
as if none had been previously selected.
(3) The award of the arbitrators, or a majority thereof, shall be in
writing and shall be final and binding on the Parties as to the question
or questions submitted, and the Parties shall abide by such award and
perform the conditions thereof. The award of the arbitrators shall be
based on the applicable law and facts, the merits of the Parties=
positions in the controversy or dispute, and the arbitrators= assessment
of the fairness and reasonableness of any settlement proposal of any
Party. The award shall not provide or create any rights or benefits in any
person or entity which is not a Party to this Agreement, as this Agreement
and any arbitration thereunder shall not be construed as a third party
beneficiary contract. Unless otherwise determined by the arbitrators, all
expenses in connection with such arbitration shall be divided equally
between the Parties thereto, except that the expenses of counsel,
witnesses, and employees of each Party shall be borne solely by the Party
incurring them, and the compensation of any arbitrator named by a Party
shall be borne solely by such Party; provided that if court proceedings to
stay litigation or compel arbitration are necessary, the Party who
unsuccessfully opposes such proceedings shall pay all reasonable
associated costs, expenses and attorney's fees of such court proceedings.
(4) The arbitrators shall not be required to explain reasons for the
award, but may do so. No transcript or other recording shall be made of
the arbitration proceedings. Except (i) in connection with a suit for
enforcement of the award, (ii) as required by law, court order or
regulation, (iii) when reasonably necessary to explain the terms and
conditions of the award to outside attorneys, auditors, and insurers, or
(iv) as part of good faith compliance with disclosure obligations under
applicable law, the arbitration proceedings,
13
<PAGE>
the award, and the Parties= actions in connection with the arbitration are
confidential and shall not be disclosed to third parties, and no
disclosure of or reference to the arbitration, the award, or of the
Parties= statements or actions in connection with the arbitration shall be
made to any third party. All offers, promises, conduct, statements, and
evidence, whether oral or written, made in the course of the arbitration
by any of the Parties, their agents, employees, experts, or attorneys are
confidential. Such offers, promises, conduct, statements, and evidence
shall be considered inadmissible under Rule 408 of the Federal Rules of
Evidence and any similar state provisions, and shall be inadmissible for
any purpose, including impeachment. However, evidence that is otherwise
admissible shall not be rendered inadmissible as a result of its use in
the arbitration.
(5) The award of the panel of arbitrators and the obligation to
abide by same and perform the conditions thereof shall be enforceable in
the state district courts in Harris County, Texas, or in any federal court
having jurisdiction. Each Party shall bear its own attorneys= fees in
connection with any appeal or enforcement of an arbitration award, or in
any other court litigation arising out of this Agreement.
7.10 THIRD PARTY BENEFICIARIES. Except for ARO pursuant to Section 2.5, no
Person other than BDEX and Fidelity is intended to be a beneficiary of this
Agreement; there are no intended third-party beneficiaries to this Agreement.
[Remainder of this page intentionally left blank.]
14
<PAGE>
EXECUTED as of the date first set forth above.
FIDELITY OIL HOLDINGS, INC.
By: /s/ JOHN F. RENNER
John F. Renner, President and
Chief Executive Officer
BLUE DOLPHIN EXPLORATION COMPANY
By: /s/ JOHN P. ATWOOD
John P. Atwood, Vice President
[SIGNATURE PAGE TO PARTICIPATION AGREEMENT BETWEEN BLUE DOLPHIN EXPLORATION
COMPANY AND FIDELITY OIL HOLDINGS, INC.]
EXHIBIT 7.4
VOTING AND SUPPORT AGREEMENT
AND IRREVOCABLE PROXY
July ___, 1999
Blue Dolphin Exploration Company
801 Travis, Suite 2100
Houston, Texas 77002
Dear Sirs:
The undersigned understands that Blue Dolphin Exploration Company
("Investor"), and American Resources Offshore, Inc. (the "Company") are entering
into an Investment Agreement (the "Agreement") pursuant to which Company will
sell and Investor will purchase a number of shares of the Company's common
stock, par value $.00001 per share (the "Common Stock"), that will result in
Investor owning, immediately after the Closing (as defined in the Agreement),
75% of the voting power of all classes of the Company's voting securities.
The undersigned is a stockholder of the Company (the "Stockholder") and is
entering into this letter agreement to induce the Investor to enter into the
Agreement and to consummate the transactions contemplated thereby. Capitalized
terms used herein without definition have the meanings given them in the
Agreement
The Stockholder confirms his agreement with Investor as follows:
1. The Stockholder represents, warrants to Investor that:
(a) the undersigned is the record or beneficial owner of the
number of shares of Common Stock set forth beneath his name
below (collectively, the "Shares") free and clear of all
liens, claims, charges, encumbrances, voting agreements and
commitments of any kind whatsoever, except as specifically set
forth in the schedule attached to this letter agreement;
(b) the undersigned has full legal right, power, authority and
capacity to execute and deliver this letter agreement, and to
perform and observe the provisions of this letter agreement;
and
<PAGE>
Blue Dolphin Exploration Company
July ___, 1999
Page 2
(c) this letter agreement has been duly executed and delivered by
Stockholder and constitutes a legal, valid and binding
obligation of Stockholder, enforceable against Stockholder
in accordance with its terms.
2. The Stockholder agrees that, from the date hereof until the Agreement
is terminated in accordance with its terms, the undersigned will not, and will
not permit any entity controlled by Stockholder to, (i) contract to sell, sell
or otherwise transfer or dispose of any of the Shares or any interest therein or
securities convertible there into or any voting rights with respect thereto,
other than with Investor's prior written consent, (ii) consent to any amendment
to the certificate of incorporation or bylaws of the Company or (iii) encumber
any of the Shares.
3. The Stockholder agrees that, immediately prior to the Closing Date, but
in any event not later than 5:00 p.m. two (2) days before the Closing Date, the
undersigned will cause all shares of Series 1993 8% Convertible Preferred Stock
and securities convertible into Common Stock, including, but not limited to,
options, warrants and rights (collectively, the "Convertible Securities"), if
any, owned by the Stockholder to be converted and exercised into Common Stock
and shall cause all other Convertible Securities to be canceled without cost to
the Company.
4. The Stockholder agrees, from the date hereof until the Agreement is
terminated in accordance with its terms, that: (i) the undersigned shall vote or
cause to be voted all of the Shares owned by the Stockholder, or over which the
Stockholder has voting power or control, directly or indirectly, to approve (a)
the Agreement, (b) the Purchase and Sale Agreement, (c) the Southern
Disposition, (d) a 10-for-1 reverse stock split of the Common Stock, (e) each of
the transactions contemplated thereby and (f) for the directors nominated for
election which have been designated by the Investor (collectively, the "Proxy
Items"); (ii) the undersigned will cause the holders of record of Common Stock
beneficially owned by the undersigned to grant an irrevocable proxy,
substantially in the form of Exhibit A hereto, to the Investor; and (iii) that
the Shares will not be voted in favor of any other Acquisition Proposal during
such period.
5. The Stockholder agrees to cooperate fully with Investor in connection
with the Agreement and to support transactions contemplated thereby. The
Stockholder agrees that the undersigned will not, and will not instruct its
agents, employees or representatives or the officers, employees, agents or
representatives of the Company to, directly or indirectly, (i) solicit or
initiate, or encourage the submission of, any Acquisition Proposal or (ii)
participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to, or take any other action to facilitate
any inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any Acquisition Proposal.
<PAGE>
Blue Dolphin Exploration Company
July ___, 1999
Page 3
6. None of the information relating to the Stockholder to be supplied in
writing by the Stockholder specifically for inclusion in the Notice and Proxy
Statement (and any amendments thereto), at the time the Notice and Proxy
Statement is first published, sent or given to the Company's stockholders, shall
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
7. This letter agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof and supersedes all
other prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof and shall not be assigned by
operation of law or otherwise; provided that the Investor may assign any of its
rights and obligations to any of its affiliates, but no such assignment shall
relieve the Stockholder of its obligations hereunder.
8. The invalidity or unenforceability of any provision of this letter
agreement in any jurisdiction shall not affect the validity or enforceability of
any other provisions of this letter agreement, which shall remain in full force
and effect in such jurisdiction, or the validity or enforceability of such
provision in any other jurisdiction. The Stockholder acknowledges that Investor
will be irreparably harmed and that there will be no adequate remedy at law for
a violation of any of the covenants or agreements of the Stockholder contained
herein. It is accordingly agreed that, in addition to any other remedies that
may be available to Investor upon the breach by the Stockholder of such
covenants and agreements, Investor shall have the right to obtain injunctive
relief to restrain any breach or threatened breach of such covenants or
agreements or otherwise to obtain specific performance of any of such covenants
or agreements.
9. This letter agreement shall be governed by and construed in accordance
with the laws of the State of Delaware without regard to the principles of
conflicts of laws thereof. Any judicial proceeding brought against any party
hereto with respect to this letter agreement, or any transaction contemplated
hereby, may be brought in the Federal District Court for the Southern District
of Texas and, by execution and delivery of this letter agreement, each of the
parties hereto (i) accepts, generally and unconditionally, the nonexclusive
jurisdiction of such court and any related appellate court, and irrevocably
agrees to be bound by any judgment rendered thereby in connection with this
letter agreement, subject, in each case, to all rights to appeal such decisions
to the extent available to the parties and (ii) irrevocably waives any objection
it may now or hereafter have as to the venue of any such suit, action or
proceeding brought in such a court or that such court is an inconvenient forum.
Each party hereto hereby
<PAGE>
Blue Dolphin Exploration Company
July ___, 1999
Page 4
waives personal service of process and consents that service of process upon it
may be made by certified or registered mail, return receipt requested, at its
address specified in this letter agreement, and service so made shall be deemed
completed on the fifth business day after such service is deposited in the mail.
Nothing herein shall affect the right to serve process in any other manner
permitted by law. EACH PARTY HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL
PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT
OF, RELATED TO, OR CONNECTED WITH THIS LETTER AGREEMENT WHETHER SOUNDING IN
CONTRACT, TORT OR OTHERWISE.
10. The Stockholder as the record owner of the number of shares of Common
Stock set forth beneath its name below, for good and valuable consideration the
legal sufficiency of which is hereby acknowledged by the undersigned, agrees to,
and hereby grants to Investor an irrevocable proxy pursuant to the provisions of
Section 212 of the Delaware General Corporation Law to vote at all annual and
special meetings of the stockholders of Company, and any postponements or
adjournments thereof, or to execute and deliver written consents or otherwise
act with respect to, all shares of Common Stock now owned by the undersigned as
fully, to the same extent and with the same effect as the undersigned might or
could do under any applicable laws or regulations governing the rights and
powers of shareholders of a Delaware corporation in connection with the approval
of the Proxy Items. The undersigned hereby affirms that this proxy is given as a
condition of this letter agreement and as such is coupled with an interest and
is irrevocable. This proxy shall terminate on ,
.
THIS PROXY, AS IT IS COUPLED WITH AN INTEREST, IS IRREVOCABLE AND SHALL
REMAIN IN FULL FORCE AND EFFECT AND BE ENFORCEABLE AGAINST ANY DONEE, TRANSFEREE
OR ASSIGNEE OF THE COMMON STOCK.
11. This letter agreement may be executed in counterparts, each of which
shall be deemed to be an original, but all of which shall constitute one and the
same instrument.
12. This letter agreement may be terminated at the option of any party at
any time after termination of the Agreement in accordance with its terms.
<PAGE>
Blue Dolphin Exploration Company
July ___, 1999
Page 5
Please confirm that the foregoing correctly states the understanding
between us by signing and returning to us a counterpart hereof.
Very truly yours,
_______________________________________________
[NAME OF SHAREHOLDER]
_______________________________________________
Number of shares of Common Stock owned
beneficially
_______________________________________________
Number of shares of Common Stock owned of record
Confirmed on the date first above written
BLUE DOLPHIN EXPLORATION COMPANY
By: ____________________________
____________________________
<PAGE>
Blue Dolphin Exploration Company
July ___, 1999
Page 6
EXHIBIT A
IRREVOCABLE PROXY
The undersigned as the record owner of , shares of common stock, par value
$.00001 per share (the "Common Stock"), of American Resources Offshore, Inc.
(the "Company"), for good and valuable consideration the legal sufficiency of
which is hereby acknowledged by the undersigned, agrees to, and hereby grants to
Blue Dolphin Exploration Company, a Delaware corporation ("Blue Dolphin"), an
irrevocable proxy pursuant to the provisions of Section 212 of the Delaware
General Corporation Law and that certain Voting and Support Agreement and
Irrevocable Proxy, dated as of July ___, 1999, between Blue Dolphin and
[Stockholder] (the "Voting Agreement"), to vote at all annual and special
meetings of the stockholders of the Company, and any postponements or
adjournments thereof, or to execute and deliver written consents or otherwise
act with respect to, all shares of Common Stock now owned by the undersigned as
fully, to the same extent and with the same effect as the undersigned might or
could do under any applicable laws or regulations governing the rights and
powers of shareholders of a Delaware corporation in connection with the approval
of the (i) Investment Agreement, (ii) Purchase and Sale Agreement, (iii)
Southern Disposition, (iv) a 10-for-1 reverse stock split of the Common Stock,
(v) each of the transactions contemplated thereby and (vi) the election of
directors of the Company, all as contemplated by and defined in the Voting
Agreement. The undersigned hereby affirms that this proxy is given as a
condition of said Voting Agreement and as such is coupled with an interest and
is irrevocable. This proxy shall terminate on December 31, 1999.
THIS PROXY, AS IT IS COUPLED WITH AN INTEREST, IS IRREVOCABLE AND SHALL
REMAIN IN FULL FORCE AND EFFECT AND BE ENFORCEABLE AGAINST ANY DONEE,
TRANSFEREE OR ASSIGNEE OF THE COMMON STOCK.
Dated this ______ day of July, 1999.
____________________________________
(Signature of Shareholder)
<PAGE>
SUPPLEMENTAL PROXY
WHEREAS, the undersigned as the record owner of , shares of common stock,
par value $.00001 per share (the "Common Stock"), of American Resources
Offshore, Inc. (the "Company"), has granted an irrevocable proxy to Blue Dolphin
Exploration Company, a Delaware corporation ("Blue Dolphin") dated , 1999 (the
"Irrevocable Proxy"); and
WHEREAS, the undersigned desires to extend such matters to which Blue
Dolphin may exercise such Irrevocable Proxy.
NOW THEREFORE, the undersigned for good and valuable consideration the
legal sufficiency of which is hereby acknowledged by the undersigned, agrees to,
and hereby grants to Blue Dolphin the right to exercise such Irrevocable Proxy
to vote at all annual and special meetings of the stockholders of the Company,
and any postponements or adjournments thereof, or to execute and deliver written
consents or otherwise act with respect to, all shares of Common Stock now owned
by the undersigned as fully, to the same extent and with the same effect as the
undersigned might or could do under any applicable laws or regulations governing
the rights and powers of shareholders of a Delaware corporation in connection
with (i) those matters set forth in the Voting and Support Agreement and
Irrevocable Proxy, (ii) the approval of the increase in authorized shares of
capital stock, (ii) the approval of the elimination of the staggered board of
directors, and (iii) any other matters that may properly come before the annual
meeting.
The undersigned hereby affirms that this proxy is coupled with an interest
and is irrevocable. This proxy shall terminate on December 31, 1999.
THIS PROXY, AS IT IS COUPLED WITH AN INTEREST, IS IRREVOCABLE AND SHALL
REMAIN IN FULL FORCE AND EFFECT AND BE ENFORCEABLE AGAINST ANY DONEE, TRANSFEREE
OR ASSIGNEE OF THE COMMON STOCK.
Dated this ______ day of September, 1999.
_______________________________________
(Signature of Shareholder)
EXHIBIT 7.5
VOTING AND SUPPORT AGREEMENT
AND IRREVOCABLE PROXY
September __, 1999
Blue Dolphin Exploration Company
801 Travis, Suite 2100
Houston, Texas 77002
Dear Sirs:
The undersigned understands that Blue Dolphin Exploration Company
("Investor"), and American Resources Offshore, Inc. (the "Company") are entering
into an Investment Agreement (the "Agreement") pursuant to which Company will
sell and Investor will purchase a number of shares of the Company's common
stock, par value $.00001 per share (the "Common Stock"), that will result in
Investor owning, immediately after the Closing (as defined in the Agreement),
75% of the voting power of all classes of the Company's voting securities.
The undersigned is a stockholder of the Company (the "Stockholder") and is
entering into this letter agreement to facilitate the consummation of the
transactions contemplated by the Agreement. Capitalized terms used herein
without definition have the meanings given them in the Agreement
The Stockholder confirms his agreement with Investor as follows:
1. The Stockholder represents, warrants to Investor that:
(a) the undersigned is the record or beneficial owner of the
number of shares of Common Stock set forth beneath his name
below (collectively, the "Shares") free and clear of all
liens, claims, charges, encumbrances, voting agreements and
commitments of any kind whatsoever, except as specifically set
forth in the schedule attached to this letter agreement;
(b) the undersigned has full legal right, power, authority and
capacity to execute and deliver this letter agreement, and to
perform and observe the provisions of this letter agreement;
and
(c) this letter agreement has been duly executed and delivered by
Stockholder and constitutes a legal, valid and binding
obligation of Stockholder, enforceable against Stockholder in
accordance with its terms.
<PAGE>
Blue Dolphin Exploration Company
September __, 1999
Page 2
2. The Stockholder agrees that, from the date hereof until the earlier of
(a) the date the Agreement is terminated in accordance with its terms or (b)
December 15, 1999, the undersigned will not, and will not permit any entity
controlled by Stockholder to, (i) contract to sell, sell or otherwise transfer
or dispose of any of the Shares or any interest therein or securities
convertible there into or any voting rights with respect thereto, other than
with Investor's prior written consent, (ii) consent to any amendment to the
certificate of incorporation or bylaws of the Company or (iii) encumber any of
the Shares.
3. The Stockholder agrees that, immediately prior to the Closing Date, but
in any event not later than 5:00 p.m. two (2) days before the Closing Date, the
undersigned will cause all shares of Series 1993 8% Convertible Preferred Stock
and securities convertible into Common Stock, including, but not limited to,
options, warrants and rights (collectively, the "Convertible Securities"), if
any, owned by the Stockholder to be exercised and converted into Common Stock
and shall cause all other Convertible Securities to be canceled without cost to
the Company.
4. The Stockholder agrees, from the date hereof until the earlier of (a)
the date the Agreement is terminated in accordance with its terms or (b)
December 15, 1999, that: (i) the undersigned shall vote or cause to be voted all
of the Shares owned by the Stockholder, or over which the Stockholder has voting
power or control, directly or indirectly, to approve (a) the Agreement, (b) the
Purchase and Sale Agreement, (c) the Southern Disposition, (d) an amendment to
the Company's Certificate of Incorporation to increase the authorized capital,
(e) an amendment to the Company's Certificate of Incorporation to eliminate the
staggered board of directors, (f) each of the transactions contemplated thereby
and (g) for the directors nominated for election which have been designated by
the Investor (collectively, the "Proxy Items"); (ii) the undersigned will cause
the holders of record of Common Stock beneficially owned by the undersigned to
grant an irrevocable proxy, substantially in the form of Exhibit A hereto, to
the Investor; and (iii) that the Shares will not be voted in favor of any other
Acquisition Proposal during such period.
5. Through is acceptance of this letter agreement, Investor acknowledges
and agrees that (i) Stockholder and its affiliates (collectively "DNB") are
secured creditors of the Company; (ii) the Company is in default of its
obligations to DNB; (iii) Stockholder is entering into this letter agreement
strictly in its capacity as the holder of Common Stock of the Company and only
with respect to its rights as a holder of such Common Stock; (iv) nothing
contained herein or otherwise related to the terms of this letter agreement or
the proxy shall alter, impair or otherwise affect DNB's
rights as a creditor of the Company; and (v) except as may be otherwise
expressly agreed in writing with Investor, DNB is free to take any and all
actions available to it as a creditor of the Company, including actions which
may prevent or impede the transactions contemplated by the Agreement, the
Purchase and Sale Agreement, the Southern Disposition and/or any other
agreements involving the Company. Despite Stockholder's exception of this letter
agreement, DNB will remain free to oppose
<PAGE>
Blue Dolphin Exploration Company
September __, 1999
Page 3
the Agreement, the Purchase and Sale Agreement and the transactions contemplated
thereby in its capacity as a creditor of the Company, except as may be otherwise
expressly agreed in writing by DNB.
6. This letter agreement shall not be assigned by operation of law or
otherwise; provided that the Investor may assign any of its rights and
obligations to any of its affiliates, but no such assignment shall relieve the
Stockholder of its obligations hereunder.
7. The invalidity or unenforceability of any provision of this letter
agreement in any jurisdiction shall not affect the validity or enforceability of
any other provisions of this letter agreement, which shall remain in full force
and effect in such jurisdiction, or the validity or enforceability of such
provision in any other jurisdiction. The Stockholder acknowledges that Investor
will be irreparably harmed and that there will be no adequate remedy at law for
a violation of any of the covenants or agreements of the Stockholder contained
herein. It is accordingly agreed that, in addition to any other remedies that
may be available to Investor upon the breach by the Stockholder of such
covenants and agreements, Investor shall have the right to obtain injunctive
relief to restrain any breach or threatened breach of such covenants or
agreements or otherwise to obtain specific performance of any of such covenants
or agreements.
8. This letter agreement shall be governed by and construed in accordance
with the laws of the State of Delaware without regard to the principles of
conflicts of laws thereof. Any judicial proceeding brought against any party
hereto with respect to this letter agreement, or any transaction contemplated
hereby, may be brought in the Federal District Court for the Southern District
of Texas and, by execution and delivery of this letter agreement, each of the
parties hereto (i) accepts, generally and unconditionally, the nonexclusive
jurisdiction of such court and any related appellate court, and irrevocably
agrees to be bound by any judgment rendered thereby in connection with this
letter agreement, subject, in each case, to all rights to appeal such decisions
to the extent available to the parties and (ii) irrevocably waives any objection
it may now or hereafter have as to the venue of any such suit, action or
proceeding brought in such a court or that such court is an inconvenient forum.
Each party hereto hereby waives personal service of process and consents that
service of process upon it may be made by certified or registered mail, return
receipt requested, at its address specified in this letter
agreement, and service so made shall be deemed completed on the fifth business
day after such service is deposited in the mail. Nothing herein shall affect the
right to serve process in any other manner permitted by law. EACH PARTY HEREBY
WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH
THIS LETTER AGREEMENT WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.
<PAGE>
Blue Dolphin Exploration Company
September __, 1999
Page 4
9. The Stockholder as the record owner of the number of shares of Common
Stock set forth beneath its name below, for good and valuable consideration the
legal sufficiency of which is hereby acknowledged by the undersigned, agrees to,
and hereby grants to Investor an irrevocable proxy pursuant to the provisions of
Section 212 of the Delaware General Corporation Law to vote at all annual and
special meetings of the stockholders of Company, and any postponements or
adjournments thereof, or to execute and deliver written consents or otherwise
act with respect to, all shares of Common Stock now owned by the undersigned as
fully, to the same extent and with the same effect as the undersigned might or
could do under any applicable laws or regulations governing the rights and
powers of shareholders of a Delaware corporation in connection with the approval
of the Proxy Items. The undersigned hereby affirms that this proxy is given as a
condition of this letter agreement and as such is coupled with an interest and
is irrevocable. This proxy shall terminate on December 31, 1999.
THIS PROXY, AS IT IS COUPLED WITH AN INTEREST, IS IRREVOCABLE AND SHALL
REMAIN IN FULL FORCE AND EFFECT AND BE ENFORCEABLE AGAINST ANY DONEE, TRANSFEREE
OR ASSIGNEE OF THE COMMON STOCK.
10. This letter agreement may be executed in counterparts, each of which
shall be deemed to be an original, but all of which shall constitute one and the
same instrument.
11. This letter agreement may be terminated at the option of any party at
any time after termination of the Agreement in accordance with its terms.
<PAGE>
Blue Dolphin Exploration Company
September __, 1999
Page 5
Please confirm that the foregoing correctly states the understanding
between us by signing and returning to us a counterpart hereof.
Very truly yours,
___________________________________________________
[NAME OF SHAREHOLDER]
___________________________________________________
Number of shares of Common Stock owned beneficially
___________________________________________________
Number of shares of Common Stock owned of record
Confirmed on the date first above written
BLUE DOLPHIN EXPLORATION COMPANY
By: ____________________________
____________________________
<PAGE>
Blue Dolphin Exploration Company
September __, 1999
Page 6
EXHIBIT A
IRREVOCABLE PROXY
The undersigned as the record owner of ________ , shares of common stock,
par value $.00001 per share (the "Common Stock"), of American Resources
Offshore, Inc. (the "Company"), for good and valuable consideration the legal
sufficiency of which is hereby acknowledged by the undersigned, agrees to, and
hereby grants to Blue Dolphin Exploration Company, a Delaware corporation ("Blue
Dolphin"), an irrevocable proxy pursuant to the provisions of Section 212 of the
Delaware General Corporation Law and that certain Voting and Support Agreement
and Irrevocable Proxy, dated as of September ___, 1999, between Blue Dolphin and
[Stockholder] (the "Voting Agreement"), to vote at all annual and special
meetings of the stockholders of the Company, and any postponements or
adjournments thereof, or to execute and deliver written consents or otherwise
act with respect to, all shares of Common Stock now owned by the undersigned as
fully, to the same extent and with the same effect as the undersigned might or
could do under any applicable laws or regulations governing the rights and
powers of shareholders of a Delaware corporation in connection with the approval
of the (i) Investment Agreement, (ii) Purchase and Sale Agreement, (iii)
Southern Disposition, (iv) an amendment to the Company's Certificate of
Incorporation to increase the authorized capital, (v) an amendment to the
Company's Certificate of Incorporation to eliminate the staggered board of
directors, (vi) each of the transactions contemplated thereby and (vii) the
election of directors of the Company, all as contemplated by and defined in the
Voting Agreement. The undersigned hereby affirms that this proxy is given as a
condition of said Voting Agreement and as such is coupled with an interest and
is irrevocable. This proxy shall terminate on December 31, 1999.
THIS PROXY, AS IT IS COUPLED WITH AN INTEREST, IS IRREVOCABLE AND SHALL
REMAIN IN FULL FORCE AND EFFECT AND BE ENFORCEABLE AGAINST ANY DONEE, TRANSFEREE
OR ASSIGNEE OF THE COMMON STOCK.
Dated this ______ day of September, 1999.
________________________________________
(Signature of Shareholder)
