SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934
<TABLE>
<S> <C>
Date of Report: (Date of earliest event reported): August 9, 1999 (August 3, 1999)
</TABLE>
BLUE DOLPHIN ENERGY COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 0-15905 73-1268729
(State of Incorporation) (Commission File Number) (IRS Employer Identification No.)
</TABLE>
801 TRAVIS, SUITE 2100
HOUSTON, TEXAS 77002
(Address of Registrant's principal executive offices)
(713) 227-7660
(Registrant's telephone number, including area code)
(NOT APPLICABLE)
(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. OTHER EVENTS
On August 3, 1999, Blue Dolphin Energy Company (the "Company") issued a
press release announcing that it, through its wholly-owned subsidiary Blue
Dolphin Exploration Company ("BDEX"), entered into an Investment Agreement,
dated as of July 30, 1999 (the "Investment Agreement"), with American Resources
Offshore, Inc. ("ARO"). Pursuant to the terms of the Investment Agreement, BDEX
will purchase from ARO shares of common stock, par value $.00001 per share (the
"Common Stock"), equal to 75% of ARO's outstanding Common Stock after the
purchase for approximately $4.7 million. The purchase price for the Common Stock
is subject to certain adjustments including, among others, adjustments based on
ARO's liabilities upon closing of the Investment Agreement (the "Closing Date")
and the revenues and liabilities derived from ARO's Gulf of Mexico assets from
January 1, 1999 through the Closing Date. Concurrently with the consummation of
the transactions contemplated by the Investment Agreement, ARO will dispose of
all of its oil and gas properties located in southeastern Kentucky and Michigan
and sell an 80% interest in its Gulf of Mexico assets to Fidelity Oil Holdings,
Inc. ("Fidelity").
The consummation of the transactions contemplated by the Investment
Agreement is subject to customary closing conditions as well as certain other
significant closing conditions, including but not limited to, the consummation
of the transaction between ARO and Fidelity, the release of ARO by DnB Energy
Assets, Inc. ("DnB") of certain indebtedness, the purchase by the Company of
certain indebtedness owed by ARO to DnB, the terms of which are currently being
negotiated, and the disposition of ARO's oil and gas properties located in
southeastern Kentucky and Michigan.
The Investment Agreement and press release are filed as exhibits hereto
and are incorporated herein by reference. The description of the Investment
Agreement set forth above does not purport to be complete and is qualified in
its entirety by reference to the provisions of such agreement.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
99.1 Investment Agreement by and between American Resources
Offshore, Inc. and Blue Dolphin Exploration Company.
99.2 Text of Press Release, dated August 3, 1999.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BLUE DOLPHIN ENERGY COMPANY
Date: August 9, 1999 By: /s/ G. BRIAN LLOYD
G. Brian Lloyd
Vice President, Treasurer
3
<PAGE>
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION OF EXHIBIT
99.1 Investment Agreement by and between American Resources
Offshore, Inc. and Blue Dolphin Exploration Company
99.2 Text of Press Release, dated August 3, 1999.
4
EXHIBIT 99.1
EXECUTION VERSION
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
<PAGE>
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
<PAGE>
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
<PAGE>
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 5.9 TERMINATION AGREEMENTS................................
EXHIBIT 5.13 VOTING AND SUPPORT AGREEMENT.........................
EXHIBIT 5.14 CONSULTING AGREEMENT.................................
EXHIBIT 5.15 MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT.....
<PAGE>
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."
<PAGE>
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
2
<PAGE>
Primary Shares and the Adjustment Shares, if any, are collectively
referred to herein as the "SHARES."
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.
3
<PAGE>
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,
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
4
<PAGE>
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.
(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.
5
<PAGE>
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 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.
6
<PAGE>
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 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;
7
<PAGE>
(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 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
8
<PAGE>
at the Closing Date, there exists no set of circumstances that is
reasonably likely to give rise to such a claim.
(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.
9
<PAGE>
(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 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,
10
<PAGE>
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.
(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.
11
<PAGE>
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 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
12
<PAGE>
(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.
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
13
<PAGE>
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 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.
14
<PAGE>
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 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.
15
<PAGE>
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.
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.
16
<PAGE>
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 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.
17
<PAGE>
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.
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
18
<PAGE>
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.
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.
19
<PAGE>
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.
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
20
<PAGE>
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.
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
21
<PAGE>
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 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) a 10-for-1 reverse stock split in the Common Stock;
(4) election of new directors designated by Investor; and
(5) 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
22
<PAGE>
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 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
23
<PAGE>
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;
(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
24
<PAGE>
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.
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.
25
<PAGE>
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 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);
26
<PAGE>
(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 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;
27
<PAGE>
(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;
(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:
28
<PAGE>
(A) Douglas Hawthorne
(B) Leonard Nave
(C) David Fox
(D) Joe Shields
(E) Len Aldridge
(F) Robert McIntyre;
(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
29
<PAGE>
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
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.
30
<PAGE>
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 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;
31
<PAGE>
(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;
(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.
32
<PAGE>
(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 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 November 15, 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:
33
<PAGE>
(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 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
34
<PAGE>
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 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
35
<PAGE>
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 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
36
<PAGE>
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.
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
37
<PAGE>
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 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, which shall
be $0.16 per share prior to the date on which the
reverse stock split contemplated by the Proxy Items
becomes effective and thereafter shall be the lesser of
(i) $0.16 multiplied by the ratio of the reverse stock
split contemplated by the Proxy Items 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
effectiveness of the reverse split, or if transaction
38
<PAGE>
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
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.
39
<PAGE>
(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 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.
40
<PAGE>
(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 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.
41
<PAGE>
(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
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,
42
<PAGE>
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.
(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.
43
<PAGE>
(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 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.
44
<PAGE>
(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.
(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
45
<PAGE>
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;
(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.
46
<PAGE>
(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.
(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.
47
<PAGE>
(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.
(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.
48
<PAGE>
(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.
(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).
49
<PAGE>
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 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.
50
<PAGE>
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 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-
51
<PAGE>
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 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
52
<PAGE>
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.
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]
53
<PAGE>
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: VP. & 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
1
<PAGE>
of EXHIBIT 1.4(B)(1), (iii) lease operating expenses paid by the Company
relating to the Gulf 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
Exhibit 1.4(b)(1) Page 2 of 6
2
<PAGE>
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 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
3
<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
Exhibit 1.4(b)(1) Page 4 of 6
4
<PAGE>
30. Telephone
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
5
<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
6
<PAGE>
EXHIBIT 5.13
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>
EXHIBIT 5.14
EXECUTION VERSION
CONSULTING AGREEMENT
This Consulting Agreement (this "AGREEMENT"), is entered into as of the
____ 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;
2
<PAGE>
(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.
3
<PAGE>
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]
4
<PAGE>
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: ___________________________________
Printed Name: _________________________
Title: ________________________________
MAP II, L.L.C.
By: ___________________________________
Printed Name: _________________________
Title: ________________________________
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
_______________________________________
John P. Atwood, Vice President
Finance & Corporate Development
<PAGE>
EXHIBIT 5.15
------------------------------------------------------------
MANAGEMENT AND ADMINISTRATIVE
SERVICES AGREEMENT
BY AND BETWEEN
BLUE DOLPHIN SERVICES, INC.
AND
AMERICAN RESOURCES OFFSHORE, INC.
_____________, 1999
------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1
DEFINITIONS
1.1 DEFINED TERMS....................................................1
1.2 OTHER TERMS......................................................2
1.3 CONSTRUCTION.....................................................2
ARTICLE 2
SERVICES 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 3
MANAGEMENT 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 4
MANAGEMENT FEE
4.1 MANAGEMENT FEE...................................................7
i
<PAGE>
TABLE OF CONTENTS
(Continued)
PAGE
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
ARTICLE 5
INDEMNITY
5.1 BDSI'S INDEMNIFICATION...........................................8
5.2 ARO'S INDEMNIFICATION............................................8
5.3 NO ASSUMPTION OF LIABILITIES.....................................9
ARTICLE 6
CONFIDENTIALITY
ARTICLE 7
CONFLICTS
ARTICLE 8
ACCESS AND AUDIT
8.1 BOOKS AND RECORDS...............................................10
8.2 RIGHT TO AUDIT..................................................10
8.3 MAINTENANCE OF RECORDS..........................................10
ARTICLE 9
RELATIONSHIPS OF THE PARTIES
9.1 RELATIONSHIPS...................................................10
9.2 TAXATION........................................................10
ARTICLE 10
REPRESENTATION 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
ii
<PAGE>
TABLE OF CONTENTS
(Continued)
PAGE
ARTICLE 11
TERM
11.1 TERM............................................................13
11.2 HOLD OVER.......................................................13
ARTICLE 12
NOTICES
ARTICLE 13
GENERAL
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
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.
"ARO" 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.
1
<PAGE>
"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.
"TERM" 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.
2
<PAGE>
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.
3
<PAGE>
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
<PAGE>
(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.
(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.
5
<PAGE>
(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 ARO's Board of Directors and subject to the various
provisions contained within this Agreement. The Parties agree that:
6
<PAGE>
(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).
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
7
<PAGE>
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 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
8
<PAGE>
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.
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.
9
<PAGE>
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.
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
10
<PAGE>
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 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.
11
<PAGE>
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 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.
12
<PAGE>
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, 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
13
<PAGE>
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.
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.
14
<PAGE>
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.
EXECUTED as of the date first set forth above.
AMERICAN RESOURCES OFFSHORE, INC.
By:
Printed Name:
Title:
BLUE DOLPHIN SERVICES, INC.
By:
Printed Name:
Title:
15
<PAGE>
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 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
Exhibit A, Page 1
<PAGE>
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 connection
with any appeal or enforcement of an arbitration award, or in any other
court litigation arising out of this Agreement.
Exhibit A, Page 2
<PAGE>
(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 3
EXHIBIT 99.2
BLUE DOLPHIN ENERGY COMPANY
NEWS RELEASE
FOR IMMEDIATE RELEASE August 3, 1999
HOUSTON, TEXAS - BLUE DOLPHIN ENERGY COMPANY (NASDAQ SYMBOL: BDCO)
Blue Dolphin Energy Company announced today that it has signed a definitive
agreement, through its wholly owned subsidiary Blue Dolphin Exploration Company,
to acquire a 75% ownership interest of American Resources Offshore, Inc. ("ARO")
(NASD: GASS), through subscription of new shares. At the time of closing, ARO's
assets will be limited to its Gulf of Mexico assets. The purchase price for the
ARO shares will be approximately $4.7 million, subject to certain upward or
downward adjustments based on ARO's liabilities at closing and its revenues and
expenses from its Gulf of Mexico properties from January 1, 1999 through closing
of the transaction. Concurrently with the transaction, ARO will sell an 80%
interest in its Gulf of Mexico assets to Fidelity Oil Holdings, Inc. a
subsidiary of MDU Resources Group, Inc. (NYSE: MDU). The proceeds received by
ARO will be used to retire debts.
After closing the above mentioned transactions, ARO's assets will consist of an
average 6 % non-operated working interest in eight producing properties and one
proved undeveloped property along with leasehold interests in 34 additional
offshore tracts all located in the Gulf of Mexico offshore Louisiana and Texas.
The properties have proven reserves of approximately 7.2 billion cubic feet of
natural gas equivalent. Significant probable and possible reserves and
exploratory drilling opportunities also exist.
"The ARO transaction is a significant step forward to increasing our proven
reserves, as well as providing the opportunity to exploit the probable, possible
and exploratory reserve potential of these properties", stated Ivar Siem,
Chairman of Blue Dolphin. "Working together with Fidelity Oil was important to
us in reaching an agreement with ARO ".
Closing is expected to occur in the fourth quarter 1999 and is subject to a
number of conditions, including the approval of ARO's stockholders and the
simultaneous closing of the transaction between ARO and Fidelity Oil Holdings,
Inc.
BLUE DOLPHIN ENERGY COMPANY is engaged in the gathering and transportation of
natural gas and condensate, exploration and acquisition of oil and gas
properties, and development of an offshore terminal and storage facility to
handle crude oil and refined products. Questions should be directed to G. Brian
Lloyd, Vice President, Treasurer, at the Company's offices in Houston, Texas,
(713) 227-7660. For further information see our home page at
http://www.blue-dolphin.com.
801 Travis o Suite 2100 o Houston, Texas 77002
(713) 227-7660 o FAX (713) 227-7626
