<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )*
DOMAIN ENERGY CORPORATION
- -------------------------------------------------------------------------------
(NAME OF ISSUER)
COMMON STOCK, PAR VALUE $.01 PER SHARE
- -------------------------------------------------------------------------------
(TITLE OF CLASS OF SECURITIES)
257-027-102
------------------------------------------------------------
(CUSIP NUMBER)
FIRST RESERVE CORPORATION
475 STEAMBOAT ROAD
GREENWICH, CONNECTICUT 06830
(203) 661-6601
- -------------------------------------------------------------------------------
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO
RECEIVE NOTICES AND COMMUNICATIONS)
JUNE 27, 1997
------------------------------------------------------------
(DATE OF EVENT WHICH REQUIRES FILING OF THIS STATEMENT)
IF THE FILING PERSON HAS PREVIOUSLY FILED A STATEMENT ON SCHEDULE 13G TO
REPORT THE ACQUISITION WHICH IS THE SUBJECT OF THIS SCHEDULE 13D, AND IS
FILING THIS SCHEDULE BECAUSE OF RULE 13D-1(B)(3) OR (4), CHECK THE FOLLOWING
BOX [ ].
CHECK THE FOLLOWING BOX IF A FEE IS BEING PAID WITH THIS STATEMENT [X] (A FEE
IS NOT REQUIRED ONLY IF THE REPORTING PERSON: (1) HAS A PREVIOUS STATEMENT ON
FILE REPORTING BENEFICIAL OWNERSHIP OF MORE THAN FIVE PERC NT OF THE CLASS OF
SECURITIES DESCRIBED IN ITEM 1; AND (2) HAS FILED NO AMENDMENT SUBSEQUENT
THERETO REPORTING BENEFICIAL OWNERSHIP OF FIVE PERCENT OR LESS OF SUCH CLASS.)
(SEE RULE 13D-7.)
NOTE: SIX COPIES OF THIS STATEMENT, INCLUDING ALL EXHIBITS, SHOULD BE FILED
WITH THE COMMISSION. SEE RULE 13D-1(A) FOR OTHER PARTIES TO WHOM COPIES ARE TO
BE SENT.
* THE REMAINDER OF THIS COVER PAGE SHALL BE FILLED OUT FOR A REPORTING PERSON'S
INITIAL FILING ON THIS FORM WITH RESPECT TO THE SUBJECT CLASS OF SECURITIES,
AND FOR ANY SUBSEQUENT AMENDMENT CONTAINING INFORMATION WHICH WOULD ALTER
DISCLOSURES PROVIDED IN A PRIOR COVER PAGE.
THE INFORMATION REQUIRED ON THE REMAINDER OF THIS COVER PAGE SHALL NOT BE
DEEMED TO BE "FILED" FOR THE PURPOSE OF SECTION 18 OF THE SECURITIES EXCHANGE
ACT OF 1934 ("ACT") OR OTHERWISE SUBJECT TO THE LIABILITIES OF THAT SECTION OF
THE ACT BUT SHALL BE SUBJECT TO ALL OTHER PROVISIONS OF THE ACT (HOWEVER, SEE
THE NOTES).
PAGE 1 OF 128 PAGES
<PAGE>
SCHEDULE 13D
- --------------------- -----------------------
CUSIP NO. 257-027-102 PAGE 2 OF 128 PAGES
- --------------------- -----------------------
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
First Reserve Fund VII, Limited Partnership
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
OO
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- -------------------------------------------------------------------------------
7 SOLE VOTING POWER
7,820,718
NUMBER OF -----------------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY
OWNED BY 0
EACH -----------------------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON
WITH 7,820,718
-----------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
7,820,718
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [ ]
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
54.7
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN
- -------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE AND THE SIGNATURE ATTESTATION
<PAGE>
SCHEDULE 13D
- --------------------- -----------------------
CUSIP NO. 257-027-102 PAGE 3 OF 128 PAGES
- --------------------- -----------------------
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
First Reserve Corporation
I.R.S. Identification No.: 06-1210123
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
OO
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- -------------------------------------------------------------------------------
7 SOLE VOTING POWER
7,820,718
NUMBER OF -----------------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY
OWNED BY 0
EACH -----------------------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON
WITH 7,820,718
-----------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
7,820,718
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [ ]
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
54.7
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
CO
- -------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE AND THE SIGNATURE ATTESTATION
<PAGE>
SCHEDULE 13D
- --------------------- -----------------------
CUSIP NO. 257-027-102 PAGE 4 OF 128 PAGES
- --------------------- -----------------------
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
William E. Macaulay
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
Not Applicable
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
- -------------------------------------------------------------------------------
7 SOLE VOTING POWER
0
NUMBER OF -----------------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY
OWNED BY 0
EACH -----------------------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON
WITH 0
-----------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [X]
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- -------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE AND THE SIGNATURE ATTESTATION
<PAGE>
SCHEDULE 13D
- --------------------- -----------------------
CUSIP NO. 257-027-102 PAGE 5 OF 128 PAGES
- --------------------- -----------------------
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
John A. Hill
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
Not Applicable
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
- -------------------------------------------------------------------------------
7 SOLE VOTING POWER
0
NUMBER OF -----------------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY
OWNED BY 0
EACH -----------------------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON
WITH 0
-----------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [X]
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- -------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE AND THE SIGNATURE ATTESTATION
<PAGE>
Page 6 of 128 Pages
Item 1. Security and Issuer.
This statement relates to shares of Common Stock, $.01 par value per
share (the "Common Stock"), of Domain Energy Corporation, a Delaware
corporation (the "Issuer"). The principal executive offices of the Issuer are
located at 1100 Louisiana, Suite 1500, Houston, Texas 77002.
Item 2. Identity and Background.
This statement is being filed jointly by First Reserve Fund VII,
Limited Partnership ("Fund VII"), First Reserve Corporation ("First Reserve"),
William E. Macaulay and John A. Hill (together with Mr. Macaulay, Fund VII and
First Reserve, the "Reporting Persons") to report the acquisition by Fund VII
of shares of Common Stock. First Reserve is the sole general partner of Fund
VII. The agreement among the Reporting Persons relating to the joint filing of
this statement is attached as Exhibit 1 hereto.
Fund VII is a Delaware limited partnership. Its principal purpose is
to make equity and debt investments in companies engaged in various energy and
energy related activities, including, but not limited to, energy production,
processing, transmission, distribution, marketing, equipment manufacturing,
electrical generation, and technical services, and in energy assets such as
oil and gas reserves or processing and transmission facilities.
First Reserve is a Delaware corporation which raises funds for and
manages Fund VII along with a number of limited partnerships similar in
purpose to Fund VII (together with Fund VII, the "Funds"). The principal
business of First Reserve is to act as general partner and provide investment
management services to the Funds.
<PAGE>
Page 7 of 128 Pages
The principal business and office address of Fund VII and First
Reserve is 475 Steamboat Road, Greenwich, Connecticut 06830.
William E. Macaulay is the President, Chief Executive Officer, a
Managing Director and a Director of First Reserve. John A. Hill is the
Chairman, a Managing Director and a Director of First Reserve. Messrs.
Macaulay and Hill are each United States citizens and the principal occupation
or employment of each is as an officer and director of First Reserve. The
business address of Messrs. Macaulay and Hill is 475 Steamboat Road,
Greenwich, Connecticut 06830.
Information with respect to the executive officers and directors of
First Reserve, including name, business address, present principal occupation
or employment and the organization in which such employment is conducted, and
their citizenship is listed on the schedule attached hereto as Schedule I,
which is incorporated into this Schedule 13D by reference.
During the last five years, none of the Reporting Persons nor, to the
best knowledge of the Reporting Persons, any of the other persons named in
this Item 2 nor any of the executive officers or directors of First Reserve:
(i) has been convicted in a criminal proceeding (excluding traffic violations
or similar misdemeanors); or (ii) was a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction and as a result of
such proceeding was or is subject to a judgment, decree or final order
enjoining future violations of, or prohibiting or mandating activities subject
to, federal or state securities laws or finding any violation with respect to
such laws.
<PAGE>
Page 8 of 128 Pages
Item 3. Source and Amount of Funds or Other Consideration.
On June 27, 1997, the Issuer sold 6,000,000 shares of Common Stock in
an initial public offering (the "Offering") at a per share price of $13.50.
Concurrently with the consummation of the Offering, the Issuer sold 643,037
shares of Common Stock, at a per share price equal to $13.50, to Fund VII for
an aggregate purchase price of $8,681,000. Prior to June 27, 1997, Fund VII
was the record owner of 7,177,681 shares of Common Stock of the Issuer. After
giving effect to the sale of 643,037 shares of Common Stock to Fund VII by the
Issuer on June 27, 1997, Fund VII is the record holder of 7,820,718 shares of
Common Stock.
As more fully described in Item 6 hereof, the $8,681,000 aggregate
purchase price represents the sum of (i) the principal amount of an $8.0
million note between Fund VII, the obligee, and a subsidiary of the Issuer,
the obligor, plus the accrued interest thereon through June 15, 1997 (all of
which was deemed paid in full by the issuance of the shares of Common Stock)
and (ii) $500,000 paid in cash by Fund VII. The $500,000 in cash and the
$8,000,000 initially loaned to the Issuer were obtained by Fund VII through
equity contributions by the partners of Fund VII.
Item 4. Purpose of Transaction.
Fund VII acquired the 643,037 shares of Common Stock on June 27, 1997
disclosed in Item 3 of this Schedule 13D in order to increase its ownership
interest in the Issuer.
Fund VII and First Reserve intend to review on a continuing basis
Fund VII's investment in the Issuer, and Fund VII and First Reserve may
decide to increase or decrease Fund VII's investment in the
<PAGE>
Page 9 of 128 Pages
Issuer depending upon the price and availability of the Issuer's securities,
subsequent developments affecting the Issuer, the Issuer's business and
prospects, other investment and business opportunities available to Fund VII,
general stock market and economic conditions, tax considerations and other
factors.
Except as described above, at the present time the Reporting Persons
do not have any plans or proposals that would relate to any transaction,
change or event specified in clauses (a) through (j) of Item 4 of the Schedule
13D form (although they reserve the right to develop such plans).
Item 5. Interest in Securities of the Issuer.
(a) and (b) As of June 23, 1997, Fund VII directly beneficially owns
7,820,718 shares of Common Stock (the "Fund VII Shares") which constitutes
54.7% of the currently outstanding Common Stock after giving effect to the
Offering and concurrent sale of 643,037 shares of Common Stock by the Issuer
to Fund VII.
First Reserve, as the sole general partner of Fund VII, has the power
to direct the voting of and disposition of any shares of Common Stock deemed
to be beneficially owned by Fund VII. As a result, as of June 23, 1997, under
the definition of "beneficial ownership" as set forth in Rule 13d-3 under the
Exchange Act, First Reserve may be deemed to beneficially own the Fund VII
Shares.
Messrs. Macaulay and Hill may be deemed to share beneficial ownership
of the shares beneficially owned by First Reserve as a result of Messrs.
Macaulay and Hill's ownership of common stock of First Reserve. Messrs.
Macaulay and Hill disclaim beneficial ownership of such shares. Except as set
forth otherwise in this Schedule 13D,
<PAGE>
Page 10 of 128 Pages
neither the filing of this Schedule 13D nor any of its contents shall be
deemed to constitute an admission that Mr. Macaulay or Mr. Hill is the
beneficial owner of the Common Stock referred to in this paragraph for
purposes of Section 13(d) of the Exchange Act or for any other purpose, and
such beneficial ownership is expressly disclaimed.
(c) Except as set forth in this Item 5, to the best knowledge of each
of the Reporting Persons, none of the Reporting Persons and no other person
described in Item 2 hereof has beneficial ownership of, or has engaged in any
transaction during the past 60 days in, any shares of Common Stock.
(d) To the best knowledge of the Reporting Persons, no other person
has the right to receive, or the power to direct the receipt of dividend from,
or the power to direct the receipt of proceeds of the sale of the Fund VII
Shares.
(e) Not applicable.
Item 6. Contracts, Arrangements or Understandings
with Respect to Securities of the Issuer.
The Issuer, Fund VII and certain of the Issuer's officers (the
"Management Investors") are parties to a Securityholders Agreement dated as of
December 31, 1996 (the "Securityholders Agreement"). The Securityholders
Agreement contains provisions governing the management of the Issuer, voting
of shares, election of directors and restrictions on transfer of shares, all
of which terminated automatically upon the completion of the Offering. In
addition, the Securityholders Agreement provides Fund VII the right on four
occasions to require the Issuer to register all or part of Fund VII's
registrable shares of Common Stock under the Securities Act of 1933, as
amended (the "Securities Act"),
<PAGE>
Page 11 of 128 Pages
and the Issuer is required to use its reasonable best efforts to effect such
registration, subject to certain conditions and limitations. Upon the Issuer's
receipt of a demand from Fund VII to register all or part of its registrable
shares, the Issuer is required to notify the other parties to the
Securityholders Agreement of the demand, and such parties shall, subject to
certain conditions and limitations, have the right to include the registrable
shares held by them in such registration. The Securityholders Agreement also
provides all the parties thereto with piggyback registration rights on any
offering by the Issuer of any of its securities to the public except a
registration on Forms S-4 or S-8 under the Securities Act; provided, however,
that until two years after the date of the Offering, the Management Investors
will not have piggyback registration rights with respect to any registration
in which Fund VII or any of its permitted transferees are not participating.
The Issuer will bear the expenses of all registrations under the
Securityholders Agreement.
In connection with the Issuer's acquisition (the "Acquisition") of
all of the outstanding capital stock of its operating subsidiaries, Domain
Energy Ventures Corporation and Domain Energy Production Corporation, Fund VII
loaned $8,000,000 to Domain Energy Guarantor Corporation, a Delaware
corporation and a wholly-owned subsidiary of the Issuer ("Domain Guarantor").
The $8,000,000 loan was evidenced by a Subordinated Promissory Note dated
December 31, 1996 (the "Note").
Pursuant to the Subscription Agreement dated December 31, 1996 (the
"First Reserve Subscription Agreement"), between the Issuer and Fund VII, the
Issuer granted to Fund VII an option (the "First
<PAGE>
Page 12 of 128 Pages
Reserve Option") to acquire 1,914,048 shares of Common Stock for an aggregate
purchase price of $8,000,000 plus any cash interest payment on the Note
actually received by Fund VII (the "Option Price"). The Option Price could be
paid by Fund VII at its option (i) prior to the date on which the Note had
been paid in full, by delivery to the Issuer of the Note together with the
payment in cash of any principal or interest payments on the Note previously
received by Fund VII and (ii) after the date on which the Note has been paid
in full, by payment of the Option Price in cash. In connection with the
Offering, the Issuer and Fund VII agreed to restructure the terms of the
First Reserve Option as set forth below.
Pursuant to a Letter Agreement dated June 6, 1997 (the "Letter
Agreement"), the Issuer and Fund VII agreed that concurrently with the
consummation of the Offering, Fund VII would purchase 643,037 shares of Common
Stock, at a price per share of $13.50, for an aggregate purchase price of
$8,681,000. The amount of $8,681,000 represents the sum of (i) the outstanding
principal balance of the Note plus estimated accrued interest thereon through
June 15, 1997 and (ii) $500,000 to be paid in cash by Fund VII.
The Securityholders Agreement, the First Reserve Subscription
Agreement and the Letter Agreement are attached as Exhibits to this Schedule
13D and are incorporated herein by reference. The above summaries of the
material provisions of the Securityholders Agreement, the First Reserve
Subscription Agreement and the Letter Agreement are qualified in their
entirety by reference to the Securityholders Agreement, the First Reserve
Subscription Agreement and the Letter Agreement.
<PAGE>
Page 13 of 128 Pages
Except as set forth in this Item 6, to the best knowledge of the
Reporting Persons, there are no other contracts, arrangements, understandings
or relationships (legal or otherwise) among the persons named in Item 2 and
between such persons and any person with respect to any securities of the
Issuer, including but not limited to, transfer or voting of any of the
securities of the Issuer, joint ventures, loan or option arrangements, puts or
calls, guarantees of profits, division of profits or loss, or the giving or
withholding of proxies, or a pledge or contingency the occurrence of which
would give another person voting power over the securities of the Issuer.
Item 7. Material to be Filed as Exhibits.
1. Joint Filing Agreement, dated July 2, 1997, between First Reserve Fund
VII, Limited Partnership ("Fund VII") and First Reserve Corporation
("First Reserve") relating to the filing of a joint statement on
Schedule 13D.
2. Securityholders Agreement, dated December 31, 1996, among the Domain
Energy Corporation (the "Issuer"), Fund VII and the Issuer's officers
who have purchased Common Stock (the "Management Investors").
3. First Reserve Subscription Agreement, dated December 31, 1996, between
the Issuer and Fund VII.
4. Letter Agreement, dated June 6, 1997, between the Issuer and Fund VII.
<PAGE>
Page 14 of 128 Pages
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief,
I certify that the information set forth in this Statement is true, complete
and correct.
FIRST RESERVE CORPORATION
By: /s/ Jonathan S. Linker
--------------------------------
Name: Jonathan S. Linker
Title: Managing Director
FIRST RESERVE FUND VII, LIMITED
PARTNERSHIP
By First Reserve Corporation, as
General Partner
By: /s/ David H. Kennedy
--------------------------------
Name: David H. Kennedy
Title: Managing Director
/s/ William E. Macaulay
-----------------------------------
Name: WILLIAM E. MACAULAY
/s/ John A. Hill
-----------------------------------
Name: JOHN A. HILL
DATED: July 2, 1997
<PAGE>
SCHEDULE I
First Reserve Corporation
Officers:
- ---------
Business Principal
Name Address Occupation Office Citizenship
- ---- -------- ---------- ------ -----------
William E. 475 Steamboat Employee of President, Chief U.S.
Macaulay Road, Greenwich, First Reserve Executive
Connecticut Corporation, a Officer,
06830 private Managing
investment Director and
company ("First Director
Reserve")
John A. 475 Steamboat Employee, First Chairman, U.S.
Hill Road, Greenwich, Reserve Managing
Connecticut Director and
06830 Director
David H. 475 Steamboat Employee, First Managing U.S.
Kennedy Road, Greenwich, Reserve Director and
Connecticut Director
06830
Jonathan 475 Steamboat Employee, First Managing U.S.
S. Linker Road, Greenwich, Reserve Director and
Connecticut Director
06830
Bruce M. 475 Steamboat Employee, First Managing U.S.
Rothstein Road, Greenwich, Reserve Director and
Connecticut Director
06830
Elizabeth 475 Steamboat Employee, First Managing U.S.
C. Foley Road, Greenwich, Reserve Director,
Connecticut Secretary and
06830 Treasurer
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit Number Description of Exhibits
- -------------- -----------------------
1. Joint Filing Agreement, dated July 2, 1997, between First
Reserve Fund VII, Limited Partnership ("Fund VII") and
First Reserve Corporation ("First Reserve") relating to the
filing of a joint statement on Schedule 13D.
2. Securityholders Agreement dated as of December 31, 1996,
among the Domain Energy Corporation (the "Issuer"), Fund
VII and the Issuer's officers who have purchased Common
Stock (the "Management Investors").
3. First Reserve Subscription Agreement, dated as of December
31, 1996, between the Issuer and Fund VII.
4. Letter Agreement, dated June 6, 1997, between the Issuer
and Fund VII.
<PAGE>
EXHIBIT 1
---------
JOINT FILING AGREEMENT
----------------------
We, the signatories of the statement on Schedule 13D to which this
Agreement is attached, hereby agree that such statement is, and any amendments
thereto filed by any of us will be, filed on behalf of each of us.
FIRST RESERVE CORPORATION
By: /s/ Jonathan S. Linker
---------------------------
Name: Jonathan S. Linker
Title: Managing Director
FIRST RESERVE FUND VII, LIMITED
PARTNERSHIP
By First Reserve Corporation, as
General Partner
By: /s/ David H. Kennedy
---------------------------
Name: David H. Kennedy
Title: Managing Director
/s/ William E. Macaulay
------------------------------
Name: WILLIAM E. MACAULAY
/s/ John A. Hill
------------------------------
Name: JOHN A. HILL
DATED: July 2, 1997
<PAGE>
EXHIBIT 2
- ------------------------------------------------------------------------------
SECURITYHOLDERS AGREEMENT
among
DOMAIN ENERGY CORPORATION
and
its SECURITYHOLDERS
Dated as of December 31, 1996
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I. Certain Definitions............................. 2
ARTICLE II. Management Agreements.......................... 10
Section 2.1. Conduct of Business......................................... 10
Section 2.2. Stock Purchase and Option Plan.............................. 13
Section 2.3. Registration of Common Stock................................ 14
ARTICLE III. Corporate Governance.......................... 14
Section 3.1. Board of Directors.......................................... 14
Section 3.2. Removal..................................................... 17
Section 3.3. Vacancies................................................... 17
ARTICLE IV. Transfers of Securities........................ 17
Section 4.1. Restrictions on Transfer.................................... 18
Section 4.2. Exceptions to Restrictions.................................. 18
Section 4.3. Legending of Certificates................................... 18
Section 4.4. Improper Transfer........................................... 19
ARTICLE V. Purchase Rights................................. 20
Section 5.1. Transfers by a Management Investor.......................... 20
Section 5.2. Puts and Calls.............................................. 21
Section 5.3. Right of First Refusal for New Securities................... 25
Section 5.4. Right to Join in Sale....................................... 26
Section 5.5. Rights to Compel Sale....................................... 27
ARTICLE VI. Registration Rights............................ 29
Section 6.1. Demand Registrations........................................ 29
Section 6.2. Piggyback Registrations..................................... 31
Section 6.3. Registration Procedures..................................... 33
Section 6.4. Indemnification............................................. 37
Section 6.5. Contribution................................................ 40
Section 6.6. Rule 144.................................................... 41
ARTICLE VII. Termination................................... 42
Section 7.1. Certain Terminations........................................ 42
-i-
<PAGE>
Page
----
ARTICLE VIII. Miscellaneous................................ 42
Section 8.1. Successors and Assigns...................................... 42
Section 8.2. Amendment and Modification; Waiver of Compliance............ 42
Section 8.3. Notices..................................................... 43
Section 8.4. Entire Agreement; Governing Law............................. 44
Section 8.5. Injunctive Relief........................................... 44
Section 8.6. Inspection.................................................. 44
Section 8.7. Headings.................................................... 44
Section 8.8. Recapitalizations, Exchanges, Etc.,
Affecting the Securities.................................... 44
Section 8.9. Counterparts................................................ 45
Section 8.10. Additional Management Investors............................. 45
-ii-
<PAGE>
SECURITYHOLDERS AGREEMENT
SECURITYHOLDERS AGREEMENT, dated as of December 31, 1996, among
DOMAIN ENERGY CORPORATION, a Delaware corporation (together with its
successors and assigns, the "Company"), FIRST RESERVE FUND VII, LIMITED
PARTNERSHIP (together with its successors and Permitted Transferees, the
"First Reserve Stockholders"), and the individuals named on the signature page
hereof under "Management Investors" (collectively, together with their
respective successors and assigns and any other individuals who become a party
to this agreement and are designated as "Management Investors" and their
successors and assigns, the "Management Investors").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company is authorized by its Certificate of
Incorporation (the "Certificate of Incorporation") (a true and correct copy of
which, as in effect on the date hereof, has been delivered to each
Securityholder) to issue capital stock consisting of 20,000 shares of Common
Stock, par value $.01 per share (the "Common Stock");
WHEREAS, on the date hereof an aggregate of 9,519.4717 shares of
Common Stock are owned of record and beneficially by the First Reserve
Stockholders and no other shares of Common Stock, or warrants, options, rights
or other securities exercisable for or convertible into Common Stock are
issued or outstanding (except pursuant to the First Reserve Option (as defined
below) and the Stock Option Agreements under the Stock Option and Purchase
Plan);
WHEREAS, pursuant to a Management Investor's Agreement Subscription
Agreement of even date herewith, Michael V. Ronca, President and Chief
Executive Officer of the Company and a Management Investor, has subscribed for
the purchase of 206.2552 shares of Common Stock, subject to the terms and
conditions set forth therein;
WHEREAS, subject to compliance with the Securities Act, and all
relevant state securities acts, rules and regulations, promptly after the date
hereof, the Company intends to offer for sale to the other Management
Investors 274.2731 shares of Common Stock;
WHEREAS, the parties hereto deem it in their best interests and in
the best interests of the Company to provide consistent and uniform management
for the Company and desire to enter into this Agreement in order to effectuate
that purpose and to set forth their respective rights and obligations in
connection with their investment in the Company; and
<PAGE>
2
WHEREAS, the parties hereto also desire to restrict the sale,
assignment, transfer, encumbrance or other disposition of the shares of Common
Stock and of any outstanding options therefor, including issued and
outstanding shares of Common Stock as well as shares of Common Stock that may
be issued hereafter, and to provide for certain rights and obligations in
respect thereto as hereinafter provided;
NOW, THEREFORE, in consideration of the mutual agreements and
understandings set forth herein, the parties hereto hereby agree as follows:
ARTICLE I. CERTAIN DEFINITIONS.
As used in this Agreement, the following terms shall have the
following respective meanings:
"Acquiror" shall have the meaning assigned to such term in Section
5.5(a).
"affiliate" shall mean with respect to any Person, (a) any Person
which directly, or indirectly through one or more intermediaries, controls, or
is controlled by, or is under common control with, such Person, (b) any Person
who is a director or executive officer (i) of such Person, (ii) of any
subsidiary of such Person, or (iii) of any Person described in the foregoing
clause (a), or (c) any spouse, parent, sibling, mother-in-law, father-in-law,
brother-in-law, sister-in-law, aunt, uncle, first cousin or direct descendant
of any Person described in the foregoing clause (b). For purposes of this
definition, "control" of a Person shall mean the power, direct or indirect,
(i) to vote or direct the voting of 50% or more of the outstanding shares of
voting Capital Stock of such Person, or (ii) to direct or cause the direction
of the management and policies of such Person, whether by contract or
otherwise.
"Agreement" shall mean this Agreement as in effect on the date hereof
and as hereafter from time to time amended, modified or supplemented in
accordance with the terms hereof.
"Board of Directors" shall mean the Board of Directors of the Company
as from time to time hereafter constituted.
"Book Value" means in respect of each share of Fully Diluted Common
Stock an amount equal to the quotient of (a) the sum of (i) $30 million plus
(ii) the aggregate net income of the Company from and after the Closing Date
(as decreased by any net losses from and after the Closing Date) plus (iii)
the aggregate dollar amount contributed to the Company after the date of the
Closing Date as equity by the stockholders of the Company (including
consideration to be received upon exercise of Stock Rights) plus (iv) to the
extent reflected as deductions to Book Value in clause (ii) above, or minus,
to the extent reflected as
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3
additions to Book Value in clause (ii) above, extraordinary or unusual items
recognized by the Company, if and to the extent determined in the sole
discretion of the Compensation Committee of the Board of Directors of the
Company, minus, (v) the aggregate dollar amount of any dividends paid by the
Company after the Closing Date, divided by (b) the sum of the number of shares
of Fully Diluted Common Stock. The calculations set forth in clauses (a)(ii),
(a)(iii), (a)(iv) and (a)(v) of the immediately preceding sentence shall be
determined in accordance with GAAP applied on a basis consistent with any
prior periods as reflected in the consolidated financial statements of the
Company. For purposes of clause (iii), the amount contributed to the Company
upon any exercise of the First Reserve Option shall be deemed to equal $8
million.
"By-Laws" shall mean the By-Laws of the Company as in effect on the
date hereof and as hereafter amended in accordance with the terms hereof and
thereof.
"Call" shall have the meaning assigned to such term in Section
5.2(b)(i).
"Capital Stock" shall mean, with respect to any Person, any and all
shares, interests, participations, rights in or other equivalents (however
designated) of such Person's capital stock or equity capital, including,
without limitation, shares of common stock, shares of preferred or preference
stock, general and limited partnership interests, and any rights, warrants or
options exercisable for or convertible into such capital stock or equity
capital.
"Cause" shall have the meaning set forth in the Stock Option
Agreements.
"Certificate of Incorporation" is defined in the Recitals. Such term
shall also include the Certificate of Incorporation as hereafter from time to
time amended in accordance with the terms thereof and of this Agreement.
"Closing Date" shall have the meaning specified in the First Reserve
Subscription Agreement.
"Common Stock" shall have the meaning set forth in the preamble.
"Company" shall have the meaning assigned to such term in the
preamble.
"Company Securities" shall have the meaning assigned to such term in
Section 6.1(g).
"Compelled Sale Transfer Notice" shall have the meaning assigned to
such term in Section 5.5(b)(i).
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4
"Cost" shall have the meaning assigned to such term in Section
5.2(b)(ii).
"Consolidated Total Capitalization" shall mean consolidated total
stockholders' equity plus consolidated total long-term debt of the Company and
its subsidiaries, all as determined in accordance with GAAP.
"Credit Agreement" shall mean that credit agreement dated as of
December 31, 1996 among Domain Energy Corporation, the parties thereto and The
Chase Manhattan Bank, as Administrative Agent.
"DGCL" shall have the meaning assigned to such term in Section 2.3.
"Disposing Stockholder" shall have the meaning assigned to such term
in Section 5.4(a).
"Event" shall have the meaning assigned to such term in Section
5.2(c).
"Exchange Act" shall mean, as of any date, the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated thereunder.
"Fair Market Value" shall mean, if not otherwise agreed upon by the
Company and the Management Investor or his Permitted Transferee at such time
the valuation is made, with respect to the Common Stock, (A) if on the date as
of which Fair Market Value is being determined such class of capital stock is
listed on a national securities exchange or is quoted in the NASDAQ System or
the over-the-counter market, the last sale price, regular way, of such
security on the principal national securities exchange on which such security
is at the time listed, or (B) if there have been no sales on any such exchange
on any day, the average of the highest bid and lowest asked prices on such
exchange at the end of such day, or (C) if on any day such security is not so
listed, the average of the representative bid and asked prices quoted in the
NASDAQ System as of 4:00 P.M., New York time, or (D) if on any day such
security is not quoted in the NASDAQ System, the average of the highest bid
and lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case of clauses (A)-(D) averaged over a
period of 20 days consisting of the day as of which Fair Market Value is being
determined and the latest 19 consecutive trading days prior to such day, or
(E) if the Common Stock is not publicly traded and the number of shares of
Common Stock being valued is greater than or equal to 3% of the Fully Diluted
Common Stock, then the fair market value of the Common Stock to be purchased
as determined by a nationally recognized investment bank (the fees and
expenses of which will be paid by the Company) selected by the Board of
Directors and
<PAGE>
5
reasonably acceptable to the Management Investor or his Permitted Transferee
or (F) if the Common Stock is not publicly traded and the number of shares of
Common Stock being valued is less than 3% of the Fully Diluted Common Stock,
then the fair market value of the Common Stock as determined in good faith by
the Board of Directors. If fair market value is determined by reference to (E)
or (F) above, the Common Stock shall be valued on a per share basis as if the
entire Company were being sold.
"First Reserve" shall mean First Reserve Corporation, a Delaware
corporation, and its successors.
"First Reserve Option" means the option to purchase 2,538.5258 shares
of Common Stock (subject to adjustment as provided in the First Reserve
Subscription Agreement) granted by the Company to the First Reserve
Stockholders pursuant to the First Reserve Subscription Agreement.
"First Reserve Stockholders" shall have the meaning specified in the
preamble.
"First Reserve Subscription Agreement" means the Subscription
Agreement, dated as of December 31, 1996, between the Company and the First
Reserve Stockholders, as amended, supplemented or otherwise modified from time
to time.
"Fully Diluted Common Stock" at any time shall mean all shares of
Common Stock then issued and outstanding plus all shares of Common Stock
issuable upon the exercise of any Stock Rights.
"GAAP" means generally accepted accounting principles from time to
time in effect in the United States.
"Good Reason" shall have the meaning set forth in the Form of
Non-Qualified Stock Option Agreement attached hereto as Exhibit A.
"Holder Request" shall have the meaning assigned to such term in
Section 6.1(a).
"initial shares" shall have the meaning assigned to such term in
Section 6.3(f).
"Liens" shall mean any lien, mortgage, pledge, charge, security
interest or similar encumbrance.
"Management Investors" shall have the meaning specified in the
preamble.
"Marketable Securities" shall mean securities that are publicly
traded and have a total market valuation for all outstanding securities of the
same publicly traded class after the relevant transaction of at least $150
million.
<PAGE>
6
"NASD" means the National Association of Securities Dealers, Inc., or
any successor regulatory body exercising similar functions.
"New Securities" shall have the meaning assigned to such term in
Section 5.3(b).
"Normal Retirement" shall have the meaning assigned to such term in
Section 5.2(a)(ii).
"Notice Designee" shall have the meaning assigned to such term in
Section 5.5(b)(i).
"Option Put Price" shall have the meaning assigned to such term in
Section 5.2(a).
"option shares" shall have the meaning assigned to such term in
Section 6.3(f).
"permanent disability" shall mean a disability which renders an
individual unable to engage in the activities required by such individuals job
by reason of any medically determined physical or mental impairment which can
be expected to result in death or which has lasted or can be expected to last
for a continuous period of not less than 12 months.
"Permitted Indebtedness" shall mean indebtedness for money borrowed
under the Credit Agreement, other indebtedness for borrowed money existing on
the date hereof and other indebtedness for borrowed money totalling less than
$100,000 in the aggregate and incurred in the ordinary course of business.
"Permitted Liens" shall mean "Permitted Encumbrances," as such term
is defined in the Deed of Trust, Mortgage, Security Agreement, Assignment of
Production, Financing Statement (Personal Property including hydrocarbons) and
Fixture Filing dated as of December 31, 1996 for each of Tenneco Ventures
Corporation and Tenneco Gas Production Corporation in favor of The Chase
Manhattan Bank, as Administrative Agent for the Lenders party to the Credit
Agreement.
"Permitted Number" shall have the meaning set forth in Section 5.2(c)
"Permitted Transferee" shall mean, with respect to any Management
Investor or First Reserve Stockholder, those Persons to whom transfers of
Securities are permitted to be made by such Management Investor or First
Reserve Stockholder, as the case may be, pursuant to Subsection (a), (b) or
(c) of Section 4.2 hereof.
"Person" shall mean an individual or a corporation, association,
partnership, joint venture, organization, business, individual, trust, or any
other entity or organization, including a government or any subdivision or
agency thereof.
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7
"Prime Rate" shall mean the rate of interest per annum publicly
announced from time to time by The Chase Manhattan Bank as its prime rate in
effect at its principal office in New York City; each change in the Prime Rate
shall be effective from and including the date such change is publicly
announced as being effective.
"Proposed Purchaser" shall have the meaning assigned to such term in
Section 5.4(b).
"Public Offering" shall mean the sale of shares of Common Stock to
the public subsequent to the date hereof pursuant to a registration statement
under the Securities Act which has been declared effective by the SEC (other
than a registration statement on Form S-8 or any other successor form).
"Purchase Offer" shall have the meaning assigned to such term in
Section 5.4(b).
"Put" shall have the meaning assigned to such term in Section 5.2(a).
"Put Price" shall have the meaning assigned to such term in Section
5.2(a).
"Qualified Public Offering" shall mean a Public Offering of Common
Stock, at the conclusion of which the aggregate number of issued and
outstanding shares of Common Stock that have been sold to the public pursuant
to one or more effective registration statements under the Securities Act is
equal to at least 20% of the Fully Diluted Common Stock after giving effect to
such sale and the listing of the Common Stock on the New York Stock Exchange,
Inc., the American Stock Exchange, the Nasdaq Stock Market or the National
Association of Securities Dealers, Inc., Automated Quotation System.
"Registrable Securities" shall mean the following:
(a) all shares of Common Stock (i) outstanding on the date hereof or
hereafter acquired by any Securityholder or (ii) issuable under warrants
or options outstanding on the date hereof or hereafter issued to any
Securityholder; and
(b) any shares of Common Stock issued or issuable by the Company in
respect of any shares of Common Stock referred to in the foregoing clause
(a) by way of a pay-in-kind dividend, stock dividend or stock split or in
connection with a combination or subdivision of shares, reclassification,
recapitalization, merger, consolidation or other reorganization of the
Company.
As to any particular Registrable Securities that have been issued,
such securities shall cease to be Registrable Securities when (i) a
registration statement with respect to the
<PAGE>
8
sale of such securities shall have become effective under the Securities Act
and such securities shall have been disposed of under such registration
statement, (ii) they shall have been distributed to the public pursuant to
Rule 144 under the Securities Act, (iii) they shall have been otherwise
transferred or disposed of, and new certificates therefor not bearing a legend
restricting further transfer shall have been delivered by the Company, and
subsequent transfer or disposition of them shall not require their
registration or qualification under the Securities Act or any similar state
law then in force, or (iv) they shall have ceased to be outstanding.
"Registration Expenses" shall mean any and all out-of-pocket expenses
incident to the Company's performance of or compliance with Article VI hereof,
including, without limitation, all SEC, stock exchange or NASD registration
and filing fees, all fees and expenses of complying with all applicable
federal and state securities laws and blue sky laws (including the reasonable
fees and disbursements of underwriters' counsel in connection with blue sky
qualifications and NASD filings), all fees and expenses of the transfer agent
and registrar for the Registrable Securities, all printing expenses, the fees
and disbursements of counsel for the Company and of its independent public
accountants, including the expenses of any special audits and/or "cold
comfort" letters required by or incident to such performance and compliance,
and, if any Registrable Securities owned by the First Reserve Stockholders or
the Management Investors are included in such offering, the reasonable fees
and disbursements of one firm of counsel retained by the First Reserve
Stockholders or the Management Investors, respectively, but excluding
underwriting discounts and commissions and applicable transfer and documentary
stamp taxes, if any, which shall be borne by the seller of the securities in
all cases.
"Remaining Securityholders" shall have the meaning assigned to such
term in Section 5.5(a).
"Repurchase Eligibility Date" shall have the meaning assigned to such
term in Section 5.2(c).
"Sale" shall have the meaning assigned to such term in Section
5.2(b).
"SEC" shall mean the Securities and Exchange Commission.
"Section 512(b)(ii) Call Price" shall have the meaning assigned to
such term in Section 5.2(b)(ii).
"Securities" shall mean the Stock and the Stock Rights.
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9
"Securities Act" shall mean, as of any date, the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder.
"Securityholder" shall mean any one of (i) the First Reserve
Stockholders, (ii) any Management Investor, and (iii) any Permitted Transferee
of any such Person, or of any other Permitted Transferee, who becomes a party
to or bound by the provisions of this Agreement in accordance with the terms
hereof.
"significant subsidiary" shall mean any subsidiary of the Company or
any other Person that constitutes a significant subsidiary within the meaning
of Rule 1-02 of Regulation S-X of the SEC.
"Significant Transaction" shall have the meaning assigned to such
term in Section 2.1(b) hereof.
"Stock" shall mean with respect to any Person, Capital Stock of such
Person of any class or classes, the holders of which are ordinarily (and not
only upon the happening of a contingency) entitled to vote for the election of
members of the board of directors (or Persons performing similar functions) of
such Person, including, without limitation, the Common Stock.
"Stock Option Agreements" means Non-Qualified Stock Option Agreements
to be entered into between the Company and key executives of the Company,
substantially in the form of Exhibit A hereto.
"Stock Purchase and Option Plan" shall mean the 1996 Stock Purchase
and Option Plan for Key Employees of Teleo Ventures, Inc. and Affiliates
attached hereto as Exhibit B.
"Stock Rights" shall mean at any time any and all warrants, options
and other rights outstanding at such time to purchase or otherwise acquire
Common Stock of the Company of any class, whether or not such warrants,
options or rights are exercisable at such time, including, without limitation,
all options now outstanding or hereafter granted pursuant to the First Reserve
Subscription Agreement or the Stock Purchase and Option Plan.
"subsidiary" shall mean as to any Person a corporation, partnership,
or similar entity of which (i) a majority of the outstanding shares of voting
Capital Stock, limited liability company interests, or other similar
securities are at the time owned, directly or indirectly through one or more
intermediaries, or both, by such Person or (ii) such Person is the general
partner (or performs a role similar to a general partner).
"Subsidiary Board" shall have the meaning assigned to such term in
Section 3.1(a).
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10
"Substantial Assets" shall mean assets having a gross fair market
value in excess of, or assets to be acquired for consideration in excess of,
10% of the Consolidated Total Capitalization of the Company and its
subsidiaries, as reflected on the consolidated balance sheet of the Company
and its subsidiaries as at the end of the last full fiscal quarter prior to
the date such determination is made.
"Tag-Along Offeree" shall have the meaning assigned to such term in
Section 5.4.
"transfer" shall, for the purposes of Articles IV and V hereof, have
the meaning assigned to such term in Section 4.1.
"Transfer Stock" shall have the meaning assigned to such term in
Section 5.5(a).
"Underwritten Offering" shall have the meaning assigned to such term
in Section 6.1(g).
"Vested Stock Rights" shall mean, at any time, those Stock Rights
that are then currently exercisable or which will become exercisable as a
result of the consummation of the relevant transaction.
ARTICLE II. MANAGEMENT AGREEMENTS
SECTION 2.1. CONDUCT OF BUSINESS.
(a) Each of the parties hereto agrees that, after the date hereof,
except in the case of (i) issuances of New Securities (as that term is defined
in Section 5.3), (ii) the issuance of shares of Common Stock pursuant to the
First Reserve Option and (iii) transactions expressly contemplated by this
Agreement, the Stock Purchase and Option Plan, or employment agreements
between the Company and its executive management approved by the Board of
Directors, neither the Company nor any of its subsidiaries will enter into any
written or oral contract, agreement or other arrangement to engage in business
or enter into any transaction, or will engage in business or enter into any
transaction, with any Securityholder or any affiliate of a Securityholder
(other than the Company and its subsidiaries) unless the relevant transaction
(A) has been approved by a majority of the directors voting on such matter,
excluding any director designees of the Securityholder who (or whose
affiliate) has an interest in the transaction and such interest was disclosed
to the Board of Directors prior to such approval or (B) is a commercial
transaction entered into in the ordinary course of business by the Company or
such subsidiary and (x) such transaction has been negotiated on an arm's
length basis between the operating management or employees of the Company or
such subsidiary and the other party to the transaction and (y) the other party
to the transaction is not an affiliate of the
<PAGE>
11
managers or employees of the Company who negotiated such transaction on behalf
of the Company or such subsidiary.
(b) Notwithstanding the fact that no vote may be required, or that a
lesser percentage vote may be specified by law, by the Certificate of
Incorporation or By-Laws, by any agreement with any national securities
exchange or otherwise, except as hereinafter provided in this paragraph (b) or
elsewhere in this Agreement, the Company and the Securityholders shall not
take or permit any of the following actions (individually, a "Significant
Transaction") unless otherwise authorized by a vote of at least a majority of
the whole Board of Directors:
(i) Any recapitalization, merger, consolidation or other similar
transaction involving the Company or any subsidiary of the Company (other
than transactions involving the merger or consolidation of a wholly-owned
subsidiary of the Company into the Company or with or into another
wholly-owned subsidiary of the Company).
(ii) Any sale, lease, exchange, transfer or other disposition,
directly or indirectly, in a single transaction or series of related
transactions, of all or substantially all, or a substantial part of, the
assets of the Company or any of its subsidiaries, or of any of the
outstanding Capital Stock of the Company or any subsidiary of the Company,
to or with any Person other than to or with the Company or a wholly owned
subsidiary of the Company. The term "substantial part" means assets having
a gross fair market value which exceeds 10% of the Consolidated Total
Capitalization of the Company and its subsidiaries, as reflected on the
consolidated balance sheet of the Company and its subsidiaries as at the
end of the last full fiscal quarter prior to the date such determination
is made.
(iii) Any purchase, lease, exchange or other acquisition of
assets (including securities) by the Company or any subsidiary of the
Company, in a single transaction or a series of related transactions, if
such assets constitute or would constitute Substantial Assets.
(iv) Any increase or reduction of the number of shares of any
class of the Company's authorized Capital Stock or the creation of any
additional class of Capital Stock of the Company, or the issuance or sale
of shares of Capital Stock of the Company or any of its subsidiaries (or
warrants, options or rights to acquire shares of Capital Stock or
securities convertible into or exchangeable for Capital Stock or any type
of debt instrument which has equity features), except the issuance or sale
of shares of Capital Stock of a wholly-owned subsidiary of the Company to
the Company or to another wholly-owned subsidiary of the Company or the
issuance or sale of Capital Stock under the
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12
Stock Purchase and Option Plan in accordance with the applicable
provisions of the Stock Purchase and Option Plan.
(v) Any amendment to or modification or repeal of any provision
of the Certificate of Incorporation or By-Laws of the Company.
(vi) The dissolution of the Company; the adoption of a plan of
liquidation of the Company or any significant subsidiary; any action by
the Company or any subsidiary of the Company to commence any suit, case,
proceeding or other action (A) under any existing or future law of any
jurisdiction relating to bankruptcy, insolvency, reorganization or relief
of debtors seeking to have an order for relief entered with respect to the
Company or such subsidiary, or seeking to adjudicate the Company or such
subsidiary bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or other
relief with respect to the Company or such subsidiary, or (B) seeking
appointment of a receiver, trustee, custodian or other similar official
for such Company or such subsidiary or for all or any substantial part of
its assets, or making a general assignment for the benefit of its
creditors.
(vii) Any redemption or offer to purchase made by the Company or
any of its subsidiaries or other acquisition of Capital Stock of the
Company or any of its subsidiaries, except (A) the purchase of Stock or
Stock Rights held by any of the Management Investors in accordance with
Section 5.2 of this Agreement or (B) the purchase or redemption of Stock
or Stock Rights issued under the Stock Purchase and Option Plan, in each
case in accordance with the applicable provisions of the Stock Purchase
and Option Plan.
(viii) Any amendment, modification or supplement to the Stock
Purchase and Option Plan.
(ix) Adopt, or cause or permit any subsidiary to adopt, any
operating or capital budget or business plan for any fiscal year or other
period, amend or materially deviate from, or cause or permit any of its
subsidiaries to amend or materially deviate from, any such budget or
business plan as to expenditures;
(x) Become subject to, or cause or permit any of its
subsidiaries to become subject to (in each case including, by way of
amendment to or modification of), any agreement or instrument (other than
the Credit Agreement and the security instruments executed and delivered
in connection therewith) which by its terms would (under any
circumstances) (a) restrict the right of any subsidiary to make loans or
advances or pay dividends to, transfer property to, or repay any
indebtedness owed to, the Company
<PAGE>
13
or any subsidiary or (b) restrict the ability of the Company or any
subsidiary thereof to perform the provisions of, or performance of which
would otherwise conflict with, any provision of this Agreement or the
documents entered into in connection with this Agreement;
(xi) Establish or acquire after the date hereof, or cause or
permit any subsidiary to establish or acquire after the date hereof, (a)
any subsidiary other than a wholly-owned subsidiary or (b) any subsidiary
organized outside of the United States and its territorial possessions;
(xii) Create, incur, assume or suffer to exist, or cause or
permit or cause any subsidiary to create, incur, assume or suffer to
exist, any indebtedness other than Permitted Indebtedness, or amend or
modify after the date hereof, or cause or permit any subsidiary to amend
or modify after the date hereof, the Credit Agreement or any other any
bank loan agreement or any other agreement or instrument relating to any
indebtedness or establish or modify any banking relationship;
(xiii) Create, incur, assume or suffer to exist, or cause or
permit any subsidiary to create, incur, assume or suffer to exist, any
Liens on any of its properties or assets other than Permitted Liens;
(xiv) Institute or settle, or cause or permit any subsidiary to
institute or settle, any claim or lawsuit (or series of related claims
and/or lawsuits) for any amount in excess of $100,000 individually, or
involving equitable relief; or
(xv) Agree to, or cause or permit any of its subsidiaries to
agree to, do any of the foregoing prohibited acts.
SECTION 2.2. STOCK PURCHASE AND OPTION PLAN. (a) The Board of
Directors has adopted the Stock Purchase and Option Plan. Options and other
rights granted under the Stock Purchase and Option Plan shall be granted to
such persons, in such amounts and on such terms as shall be approved by a
majority of the whole Board of Directors, which majority shall include at
least one director designated by the First Reserve Securityholders, one
director designated by the Management Investors and the Chief Executive
Officer of the Company (which Chief Executive Officer and which director
designated by the Management Investors may be the same person). The persons
participating in the Stock Purchase and Option Plan and the amount and other
terms of such participation shall be approved by a majority of the whole Board
of Directors, which majority shall include at least one director designated by
the First Reserve Stockholders, one director designated by the Management
Investors and the Chief Executive
<PAGE>
14
Officer of the Company (which Chief Executive Officer and which director
designated by the Management Investors may be the same person).
(b) The Board of Directors of the Company has authorized the issuance
of up to 1,000 options to purchase shares of Common Stock on the terms set
forth in the Stock Option Agreements. The Company will not issue any such
options except upon the terms and subject to the conditions of the Stock
Option Agreements and will not enter into any Stock Option Agreement unless
the optionee thereunder and his/her spouse (if applicable) becomes a
"Management Investor" party to this Agreement pursuant to a written instrument
in form and substance satisfactory to the First Reserve Stockholders and the
Company. The Securityholders acknowledge that, subject to the foregoing, the
Chief Executive Officer is authorized to cause such options to be issued to
key managers of the Company and its affiliates, provided that the number of
such options to be issued to the Chief Executive Officer will not exceed 450.
SECTION 2.3. REGISTRATION OF COMMON STOCK. In the event of a Public
Offering of Common Stock, each Securityholder shall, at a meeting convened for
the purpose of amending the Certificate of Incorporation (or by means of
written consent pursuant to the applicable provisions of the Delaware General
Corporation Law (the "DGCL")), vote to increase the number of issued and
outstanding shares of Common Stock, whether by stock split, stock dividend or
otherwise, or change in its par value or increase the authorized number of
shares of stock, as recommended by a majority of the members of the Board of
Directors in order to facilitate such Public Offering.
ARTICLE III. CORPORATE GOVERNANCE
SECTION 3.1. BOARD OF DIRECTORS.
(a) The Securityholders and the Company hereby agree that at all
times after the Closing Date, the Board of Directors of the Company and the
board of directors (or comparable governance body of any partnership or
similar entity) of each significant subsidiary (each, a "Subsidiary Board"),
shall consist entirely of the members described in this Section 3.1(a), except
that (i) the First Reserve Stockholders may in their discretion elect (which
election may be revoked at any time by the First Reserve Stockholders) to
designate fewer than three persons, or no persons at all, to be members of any
Subsidiary Board and (ii) the Management Investors may in their discretion
elect (which election may be revoked at any time by the Management Investors)
to designate fewer than two persons, or no persons at all, to be members of
any Subsidiary Board, provided, however, that if the Management Investors
designate only one person to any such board of directors, such person must be
the Chief Executive Officer of the Company. On the Closing Date, and
<PAGE>
15
from time to time thereafter, the Securityholders shall take all such actions
as may be necessary or appropriate to cause the persons described below to be
elected or re-elected as the members of the Board of Directors and each
Subsidiary Board and to be maintained in such positions at all times:
(i) three persons designated by the First Reserve Stockholders; and
(ii) two persons designated by the Management Investors, one of whom
must be the Chief Executive Officer of the Company;
provided, however, that (i) if Michael V. Ronca is not the Chief Executive
Officer of the Company, the First Reserve Stockholders shall have the right to
designate all of the members of the Board of Directors and the right of the
Management Investors to designate members of the Subsidiary Boards shall
terminate, (ii) if the First Reserve Stockholders own less than 50% of the
outstanding Common Stock, calculated on a fully diluted basis, the First
Reserve Stockholders shall have the right to designate two members of the
Board of Directors and (iii) if the First Reserve Stockholders own less than
10% of the outstanding Common Stock, calculated on a fully diluted basis, the
First Reserve Stockholders shall have the right to designate one member of the
Board of Directors. For the purposes of this Article III, all actions to be
taken by the First Reserve Stockholders shall be taken only by the holders of
a majority of the Stock owned by the First Reserve Stockholders at the time
such action is taken. For the purposes of this Article III, all actions to be
taken by the Management Investors will be taken only by the holders of a
majority of the Stock owned by the Management Investors at the time such
action is taken.
(b) Each Securityholder hereby agrees to vote all shares of Stock
owned or held of record by such Securityholder, at each annual or special
meeting of stockholders of the Company at which directors of the Company are
to be elected, in favor of, or to take all actions by written consent in lieu
of any such meeting as are necessary to cause, the election or re-election as
members of the Board of Directors of those individuals described in Section
3.1(a), and to otherwise effect the intent of the provisions of Section
3.1(a).
(c) Each committee of the Board of Directors and each Subsidiary
Board shall include a number of directors designated by the First Reserve
Stockholders and the Management Investors (rounded up to the nearest whole
number) equivalent in each case to the proportion of directors designated by
each of them who are then serving on the whole Board of Directors or such
whole Subsidiary Board, as applicable; provided, however that the Management
Investors shall not have the right to designate any directors to serve on any
audit committee or similar committee of the Board of Directors or any
Subsidiary Board and the
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16
Compensation Committee of the Board of Directors will be constituted as
described below. The committees of the Board of Directors shall consist of an
Audit Committee and a Compensation Committee each of which shall, subject to
Section 2.1, have functions customarily performed by such committees. The
Audit Committee shall consist of two directors, each of whom were designated
by the First Reserve Stockholders to sit on the Board of Directors. The
Compensation Committee shall consist of three directors, two of whom were
designated by the First Reserve Stockholders to sit on the Board of Directors
and one of whom is the Chief Executive Officer of the Company.
(d) Unless otherwise agreed by the parties hereto, the Board of
Directors and each Subsidiary Board shall follow the following procedures:
(i) Meetings. Special Meetings of the applicable board of
directors may be held at any time upon the call of at least two directors,
including (in the event the First Reserve Stockholders have a designee on
such board of directors) one designee of the First Reserve Stockholders,
by oral, telephonic, telegraphic or facsimile notice duly given or sent at
least one day, or by written notice sent by express mail at least three
days, before the meeting to each director. Reasonable efforts shall be
made to ensure that each director actually receives timely notice of any
meeting. The annual meeting of the Board of Directors and each Subsidiary
Board shall be held without notice immediately following the annual
meeting of stockholders of the Company or such subsidiary, as the case may
be.
(ii) Agenda. A reasonably detailed agenda shall be supplied to
each director reasonably in advance of each meeting of the applicable
board of directors, together with other appropriate documentation with
respect to agenda items calling for board action, to inform adequately
directors regarding matters to come before the board. Any director wishing
to place a matter on the agenda for any meeting of the applicable board of
directors may do so by communicating with the chairman of such board of
directors sufficiently in advance of the meeting of the applicable board
of directors so as to permit timely dissemination to all directors of
information with respect to the agenda items.
(e) Each of the First Reserve Stockholders that is not directly
represented on the Board of Directors or any Subsidiary Board shall be
entitled to designate a nonvoting observer to attend meetings of any such
Board of Directors or Subsidiary Board (which designation shall be provided in
writing to the Company or a Subsidiary, as the case may be, a reasonable time
in advance of such meetings). The Company or the subsidiary, as the case may
be, shall provide each such observer with the same notice of, and information
regarding, meetings of the Board of Directors or Subsidiary Board as that
provided to directors.
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17
Each such observer shall be provided reasonable access to the books, records
and properties of the Company or the subsidiary and shall be provided with a
reasonable opportunity to discuss the business and affairs of the Company or
subsidiary with the officers of the Company or subsidiary, provided that the
First Reserve Stockholders shall cause all information relating to the Company
or the subsidiary that is provided to such observer to be held in strict
confidence.
(f) The Company shall pay the reasonable out-of-pocket expenses
incurred by each director in connection with attending (i) the meetings of the
Board of Directors, any Subsidiary Board and any committee thereof and (ii)
any other meetings at the request of the Company or any of its subsidiaries.
So long as any director designated pursuant to Section 3.1(a) serves on the
Board of Directors or a Subsidiary Board and for six years thereafter, the
Company shall maintain directors and officers indemnity insurance coverage
satisfactory to the holders of a majority of the then outstanding Common Stock
and the organizational documents of each of the Company and each of its
subsidiaries, as appropriate, shall provide for indemnification and
exculpation of directors to the fullest extent permitted under applicable law.
SECTION 3.2. REMOVAL. If a director designated and elected pursuant
to Section 3.1,
(i) has been designated pursuant to Section 3.1(a)(i), and,
during such director's term as director, the First Reserve Stockholders
request by written notice to the other Securityholders that such director
be removed;
(ii) has been designated pursuant to Section 3.1(a)(ii), and,
during such director's term as director, the Management Investors request
by written notice to the other Securityholders that such directors be
removed; or
(iii) has been designated pursuant to Section 3.1(a)(ii) and
Michael V. Ronca is not the Chief Executive Officer of the Company, and
the First Reserve Stockholders request by written notice to the other
Securityholders that such director be removed;
then such director shall be removed upon the affirmative vote of the holders
of a majority of the outstanding shares of Stock, and each Securityholder
hereby agrees promptly to vote all shares of Stock owned or held of record by
it and to take all such other actions as may be necessary or appropriate to
effect such removal in accordance with such request.
SECTION 3.3. VACANCIES. In the event that a vacancy
is created on the Board of Directors at any time by the death,
disability, retirement, resignation or removal of any director or
for any other reason there shall exist or occur any vacancy on
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18
the Board of Directors, each Securityholder hereby agrees to take such actions
as will result in the election or appointment of a new director or directors
in accordance with Section 3.1.
ARTICLE IV. TRANSFERS OF SECURITIES.
SECTION 4.1. RESTRICTIONS ON TRANSFER. (a) Each Securityholder agrees
that it will not, directly or indirectly, offer, sell, transfer, assign or
otherwise dispose of (or make any exchange, gift, assignment or pledge of)
(collectively, for purposes of Articles IV and V hereof only, a "transfer")
any of its shares of Stock or Stock Rights, except (i) as provided in Section
4.2, (ii) in accordance with Article V or (iii) other than in connection with
an exercise of any Stock Right in accordance with its terms.
(b) In addition to the other restrictions prescribed by this Article
IV, each Securityholder agrees that it will not, directly or indirectly,
offer, sell, transfer, assign or otherwise dispose of any of its Securities
except as permitted under the Securities Act and other applicable securities
laws.
SECTION 4.2. EXCEPTIONS TO RESTRICTIONS. The provisions of Section
4.1 (a) shall not apply to any of the following transfers:
(a) From any First Reserve Stockholder to any affiliate of the First
Reserve Stockholders, provided that such affiliate shall assume in writing the
obligations hereunder of a First Reserve Stockholder, which writing shall in
form and substance be reasonably satisfactory to the Company and the
Management Investors' board designees.
(b) From any Management Investor to a trust solely for such Person's
benefit or the benefit of such Person's spouse or children (a "Purchaser's
Trust"), provided that such Person acts as trustee and retains the sole power
to direct voting and disposition of such shares; and, provided, further, that
any such Purchaser's Trust shall agree in a writing in form and substance
reasonably satisfactory to the Company and the First Reserve Stockholders to
be bound and shall become bound by the terms of this Agreement;
(c) From any First Reserve Stockholder to any Person, subject only to
the requirements of Section 5.4, provided that such transferee shall assume in
writing the obligations hereunder of a First Reserve Stockholder; and
(d) Pursuant to any merger or consolidation of the Company; and
(e) To the public pursuant to a Public Offering.
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19
SECTION 4.3. LEGENDING OF CERTIFICATES.
(a) In addition to any other legend which the Company may reasonably
deem advisable under the Securities Act and applicable state securities laws,
the certificates representing all shares of Stock and all Stock Rights subject
to this Agreement shall be legended at all times during the term of this
Agreement as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS, AND ARE
SUBJECT TO THE PROVISIONS (INCLUDING THE RESTRICTIONS ON TRANSFER)
SET FORTH IN THAT CERTAIN SECURITYHOLDERS AGREEMENT DATED AS OF
DECEMBER 31, 1996 AMONG DOMAIN ENERGY CORPORATION (THE "COMPANY"),
FIRST RESERVE FUND VII, LIMITED PARTNERSHIP, AND THE INDIVIDUALS AND
TRUSTS SIGNATORY THERETO, AS SUCH AGREEMENT MAY BE AMENDED (AS
AMENDED, IF AMENDED, THE "SECURITYHOLDERS AGREEMENT"), A COPY OF
WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE MAY NOT (AND THE HOLDER OF THIS
CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES THAT SUCH
SECURITIES MAY NOT AND WILL NOT) BE TRANSFERRED, SOLD, ASSIGNED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF (1) EXCEPT IN
COMPLIANCE WITH THE SECURITYHOLDERS AGREEMENT AND (2) EXCEPT AS
OTHERWISE PROVIDED IN THE SECURITYHOLDERS AGREEMENT, UNLESS AND UNTIL
SUCH SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL FOR THE
HOLDER SATISFACTORY TO THE COMPANY IS OBTAINED TO THE EFFECT THAT
SUCH REGISTRATION IS NOT REQUIRED. ADDITIONALLY, IF THE HOLDER IS A
CITIZEN OR RESIDENT OF ANY COUNTRY OTHER THAN THE UNITED STATES, OR
THE HOLDER DESIRES TO EFFECT ANY SUCH TRANSACTION IN ANY SUCH
COUNTRY, THE COMPANY MUST BE FURNISHED WITH A SATISFACTORY OPINION OR
OTHER ADVICE OF COUNSEL FOR THE HOLDER THAT SUCH TRANSACTION WILL NOT
VIOLATE THE LAWS OF SUCH COUNTRY."
(b) The obligations of each party hereto shall be binding upon each
transferee to whom shares of Stock or Stock Rights are transferred by any
party hereto (including, without limitation, any third party to whom shares
are transferred pursuant to Article V) except shares transferred pursuant to a
Public Offering. Prior to consummation of any applicable transfer, such party
shall cause the transferee to execute an agreement in form and substance
reasonably satisfactory to the other parties hereto, providing that such
transferee shall fully comply with the terms of this Agreement. Prompt notice
shall be given to the Company, the First Reserve Stockholders and by the
transferor of any transfer of any of its Stock or Stock Rights.
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20
SECTION 4.4. IMPROPER TRANSFER. Any attempt to transfer any shares of
Stock or any Stock Rights not in accordance with this Agreement shall be null
and void and neither the Company nor any transfer agent shall give any effect
to such attempted transfer or encumbrance in its stock records.
ARTICLE V. PURCHASE RIGHTS.
SECTION 5.1. TRANSFERS BY A MANAGEMENT INVESTOR.
Except for transfers permitted by Section 4.2(b) or a sale of shares
of Stock pursuant to an effective registration statement under the Securities
Act filed by the Company or pursuant to Sections 5.2, 5.4 or 5.5 of this
Agreement, each Management Investor agrees that he will not transfer any
shares of the Stock of the Company at any time prior to the fifth anniversary
of the date hereof. No transfer of any such shares in violation hereof shall
be made or recorded on the books of the Company and any such transfer shall be
void and of no effect.
If at any time after the fifth anniversary of the date hereof and
prior to a Public Offering, a Management Investor receives a bona fide offer
to purchase any or all of his shares of Stock (the "Offer") from a third party
(the "Offeror") which such Management Investor wishes to accept, such
Management Investor shall cause the Offer to be reduced to writing and shall
notify the Company in writing of his wish to accept the Offer. A Management
Investor's notice shall contain an irrevocable offer to sell such shares of
Stock to the Company (in the manner set forth below) at a purchase price equal
to the price contained in, and on the same terms and conditions of, the Offer,
and shall be accompanied by a true copy of the Offer (which shall identify the
Offeror). At any time within 30 days after the date of the receipt by the
Company of a Management Investor's notice, the Company shall have the right
and option to purchase, or to arrange for a third party to purchase, all of
the shares of Stock covered by the Offer either (i) at the same price and on
the same terms and conditions as the Offer or (ii) if the Offer includes any
consideration other than cash, then at the sole option of the Company, at the
equivalent all cash price, determined in good faith by the Company's Board of
Directors, by delivering a certified bank check or checks in the appropriate
amount (and any such non-cash consideration to be paid) to the applicable
Management Investor at the principal office of the Company against delivery of
certificates or other instruments representing the shares of the Stock so
purchased, appropriately endorsed by the applicable Management Investor. If at
the end of such 30 day period, the Company has not tendered the purchase price
for such shares in the manner set forth above, the applicable Management
Investor may during the succeeding 60 day period sell not less than all of the
shares of Stock covered by the Offer to the Offeror at a price and on terms no
less favorable to such Management Investor than those contained in the
<PAGE>
21
Offer. Promptly after such sale, the applicable Management Investor shall
notify the Company of the consummation thereof and shall furnish such evidence
of the completion and time of completion of such sale and of the terms thereof
as may reasonably be requested by the Company. If, at the end of 60 days
following the expiration of the 30 day period for the Company to purchase the
Stock, the applicable Management Investor has not completed the sale of such
shares of the Stock as aforesaid, all the restrictions on sale, transfer or
assignment contained in this Agreement shall again be in effect with respect
to such shares of the Stock.
SECTION 5.2. PUTS AND CALLS.
The Company and each Management Investor (which term, for purpose of
this Section 5.2, shall include all Permitted Transferees thereof as the
context may require) shall be subject to the following purchase and sale
obligations and rights:
(a) Subject to Section 5.2(c), upon any termination of employment of
a Management Investor by reason of:
(i) death or permanent disability,
(ii) retirement from the Company and its subsidiaries at age 62 or over
(or such other age as may be approved by the Board of Directors of
the Company) after having been employed by the Company or any
subsidiary for at least three years after the Closing Date ("Normal
Retirement"), or
(iii) involuntary termination from the Company and its subsidiaries
without Cause or voluntary termination from the Company and its
subsidiaries for Good Reason,
the Management Investor and his Permitted Transferees or his or their
representative shall be entitled for a period of 120 days following the
effective date of such termination of employment to exercise a put (any such
put, a "Put") to the Company of all of the Stock and Vested Stock Rights of
such Management Investor or Permitted Transferees by requiring the Company to
(A) purchase such Stock at a price per share (the "Put Price") equal to (i) if
such purchase is consummated prior to the second anniversary of the Closing
Date, the Book Value or (ii) if such purchase is consummated on or after the
second anniversary of the Closing Date, the Fair Market Value and (B) purchase
such Vested Stock Rights at a price (the "Option Put Price") equal to the
excess of (x) the product of the Put Price multiplied by the number of shares
to be received upon exercise of the Vested Stock Rights over (y) the aggregate
exercise price of those shares. A Put shall be exercised by delivery of
written notice to the Company. The purchase shall be consummated within 30
days after receipt of such notice by the Company.
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22
(b) (i) Subject to Section 5.2(c), upon the termination of employment
of any Management Investor for any reason, including, without limitation,
death or permanent disability, and provided such Management Investor or his
Permitted Transferee shall not have previously exercised a Put pursuant to
Section 5.2(a), the Company shall be entitled for a period of one year after
the effective date of such termination of employment to exercise a call (any
such call, a "Call") on all of the shares of Stock and all Vested Stock Rights
owned by such Management Investor and his Permitted Transferees by requiring
such Management Investor and his Permitted Transferees to sell to the Company
all of such shares at the Put Price and all of such Vested Stock Rights at the
Option Put Price; provided, however, if a Management Investor's employment is
terminated by the Company without Cause or by the Management Investor for Good
Reason and the Management Investor does not desire to exercise a Put pursuant
to Section 5.2(a), the Company shall defer its Call pursuant to this Section
5.2(b)(i) until the second anniversary of the date of this Agreement. The
Company may exercise its Call by delivery of written notice to such Management
Investor and his Permitted Transferees. Consummation of the sale shall occur
within 30 days after delivery of such notice, at a purchase price per share,
subject to Section 5.2(b)(ii), determined in accordance with the provisions of
Section 5.2(a).
(ii) Notwithstanding Section 5.2(b)(i), any purchase of Stock by the
Company pursuant to the exercise of any Call as a result of termination by the
Company for Cause or termination by the Management Investor without Good
Reason shall be made at a purchase price per share (the "Section 5.2(b)(ii)
Call Price") equal to (1) if such purchase is consummated prior to the second
anniversary of the Closing Date, the lower of (x) Book Value and (y) the price
per share originally paid by such Management Investor (appropriately adjusted
for any stock dividends, splits, reverse splits, combinations,
recapitalizations and the like occurring after the Closing Date) ("Cost"), or
(2) if such purchase is consummated on or after the second anniversary of the
Closing Date, the lower of (x) Book Value and (y) Fair Market Value.
(iii) Notwithstanding Section 5.2(b)(i), any purchase of Vested Stock
Rights by the Company pursuant to any Call as a result of termination by the
Company for Cause or termination by the Management Investor without Good
Reason shall be made at a price equal to the excess of (x) the product of the
Section 5.2(b)(ii) Call Price multiplied by the number of shares to be
received upon exercise of the Vested Stock Rights over (y) the aggregate
exercise price of those shares.
<PAGE>
23
(c) Notwithstanding anything in Section 5.2(a) or 5.2(b) to the
contrary, if there exists and is continuing a default or an event of default
on the part of the Company or any subsidiary of the Company under any loan,
guarantee or other agreement under which the Company or any subsidiary of the
Company has borrowed money or if the repurchases referred to in Section 5.2(a)
or 5.2(b) would result in a default or an event of default on the part of the
Company or any subsidiary of the Company under any such agreement or if a
repurchase would not be permitted under the DGCL (or if the Company
reincorporates in another state, the business corporation law of such state)
(each such occurrence being an "Event"), the Company shall not be obligated to
repurchase any of the Stock or the Vested Stock Rights from the Management
Investor or the Permitted Transferee, as the case may be, until the first
business day which is 10 calendar days after all of the foregoing Events have
ceased to exist (the "Repurchase Eligibility Date"); provided, that the
Company shall repurchase an amount of Stock or Stock Rights (the "Permitted
Number") which is less than all of the Stock or Stock Rights held by such
Management Investor or Permitted Transferee but as to which, the purchase of a
single additional share of Stock would violate applicable law or any loan,
guarantee or other agreement described above.
(d) The Board of Directors shall determine whether the Company will
exercise its call rights to purchase a Management Investor's (or Permitted
Transferee's) Stock pursuant to Sections 5.2(b) or 5.2(c) hereof.
(e) If any Management Investor's marital relationship is terminated
by the death of his spouse or divorce and he does not succeed to his or her
spouse's interest in any Stock or Stock Rights, he shall have the option to
purchase all such spouse's interest and the interests of any of his or her
Permitted Transferees in any shares of Stock or Stock Rights, but only to the
extent such interests arise from such spouse's community or marital property
rights and such spouse or the executor or administrator of his or her estate
and any such Permitted Transferees (any such spouse, executor, administrator
or Permitted Transferee, the "Spouse") shall be obligated to sell such Stock
or Stock Rights to such Management Investor. The price per share at which such
Stock and Stock Rights shall be purchased shall be determined in accordance
with the provisions of Section 5.2(a). Such option must be exercised within 90
days after such death or divorce. If such Management Investor should fail to
exercise such option within such 90 day period, the Spouse shall give prompt
written notice of such failure to the Company and each of the other Management
Investors, which notice shall describe the nature of the above referenced
interests of the Spouse in such Stock and Stock Rights. The Company shall be
entitled to exercise a call (a "Spouse Call") on all of the shares of such
Stock and on all Stock Rights owned by such Spouse, within 120 days after
receiving such notice, by requiring such Spouse to sell to the Company all of
such shares. The
<PAGE>
24
Company may exercise its call by delivery of written notice to such Spouse.
Consummation of the sale shall occur within 30 days after delivery of such
notice at a purchase price per share determined in accordance with the
provisions of Section 5.2(a).
(f) If by reason of Section 5.2(c) above the Company purchases less
than all (or none) of the shares of Stock and Vested Stock Rights held by a
Seller (provided that the Company shall have purchased the Permitted Number),
then notwithstanding anything to the contrary in Section 5.2(a), 5.2(b) or
5.2(c), the Company may elect, in the case of any such Call or Spouse Call,
and shall elect, in the case of any such Put, by delivering written notice to
such Seller at the time of such purchase (or, if no such shares are purchased,
within 30 days after delivery of the notice, in accordance with the provisions
of Sections 5.2(a), 5.2(b) or 5.2(c), as the case may be, of the Put or Call
in respect of such Seller), to purchase, as soon as possible after all of the
Events have ceased to exist, the remainder of such Stock and Vested Stock
Rights, up to but in no event more than the Permitted Number at the time of
each purchase and each subsequent purchase necessary to allow purchase of all
the shares and Vested Stock Rights subject to the Put or Call. In such event
the Company shall deliver to such Seller as soon as it is possible to purchase
such shares a written notice of such purchase, and such purchase shall be on
the terms and subject to the limitations contained in this Section 5.2
(including Section 5.2(c) above), except that the purchase price to be paid
shall be the price determined with reference to the first notice given
exercising the Put or Call with respect to such Seller, plus interest thereon
from the 31st day after the date of delivery of the first notice to the
closing of the applicable purchase at the Prime Rate.
(g) The Company shall exercise its call rights to purchase a
Management Investor's (or a Spouse's or Permitted Transferee's) Stock and
Vested Stock Rights pursuant to Sections 5.2(b), 5.2(c) or 5.2(d) hereof.
Notwithstanding the foregoing, the Company may request, but not require, the
First Reserve Stockholders to exercise the Company's rights and obligations to
purchase such Stock and Vested Stock Rights (and, if such request is made, the
First Reserve Stockholders may decide in their sole discretion whether to
exercise the Company's rights and obligations). Should the Board of Directors
fail to exercise a call on the Stock as provided in Sections 5.2(b), 5.2(c) or
5.2(d), or be unable to purchase all of the Stock and Vested Stock Rights for
cash pursuant to a Put or Call, (an "Unexercised Right"), each Management
Investor (and his Permitted Transferees) then owning Stock, other than the
Management Investor (and his Permitted Transferees) subject to the call, shall
be entitled to exercise a call (any such call, a "Management Call"), on up to
a pro rata basis (based upon the number of shares of Fully Diluted Common
Stock then beneficially owned, within 10 days after notice by the Company to
the Management Investor that it will not exercise its call or is unable to
purchase all of the Stock for
<PAGE>
25
cash and Vested Stock Rights pursuant to a Put or a Call. A Management Call
shall be exercised by delivery of written notice to the Company and to the
Management Investor (or Spouse or Permitted Transferee) whose shares and
Vested Stock Rights were subject to the Unexercised Right.
SECTION 5.3. RIGHT OF FIRST REFUSAL FOR NEW SECURITIES.
(a) The Company hereby grants to the Securityholders a pro rata right
of first refusal to purchase shares of any New Securities (as defined below)
which the Company may, from time to time, propose to sell and issue. Such
right of first refusal shall allow each Securityholder to purchase a pro rata
portion of the shares of Stock or Stock Rights or other securities as may be
included in the New Securities proposed to be issued. Such pro rata portions
shall be determined by reference to the aggregate number of shares of (i)
Fully Diluted Common Stock in the case of issuances to the First Reserve
Stockholders or any of their affiliates or (ii) outstanding Common Stock in
the case of issuances to Persons other than to the First Reserve Stockholders
or any of their affiliates, as the case may be, owned in each case by each
Securityholder (including the First Reserve Stockholders) before the proposed
issuance of New Securities. The right of first refusal granted hereunder shall
terminate if unexercised within thirty (30) days after receipt of the notice
described in Section 5.3(c) below.
(b) "New Securities" shall mean any authorized but unissued shares,
and any treasury shares, of Capital Stock (including, without limitation,
Common Stock) of the Company and all rights, options or warrants to purchase
Capital Stock of the Company (including, without limitation, Stock Rights),
and securities of any type whatsoever that are, or may become, convertible
into Capital Stock of the Company; provided, however, that the term "New
Securities" does not include (i) shares of Common Stock issued upon the
exercise of Stock Rights or other rights to acquire Stock that are (x)
outstanding on the date hereof (including, without limitation, the First
Reserve Option) or (y) issued after the date hereof in a transaction in which
the Securityholders have the right to purchase their respective pro rata
portions of the relevant Stock Rights or other rights pursuant to Section
5.3(a) hereof, in each such case in accordance with the terms thereof or (ii)
shares of Stock issued in connection with any stock split, stock dividend or
recapitalization of the Company, (iii) securities issued by the Company
pursuant to the acquisition of another corporation or other entity by merger,
purchase of all or substantially all of the assets or other recapitalization,
reorganization or business combination, (iv) shares of Common Stock and
Options to purchase shares of Common Stock issued to employees, officers or
directors of the Company pursuant to the Stock Purchase and Option Plan,
provided that the aggregate number of shares of Common Stock issued pursuant
to the Stock Purchase and Option Plan shall not
<PAGE>
26
exceed 1,000 or (v) up to 529 shares of Common Stock issued and sold by the
Company to the Management Investors at a price per share of $3,151.4354,
provided, such issuance and sale shall have been consummated on or before
February 15, 1997.
(c) In the event the Company proposes to undertake an issuance of New
Securities, it shall give each Securityholder written notice of its intention,
describing the number of shares of Stock and/or Stock Rights or other
securities it intends to issue as New Securities, the purchase price therefor
(which shall be payable solely in cash) and the terms upon which the Company
proposes to issue the same. Each Securityholder shall have 30 days from the
date such notice is received to determine whether to purchase all or any
portion of the Securityholder's pro rata share of such New Securities for the
purchase price and upon the terms specified in the Company's notice by giving
written notice to the Company and stating therein the quantity of New
Securities to be purchased.
(d) The obligations of the Company under this Section 5.3 shall
terminate immediately prior to any Public Offering pursuant to a firm
underwriting commitment.
SECTION 5.4. RIGHT TO JOIN IN SALE.
(a) If any Securityholder or group of Securityholders proposes to
sell, dispose of or otherwise transfer in any single transaction or series of
related transactions any Securities representing more than 10% of the Fully
Diluted Common Stock (each a "Disposing Stockholder") other than (i) to the
Company, (ii) to the Company or its designee pursuant to Section 5.1 hereof or
(iii) any transfer by a First Reserve Stockholder to any affiliate of such
First Reserve Stockholder, such Disposing Stockholder shall refrain from
effecting such transaction unless, prior to the consummation thereof, each
other Securityholder shall have been afforded the opportunity to join in such
sale on a pro rata basis, as hereinafter provided.
(b) Prior to consummation of any proposed sale, disposition or
transfer (a "Sale") of the Securities described in Section 5.4(a), the
Disposing Stockholder shall cause the Person or group that proposes to acquire
such shares (the "Proposed Purchaser") to offer (the "Purchase Offer") in
writing to each other Securityholder (each, a "Tag-Along Offeree") to purchase
shares of Stock and/or Stock Rights owned by such Tag-Along Offeree which are
the same type, class or series proposed to be sold by the Disposing
Stockholders, such that the sum of the number of shares of such Stock so
offered to be purchased and the number of shares of Stock then represented by
the Stock Rights so offered to be purchased from such Tag-Along Offeree shall
be equal to the product obtained by multiplying the total number of shares of
the same type, class or series of Stock or other Securities being sold by the
Disposing Stockholder then owned by
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27
such Tag-Along Offeree by a fraction, the numerator of which is the aggregate
number of shares of each type, class or series of Stock or other Securities
proposed to be purchased by the Proposed Purchaser from the Disposing
Stockholder and the denominator of which is the aggregate number of
outstanding shares of each type, class or series of Stock or other Securities
that are owned by the Disposing Stockholder; provided, however, that if after
the consummation of such Sale the First Reserve Stockholders will own less
than 50% of the outstanding Common Stock, then each Tag-Along Offeree may
elect to include in such Sale all of the shares of Stock and/or Stock Rights
owned by such Tag-Along Offeree and any Purchase Offer shall be amended to
reflect any such election by the Tag-Along Offeree. Such purchase shall be
made at the price per share and on such other terms and conditions as the
Proposed Purchaser has offered to purchase each type, class or series of Stock
or other Securities, as the case may be, to be sold by the Disposing
Stockholder. Each Tag-Along Offeree shall have 20 calendar days from the date
of receipt of the Purchase Offer in which to accept such Purchase Offer, and
the closing of such purchase shall occur at the same time as the closing of
the Sale. The number of shares of Stock and/or Stock Rights, as the case may
be, to be sold to the Proposed Purchaser by the Disposing Stockholder shall be
reduced by the aggregate number of shares of Stock and/or Stock Rights, as the
case may be, purchased by the Proposed Purchaser from the Tag-Along Offerees
pursuant to the acceptance by them of Purchase Offers in accordance with the
provisions of this Section 5.4(b). In the event that a sale or other transfer
subject to this Section 5.4 is to be made to a Proposed Purchaser who is not a
Securityholder, the Disposing Stockholder shall notify the Proposed Purchaser
that the sale or other transfer is subject to this Section 5.4 and shall
ensure that no sale or other transfer is consummated without the Proposed
Purchaser first complying with this Section 5.4. It shall be the
responsibility of each Disposing Stockholder to determine whether any
transaction to which it is a party is subject to this Section 5.4.
SECTION 5.5. RIGHTS TO COMPEL SALE.
(a) If the First Reserve Stockholders and their respective affiliates
propose to make a transfer of 100% of their Stock in the Company, at any time
when the First Reserve Stockholders and their affiliates own at least 50% of
the Fully Diluted Common Stock, to a Person that is neither an affiliate of
the First Reserve Stockholders nor a Person with respect to which the First
Reserve Stockholders or any of their affiliates has a direct or indirect
economic interest, then the First Reserve Stockholders shall have the right,
exercisable as set forth below, to require all of the other Securityholders
(the "Remaining Securityholders") to sell all of the Stock and Vested Stock
Rights then owned by such Remaining Securityholders (the "Transfer Stock") to
the proposed transferee (the "Acquiror") for the same consideration per share
of Stock or Vested Stock Right as is being paid to the First Reserve
Stockholders, which
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28
consideration shall consist entirely of cash and/or Marketable Securities and
otherwise on the same terms as are applicable to the First Reserve
Stockholders. The purchase price for each Vested Stock Right in any such
transfer shall equal the "spread" between the exercise price for such Vested
Stock Right and the purchase price per share of Stock. The terms and
conditions other than the consideration to be received by the Remaining
Securityholders for Stock and Vested Stock Rights sold pursuant to this
Section 5.5 shall be as set forth in the applicable Purchase Agreement between
the First Reserve Stockholders and the Acquiror.
(b) (i) the First Reserve Stockholders shall cause the terms of the
transfer to be reduced to writing and shall provide a written notice (the
"Compelled Sale Transfer Notice") of such transfer to the Company and the
Company shall provide such Compelled Sale Transfer Notice to the Remaining
Securityholders. The Compelled Sale Transfer Notice shall contain written
notice of the exercise of the First Reserve Stockholders rights pursuant
to Section 5.5(a) hereof, setting forth the consideration to be paid by
the Acquiror for each type of Stock and Stock Right and the other terms
and conditions of the transfer. Within 20 calendar days following the date
of receipt of the Compelled Sale Transfer Notice, each of the Remaining
Securityholders shall deliver to the First Reserve Stockholders (the
"Notice Designee") certificates representing the Stock and instruments
representing Stock Rights owned by such Remaining Stockholder, duly
endorsed, together with all other documents required to be executed in
connection with such transfer or, if such delivery is not permitted by
applicable law, an unconditional agreement to deliver such certificates
pursuant to this Section 5.5(b) at the closing for such transfer against
delivery to such Remaining Securityholder of the consideration therefor.
Such certificates shall be held by the First Reserve Stockholders in
escrow for the benefit of the appropriate Remaining Securityholder and, if
requested by the Remaining Securityholder, the First Reserve Stockholders
shall execute such form of escrow agreement as is reasonably satisfactory
to the First Reserve Stockholders and such Remaining Securityholder and
which assures that the relevant Stock and/or Stock Rights are not
considered property of the First Reserve Stockholders. In the event that a
Remaining Securityholder should fail to deliver such certificates as
aforesaid, the Company shall cause the books and records of the Company to
show that such Stock and Stock Rights are bound by the provisions of this
Section 5.5(b) and that such Stock and Stock Rights shall be transferred
only to the Acquiror upon surrender for transfer by the Remaining
Securityholder thereof.
(ii) If, within 150 calendar days (or such longer period not
exceeding 210 calendar days as may be necessary
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29
to comply with any applicable provisions of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, or to obtain other
required regulatory approval) after the First Reserve Stockholders give
the Compelled Sale Transfer Notice, it has not completed the sale of all
the Transfer Stock, the First Reserve Stockholders shall return to each of
the Remaining Securityholders all certificates representing Stock and
Stock Rights that such Remaining Securityholders delivered for sale
pursuant hereto, and all the restrictions on sale or other disposition
contained in this Agreement with respect to such Stock and Stock Rights
and the Stock owned by the First Reserve Stockholders shall again be in
effect.
(iii) Upon the consummation of the sale of Stock held by the First
Reserve Stockholders and the Remaining Securityholders pursuant to this
Section 5.5, the First Reserve Stockholders shall give notice thereof to
the Remaining Securityholders, shall (or shall cause the purchaser to)
remit to each of the Remaining Securityholders a net amount with respect
to the Stock and Stock Rights of such Remaining Securityholders sold
pursuant thereto, after deduction of a pro rata portion of any related
out-of-pocket fees and expenses payable to Persons other than the First
Reserve Stockholders or any of its affiliates, and shall furnish such
other evidence of the completion and time of completion of such sale or
other disposition and the terms thereof as may be reasonably requested by
such Remaining Securityholders, provided that if the cash or the fair
market value of the Marketable Securities payable to any Remaining
Securityholder exceeds $5,000,000, such Remaining Securityholder shall be
entitled to have such cash and/or Marketable Securities (net of any fees
and expenses that are to be deducted in accordance with this Section) paid
directly to the Remaining Securityholder by the Acquiror at the closing of
the transaction.
ARTICLE VI. REGISTRATION RIGHTS.
SECTION 6.1. DEMAND REGISTRATIONS.
(a) At any time after the first to occur of (1) a Qualified Public
Offering or (2) the first anniversary of the Closing Date, the First Reserve
Stockholders may request in writing that the Company effect the registration
under the Securities Act (other than a shelf registration made pursuant to
Rule 415 of the Securities Act) of all or part of their Registrable
Securities, specifying in the request the number and types of Registrable
Securities to be registered by each such holder and the intended method of
disposition thereof (such notice is hereinafter referred to as a "Holder
Request"). Upon receipt of such Holder Request, the Company will promptly give
written notice of such requested registration to all other
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30
holders of Registrable Securities, which other holders shall have the right,
subject to the provisions of Section 6.1(h) hereof, to include the Registrable
Securities held by them in such registration and thereupon the Company will,
as expeditiously as possible, use reasonable best efforts to effect the
registration under the Securities Act of:
(i) the Registrable Securities which the Company has been so
requested to register by the First Reserve Stockholders; and
(ii) all other Registrable Securities which the Company has been
requested to register by any other holder thereof by written request given
to the Company within 30 calendar days after the giving of such written
notice by the Company,
all to the extent necessary to permit the disposition of the Registrable
Securities so to be registered pursuant to an Underwritten Offering or by such
other method of disposition as the First Reserve Stockholders may specify in
the Holder Request; provided, however, that the Company shall not be obligated
to file a registration statement pursuant to any Holder Request under this
Section 6.1(a):
(A) Unless the Company shall have received requests for such
registration with respect to at least 10% of the Fully Diluted Common
Stock; or
(B) Other than a registration statement on Form S-3 or a
successor short form registration statement, within a period of 6
months after the effective date of any other registration statement
relating to any registration request under this Section 6.1(a) that
was not effected on Form S-3 (or any successor short form).
(C) Within the six month period immediately following the
effective date of a registration previously effected by the Company
pursuant to this Section 6.1.
(b) Notwithstanding the foregoing provisions of Section 6.1(a), and
except as provided in Section 6.1(h), the Company shall not be obligated to
file more than an aggregate of four (4) registration statements pursuant to
this Section 6.1.
(c) If the Company proposes to effect a registration requested
pursuant to this Section 6.1 by the filing of a registration statement on Form
S-3 (or any successor short-form registration statement), the Company will
comply with any request by the managing underwriter to effect such
registration on another permitted form if such managing underwriter advises
the Company that, in its opinion, the use of another form of
<PAGE>
31
registration statement is of material importance to the success of such
proposed offering.
(d) A registration requested pursuant to Section 6.1 (a) will not be
deemed to have been effected unless the applicable registration statement has
become effective; provided, that, if after it has become effective, the
offering of Registrable Securities pursuant to such registration statement is
interfered with by any stop order, injunction or other order or requirement of
the SEC or other governmental agency or court, such registration will be
deemed not to have been effected.
(e) The Company will pay all Registration Expenses in connection with
each of the registrations of Registrable Securities effected by it pursuant to
this Section 6.1.
(f) Subject to any existing commitments of the Company, the First
Reserve Stockholders shall have the right to select the investment bank (or
investment banks) that shall manage the offering (collectively, the "managing
underwriter") involving a registration under this Section 6.1; provided that
such managing underwriter is reasonably acceptable to the Company.
(g) Whenever a requested registration pursuant to this Section 6.1
involves a firm commitment underwriting (an "Underwritten Offering"), the only
shares that may be included in such Underwritten Offering are (i) Registrable
Securities, and (ii) securities of the Company which are not Registrable
Securities included in such Underwritten Offering upon the written consent of
the First Reserve Stockholders ("Company Securities").
(h) If a registration pursuant to this Section 6.1 involves an
Underwritten Offering and the managing underwriter shall advise the Company
that, in its judgment, the number of shares proposed to be included in such
Underwritten Offering should be limited due to market conditions, then the
Company will promptly so advise each holder of Registrable Securities that has
requested registration, and the Company Securities, if any, shall first be
excluded from such Underwritten Offering to the extent necessary to meet such
limitation; and if further exclusions are necessary to meet such limitation,
Registrable Securities requested to be registered pursuant to Section
6.1(a)(i) or Section 6.1(a)(ii) shall be excluded pro rata, based on the
respective numbers of shares of Common Stock as to which registration shall
have been requested by such Persons. If the number of Registrable Securities
requested to be registered pursuant to Section 6.1(a)(i), but that are
excluded from registration pursuant to this Section 6.1(h), is equal or
greater to 10% of the total number of Registrable Securities requested to be
so registered, then such registration by the Company shall not count as a
registration for the purposes of Section 6.1(b) only.
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32
(i) Notwithstanding the foregoing, this Section 6.1 shall not apply
at such time as the First Reserve Stockholders own less than 5% of the Fully
Diluted Common Stock.
SECTION 6.2. PIGGYBACK REGISTRATIONS.
(a) If the Company at any time proposes to register any of its equity
or debt securities under the Securities Act (other than a registration on Form
S-4 or S-8 or any successor or similar forms thereto and other than pursuant
to a registration under Section 6.1), whether or not for sale for its own
account, on a form and in a manner that would permit registration of
Registrable Securities for sale to the public under the Securities Act, it
will give written notice to all the holders of Registrable Securities promptly
of its intention to do so, describing such securities and specifying the form
and manner and the other relevant facts involved in such proposed registration
(including, without limitation, (x) whether or not such registration will be
in connection with an underwritten offering of Registrable Securities and, if
so, the identity of the managing underwriter and whether such offering will be
pursuant to a "best efforts" or "firm commitment" underwriting and (y) the
price (net of any underwriting commissions, discounts and the like) at which
the Registrable Securities are reasonably expected to be sold) if such
disclosure is acceptable to the managing underwriter. Upon the written request
of any such holder delivered to the Company within 30 calendar days after the
receipt of any such notice (which request shall specify the Registrable
Securities intended to be disposed of by such holder and the intended method
of disposition thereof), the Company will use its reasonable best efforts to
effect the registration under the Securities Act of all of the Registrable
Securities that the Company has been so requested to register; provided,
however, that:
(i) If, at any time after giving such written notice of its intention
to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the
Company shall determine for any reason not to register such securities,
the Company may, at its election, give written notice of such
determination to each holder of Registrable Securities who made a request
as provided herein and thereupon the Company shall be relieved of its
obligation to register any Registerable Securities in connection with such
registration (but not from its obligation to pay the Registration Expenses
in connection therewith), without prejudice, however, to the rights of the
holders of the Registrable Securities to request that such registration be
effected as a registration under Section 6.1; and
(ii) If such registration involves an Underwritten Offering, all
holders of Registrable Securities requesting some or all of their
Registrable Securities to be included
<PAGE>
33
in the Company's registration must sell that portion of their Registrable
Securities to the underwriters selected by the Company on the same terms
and conditions as apply to the Company.
No registration effected under this Section 6.2 shall relieve the Company of
its obligation to effect registration upon request under Section 6.1.
(b) The Company shall not be obligated to effect any registration of
Registrable Securities under this Section 6.2 incidental to the registration
of any of its securities in connection with mergers, acquisitions, exchange
offers, dividend reinvestment plans or stock option or other employee benefit
plans.
(c) The Registration Expenses incurred in connection with each
registration of Registrable Securities requested pursuant to this Section 6.2
shall be paid by the Company.
(d) If a registration pursuant to this Section 6.2 involves an
Underwritten Offering and the managing underwriter advises the Company that,
in its opinion, the number of securities proposed to be included in such
registration should be limited due to market conditions, then the Company will
include in such registration (i) first, the securities the Company proposes to
sell, and (ii) second, the number of shares of Common Stock requested to be
included in such registration that, in the opinion of such managing
underwriter, can be sold, such amount to be allocated pro rata among all such
requesting holders on the basis of the class of securities and the relative
number of shares of Registrable Securities, as the case may be, each such
holder has requested to be included in such registration.
(e) In connection with any Underwritten Offering with respect to
which holders of Registrable Securities shall have requested registration
pursuant to this Section 6.2, the Company shall have the right to select the
managing underwriter with respect to the offering; provided that such managing
underwriter is reasonably acceptable to the First Reserve Stockholders if
Registrable Securities of such First Reserve Stockholders are being registered
in connection therewith.
(f) Notwithstanding the foregoing, until the earlier of (i) the
second anniversary of the date of a Qualified Public Offering and (ii) January
1, 2000, Management Investors and their Permitted Transferees shall not have
piggyback registration if none of the First Reserve Stockholders are
participating in the Public Offering to which this Section 6.2 could apply.
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34
SECTION 6.3. REGISTRATION PROCEDURES.
(a) If and whenever the Company is required to use its reasonable
best efforts to effect or cause the registration of any Registrable Securities
under the Securities Act as provided in Section 6.1 or 6.2, the Company will,
as expeditiously as possible:
(i) Prepare and, in any event within 60 calendar days after the end
of the period within which requests for registration may be given to the
Company, file with the SEC a registration statement with respect to such
Registrable Securities and use reasonable best efforts to cause such
registration statement to become and remain effective, provided that the
Company may discontinue any registration of its securities that is being
effected pursuant to Section 6.2 at any time prior to the effective date
of the registration statement relating thereto.
(ii) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to such registration statement
and the prospectus used in connection therewith as may be necessary to
keep such registration statement effective for a period as may be
requested by the First Reserve Stockholders (if Registrable Securities of
such First Reserve Stockholders are being registered) not exceeding nine
months and to comply with the provisions of the Securities Act with
respect to the disposition of all Securities covered by such registration
statement during such period in accordance with the intended methods of
disposition by the seller or sellers thereof set forth in such
registration statement, provided, that before filing a registration
statement or prospectus relating to the sale of Registrable Securities, or
any amendments or supplements thereto, the Company will furnish to counsel
and to each holder of Registrable Securities covered by such registration
statement or prospectus, copies of all documents proposed to be filed,
which documents will be subject to the review of such counsel, and the
Company will give reasonable consideration in good faith to any comments
of such counsel.
(iii) Furnish to each holder of Registrable Securities covered by the
registration statement and to each underwriter, if any, of such
Registrable Securities, such number of copies of a prospectus and
preliminary prospectus for delivery in conformity with the requirements of
the Securities Act, and such other documents, as such Person may
reasonably request, in order to facilitate the public sale or other
disposition of the Registrable Securities.
(iv) Use its reasonable best efforts to register or qualify such
Registrable Securities covered by such registration statement under such
other securities or blue
<PAGE>
35
sky laws of such jurisdictions as each seller shall reasonably request,
and do any and all other acts and things which may be reasonably necessary
or advisable to enable such seller to consummate the disposition of the
Registrable Securities owned by such seller, in such jurisdictions, except
that the Company shall not for any such purpose be required (A) to qualify
to do business as a foreign corporation in any jurisdiction where, but for
the requirements of this Section 6.3(a)(iv), it is not then so qualified,
or (B) to subject itself to taxation in any such jurisdiction, or (C) to
take any action which would subject it to general or unlimited service of
process in any such jurisdiction where it is not then so subject.
(v) Use its reasonable best efforts to cause such Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof to consummate the
disposition of such Registrable Securities.
(vi) Immediately notify each seller of Registrable Securities covered
by such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act within the
appropriate period mentioned in Section 6.3(a)(ii), if the Company becomes
aware that the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances
then existing, and, at the request of any such seller, deliver a
reasonable number of copies of an amended or supplemented prospectus as
may be necessary so that, as thereafter delivered to the purchasers of
such Registrable Securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
(vii) Otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the SEC and make generally available
to its security holders, in each case as soon as practicable, but not
later than 45 calendar days after the close of the period covered thereby
(90 calendar days in case the period covered corresponds to a fiscal year
of the Company), an earnings statement of the Company which will satisfy
the provisions of Section 11(a) of the Securities Act.
(viii) Use its reasonable best efforts in cooperation with the
underwriters to list such Registrable Securities on each securities
exchange as they may reasonably designate.
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36
(ix) In the event the offering is an Underwritten Offering, use its
reasonable best efforts to obtain a "cold comfort" letter from the
independent public accountants for the Company in customary form and
covering such matters of the type customarily covered by such letters and
as the First Reserve Stockholders may reasonably request (if Registrable
Securities of such First Reserve Stockholder are being registered), in
order to effect an underwritten public offering of such Registrable
Securities.
(x) Execute and deliver all instruments and documents (including in
an Underwritten Offering an underwriting agreement in customary form) and
take such other actions and obtain such certificates and opinions as the
First Reserve Stockholders may reasonably request (if Registrable
Securities of such First Reserve Stockholders are being registered) in
order to effect an underwritten public offering of such Registrable
Securities.
(xi) Make available for inspection by the seller of such Registrable
Securities covered by such registration statement, by any underwriter
participating in any disposition to be effected pursuant to such
registration statement and by any attorney, accountant or other agent
retained by any such seller or any such underwriter, all pertinent
financial and other records, pertinent corporate documents and properties
of the Company, and cause all of the Company's officers, directors and
employees to supply all information reasonably requested by any such
seller, underwriter, attorney, accountant or agent in connection with such
registration statement.
(xii) Obtain for delivery to the underwriter or agent an opinion or
opinions from counsel for the Company in customary form and in form and
scope reasonably satisfactory to such underwriter or agent and their
counsel.
(b) Each holder of Registrable Securities will, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 6.3(a)(vi), forthwith discontinue disposition of the Registrable
Securities pursuant to the registration statement and prospectus covering such
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 6.3(a)(vi).
(c) If a registration pursuant to or described in Section 6.1 or 6.2
involves an Underwritten Offering, each holder of Registerable Securities
agrees, whether or not such holder's Registrable Securities are included in
such registration, not to effect any public sale or distribution, including
any sale pursuant to Rule 144 under the Securities Act, of any Registrable
Securities, or of any security convertible into or exchangeable or exercisable
for any Registrable Securities (other than as part
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37
of such Underwritten Offering), without the consent of the managing
underwriter, during a period commencing seven calendar days before and ending
180 calendar days (or such lesser number as the managing underwriter shall
designate) after the effective date of such registration.
(d) If a registration pursuant to or described in Section 6.1 or 6.2
involves an Underwritten Offering, the Company agrees, if so required by the
managing underwriter, not to effect any public sale or distribution of any of
its equity or debt securities, as the case may be, or securities convertible
into or exchangeable or exercisable for any of such equity or debt securities,
as the case may be, during a period commencing seven calendar days before and
ending 180 calendar days (or such lesser number as the managing underwriter
shall designate) after the effective date of such registration, except for
such Underwritten Offering or except in connection with a stock option plan,
stock purchase plan, savings or similar plan, or an acquisition, merger or
exchange offer.
(e) If a registration pursuant to or described in Section 6.1 or 6.2
involves an Underwritten Offering, any holder of Registrable Securities
requesting to be included in such registration may elect, in writing, prior to
the effective date of the registration statement filed in connection with such
registration, not to register such securities in connection with such
registration, unless such holder has agreed with the Company or the managing
underwriter to limit its rights under this Section 6.3.
(f) It is understood that in any Underwritten Offering in addition to
any shares of stock (the "initial shares") the underwriters have committed to
purchase, the underwriting agreement may grant the underwriters an option to
purchase up to a number of additional shares of stock (the "option shares")
equal to 15% of the initial shares (or such other maximum amount as the NASD
may then permit), solely to cover overallotments. Shares of stock proposed to
be sold by the Company and the other sellers shall be allocated between
initial shares and option shares as agreed or, in the absence of agreement,
pro rata among the Company and all such Sellers on the basis of the relative
number of shares to be included by each in such registration.
SECTION 6.4. INDEMNIFICATION.
(a) In the event of any registration of any securities of the Company
under the Securities Act pursuant to Section 6.1 or 6.2, the Company will, and
it hereby agrees to, indemnify and hold harmless, to the extent permitted by
law, each seller of any Registrable Securities covered by such registration
statement, each affiliate of such seller and their respective directors,
officers, employees and agents or general and limited partners (and directors,
officers, employees and agents thereof) and, if such seller is a portfolio or
investment fund, its investment
<PAGE>
38
advisors or agents, each other Person who participates as an underwriter in
the offering or sale of such securities and each other Person, if any, who
controls such seller or any such underwriter within the meaning of the
Securities Act, as follows:
(i) against any and all loss, liability, claim, damage or expense
whatsoever arising out of or based upon an untrue statement or alleged
untrue statement of a material fact contained in any registration
statement (or any amendment or supplement thereto), including all
documents incorporated therein by reference, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading, or arising out of
an untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus or prospectus (or any amendment or
supplement thereto) or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary in order to make
the statements therein not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever to the extent of the aggregate amount paid in settlement of any
litigation, or investigation or proceeding by any governmental agency or
body, commenced or threatened, or of any claim whatsoever based upon any
such untrue statement or omission, or any such alleged untrue statement or
omission, if such settlement is effected with the written consent of the
Company; and
(iii) against any and all expense reasonably incurred by them in
connection with investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission to the extent that any such expense is not paid under
subparagraph (i) or (ii) above;
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such seller or any such director,
officer, employee, agent, general or limited partner, investment advisor or
agent, underwriter or controlling Person and shall survive the transfer of
such securities by such seller.
Notwithstanding the foregoing, the Company shall not be liable to any
person described in Section 6.4(a) in any such case to the extent that any
such loss, liability, claim, damage or expense whatsoever arises out of or is
based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement or amendment or
supplement thereto or in any such preliminary, final or summary
<PAGE>
39
prospectus in reliance upon and in conformity with written information
furnished to the Company through an instrument duly executed by such person
specifically stating that it is for use in the preparation thereof. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such person or the Company and shall
survive the transfer of such securities by such seller.
(b) The Company may require, as a condition to including any
Registrable Securities in any registration statement filed in accordance with
Section 6.1 or 6.2, that the Company shall have received an undertaking
reasonably satisfactory to it from the prospective seller of such Registrable
Securities or any underwriter, to indemnify and hold harmless (in the same
manner and to the same extent as set forth in Section 6.4(a)) the Company and
its directors, officers, employees, agents and controlling Persons with
respect to any statement or alleged statement in or omission or alleged
omission from such registration statement, any preliminary, final or summary
prospectus contained therein, or any amendment or supplement, if such
statement or alleged statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of such seller or underwriter specifically stating
that it is for use in the preparation of such registration statement,
preliminary, final or summary prospectus or amendment or supplement. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company or any such director,
officer, employee, agent or controlling Person and shall survive the transfer
of such securities by such seller. In that event, the obligations of the
Company and such sellers pursuant to this Section 6.4 are to be several and
not joint; provided, however, that, with respect to each claim pursuant to
this Section, the Company shall be liable for the full amount of such claim,
and each such seller's liability under this Section 6.4 shall be limited to an
amount equal to the net proceeds (after deducting the underwriting discount
and expenses) received by such seller from the sale of Registrable Securities
held by such seller pursuant to this Agreement.
(c) Promptly after receipt by an indemnified party hereunder of
written notice of the commencement of any action or proceeding involving a
claim referred to in this Section 6.4, such indemnified party will, if a claim
in respect thereof is to be made against an indemnifying party, give written
notice to such indemnifying party of the commencement of such action;
provided, however, that the failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party of its obligations
under this Section 6.4, except to the extent (not including any such notice of
an underwriter) that the indemnifying party is materially prejudiced by such
failure to give notice. In case any such action is brought against an
indemnified party, unless in such indemnified party's reasonable
<PAGE>
40
judgment a conflict of interest between such indemnified and indemnifying
parties may exist in respect of such claim (in which case the indemnifying
party shall not be liable for the fees and expenses of, with respect to the
First Reserve Stockholders, more than one firm of counsel selected by the
First Reserve Stockholders, or with respect to the underwriters, more than one
firm of counsel for the underwriters in connection with any one action or
separate but similar or related actions), the indemnifying party will 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 satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its election
so to assume the defense thereof, the indemnifying party will not be liable to
such indemnified party for any legal or other expenses subsequently incurred
by such indemnifying party in connection with the defense thereof provided
that the indemnifying party will not agree to any settlement without the prior
consent of the indemnified party (which consent shall not be unreasonably
withheld) unless such settlement requires no more than a monetary payment for
which the indemnifying party agrees to indemnify the indemnified party and
includes a full, unconditional and complete release of the indemnified party,
provided, however, that the indemnified party shall be entitled to take
control of the defense of any claim as to which, in the reasonable judgment of
the indemnifying party's counsel, representation of both the indemnifying
party and the indemnified party would be inappropriate under the applicable
standards of professional conduct due to actual or potential differing
interests between them. In the event that the indemnifying party does not
assume the defense of a claim pursuant to this Section 6.4(c), the indemnified
party will have the right to defend such claim by all appropriate proceedings,
and will have control of such defense and proceedings, and the indemnified
party shall have the right to agree to any settlement without the prior
consent of the indemnifying party. Each indemnified party shall, and shall
cause its legal counsel to, provide reasonable cooperation to the indemnifying
party and its legal counsel in connection with its assuming the defense of any
claim, including the furnishing of the indemnifying party with all papers
served in such proceeding. In the event that an indemnifying party assumes the
defense of an action under this Section 6.4(c), then such indemnifying party
shall, subject to the provisions of this Section 6.4, indemnify and hold
harmless the indemnified party from any and all losses, claims, damages or
liabilities by reason of such settlement or judgment.
(d) The Company and each seller of Registerable Securities shall
provide for the foregoing indemnity (with appropriate modifications) in any
underwriting agreement with respect to any registration or other qualification
of securities under any federal or state law or regulation of any governmental
authority.
<PAGE>
41
SECTION 6.5. CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances under which the indemnity contemplated by
Section 6.4 is for any reason not available or insufficient for any reason to
hold harmless an indemnified party in respect of any losses, claims, damages
or liabilities referred to therein, the parties required to indemnify by the
terms thereof shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by such indemnity agreement
incurred by the Company, any seller of Registrable Securities and one or more
of the underwriters, except to the extent that contribution is not permitted
under Section 11(f) of the Securities Act. In determining the amounts which
the respective parties shall contribute, there shall be considered the
relative benefits received by each party from the offering of the Registrable
Securities by taking into account the portion of the proceeds of the offering
realized by each, and the relative fault of each party by taking into account
the parties' relative knowledge and access to information concerning the
matter with respect to which the claim was asserted, the opportunity to
correct and prevent any statement or omission and any other equitable
considerations appropriate under the circumstances. The Company and each
Person selling securities agree with each other that no seller of Registrable
Securities shall be required to contribute any amount in excess of the amount
such seller would have been required to pay to an indemnified party if the
indemnity under Section 6.4(b) were available. The Company and each such
seller agree with each other and the underwriters of the Registrable
Securities, if requested by such underwriters, that it would not be equitable
if the amount of such contribution were determined by pro rata or per capita
allocation (even if the underwriters were treated as one entity for such
purpose) or for the underwriters' portion of such contribution to exceed the
percentage that the underwriting discount bears to the initial public offering
price of the Registrable Securities. For purposes of this Section 6.5, each
Person, if any, who controls an underwriter within the meaning of Section 15
of the Securities Act shall have the same rights to contribution as such
underwriter, and each director and each officer of the Company who signed the
registration statement, and each Person, if any, who controls the Company or a
seller of Registrable Securities within the meaning of Section 15 of the
Securities Act shall have the same rights to contribution as the Company or a
seller of Registrable Securities, as the case may be.
SECTION 6.6. RULE 144. If the Company shall have filed a registration
statement pursuant to the requirements of Section 12 of the Exchange Act or a
registration statement pursuant to the requirements of the Securities Act, the
Company covenants that it will file the reports required to be filed by it
under the Securities Act and the Exchange Act and the rules and regulations
adopted by the SEC thereunder (or, if the Company is not required to file such
reports, it will, upon the request of any holder of Registrable Securities,
make publicly available
<PAGE>
42
other information), and it will take such further action as any holder of
Registrable Securities may reasonably request, all to the extent required from
time to time to enable such holder to sell shares of Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (i) Rule 144 under the Securities Act, as such Rule may
be amended from time to time, or (ii) any similar rule or regulation hereafter
adopted by the SEC. Upon the request of any holder of Registrable Securities,
the Company will deliver to such holder a written statement as to whether it
has complied with such requirements,
ARTICLE VII. TERMINATION.
SECTION 7.1. CERTAIN TERMINATIONS.
(a) Except to the extent specifically provided elsewhere in this
Agreement, the provisions of Articles II, III, IV and V shall terminate on the
date on which there occurs a Qualified Public Offering.
(b) Notwithstanding the foregoing, and except as specifically
provided elsewhere in this Agreement, this Agreement shall in any event
terminate with respect to any Securityholder when such Securityholder no
longer owns any shares of Common Stock or Stock Rights.
ARTICLE VIII. MISCELLANEOUS.
SECTION 8.1. SUCCESSORS AND ASSIGNS. Except as provided in Section
4.2 and as otherwise provided herein, all of the terms and provisions of this
Agreement shall be binding upon, shall inure to the benefit of and shall be
enforceable by the respective successors and assigns of the parties hereto. No
Securityholder may assign any of its rights hereunder to any Person other than
a transferee that has complied with the requirements of Sections 4.1 and 4.2
as provided therein in all respects. The Company may not assign any of its
rights hereunder to any Person other than an affiliate of the Company. If any
transferee of any Securityholder shall acquire any shares of Stock or Stock
Rights, in any manner, whether by operation of law or otherwise, such Stock or
Stock Rights shall be held subject to all of the terms of this Agreement, and
by taking and holding such Securities such Person shall be entitled to receive
the benefits of and be conclusively deemed to have agreed to be bound by and
to comply with all of the terms and provisions of this Agreement, provided,
however, that any transferee from a Management Investor shall have only those
rights, benefits and obligations of a Management Investor hereunder.
<PAGE>
43
SECTION 8.2. AMENDMENT AND MODIFICATION; WAIVER OF COMPLIANCE.
(a) This Agreement may be amended only by a written instrument duly
executed by the First Reserve Stockholders. No amendment to this Agreement
which adversely affects the rights of the Management Investors hereunder may
be effected without the prior written consent of Management Investors holding
a majority of the shares of Stock or Stock Rights at the time held by the
Management Investors, calculated on the basis of Fully Diluted Common Stock.
In the event of the amendment or modification of this Agreement in accordance
with its terms, the Securityholders shall cause the Board of Directors of the
Company to meet within 30 calendar days following such amendment or
modification or as soon thereafter as is practicable for the purpose of
adopting any amendment to the Certificate of Incorporation and By-Laws of the
Company that may be required as a result of such amendment or modification to
this Agreement, and, if required, proposing such amendments to the
Securityholders entitled to vote thereon, and the Securityholders agree to
vote in favor of such amendments.
(b) Except as otherwise provided in this Agreement, any failure of
any of the parties to comply with any obligation, covenant, agreement or
condition herein may be waived by the party entitled to the benefits thereof
only by a written instrument signed by the party granting such waiver, but
such waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure.
(c) In the event of any conflict between the provisions of this
Agreement and the provisions of any other agreement, the provisions of this
Agreement shall govern and prevail, except as otherwise provided herein.
SECTION 8.3. NOTICES. Any notice, request, claim, demand, document or
other communication hereunder to any party shall be effective upon receipt (or
refusal of receipt) and shall be in writing and delivered personally or sent
by telex or telecopy (with such telex or telecopy confirmed promptly in
writing sent by first class mail), or first class mail, or other similar means
of communication, as follows:
(i) If to the Company, addressed to its principal executive offices
to the attention of its Secretary;
(ii) If to a Securityholder other than the First Reserve Stockholders
to the address of such Securityholder set forth in the stock records of
the Company; and
(iii) If to the First Reserve Stockholders or to First Reserve, to:
<PAGE>
44
First Reserve Corporation
475 Steamboat Road
Greenwich, CT 06830
Attn: William E. Macaulay
Telecopy: (203) 661-6729
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Attn: Richard Capelouto
Telecopy: (212) 455-2502
or, in each case, to such other address or telex or telecopy number as such
party may most recently designate, in writing to the Company and each
Securityholder in the manner specified above.
All such communications shall be deemed to have been given or made
when so delivered by hand or sent by telex (answer back received) or telecopy,
or if mailed, five business days after being so mailed.
SECTION 8.4. ENTIRE AGREEMENT; GOVERNING LAW.
(a) This Agreement and the other writings referred to herein or
delivered pursuant hereto which form a part hereof contain the entire
agreement among the parties hereto with respect to the subject transactions
contemplated hereby and supersede all prior oral and written agreements and
memoranda and undertakings among the parties hereto with regard to this
subject matter. The Company represents to the Securityholders that the rights
granted to the holders hereunder do not in any way conflict with and are not
inconsistent with the rights granted or obligations accepted under any other
agreement (including the Certificate of Incorporation) to which the Company is
a party.
(b) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE (WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW THEREOF THAT WOULD REQUIRE THE APPLICATION OF
THE LAWS OF ANY JURISDICTION OTHER THAN DELAWARE).
SECTION 8.5. INJUNCTIVE RELIEF. The Securityholders acknowledge and
agree that a violation of any of the terms of this Agreement will cause the
Securityholders irreparable injury for which adequate remedy at law is not
available. Therefore, the Securityholders agree that each Securityholder shall
be entitled to an injunction, restraining order or other equitable relief from
any court of competent jurisdiction, restraining any Securityholder from
committing any violations of the provisions of this Agreement.
<PAGE>
45
SECTION 8.6. INSPECTION. For so long as this Agreement shall be in
effect, this Agreement shall be made available for inspection by any
Securityholder at the principal executive offices of the Company.
SECTION 8.7. HEADINGS. The section and paragraph headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
SECTION 8.8. RECAPITALIZATIONS, EXCHANGES, ETC., AFFECTING THE
SECURITIES. The provisions of this Agreement shall apply to the full extent
set forth herein with respect to the Stock and the Stock Rights, and to any
and all equity or debt securities of the Company or any successors or assigns
of the Company (whether by merger, consolidation, sale of assets, or
otherwise) which may be issued in respect of, in exchange for, or in
substitution of, such Stock and Stock Rights or equity or debt securities and
shall be appropriately adjusted for any stock dividends, splits, reverse
splits, combinations, reclassifications, recapitalizations, reorganizations
and the like occurring after the date hereof.
SECTION 8.9. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 8.10. ADDITIONAL MANAGEMENT INVESTORS. If the Company shall
at any time issue, grant, sell or otherwise transfer any options, shares of
Common Stock or other equity securities of the Company to any employee of the
Company or its Affiliates then, prior to such issuance such employee and
his/her spouse (if applicable) will become a "Management Investor" party to
this Agreement pursuant to a written instrument in form and substance
reasonably satisfactory to the First Reserve Investors and the Company. Upon
execution and delivery of such written instrument, such employee shall become
a "Management Investor" party to this Agreement and have all of the rights and
obligations of a Management Investor hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed as of the date first above written.
DOMAIN ENERGY CORPORATION
By: /s/ Michael V. Ronca
------------------------------
Name: Michael V. Ronca
Title: President and Chief
Executive Officer
<PAGE>
46
FIRST RESERVE FUND VII, LIMITED
PARTNERSHIP
By: First Reserve Corporation,
as Managing General Partner
By: /s/ Jonathan S. Linker
----------------------------
Name: Jonathan S. Linker
Title: Managing Director
<PAGE>
47
MANAGEMENT INVESTOR SPOUSE
- ------------------- ------
By: /s/ Michael V. Ronca By:
-------------------------- ------------------------------
Name: Michael V. Ronca Name:
<PAGE>
EXHIBIT 3
- ------------------------------------------------------------------------------
SUBSCRIPTION AGREEMENT
between
FIRST RESERVE FUND VII, LIMITED PARTNERSHIP,
AND
DOMAIN ENERGY CORPORATION
Dated as of December 31, 1996
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I PURCHASE AND SALE OF STOCK................................... 2
1.1. General ..................................................... 2
1.2. Consideration From the Buyer................................. 2
1.3. Delivery of the Company Shares............................... 3
ARTICLE II DEFINITIONS.................................................. 3
2.1. Defined Terms................................................ 3
ARTICLE III INITIAL CLOSING.............................................. 10
3.1. Time and Place............................................... 10
ARTICLE IV OPTION TO PURCHASE ADDITIONAL COMMON STOCK................... 10
4.1. Option ..................................................... 10
4.2. Exercise..................................................... 11
4.3. Notice ..................................................... 11
4.4. Conditions Precedent......................................... 11
ARTICLE V REPRESENTATIONS AND WARRANTIES............................... 11
5.1. Representations and Warranties of the Company................ 11
(a) Execution and Validity of Agreement..................... 11
(b) Corporate Organization.................................. 12
(c) Investments............................................. 12
(e) Capital Structure of the Company, the Tenneco Entities
and the Tenneco Entities' Subsidiaries................ 13
(f) Financial Statements.................................... 14
(g) Absence of Certain Changes or Events.................... 15
(h) Title to Properties; Encumbrances....................... 17
(i) Absence of Liens........................................ 20
(j) Insurance and Bonds..................................... 20
(k) Contracts............................................... 20
(l) Compliance with Contracts, Etc. ........................ 22
(m) Litigation.............................................. 22
(n) Compliance with Laws.................................... 23
(o) Employment Agreement and Related Matters................ 23
(p) Licenses and Government Approvals....................... 25
(q) Broker's or Finder's Fees............................... 26
(r) Transactions with Affiliates............................ 26
(s) Corporate Records....................................... 27
(t) Labor Matters........................................... 27
(u) Tax Matters............................................. 28
(v) Environmental Matters................................... 30
(w) Oil and Gas Reserve Information......................... 31
(x) Engineering Reports..................................... 32
(y) Not Subject to Utility Regulatory Authorities........... 33
(z) Worker's Compensation and Occupational Disease Reserve.. 33
(aa) Omissions............................................... 33
-i-
<PAGE>
Page
----
5.2. Representations and Warranties of the Buyer.................. 33
(a) Due Organization and Power of the Buyer................. 33
(b) Authorization and Validity of Agreement................. 33
(c) No Conflict............................................. 34
(d) Purchase for Investment................................. 34
(e) Litigation.............................................. 35
(f) Ownership of Buyer Subordinated Note.................... 35
(g) Omissions............................................... 35
5.3. Limitations on Survival...................................... 35
ARTICLE VI COVENANTS.................................................... 36
6.1. Conduct of Business Pending the Initial Closing Date......... 36
6.2. Access to Information Concerning Properties and
Records; Confidentiality................................... 39
6.3. Releases..................................................... 40
6.4. Further Actions.............................................. 40
6.5. Application of Proceeds...................................... 40
6.6. Option Shares................................................ 40
ARTICLE VII CONDITIONS PRECEDENT......................................... 40
7.1. Conditions Precedent to Obligations of the Buyer............. 40
7.2. Conditions Precedent to Obligations of the Company........... 43
ARTICLE VIII INDEMNIFICATION.............................................. 44
8.1. Indemnification by the Company............................... 44
8.2. Indemnification by the Buyer................................. 44
8.3. Procedure for General Claims................................. 44
(a) General Claims by the Buyer............................. 44
(b) General Claims by the Company........................... 45
8.4. Procedure for Third Party Claims............................. 45
(a) Claims by the Buyer and the Company..................... 45
(b) Settlement or Decision of Third Party
Claims................................................ 47
8.5. Indemnification Matters...................................... 47
8.6. General Provisions........................................... 48
(a) Limitations on Indemnification.......................... 48
(b) Termination of Indemnification.......................... 48
ARTICLE IX MISCELLANEOUS................................................ 49
9.1. Termination and Abandonment.................................. 49
(a) General................................................. 49
(b) Procedure Upon Termination.............................. 49
9.2. Fees and Expenses............................................ 49
9.3. Transfer Taxes............................................... 49
9.4. Notices ..................................................... 49
9.5. Binding Effect; Benefit...................................... 50
9.6. Assignability................................................ 50
9.7. Amendment and Modification; Waiver........................... 51
9.8. Section Headings............................................. 51
9.9. Arbitration.................................................. 51
9.10. Counterparts................................................. 51
9.11. GOVERNING LAW................................................ 51
-ii-
<PAGE>
Page
----
SCHEDULES
5.1(c) -- Investments
5.1(d)(ii) -- No Conflict
5.1(e)(i) -- Capital Stock of the Company
5.1(e)(ii)(a) -- Capital Structure of the Tenneco Entities and
the Subsidiaries -- Pre-Closing
5.1(e)(ii)(b) -- Capital Structure of the Tenneco Entities and
the Subsidiaries -- Post-Closing
5.1(e)(iii) -- Liens in Respect of the Company, the Tenneco
Entities and the Subsidiaries
5.1(e)(v) -- Capital Structure of the Company, the Tenneco
Entities and the Subsidiaries -- Outstanding
Rights
5.1(f) -- Financial Statements
5.1(g) -- Absence of Certain Changes or Events
5.1(h)(i) -- Title to Properties
5.1(h)(iv) -- Encumbrances
5.1(i) -- Absence of Liens
5.1(k) -- Contracts
5.1(m) -- Litigation
5.1(o) -- Employment Agreements and Related Matters
5.1(p) -- Licenses and Government Approvals
5.1(r) -- Transactions With Affiliates
5.1(t) -- Labor Matters
5.1(u) -- Tax Matters
5.1(v) -- Environmental Matters
5.1(w) -- Oil and Gas Reserve Information
EXHIBITS
A -- Buyer Subordinated Loan Note
B -- Employment Agreement
C -- Securityholders Agreement
D -- Legal Opinion of Weil, Gotshal & Manges LLP
-iii-
<PAGE>
SUBSCRIPTION AGREEMENT
----------------------
SUBSCRIPTION AGREEMENT, dated as of December 31, 1996, between Domain
Energy Corporation, a Delaware corporation (the "Company") and First Reserve
Fund VII, Limited Partnership, a Delaware limited partnership (together with
its successors and assigns, the "Buyer").
WHEREAS, Teleo Ventures, a Delaware corporation ("Teleo"), has
entered into a Stock Purchase Agreement, dated as of December 24, 1996 (the
"Stock Purchase Agreement"), with El Paso Natural Gas Company, a Delaware
corporation ("El Paso"); and
WHEREAS, pursuant to a Master Assignment and Assumption Agreement of
December 31, 1996 between Teleo and Company, and as permitted by the Stock
Purchase Agreement, Teleo has assigned, and Company has assumed, all of
Teleo's rights and obligations thereunder; and
WHEREAS, the Stock Purchase Agreement provides for, among other
things, the acquisition by the Company of all of the outstanding capital stock
of Tenneco Ventures Corporation, a Delaware corporation ("Ventures"), and all
of the outstanding capital stock of Tenneco Gas Production Corporation, a
Delaware corporation ("TGP" and, collectively with Ventures, the "Tenneco
Entities") (hereinafter the "Stock Purchase"); and
WHEREAS, in connection with the Stock Purchase and the transactions
contemplated hereby, it is contemplated that each of Michael V. Ronca, Herbert
A. Newhouse, Catherine L. Sliva, Rick G. Lester, Douglas H. Woodul, Steven M.
Curran, Dean R. Bouillion and Lucynda S. Herrin (the "Management Investors"),
may purchase shares of Common Stock (as defined below);
WHEREAS, the Company has entered into a Credit Agreement, dated as of
the date hereof (as amended, supplemented or otherwise modified from time to
time, the "Credit Agreement"), with the banks parties thereto (the "Banks")
and The Chase Manhattan Bank, as administrative agent; and
WHEREAS, the Buyer wishes to purchase from the Company and the
Company wishes to issue and to sell to the Buyer 9,519.4717 shares (the "Firm
Common Shares" and, together with the Option Shares (as hereinafter defined),
the "Company Shares") of common stock, par value $0.01 per share (the "Common
Stock"), of the Company, representing 100% of the outstanding Common Stock
(such issuance, sale and purchase referred to herein as the "Firm Share
Purchase");
WHEREAS, the Company has requested that the Buyer loan $8,000,000 to
Domain Energy Guarantor Corporation, a wholly-owned subsidiary of the Company
(the "Buyer Subordinated Loan") and the Buyer has agreed to make the Buyer
Subordinated Loan upon the terms and conditions of a Subordinated Promissory
Note in the
<PAGE>
2
form attached hereto as Exhibit A (the "Buyer Subordinated Loan Note") and in
consideration of, among other things the grant by the Company of the Option
(as hereinafter defined);
WHEREAS, in partial consideration for the Buyer agreeing to make the
Buyer Subordinated Loan the Company has agreed to provide the Buyer with the
Option (as hereinafter defined) to purchase 2,538.5258 shares of Common Stock;
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements hereinafter set forth, and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I PURCHASE AND SALE OF STOCK
1.1. General.
(a) Upon the terms and subject to the conditions of this Agreement,
the Company agrees to issue and to sell to the Buyer, and the Buyer agrees
to buy from the Company, at the Initial Closing (as hereinafter defined)
described in Section 3.1 hereof, 9,519.4717 Firm Common Shares.
(b) Upon the terms and subject to the conditions of this Agreement,
if the Buyer elects to exercise the Option (as hereinafter defined), the
Company will issue and sell to the Buyer, and the Buyer will buy from the
Company, at the Subsequent Closing (as hereinafter defined) described in
Section 3.1(b) hereof, 2,538.5258 shares of Common Stock, subject to
adjustment pursuant to Section 4.1 (the "Option Shares").
1.2. Consideration From the Buyer.
(a) Upon the terms and subject to the conditions of this Agreement,
at the Initial Closing, the Buyer will deliver by wire transfer to the
Company at a bank account to be designated in writing by the Company
(which account may be an account of El Paso; it being acknowledged and
agreed that payment to an account of El Paso for the benefit of the
Company shall constitute payment to the Company) prior to the Initial
Closing Date (as hereinafter defined) an amount equal to $30 million, in
immediately available funds, in full consideration for the issuance and
sale of the Firm Common Shares.
(b) Upon the terms and subject to the conditions of this Agreement,
if the Buyer elects to exercise the Option described in Article IV, at the
Subsequent Closing, the Buyer will deliver to the Company the Option
Purchase Price (as hereinafter defined) as provided in Section 4.1 in full
consideration for the issuance and sale of the Option Shares. To the
extent the Option Purchase Price is being satisfied in whole or in part by
the delivery to the Company of the Buyer Subordinated Note, at the
Subsequent Closing
<PAGE>
3
the Buyer will deliver the Buyer Subordinated Note to the Company together
with a duly executed instrument of assignment transferring all of the Buyer's
right, title and interest in and to the Buyer Subordinated Note to the
Company.
1.3. Delivery of the Company Shares.
(a) On the Initial Closing Date, upon the terms and subject to the
conditions of this Agreement, the Company will deliver to the Buyer a
validly issued certificate registered in the name of the Buyer
representing 9,519.4717 Firm Common Shares.
(b) If the Buyer exercises the Option, on the Subsequent Closing Date
(as hereinafter defined), upon the terms and subject to the conditions of
this Agreement, the Company will deliver to the Buyers validly issued
certificates registered in the name of the Buyer representing the number
of Option Shares to be purchased by the Buyers on the Subsequent Closing
Date in the denominations designated by the Buyer.
ARTICLE II DEFINITIONS
2.1. Defined Terms. As used in this Agreement, the following
capitalized terms have the meanings ascribed to them in this section or in
those sections of this Agreement cross-referenced below:
"Affiliate" means, with respect to any Person, (i) any Person that
directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with, such Person, or (ii) any
director, officer or partner of such Person or any Person specified in
clause (i) above, or (iii) any Immediate Family Member of any Person
specified in clause (i) or (ii) above.
"Agreement" means this Subscription Agreement, as the same may be
further amended, supplemented or otherwise modified from time to time.
"Balance Sheets" has the meaning assigned to such term in Section
5.1(f) hereof.
"Banks" has the meaning assigned to such term in the recitals hereof.
"Benefit Plans" has the meaning assigned to such term in Section
5.1(o)(i) hereof.
"Buyer" has the meaning assigned to such term in the preamble hereof.
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4
"Buyer Indemnified Party" and "Buyer Indemnified Parties" have the
meanings assigned to such terms in Section 8.1 hereof.
"Buyer Subordinated Loan" has the meaning assigned to such term in
the recitals hereof.
"Buyer Subordinated Loan Note" has the meaning assigned to such term
in the recitals hereof.
"Buyer Subordinated Note" has the meaning assigned to such term in
the recitals hereof.
"Buyer Subordinated Note Repayment Date" means the date on which the
principal amount of the Buyer Subordinated Note, together with all
interest thereon, has been repaid in full.
"Code" has the meaning assigned to such term in Section 5.1(o)(iii)
hereof.
"Common Stock" has the meaning assigned to such term in the recitals
hereof.
"Company" has the meaning assigned to such term in the preamble
herein.
"Company Indemnified Party" and "Company Indemnified Parties" have
the respective meanings assigned to such terms in Section 8.2 hereof.
"Company Shares" has the meaning assigned to such term in the
recitals hereof.
"Contract" has the meaning assigned to such term in Section 5.1(k)
hereof.
"Controlled Group" has the meaning assigned to such term in Section
5.1(o)(ii) hereof.
"Credit Agreement" has the meaning assigned to such term in the
recitals hereof.
"De Golver" has the meaning assigned to such term in Section 5.1(x)
hereof.
"Demand for Arbitration" has the meaning assigned to such term in
Section 8.9 hereof.
"El Paso" has the meaning assigned to such term in the recitals
hereof.
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5
"Employment Agreement" means the Employment Agreement, dated as of
December 31, 1996, between Michael V. Ronca and the Company, attached
hereto as Exhibit B.
"Engineering Report" has the meaning assigned to such term in Section
5.1(x) hereof.
"Environmental Claim" means any notice by any Person alleging
potential liability (including without limitation potential liability for
investigatory costs, cleanup costs, remedial activity or removal costs,
government response costs, natural resource damages, property damages,
personal injuries, fines or penalties) arising out of, based on or
resulting from (A) the presence, or release or threatened release into the
environment, of any Material of Environmental Concern at any location,
whether or not owned by the Company or the Tenneco Entities, or (B)
circumstances forming the basis of any violation or alleged violation of,
or any liability or alleged liability under, any Environmental Law.
"Environmental Laws" means all statutes, codes, treaties and other
laws (including without limitation common law) and regulations, rules,
ordinances, decrees, orders and other pronouncements having the force and
effect of law, by any federal, state, local, foreign or other Governmental
Authority, relating to pollution or protection of human health or the
environment (including without limitation ambient and indoor air, surface
water, groundwater, land surface, subsurface strata, and flora and fauna).
"ERISA" has the meaning assigned to such term in Section 5.1(o)(i)
hereof.
"Event of Default" means the failure to pay principal or interest of
the Indemnification Note when due or the occurrence of customary
bankruptcy or insolvency events.
"Exercise Notice" has the meaning assigned to such term in Section
4.3 hereof.
"Exercise Period" has the meaning assigned to such term in Section
4.2 hereof.
"Fair Market Value per Share" has the meaning assigned to such term
in Section 8.3 hereof.
"Fee Properties" has the meaning assigned to such term in Section
5.1(h)(i) hereof.
"Fee Reserves" has the meaning assigned to such term in Section
5.1(h)(i) hereof.
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6
"Firm Common Shares" has the meaning assigned to such term in the
recitals hereof.
"Firm Share Purchase" has the meaning assigned to such term in the
recitals hereof.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Hydrocarbons" means oil, condensate, gas, casinghead gas, helium,
carbon dioxide and other liquid or gaseous hydrocarbons.
"Immediate Family Member" means, with respect to any Person, a
spouse, parent, child or sibling of such Person or a trust created for any
of their benefit, the benefit of any Immediate Family Member or the estate
of any Immediate Family Member.
"Indemnification Note" means, with respect to any indemnification
payment made by the Company to Buyer Indemnified Parties pursuant to
Article VII of this Agreement, a subordinated promissory note containing
the following terms: the principal amount of the note shall bear interest
from the date of the note, until paid in full; the Company agrees to repay
the entire principal amount of the note, and all accrued and unpaid
interest thereon, in a single payment on the earlier of (a) one month
following the payment in full of all amounts under the Credit Agreement
whether for principal, interest, premium, if any or any other reason (b)
the four year anniversary of the issuance of the note and (c) the
occurrence of an event of default (to be defined to consist of a failure
to pay principal or interest on the Indemnification Note when due or the
occurrence of specified bankruptcy or insolvency-related events; interest
shall be calculated at the rate of the prime rate of Chase Manhattan Bank
plus 2% per annum, on the basis of a 365 day year and the actual number of
days elapsed; the Company may prepay the note at any time without
prepayment penalty or premium; and other terms (including subordination
provisions) in form and substance reasonably satisfactory to the Company
and the Buyer and satisfactory to the Banks under the Credit Agreement.
"Indemnified Party" has the meaning assigned to such term in Section
8.4(a) hereof.
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7
"Indemnifying Party" has the meaning assigned to such term in Section
8.4(a) hereof.
"Initial Closing" has the meaning assigned to such term in Section
3.1(a) hereof.
"Initial Closing Date" has the meaning assigned to such term in
Section 3.1(a) hereof.
"Investment" means each corporation, association, partnership, joint
venture or other entity in which the Company, the Tenneco Entities or any
Tenneco Entities' Subsidiary has a debt or equity investment, in each case
other than the Tenneco Entities' Subsidiaries.
"Knowledge", including the usage "to the Knowledge of the Company"
and variations thereof, means knowledge which exists to the extent of the
actual knowledge of the Management Investors in whatever capacity such
knowledge was obtained, with respect to the representation and warranty
being made.
"Leased Reserves" has the meaning assigned to such term in Section
5.1(h)(ii) hereof.
"License" has the meaning assigned to such term in Section 5.1(p)
hereof.
"Lien" has the meaning assigned to such term in Section 5.1(d)
hereof.
"Loss" and "Losses" have the respective meanings assigned to such
terms in Section 8.1 hereof.
"Management Investors" has the meaning assigned to such term in the
recitals hereof.
"Material Adverse Effect" means a material adverse effect on the
business, operations, properties, financial condition or results of
operations of (a) the Company or (b) the Tenneco Entities and the Tenneco
Entities' Subsidiaries on a consolidated basis.
"Materials of Environmental Concern" means any and all chemicals,
pollutants, contaminants, wastes, toxic or hazardous substances or
materials, petroleum and petroleum products and other materials that are
regulated under, or could result in the imposition of liability under, any
Environmental Laws.
"Multiemployer Plan" has the meaning assigned to such term in Section
5.1(o)(ii) hereof.
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8
"1996 Budget" means the Company's 1996 budget, a copy of which has
been provided to the Buyer prior to the execution of this Agreement.
"Notice of Claim" has the meaning assigned to such term in Section
8.3 hereof.
"Oil and Gas Interests" means direct and indirect interests in and
rights with respect to oil, gas, helium, carbon dioxide, mineral, and
related properties and assets of any kind and nature, direct or indirect,
including working, royalty, and overriding royalty interests, production
payments, operating rights, net profit interests, other nonworking
interests, and nonoperating interests; all interests in and rights with
respect Hydrocarbons and other minerals or revenues therefrom and all
contracts in connection therewith and claims and rights thereto (including
all oil and gas leases, operating agreements, unitization and pooling
agreements and orders, division orders, transfer orders, mineral deeds,
royalty deeds, oil and gas sales, exchange and processing contracts and
agreements, and in each case, interests thereunder), surface interests,
fee interests, reversionary interests, reservations, and concessions; all
easements, rights of way, licenses, permits, leases, and other interests
associated with, appurtenant to, or necessary for the operation of any of
the foregoing; and all interests in equipment and machinery (including
well equipment and machinery), oil and gas production, gathering,
transmissions, treating, processing, and storage facilities (including
tanks, tank batteries, pipelines, and gathering systems), pumps, water
plants, electric plants, gasoline and gas processing plants, refineries,
and other tangible personal property and fixtures associated with,
appurtenant to, or necessary for the operation of any of the foregoing.
"Oil and Gas Leases" has the meaning assigned to such term in Section
5.1(h)(ii) hereof.
"Option" has the meaning assigned to such term in Section 4.1 hereof.
"Option Purchase Price" has the meaning assigned to such term in
Section 4.1 hereof.
"Option Share Purchase" has the meaning assigned to such term in
Section 4.3 hereof.
"Option Shares" has the meaning assigned to such term in Section
1.1(b) hereof.
"Payout" has the meaning assigned to such term in Section 4.1 hereof.
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9
"Pension Plan" has the meaning assigned to such term in Section
5.1(o)(iii) hereof.
"Person" means any individual, corporation, limited liability
company, partnership, trust, joint stock company, business trust,
unincorporated association, joint venture, Governmental Authority or other
entity of any nature whatsoever.
"Predecessors" has the meaning assigned to such term in Section
5.1(f) hereof.
"Properties" has the meaning assigned to such term in Section
5.1(h)(ii) hereof.
"Reserves" has the meaning assigned to such term in Section
5.1(h)(ii) hereof.
"Securityholders Agreement" means the Securityholders Agreement,
dated as of December 31, 1996, among the Company, the Buyer and the
Management Investors and the other stockholders of the Company, attached
hereto as Exhibit C.
"Stock Purchase Agreement" has the meaning assigned to such term in
the recitals hereof.
"Subsequent Closing" has the meaning assigned to such term in Section
3.1(a) hereof.
"Subsequent Closing Date" has the meaning assigned to such term in
Section 3.1(a) hereof.
"subsidiaries" means as to any Person a corporation, partnership, or
similar entity of which (i) a majority of the outstanding shares of voting
stock, limited liability company interests or similar securities or
interests are at the time owned, directly or indirectly through one or
more intermediaries, or both, by such Person or (ii) such Person is the
general partner (or performs a role similar to a general partner).
"Subsidiary Stock" has the meaning assigned to such term in Section
5.1 (e)(ii) hereof.
"Tax" or "Taxes" has the meaning assigned to such term in Section
5.1(v)(i) hereof.
"Tax Return" or "Tax Returns" has the meaning assigned to such term
in Section 5.1(v)(i) hereof.
"Teleo" has the meaning assigned to such term in the recitals hereof.
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10
"Tenneco Entities" has the meaning assigned to such term in the
recitals hereof.
"Tenneco Entities' Subsidiaries" has the meaning assigned to such
term in Section 5.1(c) hereof.
"TGP" has the meaning assigned to such term in the recitals herein.
"Third Party Claims" has the meaning assigned to such term in Section
8.4(a) hereof.
"Transaction Documents" shall mean, collectively, this Agreement, the
Securityholders Agreement, the Credit Agreement, the Stock Purchase
Agreement, the Buyer Subordinated Note and the Employment Agreement.
"Transactions" has the meaning assigned to such term in Section
5.1(d) hereof.
"Ventures" has the meaning assigned to such term in the recitals
hereof.
ARTICLE III INITIAL CLOSING
3.1. Time and Place.
(a) The closing of the Firm Share Purchase (the "Initial Closing")
will take place at the offices of Weil, Gotshal & Manges LLP, 700
Louisiana, Suite 1600, Houston, Texas, or at such other location as the
parties hereto mutually agree, at 10:00 a.m. Houston time on December 31,
1996, or on such other time and date as may be mutually agreed upon by the
parties hereto (the "Initial Closing Date").
(b) The closing of the Option Share Purchase (a "Subsequent Closing")
will take place at the offices of Weil, Gotshal & Manges LLP, 700
Louisiana, Suite 1600, Houston, Texas, or at such other location as the
parties hereto mutually agree, at such time and date as may be mutually
agreed upon by the parties hereto in accordance with the provisions of
Section 4.4 (a "Subsequent Closing Date").
ARTICLE IV OPTION TO PURCHASE ADDITIONAL COMMON STOCK
4.1. Option. Subject to the terms and conditions of this Agreement,
the Company hereby grants to the Buyer an option (the "Option") to purchase
the Option Shares for an aggregate purchase price (the "Option Purchase
Price") of $8,000,000 plus any cash interest payment on the Buyer Subordinated
Note actually
<PAGE>
11
received by the Buyer; provided, that the number of the Option Shares shall be
appropriately adjusted for any stock dividends, splits, reverse splits,
combinations, reclassifications, recapitalizations, reorganizations and the
like occurring after the date hereof. The Option Purchase Price shall be
satisfied in full (i) prior to the Buyer Subordinated Note Repayment date, the
delivery to the Company of the Buyer Subordinated Note together with the
payment of an amount in cash equal to any repayments of principal of, and all
payments of interest on, the Buyer Subordinated Note previously received by
the Buyer and (ii) after the Buyer Subordinated Note Repayment Date, by the
payment of the Option Purchase Price in cash. The Company acknowledges and
agrees that the Option Purchase Price may be satisfied by the delivery of the
Buyer Subordinated Note as provided in this Agreement irrespective of the
validity, regularity or enforceability of the Buyer Subordinated Note, the
bankruptcy, insolvency or other condition of the obligor under the Buyer
Subordinated Note or any breach by such obligor of its obligations under the
Buyer Subordinated Note. The Company acknowledges that the Buyer Subordinated
Note shall be delivered to the Company on an "as is, where is" basis without
any representation, warranty or indemnity by the Buyer except as set forth in
Section 5.2.
4.2. Exercise. The Option may be exercised by the Buyer, in its sole
discretion, by the Buyer delivering an Exercise Notice (as hereinafter
defined) to the Company at any time during the period (the "Exercise Period")
commencing on the Initial Closing Date and ending on the earlier of (a) the
third year anniversary of the Initial Closing Date or (b) the 30th day after
the Buyer Subordinated Note Repayment Date.
4.3. Notice. If the Buyer wishes to exercise the Option (the "Option
Share Purchase"), the Buyer shall send a written notice (an "Exercise Notice")
to the Company of its intention to exercise the Option. The Subsequent Closing
Date for the Option Share Purchase shall be not less than 5 nor more than 60
days (or such longer period as may be required by applicable law or
regulation) from the date on which such notice is delivered to the Company.
4.4. Conditions Precedent. The obligation of the Buyer to purchase
Option Shares pursuant to the Buyer's exercise of the Option shall be subject
to the satisfaction of the conditions set forth in paragraph 8.1(b) hereof.
ARTICLE V REPRESENTATIONS AND WARRANTIES
5.1. Representations and Warranties of the Company. The Company
represents and warrants to the Buyer as follows:
(a) Execution and Validity of Agreement. The Company has all
requisite corporate power and authority to execute
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12
and deliver this Agreement and the other Transaction Documents to which it
is a party and to perform its obligations hereunder and thereunder. This
Agreement and the other Transaction Documents to which the Company is a
party have been duly executed and delivered by the Company and, assuming
due authorization, execution and delivery by the other parties to the
Transaction Documents, constitute the legal, valid and binding agreements
of the Company. Assuming due authorization, execution and delivery by the
other parties hereto and thereto, each of this Agreement and the
Securityholders Agreement are enforceable against the Company in
accordance with their terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other laws relating
to or limiting creditors' rights generally or by equitable principles
relating to enforceability.
(b) Corporate Organization.
(i) The Company is a corporation duly organized, validly existing and
in good standing under the laws of Delaware, has the corporate power and
authority to own, use and operate its properties and to carry on its
business as the same is now being conducted and is duly qualified or
licensed to do business as a foreign corporation in each jurisdiction in
which the nature of its business or properties makes such qualification
necessary.
(ii) Each of the Tenneco Entities and the Tenneco Entities'
Subsidiaries (as hereinafter defined) is a corporation or limited
liability company, as the case may be, duly organized, validly existing
and in good standing under the laws of its State of organization, has the
corporate power and authority to own, use and operate its properties and
to carry on its business as the same is now being conducted and is duly
qualified or licensed to do business as a foreign corporation in each
jurisdiction in which the nature of its business or properties makes such
qualification necessary, except any such jurisdiction in which the failure
to so qualify or be licensed would not have a Material Adverse Effect.
(c) Investments. As of the date hereof, the Company does not have any
direct or indirect subsidiaries other than its wholly-owned subsidiary,
Domain Energy Guarantor Corporation, a Delaware corporation. Other than
those subsidiaries listed in Schedule 5.1(c) (the "Tenneco Entities'
Subsidiaries"), the Tenneco Entities do not have any direct or indirect
subsidiaries. The Tenneco Entities own the percentage of the outstanding
capital stock or ownership units of the Tenneco Entities' Subsidiaries as
set forth in Schedule 5.1(c). Immediately following the Initial Closing,
the Company will own all of the outstanding capital stock of the Tenneco
Entities. Except for the interests set
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13
forth on Schedule 5.1(c) neither the Company, the Tenneco Entities or any
of the Tenneco Entities' Subsidiaries have any debt or equity investment,
or other interest, direct or indirect, in any corporation, association,
partnership, joint venture or other entity.
(d) No Conflict. Neither the execution and delivery by the Company or
either of the Tenneco Entities of the Transaction Documents to which it is
a party, nor the performance by the Company or the Tenneco Entities of the
transactions contemplated hereby and thereby, including without limitation
the sale of the Company Shares to the Buyer, the initial borrowings under
the Credit Agreement and the issuance of the Buyer Subordinated Note
(collectively the "Transactions"), will (i) violate or conflict with any
of the provisions of the certificate of incorporation or by-laws of the
Company, the Tenneco Entities or any of the Tenneco Entities'
Subsidiaries, (ii) except as set forth in Schedule 5.1(d)(ii), with or
without the giving of notice or the lapse of time or both, violate or
constitute a default under, or result in the acceleration of or entitle
any party to accelerate (whether after the giving of notice or lapse of
time or both) any obligation under any mortgage, indenture, deed of trust,
lease, contract, agreement, license or other instrument or violate any
provision of any law, order, judgment, decree, restriction or ruling of
any Governmental Authority to which the Company, the Tenneco Entities or
any of the Tenneco Entities' Subsidiaries is a party or by which any of
their respective property is bound or encumbered or (iii) except as
provided in the Transaction Documents, result in the creation of any lien,
mortgage, pledge, charge, security interest or similar encumbrance
("Lien") upon any of the assets of the Company, the Tenneco Entities or
any of the Tenneco Entities' Subsidiaries or the loss of any license or
other contractual right with respect thereto.
(e) Capital Structure of the Company, the Tenneco Entities and the
Tenneco Entities' Subsidiaries.
(i) The authorized capital stock of the Company as of the date hereof
consists of 20,000 shares of Common Stock, no shares of which are issued
and outstanding as of the date hereof. Immediately following the Initial
Closing and consummation of the Stock Purchases, the authorized, issued
and outstanding capital stock of the Company will be as set forth on
Schedule 5.1(e)(i).
(ii) Set forth on Schedule 5.1(e)(ii)(a) is the authorized, issued
and outstanding capital stock of the Tenneco Entities as of the date
hereof and the authorized capital stock or partnership or limited
liability company interests, as the case may be (collectively, the
"Subsidiary Stock"), and the issued and outstanding Subsidiary Stock of
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14
each Tenneco Entities' Subsidiary as of the date hereof. Immediately
following the Initial Closing and consummation of the Stock Purchases, the
authorized, issued and outstanding capital stock of the Tenneco Entities
and Subsidiary Stock will be as set forth on Schedule 5.1(e)(ii)(b).
(iii) Except as set forth on Schedule 5.1(e)(iii), all issued and
outstanding shares or units of Authorized Common Stock and common stock of
the Tenneco Entities and the Subsidiary Stock have been duly authorized
and validly issued, are fully paid and nonassessable and free of
preemptive rights with no personal liability attaching to the ownership
thereof, and such ownership is free and clear of all Liens.
(iv) The Company Shares have been duly authorized by the Company and,
upon payment and delivery in accordance with this Agreement, will be
validly issued, fully paid and nonassessable and free of preemptive rights
with no personal liability attaching to the ownership thereof.
(v) Except as set forth on Schedule 5.1(e)(v), and except for the
Securityholders Agreement and rights contained in the Company's
Certificates of Incorporation, there are no outstanding options, warrants,
calls, rights or other securities or commitments or any other agreements
of any character relating to the sale, issuance or voting of any shares of
the capital stock or limited liability company interests, as the case may
be, of the Company, the Tenneco Entities or any Tenneco Entities'
Subsidiary, whether issued or unissued, or any securities convertible into
or evidencing the right to purchase any shares of capital stock or limited
liability company interests, as the case may be, of the Company, the
Tenneco Entities or any Tenneco Entities' Subsidiary.
(f) Financial Statements. The Company has heretofore furnished to the
Buyer consolidated and consolidating balance sheets (the "Balance Sheets")
of TGP and Ventures, as predecessors in interest of the Company and its
subsidiaries (in such capacity, the "Predecessors") as at December 31,
1995 and the related consolidated and consolidating statements of income,
retained earnings and cash flows of the predecessors for the fiscal year
ended on said date, and the consolidated and consolidating balance sheets
of the Predecessors as at September 30, 1996 and the related consolidated
and consolidating statements of income, retained earnings and cash flows
of the Predecessors for the nine-month period ended on such date. All such
financial statements are complete and correct and fairly present the
consolidated financial condition of the Predecessors and (in the case of
said consolidating financial statements) the respective unconsolidated
financial condition of the
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15
Predecessors, as at said dates and the consolidated and unconsolidated
results of their operations for the fiscal year and nine-month period
ended on said dates (subject, in the case of such financial statements as
at September 30, 1996, to normal year-end audit adjustments), all in
accordance with generally accepted accounting principles and practices
applied on a consistent basis. Except as disclosed on Schedule 5.1(f),
there is no material liability or obligation of any kind, whether accrued,
absolute, fixed or contingent, of the Tenneco Entities and the Tenneco
Entities' Subsidiaries which would be required to be presented in
financial statements or notes thereto prepared in accordance with
generally accepted accounting principles that is not reflected or reserved
against in the Balance Sheets (or the notes thereto), other than
liabilities or obligations incurred in the ordinary course of business
since December 31, 1995. The Company does not have any liability or
obligation of any kind, whether accrued, absolute, fixed or contingent,
other than obligations and liabilities arising under the Transaction
Documents.
(g) Absence of Certain Changes or Events. Since December 31, 1995,
except as disclosed in Schedule 5.1(g), and except for the conclusion of,
and preparation for, the Transactions, the Tenneco Entities and the
Tenneco Entities' Subsidiaries have operated their respective businesses
only in the ordinary course consistent with past practice and there has
not been, with respect to the Tenneco Entities or any of the Tenneco
Entities' Subsidiaries:
(i) any change in the business or financial condition of the
Tenneco Entities or any of the Tenneco Entities' Subsidiaries which
has had, or would reasonably be expected to have, either in any case
or in the aggregate, a Material Adverse Effect;
(ii) the incurrence of any indebtedness for money borrowed in
excess of $500,000 (other than borrowings under the Credit Agreement
and indebtedness permitted under the Credit Agreement) or the
creation of any Lien on any properties or assets (whether tangible or
intangible) having an aggregate value in excess of $500,000, other
than Liens required or permitted under the Credit Agreement;
(iii) other than as set forth in the 1996 Budget: (A) any
general increase, or any announcement of any general increase, in the
wages, salaries, compensation, bonuses, commissions, incentives,
pension or other benefits payable by the Tenneco Entities or any of
the Tenneco Entities' Subsidiaries to its directors or employees, or
(B) any specific increase, or any announcement of any specific
increase in any of the foregoing payable by the Tenneco Entities or
any of the
<PAGE>
16
Tenneco Entities' Subsidiaries to any director or any employee,
except in either case (I) as set forth in the Employment Agreement,
and (II) increases in salaries and salary bonuses not greater than 3%
in the aggregate since December 31, 1995;
(iv) any new agreement, plan, policy, program or arrangement to
pay pensions, retirement allowances or other employee benefits to any
director, employee or agent or sales representative, whether past or
present, including any severance or consulting arrangement;
(v) any commitment or amendment to any additional pension,
profit-sharing, deferred compensation, group insurance, severance
pay, retirement or other employee benefit plan, fund or similar
arrangement in existence on the date hereof;
(vi) any termination, discontinuance, closing or disposition of
any plant, facility or business operation (other than sales or other
dispositions in the ordinary course of business or as previously
disclosed to the Buyer) of Oil and Gas Interests, any layoffs of
employees or implementation of any early retirement, separation or
window program or planning or announcement of any such action or
program for the future;
(vii) any material transfer or grant of any rights under any
concessions, property leases, licenses, agreements, trademarks,
tradenames, service marks, brandmarks, brand names, copyrights,
patents, inventions, processes, technical know-how or other
proprietary rights either within or outside the United States;
(viii) any capital expenditure in excess of $250,000 other than
as set forth in the 1996 Budget;
(ix) any damage, destruction or loss (whether or not covered by
insurance) to any asset of the Tenneco Entities or any of the Tenneco
Entities' Subsidiaries, other than damage, destruction or losses
which, individually or in the aggregate, have not had and would not
reasonably be expected to have, a Material Adverse Effect; or
(x) except for such transactions reflected in the Shareholder
Advance Account (as such term is defined in the Stock Purchase
Agreement), any declaration, setting aside or payment of any dividend
or other distribution on or in respect of its shares of capital stock
or limited liability company interests, as the case may be, or any
direct or indirect redemption, retirement,
<PAGE>
17
purchase or other acquisition of any such shares or interests, as the
case may be.
(h) Title to Properties; Encumbrances.
(i) The Company, the Tenneco Entities and the Tenneco Entities'
Subsidiaries have good and marketable title to the respective real
properties and oil and gas reserves that they own and which are
reflected on the Balance Sheet and other 1995 financial statements
referred to in Section 5.1(f) or were acquired since December 31,
1995, including all joint ventures and other investments
(collectively, the "Fee Properties") free and clear of all Liens
except (a) capitalized financing leases, (b) Liens for ad valorem
real property taxes not yet due or payable, due but not yet payable
or due and payable but not yet delinquent, (c) mechanics',
materialmen's, operators, tax or similar Liens affecting the Fee
Properties (but not excepting any such Liens which secure obligations
which are delinquent unless such delinquent obligations are being
contested in good faith by appropriate legal proceedings), (d)
purchase money Liens arising in the ordinary course of business which
may be delinquent provided, such delinquent Liens are being contested
in good faith by appropriate legal proceedings, (e) those mortgages,
pledges and other Liens identified on Schedule 5.1(h)(i), (f) the
mortgages, security interests and Liens granted pursuant to the
Credit Agreement or any documents executed in connection therewith
and (g) such imperfections of title, easements and other similar
encumbrances, if any, which do not in the aggregate materially
detract from the value or materially interfere with the present use
by the Company, the Tenneco Entities and the Tenneco Entities'
Subsidiaries, as the case may be, of the Fee Properties. Fee
Properties consisting of oil and gas reserves are sometimes
hereinafter referred to as "Fee Reserves."
(ii) The Company has made available to the Buyer all agreements
(collectively, with any and all amendments, supplements or other
modifications thereto, the "Oil and Gas Leases") pursuant to which
the Company, the Tenneco Entities and the Tenneco Entities'
Subsidiaries lease, sublease or otherwise possess any occupancy,
usage rights or Oil and Gas Interests with respect to any real
property (such properties are hereinafter referred to collectively as
the "Leased Properties"; the Leased Properties together with the Fee
Properties, collectively, the "Properties") or the reserves of oil
and gas described on the 1995 financial statements referred to in
Section 5.1(f) (the "Leased Reserves"). The Leased Reserves together
with the Fee
<PAGE>
18
Reserves are hereinafter collectively referred to as the "Reserves".
Except with respect to the Reserves, the Company, the Tenneco
Entities and the Tenneco Entities' Subsidiaries have no reserves of
oil and gas and the Reserves are all of the oil and gas reserves
utilized by the Company, the Tenneco Entities and the Tenneco
Entities' Subsidiaries in its business.
(iii) The Tenneco Entities or one of the Tenneco Entities'
Subsidiaries is a party to each of the Oil and Gas Leases pursuant to
which the Tenneco Entities or one of the Tenneco Entities'
Subsidiaries leases the Leased Properties and the Leased Reserves.
Each of the Oil and Gas Leases is validly executed by the lessee, in
full force and effect and represents a binding obligation of the
Tenneco Entities, the Tenneco Entities' Subsidiary (as the case may
be) and, to the Knowledge of the Company, the lessor thereunder in
accordance with the terms thereof. Except as set forth in Schedule
5.1(h)(i), there is no default by the Tenneco Entities or any of the
Tenneco Entities' Subsidiaries under the Oil and Gas Leases or to the
Knowledge of the Company by any of the other parties to the Oil and
Gas Leases, nor, to the Knowledge of the Company, has any event
occurred which with notice, the passage of time or both would
constitute such a default. The Company has no Knowledge of any
adverse claims to the Leased Reserves or the rights described in the
Oil and Gas Leases, nor have the Tenneco Entities received any notice
of default under the Oil and Gas Leases and the quiet and peaceful
possession of the Leased Reserves by the Tenneco Entities or one of
the Tenneco Entities' Subsidiaries has not been disturbed. Except as
disclosed on Schedule 5.1(h)(i), the Tenneco Entities have no
Knowledge of any facts which, through notice or the passage or time,
would constitute grounds for a forfeiture of any of the Leased
Reserves under any of the Oil and Gas Leases. Except as otherwise may
be set forth in any of the Oil and Gas Leases, to the Knowledge of
the Company, each of the lessors or sub-lessors under the Oil and Gas
Leases has title to the Leased Reserves leased pursuant thereto. For
purposes hereof, the term "title" shall mean that the party
possessing the same has good and marketable title to all oil and gas
to which such expression is directed, together with all rights
necessary to remove such oil and gas, the necessary rights to conduct
such removal and the right to lease or sublease same to the Tenneco
Entities and the Tenneco Entities' Subsidiaries in accordance with
the terms of the Oil and Gas Leases.
(iv) Except as set forth in Schedule 5.1(h)(iv), to the
Knowledge of the Company, (i) the operations of
<PAGE>
19
the Tenneco Entities and the Tenneco Entities' Subsidiaries are not
dependent upon any rights to the use of real properties of others
except under the Oil and Gas Leases, the Licenses and the Contracts
and (ii) all buildings, structures, machines and equipment used in
the operations of the Tenneco Entities and the Tenneco Entities'
Subsidiaries have been maintained in all respects in a state of
adequate repair and are otherwise generally adequate for their normal
operation, except for such failures that, individually or in the
aggregate, would not have a Material Adverse Effect. Except as set
forth in Schedule 5.1(h)(iv), (A) the Tenneco Entities have not
received any notice that (1) any of such buildings, structures,
machines, equipment or (2) the current use of the Properties does not
conform in all material respects with all applicable ordinances,
regulations and zoning or other laws, (B) such machinery and
equipment is in all material respects in useable condition, and (C)
to the Knowledge of the Company, there is no pending or threatened
condemnation, eminent domain or similar proceeding affecting any part
of the Properties or the Reserves.
(v) Other than in the ordinary course of business, neither the
Tenneco Entities nor any of the Tenneco Entities' Subsidiaries have
leased, subleased, optioned, assigned or otherwise transferred or
entered into any agreement to lease, sublease, option, assign or
otherwise transfer any interest in the Reserves so as to materially
reduce its interest in the Reserves as reflected in the financial
statements referred to in Section 5.1(f). No rights of reassignment,
preferential purchase rights, option rights, back-in rights or other
rights to transfer any material interest in any of the Reserves to
any third party exist that would be triggered or violated by this
Agreement.
(vi) To the Knowledge of the Company, the Tenneco Entities and
the Tenneco Entities' Subsidiaries own or control all material
ancillary rights, including surface access rights, rights-of-way,
water rights, access to utilities and the like necessary to gain
vehicular and pedestrian access to, produce, process and market
Reserves from the Properties in the same manner and at the same rates
as were in effect as of December 31, 1995.
(vii) With respect to the Fee Reserves, there are no parties in
possession or, to the Knowledge of the Company, asserting a right of
possession adverse to the possession of the Tenneco Entities or the
Tenneco Entities' Subsidiaries, and, to the Knowledge of the
<PAGE>
20
Tenneco Entities, there are no parties asserting title adverse to the
title of the Tenneco Entities or any of the Tenneco Entities'
Subsidiaries which, if successful, would materially detract from the
value or materially interfere with the present use by the Tenneco
Entities and the Tenneco Entities' Subsidiaries of the Fee Reserves
and the Fee Properties.
(i) Absence of Liens. Except as described in Schedule 5.1(i), each of
the Tenneco Entities and the Tenneco Entities' Subsidiaries has good
title, free of all Liens, to all equipment, machinery and fixtures (to the
extent they constitute personal property) owned or utilized in its
business (or a valid and binding lease therefor) and all its receivables
(the "Personal Properties") except for (A) capitalized financing leases,
(B) Liens for ad valorem personal property taxes not yet due or payable,
due but not yet payable, or due and payable but not yet delinquent, (C)
landlords' or similar Liens affecting the Personal Properties, (D)
purchase money Liens arising in the ordinary course of business, (E) the
mortgages, security interests and Liens granted pursuant to the Credit
Agreement or any documents executed in connection therewith, (F) Liens
permitted under the Credit Agreement and (G) Liens which do not,
individually or in the aggregate, materially detract from the value of the
Personal Properties or materially interfere with the present uses thereof.
(j) Insurance and Bonds. All policies of insurance, self-insurance
permits (other than insurance provided to employees) and reclamation,
workers compensation and other bonds relating to the Tenneco Entities and
the Tenneco Entities' Subsidiaries and their respective businesses, assets
and employees as of the date hereof (including carriers, policy numbers,
effective and termination dates and coverage and self-insured retention
amounts) are in full force and effect, all premiums due thereon have been
paid and each of the Tenneco Entities and the Tenneco Entities'
Subsidiaries has, to the Knowledge of the Company, complied with the
material provisions of such policies, permits and bonds. All properties of
the Tenneco Entities and the Tenneco Entities' Subsidiaries are insured in
such amounts and against such risks as are usually insured against by
Persons owning or operating similar properties in the localities where
such properties are located.
(k) Contracts. Except for the Transaction Documents, the Oil and Gas
Leases, the insurance policies and bonds referred to in Section 5.1(j) and
plans listed on Schedule 5.1(o), Schedule 5.1(k) hereto accurately lists
the material contracts, leases, agreements, plans, policies, indentures,
licenses and arrangements having any other legally binding basis to which
the Company, the Tenneco Entities or any of the Tenneco Entities'
Subsidiaries is a party or by which it
<PAGE>
21
or any of its property is bound (other than those to which the only
parties are the Company, the Tenneco Entities and/or the Tenneco Entities'
Subsidiaries) meeting any of the following criteria (each such contract,
lease, agreement, plan, policy, indenture, license or arrangement (other
than the Oil and Gas Leases, the insurance policies and bonds referred to
in Section 5.1(j) and plans listed on Schedule 5.1(o)) referred to in this
Section 5.1(k) and in Section 5.1(l) below a "Contract") (for purposes of
this Section 5.1(k), "material" shall mean material to the business,
operations, properties, financial condition or results of operations of
the Company, the Tenneco Entities and the Tenneco Entities' Subsidiaries
on a consolidated basis)):
(i) any such contract, lease, agreement, plan, policy, indenture
or other such arrangement involving commitments to others to make
capital expenditures or purchases or sales involving $250,000 or more
in any one case, except commitments which may be terminated without
liability or penalty by the Company, the Tenneco Entities or any of
the Tenneco Entities' Subsidiaries on not more than 90 days notice;
(ii) any such contract, lease, agreement, plan, policy,
indenture or other such arrangement relating to any direct or
indirect indebtedness for borrowed money (including but not limited
to loan agreements, lease-purchase arrangements, guarantees of
payment or collection, agreements to purchase goods or services or to
supply funds or other undertakings on which others rely in extending
credit) or any conditional sales contracts, chattel mortgages,
equipment lease agreements and other security arrangements with
respect to personal property with a value in excess of $500,000 in
each instance used or owned by the Company, the Tenneco Entities or
any of the Tenneco Entities' Subsidiaries;
(iii) any such contract, lease, agreement, plan, policy,
indenture or other such arrangement containing covenants limiting the
freedom of the Company, the Tenneco Entities or any of the Tenneco
Entities' Subsidiaries to compete in any line of business with any
person or in any area or territory;
(iv) any such contract, lease, agreement, plan, policy,
indenture or other such arrangement containing express terms and
conditions with any sales agent, representative, franchisee or
distributor of any of the products of the Company, the Tenneco
Entities or any of the Tenneco Entities' Subsidiaries;
<PAGE>
22
(v) other than the Oil and Gas Leases, any such contract, lease,
agreement, plan, policy, indenture or other such arrangement which
requires the payment of royalties; and
(vi) any other such contract, lease, agreement, plan, policy,
indenture or other such arrangement not of the type covered by any of
the other items of this Section 5.1(k) which is not in the ordinary
course of business or which is material to the business, operations,
properties, financial condition or results of operations of the
Company, the Tenneco Entities or any of the Tenneco Entities'
Subsidiaries (as opposed to the prospects of the economy in general)
on a consolidated basis.
True, correct and complete copies of the written Contracts listed on
Schedule 5.1(k) hereto have been made available to the Buyer.
(l) Compliance with Contracts, Etc. The Company, the Tenneco Entities
and each of the Tenneco Entities' Subsidiaries is in material compliance
with all material terms and provisions of all Contracts listed in Schedule
5.1(k) and to the Knowledge of the Company, all such Contracts are valid
and binding in accordance with their terms and in full force and effect in
all material respects, and to the Knowledge of the Company, no material
breach or default by the Company, the Tenneco Entities or any of the
Tenneco Entities' Subsidiaries or event which, with notice or lapse of
time or both, could constitute a breach or default by the Company, the
Tenneco Entities or any of the Tenneco Entities' Subsidiaries, exists with
respect thereto, and no party thereto has given notice or asserted to the
Company, the Tenneco Entities or any of the Tenneco Entities' Subsidiaries
that the Company, the Tenneco Entities or any of the Tenneco Entities'
Subsidiaries is in default thereunder and, to the Knowledge of the
Company, no other party thereto is in material breach or default
thereunder.
(m) Litigation. Except as disclosed in Schedule 5.1(m), there are no
lawsuits, actions, arbitrations or legal or administrative or regulatory
proceedings, or investigations pending or, to the Knowledge of the
Company, threatened against the Company, the Tenneco Entities, any of the
Tenneco Entities' Subsidiaries, or, to the Knowledge of the Company, any
Investment. Neither the Company, the Tenneco Entities, any of the Tenneco
Entities' Subsidiaries, nor, to the Knowledge of the Company, any
Investments is a party to, nor are any of them or any of their respective
assets subject to or bound by, any order, judgment, injunction,
stipulation, order or decree (whether rendered by a court or
administrative agency or by
<PAGE>
23
arbitration) which, if adversely determined, could, individually or in the
aggregate, have a Material Adverse Effect or materially adversely affect
the ability of the Company to sell the Company Shares to be sold by the
Company hereunder or to consummate the other transactions contemplated
hereby. There are no material citations, fines or penalties heretofore
asserted against the Company, the Tenneco Entities, the Tenneco Entities'
Subsidiaries, or, to the Knowledge of the Company, any Investments, under
any foreign, federal, state or local law that remain unpaid or that
otherwise bind any assets of the Company, the Tenneco Entities or any of
the Tenneco Entities' Subsidiaries or Investments.
(n) Compliance with Laws. None of the Company, the Tenneco Entities,
any of the Tenneco Entities' Subsidiaries or, to the Knowledge of the
Company, any of the Investments, has violated or failed to comply with any
applicable statute, law, ordinance, regulation, rule or order of any
Governmental Authority, or any judgment, decree or order of any court,
applicable to its business or operations, except where such violations or
failures would not, individually or in the aggregate, have a Material
Adverse Effect; and the conduct of the Company's, the Tenneco Entities',
the Tenneco Entities' Subsidiaries' and, to the Knowledge of the Company,
the Investments' businesses is in material conformity with all applicable
foreign, federal, state and local energy, public utility, health and
employee health and safety requirements and all other applicable foreign,
federal, state and local governmental and regulatory requirements, except
where the failures to be in such conformity would not, individually or in
the aggregate, have a Material Adverse Effect. The Company, the Tenneco
Entities, the Tenneco Entities' Subsidiaries and, to the Knowledge of the
Company, the Investments have all permits, licenses, authorizations,
consents, approvals and franchises from Governmental Authorities required
to conduct their respective businesses as they are now being and during
the past year have been conducted, and as they are planned to be
conducted, except where the failure to have any such permits, licenses,
authorizations, consents, approvals or franchises would not, individually
or in the aggregate, have a Material Adverse Effect.
(o) Employment Agreement and Related Matters.
(i) Each "employee benefit plan", as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (including each multiemployer plan within the meaning of
3(37) of ERISA), each bonus, fringe benefit, incentive, stock option,
deferred compensation, employment, consulting, severance and all
other employee benefit plans, programs, policies, agreements and
arrangements,
<PAGE>
24
whether or not covered by ERISA under which the Company, the Tenneco
Entities or any of the Tenneco Entities' Subsidiaries has or could
have any present or future material obligation or liability
(collectively, the "Benefit Plans") are listed in Schedule 5.1(o).
The Company or the Tenneco Entities have delivered to the Buyer, to
the extent requested by the Buyer, current, correct and complete
copies of each Benefit Plan and any related agreements or funding
instruments (or, to the extent no such copy exists, a current,
correct and complete description thereof) and, to the extent
applicable, (A) the most recent summary plan description and Internal
Revenue Service determination letter, if any, relating to each
Benefit Plan and (B) for the two most recent plan years (I) the form
5500 and attached schedules; (II) audited financial statements; (III)
actuarial valuation reports; and (IV) attorney's response to an
auditor's request for information.
(ii) No Benefit Plan is a "multiemployer plan" as such term is
defined in Section 4001(a)(3) of ERISA ("Multiemployer Plan").
Neither the Company, the Tenneco Entities, nor any of the Tenneco
Entities' Subsidiaries nor any trade or business, whether or not
incorporated, which is under common control with the Company or the
Tenneco Entities within the meaning of Code Section 414(b), (c), (m)
or (o) or ERISA Section 4001 (excluding El Paso and its subsidiaries
other than the Tenneco Entities and the Tenneco Entities
Subsidiaries') (collectively, the "Controlled Group") have incurred
any liability in connection with a complete or partial withdrawal
from a Multiemployer Plan. To the Knowledge of the Company and the
Tenneco Entities, no such Multiemployer Plan is in "reorganization"
or is "insolvent"(as those terms are defined in Section 4241 and
Section 4245 of ERISA, respectively).
(iii) Each Benefit Plan, which is intended to be "qualified"
within the meaning of Section 401(a) of the Internal Revenue Code of
1986, as amended (the "Code") (a "Pension Plan"), is so qualified and
has received a favorable determination letter as to its
qualification, and nothing has occurred which would cause the loss of
such qualification, in each case except for such circumstances that,
individually or in the aggregate, would not have a Material Adverse
Effect.
(iv) Each Benefit Plan is intended by the Company and the
Tenneco Entities to have been, and to the Knowledge of the Company
has been, established, maintained and administered in all material
respects in accordance with its terms and the requirements of
<PAGE>
25
applicable law, including without limitation ERISA and the Code.
There are not now, nor have there been, any "accumulated funding
deficiencies" as defined in Section 412 of the Code (whether or not
waived) with respect to any Benefit Plan which have not been fully
satisfied. No "reportable event" (as that term is defined in Section
4043(b) of ERISA) has occurred with respect to any Benefit Plan.
(v) No Pension Plan maintained by a member of the Controlled
Group which is subject to Title IV of ERISA has been terminated, in
whole or in part, and no proceedings to terminate a Benefit Plan
pursuant to Subtitle C of Title IV of ERISA have been instituted or,
to the Knowledge of the Company, threatened. As of the date of this
Agreement, there are no pending or threatened claims, actions, suits,
complaints or proceedings by or before any court, Governmental
Authority, administrative agency or commission alleging a breach or
breaches of fiduciary duties or violation of other applicable laws
with respect to such Benefit Plans, or otherwise involving the
Benefit Plans, which could result in material liability on the part
of the Company, the Tenneco Entities, any of the Tenneco Entities'
Subsidiaries or on a Benefit Plan or a Pension Plan maintained by a
member of the Controlled Group (other than benefit claims in the
ordinary course), nor, to the Knowledge of the Company, is there any
basis for any such claims, actions, suits, complaints or proceedings.
(vi) There has been no material adverse change in the funded
status of any Benefit Plan that is subject to Title IV of ERISA since
the most recent valuation date.
(vii) No Benefit Plan exists which could result in the payment
by the Company, the Tenneco Entities, any of the Tenneco Entities'
Subsidiaries, any member of its Controlled Group or the Buyer of
money or any other property or rights, or accelerate or provide any
other rights or benefits, to any person as a result of the
Transactions, including without limitation the sale of Company Shares
hereunder, whether or not such payment would constitute a parachute
payment within the meaning of Section 280G of the Code, other than as
expressly provided for in the Transaction Documents.
(viii) The maximum liability under the obligations being assumed
by the Company under Section 9.04 of the Stock Purchase Agreement
does not exceed $1,400,000.
(p) Licenses and Government Approvals. Except as set forth on
Schedule 5.1(p), the Company does not have
<PAGE>
26
Knowledge of any impediment to the renewal of any license, permit,
approval, consent, franchise and other authorization of any federal,
state, local or foreign Governmental Authority (collectively, "Licenses")
possessed by or granted to the Company, the Tenneco Entities or the
Tenneco Entities' Subsidiaries and material to their respective businesses
as currently and during the past year have been conducted. To the
Knowledge of the Company, all such Licenses are valid and in full force
and effect and no proceeding is pending or, to the Knowledge of the
Company, threatened seeking the suspension, modification, revocation or
limitation of any such License. The Company, the Tenneco Entities and the
Tenneco Entities' Subsidiaries have all the necessary Licenses that are
required to permit the continued operation after the date hereof of the
businesses of the Company, the Tenneco Entities and the Tenneco Entities'
Subsidiaries as they are now being and during the past year have been
conducted, with the exception of any change or changes in the operation of
such businesses as would not, individually or in the aggregate, have a
Material Adverse Effect. The Company, the Tenneco Entities and the Tenneco
Entities' Subsidiaries reasonably believe that, other than for such
exceptions that would not, individually or in the aggregate, have a
Material Adverse Effect: each of their Licenses will be timely renewed and
complied with, without material expense; and that any additional Licenses
that may be required of any of them to permit any of their operations as
planned will be timely obtained and complied with, without material
expense. Except as disclosed on Schedule 5.1(p) and except for the
expiration or termination of all applicable waiting periods under the HSR
Act, the execution, delivery and performance of this Agreement and the
other Transaction Documents and the consummation by the Company and the
Tenneco Entities of the transactions contemplated hereby and thereby
(including without limitation the sale of the Company Shares contemplated
hereby and the borrowings contemplated by the Credit Agreement) will not
require the consent, approval or authorization of any Governmental or
regulatory Authority or any other Person under any License, agreement,
indenture or other instrument to which the Company, the Tenneco Entities
or any of the Tenneco Entities' Subsidiaries is a party or to which any of
their respective properties are subject that have not already been
obtained, and no declaration, filing or registration with any Governmental
or regulatory Authority is required in connection with such transactions.
(q) Broker's or Finder's Fees. Except for PaineWebber Incorporated,
neither the Company or the Tenneco Entities nor any Affiliate or agent of
either of them have authorized any Person to act as a broker or finder or
in any similar capacity in connection with the transactions contemplated
by this Agreement. The Company has previously delivered to the Buyer a
true, correct and complete copy of all agreements,
<PAGE>
27
arrangements and undertakings between the Company and PaineWebber
Incorporated.
(r) Transactions with Affiliates. Except as disclosed in Schedule
5.1(r), neither the Company, the Tenneco Entities nor any of the Tenneco
Entities' Subsidiaries has any outstanding contract, agreement or other
arrangement with the Company, the Tenneco Entities, or any of the
Affiliates of the Company or the Tenneco Entities (other than those to
which the only parties are the Company, the Tenneco Entities and/or the
Tenneco Entities' Subsidiaries). Except as disclosed in Schedule 5.1(r),
neither El Paso nor any of its Affiliates has issued any performance
bonds, payment bonds, bid bonds, letters of credit, guaranties or similar
instruments for the benefit of the Company, the Tenneco Entities, the
Tenneco Entities' Subsidiaries nor the Investments.
(s) Corporate Records. The books and records of the Company, the
Tenneco Entities and the Tenneco Entities' Subsidiaries are complete and
correct in all material respects and have been maintained in accordance
with good business practices.
(t) Labor Matters. Except as set forth in Schedule 5.1(t), neither
the Company, the Tenneco Entities, any of the Tenneco Entities'
Subsidiaries nor any member of the Controlled Group is subject to or a
party to any collective bargaining agreement, employment contract or
consulting agreement and no collective bargaining agreement, employment
agreement or consulting agreement is being negotiated. Except as disclosed
in Schedule 5.1(t), there are no strikes, slowdowns, work stoppages or
other material labor controversies pending or, to the Knowledge of the
Company, threatened against or otherwise affecting the Company, the
Tenneco Entities or the Tenneco Entities' Subsidiaries. Neither the
Company, the Tenneco Entities nor any of the Tenneco Entities'
Subsidiaries has experienced any labor strike, slowdown, work stoppage or
other material labor controversy within the past three years. Other than
certain severance payments and retention bonuses due to certain employees
of the Company which will be paid in due course, the Company, the Tenneco
Entities and the Tenneco Entities' Subsidiaries have paid in full to all
their respective employees all wages, salaries, commissions, bonuses,
benefits and other compensation due to such employees or otherwise arising
under any policy, agreement, program, statute or other law. Neither the
Company, the Tenneco Entities nor any of the Tenneco Entities'
Subsidiaries is a party to, or otherwise bound by, any consent decree
with, or citation by, any court or Governmental Authority relating to
employees or employment practices. To the Knowledge of the Company, during
the past three years none of the Company, the Tenneco Entities or any
<PAGE>
28
of the Tenneco Entities' Subsidiaries has received any petition from any
employees to form, join, or assist labor organizations to bargain
collectively through representatives of the employees' choosing or has
received information about employees engaging in other concerted
activities for the purpose of collective bargaining.
(u) Tax Matters. Except as set forth in the last sentence of this
Section 4.1(u) and in Schedule 5.1(u):
(i) All Tax Returns (as hereinafter defined) required by law to
be filed (and/or maintained) on or prior to the date hereof by, or
with respect to the operations, activities or assets of the Company,
the Tenneco Entities or any of the Tenneco Entities' Subsidiaries
(other than any consolidated, combined or unitary income or franchise
tax returns filed by either Tenneco, Inc. or El Paso (as common
parent) on behalf of any of the Tenneco Entities or the Tenneco
Entities' Subsidiaries) have been properly and timely filed with the
appropriate governmental agencies (and/or maintained, as the case may
be), and all such Tax Returns are correct, accurate and complete in
all material respects. All Taxes (as hereinafter defined) shown as
due on such Tax Returns have been paid. For purposes of this
Agreement, "Tax" or "Taxes" will mean any and all federal, state,
local, foreign and other taxes and tax withholding obligations
(including interest, additions to tax, penalties and fines with
respect thereto) including, without limitation, taxes imposed on, or
measured by, income, franchise, profits, or gross receipts, and also
ad valorem, value added, sales, use, service, real or personal
property, capital stock, license, payroll, withholding, employment,
social security, workers' compensation, unemployment compensation,
utility, severance, production, excise, stamp, occupation, premium,
windfall profits, transaction, and joint taxes, and customs duties.
"Tax Return" or "Tax Returns" will mean any report, return or other
information, or any amendment thereof, filed or required to be filed,
maintained or supplied in connection with the calculation,
determination, assessment, collection or remittance of any Tax.
(ii) With respect to the Company, the Tenneco Entities and each
of the Tenneco Entities' Subsidiaries, except as set forth in
Schedule 5.1(u), (A) no audit of any Tax Return is in progress or
pending or, to the Knowledge of the Company, threatened, (B) no
waiver of any statute of limitations has been given and is in effect
with respect to the assessment of any Tax and (C) no deficiency has
been assessed for any Tax by any Governmental Authority.
<PAGE>
29
(iii) Set forth in Schedule 5.1(u) is a list of all current
deficiencies asserted and assessments made by the IRS or the state
equivalent with respect to the Tenneco Entities and the Tenneco
Entities' Subsidiaries which deficiencies and assessments have not
been paid, settled, withdrawn, overturned or dismissed.
(iv) True, correct and complete copies of all notices of
deficiencies, assessments, audit reports, closing agreements with and
other notices from any taxing authority for all years with respect to
which the statute of limitations has not expired will be delivered to
the Buyer prior to the Initial Closing Date.
(v) Neither the Company, the Tenneco Entities nor any of the
Tenneco Entities' Subsidiaries has adopted a plan of complete
liquidation and no consent has been filed on behalf of the Company,
the Tenneco Entities or any of the Tenneco Entities' Subsidiaries
pursuant to Section 341(f) of the Code or any predecessor provision.
(vi) The Company, the Tenneco Entities and the Tenneco Entities'
Subsidiaries have collected all sales and use Taxes required to be
collected, and have remitted, or will remit on a timely basis, such
amounts to the appropriate Governmental Authorities where the failure
to collect or remit would in the aggregate have a Material Adverse
Effect, or have been furnished properly completed exemption
certificates for all exempt transactions. Each of the Company, the
Tenneco Entities and the Tenneco Entities' Subsidiaries has
maintained in its possession all records and supporting documents
required by applicable sales Tax statutes and regulations regarding
the collection and payment of all sales and use Taxes required to be
collected and paid over and regarding all exempt transactions for all
periods open under the applicable statutes of limitations as of the
Initial Closing Date.
(vii) The liabilities for Taxes reflected in the Balance Sheet
set forth on Schedule 5.1(f) are accurate and the amounts reflected
for Taxes therein are sufficient for the payment of all accrued,
unpaid or deferred Taxes of the Tenneco Entities and the Tenneco
Entities' Subsidiaries for all periods ended on or prior to December
31, 1995, whether or not disputed.
(viii) The Company (a) has not been a member of an affiliated
group filing a consolidated federal income Tax Return (other then a
group the common parent of which is the Company) and (b) has no
liability for Taxes of any Person (other than the Company, the
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30
Tenneco Entities and the Tenneco Entities' Subsidiaries) under U.S.
Treasury regulation ss. 1.1502-6 (or any similar provision of state,
local or foreign law), as a transferee or successor, by contract or
otherwise.
(ix) Neither the Company nor the Tenneco Entities is a United
States real property holding corporation within the meaning of
Section 897 of the Code, or will have been a U.S. real property
holding corporation within the five years preceding the date hereof
or the Initial Closing Date. The shares of capital stock of the
Tenneco Entities acquired by the Company pursuant to the Stock
Purchase Agreement are not United States real property interests
within the meaning of Section 897 of the Code.
(x) The Company and the Tenneco Entities will promptly notify or
arrange for the notification of the Buyer of any event materially
affecting the continuing accuracy of any representation in this
Section 5.1(u) between the date hereof and the Initial Closing Date.
The foregoing representations and warranties contained in this Section 4.1(u)
shall not apply to any Taxes attributable to any consolidated Tax Return filed
or required to be filed by El Paso or by Tenneco, Inc. as the common parent or
parent corporation of a group including the Tenneco Entities or the Tenneco
Entities' Subsidiaries.
(v) Environmental Matters. (i) Except as set forth on Schedule
5.1(v), other than exceptions to the following that, individually or in
the aggregate, would not reasonably be expected to have a Material Adverse
Effect:
(A) The Company, the Tenneco Entities, the Tenneco Entities'
Subsidiaries and, to the Knowledge of the Company, the Investments
are in compliance with all applicable Environmental Laws; neither the
Company, the Tenneco Entities nor any of the Tenneco Entities'
Subsidiaries has received any written communication from any source
within any applicable limitations period that alleges that the
Company, the Tenneco Entities or any of the Tenneco Entities'
Subsidiaries is not in such compliance; and all Licenses required
pursuant to the Environmental Laws to operate the Company, the
Tenneco Entities and the Tenneco Entities' Subsidiaries any of the
Investments as they are now and during the past year have been
conducted have been obtained and are currently in force, and will be
timely renewed and complied with, without material expense; and any
additional such Licenses that may be required of any of them to
permit any of their operations as
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31
planned will be timely obtained and complied with, without material
expense.
(B) There is no Environmental Claim against the Company, the
Tenneco Entities, any of the Tenneco Entities' Subsidiaries or, to
the Knowledge of the Company, any of the Investments which is pending
or, to the Knowledge of the Company, threatened against or involving
the Company, or, the Tenneco Entities or any of the Tenneco Entities'
Subsidiaries or, to the Knowledge of the Company, against any Person
whose liability for such claim the Company, the Tenneco Entities or
any of the Tenneco Entities' Subsidiaries has or may have retained or
assumed either contractually or by operation of law.
(C) There are no past or present actions, activities,
circumstances, conditions, events or incidents, including without
limitation the release, threatened release, emission, discharge or
disposal of any Material of Environmental Concern, that could form
the basis of any Environmental Claim (I) against the Company, the
Tenneco Entities, any of the Tenneco Entities' Subsidiaries or, to
the Knowledge of the Company, any of the Investments or (II) against
any person or entity whose liability for any Environmental Claim the
Company, the Tenneco Entities or any of the Tenneco Entities'
Subsidiaries may have retained or assumed either contractually or by
operation of law.
(ii) The Company has made available to the Buyer all written reports
evaluating issues of actual or potential noncompliance with, liability
under, or costs otherwise related to any Environmental Law that have been
prepared by or for the Company, the Tenneco Entities, any of the Tenneco
Entities' Subsidiaries or, to the Knowledge of the Company, any of the
Investments that are otherwise in any of their possession or control.
(w) Oil and Gas Reserve Information. Except as otherwise set forth in
Schedule 5.1(w) and except as would not, individually or in the aggregate,
have a Material Adverse Effect:
(i) None of the wells included in the Oil and Gas Interests of
the Company, the Tenneco Entities and each of the Tenneco Entities'
Subsidiaries has been overproduced such that it is subject or liable
to being shut-in or to any other overproduction penalty;
(ii) There have been no changes proposed in the production
allowables for any wells included in the Oil and Gas Interests of
Company, the Tenneco Entities and each of the Tenneco Entities'
Subsidiaries;
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32
(iii) All wells included in the Oil and Gas Interests of
Company, the Tenneco Entities and each of the Tenneco Entities'
Subsidiaries have been drilled and (if completed) completed,
operated, and produced in accordance with good oil and gas field
practices and in compliance in all material respects with applicable
Oil and Gas Leases and applicable laws, rules, and regulations;
(iv) Neither the Company, the Tenneco Entities nor each of the
Tenneco Entities' Subsidiaries has agreed to or is now obligated to
abandon any well included in the Oil and Gas Interests of the
Company, the Tenneco Entities and each of the Tenneco Entities'
Subsidiaries that is not or will not be abandoned and reclaimed in
accordance with the applicable laws, rules, and regulations and good
oil and gas industry practices;
(v) Proceeds from the sale of Hydrocarbons produced from the Oil
and Gas Interests of Company, the Tenneco Entities and each of the
Tenneco Entities' Subsidiaries are being received by Company, the
Tenneco Entities and each of the Tenneco Entities' Subsidiaries in a
timely manner and are not being held by third parties in suspense for
any reason (except for amounts, individually or in the aggregate, not
in excess of $1,000,000 and held in suspense in the ordinary course
of business); and
(vi) No person has any call on, option to purchase, or similar
rights with respect to the Oil and Gas Interests of the Company, the
Tenneco Entities and each of the Tenneco Entities' Subsidiaries or to
the production attributable thereto, and upon consummation of the
transactions contemplated by this Agreement, the Company, the Tenneco
Entities or the Tenneco Entities' Subsidiaries will have the right to
market production from the Oil and Gas Interests of Company, the
Tenneco Entities and each of the Tenneco Entities' Subsidiaries on
terms no less favorable than the terms upon which such company is
currently marketing such production.
(x) Engineering Reports. All information supplied to De Golver &
MacNaughton and Netherland & Sewell and Associates Ltd. (the "De Golver")
by or on behalf of the Tenneco Entities and the Tenneco Entities'
Subsidiaries that was material to such firm's review of the Tenneco
Entities and the Tenneco Entities' Subsidiaries estimates of oil and gas
reserves attributable to the Oil and Gas Interests of the Tenneco Entities
and the Tenneco Entities' Subsidiaries in connection with the preparation
of the oil and oil reserve engineering report concerning the Oil and Gas
Interests of the Tenneco Entities and the Tenneco Entities' Subsidiaries
as of July 1, 1996 by De Golver (the
<PAGE>
33
"Engineering Report") was (at the time supplied or as modified or amended
prior to the issuance of the Engineering Report) true and correct in all
material respects. Except for changes in the classification or values of
oil and gas reserve or property interests that occurred in the ordinary
course of business since July 1, 1996, and except for changes (including
changes in commodity prices) generally affecting the oil and gas industry
on a nationwide basis, there has been no Material Adverse Effect in
respect of the Tenneco Entities or the Tenneco Entities' Subsidiaries
regarding the matters addressed in the Engineering Report.
(y) Not Subject to Utility Regulatory Authorities. Neither the
Company, the Tenneco Entities nor any of the Tenneco Entities'
Subsidiaries owns or has any interest in as owner, operator or otherwise
in any properties, businesses, entities or operations that are subject to
regulation as a utility by federal, state or local utility regulatory
authorities.
(z) Worker's Compensation and Occupational Disease Reserve. There are
no presently pending claims against the Company, the Tenneco Entities or
any of the Tenneco Entities' Subsidiaries not fully covered by insurance
for workers' compensation benefits and for federal and state occupational
disease benefits. To the Knowledge of the Company, the Company, the
Tenneco Entities, the Tenneco Entities' Subsidiaries, their respective
insurers or the funds listed in the preceding sentence have timely paid in
full all such benefits due.
(aa) Omissions. To the Knowledge of the Company, no representation or
warranty of the Company contained in this Agreement contains any untrue
statement of a material fact or omits to state a material fact necessary
in order to make the statements herein or therein, when read together, not
materially misleading in light of the circumstances under which they were
made.
With respect to any Oil and Gas Interest, including the wells
thereon, not operated by Ventures, it is understood and agreed that the
representations and warranties set forth above in Sections 5.1(j) (to the
extent the operator carries insurance for the joint account), 5.1(n) and
5.1(p) are understood to be made to the Knowledge of the Company only.
5.2. Representations and Warranties of the Buyer. The Buyer
represents and warrants to the Company as follows:
(a) Due Organization and Power of the Buyer. The Buyer is a limited
partnership duly organized, validly existing and in good standing under
the laws of the state of its organization and has all requisite power and
authority to execute and deliver this Agreement and the
<PAGE>
34
Securityholders Agreement and to perform its obligations hereunder and
thereunder.
(b) Authorization and Validity of Agreement. The execution, delivery
and performance by the Buyer of this Agreement and the Securityholders
Agreement and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized, and no other action on the
part of the Buyer or its partners is necessary for the execution, delivery
and performance by the Buyer of this Agreement and the Securityholders
Agreement and the consummation by it of the transactions contemplated
hereby and thereby. This Agreement and the Securityholders Agreement have
been duly executed and delivered by the Buyer and, assuming due
authorization, execution and delivery by the parties other than the Buyer
hereto and thereto, constitute the legal, valid and binding obligation of
the Buyer, enforceable against the Buyer in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or limiting
creditors' rights generally or by equitable principles relating to
enforceability.
(c) No Conflict. Neither the execution and delivery of this Agreement
and the Securityholders Agreement nor the performance by the Buyer of the
transactions contemplated hereby and thereby, including without limitation
the purchase of the Company Shares hereunder, will: (i) violate or
conflict with any provision of the Articles of Limited Partnership or
limited partnership agreement of the Buyer; (ii) require any consent or
approval of, or filing with or notice to, any Governmental or regulatory
Authority under any provision of any law applicable to the Buyer, except
for the expiration or termination of all applicable waiting periods under
the HSR Act; (iii) result in any violation of or default under any
provision of any law, rule, regulation, order, judgment or decree to which
the Buyer is a party or by which the Buyer is bound; or (iv) with or
without the giving of notice or the lapse of time or both, violate or
constitute a default under, or result in the acceleration of or entitle
any party to accelerate (whether after the giving of notice or lapse of
time or both) any obligation under any mortgage, indenture, deed of trust,
lease, contract, agreement, license or other instrument or violate any
provision of any law, order, judgment, decree, restriction or ruling of
any Governmental Authority to which the Buyer or by which any of the
Buyer's assets is bound or encumbered.
(d) Purchase for Investment. The Buyer acknowledges that the Company
Shares purchased hereunder have not been registered or qualified under the
Securities Act of 1933, as amended or any state securities law and may be
sold or otherwise disposed of in the absence of such registration
<PAGE>
35
only pursuant to an exemption from such registration and any other
applicable securities laws. The Buyer is purchasing the Company Shares
solely for its own account for the purpose of investment and not with a
view to or for sale in connection with any disposition thereof, and has no
present intention or plan to effect any resale, assignment or distribution
of any of the Company Shares. The Buyer acknowledges that it has such
knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of purchasing the Company
Shares, making an informed investment decision and of bearing the economic
risk of the purchase of the Company Shares.
(e) Litigation. No action, claim, suit or legal proceeding is now
pending, or, to the knowledge of the Buyer, threatened, against the Buyer
at law, in equity or otherwise, before any court, board, commission,
agency or instrumentality of any Federal, state or local government or of
any agency or subdivision thereof, or before any arbitrator or panel of
arbitrators, which would adversely affect the Buyer's ability to perform
the obligations under this Agreement, the Securityholders Agreement and
other documents related hereto and thereto to which the Buyer is a party.
(f) Ownership of Buyer Subordinated Note. On the date of any
Subsequent Closing, the Buyer will own the Buyer Subordinated Note free
and clear of all Liens and upon the delivery of the Buyer Subordinated
Note to the Company in accordance with Section 1.2(b) and the issuance and
delivery to the Buyer of the Option Shares, the Company will acquire all
right, title and interest of the Buyer in the Buyer Subordinated Note,
free and clear of all Liens other than Liens arising out of the actions of
the Company.
(g) Omissions. To the knowledge of the Buyer, no representation or
warranty of the Buyer contained in this Agreement contains any untrue
statement of a material fact or omits to state a material fact necessary
in order to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading.
5.3. Limitations on Survival. Each of the representations and
warranties made by the Company in Section 5.1(u) of this Agreement (including
the Schedules, insofar as the Schedules relate to such representations and
warranties) and in the certificates delivered pursuant to Section 7.1(a)(ii)
(insofar as they relate to such representations and warranties) shall survive
the Initial Closing to and until the date on which the statute of limitations
(taking into account any tolling agreements with respect thereto) with respect
to enforcement of any relevant sections of the Code and the regulations
promulgated thereunder against the Company, its subsidiaries and Affiliates
<PAGE>
36
has expired (at which time they will terminate). Each of the representations
and warranties made by the Company in Section 5.1(v) of this Agreement
(including the Schedules, insofar as the Schedules relate to such
representations and warranties) and in the certificates delivered pursuant to
Section 7.1(a)(ii) (insofar as they relate to such representations and
warranties) shall survive the Initial Closing to and until the first to occur
of: (i) the completion of a Qualified Public Offering (as such term is defined
in the Securityholders Agreement) and (ii) the date which is two years after
the Initial Closing Date (at which time they will terminate). Each of the
representations and warranties made by the Company in Sections 5.1(a), (b)(i),
(d) and (e)(iv) of this Agreement (including the Schedules, insofar as the
Schedules relate to such representations and warranties) and in the
certificates delivered pursuant to Section 7.1(b) (insofar as they relate to
such representations and warranties) and by the Buyer in Sections 5.2(a), (b),
(c), (d) and (f) and the certificate delivered pursuant to Section 7.2(b)
(insofar as they relate to such representations and warranties) shall survive
the Initial Closing to and until the first to occur of: (x) the completion of
a Qualified Public Offering (as such term is defined in the Stockholders
Agreement) and (y) the date which is twelve months after the Subsequent
Closing Date or, if the Option is not exercised prior to the end of the
Exercise Period, the day after the expiration of the Exercise Period (at which
time they will terminate). All other representations and warranties made by
the parties in Article V of this Agreement (including the Schedules, insofar
as the Schedules relate to such representations and warranties) and in the
certificates delivered pursuant to Sections 7.1(a)(ii) and 7.2(b) (insofar as
they relate to such representations and warranties) shall survive the Initial
Closing to and until the first to occur of: (i) the completion of a Qualified
Public Offering (as such term is defined in the Securityholders Agreement) and
(ii) the date which is twelve months after the Initial Closing Date (at which
time they will terminate).
ARTICLE VI COVENANTS
6.1. Conduct of Business Pending the Initial Closing Date. The
Company agrees that, prior to the Initial Closing, unless specifically
provided for herein, unless expressly contemplated in any of the other
Transaction Documents or unless the Buyer has specifically given its prior
written consent:
(a) The business of the Company, the Tenneco Entities and the Tenneco
Entities' Subsidiaries will be conducted only in the ordinary course in
compliance with applicable laws, regulations and contractual obligations;
(b) No change will be made in the certificate of incorporation or the
by-laws of the Company, the Tenneco Entities or any of the Tenneco
Entities' Subsidiaries;
<PAGE>
37
(c) No change will be made in the authorized, issued or outstanding
capital stock of the Company, the Tenneco Entities or any of the Tenneco
Entities' Subsidiaries, no additional shares of such capital stock will be
issued and no subscriptions, options, rights, warrants, claims,
commitments or agreements relating to the authorized, issued or
outstanding capital stock of the Company, the Tenneco Entities or any of
the Tenneco Entities' Subsidiaries will be issued, granted, created or
entered into;
(d) No dividend or other distribution or payment will be declared,
set aside, paid or made in respect of shares of the capital stock of the
Company, the Tenneco Entities or the Tenneco Entities' Subsidiaries, nor
will the Company, the Tenneco Entities or the Tenneco Entities'
Subsidiaries, directly or indirectly, redeem, retire, purchase or
otherwise acquire any of such capital stock;
(e) Neither the Company, the Tenneco Entities nor any of the Tenneco
Entities' Subsidiaries will merge, amalgamate or consolidate with any
other corporation or acquire all or any substantial part of the business
or assets of any other Person, or acquire ownership or control of any
capital stock, bonds, or other securities of, or any property interest in,
any Person or acquire control of the management or policies thereof.
Neither the Company, the Tenneco Entities nor any of the Tenneco Entities'
Subsidiaries will enter into any negotiations with respect to any of the
actions described in this subsection (e);
(f) Neither the Company, the Tenneco Entities nor any of the Tenneco
Entities' Subsidiaries will, except as may be expressly contemplated in
any of the Transaction Documents and (other than with respect to clause
(i) below) except in the ordinary course of business:
(i) amend, supplement or otherwise modify any Transaction
Document or waive any condition to the Company's obligations under
the Stock Purchase Agreement;
(ii) except for transactions reflected in the Shareholder
Advance Account (as such term is defined in the Stock Purchase
Agreement), enter into, create or assume: (A) any obligation for
borrowed money; or (B) any security agreement, Lien, encumbrance,
mortgage, deed of trust, pledge, conditional sale or other title
retention agreement; or (C) any Lien upon any of its properties or
assets whether now owned or hereafter acquired;
(iii) assume, guarantee, endorse or otherwise become liable with
respect to the obligations of any Person;
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38
(iv) make any loan or advance to, or assume, guarantee, endorse
or otherwise become liable with respect to the capital stock or
dividends of, any Person;
(v) except for the Employment Agreement, enter into any
transaction with or for the benefit of, or create or assume any
obligation or liability to, any Affiliate (other than the Tenneco
Entities and the Tenneco Entities' Subsidiaries);
(vi) effect any increase in salaries, bonuses, commissions or
wages payable;
(vii) cancel or compromise any debt or claim or waive any rights
of substantial value; or
(viii) make any Tax election or settle or compromise any
material federal, state, local or foreign Tax liability.
(g) Other than in the ordinary course of business as heretofore
conducted, neither the Company, the Tenneco Entities nor any of the
Tenneco Entities' Subsidiaries will sell, lease, abandon, exchange,
assign, transfer, license or otherwise dispose of any property, intangible
assets or any machinery, equipment or other operating property or tangible
assets;
(h) Neither the Company, the Tenneco Entities nor any of the Tenneco
Entities' Subsidiaries will enter into or assume any contract, agreement
or commitment which, by reason of its size, term or other factor, is not
in the ordinary course of business as heretofore conducted;
(i) The Company will use all reasonable efforts to preserve the
business organization of the Tenneco Entities and the Tenneco Entities'
Subsidiaries intact and to keep available the services of the present
employees and agents of the Tenneco Entities and the Tenneco Entities'
Subsidiaries and to preserve the good will of customers, suppliers,
employees, agents and sales representatives, distributors and others
having business relations with the Tenneco Entities and the Tenneco
Entities' Subsidiaries and no change will be made in existing practices
relating to profit sharing, bonuses or commissions;
(j) Each of the Company, the Tenneco Entities and the Tenneco
Entities' Subsidiaries will maintain all assets owned, leased or regularly
used by it in operable condition and repair, ordinary wear and tear
excepted, and will maintain existing insurance coverage on such assets as
well as other existing insurance coverage; and
<PAGE>
39
(k) Each of the Company, the Tenneco Entities and the Tenneco
Entities' Subsidiaries will maintain its books, accounts and records in
the usual and ordinary manner, on a basis consistent with prior years.
With respect to the covenants set forth in Section 5.1, to the extent
such covenants pertain to the Tenneco Entities or the Tenneco Entities'
Subsidiaries, it is understood that the Company's obligation with respect
thereto is only to use all reasonable efforts to cause El Paso to cause the
Tenneco Entities and the Tenneco Entities' Subsidiaries to observe and comply
with such covenants.
6.2. Access to Information Concerning Properties and Records;
Confidentiality. (a) During the period commencing on the date hereof and
ending on the Initial Closing Date, the Company will, and will use all
reasonable efforts to cause El Paso and its Affiliates to, and to cause the
Tenneco Entities and the Tenneco Entities' Subsidiaries to, upon reasonable
request, afford to the Buyer, its counsel, accountants and other professional
advisers reasonable access during normal business hours to the offices,
plants, properties, contracts, books and records of the Company, the Tenneco
Entities and the Tenneco Entities' Subsidiaries (and permit the Buyer and its
counsel, accountants and other authorized representatives to make copies of
such contacts, books and records at their own expense), in order that the
Buyer may have the full opportunity to make such reasonable investigations as
it desires to make of the affairs of the Company, the Tenneco Entities and the
Tenneco Entities' Subsidiaries, provided that no investigation pursuant to
this Section 7.2 will affect any representations or warranties or the
conditions to the obligations of the parties hereto to consummate the purchase
of the Company Shares as contemplated hereby or the other transactions
contemplated hereby. The Company agrees that it will, and will cause the
Tenneco Entities and the Tenneco Entities' Subsidiaries and their respective
officers, accountants and other professional advisers, to, furnish to the
Buyer such additional information as the Buyer may from time to time
reasonably request.
(b) The Buyer agrees that it will, and will cause its officers,
employees, advisors and representatives to, hold in strict confidence all data
and information obtained from the Company, the Tenneco Entities or any of the
Tenneco Entities' Subsidiaries or on their behalf (other than information
which (i) is or becomes publicly available or (ii) which was already in the
possession of the Buyer, in each case other than as a result of a breach by
the Buyer or any of its officers, employees, advisors and representatives of
this covenant or other confidentiality agreement or legal or fiduciary
obligation of secrecy to the Company, the Tenneco Entities or any of the
Tenneco Entities' Subsidiaries) and will not, and will insure that such other
persons do not, disclose such data and information to others without the prior
written consent of the Company, except that the
<PAGE>
40
Buyer may provide such data and information in response to legal process or
applicable governmental regulations, but only that portion of the data and
information which, in the opinion of counsel for the Buyer, is legally
required to be furnished, and provided that the Buyer notifies the Company in
writing of its obligation to provide such confidential data and information
and fully cooperate with the Company to protect the confidentiality of such
data and information.
6.3. Releases. Each party hereto agrees that it will not, without the
consent of the Buyer and the Company, issue any press release or make any
other public statement or disclosure with respect to the transactions
contemplated hereby or their terms.
6.4. Further Actions. Subject to the terms and conditions contained
herein, each of the parties hereto agrees to use all reasonable efforts
promptly to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable to consummate and make
effective the transactions contemplated by this Agreement, including using its
reasonable efforts to satisfy the conditions precedent to the obligations of
the parties hereto, to obtain all necessary waivers, consents and approvals,
to effect all necessary registrations and filings and to proceed with the
Initial Closing as expeditiously as practicable; provided that this obligation
will not require any party to take any action materially adverse to such
party, including, without limitation, agreeing to divest or hold separate any
assets, and provided further that no contract or other agreement will be
amended to increase the amount payable thereunder or to otherwise modify the
terms thereof in a manner adverse to the Company, the Tenneco Entities or any
of the Tenneco Entities' Subsidiaries in order to obtain any such consent,
approval, authorization or otherwise without first obtaining the written
approval of the Buyer.
6.5. Application of Proceeds. The payments to be made by the Buyer
pursuant to Section 1.2 shall be used by the Company exclusively for the
purpose of paying a portion of the purchase price for the shares of the
Tenneco Entities pursuant to the Stock Purchase Agreement.
6.6. Option Shares. At all times prior to the earlier of the
expiration of the Exercise Period without the Option having been exercised or
the issuance of the Option Shares, the Company shall reserve and keep
available for issuance pursuant to the Option a number of duly authorized
shares of Common Stock equal to the number of Option Shares.
<PAGE>
41
ARTICLE VII CONDITIONS PRECEDENT
7.1. Conditions Precedent to Obligations of the Buyer.
(a) The obligation of the Buyer to consummate the purchase of the
Firm Common Shares at the Initial Closing is subject to the satisfaction
at or prior to the Initial Closing of each of the following conditions:
(i) No preliminary or permanent injunction or other order issued
by any court of competent jurisdiction or by any Governmental
Authority nor any statute, rule, regulation or executive order
promulgated or enacted by any Governmental Authority which restrains,
enjoins or otherwise prohibits any of the Transactions shall be in
effect.
(ii) (A) The representations and warranties of the Company
contained herein will be true and correct in all material respects on
and as of the Initial Closing Date, with the same force and effect as
though made on and as of the Initial Closing Date, except to the
extent that any representation or warranty is made as of a specified
date, in which case such representation or warranty will be true and
correct in all material respects as of such date, and (B) the Buyer
shall have received a certificate signed on behalf of the Company by
the chief executive officer and the chief financial officer of the
Company to such effect.
(iii) (A) The Company shall have performed in all material
respects all obligations and agreements, and complied in all material
respects with all covenants and conditions, contained in this
Agreement and the other Transaction Documents to be performed or
complied with by it prior to or on the Initial Closing Date (provided
that the provisions of Section 5.1 shall have been complied with in
all material respects without giving effect to the last sentence of
Section 5.1), and (B) the Buyer shall have received a certificate
signed on behalf of the Company by the chief executive officer and
the chief financial officer of the Company to such effect.
(iv) The Company and all other securityholders of the Company
each shall have executed and delivered the Securityholders Agreement.
(v) The Credit Agreement will be in full force and effect, will
not have been breached in any material respect by any of the parties
thereto, and all of the conditions precedent to the initial
borrowings thereunder (other than the receipt by the Company of the
proceeds of the issuance of stock pursuant to this
<PAGE>
42
Agreement) shall have been satisfied or waived. The Company shall
have delivered a certificate from its chief financial officer stating
that the conditions under this subsection (v) have been satisfied.
(vi) The Stock Purchase Agreement will be in full force and
effect, will not have been breached in any material respect by any of
the respective parties thereto, all conditions to the obligation of
the Company to purchase the stock (as defined in the Stock Purchase
Agreement) shall have been satisfied in full and all conditions to
the obligations of El Paso to sell the Stock shall have been
satisfied or waived.
(vii) The Buyer shall have received evidence satisfactory to the
Buyer that all obligations of the Company set forth in Section 5.03
of the Stock Purchase Agreement will be satisfied in full at or prior
to the Initial Closing.
(viii) The Employment Agreement will be in full force and
effect, will not have been breached in any material respect by any of
the parties thereto.
(ix) The Buyer shall have received a legal opinion from Weil,
Gotshal & Manges LLP dated the Initial Closing Date, substantially in
the form attached hereto as Exhibit D.
(b) The obligation of the Buyers to purchase Option Shares following
the Buyer's exercise of the Option is subject to the satisfaction at or
prior to the Subsequent Closing of such purchase of each of the following
additional conditions:
(i) No preliminary or permanent injunction or other order issued
by any federal or state court of competent jurisdiction in the United
States or by any United States federal or state governmental or
regulatory body nor any statute, rule, regulation or executive order
promulgated or enacted by any United States federal or state
governmental authority which restrains, enjoins or otherwise
prohibits the purchase of the Option Shares shall be in effect.
(ii) (A) The representations and warranties of the Company
contained in paragraphs 5.1(a), 5.1(b)(i), 5.1(d) and 5.1(e)(iv)
shall be true and correct in all material respects on and as of the
Subsequent Closing Date, with the same force and effect as though
made on and as of the Subsequent Closing Date, and (B) the Buyer
shall have received a certificate signed on behalf of the Company by
the chief executive officer
<PAGE>
43
and the chief financial officer of the Company to such effect.
(iii) (A) The Company shall have performed all obligations and
agreements, and complied with all covenants and conditions, contained
in this Agreement to be performed or complied with by it prior to or
on the Subsequent Closing Date, and (B) the Buyer shall have received
a certificate signed on behalf of the Company by the chief executive
officer and the chief financial officer of the Company to such
effect.
(iv) All consents, approvals, authorizations or permits of,
actions by, or filings with or notifications to, and all expirations
of waiting periods imposed by, any Governmental Authority which are
necessary for the consummation of the Option Purchase shall have been
fulfilled, occurred or obtained, as applicable, on terms reasonably
satisfactory to the Buyer and shall be in full force and effect.
7.2. Conditions Precedent to Obligations of the Company. The
obligation of the Company to consummate the transactions contemplated by this
Agreement is subject to the satisfaction at or prior to the Initial Closing of
each of the following additional conditions:
(a) No preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or by any Governmental Authority nor
any statute, rule, regulation or executive order promulgated or enacted by
any Governmental Authority which restrains, enjoins or otherwise prohibits
any of the Transactions shall be in effect.
(b) (A) The representations and warranties of the Buyer contained
herein shall be true and correct in all material respects on and as of the
Initial Closing Date, with the same force and effect as though made on and
as of the Initial Closing Date, except to the extent that any
representation or warranty is made as of a specified date, in which case
such representation or warranty will be true and correct in all material
respects as of such date, and (B) the Company shall have received a
certificate signed on behalf of the Buyer by the Managing General Partner
of the Buyer to such effect.
(c) (A) The Buyer shall have performed all obligations and
agreements, and complied with all covenants and conditions, contained in
this Agreement to be performed or complied with by it prior to or on the
Initial Closing Date, and (B) the Company shall have received a
certificate signed on behalf of the Buyer by the Managing General Partner
of the Buyer to such effect.
<PAGE>
44
(d) The Buyer shall have executed and delivered the Securityholders
Agreement.
(e) The Credit Agreement will be in full force and effect, will not
have been breached in any material respect by any of the parties thereto
other than the Company, and all of the conditions precedent to the initial
borrowings thereunder (other than the receipt by the Company of the
proceeds of the issuance of stock pursuant to this Agreement) shall have
been satisfied or waived.
(f) The Stock Purchase Agreement will be in full force and effect and
will not have been breached in any material respect by any of the
respective parties thereto.
ARTICLE VIII INDEMNIFICATION
8.1. Indemnification by the Company. Subject to the limitations set
forth in Sections 8.6(a) and (b), the Company hereby agrees to indemnify the
Buyer and its Affiliates, and each of their respective officers, directors,
employees and representatives (each a "Buyer Indemnified Party" and
collectively the "Buyer Indemnified Parties") against, and agrees to protect,
save and keep harmless the Buyer Indemnified Parties from payment, and hereby
assumes liability for the payment, of any and all liabilities (including
liabilities for Taxes), obligations, losses, damages, penalties, claims,
actions, suits, judgments or settlements of any nature or kind, whether known
or unknown, absolute or contingent, accrued or unaccrued, realized or
unrealized, direct or indirect, liquidated or unliquidated and including all
costs, expenses and disbursements (including reasonable cost of investigation
by, and reasonable attorneys', accountants' and expert witnesses' fees and
expenses payable to, third parties) (collectively, "Loss" or "Losses"),
arising out of, resulting from or in connection with (a) any breach by the
Company of a representation or warranty contained herein or in any certificate
delivered pursuant to Section 7.1 or (b) any failure by the Company to perform
any agreement or covenant contained herein.
8.2. Indemnification by the Buyer. Subject to the limitations set
forth in Sections 8.6(a) and (b), the Buyer hereby agrees to indemnify the
Company and its officers, directors, and employees, and their Affiliates and
representatives (each a "Company Indemnified Party" and collectively the
"Company Indemnified Parties") against, and agrees to protect, save and keep
harmless the Company Indemnified Parties from payment, and hereby assumes
liability for the payment, of any or all Losses or Loss arising out of or
resulting from (a) any breach by the Buyer of a representation or warranty
contained herein or in any certificate delivered pursuant to Section 7.2 or
(b) any failure by the Buyer to perform any agreement or covenant contained
herein.
<PAGE>
45
8.3. Procedure for General Claims. (a) General Claims by the Buyer.
The Buyer will give prompt written notice to the Company of any claim or event
other than a Third Party Claim (as defined in Section 8.4) with respect to
which the Buyer believe it is or may be entitled to indemnification pursuant
to Section 8.1 hereof (a "Notice of Claim"), provided that the failure to
provide a Notice of Claim shall not relieve the Company of its obligations
under this Section 8 except to the extent the Company is actually prejudiced
thereby. The Notice of Claim will state the nature and basis of such claim or
event, the amount thereof to the extent known and the basis of the Buyer's
belief that a Buyer Indemnified Party is or may be entitled to indemnification
with respect thereto. The Company shall be entitled, at its option, to satisfy
its indemnification obligations with respect to any claim under this Section
8.3(a) either (i) in cash, (ii) in shares of Common Stock or (iii) with an
Indemnification Note, provided that as long as any amounts remain outstanding
under the Credit Agreement, the Company shall satisfy its indemnity
obligations in Common Stock. If the Company elects to satisfy its obligations
in shares of Common Stock, the number of shares of Common Stock to be
delivered in satisfaction of such indemnification obligation shall be equal to
the dollar amount of the Loss or Losses divided by the Fair Market Value per
Share as of the date the Notice of Claim is delivered. For the purposes of
this Section 8.3(a), the "Fair Market Value per Share" shall be the Fair
Market Value (as such term is defined in the Securityholders Agreement) per
share of Common Stock. If the Company and such Buyer Indemnified Party are
unable to reach an agreement on a Fair Market Value per Share within 30 days
following the receipt by the Company of the Notice of Claim, the Company and
such Buyer Indemnified Party shall engage a nationally-recognized investment
banking firm familiar with the oil and gas industry in the Gulf Coast/U.S.
Gulf of Mexico and as mutually agreed by them to determine as expeditiously as
possible the aggregate fair market value of all outstanding shares of Common
Stock as if the entire Company were being sold in a private sale and such
aggregate market value for all outstanding shares of Common Stock divided by
the number of shares of Common Stock outstanding immediately prior to the
issuance of shares under this Section 8.3(a) shall be the Fair Market Value
per Share. The fees of such investment banking firm shall be paid by the
Company.
(b) General Claims by the Company. The Company will give prompt
written notice to the Buyer with respect to any claim or event with respect to
which the Company believes a Company Indemnified Party is or may be entitled
to indemnification pursuant to Section 8.2 hereof. The notice will state the
nature and basis of said claim or event, the amount thereof to the extent
known, and the basis of the Company's belief that a Company Indemnified Party
is or may be entitled to indemnification with respect thereto.
<PAGE>
46
8.4. Procedure for Third Party Claims.
(a) Claims by the Buyer and the Company. The Buyer, on behalf of
itself or any Buyer Indemnified Party, on the one hand, or the Company, on
behalf of itself or any Company Indemnified Party on the other hand (the
"Indemnified Party"), will give prompt written notice to the party from whom
indemnification is sought (the "Indemnifying Party") pursuant to Section 8.1
or Section 8.2 hereof of any and all Losses or Loss arising out of or
resulting from any claim, action, suit or proceeding brought by any third
party relating to litigation, administrative proceedings or similar actions
(collectively, "Third Party Claims") with respect to which such Indemnified
Party believes it is entitled to indemnification hereunder, together with an
estimate of the amount in dispute thereunder and a copy of any claim, process,
legal pleadings or correspondence with respect thereto received by the
Indemnified Party. In connection with any such Third Party Claim, the
Indemnifying Party may, at its election and expense, participate in the
defense of such Third Party Claim and no such Third Party Claim will be
settled without the consent of the Indemnifying Party, which will not be
unreasonably withheld. With respect to any Third Party Claim relating solely
to the payment of money damages and which will not result in the Indemnified
Party becoming subject to injunctive or other equitable relief, within 30 days
of receipt of notice of such Third Party Claim, the Indemnifying Party may, by
written notice to the Indemnified Party, assume the defense of such Third
Party Claim through counsel of its own choosing which is reasonably acceptable
to the Indemnified Party, which will not be unreasonably withheld, and with
all expenses thereof to be paid by the Indemnifying Party, in which event the
Indemnifying Party will control the defense of such Third Party Claim and the
Indemnified Party may participate in the defense thereof with all expenses
thereof to be paid by such Indemnified Party, provided that such Indemnified
Party will have the right to employ separate counsel to represent such
Indemnified Party if, in such Indemnified Party's reasonable judgment, a
conflict of interest between the Indemnifying Party and such Indemnified Party
exists with respect to such Third Party Claim in which event all reasonable
expenses of such separate counsel will be paid by the Indemnifying Party. If
the Indemnifying Party fails to assume the defense of such Third Party Claim
by delivering a written notice of the Indemnifying Party's intention to assume
such defense within 30 days of receipt of the initial notice thereof, or
thereafter abandons or fails to diligently pursue such defense, the
Indemnified Party may assume such defense. In the event the Indemnifying Party
exercises its right to undertake the defense against any such Third Party
Claim as provided above, the Indemnified Party will cooperate with the
Indemnifying Party in such defense and make available to the Indemnifying
Party all pertinent records, materials and information in its possession or
under its control relating thereto as is reasonably required by the
Indemnifying Party, with all expenses incurred in connection therewith to be
paid by the Indemnifying Party. Similarly, in
<PAGE>
47
the event the Indemnified Party is, directly or indirectly, conducting the
defense against any such Third Party Claim as provided above, the Indemnifying
Party will cooperate with the Indemnified Party in such defense and make
available to the Indemnified Party all such records, materials and information
in the Indemnifying Party's possession or under the Indemnifying Party's
control relating thereto as is reasonably required by the Indemnified Party,
with all expenses incurred in connection therewith to be paid by the
Indemnifying Party. Notwithstanding anything in this Section 8.4 to the
contrary, however, in the event of a claim with respect to which the
Indemnifying Party has agreed to assume the defense thereof, the Indemnifying
Party will not thereafter be entitled to dispute, and hereby agrees not to
dispute, the Indemnified Party's right to indemnification therefor pursuant to
Section 8.1 or Section 8.2 hereof or any subsequent claims of the Indemnified
Party with respect to such Third Party Claim.
(b) Settlement or Decision of Third Party Claims. The Indemnifying
Party will not, without the written consent of the Indemnified Party, (i)
settle or compromise any Third Party Claim or consent to the entry of any
judgment which does not include as an unconditional term thereof the delivery
by the claimant or plaintiff to the Indemnified Party of a written release
from all liability in respect of such Third Party Claim or (ii) settle or
compromise any Third Party Claim in any manner that may, in the reasonable
judgment of the Indemnified Party, adversely affect the Indemnified Party
(including without limitation any settlement or compromise that includes any
admission of negligence or other malfeasance on the part of the Indemnified
Party). Similarly, no Third Party Claim which is being defended in good faith
by the Indemnified Party in accordance with the terms of this Agreement will
be settled by the Indemnified Party without the written consent of the
Indemnifying Party, which consent will not be unreasonably withheld. Upon the
settlement or compromise of any Third Party Claim, the order of a court of
competent jurisdiction or arbitrator with respect thereto or the final,
non-appealable order of any appellate court with respect thereto, as the case
may be, any resulting settlement, award, damages or judgment will be paid (i)
in the case of any such Third Party Claim with respect to which the
Indemnifying Party is the Buyer, by the Buyer and (ii) in the case of any such
Third Party Claim with respect to which the Company is the Indemnifying Party,
by the Company.
8.5. Indemnification Matters. In cases where any Indemnified Party
has made a prior payment with respect to any liability that is the subject of
indemnification under Section 8.1 or 8.2 hereof, the Indemnifying Party will
also pay interest on such funds at a rate per annum equal to the published
prime rate of The Chase Manhattan Bank in effect from time to time during the
relevant period, such interest to be due from the date of such prior payment
to the date of payment of any such funds by the Indemnifying Party. The
parties agree that payments by an
<PAGE>
48
Indemnifying Party made under Section 8.1 or 8.2 hereof will be treated as an
adjustment to the Purchase Price for Tax purposes. The provisions of this
Article VII will not be deemed to be a limitation or waiver of any other
remedy afforded by law to the Buyer or the Company for indemnification under
Section 8.1 or 8.2 hereof.
8.6. General Provisions.
(a) Limitations on Indemnification. (i) Notwithstanding anything in
this Article VII to the contrary other than the next succeeding sentence, an
Indemnifying Party will be required to indemnify and hold harmless an
Indemnified Party under Section 8.1 or Section 8.2 hereof with respect to any
Loss or Losses incurred by any such Indemnified Party only to the extent that
the aggregate amount of all Losses of the applicable Indemnified Parties (that
is, either the Buyer Indemnified Parties or the Company Indemnified Parties,
as the case may be) exceeds $2,000,000 in the aggregate, in which event the
Indemnifying Party will only be liable for the excess of such Loss or Losses
over $2,000,000. The foregoing limitations will not be applicable to any
willful breach by any party of any representation, warranty, covenant or
agreement hereunder.
(ii) With respect to any claim by the Buyer Indemnified Parties,
Losses (a) will include any Loss or Losses incurred by the Buyer which arises
from or relates to the diminution in the value per share of Common Stock
caused by any breach by the Company of a representation or warranty contained
herein and (b) will fully take into account the diminution in value of the
Company Shares held by the Buyer Indemnified Parties in the aggregate
(determined by reference to the number of shares of Common Stock outstanding
on a fully diluted basis) resulting from the indemnification payment made by
the Company (whether made in cash, in stock or in the form of a note). As an
example of the operation of clause (b) of the preceding sentence, if the
Losses suffered by the Buyer Indemnified Parties prior to the operation of
clause (b) were $100,000 and the Buyer Indemnified Parties in the aggregate
owned 90% of the total issued and outstanding Common Stock at the time of
delivery of their Notice of Claim, the indemnification payment made by the
Company pursuant to this Article VII would be $1 million (or its equivalent in
stock if paid in stock pursuant to Section 8.3). Notwithstanding anything to
the contrary in this Section 8.6, for the purpose of determining whether a
Loss or Losses to a Buyer Indemnified Party resulting from a diminution in the
value per share of Common Stock exceeds $2,000,000, such Loss or Losses shall
be measured as the amount of such Loss or Losses without giving effect to
clause (b) of this Section 8.6(a)(ii). As an example of the operation of the
preceding sentence, total Losses to the Company of $1,800,000 would not be
indemnifiable by the Company to the Buyer Indemnified Parties despite the fact
that the operation of clause (b) of this Section 8.6(a)(ii) would
<PAGE>
49
otherwise have caused the indemnification payment to exceed $2,000,000.
(b) Termination of Indemnification. The obligations to indemnify and
hold harmless an Indemnified Party pursuant to Sections 8.1 and 8.2 will
terminate with respect to any theretofore unasserted claim when the applicable
representation or warranty terminates pursuant to Section 5.3; provided,
however, that such obligations to indemnify and hold harmless will not
terminate with respect to any item as to which the Person to be indemnified
will have, before the expiration of the applicable period, previously made a
claim by delivering a notice pursuant to Section 8.3 or Section 8.4 hereof to
the Indemnifying Party.
ARTICLE IX MISCELLANEOUS
9.1. Termination and Abandonment. (a) General. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned at any
time, but not later than the Initial Closing Date:
(i) by mutual consent of the parties hereto;
(ii) by the Buyer or the Company, if any court of competent
jurisdiction or any Governmental Authority will have issued an order,
decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the transactions contemplated hereby or with respect
to any of the other Transactions and such order, decree, ruling or other
action will have become final and nonappealable; or
(iii) if the Initial Closing will not have occurred by January 31,
1997, despite the reasonable efforts of the parties hereto to close.
(b) Procedure Upon Termination. In the event of the termination and
abandonment of this Agreement, written notice thereof will promptly be given
to the other parties hereto and this Agreement will terminate and the
transactions contemplated hereby will be abandoned without further action by
any of the parties hereto.
9.2. Fees and Expenses. If the transactions contemplated hereby are
consummated, the Company shall pay all fees and expenses incident to the
negotiation, preparation and execution of this Agreement and all other
Transaction Documents and consummation of transactions contemplated hereby,
including attorneys' fees and expenses and other reasonable out of pocket
expenses.
9.3. Transfer Taxes. The Company will be responsible for the payment
of any and all sales, use, transfer, recording or
<PAGE>
50
similar taxes required to be paid in connection with the consummation of the
transactions contemplated by this Agreement.
9.4. Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement will be
in writing and will be deemed to have been duly given (i) when delivered by
hand, (ii) two business days after being mailed, certified or registered mail,
return receipt requested, with postage prepaid, (iii) when sent by telegram or
telecopy (the receipt of which is confirmed) or (iv) one business day after
being sent by Express Mail, Federal Express or other courier service, as
follows:
(a) if to the Company, to it at:
1100 Louisiana, 15th Floor
Houston, TX 77002
Attention: Michael V. Ronca
Telecopy: (713) 757-8253
with a copy to:
Weil, Gotshal & Manges LLP
700 Louisiana, Suite 1600
Houston, TX 77002
Attention: James L. Rice III
Telecopy: 713-224-9511
(b) if to the Buyer, to it at:
475 Steamboat Road
Greenwich, Connecticut 06830
Attention: William E. Macaulay
Telecopy: 203-661-6729
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attention: Richard Capelouto
Telecopy: 212-455-2502
or to such other persons or addresses as any party will specify as to itself
by notice in writing to the other parties.
9.5. Binding Effect; Benefit. This Agreement will inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns. Nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or their
respective successors and permitted assigns, any rights, remedies, obligations
or liabilities under or by reason of this Agreement.
<PAGE>
51
9.6. Assignability. Without the prior written consent of the other
parties hereto no party to this Agreement may assign any of its or his rights
or obligations hereunder to any other person. Notwithstanding the foregoing,
the Buyer may assign any of its rights or obligations hereunder to any
Affiliate but no such assignment will release the Assignor of any obligations
hereunder. This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors in interest and assigns.
9.7. Amendment and Modification; Waiver. Subject to applicable law,
this Agreement may be amended, modified and supplemented by a written
instrument authorized and executed on behalf of the parties at any time prior
to the Initial Closing Date with respect to any of the terms contained herein.
No waiver by any party of any of the provisions hereof will be effective
unless explicitly set forth in writing and executed by the party so waiving.
Except as provided in the preceding sentence, no action taken pursuant to this
Agreement, including without limitation any investigation by or on behalf of
any party, will be deemed to constitute a waiver by the party taking such
action of compliance with any representations, warranties, covenants or
agreements contained herein, and in any documents delivered or to be delivered
pursuant to this Agreement and in connection with the Initial and the
Subsequent Closing hereunder. The waiver by any party hereto of a breach of
any provision of this Agreement will not operate or be construed as a waiver
of any other or subsequent breach.
9.8. Section Headings. The section headings contained in this
Agreement are inserted for reference purposes only and will not affect the
meaning or interpretation of this Agreement.
9.9. Arbitration. Any controversy, dispute or claim arising out of,
in connection with, or in relation to, the interpretation, performance or
breach of this Agreement, including without limitation the validity, scope and
enforceability of this Section 8.9, may at the election of any of the parties
hereto be solely and finally settled by arbitration conducted in accordance
with the then existing rules for commercial arbitration of the American
Arbitration Association, or any successor organization. Judgement upon any
award rendered by the arbitrator(s) may be entered by the State or Federal
Court having jurisdiction thereof. Any of the parties may demand arbitration
by written notice to the others and to the American Arbitration Association
("Demand for Arbitration"). Any Demand for Arbitration pursuant to this
Section 8.9 will be made within one year from the date that the dispute upon
which the demand is based arose. The parties intend that this agreement to
arbitrate be valid, enforceable and irrevocable.
9.10. Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed to be an
<PAGE>
52
original, and all of which together will be deemed to be one and the same
instrument.
9.11. GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
DOMAIN ENERGY CORPORATION
By: /s/ Michael V. Ronca
--------------------------------
Name: Michael V. Ronca
Title: President and Chief Executive
Officer
FIRST RESERVE FUND VII, LIMITED
PARTNERSHIP
By: FIRST RESERVE CORPORATION,
its managing general partner
By: /s/ Jonathan S. Linker
--------------------------------
Name: Jonathan S. Linker
Title: Managing Director
<PAGE>
Exhibit 4
---------
DOMAIN ENERGY CORPORATION
1100 Louisiana, Suite 1500
Michael V. Ronca P.O. Box 2511
President and CEO Houston, TX 77252-2511
Tel 713 757 5662
Fax 713 757 8253
June 6, 1997
First Reserve Fund VII, Limited Partnership
475 Steamboat Road
Greenwich, Connecticut 06830
Attention: William E. Macaulay
Re: Domain Energy Corporation
-------------------------
Gentlemen:
Reference is made to the Subscription Agreement between First Reserve
Fund VII, Limited Partnership ("Fund VII") and Domain Energy Corporation
("Domain") dated as of December 31, 1996 (the "Subscription Agreement"); the
U.S. $8,000,000 Subordinated Promissory Note from Domain Energy Guarantor
Corporation ("Domain Guarantor") made payable to your order dated December 31,
1996 (the "Note"); the Securityholders Agreement among Domain and its
securityholders dated December 31, 1996 (the "Securityholders Agreement"); and
the letter agreement between Domain and Fund VII dated April 9, 1997 (the
"Existing Letter Agreement"). Capitalized terms used and not otherwise defined
herein are used with the respective meanings ascribed thereto in the
Subscription Agreement, the Note, the Securityholders Agreement or the
Existing Letter Agreement.
1. The Michigan Transaction. As a result of the consummation of the
transactions (the "Michigan Transaction") contemplated by the Purchase and
Sale Agreement among Michigan Gas Fund I, Encap Ventures 1993 Limited
Partnership, Domain and Energy Acquisition Corporation and the repayment of
the Bank One Loan in connection therewith, the obligation of Domain Guarantor
to pledge the Collateral to the Bank has terminated. However, notwithstanding
Section 5(b) of the Note, Fund VII agrees that Domain Guarantor shall not be
required to liquidate the Collateral and repay the principal amount of the
Loan in the amount of the Collateral so liquidated until the first to occur of
(i) written notice from Domain to Fund VII and First Reserve Corporation
("First Reserve") that Domain has suspended the registration process for the
Subject Qualified Public Offering ("Suspension Notice") (which notice Domain
agrees to give promptly upon its decision to suspend the registration process
for such offering); and (ii) September 30, 1997. In consideration of the
foregoing, Domain agrees to cause Domain Guarantor not to pay any dividend or
otherwise
<PAGE>
2
advance, pay or distribute any funds to Domain representing the Collateral or
the proceeds of any liquidation of the Collateral until the Note is repaid or
the Option is exercised.
2. The Option. To facilitate the Subject Qualified Public Offering
process, Fund VII agrees to exercise the Option concurrently with the
consummation of the Subject Qualified Public Offering; provided, however,
notwithstanding Section 1.1(b) of the Subscription Agreement, the number of
Option Shares to be issued upon such exercise of the Option shall equal the
quotient of $8,681,000 divided by the initial price per share for which shares
of Domain's Common Stock are offered and sold to the public in the Subject
Qualified Public Offering (the "Public Offering Price"), rounded to the
nearest whole number. If Domain consummates the Subject Qualified Public
Offering, the Option will be deemed to have been exercised and the Option
Shares will be issued upon (i) delivery to Domain of the Buyer Subordinated
Note as otherwise provided in the Subscription Agreement and (ii) payment by
Fund VII of $500,000 in cash to Domain (the "Exercise Date"). If Domain
provides Funds VII with a Suspension Notice, or in the event that the Subject
Qualified Public Offering shall not have been consummated by September 30,
1997, Domain may within thirty (30) days thereof request Fund VII to exercise
the Option as otherwise provided in the Subscription Agreement, in which case
Fund VII will comply with such request; provided, in such event, upon such
exercise the Company will pay Fund VII interest in cash at the rate provided
in paragraph 3 below. At the election of Fund VII, Domain's obligation to pay
such cash interest upon exercise of the Option may be satisfied in whole or in
part by issuance of such number of shares at $3,151.4354 per share as will
equal the amount of the cash interest payment obligation satisfied thereby.
3. Interest. If the principal amount of the Loan is repaid or
discharged other than upon exercise of the Option concurrently with
consummation of the Subject Qualified Public Offering, such repayment shall
include interest accrued through the date that the Bank One Loan is repaid at
the rate provided in the Note, and interest accrued thereafter to the date of
repayment of the Loan at the weighted average interest rate during such period
applicable to outstanding borrowings under the Credit Agreement dated as of
December 31, 1996 among Domain and its Subsidiary Guarantors, the Lenders
party thereto and The Chase Manhattan Bank, as agent. If the principal amount
of the Loan is discharged upon exercise of the Option concurrently with
consummation of the Subject Qualified Public Offering, Domain shall pay to
Fund VII in cash on the Exercise Date an amount equal to interest accrued on
the Loan from June 16, 1997 to the Exercise Date at the rate provided in the
Note.
4. Transaction Fee. Domain hereby confirms its agreement to pay First
Reserve a fee of $500,000 for services rendered in connection with the Stock
Purchase Agreement and the consummation of the transactions contemplated
thereby (the "Transaction Fee"). The Transaction Fee will be payable as
follows: (i) if the Subject Qualified Public Offering is consummated on or
before September 30, 1997, the Transaction Fee shall be paid in cash on the
date on which the Subject Qualified Public Offering is consummated and (ii) if
(A) the Subject Qualified Public Offering shall not have been consummated by
September 30, 1997, or (B) if Domain shall at an earlier date provide First
Reserve with a Suspension Notice, payment of the Transaction Fee shall be made
in cash no later than October 31, 1997.
<PAGE>
3
5. Purchase for Investment. Fund VII acknowledges that the Option
Shares have not been and will not be registered or qualified under the
Securities Act of 1933, as amended, or any state securities law and may be
sold or otherwise disposed of in the absence of such registration only
pursuant to an exemption from such registration and any other applicable
securities laws. Fund VII is acquiring the Option Shares solely for its own
account and for the purpose of investment and not with a view to or for sale
in connection with any disposition thereof and there is no present intention
or plan to effect any resale, assignment or distribution of any of the Option
Shares. Domain confirms that the Option Shares will be Registrable Securities
for all purposes of the Securityholders Agreement.
6. Piggyback Registration Rights. Fund VII hereby acknowledges that,
as required by Section 6.2 of the Securityholders Agreement, it received
notice of Domain's intention to register Common Stock under the Securities Act
pursuant to the Subject Qualified Public Offering. Fund VII hereby
acknowledges that it has waived its right to request that Domain register any
of Fund VII's Registrable Securities pursuant to the Subject Qualified Public
Offering.
7. Existing Letter Agreement. To the extent inconsistent herewith,
the terms of the Existing Letter Agreement are superseded by the terms of this
letter agreement. Without limiting the foregoing, paragraph 5 of the Existing
Letter Agreement shall have no force or effect.
<PAGE>
4
If the foregoing accurately sets forth our understanding with respect
to the matters covered above, please so indicate by executing each copy hereof
and returning one fully executed copy to the undersigned.
DOMAIN ENERGY CORPORATION
By: /s/ Michael V. Ronca
---------------------------
Michael V. Ronca
President & CEO
Agreed to and accepted
this 6th day of June 1997
FIRST RESERVE FUND VII,
LIMITED PARTNERSHIP
by First Reserve Corporation,
Managing General Partner
By: /s/ Jonathan S. Linker
----------------------------
Jonathan S. Linker
Managing Director
FIRST RESERVE CORPORATION
By: /s/ Jonathan S. Linker
----------------------------
Jonathan S. Linker
Managing Director
