UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (Date of earliest event reported): JUNE 30, 1998
THE MERIDIAN RESOURCE CORPORATION
(Exact name of registrant as specified in charter)
001-10671
(Commission File No.)
TEXAS 76-0319553
(State of Incorporation) (I.R.S. Employer
Identification No.)
15995 N. BARKERS LANDING, SUITE 300
HOUSTON, TEXAS 77079
(Address of Principal Executive (Zip Code)
Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 558-8080
================================================================================
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On June 30, 1998, The Meridian Resource Corporation, a Texas corporation
(the "Company"), effected the acquisition of Louisiana Onshore Properties
Inc., a Delaware corporation ("LOPI"), an indirect subsidiary of Shell Oil
Company ("Shell"), through a merger (the "Merger") of a wholly owned
subsidiary of the Company with and into LOPI (the "LOPI Transaction"). The
Merger was effected pursuant to an Agreement and Plan of Merger dated as of
March 27, 1998 (the "Merger Agreement"), by and among the Company, LOPI
Acquisition Corp., a wholly owned Delaware subsidiary of the Company ("TMR
Sub"), Shell Louisiana Onshore Properties Inc., a Delaware corporation
("SLOPI"), and LOPI, a wholly-owned subsidiary of SLOPI. The Company issued
12,082,030 shares of its common stock, $.01 par value (the "Common Stock") and
shares of a new issue of convertible preferred stock of the Company (the
"Preferred Stock") that is convertible into 12,837,428 shares of Common Stock
as consideration in the Merger. The consideration exchanged in the Merger was
based on arms-length negotiations between the parties.
On June 30, 1998, in a transaction separate from the LOPI Transaction, the
Company acquired from Shell Western E&P Inc., an indirect subsidiary of Shell
("SWEPI"), various other oil and gas property interests for a total of $42.5
million in cash, subject to adjustment for production, expenses and other items
since October 1, 1997 (the "SWEPI Acquisition" and with the LOPI Transaction,
the "Shell Transactions"). The SWEPI Acquisition was funded pursuant to
advances under the Company's existing credit facility. The purchase price for
the properties acquired in the SWEPI Acquisition was determined through
arms-length negotiations between the parties.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES FOR THE
PROPERTIES ACQUIRED IN THE LOPI TRANSACTION:
Report of Independent Accountants........................ F-1
Statement of Revenues and Direct Operating Expenses for the
years ended December 31, 1997, 1996 and 1995 and the three
months ended March 31, 1998 and 1997...................... F-2
Notes to Statement of Revenues and Direct Operating
Expenses................................................. F-3
Page 2
<PAGE>
STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES FOR THE
PROPERTIES ACQUIRED IN THE SWEPI ACQUISITION:
Report of Independent Accountants........................ F-7
Statement of Revenues and Direct Operating Expenses for the
years ended December 31, 1997, 1996 and 1995 and the three
months ended March 31, 1998 and 1997...................... F-8
Notes to Statement of Revenues and Direct Operating
Expenses................................................. F-9
(b) PRO FORMA FINANCIAL INFORMATION.
Unaudited pro forma combined financial statements of The Meridian Resource
Corporation for the periods specified in Article 11 of Regulation S-X are
attached hereto on pages P-1 through P-8.
Page 3
<PAGE>
(c) EXHIBITS.
<TABLE>
<CAPTION>
<S> <C>
2.1 -- Agreement and Plan of Merger dated as of March 27, 1998, by and among The Meridian
Resource Corporation, LOPI Acquisition Corp., Shell Louisiana Onshore Properties Inc. and
Louisiana Onshore Properties Inc. Incorporated by reference from the Company's Annual
Report on Form 10-K for the year ended December 31, 1997. (Pursuant to S-K Item 601(b)(2),
the Company has not included in the filing Exhibit D (LOPI financial statements), Exhibit
1 (preliminary TMR financial statements) or Schedule I or II (which relate to the
representations and warranties of the parties). The Company agrees to furnish
supplementally any omitted schedule to the Commission upon request.
2.2 -- Purchase and Sale Agreement dated effective October 1, 1997, by and between The Meridian
Resource Corporation and Shell Western E&P Inc. (Pursuant to S-K Item 601(b)(2), the
Company has not included in the filing Exhibits which relate to the representations and
warranties of the parties and certain ancillary documents to the agreement). The Company
agrees to furnish supplementally any omitted schedule to the Commission upon request.
3.1 -- Certificate of Designation for Preferred Stock dated June 30, 1998.
4.1 -- Stock Rights and Restrictions Agreement dated as of June 30, 1998 by and between The
Meridian Resource Corporation and Shell Louisiana Onshore Properties Inc.
4.2 -- Registration Rights Agreement dated June 30, 1998 by and between The Meridian Resource
Corporation and Shell Louisiana Onshore Properties Inc.
10.1 -- Amended and Restated Credit Agreement dated May 22, 1998, among the Company, the several
banks and financial institutions and other entities from time to time parties thereto (the
"Lenders"), The Chase Manhattan Bank, as administrative agent for the Lenders, Bankers
Trust Company, as syndication agent, Chase Securities Inc., as advisor to the Company,
Chase Securities Inc., B. T. Alex. Brown Incorporated, Toronto Dominion (Texas), Inc. and
Credit Lyonnais New York Branch as co-arrangers, and Toronto Dominion (Texas), Inc. and
Credit Lyonnais New York Branch, as co-documentation agents.
10.2 -- Second Amended and Restated Guarantee dated June 30, 1998, between the Guarantors
signatory thereto and The Chase Manhattan Bank, as Administrative Agent for the Lenders.
10.3 -- Amended and Restated Pledge Agreement, dated May 22, 1998, between the Company and The
Chase Manhattan Bank, as Administrative Agent
10.4 First Amendment to Amended and Restated Pledge Agreement dated June 30, 1998
23.1 -- Consent of PricewaterhouseCoopers LLP
99.1 -- Press Release
</TABLE>
Page 4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE MERIDIAN RESOURCE CORPORATION
Dated: July 9, 1998
/s/ LLOYD V. DELANO
Lloyd V. DeLano
Vice President
Page 5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Louisiana Onshore Properties Inc.
We have audited the accompanying Historical Statement of Revenues and Direct
Operating Expenses of the oil and gas properties (the "Acquisition
Properties") of Louisiana Onshore Properties Inc. for the years ended December
31, 1997, 1996 and 1995. This historical statement is the responsibility of
Louisiana Onshore Properties Inc. Our responsibility is to express an opinion on
this historical statement based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the historical statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
amounts and disclosures in the historical statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the historical
statement. We believe that our audits provide a reasonable basis for our
opinion.
The accompanying statement was prepared as described in Note 1 for the purpose
of complying with certain rules and regulations of the Securities and Exchange
Commission (SEC) for inclusion in certain SEC regulatory reports and filings of
The Meridian Resource Corporation and are not intended to be a complete
presentation of the revenues and direct operating expenses of the Acquisition
Properties.
In our opinion, the historical statement referred to in the first paragraph of
this report presents fairly, in all material respects, the revenues and direct
operating expenses of the Acquisition Properties described in Note 1 for the
years ended December 31, 1997, 1996 and 1995, in conformity with generally
accepted accounting principles.
PRICE WATERHOUSE LLP
Houston, Texas
May 12, 1998
F-1
<PAGE>
THE LOPI PROPERTIES
HISTORICAL STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED FOR THE YEAR ENDED
MARCH 31, DECEMBER 31,
-------------------- -------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and condensate.............. $ 7,676 $ 14,238 $ 47,670 $ 63,953 $ 53,580
Gas............................. 6,659 9,597 37,664 28,964 38,621
--------- --------- --------- --------- ---------
Total...................... 14,335 23,835 85,334 92,917 92,201
Direct operating expenses............ 4,638 5,884 23,309 28,724 22,219
--------- --------- --------- --------- ---------
Revenues in excess of direct
operating expenses................. $ 9,697 $ 17,951 $ 62,025 $ 64,193 $ 69,982
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-2
<PAGE>
THE LOPI PROPERTIES
NOTES TO HISTORICAL STATEMENT OF REVENUES AND
DIRECT OPERATING EXPENSES
1. BASIS OF PRESENTATION
In October 1997, Louisiana Onshore Properties Inc. ("LOPI") was formed
and interests in certain oil and gas properties owned by one or more
consolidated subsidiaries of Shell Oil Company were conveyed to LOPI (the "LOPI
Properties"). In December 1997, LOPI signed a Letter of Intent to enter into a
merger agreement with The Meridian Resources Corporation ("TMRC") whereby, if
the transaction closes, LOPI, inclusive of the LOPI Properties, will be acquired
by TMRC in exchange for stock of TMRC. As used herein, "Shell" shall refer to
Shell Oil Company or one or more of its consolidated subsidiaries or a
combination of Shell Oil Company and one or more of its consolidated
subsidiaries, as the context requires.
No segregated accounting records for LOPI existed prior to its formation
and, due to its fully consolidated status with Shell and its pending sale, no
attempt has been made to prepare a balance sheet and income statement for LOPI
as a stand alone entity.
The revenues and direct operating expenses associated with the LOPI
Properties can be derived from the Shell accounting records. Revenues and direct
operating expenses, as set forth in this financial statement, include oil and
gas revenues and associated direct operating expenses related to the net revenue
interest and net working interest, respectively, in the LOPI Properties. Each
owner recognizes revenue and expenses based on its proportionate share of the
related production and costs. The statement includes oil and gas revenues, net
of royalties. Expenses include labor, repairs and maintenance, fuel consumed and
supplies utilized to operate and maintain the wells and related equipment and
facilities, production taxes and ad valorem taxes.
This statement varies from an income statement in that it does not show
certain expenses which were incurred in connection with ownership of the LOPI
Properties -- including general and administrative expenses and income taxes.
These costs were not separately allocated to the LOPI Properties in the Shell
accounting records and any pro forma allocation would be both time consuming and
expensive and would not be a reliable estimate of what these costs would
actually have been had LOPI been operated historically as a stand alone entity.
In addition, these allocations, if made using historical Shell general and
administrative structures and tax burdens, would not produce allocations that
would be indicative of the historical performance of the LOPI Properties had
they been assets of TMRC, due to the greatly varying size, structure, operations
and accounting of the two companies. This statement also does not include
provisions for depreciation, depletion and amortization as such amounts would
not be indiciative of those costs which would be incurred by TMRC upon
allocation of the purchase price.
For the same reason, primarily the lack of segregated or easily obtainable
reliable data on asset values and related liabilities, a balance sheet is not
presented for LOPI.
Pursuant to the terms of the Agreement and Plan of Merger by and among The
Meridian Resource Corporation, LOPI Acqusition Corporation, Shell Louisiana
Onshore Properties Inc. and Louisiana Onshore Properties Inc. dated March 27,
1998, as amended, Shell has agreed to assume all identified and scheduled
existing liabilities related to LOPI.
At the end of the economic life of these fields, certain restoration and
abandonment costs will be incurred by the respective owners of these fields. No
accrual for these costs is included in the direct operating expenses.
The interim financial data for the three months ended March 31, 1998 and
March 31, 1997 is unaudited; however, in the opinion of LOPI, the interim data
includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the results for the interim periods.
F-3
<PAGE>
THE LOPI PROPERTIES
NOTES TO HISTORICAL STATEMENT OF REVENUES AND
DIRECT OPERATING EXPENSES -- (CONTINUED)
2. GAS BALANCING
With respect to gas sales, the entitlement method is used for recording
revenues. Under this approach, revenues are based on the LOPI Properties'
proportionate share of the related production. When sales volumes of the LOPI
Properties exceed the LOPI Properties' entitled share of production, an
over-produced imbalance occurs and a liability is recorded. At December 31,
1997, the LOPI Properties were in a net overproduced position of 390,300 mcf
which is valued at $1,031,559.
3. RELATED PARTY TRANSACTIONS
Affiliates of Shell acquired substantially all of the crude oil and natural
gas production from the LOPI Properties for each of the years in the three year
period ended December 31, 1997. Such sales, which include the net revenue
interest of the LOPI Properties as well as associated royalties, amounted to
$92,587,354, $100,188,481 and $101,744,473 for the years ended December 31,
1997, 1996 and 1995, respectively.
SUPPLEMENTARY OIL AND GAS INFORMATION (UNAUDITED)
PROVED RESERVE ESTIMATES
Oil and gas proved reserves cannot be measured exactly. Reserve estimates
are based on many factors related to reservoir performance which require
evaluations by the engineers interpreting the available data, as well as price
and other economic factors. The reliability of these estimates at any point in
time depends on both the quality and quantity of the technical and economic
data, the production performance of the reservoirs, as well as extensive
engineering judgment. Consequently, reserve estimates are subject to revision as
additional data becomes available during the producing life of a reservoir. When
a commercial reservoir is discovered, proved reserves are initially determined
based on limited data from the first well or wells. Subsequent data may better
define the extent of the reservoir and additional production performance, well
tests and engineering studies will likely improve the reliability of the reserve
estimate. The evolution of technology may also result in the application of
improved recovery techniques such as supplemental or enhanced recovery projects,
or both, which have the potential to increase reserves beyond those envisioned
during the early years of a resevoir's producing life. Revisions to reserves are
based on engineering analysis of individual reservoirs at the field level.
Proved reserves are those quantities which, upon analysis of geological and
engineering data, appear with reasonable certainty to be recoverable in the
future from known oil and gas reservoirs under current prices and costs as of
the date the estimate is made. For major revisions, extensions and discoveries,
proved reserves must also be recoverable under future prices and costs
forecasted by Shell. Proved developed reserves are those reserves which can be
expected to be recovered through existing wells with existing equipment and
operating methods. Proved undeveloped reserves are those reserves which are
expected to be recovered from new wells on undrilled acreage or from existing
wells where a relatively major expenditure is required. Net proved reserves
represent the estimated recoverable volumes after deducting from gross reserves
the portion due land owners or others as royalty or operating interests.
Estimates of proved reserves include and rely upon a production and
development plan and strategy. Shell premises certain expenditures will be made
to produce incremental barrels in the last years of mature fields such as the
LOPI Properties. This represents Shell's philosophy to generally produce all
incremental reserves which can be produced profitabily. If such expenditures are
not made, such volumes will not be produced. Thus, these reserve estimates are
valid only if Shell's operating plan is followed and planned expenditures are
made. In any case, many factors such as unanticipated technical problems or
changes in prices or costs or errors in sound technical judgment made on the
best information available may cause actual production to vary significantly
from estimated reserves.
Net proved reserves represent the estimated recoverable volumes after
deducting from gross proved reserves the portion due land owners or others as
royalty or operating interests.
F-4
<PAGE>
THE LOPI PROPERTIES
NOTES TO HISTORICAL STATEMENT OF REVENUES AND
DIRECT OPERATING EXPENSES -- (CONTINUED)
Estimated quantities of net proved oil and natural gas reserves and of
changes in net quantities of proved developed and undeveloped reserves for each
of the period indicated were as follows:
OIL GAS
(MBBLS) (MMCF)
-------- -------
Proved reserves at December 31,
1994............................... 17,496 52,298
Production...................... (3,218) (23,479)
Revision of previous
estimates..................... 2,065 16,069
Purchases of reserves........... 0 0
Extensions, discoveries and
improved recovery............. 274 11,210
-------- -------
Proved reserves at December 31,
1995............................... 16,617 56,098
Production...................... (2,987) (10,993)
Revision of previous
estimates..................... 2,210 (1,035)
Purchases of reserves........... 434 34,388
Extensions, discoveries and
improved recovery............. 1,043 25,414
-------- -------
Proved reserves at December 31,
1996............................... 17,317 103,872
Production...................... (2,443) (14,032)
Revision of previous
estimates..................... (3,694) (12,875)
Purchases of reserves........... 343 63
Extensions, discoveries and
improved recovery............. 788 4,438
-------- -------
Proved reserves at December 31,
1997............................... 12,311 81,466
Proved developed reserves at:
December 31, 1995............... 14,616 52,586
December 31, 1996............... 15,166 98,864
December 31, 1997............... 10,816 76,776
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL
AND GAS RESERVES
The following disclosures concerning the standardized measure of future
cash flows from proved oil and gas reserves are presented in accordance with the
Statement of Financial Accounting Standards No. 69. As prescribed by this
statement, the amounts shown are based on prices and costs at the end of each
period and a 10 percent annual discount factor. Since prices and costs do not
remain static, and no price or cost changes have been considered, the results
are not necessarily indicative of the fair market value of estimated proved
reserves, but they do provide a common benchmark which may enhance the users'
ability to project future cash flows.
Extensive judgments are involved in estimating the timing of production and
the costs that will be incurred throughout the remaining lives of these fields.
Therefore, the results may not be comparable to estimates disclosed by other oil
and gas producers.
F-5
<PAGE>
THE LOPI PROPERTIES
NOTES TO HISTORICAL STATEMENT OF REVENUES AND
DIRECT OPERATING EXPENSES -- (CONTINUED)
The standardized measure of discounted future net cash flows related to
proved oil and gas reserves at December 31 (in thousands) was as follows:
1997 1996 1995
---------- ---------- ----------
Future cash flows.................... $ 415,124 $ 822,690 $ 374,947
Future production and development
costs.............................. 180,980 204,916 175,064
---------- ---------- ----------
Future net cash inflows.............. 234,144 617,774 199,883
10% annual discount for estimated
timing of cash flows............... 67,806 180,756 58,778
---------- ---------- ----------
Standardized Measure (before income
taxes) of discounted future net
cash flows......................... $ 166,338 $ 437,018 $ 141,105
========== ========== ==========
The Standardized Measure of discounted future net cash flows is based on
the following oil and gas prices at December 31:
1997 1996 1995
--------- --------- ---------
Oil (per Bbl.)....................... $ 16.34 $ 24.25 $ 18.12
Gas (per Mcf)........................ $ 2.53 $ 3.92 $ 1.85
Crude oil and natural gas price realizations for the LOPI Properties at
March 31, 1998 were $13.34 per Bbl and $2.26 per Mcf, respectively.
The aggregate change in the Standardized Measure of discounted future net
cash flows was a decrease of $270,680,000 in 1997, an increase of $295,913,000
in 1996 and an increase of $49,160,000 in 1995. The principal sources of change
for the years ended December 31 were as follows (in thousands):
1997 1996 1995
---------- ---------- ----------
Sales and transfers of oil and gas
produced, net of production
costs.............................. (62,025) (64,193) (69,982)
Net change in prices and costs....... (195,318) 127,302 56,966
Extensions, discoveries and improved
recovery........................... 11,222 69,544 16,064
Purchases of reserves in place....... 2,282 81,923 0
Development costs incurred during the
period............................. 13,602 24,191 19,651
Revisions of previous reserve
estimates.......................... (41,377) 44,476 31,691
Accretion of discount................ 43,702 14,111 9,195
F-6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Shell Western E&P Inc.
We have audited the accompanying Historical Statement of Revenues and Direct
Operating Expenses of the oil and gas properties (the "Acquisition
Properties") of Shell Western E&P Inc. for the years ended December 31, 1997,
1996 and 1995. This historical statement is the responsibility of Shell Western
E&P Inc. Our responsibility is to express an opinion on this historical
statement based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the historical statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
amounts and disclosures in the historical statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the historical
statement. We believe that our audits provide a reasonable basis for our
opinion.
The accompanying statement was prepared as described in Note 1 for the purpose
of complying with certain rules and regulations of the Securities and Exchange
Commission (SEC) for inclusion in certain SEC regulatory reports and filings of
The Meridian Resource Corporation and are not intended to be a complete
presentation of the revenues and direct operating expenses of the Acquisition
Properties.
In our opinion, the historical statement referred to in the first paragraph of
this report presents fairly, in all material respects, the revenues and direct
operating expenses of the Acquisition Properties described in Note 1 for the
years ended December 31, 1997, 1996 and 1995, in conformity with generally
accepted accounting principles.
PRICE WATERHOUSE LLP
Houston, Texas
May 12, 1998
F-7
<PAGE>
THE SWEPI PROPERTIES
HISTORICAL STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED FOR THE YEAR ENDED
MARCH 31, DECEMBER 31,
-------------------- -------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and condensate.............. $ 112 $ 457 $ 3,573 $ 4,614 $ 3,569
Gas............................. 2,692 4,262 12,121 14,026 10,624
--------- --------- --------- --------- ---------
Total...................... 2,804 4,719 15,694 18,640 14,193
Direct operating expenses............ 291 391 1,979 4,456 3,364
--------- --------- --------- --------- ---------
Revenues in excess of direct
operating expenses................. $ 2,513 $ 4,328 $ 13,715 $ 14,184 $ 10,829
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-8
<PAGE>
THE SWEPI PROPERTIES
NOTES TO HISTORICAL STATEMENT OF REVENUES AND
DIRECT OPERATING EXPENSES
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. BASIS OF PRESENTATION
In December 1997, Shell Western E&P, Inc. (the "Company") signed a letter
of intent to sell the Company's interest in Gibson-Humphreys and Turtle Bayou
(the "SWEPI Properties") to The Meridian Resources Corporation ("TMRC") for
$42.5 million.
No segregated accounting records for the SWEPI Properties exist as the
SWEPI Properties are fully consolidated with Shell Oil Company and no attempt
has been made to prepare a balance sheet and income statement for the SWEPI
Properties similar to a stand alone entity. As used herein, "Shell" shall
refer to Shell Oil Company or one or more of its consolidated subsidiaries or a
combination of Shell Oil Company and one or more of its consolidated
subsidiaries, as the context requires.
The revenues and direct operating expenses associated with the SWEPI
Properties can be derived from the Shell accounting records. Revenues and direct
operating expenses, as set forth in this financial statement, include oil and
gas revenues and associated direct operating expenses related to the net revenue
interest and net working interest, respectively, in the SWEPI Properties. Each
owner recognizes revenue and expenses based on its proportionate share of the
related production and costs. The statement includes oil and gas revenues, net
of royalties. Expenses include labor, repairs and maintenance, fuel consumed and
supplies utilized to operate and maintain the wells and related equipment and
facilities, production taxes and ad valorem taxes.
This statement varies from an income statement in that it does not show
certain expenses which are incurred in connection with ownership of the SWEPI
Properties -- most notably general and administrative expenses and income taxes.
These costs were not separately allocated to the SWEPI Properties in the Shell
accounting records and any pro forma allocation would be both time consuming and
expensive and would not be a reliable estimate of what these costs would
actually have been had the SWEPI Properties been operated historically as a
stand alone entity. In addition, these allocations, if made using historical
Shell general and administrative structures and tax burdens, would not produce
allocations that would be indicative of the historical performance of the SWEPI
Properties had they been assets of TMRC, due to the greatly varying size,
structure, operations and accounting of the two companies. This statement also
does not include provisions for depreciation, depletion and amortization as such
amounts would not be indicative of those costs which would be incurred by TMRC
upon allocation of the purchase price.
For the same reason, primarily the lack of segregated or easily obtainable
reliable data on asset values and related liabilities, a balance sheet is not
presented for the SWEPI Properties.
At the end of the economic life of these fields, certain restoration and
abandonment costs will be incurred by the respective owners of these fields. No
accrual for these costs is included in the direct operating expenses.
The interim financial data for the three months ended March 31, 1998 and
March 31, 1997 is unaudited; however, in the opinion of the Company, the interim
data includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the results for the interim periods.
2. GAS BALANCING
With respect to gas sales, the entitlement method is used for recording
revenues. Under this approach, revenues are based on the SWEPI Properties'
proportionate share of the related production. When sales volumes of the SWEPI
Properties exceed the Company's entitled share of production, an over-produced
F-9
<PAGE>
THE SWEPI PROPERTIES
NOTES TO HISTORICAL STATEMENT OF REVENUES AND
DIRECT OPERATING EXPENSES -- (CONTINUED)
imbalance occurs and a liability is recorded. At December 31, 1997, the SWEPI
Properties were in a net overproduced position of 695,526 mcf which is valued at
$1,739,837.
3. RELATED PARTY TRANSACTIONS
Affiliates of Shell acquired substantially all of the crude oil and natural
gas production from the SWEPI Properties for each of the years in the three year
period ended December 31, 1997. Such sales, which include the net revenue
interest of the SWEPI Properties as well as associated royalties, amounted to
$12,660,277, $18,752,521 and $12,927,216 for the years ended December 31, 1997,
1996 and 1995, respectively.
SUPPLEMENTARY OIL AND GAS INFORMATION (UNAUDITED)
PROVED RESERVE ESTIMATES
Oil and gas proved reserves cannot be measured exactly. Reserve estimates
are based on many factors related to reservoir performance which require
evaluations by the engineers interpreting the available data, as well as price
and other economic factors. The reliability of these estimates at any point in
time depends on both the quality and quantity of the technical and economic
data, the production performance of the reservoirs, as well as extensive
engineering judgment. Consequently, reserve estimates are subject to revision as
additional data becomes available during the producing life of a reservoir. When
a commercial reservoir is discovered, proved reserves are initially determined
based on limited data from the first well or wells. Subsequent data may better
define the extent of the reservoir and additional production performance, well
tests and engineering studies will likely improve the reliability of the reserve
estimate. The evolution of technology may also result in the application of
improved recovery techniques such as supplemental or enhanced recovery projects,
or both, which have the potential to increase reserves beyond those envisioned
during the early years of a reservoir's producing life. Revisions to reserves
are based on engineering analysis of individual reservoirs at the field level.
Proved reserves are those quantities which, upon analysis of geological and
engineering data, appear with reasonable certainty to be recoverable in the
future from known oil and gas reservoirs under current prices and costs as of
the date the estimate is made. For major revisions, extensions and discoveries,
proved reserves must also be recoverable under future prices and costs
forecasted by Shell. Proved developed reserves are those reserves which can be
expected to be recovered through existing wells with existing equipment and
operating methods. Proved undeveloped reserves are those reserves which are
expected to be recovered from new wells on undrilled acreage or from existing
wells where a relatively major expenditure is required. Net proved reserves
represent the estimated recoverable volumes after deducting from gross proved
reserves the portion due land owners or others as royalty or operating
interests.
Estimates of proved reserves include and rely upon a production and
development plan and strategy. Shell premises certain expenditures will be made
to produce incremental barrels in the last years of mature fields such as the
SWEPI Properties. This represents Shell's philosophy to generally produce all
incremental reserves which can be produced profitably. If such expenditures are
not made, such volumes will not be produced. Thus, these reserve estimates are
valid only if Shell's operating plan is followed and planned expenditures are
made. In any case, many factors such as unanticipated technical problems or
changes in prices or costs or errors in sound technical judgement made on the
best information available may cause actual production to vary significantly
from estimated reserves.
F-10
<PAGE>
THE SWEPI PROPERTIES
NOTES TO HISTORICAL STATEMENT OF REVENUES AND
DIRECT OPERATING EXPENSES -- (CONTINUED)
Estimated quantities of net proved oil and natural gas reserves and of
changes in net quantities of proved developed and undeveloped reserves for each
of the periods indicated were as follows:
OIL GAS
(MBBLS) (MMCF)
------- ---------
Proved reserves at December 31,
1994............................... 953 69,684
Production...................... (101) (7,633)
Revision of previous
estimates..................... 101 1,856
Extensions, discoveries and
improved recovery............. 0 0
------- ---------
Proved reserves at December 31,
1995............................... 953 63,907
Production...................... (111) (6,677)
Revision of previous
estimates..................... (15) (2,490)
Extensions, discoveries and
improved recovery............. 33 2,803
------- ---------
Proved reserves at December 31,
1996............................... 860 57,543
Production...................... (69) (4,620)
Revision of previous
estimates..................... 38 (31,665)
Extensions, discoveries and
improved recovery............. 0 1,777
------- ---------
Proved reserves at December 31,
1997............................... 829 23,035
Proved developed reserves at:
December 31, 1995............... 953 63,907
December 31, 1996............... 860 57,542
December 31, 1997............... 829 23,035
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED
OIL AND GAS RESERVES
The following disclosures concerning the standardized measure of future
cash flows from proved oil and gas reserves are presented in accordance with the
Statement of Financial Accounting Standards No. 69. As prescribed by this
statement, the amounts shown are based on prices and costs at the end of each
period and a 10 percent annual discount factor. Since prices and costs do not
remain static, and no price or cost changes have been considered, the results
are not necessarily indicative of the fair market value of estimated proved
reserves, but they do provide a common benchmark which may enhance the users'
ability to project future cash flows.
Extensive judgments are involved in estimating the timing of production and
the costs that will be incurred throughout the remaining lives of these fields.
Therefore, the results may not be comparable to estimates disclosed by other oil
and gas producers.
1997 1996 1995
--------- ---------- ----------
Future cash inflows.................. $ 73,736 $ 238,447 $ 136,939
Future production and development
costs.............................. 18,069 30,223 28,648
--------- ---------- ----------
Future net cash inflows.............. 55,667 208,224 108,291
10% annual discount for estimated
timing of cash flows............... 15,223 82,280 36,592
--------- ---------- ----------
Standardized measure (before income
taxes) of discounted future net
cash flows......................... $ 40,444 $ 125,944 $ 71,699
========= ========== ==========
F-11
<PAGE>
THE SWEPI PROPERTIES
NOTES TO HISTORICAL STATEMENT OF REVENUES AND
DIRECT OPERATING EXPENSES -- (CONTINUED)
The Standardized Measure of discounted future net cash flows is based on
the following oil and gas prices at December 31:
1997 1996 1995
--------- --------- ---------
Oil (per Bbl)........................ $ 16.61 $ 23.65 $ 18.27
Gas (per Mcf)........................ $ 2.62 $ 4.05 $ 1.85
Crude oil and natural gas price realizations for the SWEPI Properties at
March 31, 1998 were $12.59 per Bbl and $2.31 per Mcf, respectively.
The aggregate change in the Standardized Measure of discounted future net
cash flows was a decrease of $85,500,000 in 1997, an increase of $52,245,000 in
1996 and an increase of $10,561,000 in 1995. The principal sources of change for
the years ended December 31 were as follows (in thousands):
1997 1996 1995
---------- ---------- ----------
Sales and transfers of oil and gas
produced, net of production
costs.............................. (13,715) (14,184) (10,829)
Net change in prices and costs....... (52,021) 80,031 454
Extensions, discoveries and improved
recovery........................... 2,294 7,041 0
Purchases of reserves in place....... 0 0 0
Development costs incurred during the
period............................. 3,584 5,510 11,094
Revisions of previous reserve
estimates.......................... (41,245) (15,588) 4,337
Accretion of discount................ 12,594 7,170 6,414
F-12
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The LOPI Transaction was consummated on June 30, 1998. The SWEPI
Acquisition was consummated immediately after the consummation of the LOPI
Transaction. The Unaudited Pro Forma Statements of Operations for the year ended
December 31, 1997 and the three months ended March 31, 1998 give effect to the
LOPI Transaction and the SWEPI Acquisition as if each had occurred on January 1,
1997 and January 1, 1998, respectively, and the Unaudited Pro Forma Balance
Sheet gives effect to the LOPI Transaction and SWEPI Acquisition as if each had
occurred on March 31, 1998.
The Unaudited Pro Forma Statements of Operations and Unaudited Pro Forma
Balance Sheet should be read in conjunction with the notes thereto and the
historical financial statements of the Company and the statements of revenues
and direct operating expenses of the Shell Properties and the notes thereto
included elsewhere in this Proxy Statement.
The pro forma adjustments to give effect to the various events described
above are based upon currently available information and upon certain
assumptions that management of the Company believes are reasonable. The LOPI
Transaction and the SWEPI Acquisition will be accounted for by the Company under
the purchase method of accounting, and the assets and liabilities of LOPI and
the oil and gas property interests and other assets acquired in the SWEPI
Acquisition will be recorded at their estimated fair market values at the date
of their respective acquisitions. The adjustments included in the Unaudited Pro
Forma Statements of Operations and in the Unaudited Pro Forma Balance Sheet
reflect the Company's preliminary determination of these and other necessary
adjustments based upon available information. There can be no assurance that the
actual adjustments will not vary significantly from the estimated adjustments
reflected in the Unaudited Pro Forma Statements of Operations and Unaudited Pro
Forma Balance Sheet.
The unaudited pro forma combined financial information does not purport to
be indicative of the financial position or results of operations that would
actually have occurred if both the LOPI Transaction and the SWEPI Acquisition
had occurred as presented in such statements or that may be obtained in the
future. In addition, future results may vary significantly from the results
reflected in such statements due to general economic conditions, oil and gas
commodity prices, the Company's ability to successfully integrate the operations
acquired in the recent merger with Cairn and in the Shell Transactions and
several other factors beyond the Company's control as more fully described in
the Company's Annual Report on Form 10-K for the year ended December 31, 1998.
P-1
<PAGE>
PRO FORMA BALANCE SHEET
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS OF
MARCH 31, PRO FORMA
1998 AS OF
--------- PRO FORMA MARCH 31,
TMRC ADJUSTMENTS 1998
--------- ------------ ----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS: $ (42,500)(A)
Cash and cash equivalents....... $ 6,532 42,500(B) $ 6,532
Accounts receivable............. 12,051 -- 12,051
Due from affiliates............. 3,256 -- 3,256
Prepaid expenses and other...... 791 -- 791
--------- ------------ ----------
Total current assets....... 22,630 -- 22,630
--------- ------------ ----------
PROPERTY AND EQUIPMENT:
Oil and natural gas properties..... 433,103 329,090(A) 762,193
Land............................... 478 -- 478
Equipment.......................... 4,864 -- 4,864
--------- ------------ ----------
438,445 329,090 767,535
Less accumulated depletion and
depreciation.................... (192,256) (125,049)(C) (317,305)
--------- ------------ ----------
246,189 204,041 450,230
OTHER ASSETS, net.................. 842 -- 842
--------- ------------ ----------
$ 269,661 $ 204,041 $473,702
========= ============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................ $ 7,845 -- $ 7,845
Revenue and royalties payable... 4,543 -- 4,543
Accrued liabilities............. 21,149 -- 21,149
Current maturities of long-term
debt.......................... 122 -- 122
--------- ------------ ----------
Total current
liabilities................ 33,659 -- 33,659
--------- ------------ ----------
LONG-TERM DEBT..................... 124,951 $ 42,500(B) 167,451
OTHER LIABILITIES.................. -- 2,771(A) 2,771
COMMITMENTS AND CONTINGENCIES...... -- -- --
DEFERRED TAX LIABILITIES........... -- 52,702(A) 20,282
(32,420) (C)
LITIGATION LIABILITIES............. 6,205 -- 6,205
STOCKHOLDERS' EQUITY:
Preferred stock................. -- 135,000(A) 135,000
Common stock.................... 337 121(A) 458
Additional paid-in capital...... 172,164 95,996(A) 268,160
Accumulated earnings
(deficit)..................... (67,033) (92,629) (159,662)
Unamortized deferred
compensation.................. (321) -- (321)
--------- ------------ ----------
105,147 138,488 243,635
Treasury stock.................. (301) -- (301)
--------- ------------ ----------
Total stockholders'
equity..................... 104,846 138,488 243,334
--------- ------------ ----------
$ 269,661 $ 204,041 $473,702
========= ============ ==========
</TABLE>
P-2
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
THREE MONTHS ENDED MARCH 31, 1998 THREE MONTHS
---------------------------------- PRO ENDED
LOPI SWEPI FORMA MARCH 31,
TMRC PROPERTIES PROPERTIES ADJUSTMENTS 1998
-------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Oil and natural gas............. $ 11,766 $ 14,335 $ 2,804 -- $ 28,905
Interest and other.............. 131 -- -- -- 131
-------- ---------- ---------- ----------- ------------
11,897 14,335 2,804 -- 29,036
COSTS AND EXPENSES:
Oil and natural gas operating... 1,978 4,638 291 -- 6,907
Depletion and depreciation...... 6,259 -- -- $ 18,058(D) 24,317
General and administrative...... 1,977 -- -- -- (E) 1,977
Interest........................ 2,332 -- -- 790(F) 3,122
Impairment of long-lived
assets........................ 40,278 -- -- 106,991(C) 147,269
-------- ---------- ---------- ----------- ------------
52,824 4,638 291 125,839 183,592
-------- ---------- ---------- ----------- ------------
INCOME (LOSS) BEFORE INCOME TAXES.... (40,927) 9,697 2,513 (125,839) (154,556)
NET TAX EXPENSE (BENEFIT)............ -- -- -- (32,420)(C) (32,420)
-------- ---------- ---------- ----------- ------------
NET INCOME (LOSS).................... (40,927) 9,697 2,513 (93,419) (122,136)
DIVIDEND REQUIREMENT ON PREFERRED
STOCK.............................. -- -- -- (1,350)(G) (1,350)
-------- ---------- ---------- ----------- ------------
NET INCOME (LOSS) APPLICABLE TO
COMMON SHAREHOLDERS................ $(40,927) $ 9,697 $ 2,513 $ (94,769)(E) $ (123,486)
======== ========== ========== =========== ============
NET INCOME (LOSS) PER SHARE:
Basic........................... $ (1.22) (E) $ (2.71)
======== ============
Diluted......................... $ (1.22) (E) $ (2.71)
======== ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES:
Outstanding..................... 33,451 12,082(A) 45,533
======== =========== ============
Assuming dilution............... 33,451 12,082(H) 45,533
======== =========== ============
P-3
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, 1997 PRO FORMA
------------------------------------- PRO YEAR ENDED
LOPI SWEPI FORMA DECEMBER 31,
TMRC PROPERTIES PROPERTIES ADJUSTMENTS 1997
---------- ---------- ---------- ----------- ------------
REVENUES:
Oil and natural gas............. $ 57,640 $ 85,334 $ 15,694 -- $ 158,668
Interest and other.............. 693 -- -- -- 693
---------- ---------- ---------- ----------- ------------
58,333 85,334 15,694 -- 159,361
---------- ---------- ---------- ----------- ------------
COSTS AND EXPENSES:
Oil and natural gas operating... 7,845 23,309 1,979 -- 33,133
Depletion and depreciation...... 26,337 -- -- $ 59,554(D) 85,891
General and administrative...... 7,192 -- -- -- (E) 7,192
Interest........................ 5,149 -- -- 3,161(F) 8,310
Impairment of long-lived
assets........................ 24,141 -- -- 62,309(C) 86,450
Merger expenses................. 9,998 -- -- -- 9,998
Litigation expenses and loss
provision..................... 6,205 -- -- -- 6,205
---------- ---------- ---------- ----------- ------------
86,867 23,309 1,979 125,024 237,179
---------- ---------- ---------- ----------- ------------
INCOME (LOSS) BEFORE INCOME TAXES.... (28,534) 62,025 13,715 (125,024) (77,818)
NET TAX EXPENSE (BENEFIT)............ 7 -- -- (27,207)(C) (27,200)
---------- ---------- ---------- ----------- ------------
NET INCOME (LOSS).................... (28,541) 62,025 13,715 (97,817) (50,618)
DIVIDEND REQUIREMENT ON PREFERRED
STOCK.............................. -- -- -- (5,400)(G) (5,400)
---------- ---------- ---------- ----------- ------------
NET INCOME (LOSS) APPLICABLE TO
COMMON SHAREHOLDERS................ $ (28,541) $ 62,025 $ 13,715 $ (103,217)(E) $ (56,018)
========== ========== ========== =========== ============
NET INCOME (LOSS) PER SHARE:
Basic........................... $ (0.85) (E) $ (1.23)
========== ============
Diluted......................... $ (0.85) (E) $ (1.23)
========== ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES:
Outstanding..................... 33,383 12,082(A) 45,465
========== =========== ============
Assuming dilution............... 33,383 12,082(H) 45,465
========== =========== ============
</TABLE>
P-4
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(A) To record the purchase price of $329.1 million in connection with the
merger with LOPI and the acquisition of the SWEPI Properties, consisting of ($
in millions, except per share and stated value data):
$42.5 Cash
135.0 Issuance of Preferred Stock ($135 million stated value)
96.1 Issuance of 12,082,030 shares of Common Stock at $7.96 per share
2.8 Assumption of certain liabilities
52.7 Deferred income taxes related to acquired properties
- ---------
$329.1
=========
Note: The $7.96 per share value of Common Stock is based on the
average closing price of the Common Stock on the NYSE several
days before and after execution of the LOPI Agreement.
(B) To record $42.5 million of additional borrowings to finance the cash
consideration paid for the SWEPI Properties.
(C) To record adjustment relating to the impairment charge and deferred
income taxes related to the Shell Properties.
(D) To adjust depreciation and depletion expense related to the
acquisition of the Shell Properties.
(E) The unaudited pro forma statements of operations do not include any
adjustments relating to additional general and administrative expenses that
would have been incurred by the Company during the year ended December 31, 1997
and the three months ended March 31, 1998, had the Shell Transactions been
consummated on January 1, 1997. The Company currently estimates that general and
administrative expenses will increase annually by approximately $3.5 million to
$4.0 million following consummation of the Shell Transactions.
(F) To record interest on additional borrowings of $42.5 million to
finance the cash consideration paid for the SWEPI Properties.
(G) To accrue a 4% dividend on the $135 million stated value of the
Preferred Stock.
(H) Since the unaudited pro forma statements of operations indicate a net
loss, conversion of the Preferred Stock is deemed to be antidilutive and is not
considered in the earnings per share calculation. In the event the Company would
have had pro forma net income, the Common Stock to be issued upon conversion of
the Preferred Stock would have been included in the calculation of diluted
earnings per share and would have resulted in a significant reduction in pro
forma diluted earnings per share and pro forma basic earnings per share.
P-5
<PAGE>
PRO FORMA COMBINED SUPPLEMENTAL OIL AND GAS RESERVE AND STANDARDIZED MEASURE
INFORMATION
The following is a summary of pro forma quantities of proved reserves
prepared by adjusting historical quantities for the effects of the merger with
LOPI and the acquisition of the SWEPI Properties.
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED DECEMBER 31, 1997 YEAR ENDED
------------------------------ PRO FORMA DECEMBER 31,
TMRC LOPI SWEPI ADJUSTMENTS(1) 1997
-------- -------- -------- -------------- ------------
<S> <C> <C> <C> <C>
Pro Forma Estimated Quantities of
Proved Reserves
Oil (MBbls)
BALANCE AT DECEMBER 31, 1996......... 9,416 17,317 860 -- 27,593
Production......................... (914) (2,443) (69) -- (3,426)
Revisions of previous estimates.... (761) (3,694) 38 -- (4,417)
Purchase of reserves............... -- 343 -- -- 343
Extensions, discoveries and
improved recovery............... 1,990 788 -- -- 2,778
Pro forma adjustment............... -- -- -- (4,309) (4,309)
-------- -------- -------- -------------- ------------
BALANCE AT DECEMBER 31, 1997......... 9,731 12,311 829 (4,309) 18,562
Natural Gas (MMcf)
BALANCE AT DECEMBER 31, 1996......... 107,406 103,872 57,543 -- 268,821
Production......................... (14,603) (14,032) (4,620) -- (33,255)
Revisions of previous estimates.... (13,862) (12,875) (31,665) -- (58,402)
Purchase of reserves............... -- 63 -- -- 63
Extensions, discoveries and
improved recovery............... 31,844 4,438 1,777 -- 38,059
Pro forma adjustment............... -- -- -- (20,952) (20,952)
-------- -------- -------- -------------- ------------
BALANCE AT DECEMBER 31, 1997......... 110,785 81,466 23,035 (20,952) 194,334
Pro Forma Estimated Quantities of
Proved Developed Reserves
Oil (MBbls)........................ 5,305 10,816 829 (4,506) 12,444
Natural Gas (MMcf)................. 81,500 76,776 23,035 (30,854) 150,456
</TABLE>
- ------------
(1) See footnote (1) on page P-8.
P-6
<PAGE>
The following is a summary of pro forma standardized measure of discounted
future net cash flows related to the Company's pro forma proved oil, natural gas
and natural gas liquids reserves and includes the effects of the merger with
LOPI and the acquisition of the SWEPI Properties. The additions to proved
reserves from new discoveries and extension could vary significantly from year
to year. Additionally, the impact of changes to reflect current prices and costs
of reserves proved in prior years could be significant. Accordingly, the
information presented below should neither be viewed as an estimate of the fair
value of the Company's oil and natural gas properties following the Shell
Transactions nor should it be considered indicative of any trends.
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED DECEMBER 31, 1997 YEAR ENDED
-------------------------------- PRO FORMA DECEMBER 31,
TMRC LOPI SWEPI ADJUSTMENTS(1) 1997
--------- --------- -------- --------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Pro Forma Standardized Measure of
Discounted Future Net Cash Flows
Future cash flows.................... $ 451,157 $ 415,124 $ 73,736 $ (97,928) $842,089
Future production and development
costs.............................. (109,381) (180,980) (18,069) 85,501 (222,929)
--------- --------- -------- --------------- ------------
Future net cash flows................ 341,776 234,144 55,667 (12,427) 619,160
Discount to present value at 10%
percent annual rate................ (127,859) (67,806) (15,223) 10,397 (200,491)
--------- --------- -------- --------------- ------------
Standardized measure (before income
taxes) of future net cash flows.... $ 213,917 $ 166,338 $ 40,444 $ (2,030) $418,669
========= ========= ======== =============== ============
Pro Forma Changes in Standardized
Measure of Discounted Future Net
Cash Flows
BALANCE AT BEGINNING OF
PERIOD............................. $ 394,507 $ 437,018 $125,944 $ -- $957,469
Sale of oil and natural gas, net of
production costs................ (49,796) (62,025) (13,715) -- (125,536)
Changes in prices and production
costs........................... (165,406) (195,318) (52,021) -- (412,745)
Purchases of reserves in place..... -- 2,282 -- -- 2,282
Revisions of previous quantity
estimates....................... (28,574) (41,377) (41,245) -- (111,196)
Current year discoveries, extension
and improved recovery........... 50,274 11,222 2,294 -- 63,790
Changes in estimated future
development costs............... (3,564) -- -- -- (3,564)
Development cost incurred during
the period...................... 27,666 13,602 3,584 -- 44,852
Accretion of discount.............. 39,451 43,702 12,594 -- 95,747
Changes in production rates
(timing) and other.............. (50,641) (42,768) 3,009 -- (90,400)
Pro forma adjustment............... -- -- -- (2,030) (2,030)
--------- --------- -------- --------------- ------------
Net change......................... (180,590) (270,680) (85,500) (2,030) (538,800)
--------- --------- -------- --------------- ------------
BALANCE AT END OF PERIOD........... $ 213,917 $ 166,338 $ 40,444 $ (2,030) $418,669
========= ========= ======== =============== ============
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
P-7
<PAGE>
- ------------
(1) The differences in the estimated proved reserves of the Shell Properties, as
reflected in the Statements of Revenues and Direct Operating Expenses for
each of the LOPI Properties and the SWEPI Properties (the "Shell Financial
Statements") and as estimated by T. J. Smith (the Company's independent
reservoir engineers for the LOPI and SWEPI Properties) relate to, among
other factors, differences between Shell and the Company in depletion and
development strategies and related expenditures for proved developed
reserves. Other reserve differences relate to differing assumptions as to
decline curves, volumetric analysis and other engineering judgments inherent
in the reserve estimating process.
The reserve estimates reflected in the Shell Financial Statements assume
$199 million in future production and development costs for the Shell
Properties while T. J. Smith's estimates assume only $114 million of such
costs will be expended by the Company for such properties. Approximately
one-half of the difference in estimated future production and development
costs relates to (i) differences in the amount of expenditures for proved
developed non-producing reserves, which may be produced from existing wells
but require additional expenditures for recompletion efforts and related
operating expenses, and (ii) differences in estimated production costs
related to reserves that T.J. Smith's estimates do not assume will be
produced. Shell's expenditure estimates include amounts that, absent the
Shell Transactions, it anticipated making for future production and
development of these reserves. Because of the Company's higher cost of
capital and focus on larger exploration prospects, the Company does not
currently plan to make such expenditures and produce such reserves. Rather,
the Company currently intends to concentrate its expenditures with respect
to the Shell Properties on an accelerated exploration and development
program that is focused on the unproved properties that the Company believes
provide higher potential ultimate returns than the lower risk and lower
volume proved developed properties. The remaining difference in estimated
expenditures relates primarily to differences in estimated plugging and
abandonment costs that will be incurred at the conclusion of operation of
these fields due to differing assumptions between Shell and the Company on
the plan of abandonment or disposition of the properties prior to
abandonment.
P-8
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number Exhibit
- ------------------------ ------------------------------------------------------------------------------------------
<S> <C>
2.1 -- Agreement and Plan of Merger dated as of March 27, 1998, by and among The Meridian
Resource Corporation, LOPI Acquisition Corp., Shell Louisiana Onshore Properties Inc. and
Louisiana Onshore Properties Inc. Incorporated by reference from the Company's Annual
Report on Form 10-K for the year ended December 31, 1997. (Pursuant to S-K Item 601(b)(2),
the Company has not included in the filing Exhibit D (LOPI financial statements), Exhibit
1 (preliminary TMR financial statements) or Schedule I or II (which relate to the
representations and warranties of the parties). The Company agrees to furnish
supplementally any omitted schedule to the Commission upon request.
2.2 -- Purchase and Sale Agreement dated effective October 1, 1997, by and between The Meridian
Resource Corporation and Shell Western E&P Inc. (Pursuant to S-K Item 601(b)(2), the
Company has not included in the filing Exhibits which relate to the representations and
warranties of the parties and certain ancillary documents to the agreement). The Company
agrees to furnish supplementally any omitted schedule to the Commission upon request.
3.1 -- Certificate of Designation for Preferred Stock dated June 30, 1998.
4.1 -- Stock Rights and Restrictions Agreement dated as of June 30, 1998 by and between The
Meridian Resource Corporation and Shell Louisiana Onshore Properties Inc.
4.2 -- Registration Rights Agreement dated June 30, 1998 by and between The Meridian Resource
Corporation and Shell Louisiana Onshore Properties Inc.
10.1 -- Amended and Restated Credit Agreement dated May 22, 1998, among the Company, the several
banks and financial institutions and other entities from time to time parties thereto (the
"Lenders"), The Chase Manhattan Bank, as administrative agent for the Lenders, Bankers
Trust Company, as syndication agent, Chase Securities Inc., as advisor to the Company,
Chase Securities Inc., B. T. Alex. Brown Incorporated, Toronto Dominion (Texas), Inc. and
Credit Lyonnais New York Branch as co-arrangers, and Toronto Dominion (Texas), Inc. and
Credit Lyonnais New York Branch, as co-documentation agents.
10.2 -- Second Amended and Restated Guarantee dated June 30, 1998, between the Guarantors
signatory thereto and The Chase Manhattan Bank, as Administrative Agent for the Lenders.
10.3 -- Amended and Restated Pledge Agreement, dated May 22, 1998, between the Company and The
Chase Manhattan Bank, as Administrative Agent
10.4 First Amendment to Amended and Restated Pledge Agreement dated June 30, 1998
23.1 -- Consent of PricewaterhouseCoopers LLP
99.1 -- Press Release
</TABLE>
PURCHASE AND SALE AGREEMENT
BETWEEN
SHELL WESTERN E&P INC.
AS SELLER
and
THE MERIDIAN RESOURCE EXPLORATION COMPANY
AS PURCHASER
DATED EFFECTIVE OCTOBER 1, 1997
GIBSON/HUMPHREYS AND TURTLE BAYOU FIELDS
TERREBONE PARISH, LOUISIANA
- i -
<PAGE>
PURCHASE AND SALE AGREEMENT
INDEX
1. PROPERTY BEING SOLD OR EXCHANGED........................................1
(a) LEASE...............................................................1
(b) FEE INTERESTS.......................................................2
(c) RIGHTS IN PRODUCTION................................................2
(d) RIGHTS; WORKING INTERESTS...........................................2
(e) EASEMENTS...........................................................2
(f) PERMITS.............................................................2
(g) WELLS...............................................................2
(h) FACILITIES..........................................................3
(i) EQUIPMENT...........................................................3
- ii -
<PAGE>
(j) CONTRACTS...........................................................3
(k) EXCLUSIONS..........................................................3
2. SALE OR EXCHANGE........................................................4
3. PURCHASE PRICE..........................................................4
4. CLOSING.................................................................4
5. EXCHANGE ELECTION.......................................................4
(a) PAYMENT.............................................................5
(b) CONVEYANCE..........................................................5
(c) NON-FOREIGN AFFIDAVITS..............................................5
(d) SEISMIC LICENSE.....................................................5
6. SALE ELECTION...........................................................5
(a) PAYMENT.............................................................5
(b) CONVEYANCE..........................................................5
(c) NON-FOREIGN AFFIDAVITS..............................................6
(d) SEISMIC LICENSE.....................................................6
7. FURTHER ASSURANCES......................................................6
- iii -
<PAGE>
8. CONVEYANCE EFFECTIVE DATE...............................................6
9. ACCESS BASELINE STUDY..................................................6
(a) ACCESS TO PROPERTY..................................................6
(b) BASELINE STUDY......................................................7
10. DISCLAIMERS/ACKNOWLEDGMENTS............................................7
(a) NO WARRANTY, EXPRESS OR IMPLIED.....................................7
(b) ACKNOWLEDGMENTS OF PURCHASER........................................7
11. INDEPENDENT EVALUATION.................................................9
12. CONSENTS; PREFERENTIAL RIGHTS.........................................10
13. TITLE.................................................................12
(a) TITLE EXAMINATION..................................................12
(b) PERSONAL PROPERTY INVENTORY LIST...................................12
14. REPRESENTATIONS BY SELLER.............................................13
(a) DUE ORGANIZATION...................................................13
(b) CORPORATE POWER....................................................13
(c) DULY EXECUTED......................................................13
(d) NO LITIGATION......................................................13
15. REPRESENTATIONS OF PURCHASER..........................................14
(a) DUE ORGANIZATION...................................................14
(b) CORPORATE POWER....................................................14
(c) DULY EXECUTED......................................................14
(d) NO LITIGATION......................................................14
(e) SECURITIES LAWS....................................................15
16. SELLER'S CONDITIONS...................................................15
(a) REPRESENTATIONS TRUE................................................15
(b) NO PENDING SUITS...................................................15
(c) NO ACT OF TERMINATION..............................................16
(d) MERGER CLOSING.....................................................16
17. PURCHASER'S CONDITIONS................................................16
(a) REPRESENTATIONS TRUE...............................................16
(b) NO PENDING SUITS...................................................16
(c) NO ACT OF TERMINATION..............................................16
(d) MERGER CLOSING.....................................................16
- iv -
<PAGE>
8. OPERATIONS AND PRODUCTION AFTER THE EFFECTIVE DATE.....................17
(a) OPERATIONS BETWEEN THE EFFECTIVE DATE AND CLOSING..................17
(b) EXPENSES...........................................................18
(c) ALLOCATION OF PRODUCTION AND PROCEEDS..............................19
(d) INTERIM ACCOUNTING, PAYMENT AND COLLECTION SERVICES................19
(e) POST CLOSING SETTLEMENT............................................20
(f) AUDIT..............................................................20
(g) NO APPLICATION TO INCOME TAXES.....................................20
19. TAXES, COSTS AND FEES.................................................20
(a) TAXES..............................................................20
(b) NO BROKERS.........................................................21
20. OPERATIONS BY PURCHASER...............................................21
(a) COMPLIANCE WITH LAWS...............................................21
(b) ASSUMPTION OF OBLIGATIONS..........................................22
21. INDEMNIFICATION.......................................................23
(a) GENERAL INDEMNITY BY PURCHASER.....................................23
- v -
<PAGE>
(b) ENVIRONMENTAL INDEMNITY BY PURCHASER...............................24
(c) GENERAL INDEMNITY BY SELLER........................................25
(d) ENVIRONMENTAL INDEMNITY BY SELLER..................................26
(e) LIMITATIONS........................................................27
(f) DEFINITIONS........................................................28
(g) INDEMNIFIED PARTY'S PARTICIPATION..................................33
22. EXISTING CONTRACTS/IMBALANCES.........................................33
(a) ASSUMPTION OF CONTRACTS............................................34
(b) GAS IMBALANCES.....................................................34
23. NOTICES...............................................................34
24. PARTIES IN INTEREST...................................................35
25. COMPLETE AGREEMENT....................................................36
26. APPLICABLE LAW........................................................36
27. MISCELLANEOUS PROVISIONS..............................................36
(a) CAPTIONS...........................................................36
(b) PARTIAL INVALIDITY.................................................36
- vi -
<PAGE>
(c) MODIFICATION.......................................................37
(d) ASSIGNMENT.........................................................37
(e) COUNTERPARTS.......................................................37
(f) EXPENSES...........................................................37
(g) SIGNS..............................................................37
(h) PRESS RELEASES.....................................................37
(i) RECORDING..........................................................38
(j) SURVIVAL...........................................................38
(k) EXHIBITS AND SCHEDULES.............................................38
(l) TIME OF ESSENCE....................................................38
(m) NO PARTNERSHIP.....................................................39
(n) FILE TRANSFERS.....................................................39
(o) ARBITRATION........................................................40
(p) DTPA WAIVER........................................................42
(q) NO PUNITIVE DAMAGES................................................43
- vii -
<PAGE>
PURCHASE AND SALE AGREEMENT
SHELL WESTERN E&P INC., a Delaware corporation, herein referred to as
"SELLER," and THE MERIDIAN RESOURCE EXPLORATION COMPANY, a Texas corporation,
herein referred to as "PURCHASER" enter into this Purchase and Sale Agreement,
herein called the "AGREEMENT", in consideration of SELLER's agreement to sell
and PURCHASER's agreement to buy property described in this AGREEMENT, all
pursuant to the terms and conditions of this AGREEMENT. SELLER and PURCHASER may
also be referred to herein individually as a "Party" or, collectively, as the
"Parties."
1. PROPERTY BEING SOLD OR EXCHANGED. Subject to the terms and conditions
set forth hereinafter, SELLER agrees to convey to PURCHASER, without warranty of
title or assignability, the PROPERTY (as defined below) and PURCHASER agrees to
accept the PROPERTY, and tender consideration therefor, in the manner and of the
type and amount as hereinafter required. For purposes of this AGREEMENT,
PROPERTY shall mean all of SELLER's right, title and interest in and to (i) the
property and property interests described in EXHIBIT "A" hereto and (ii) all
property and property interests listed in subsections (a) through (j) of this
section 1, to the extent such property or property interests are a part of,
grant rights in, or with respect to, or are located on the property and property
interests described in EXHIBIT "A"; but excluding the property in subsection
(k).
(a) LEASES. Leasehold interests in oil, gas or other minerals,
including working interests, carried working interests, rights of
assignment and reassignment, and other interests under or in oil, gas or
mineral leases, and interests in rights to explore for and produce oil,
gas and other minerals.
<PAGE>
(b) FEE INTERESTS. Fee interests to the surface and in oil, gas or
other minerals, including rights under mineral deeds, conveyances or
assignments.
(c) RIGHTS IN PRODUCTION. Royalties, overriding royalties,
production payments, net profits interests, rights to take royalties in
kind, or other interests in production of oil, gas or other minerals.
(d) RIGHTS; WORKING INTERESTS. Rights and interests in or derived
from unit agreements, orders, declarations or decisions of state and
federal regulatory authorities establishing units, joint operating
agreements, enhanced recovery and injection agreements, farmout agreements
and farmin agreements, options, drilling agreements, exploration
agreements, assignments of operating rights, working interests, and
subleases, except those contracts or agreements described in subsection
(k) below.
(e) EASEMENTS. To the extent transferable, rights-of-way, surface,
subsurface or ground leases, easements, servitudes and franchises located
on or granting rights to the property or property interests described in
EXHIBIT "A" hereto and acquired or used in connection with operations for
the exploration, production, processing and transportation of oil, gas or
other minerals with respect to the properties and interests described in
subsections (a)-(d) above.
(f) PERMITS. To the extent transferable, permits and licenses of any
nature owned, held or operated in connection with operations for the
exploration, production, processing and transportation of oil, gas or
other minerals.
(g) WELLS. Producing, non-producing, shut-in and abandoned oil and
gas wells, salt water disposal wells, injection wells and water wells
located on the property or property interests described in EXHIBIT "A"
hereto and used in connection with the properties or interests described
in subsections (a)-(f) above.
<PAGE>
(h) FACILITIES. All facilities, buildings, improvements, fixtures,
gathering lines, flow lines, injection lines and pipelines and
appurtenances located on the real property and on lands included in, or
which are subservient to, the property and property interests described on
EXHIBIT "A".
(i) EQUIPMENT. All surface and down-hole equipment, fixtures,
machinery, inventory and personal property located on the property and
property interests described in EXHIBIT "A" hereto, and used in connection
with the properties or interests described in subsections (a)-(h) above.
(j) CONTRACTS. To the extent transferable, all contracts and
agreements to which the property described in subsections (a) - (i) above
is subject, except those contracts or agreements described in subsection
(k) below.
(k) EXCLUSIONS. The PROPERTY shall not include any rights-of-way,
surface or ground leases, easements, franchises, permits, licenses, or
other contracts or agreements which by their own terms are not
transferable, Proprietary Data (as defined in subsection 27(n), rental
equipment, any licensed software, and store stock left on consignment and
belonging to third parties and without limiting the generality of the
foregoing, those items of personal property, inventory or other property
or property interests specifically listed on SCHEDULE "1(k)" hereto.
SELLER shall, to the extent possible, transfer to PURCHASER the beneficial
interest of any right-of-way, surface or ground lease, easement,
franchise, permit, license, or other contract or agreement which by its
own terms is not transferable upon written notice from PURCHASER that such
non-transferable interest is necessary for the continued operation of the
PROPERTY in the manner operated as of the Effective Date.
2. SALE OR EXCHANGE. SELLER will elect to effect all or part of the
required conveyances under this AGREEMENT through either a sale of the PROPERTY
to PURCHASER for cash or through an exchange of all or part of the PROPERTY with
a Qualified Intermediary pursuant to the like-kind exchange provisions of
section 1031 of the Internal Revenue Code of 1986, as amended, and
<PAGE>
the regulations promulgated thereunder. The term "Qualified Intermediary" shall
have the same meaning as prescribed in Treasury Regulations ss.
1.1031(k)-1(g)(4). On or before Closing, SELLER shall provide PURCHASER written
notice of such election, the choice being within the sole discretion of SELLER.
3. PURCHASE PRICE. As consideration for the PROPERTY, PURCHASER shall pay
to SELLER, or deliver to SELLER's nominees, at Closing, the sum of
$44,248,396.00 (the "Purchase Price")
4. CLOSING.
Closing shall occur on the Closing Date under the Agreement and Plan of
Merger by and among The Meridian Resource Corporation, LOPI Acquisition Corp,
Shell Louisiana Onshore Properties Inc. and Louisiana Onshore Properties Inc.
dated March 27, 1998 (the "Merger Agreement") (the "Closing Date"), at a time
and place to be designated by SELLER. "Closing" shall mean the consummation of
the sale or exchange by transfer of SELLER's ownership in the PROPERTY, deposit
or payment of the Purchase Price, and transfer of the operation and possession
of the PROPERTY.
5. EXCHANGE ELECTION. If on or before the Closing Date SELLER has notified
PURCHASER of its election to effect an exchange of the PROPERTY or portions of
the PROPERTY for properties of a like-kind pursuant to section 1031 of the
Internal Revenue Code of 1986, as amended, then at Closing:
(a) PAYMENT. PURCHASER shall make payment by wire transfer to
accounts designated by SELLER in an aggregate amount equal to the Purchase
Price, On or before Closing, SELLER will notify PURCHASER of the amounts
to be deposited in each designated account.
(b) CONVEYANCE. SELLER will convey the PROPERTY to PURCHASER by
executing and delivering (i) an Assignment and Conveyance and (ii) a
Personal Property Agreement and Bill of Sale, in substantially the form
attached hereto as EXHIBITS "B" and "C" respectively.
<PAGE>
(c) NON-FOREIGN AFFIDAVIT. SELLER shall execute and deliver to
PURCHASER, a Non-foreign Affidavit in substantially the form attached
hereto as EXHIBIT "D".
(d) SEISMIC LICENSE. PURCHASER and SELLER shall execute and deliver
a seismic license granting PURCHASER the nonexclusive right to use
SELLER's proprietary seismic data for the Turtle Bayou field.
6. SALE ELECTION. If on or before Closing SELLER has notified PURCHASER of
its election to sell the PROPERTY:
(a) PAYMENT. PURCHASER shall make payment of the Purchase Price, by
wire transfer to an account or accounts to be designated by SELLER.
(b) CONVEYANCE. SELLER will convey the PROPERTY to PURCHASER by
executing and delivering (i) an Assignment and Conveyance and (ii) a
Personal Property Agreement and Bill of Sale in substantially the forms
attached hereto as EXHIBITS "B" and "C," respectively.
(c) NON-FOREIGN AFFIDAVIT. SELLER shall execute and deliver to
PURCHASER a Non-foreign Affidavit in substantially the form attached
hereto as EXHIBIT "D".
(d) SEISMIC LICENSE. PURCHASER and SELLER shall execute and deliver
a seismic license granting PURCHASER the nonexclusive right to use
SELLER's proprietary seismic data for the Turtle Bayou field.
7. FURTHER ASSURANCES. SELLER and PURCHASER each agree to execute and
deliver to the other Party all division orders, transfer orders and all other
documents necessary to fully vest in PURCHASER the rights, obligations and
benefits acquired pursuant to this AGREEMENT.
8. CONVEYANCE EFFECTIVE DATE. The conveyance from SELLER to PURCHASER
shall be effective as of October 1, 1997, at 7:00 a.m. local time where the
PROPERTY is located, herein called the "Effective Date."
<PAGE>
9. ACCESS BASELINE STUDY.
(A) ACCESS TO PROPERTY. Upon reasonable notice, SELLER shall afford
PURCHASER and its representatives during normal business hours throughout
the period prior to Closing reasonable access to the PROPERTY to make
certain site visits and physical investigations. Such visits and
investigations shall be governed by and conducted in accordance with the
Agreement for Indemnification and Responsibility for Damages to the
Subject Properties in connection with Site Visits dated January 19, 1998,
by and between SELLER and The Meridian Resource Corporation.
(B) BASELINE STUDY. PURCHASER and SELLER hereby agree that the Phase
I environmental assessment report of the PROPERTY prepared by SELLER and
delivered to PURCHASER, limited to the assessments made and the scope of
the report, shall establish the true and correct condition of the PROPERTY
as of the Effective Date and such assessment report shall be used as the
only environmental, safety or other baseline study in the event a dispute
arises after Closing concerning the condition of the PROPERTY.
10. DISCLAIMERS/ACKNOWLEDGMENTS.
(a) NO WARRANTY, EXPRESS OR IMPLIED. CONVEYANCE OF THE PROPERTY SHALL BE
WITHOUT WARRANTY WHATSOEVER, EXPRESS, STATUTORY, OR IMPLIED AS TO TITLE,
DESCRIPTION, PHYSICAL CONDITION OF THE PROPERTY (INCLUDING, WITHOUT LIMITATION,
THE ENVIRONMENTAL CONDITION OF THE PROPERTY) QUALITY, VALUE, FITNESS FOR
PURPOSE, MERCHANTABILITY, OR OTHERWISE. PURCHASER shall satisfy itself, prior to
the Closing, as to the type, condition, quality
<PAGE>
and extent of the property and property interests which comprise the PROPERTY it
is receiving pursuant to this AGREEMENT and under this sale or exchange.
PURCHASER shall have the right of full substitution and subrogation to any and
all rights and actions of which SELLER has or may have against any and all
preceding owners or vendors of the PROPERTY other than Affiliates of SELLER.
(b) ACKNOWLEDGMENTS OF PURCHASER. PURCHASER hereby acknowledges and agrees
that: (i) PURCHASER has been given the opportunity to adequately inspect the
PROPERTY for all purposes prior to the execution of this AGREEMENT, (ii)
PURCHASER is aware that the PROPERTY has been used for the exploration,
development, production, treating and transporting of oil, gas and other
hydrocarbon products and that physical changes may have occurred as a result of
such use and that SELLER has disclosed, and PURCHASER is further aware, that
there exists the possibility that there could exist on the PROPERTY as a result
of such use or uses one or more detrimental environmental conditions, or that
there could have occurred from such use or uses one or more releases of
hazardous substances (as defined in CERCLA or RCRA) or releases of Chemical
Substances (as defined in subsection 21(f)(3) below) into, or other pollution or
contamination of or into, the ambient air, surface water, ground water, or land
surface and subsurface strata of any real property included in the PROPERTY and
of contiguous, or a series of contiguous, real properties not associated with
the PROPERTY; (iii) PURCHASER has entered into this AGREEMENT on the basis of
its own investigation of the physical condition of the PROPERTY and the land
related thereto (including the environmental condition of the PROPERTY); (iv)
PURCHASER WITH FULL KNOWLEDGE OF THE FOREGOING AND AFTER CONDUCTING THE ABOVE
DESCRIBED INVESTIGATION AND EVALUATION IS ACQUIRING THE PROPERTY ON A "WHERE IS"
AND "AS IS" BASIS; AND, EXCEPT WITH RESPECT TO SELLER'S INDEMNIFICATION
OBLIGATIONS SPECIFIED IN SUBSECTIONS 21(C) AND (D)
<PAGE>
BELOW, PURCHASER, BY ACQUIRING THE PROPERTY ON A "WHERE IS" AND "AS IS" BASIS
WAIVES ANY OTHER CLAIMS OR RIGHTS OF INDEMNIFICATION, CONTRIBUTION OR RECOURSE
IT MAY HAVE AGAINST OR FROM SELLER WITH RESPECT TO THE CONDITION OF THE
PROPERTY, INCLUDING, WITHOUT LIMITATION, THE ENVIRONMENTAL CONDITION OF THE
PROPERTY AND DAMAGE TO NATURAL RESOURCES ASSOCIATED WITH THE PROPERTY (INCLUDING
ANY LIABILITY UNDER CERCLA OR OTHER ENVIRONMENTAL LAWS), WHETHER CONTRACT, TORT
OR STATUTORY IN NATURE, REGARDLESS OF THE NEGLIGENCE, FAULT OR STRICT
(STATUTORY) LIABILITY OF SELLER; (V) PURCHASER SHALL FURTHER ACKNOWLEDGE THAT IT
HAS HAD THE FULL OPPORTUNITY TO REVIEW AND IS AWARE OF THE MATTERS WITH RESPECT
TO THE PROPERTY WHICH ARE IDENTIFIED IN THE LIMITED PHASE I ENVIRONMENTAL SITE
ASSESSMENT AND LIMITED NORM SURVEY FOR THE GIBSON FIELD, TERREBONNE PARISH,
LOUISIANA, DATED MAY 14, 1997, PREPARED BY R. M. "BO" DOUGLAS AND THE LIMITED
PHASE I ENVIRONMENTAL SITE ASSESSMENT AND LIMITED NORM SURVEY FOR THE TURTLE
BAYOU FIELD, TERREBONNE PARISH, LOUISIANA, DATED JULY 3, 1997, PREPARED BY R. M.
"BO" DOUGLAS (REFERRED TO HEREIN COLLECTIVELY AS THE "PHASE I ASSESSMENTS")
WHICH PURCHASER HAS RECEIVED AND REVIEWED; AND (VI) WITH RESPECT TO THOSE
MATTERS SET FORTH ON THE PHASE I ASSESSMENTS, PURCHASER ASSUMES ALL LIABILITY
WITH RESPECT THERETO WHETHER CONTRACT, TORT OR STATUTORY IN NATURE, REGARDLESS
OF THE NEGLIGENCE, FAULT OR STRICT (STATUTORY) LIABILITY OF SELLER.
<PAGE>
11. INDEPENDENT EVALUATION. PURCHASER has made an independent evaluation
of the PROPERTY and acknowledges that SELLER has made no statements or
representations concerning the present or future value of the anticipated
income, costs, or profits, if any, to be derived from the PROPERTY, the physical
condition of the PROPERTY, the quantity and quality of any oil and gas or other
minerals that may be produced from the PROPERTY, or any other matter with
respect to the PROPERTY and THAT SELLER DOES NOT IMPLICITLY OR EXPRESSLY WARRANT
DESCRIPTION, TITLE, VALUE, QUALITY, PHYSICAL CONDITION OF THE PROPERTY
(INCLUDING, WITHOUT LIMITATION, THE ENVIRONMENTAL CONDITION OF THE PROPERTY),
MERCHANTABILITY, OR FITNESS FOR PURPOSE OF ANY OF THE PROPERTIES OR THE WELLS,
EQUIPMENT, PIPELINES, FACILITIES, OR OTHER PROPERTY LOCATED THEREON OR USED IN
CONNECTION THEREWITH. PURCHASER further acknowledges that, in entering into this
AGREEMENT, it has relied solely upon its independent examination of the PROPERTY
and public records relating to the PROPERTY and its independent estimates,
computations, evaluations, reports and studies based thereon and has not relied
on any representation or statement made by SELLER. SELLER MAKES NO WARRANTY OR
REPRESENTATION AS TO THE ACCURACY, COMPLETENESS OR CORRECTNESS OF ANY
INFORMATION FURNISHED TO PURCHASER. ANY RELIANCE PURCHASER MAKES ON SUCH
INFORMATION IS AT PURCHASER'S SOLE RISK AND SELLER SHALL HAVE NO LIABILITY
WHATSOEVER TO PURCHASER IN CONNECTION THEREWITH.
12. CONSENTS; PREFERENTIAL RIGHTS. In the event any of the interests to be
conveyed or transferred to PURCHASER as part of the PROPERTY (i) are burdened
with a preferential right in a Third Party to purchase such interest or (ii)
require the consent of a Third Party to assign
<PAGE>
SELLER's interest, then the conveyance or transfer of the interest subject to
such preference or consent shall be conditioned upon SELLER's obtaining the
necessary waiver or consent and this AGREEMENT shall not constitute an
assignment or attempted assignment thereof without such consent or waiver.
Provided, however, if such requirement for Third Party consent is subject to an
express or implied provision to the effect that such consent may not be
unreasonably withheld and SELLER, in its sole discretion, determines that such
consent is being unreasonably withheld, SELLER may, at its risk, assign such
interest to PURCHASER. Except for any liability of SELLER to a Third Party with
respect to an assignment pursuant to the preceding sentence, SELLER shall not be
liable to PURCHASER by reason of any inability or failure to obtain any such
waiver of preferential rights or consent to assignment. PURCHASER shall, at the
request of SELLER, nominate a value to each interest burdened by a preferential
right to purchase, and if such value is agreeable to SELLER, it shall become the
price to such Third Party. If SELLER is unable to obtain a required waiver or
consent, or if a preferential right to purchase is exercised or if SELLER
determines that such consent has been unreasonably withheld but elects not to
assign the interest, then such interest shall be excluded from the PROPERTY and
the Purchase Price shall be reduced by the amount, agreed upon by SELLER and
PURCHASER, as described in the preceding sentence, to account for such interest
unless: (i) PURCHASER AGREES TO ACCEPT THE INTEREST "AS IS", AND RELEASES SELLER
FROM ALL CLAIMS RELATED THERETO, or (ii) SELLER agrees to indemnify PURCHASER
against all losses, costs, expenses and liabilities with respect to such failure
to obtain consent to assign. If no agreed upon reduction in Purchase Price has
been reached and no agreement can otherwise be reached as to the disposition of
an interest for which consent to assign has not been obtained, then either Party
may give written notice to the other Party to terminate this AGREEMENT and upon
the giving of such notice, neither Party shall have any further rights or
obligations hereunder, except for PURCHASER's obligations and SELLER's rights
<PAGE>
under the Confidentiality Agreement dated August 21, 1997. Notwithstanding the
above, it is understood and agreed that the prior termination or lapse of or a
requirement that any license, permit, right-of-way, pipeline franchise or
easement affecting any interests in or other portions of the PROPERTY is
non-transferable, must be renegotiated or is subject to consent upon a transfer
of ownership shall not entitle the PURCHASER to any remedy under this AGREEMENT.
13. TITLE.
(a) TITLE EXAMINATION. PURCHASER assumes the risk of description and
title to the PROPERTY and agrees to satisfy itself with respect thereto.
PURCHASER acknowledges and agrees that SELLER MAKES NO WARRANTY OF TITLE WITH
RESPECT TO THE PROPERTY OR ANY PORTION THEREOF, AND NONE SHALL BE IMPLIED.
Pursuant to the Process Description attached to SELLER's Bid Solicitation Letter
of September 4, 1997, SELLER has made available to PURCHASER for examination by
PURCHASER such title information and abstract coverage as may have been
available in SELLER's land and contract files located in Houston, Texas. SELLER
MAKES NO WARRANTY OR REPRESENTATION AS TO THE ACCURACY, COMPLETENESS OR
CORRECTNESS OF ANY TITLE INFORMATION OR OPINIONS FURNISHED TO PURCHASER. ANY
RELIANCE PURCHASER MAKES ON SUCH INFORMATION IS AT PURCHASER'S SOLE RISK AND
SELLER SHALL HAVE NO LIABILITY WHATSOEVER TO PURCHASER IN CONNECTION THEREWITH.
(b) PERSONAL PROPERTY INVENTORY LIST. If PURCHASER prepares an
inventory list of the personal property being conveyed or transferred hereunder,
such inventory list, if approved by SELLER, shall be controlling with respect to
the personal property listed therein and shall be attached to any Bill of Sale
or other document of conveyance utilized to transfer the personal property from
SELLER to PURCHASER under this AGREEMENT. If PURCHASER does not prepare such an
inventory list,
<PAGE>
then the Bill of Sale or other document of conveyance will omit an inventory
list and recite generally the sale, transfer and conveyance of all of SELLER's
right, title and interest in all specified categories of personal property
located on or associated with the real property and lands subject to the
interests in real property included in the PROPERTY.
14. REPRESENTATIONS BY SELLER. SELLER represents to PURCHASER, each of
which representations shall survive Closing, that as of the date of this
AGREEMENT and as of Closing:
(a) DUE ORGANIZATION. SELLER is a corporation duly organized,
validly existing, and in good standing under the laws of the state of Delaware.
(b) CORPORATE POWER. SELLER has all requisite corporate power and
authority to carry on its business as presently conducted, to enter into this
AGREEMENT, and to perform its obligations under this AGREEMENT. The consummation
of the transactions contemplated by this AGREEMENT will not violate, nor be in
conflict with, (i) any provision of its charter or bylaws or (ii) any agreement
or instrument to which it is a party or is bound (except for preferential rights
to purchase and required Third Party consents to assignment, if any).
(c) DULY EXECUTED. This AGREEMENT has been duly executed and
delivered on behalf of SELLER, and at Closing, all documents and instruments
required hereunder to be executed and delivered by it shall have been duly
executed and delivered.
(d) NO LITIGATION. There are no pending or, to the best of SELLER's
knowledge, threatened claims, lawsuits, administrative proceedings, or
governmental investigations or inquiries involving SELLER's right to consummate
the sale contemplated hereunder except those claims, lawsuits, administrative
proceedings, and governmental investigations and inquiries that SELLER has
disclosed to PURCHASER in writing prior to Closing.
<PAGE>
15. REPRESENTATIONS OF PURCHASER . PURCHASER represents to SELLER, each of
which representations shall survive Closing, that as of the date of this
AGREEMENT and as of Closing:
(a) DUE ORGANIZATION. PURCHASER is a corporation duly organized,
validly existing, and in good standing under the laws of the state of Texas and
is duly qualified to do business in the State of Louisiana and has satisfied all
state bonding requirements, if any.
(b) CORPORATE POWER. PURCHASER has all requisite corporate power and
authority to carry on its business as presently conducted, to enter into this
AGREEMENT, to purchase or exchange the PROPERTY on the terms described in this
AGREEMENT and to perform its other obligations under this AGREEMENT. The
consummation of the transactions contemplated by this AGREEMENT will not
violate, nor be in conflict with, (i) any provision of its charter or bylaws or
(ii) any agreement or instrument to which it is a party or is bound.
(c) DULY EXECUTED. This AGREEMENT has been duly executed and
delivered on behalf of PURCHASER, and at Closing, all documents and instruments
required hereunder to be executed and delivered by it shall have been duly
executed and delivered and the transactions contemplated hereby shall have been
duly and validly authorized by all requisite corporate action.
(d) NO LITIGATION. There are no pending or, to the best of
PURCHASER's knowledge, threatened claims, lawsuits, administrative proceedings,
or governmental investigations or inquiries involving PURCHASER's right to
consummate the sale contemplated hereunder except those claims, lawsuits,
administrative proceedings, and governmental investigations and inquiries that
PURCHASER has disclosed to SELLER in writing prior to Closing.
(e) SECURITIES LAWS. PURCHASER acknowledges that the solicitation of
an offer for, and the sale of the PROPERTY by SELLER have not been registered
under any securities laws.
<PAGE>
PURCHASER intends to acquire the PROPERTY for its own benefit and account and is
not acquiring the PROPERTY with the intent of distributing fractional undivided
interests in the PROPERTY or otherwise selling the PROPERTY in a manner that
would be subject to regulation by federal or state securities laws. If PURCHASER
sells, transfers, or otherwise disposes of the PROPERTY or fractional undivided
interests therein in the future, it will do so in compliance with applicable
federal and state laws. PURCHASER represents that at no time has it been
presented with or solicited by or through any public promotion or other form of
advertising in connection with this transaction.
16. SELLER'S CONDITIONS. The obligations of SELLER to be performed at
Closing are subject to the satisfaction at or prior to Closing of the following
conditions, any of which may be waived
by SELLER:
(a) REPRESENTATIONS TRUE. All representations of PURCHASER contained
in this AGREEMENT shall be true in all material respects at and as of Closing as
if such representations were made at and as of Closing, and PURCHASER shall have
performed and satisfied in all material respects all obligations required by
this AGREEMENT to be performed and satisfied by it at or prior to Closing.
(b) NO PENDING SUITS. No suit or other proceeding shall be pending
or threatened before any court or governmental agency seeking to restrain,
prohibit or declare illegal, or seeking substantial damages in connection with,
the contemplated purchase or exchange.
(c) NO ACT OF TERMINATION. SELLER shall not have exercised any
rights it may have hereunder to terminate this AGREEMENT.
(d) MERGER CLOSING. Closing shall have occurred under the Merger
Agreement.
17. PURCHASER'S CONDITIONS. The obligations of PURCHASER to be performed
at Closing are subject to the satisfaction at or prior to Closing of the
following conditions, any of which may be waived by PURCHASER:
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(a) REPRESENTATIONS TRUE. All representations of SELLER contained in
this AGREEMENT shall be true in all material respects at and as of Closing as if
such representations were made at and as of Closing, and SELLER shall have
performed and satisfied in all material respects all agreements required by this
AGREEMENT to be performed and satisfied by it at or prior to the Closing.
(b) NO PENDING SUITS. No suit or other proceeding shall be pending
or threatened before any court or governmental agency seeking to restrain,
prohibit or declare illegal, or seeking substantial damages in connection with,
the contemplated purchase.
(c) NO ACT OF TERMINATION. PURCHASER shall not have exercised any
rights it may have hereunder to terminate this AGREEMENT.
(d) MERGER CLOSING. Closing shall have occurred under the Merger
Agreement.
18. OPERATIONS AND PRODUCTION AFTER THE EFFECTIVE DATE.
(a) OPERATIONS BETWEEN THE EFFECTIVE DATE AND CLOSING. As Closing will
occur subsequent to the Effective Date, SELLER will continue to operate the
PROPERTY, or cause the PROPERTY to be operated, at PURCHASER's sole risk and for
the account of PURCHASER, until Closing in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted. In no event
shall SELLER have any liability to PURCHASER for losses sustained or liabilities
incurred in the conduct of such activities except such as may result from
SELLER's gross negligence or willful misconduct. Upon Closing, PURCHASER shall
assume the risk of any change in the condition of the PROPERTY from the
Effective Date to the Closing Date, except to the extent any change in the
condition is attributable to the gross negligence or willful misconduct of
SELLER. Any casualty loss on or after the Effective Date shall be for the
account of PURCHASER. SELLER shall not take or commit to any material actions or
transactions that are not in the usual, regular and ordinary course of business
with respect to the PROPERTY, except with the prior written consent of
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PURCHASER. SELLER shall consult with PURCHASER prior to electing to participate
or not to participate in any well, lease, or properties; and prior to electing
not to participate in any well, lease or properties shall give PURCHASER
reasonable opportunity to advise SELLER that PURCHASER wants SELLER to elect to
participate on behalf of PURCHASER on the same terms as SELLER would have
participated. If Closing is not consummated, (i) SELLER shall assign its working
interests in any such well, lease or properties to PURCHASER, (ii) PURCHASER
shall reimburse SELLER for any costs associated with the participation by
SELLER, and (iii) PURCHASER shall receive all the benefits and bear all the
detriments of any such participation, less any benefits that otherwise would be
earned by a non-consenting party in the form of an overriding royalty or similar
interest.
(b) EXPENSES. Subject to the provisions of section 21, SELLER shall
be responsible for payment of all Expenses (as defined below) related to the
PROPERTY prior to the Effective Date. PURCHASER shall be responsible for the
payment of all Expenses related to the PROPERTY after the Effective Date, and
for the cost and expenses resulting from the assumption of the obligations and
implied covenants as specified in section 20(b) incurred or accrued from and
after the Effective Date and for payments made by SELLER prior to the Effective
Date to the extent recouped or recoupable from production after the Effective
Date. "Expenses" as used in this section shall mean any expenses incurred or
accrued in connection with the operation, use, protection, maintenance or
ownership of the PROPERTY including, without limitation, expenses for or related
to all lease rentals, shut-in royalties, minimum royalties, payments in lieu of
production, production royalties (including royalties paid in kind), overriding
royalties, production payments, net profits payments, contractual payments,
operating costs, overhead charges as specified below, expenses, fees, vendor and
contractor invoices, billings, taxes, charges (including, without limitation,
any charges for overhead provided for in any operating agreements related to the
PROPERTY at the rates specified in such agreements), rental payments, franchise
fees,
<PAGE>
permits and license fees, assessments and other indebtedness and obligations
due, payable, incurred, accrued or attributable to the ownership, operation,
use, protection or maintenance of or otherwise relating to or associated with
the PROPERTY.
The applicable overhead charge shall be $1.64 per barrel of oil
equivalent produced from the PROPERTY. Any reports or information provided to
PURCHASER at PURCHASER's request, which are not routinely generated by SELLER,
shall be billed to PURCHASER at SELLER's actual cost.
(c) ALLOCATION OF PRODUCTION AND PROCEEDS. All production from oil
and/or gas wells, and all proceeds from the sale thereof, including, without
limitation, proceeds from any imbalance and oil in storage above the pipeline
connection, and take-or-pay collections/rights and accounts receivable
attributable to production prior to the Effective Date and all other monetary
payments (including, without limitation, proceeds from the sale of mineral
production, credits, tax refunds, insurance proceeds, salvage payments and
reimbursement of joint operating costs and expenses) attributable to the
ownership, use or operation of the PROPERTY prior to the Effective Date shall be
the property of SELLER. All such above described production proceeds, and other
monetary payments attributable to production on and after the Effective Date
shall be the property of PURCHASER.
(d) INTERIM ACCOUNTING, PAYMENT AND COLLECTION SERVICES. From and
after the Effective Date until Closing, SELLER shall, for the account of and at
cost set forth in the last paragraph of subsection 18(b), provide all necessary
and appropriate financial accounting services for the PROPERTY and all related
operations and administration of the PROPERTY in the same manner and to the same
extent provided by SELLER prior to the Effective Date, taking into account and
acting consistent with the provisions of subsections 18(b) and 18(c) above.
SELLER shall, for the account of and at the cost set forth in the last paragraph
of subsection 18(b), pay all Expenses (as provided in
<PAGE>
subsection 18(b)) which are the obligation of PURCHASER and collect all proceeds
and other monetary payments which are allocated to PURCHASER (as provided in
subsection 18(c)).
(e) POST CLOSING SETTLEMENT. Within sixty (60) business days after
Closing, SELLER and PURCHASER shall make a final post-Closing settlement to
account for all production proceeds and other monetary payments collected for
PURCHASER's account by SELLER and all Expenses, other costs and expenses and
taxes paid for PURCHASER's account by SELLER pursuant to this section 18 and the
True-Up Accounting Procedures and Principles attached as Schedule III to the
Merger Agreement.. In addition, SELLER and PURCHASER shall account for and
settle any payments made by SELLER prior to the Effective Date which are
recouped or recoupable from production after the Effective Date. SELLER and
PURCHASER agree to promptly remit any sum determined from such post-Closing
settlement to be owed to the other.
(f) AUDIT. Within six (6) months of the Closing, either Party may at
its own expense audit the other Party's books, accounts and records relating to
production proceeds, other monetary payments, Expenses, other costs and expenses
and taxes (other than income taxes) paid or received which may have been
adjusted on account of this transaction. Such audit shall be conducted so as to
cause a minimum of inconvenience to the audited Party.
(g) NO APPLICATION TO INCOME TAXES. All references in sections 18
and 19 to taxes and tax refunds shall not apply to income taxes and income tax
refunds.
19. TAXES, COSTS AND FEES.
(a) TAXES. PURCHASER shall be responsible for the economic burden
and payment of all taxes relating to the PROPERTY from and after the Effective
Date. SELLER shall be responsible for the economic burden and payment of all
taxes relating to the PROPERTY prior to the Effective Date. PURCHASER shall pay
to SELLER at Closing, in addition to and separate from the Purchase Price or
<PAGE>
Exchange Value, an amount equal to all state and local taxes payable by SELLER
on the transfer of ownership of any tangible personal property calculated at the
then-current rates. PURCHASER SHALL INDEMNIFY SELLER AND HOLD SELLER HARMLESS
FROM ANY LIABILITY, INCLUDING WITHOUT LIMITATION, PENALTIES, INTEREST AND
ATTORNEY'S FEES, ARISING OUT OF PURCHASER'S FAILURE TO PAY TO SELLER AT CLOSING,
IN ADDITION TO AND SEPARATE FROM THE PURCHASE PRICE THE AMOUNT EQUAL TO ALL
STATE AND LOCAL TAXES PAYABLE BY SELLER ON THE TRANSFER OF OWNERSHIP OF ANY
TANGIBLE PERSONAL PROPERTY. PURCHASER shall pay all costs associated with
documentary transfer taxes, other transfer taxes and any recording costs
assessed by any federal, state, county or other governmental offices or other
transfer fees and SHALL INDEMNIFY AND HOLD SELLER HARMLESS FOR SUCH TRANSFER
TAXES, COSTS AND FEES.
(b) NO BROKERS. Each Party shall pay and indemnify and hold the
other Party harmless from any commission or brokerage fee it has incurred in
connection with this transaction.
20. OPERATIONS BY PURCHASER.
(a) COMPLIANCE WITH LAWS. PURCHASER shall comply with all applicable
laws, ordinances, rules and regulations, orders, terms of permits and
authorizations of any governmental body which may have jurisdiction with respect
to the PROPERTY to be transferred hereunder (including, without limitation, the
filing with such governmental bodies of any and all compliance reports, notices,
or other compliance documents which are due after the Closing Date regardless of
the period covered by such reports, notices or documents) and shall promptly
obtain and maintain all permits and bonds required by public authorities in
connection with the PROPERTY.
(b) ASSUMPTION OF OBLIGATIONS. Upon Closing, PURCHASER shall assume,
as of the Effective Date, and agree to perform, at PURCHASER's sole cost and
expense, (i) all current and future
<PAGE>
obligations and implied covenants of SELLER and successor(s) relating to the
PROPERTY (whether such obligations and covenants are to a lessor, a governmental
body or any other person or entity), including, but not limited to, (1) any
obligations arising with respect to the plugging and abandonment of all existing
wells (whether or not such wells are active, inactive idle, or have been
previously abandoned as of the Effective Date), (2) any obligations to file or
submit compliance reports, notices and documents required by governmental
bodies, (3) the removal of related oil and gas equipment including, without
limitation, platforms, pipelines, sumps, concrete foundations, vessels, tanks
(above and below ground), and similar items of oil and gas field equipment and
facilities, whether the existence of same is known or unknown to the Parties at
Closing, and (4) the complete and lawful restoration and reclamation of the
lands used in connection with such wells and related equipment, platforms,
pipelines, sumps, concrete foundations, vessels, tanks (above and below ground),
and other similar items of oil and gas field equipment and facilities in
compliance with all federal, state and local laws, rules and regulations, and
(ii) all obligations under licenses, permits, franchises, easements, and
rights-of-ways associated with or included in the PROPERTY and (iii) any
obligations with respect to the reabandonment of previously abandoned wells on
lands included in the PROPERTY. This assumption of obligations and liabilities
by PURCHASER shall include SELLER's obligations and liabilities with respect to
net proceeds from production attributable to interests in the PROPERTY as
currently held in suspense because of a lack of identity or address of owners,
title questions, change of ownership or similar reasons (as identified on
SCHEDULE "20(b)" attached hereto). The amount of suspended funds shall be
credited to PURCHASER in the post-Closing settlement described in subsection
18(e). As set forth in subsection 21(a)(1), PURCHASER SHALL DEFEND, INDEMNIFY
AND HOLD SELLER HARMLESS WITH RESPECT TO THE PERFORMANCE OR FAILURE TO PERFORM
OF PURCHASER'S OBLIGATIONS UNDER THIS SECTION 20. UPON CLOSING,
<PAGE>
PURCHASER EXPRESSLY ASSUMES SELLER'S STRICT AND STATUTORY LIABILITY WITH RESPECT
TO THE PROPERTY, INCLUDING ALL LIABILITY UNDER ANY ENVIRONMENTAL LAW, EXCEPT AS
EXPRESSLY PROVIDED OTHERWISE IN SUBSECTIONS 21(c) AND (d) HEREOF, AND PURCHASER
SHALL DEFEND, INDEMNIFY AND HOLD SELLER HARMLESS WITH RESPECT TO THE PERFORMANCE
OR FAILURE TO PERFORM OF PURCHASER'S OBLIGATIONS UNDER THIS SECTION 20,
REGARDLESS OF THE NEGLIGENCE, FAULT OR STRICT (STATUTORY) LIABILITY OF SELLER AS
SET FORTH IN SUBSECTIONS 21(a) AND 21(b).
21. INDEMNIFICATION. Capitalized terms used in this section 21 which are
not defined elsewhere in this AGREEMENT are defined in subsection 21(f) below.
(a) GENERAL INDEMNITY BY PURCHASER. TO THE FULLEST EXTENT PERMITTED
BY LAW, BUT NO FURTHER, PURCHASER SHALL INDEMNIFY AND HOLD HARMLESS SELLER, ITS
AFFILIATES, SUCCESSORS AND ASSIGNS, AND THE RESPECTIVE OFFICERS, DIRECTORS,
EMPLOYEES AND AGENTS OF EACH (THE "SELLER INDEMNIFIED PARTIES"), FROM ANY AND
ALL CLAIMS WHICH (A) DIRECTLY OR INDIRECTLY ARISE (AS DEFINED IN SUBSECTION
21(f)(2)) OR RESULT FROM OR ARE CAUSED BY THE USE, OPERATION, MAINTENANCE,
OCCUPATION, OWNERSHIP OR ABANDONMENT OF THE PROPERTY ON OR AFTER THE EFFECTIVE
DATE OR (B) ARE NOT SUBJECT TO SELLER'S OBLIGATIONS OF INDEMNITY UNDER
SUBSECTION 21(c) OR (d), IRRESPECTIVE OF WHEN THE CLAIMS ARISE (BEFORE, ON, OR
AFTER THE EFFECTIVE DATE), EVEN THOUGH SUCH CLAIMS MAY HAVE BEEN CONTRIBUTED TO
OR CAUSED BY THE NEGLIGENCE OR FAULT OF SELLER OCCURRING PRIOR TO CLOSING
(EXCEPT FOR (i) ENVIRONMENTAL CLAIMS OR ENVIRONMENTAL CLEANUP LIABILITY AS
PROVIDED FOR IN SUBSECTION 21(b) BELOW). THE FOREGOING OBLIGATION SHALL APPLY
REGARDLESS OF THE NEGLIGENCE, FAULT OR THE STRICT OR STATUTORY
<PAGE>
LIABILITY OF SELLER UNDER ANY LAW (INCLUDING STATUTORY, REGULATORY AND CASE
LAW), REGARDLESS OF WHETHER SUCH LAW WAS IN EXISTENCE AS OF THE EFFECTIVE DATE.
PURCHASER FURTHER COVENANTS AND AGREES TO DEFEND ANY SUIT(S) OR ADMINISTRATIVE
PROCEEDING(S) BROUGHT AGAINST SELLER INDEMNIFIED PARTIES ON ACCOUNT OF ANY SUCH
CLAIMS INDEMNIFIED HEREUNDER AND TO PAY OR DISCHARGE THE FULL AMOUNT OR
OBLIGATION OF SUCH CLAIMS INCURRED BY, ACCRUING TO OR IMPOSED ON SELLER
INDEMNIFIED PARTIES RESULTING FROM ANY SUCH SUIT(S) OR PROCEEDING(S) OR ANY
AMOUNTS RESULTING FROM THE SETTLEMENT OR RESOLUTION OF SUCH SUIT(S) OR
PROCEEDING(S). IN ADDITION, PURCHASER SHALL PAY TO SELLER INDEMNIFIED PARTIES AS
APPLICABLE, ALL ATTORNEYS' FEES INCURRED BY SELLER INDEMNIFIED PARTIES AS
APPLICABLE, IN ENFORCING PURCHASER'S INDEMNITY IN THIS SUBSECTION 21(A).
(b) ENVIRONMENTAL INDEMNITY BY PURCHASER. TO THE FULLEST EXTENT
PERMITTED BY LAW, BUT NO FURTHER, PURCHASER SHALL INDEMNIFY AND HOLD HARMLESS
SELLER INDEMNIFIED PARTIES FROM AND AGAINST ANY AND ALL ENVIRONMENTAL CLAIMS OR
ENVIRONMENTAL CLEANUP LIABILITY WHICH (A) ARISE DIRECTLY OR INDIRECTLY FROM THE
USE, OPERATION, MAINTENANCE, OCCUPATION, OWNERSHIP OR ABANDONMENT OF THE
PROPERTY ON OR AFTER THE EFFECTIVE DATE OR (B) ARE NOT SUBJECT TO SELLER'S
OBLIGATIONS OF INDEMNITY UNDER SUBSECTION 21(c) OR (d), IRRESPECTIVE OF WHEN THE
ENVIRONMENTAL CLAIMS OR ENVIRONMENTAL CLEANUP LIABILITY ARISE (BEFORE, ON, OR
AFTER THE EFFECTIVE DATE), EVEN THOUGH CAUSED, OR CONTRIBUTED TO, BY THE
NEGLIGENCE OR FAULT OF SELLER.
THE FOREGOING OBLIGATION SHALL APPLY REGARDLESS OF THE NEGLIGENCE, FAULT OR THE
STRICT OR STATUTORY LIABILITY OF SELLER UNDER ANY LAW (INCLUDING STATUTORY,
REGULATORY AND CASE LAW), REGARDLESS OF WHETHER SUCH LAW WAS IN EXISTENCE AS OF
THE EFFECTIVE DATE. PURCHASER FURTHER COVENANTS AND AGREES TO DEFEND ANY SUIT(S)
OR
<PAGE>
ADMINISTRATIVE PROCEEDING(S) BROUGHT AGAINST SELLER INDEMNIFIED PARTIES ON
ACCOUNT OF ANY SUCH ENVIRONMENTAL CLAIMS OR ENVIRONMENTAL CLEANUP LIABILITY AND
TO PAY OR DISCHARGE THE FULL AMOUNT OR OBLIGATION OF SUCH ENVIRONMENTAL CLAIMS
OR ENVIRONMENTAL CLEANUP LIABILITY INCURRED BY, ACCRUING TO OR IMPOSED ON SELLER
INDEMNIFIED PARTIES, AS APPLICABLE, RESULTING FROM ANY SUCH SUIT(S) OR
PROCEEDING(S) OR ANY AMOUNTS RESULTING FROM THE SETTLEMENT OR RESOLUTION OF SUCH
SUIT(S) OR PROCEEDING(S). IN ADDITION, PURCHASER SHALL PAY TO SELLER INDEMNIFIED
PARTIES, AS APPLICABLE, ALL ATTORNEYS' FEES INCURRED BY SELLER INDEMNIFIED
PARTIES, AS APPLICABLE, IN ENFORCING PURCHASER'S INDEMNITY IN THIS SUBSECTION
21(b).
(C) GENERAL INDEMNITY BY SELLER. TO THE FULLEST EXTENT PERMITTED BY
LAW BUT NO FURTHER AND SUBJECT TO THE LIMITATIONS SET FORTH IN SUBSECTION 21(E)
BELOW, SELLER SHALL INDEMNIFY AND HOLD HARMLESS PURCHASER, ITS AFFILIATES,
SUCCESSORS AND ASSIGNS, AND THE RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES AND
AGENTS OF EACH (THE "PURCHASER INDEMNIFIED PARTIES"), FROM ANY AND ALL THIRD
PARTY CLAIMS (EXCEPT FOR (i) ENVIRONMENTAL CLAIMS OR ENVIRONMENTAL CLEANUP
LIABILITY AS PROVIDED FOR IN SUBSECTION 21(d) BELOW; AND (ii) ANY SUCH THIRD
PARTY CLAIMS TO THE EXTENT CAUSED BY THE WILLFUL MISCONDUCT OR GROSS NEGLIGENCE
OF PURCHASER) FOR WHICH A CLAIM NOTICE IS DELIVERED TO SELLER WITHIN ONE (1)
YEAR AFTER THE CLOSING DATE HEREUNDER AND (i) WHICH ARISE, RESULT FROM OR ARE
CAUSED BY THE USE, OPERATION, MAINTENANCE, OCCUPATION AND OWNERSHIP OF THE
PROPERTY BY SELLER ACCRUED AND ATTRIBUTABLE UP TO, BUT NOT ON OR AFTER THE
EFFECTIVE DATE, (ii) ARE BASED ON LAW (INCLUDING STATUTORY, REGULATORY AND CASE
LAW) EXISTING AT THE EFFECTIVE DATE AND (iii) WHICH EXCEEDS $1,000,000.00.
SELLER FURTHER COVENANTS AND AGREES TO DEFEND ANY SUIT(S) OR ADMINISTRATIVE
PROCEEDING(S) BROUGHT AGAINST PURCHASER INDEMNIFIED PARTIES ON ACCOUNT OF ANY
SUCH THIRD PARTY CLAIMS INDEMNIFIED HEREUNDER AND TO PAY OR DISCHARGE THE FULL
AMOUNT OR OBLIGATION OF ANY SUCH THIRD
<PAGE>
PARTY CLAIMS INCURRED BY, ACCRUING TO OR IMPOSED ON PURCHASER INDEMNIFIED
PARTIES RESULTING FROM ANY SUCH SUIT(S) OR PROCEEDING(S) OR ANY AMOUNTS
RESULTING FROM THE SETTLEMENT OR RESOLUTION OF SUCH SUIT(S) OR PROCEEDING(S). IN
ADDITION, SELLER SHALL PAY TO PURCHASER INDEMNIFIED PARTIES ALL ATTORNEYS' FEES
INCURRED BY PURCHASER INDEMNIFIED PARTIES IN ENFORCING SELLER'S INDEMNITY IN
THIS SUBSECTION 21(c).
(d) ENVIRONMENTAL INDEMNITY BY SELLER. TO THE FULLEST EXTENT
PERMITTED BY LAW BUT NO FURTHER AND SUBJECT TO THE LIMITATIONS SET FORTH IN
SUBSECTION 21(e) BELOW, SELLER SHALL INDEMNIFY AND DEFEND PURCHASER INDEMNIFIED
PARTIES FROM AND AGAINST ANY AND ALL ENVIRONMENTAL CLAIMS AND ENVIRONMENTAL
CLEANUP LIABILITY FOR WHICH A CLAIM NOTICE IS DELIVERED TO SELLER WITHIN ONE (1)
YEAR AFTER THE CLOSING DATE AND (i) WHICH ARISES OUT OF THE USE, OPERATION,
MAINTENANCE, OCCUPATION OR OWNERSHIP OF THE PROPERTY BY SELLER ACCRUED AND
ATTRIBUTABLE UP TO, BUT NOT ON OR AFTER THE EFFECTIVE DATE, AND (ii) WHICH ARE
BASED ON ENVIRONMENTAL LAW (INCLUDING STATUTORY, REGULATORY AND CASE LAW) IN
EFFECT AT THE EFFECTIVE DATE HEREUNDER AND (iii) WHICH EXCEEDS ONE MILLION
DOLLARS ($1,000,000.00). SELLER FURTHER COVENANTS AND AGREES TO DEFEND ANY
SUIT(S) OR ADMINISTRATIVE PROCEEDING(S) BROUGHT AGAINST PURCHASER INDEMNIFIED
PARTIES ON ACCOUNT OF ANY SUCH ENVIRONMENTAL CLAIMS OR ENVIRONMENTAL CLEANUP
LIABILITY AND TO PAY OR DISCHARGE THE FULL AMOUNT OR OBLIGATION OF ANY SUCH
ENVIRONMENTAL CLAIM OR ENVIRONMENTAL CLEANUP LIABILITY INCURRED BY, ACCRUING TO
OR IMPOSED UPON PURCHASER INDEMNIFIED PARTIES RESULTING FROM ANY SUCH SUIT(S) OR
PROCEEDING(S) OR ANY AMOUNTS RESULTING FROM THE SETTLEMENT OR RESOLUTION OF SUCH
SUIT(S) OR PROCEEDING(S). IN ADDITION, SELLER SHALL PAY TO PURCHASER INDEMNIFIED
PARTIES ALL ATTORNEYS' FEES INCURRED BY PURCHASER INDEMNIFIED PARTIES IN
ENFORCING SELLER'S INDEMNITY IN THIS SUBSECTION 21(d).
<PAGE>
(e) LIMITATIONS. The indemnification obligations of SELLER contained
in subsections 21(c) and (d) shall be subject to the following limitations and
conditions:
(1) Such indemnification obligations shall not limit the
disclaimers of warranties and acknowledgments of PURCHASER with respect to the
PROPERTY as specified in section 10 above, and the indemnities contained herein
shall have no application to matters of description, title (including, without
limitation, the existence of non-existence of easements, licenses,
rights-of-way, permits, franchises, liens, leases, unit agreements or other
encumbrances or other agreements or the failure to procure governmental or
necessary Third Party consents or approvals of assignment of the PROPERTY),
quality, value, fitness for purpose or merchantability of the PROPERTY;
(2) Such indemnification obligations shall not limit
PURCHASER's obligations (including indemnification obligations) under section 20
hereof with respect to removal and abandonment of facilities and wells located
on the PROPERTY including, without limitation, the plugging and abandoning of
wells, removal of concrete foundations, sumps, pipelines, vessels, tanks and
similar items of oil field equipment and facilities, and restoration of the
PROPERTY and the indemnities by SELLER contained herein shall have no
application to any costs, losses or liabilities incurred by PURCHASER in
connection with fulfilling such removal, abandonment and restoration
obligations;
(3) Such indemnification obligations shall not limit any
indemnification and reimbursement obligations of PURCHASER specified in the
Confidentiality Agreement dated August 21, 1997 or the Agreement for
Indemnification and Responsibility for Damages dated January 19, 1998;
(4) SELLER's combined financial obligations under subsections
21(c) and (d) shall not exceed, in the aggregate, 25% of Purchase Price;
(5) No Claim Notice may be delivered to SELLER by PURCHASER,
and SELLER shall have no financial obligations under said subsections 21(c) and
(d) unless and until
<PAGE>
PURCHASER has first paid fifty thousand dollars ($50,000.00) with respect to
each individual Third Party Claim, Environmental Claim or Environmental Cleanup
Liability for which PURCHASER seeks to deliver a Claim Notice; and
(6) Such indemnification obligations shall be limited to the
extent any costs, losses or liabilities incurred by PURCHASER result from
PURCHASER's acquisition of the PROPERTY from SELLER; accordingly, SELLER shall
not indemnify PURCHASER for any costs, losses or liabilities incurred by
PURCHASER on account of PURCHASER's ownership of an interest in the PROPERTY
which PURCHASER acquired from a Third Party.
(f) DEFINITIONS. For purposes of this Agreement:
(1) "Affiliate(s)" shall mean a Party's "Parent Company" and
"Affiliated Companies". "Parent Company", "Affiliated Companies" and
"Controlling Interest" shall have the following meanings:
(i) A Party's "Parent Company" shall mean an entity
having a direct or indirect "Controlling Interest" in such Party;
(ii) A Party's "Affiliated Companies" shall mean any
and all entities in which the Party or the Parent Company of such Party has a
direct or indirect "Controlling Interest;" and
(iii) "Controlling Interest" shall mean a legal or
beneficial ownership of fifty percent (50%) or more of the voting stock or other
voting rights in an entity.
(2) "Arises." An Environmental Claim or Environmental Cleanup
Liability shall be deemed to arise upon (i) each discrete, operationally-related
Release of Chemical Substance, as measured on a daily basis, or (ii) each
discrete, operationally-related occurrence of pollution, contamination or
migration, as measured on a daily basis.
<PAGE>
(3) "Chemical Substances" shall mean any chemical substance,
including, but not limited to, any sort of pollutants, contaminants, chemicals,
raw materials, intermediates, products, industrial, solid, toxic or hazardous
substances, materials, wastes, or petroleum products, including crude oil or any
component thereof, salt water, brine, asbestos, or NORM.
(4) "Claims" shall mean any and all claims, demands, loss,
liability, liens, demands, judgments, settlements, suits, causes of action,
fines, penalties, compliances, costs, and any costs, expenses and fees
associated with the investigation, defense and resolution of the foregoing,
including without limitation, reasonable attorney's fees. Claims may be based on
any theory of tort, contract, strict liability, statutory liability (including,
without limitation, fines, penalties, obligations or requirements) or any other
basis for liability and shall include, without limitation, any Claims arising,
occurring or resulting from, related to or based on the injury, disease, or
death of any persons (including, without limitation, the indemnifying Party's
employees, agents and representatives) or damage to, loss or destruction of any
property, real or personal (including, without limitation, the indemnifying
Party's property).
(5) "Claim Notice" shall mean a notice delivered to SELLER, in
writing, that the PURCHASER has received a claim or demand from a Third Party or
been served with process by or on behalf of a Third Party asserting Claims,
Environmental Claims or Environmental Cleanup Liability indemnified hereunder.
(6) "Environmental Claim" shall mean any claim, demand,
action, suit or proceeding for the personal injury, disease or death of any
person (including, without limitation, the indemnifying Party's employees,
agents and representatives), property damage, damage to the environment, or
damage to natural resources made, asserted or prosecuted by or on behalf of any
Third Party (whether based on negligent acts or omissions, statutory liability,
or strict liability without fault or
<PAGE>
otherwise) arising or alleged to arise under any Environmental Law.
Environmental Claim includes any damages, settlement amounts, fines and
penalties assessed or costs of complying with any orders or decrees of courts,
administrative tribunals or other governmental entities (other than such
compliance costs related to Environmental Cleanup Liability) associated with
resolving such claims, demands, actions, suits or proceedings and any costs,
expenses and fees, including, without limitation, reasonable attorneys' fees
incurred in the investigation, defense and resolution of such claims, demands,
actions, suits and proceedings.
(7) "Environmental Cleanup Liability" shall mean any cost or
expense of any nature whatsoever incurred (in order to comply with the
provisions of any Environmental Law or the provisions of any order or decree of
any court or administrative or regulatory tribunal or agency enforcing any
Environmental Law) to contain, remove, remedy, respond to, clean up, or abate
any Release of Chemical Substances or other contamination or pollution of the
air, surface water, groundwater, land surface or subsurface strata related to
the operation, use, maintenance and ownership of the PROPERTY, whether such
Release, contamination or pollution is located on, within, under or above real
property included in the PROPERTY ("on site") or is located off site, including,
but not limited to, any Release of Chemical Substances or other contamination or
pollution arising out of or resulting from the manufacture, generation,
formulation, processing, labeling, distribution, introduction into commerce, or
on site or off site use, treatment, handling, storage, disposal, or
transportation of any Chemical Substances. Environmental Cleanup Liability
includes, without limitation, any judgments, damages, settlements, costs or
expenses (including, without limitation, attorneys', consultants' and experts'
fees and expenses) incurred with respect to (i) any investigation, study,
assessment, legal representation, cost recovery by a governmental agency or
Third Party, or monitoring or testing in connection therewith, (ii) the PROPERTY
as a result of actions or measures necessary to implement or effectuate any such
<PAGE>
containment, removal, remediation, response, cleanup or abatement, and (iii) the
resolution of such liabilities.
(8) "Environmental Law" means any statutes, rules,
regulations, controlling judicial decisions or legal requirements relating to or
regulating the pollution, protection or cleanup of the environment or damage to
or remediation of damage to real property and natural resources (including, but
not limited to, ambient air, surface water, groundwater, and land surface or
subsurface strata) including, without limitation, legal requirements contained
in the Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. ss. 9601 et seq., as amended (CERCLA); the Resources
Conservation and Recovery Act of 1976, 42 U.S.C. ss. 6901, et seq., as amended
(RCRA); the Superfund Amendments and Reauthorization Act of 1986, Pub. L.
99-499, as amended (SARA); the Clean Air Act, 42 U.S.C. ss. 7401, et seq., as
amended; Federal Water Pollution Control Act, 33 U.S.C. ss. 2601 et seq., as
amended; National Environmental Policy Act, 42 U.S.C. ss. 4321, et seq., as
amended (NEPA); and the Safe Drinking Water Act, 42 U.S.C., ss. 300 j-l, et
seq., as amended; and/or any other federal, state or local laws, statutes,
ordinances, rules, regulations or orders (including decisions of any court or
administrative body) relating to the pollution, protection or cleanup of the
environment as specified above. Environmental Law shall also mean the Toxic
Substance Control Act, 25 U.S.C. ss. 1502, et seq., as amended (TOSCA) and/or
any other federal, state (including, without limitation, laws with respect to
trespass, nuisance and other torts or similar legal theories which may be
applied to establish liability or responsibility for Environmental Cleanup or
Environmental Claims) or local laws, statutes, ordinances, rules, regulations or
orders (including decisions of any court or administrative body) relating to (i)
release, containment, removal, remediation, response, cleanup or abatement of
any sort of Chemical Substance, (ii) the manufacture, generation, formulation,
processing, labeling, distribution, introduction into commerce, use, treatment,
handling, storage, disposal or transportation of any Chemical Substance,
<PAGE>
(iii) exposure of persons, including employees of SELLER or PURCHASER, to any
Chemical Substance and other occupational safety or health matters, or (iv) the
physical structure or condition of a building, facility, fixture or other
structure, including, without limitation, those relating to the management, use,
storage, disposal, cleanup or removal of asbestos, asbestos-containing
materials, polychlorinated biphenyls or any other Chemical Substance.
(9) "Release" shall mean any spilling, leaking, pumping,
pouring, emitting, emptying, discharging, escaping, leaching, dumping or
disposing of any Chemical Substance into the environment (including, but not
limited to, the ambient air, surface water, groundwater and land surface or
subsurface strata) of any kind whatsoever (including also the abandonment or
discarding of barrels, containers, tanks or other receptacles containing or
previously containing any Chemical Substance).
(10) "Third Party" shall mean any person (other than a Party
or its Affiliates) including, without limitation, any such natural person,
business entity (corporation, partnership, trust, sole proprietorship or other
business entity), any federal, state or local governmental entity, agency or
administrative body, employee of PURCHASER or of SELLER, former employee of
PURCHASER or of SELLER, or their respective legal representatives, heirs,
beneficiaries or estates.
(g) INDEMNIFIED PARTY'S PARTICIPATION. Any indemnified Party shall
have the right at all times, if it so elects and without relieving the
indemnifying Party of its obligations to defend hereunder, to participate in the
preparation for and conducting of any hearing or trial related to these
indemnification provisions, as well as the right to appear on its own behalf at
any such hearing or trial. Any such participation or appearance by an
indemnified Party shall be at its sole cost and expense.
An indemnified Party shall not execute a consent order nor
accept any settlement regarding an indemnified matter without the indemnifying
Party's prior written approval, which approval shall not be unreasonably
withheld. The indemnified Party shall cooperate fully with the indemnifying
<PAGE>
Party in the defense of any matter hereunder by the indemnifying Party and shall
take those actions reasonably, within its power to take which are reasonably
necessary to preserve any legal defenses to indemnified matters hereunder until
the indemnifying Party has assumed the defense of the matter.
22. EXISTING CONTRACTS/IMBALANCES.
(a) ASSUMPTION OF CONTRACTS.The sale or exchange contemplated
hereunder shall be made subject to any and all existing operating agreements,
unit agreements, and unit orders, transportation agreements, and gas balancing
agreements, as well as any and all other agreements, permits, franchises,
leases, licenses, easements and rights-of-way including, without limitation,
overage/shortage agreements and exchange agreements to which the PROPERTY is
subject. To the extent such agreements may be assigned and delegated, as of
Closing, SELLER shall be deemed to have assigned and delegated such agreements
to PURCHASER and PURCHASER shall assume and be responsible for all obligations
of SELLER accruing under such agreements. PURCHASER agrees to seek any necessary
consents or approvals for the assignment and transfer of such agreements from
SELLER to PURCHASER. If such agreements may not be assigned or delegated, SELLER
may, at its sole discretion, perform such agreements on behalf of PURCHASER and
PURCHASER shall promptly, upon notice, reimburse SELLER for its respective
costs, expenses and obligations incurred in performing such agreements.
(b) GAS IMBALANCES. PURCHASER shall accept all gas and oil
imbalances that exist on the PROPERTY as of the Effective Date (as identified on
SCHEDULE "22(b)" attached hereto) and shall assume all responsibility to settle
with other interest owners for any over or short gas or oil imbalances that
exist on the PROPERTY. If the gas or oil imbalance on a particular PROPERTY
interest is a net liability, PURCHASER shall indemnify SELLER for that net
liability.
<PAGE>
23. NOTICES. All notices and communications required or permitted under
this AGREEMENT shall be in writing, delivered to or sent by U. S. Mail or
nationally recognized commercial courier service, postage or delivery charges
prepaid, or by telecopy, addressed as follows (or such other address as may be
specified by ten (10) days prior written notice to the other Party):
SELLER
Shell Western E&P Inc.
ATTN Y. N. Youssef
200 North Dairy Ashford
Houston, TX 77079
Phone: (281) 544-3077
Fax: (281) 544-4393
<PAGE>
THE MERIDIAN RESOURCE EXPLORATION COMPANY
15995 N. Barkers Landing,
Suite 300
Houston, TX 77079
Attn: Joseph A. Reeves, Jr., CEO
Phone: (281) 558-8080
Fax: (281) 558-5595
cc: Gary A. Messersmith
Fouts & Moore, L.L.P.
1300 Post Oak Blvd., 20th Floor
Houston, TX 77056-3013
Phone: (713) 986-7216
Fax: (713) 986-7299
Notice shall be deemed to have been duly given when delivered to or sent to the
other Party in the manner prescribed herein and actually received by the Party
to whom the notice is given.
24. PARTIES IN INTEREST. Subject to subsection 27(d) below, this AGREEMENT
shall inure to the benefit of and be binding upon SELLER and PURCHASER and their
respective successors and assigns. However, no assignment by any Party shall
relieve any Party of any duties or obligations under this AGREEMENT.
<PAGE>
25. COMPLETE AGREEMENT. When executed by the authorized representatives of
SELLER and PURCHASER, this AGREEMENT, together with the executed copies of the
exhibits hereto and documents referred to herein, shall supersede all prior
written or oral and all contemporaneous oral agreements and understandings
between the Parties, including without limitation, all and any bid solicitation,
bid offer and bid acceptance letters, and shall constitute the complete
agreement between the Parties regarding the purchase and sale, or exchange, of
the PROPERTY.
26. APPLICABLE LAW. THIS AGREEMENT, OTHER DOCUMENTS EXECUTED AND DELIVERED
PURSUANT HERETO, AND THE LEGAL RELATIONS BETWEEN THE PARTIES WITH RESPECT TO
THIS AGREEMENT, SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF TEXAS WITHOUT REGARD TO RULES CONCERNING CONFLICTS OF LAWS;
PROVIDED, THAT THE VALIDITY OF THE VARIOUS CONVEYANCES TRANSFERRING TITLE TO
REAL PROPERTY AND REAL PROPERTY INTERESTS UNDER THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE JURISDICTION IN WHICH SUCH
REAL PROPERTY OR REAL PROPERTY INTERESTS ARE LOCATED.
27. MISCELLANEOUS PROVISIONS.
(a) CAPTIONS. Captions have been inserted for reference purposes
only and shall not define or limit the terms of this AGREEMENT.
(b) PARTIAL INVALIDITY. If any provision of this AGREEMENT is held
invalid, such invalidity shall not affect the remaining provisions.
(c) MODIFICATION. This AGREEMENT cannot be modified or amended
except by a written instrument duly executed by SELLER and PURCHASER.
<PAGE>
(d) ASSIGNMENT. Neither SELLER nor PURCHASER, without the prior
written consent of the other Party, shall assign any right or obligation under
this AGREEMENT prior to Closing, or attempt to delegate any duty to be performed
under this AGREEMENT, except that SELLER may make such an assignment and/or
delegation to an Affiliate or to a Qualified Intermediary without the consent of
PURCHASER. Consent to assign shall not be unreasonably withheld by either Party.
Any attempted assignment or delegation without such consent shall be void and of
no effect.
(e) COUNTERPARTS. This AGREEMENT may be executed in any number of
counterparts, each of which shall be deemed an original instrument, but all of
which together shall constitute but one and the same instrument.
(f) EXPENSES. Except as otherwise expressly provided herein, all
expenses incurred by each Party in connection with the transaction contemplated
herein, including, without limitation, attorney's fees, are for the account of
the Party incurring the same and the Party incurring such expenses shall defend,
indemnify and hold harmless the other Party from and against such expenses.
(g) SIGNS. SELLER shall have the right, but not the obligation, to
remove all of SELLER's signs, placards, notices, or other posted documents or
information and any other like property which refers to SELLER's ownership of
the PROPERTY or responsibility for the operations conducted thereon.
(h) PRESS RELEASES. No information in connection with this sale or
exchange shall be released to the public, including, without limitation, through
press releases, without the express written permission of SELLER, unless
required by applicable federal, state or local laws.
(i) RECORDING. SELLER shall record this AGREEMENT with the
Assignment and Conveyance and Personal Property Agreement and Bill of Sale in
the appropriate governmental offices and land records in the Parishes and State
of Louisiana at PURCHASER's expense.
<PAGE>
(j) SURVIVAL. All representations, indemnifications, covenants,
obligations and promises of the Parties set forth in this AGREEMENT shall
survive Closing. All documents conveying, transferring or assigning the PROPERTY
shall incorporate by reference the terms and conditions of this AGREEMENT.
(k) EXHIBITS AND SCHEDULES. The Exhibits and Schedules listed below
are attached to this AGREEMENT:
EXHIBIT "A" Property and Property Interests Subject To This AGREEMENT
EXHIBIT "B" Assignment and Conveyance
EXHIBIT "C" Personal Property Agreement and Bill of Sale
EXHIBIT "D" SELLER Non-foreign Affidavit
SCHEDULE "1(k)" Specifically Listed Exclusions
SCHEDULE "20(b)" Suspense Items
SCHEDULE "22(b)" Oil and Gas Imbalances
(l) TIME OF ESSENCE. Time is of the essence in the performance of
this AGREEMENT.
(m) NO PARTNERSHIP. Nothing contained in this AGREEMENT shall be
deemed to create a joint venture, partnership, tax partnership or agency
relationship between the Parties.
(n) FILE TRANSFERS. Within a reasonable time after Closing, SELLER
will transfer to PURCHASER, subject to SELLER's continuing right of access as
hereinafter set forth, the following original SELLER files, records, documents
and data relating to the PROPERTY: oil, gas and mineral lease, fee, easement and
right of way, surface lease, operating agreement, farmout, unitization and
pooling and land abstract files and records as well as original well record
files on all active wells (i.e., all existing wells situated on the PROPERTY
which have not been plugged and abandoned as of the Closing Date)
<PAGE>
but save, less and except therefrom all Proprietary Data which for the purposes
of this AGREEMENT, shall include (i) all data that is confidential or legally
privileged, (ii) any interpretive geological and geophysical information which
would reveal the methods used by SELLER in interpreting geological and
geophysical information, economic analysis, and any information or other similar
proprietary data which would reveal SELLER's economic guidelines or other
methods or systems by which SELLER conducts its economic analysis, and (iii) any
similar data or information.
SELLER retains the right of complete access to the above files
and records, which right of access may be exercised by SELLER at reasonable
times, upon giving PURCHASER reasonable notice and which shall include, at
SELLER's sole cost and expense, the right to copy or duplicate any and all
contents therein. Should SELLER be required by a governmental rule or order to
produce the original of any document described in this subsection, PURCHASER
will, to the best of its ability, make such document available to enable SELLER
to comply with said rule or order upon receiving proper assurance that such
document will be promptly returned to PURCHASER.
After Closing, SELLER shall grant PURCHASER the right of
access to the following SELLER files, records, documents and data relating to
the PROPERTY: division order, transfer order, letters-in-lieu, regulatory,
accounting, environmental, pipeline, maintenance, transportation, [processing,]
production and engineering files and records not conveyed and transferred to
PURCHASER; however, this right of access shall not extend to or cover
Proprietary Data as defined above in this subsection 27(n). PURCHASER's right of
access may be exercised at reasonable times, upon giving SELLER reasonable
notice and shall include, at PURCHASER's sole cost and expense, the right to
copy any and all contents therein not otherwise excluded subject to the
following: (1) only division of interest sheets, division orders, transfer
orders, letters-in-lieu, title opinions and title curative material may be
copied from division order files and (2) only gas contracts and amendments or
<PAGE>
agreements relating thereto and pertinent outside correspondence may be copied
from gas files. Should PURCHASER be required by a governmental rule or order to
produce the original of any document to which the right of access has been
granted by this subsection, SELLER will, to the best of its ability, make such
document available to enable PURCHASER to comply with said rule or order upon
receiving proper assurance that such document will be promptly returned to
SELLER.
(O) ARBITRATION. ANY CONTROVERSY OR CLAIM, WHETHER BASED ON
CONTRACT, TORT, STATUTE OR OTHER LEGAL OR EQUITABLE THEORY (INCLUDING BUT NOT
LIMITED TO ANY CLAIM OF FRAUD, MISREPRESENTATION OR FRAUDULENT INDUCEMENT OR ANY
QUESTION OF VALIDITY OR EFFECT OF THIS AGREEMENT INCLUDING THIS CLAUSE) ARISING
OUT OF OR RELATED TO THIS AGREEMENT (INCLUDING ANY AMENDMENTS OR EXTENSIONS AND
ANY AGREEMENTS ATTACHED AS EXHIBITS HERETO), OR THE BREACH OR TERMINATION
THEREOF SHALL BE SETTLED BY ARBITRATION IN ACCORDANCE WITH THE THEN CURRENT CPR
INSTITUTE FOR DISPUTE RESOLUTION RULES FOR NON-ADMINISTERED ARBITRATION OF
BUSINESS DISPUTES, AND THIS PROVISION. THE ARBITRATION SHALL BE GOVERNED BY THE
UNITED STATES ARBITRATION ACT, 9 U.S.C. SS.SS. 1-16 TO THE EXCLUSION OF ANY
PROVISION OF STATE LAW INCONSISTENT THEREWITH OR WHICH WOULD PRODUCE A DIFFERENT
RESULT, AND JUDGMENT UPON THE AWARD RENDERED BY THE ARBITRATORS MAY BE ENTERED
BY ANY COURT HAVING JURISDICTION.
THE ARBITRATION SHALL BE HELD IN HOUSTON, TEXAS, OR AT SOME
OTHER LOCATION AS MUTUALLY AGREED UPON BY THE PARTIES.
THERE SHALL BE THREE ARBITRATORS. SELLER AND PURCHASER SHALL
EACH SELECT AN ARBITRATOR, AND THOSE ARBITRATORS SHALL SELECT THE THIRD
ARBITRATOR. TO THE EXTENT THE PARTIES' DISPUTE(S) CONCERN MATTERS OF (I) OIL AND
GAS LAW, GEOLOGY AND/OR PETROLEUM ENGINEERING AND/OR (II) ENVIRONMENTAL LAW
AND/OR ENVIRONMENTAL SCIENCE, THEN EACH ARBITRATOR MUST BE TRAINED AND
KNOWLEDGEABLE IN SUCH MATTERS.
<PAGE>
THE ARBITRATORS SHALL DETERMINE THE CLAIMS OF THE PARTIES AND
RENDER A FINAL AWARD. THE ARBITRATORS SHALL SET FORTH THE REASONS FOR THE AWARD
IN WRITING.
ALL STATUTES OF LIMITATIONS AND DEFENSES BASED UPON PASSAGE OF
TIME APPLICABLE TO ANY CLAIM OF A DEFENDING PARTY (INCLUDING ANY COUNTERCLAIM OR
SET-OFF) SHALL BE TOLLED WHILE THE ARBITRATION IS PENDING.
THE OBLIGATION TO ARBITRATE ANY CLAIM SHALL EXTEND TO THE
SUCCESSORS, ASSIGNS AND THIRD PARTY BENEFICIARIES OF THE PARTIES.
THE ARBITRATORS SHALL ORDER THE PARTIES TO PROMPTLY EXCHANGE
COPIES OF ALL DOCUMENTS REGARDING THE MATERIALS IN DISPUTE, POTENTIAL FACTS,
WITNESS LISTS AND EXPERT WITNESS LISTS, AND, IF REQUESTED BY A PARTY, TO PRODUCE
OTHER RELEVANT DOCUMENTS, TO ANSWER UP TO TEN (10) INTERROGATORIES (INCLUDING
SUBPARTS), TO RESPOND TO UP TO TEN (10) REQUESTS FOR ADMISSIONS (WHICH SHALL BE
DEEMED ADMITTED IF NOT DENIED) AND TO PRODUCE FOR DEPOSITION AND, IF REQUESTED,
AT THE HEARING ANY OR ALL LISTED WITNESSES, BOTH FACT AND EXPERT, WITHIN SUCH
PARTY'S CONTROL. ANY ADDITIONAL DISCOVERY SHALL ONLY OCCUR BY AGREEMENT OF THE
PARTIES OR AS ORDERED BY THE ARBITRATORS UPON A FINDING OF GOOD CAUSE.
EACH PARTY SHALL BEAR ITS OWN COSTS, EXPENSES AND ATTORNEY'S
FEES; PROVIDED THAT IF COURT PROCEEDINGS TO STAY LITIGATION OR COMPEL
ARBITRATION ARE NECESSARY, THE PARTY WHO UNSUCCESSFULLY OPPOSES SUCH PROCEEDINGS
SHALL PAY ALL REASONABLE ASSOCIATED COSTS, EXPENSES, AND ATTORNEY'S FEES IN
CONNECTION WITH SUCH COURT PROCEEDING.
IN ORDER TO PREVENT IRREPARABLE HARM, THE ARBITRATORS SHALL
HAVE THE POWER TO GRANT TEMPORARY OR PERMANENT INJUNCTIVE OR OTHER EQUITABLE
RELIEF. PRIOR TO THE APPOINTMENT OF AN ARBITRATOR A PARTY MAY, NOTWITHSTANDING
ANY OTHER PROVISION OF THIS AGREEMENT, SEEK TEMPORARY INJUNCTIVE RELIEF FROM ANY
COURT OF COMPETENT JURISDICTION;
<PAGE>
PROVIDED THAT THE PARTY SEEKING SUCH RELIEF SHALL (IF ARBITRATION HAS NOT
ALREADY BEEN COMMENCED) SIMULTANEOUSLY COMMENCE ARBITRATION. SUCH COURT ORDERED
RELIEF SHALL NOT CONTINUE MORE THAN TEN (10) DAYS AFTER THE APPOINTMENT OF THE
ARBITRATORS (OR IN ANY EVENT FOR LONGER THAN SIXTY (60) DAYS). EXCEPT AS
REQUIRED BY LAW (AND THEN ONLY AFTER PRIOR NOTICE TO THE OTHER PARTY), NO PARTY
SHALL DISCLOSE THE FACTS OF THE UNDERLYING DISPUTE OR THE CONTENTS OR RESULT OF
THE ARBITRATION WITHOUT THE PRIOR CONSENT OF ALL PARTIES.
IF ANY PART OF THIS ARBITRATION PROVISION IS HELD TO BE
UNENFORCEABLE, IT SHALL BE SEVERED AND SHALL NOT AFFECT EITHER THE DUTY TO
ARBITRATE OR ANY OTHER PART OF THIS PROVISION.
(P) DTPA WAIVER. PURCHASER HEREBY WAIVES, TO THE EXTENT (IF ANY)
APPLICABLE, THE PROVISIONS OF THE TEXAS DECEPTIVE TRADE PRACTICES-CONSUMER
PROTECTION ACT (OTHER THAN THE PROVISIONS OF SECTION 17.555 THEREOF, WHICH ARE
NOT WAIVED). PURCHASER ACKNOWLEDGES THAT THE PROVISIONS OF THIS SECTION ARE
ESSENTIAL ELEMENTS OF THE BARGAIN WITH SELLER AND THAT, BUT FOR THEM, SELLER
WOULD NOT HAVE ENTERED INTO THIS AGREEMENT.
PURCHASER HEREBY REPRESENTS AND WARRANTS TO SELLER THAT (I)
PURCHASER HAS HERETOFORE GIVEN TO SELLER, PURCHASER'S MOST RECENT FINANCIAL
STATEMENTS, WHICH WERE PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES, (II) ACCORDING TO PURCHASER'S MOST RECENT FINANCIAL STATEMENTS,
PURCHASER HAS ASSETS OF FIVE MILLION ($5,000,000) OR MORE, (III) PURCHASER HAS
KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS THAT ENABLE IT TO
EVALUATE THE MERITS AND RISKS OF THIS TRANSACTION, AND (IV) PURCHASER IS NOT IN
A SIGNIFICANTLY DISPARATE BARGAINING POSITION.
PURCHASER SHALL INDEMNIFY, DEFEND, AND HOLD HARMLESS
<PAGE>
SELLER, THEIR OFFICERS, DIRECTORS, EMPLOYEES, AND AGENTS FROM ALL CLAIMS, COSTS,
LIABILITIES, LOSSES AND EXPENSES ARISING OUT OF OR RELATING TO THE BREACH BY
PURCHASER OF THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS SUBSECTION
27(P).
(Q) NO PUNITIVE DAMAGES. NOTWITHSTANDING ANYTHING TO THE CONTRARY,
NO PARTY SHALL BE ENTITLED TO RECOVER FROM ANY OTHER AGREEMENT OR IN CONNECTION
WITH OR WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED IN THIS AGREEMENT IN ANY
AMOUNT IN EXCESS OF THE ACTUAL COMPENSATORY DAMAGES, ARBITRATION COSTS AND
REASONABLE ATTORNEY FEES AND EXPENSES TO ENFORCE THIS AGREEMENT, SUFFERED BY
SUCH PARTY. ALL PARTIES WAIVE ANY RIGHT TO RECOVER PUNITIVE, SPECIAL, EXEMPLARY
AND CONSEQUENTIAL DAMAGES
<PAGE>
ARISING UNDER THIS AGREEMENT OR IN CONNECTION WITH OR WITH RESPECT TO THE
TRANSACTIONS CONTEMPLATED IN THIS AGREEMENT. HOWEVER, THE FOREGOING SHALL NOT
LIMIT ANY INDEMNIFICATION OBLIGATIONS HEREUNDER OR PRECLUDE ONE PARTY FROM BEING
INDEMNIFIED BY ANOTHER PARTY AGAINST SUCH OBLIGATIONS.
EXECUTED by the Parties hereto as indicated below by the signatures of
their respective representatives; however, for identification purposes, this
AGREEMENT shall be deemed dated as of the date the last Party hereto signs this
AGREEMENT.
WITNESSES: SHELL WESTERN E&P INC.
By: /s/ YOUSSEFF YOUSSEFF
Attorney-in-Fact
Date:
WITNESSES: THE MERIDIAN RESOURCE
EXPLORATION COMPANY
By: /s/ JOSEPH A. REEVES, JR.
Joseph A. Reeves, Jr., Chairman
Date:
THE MERIDIAN RESOURCE CORPORATION
================================================================================
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF A SERIES OF PREFERRED
STOCK BY RESOLUTION OF THE BOARD OF DIRECTORS PROVIDING FOR AN ISSUE OF
3,982,906 SHARES OF PREFERRED STOCK DESIGNATED SERIES A CUMULATIVE CONVERTIBLE
PREFERRED STOCK.
================================================================================
The Meridian Resource Corporation, a Texas Corporation (the "Company"),
pursuant to the provisions of Article 2.12 of the Texas Business Corporation Act
("TBCA"), does hereby state and certify that, pursuant to the authority
expressly vested in the Board of Directors of the Company by the Second Amended
and Restated Articles of Incorporation of the Company, as amended, that the
Board of Directors, at a meeting thereof duly called and held on March 27, 1998,
at which meeting a quorum was present and acting throughout, duly adopted the
following resolutions providing for the issue of shares of Preferred Stock
hereinafter referred to, and further providing with respect to such issue of
shares of Preferred Stock for such powers, designations, preferences and
relative, participating, optional and other special rights, and the
qualifications, limitations or restrictions thereof, as are hereinafter set
forth, in addition to those set forth in said Articles of Incorporation;
RESOLVED, that pursuant to Article Four of the Second Amended and Restated
Articles of Incorporation of the Company, as amended (which authorizes the
Company to issue up to 25,000,000 shares of Preferred Stock, par value $1.00 per
share), the Board of Directors hereby provides for the issue of a series of up
to 3,982,906 shares of Preferred Stock designated "Series A Cumulative
Convertible Preferred Stock"; and
RESOLVED, that the powers, designations, preferences and relative,
participating, optional and other special rights, and the qualifications,
limitations or restrictions thereof, of the shares of the Series A Cumulative
Convertible Preferred Stock shall be as follows:
SECTION 1. DESIGNATION AND RANK. The designation of the series of
Preferred Stock created by this resolution shall be "Series A Cumulative
Convertible Preferred Stock", and the number of shares constituting this Series
shall have a stated value of $33.894850 per share (the "Stated Value"). The
shares of this Series shall rank prior to the Junior Stock (as defined in
Section 8) as to distribution of assets and payments of dividends.
<PAGE>
SECTION 2. DIVIDENDS.
(a) Shares of this Series shall be entitled to receive, when and as
declared by the Board of Directors, a cash dividend at the dividend rate of four
percent (4%) per annum (the "Dividend Rate") on the Stated Value per share of
this Series, and no more; provided, however, that dividends shall cease to
accrue on shares of the Series on the following schedule: 1,327,635 shares on
the third anniversary of the date of original issuance (the "Sub-Series A-I");
1,327,636 shares on the fourth anniversary of the date of original issuance (the
"Sub-Series A-II"); and 1,327,635 shares on the fifth anniversary of the date of
original issuance (the "Sub-Series A-III") (collectively, the "Sub-Series"). The
certificates evidencing shares of the Series will specify whether the shares
represented thereby are designated Sub-Series A-I, Sub-Series A-I or Sub- Series
A-III. Dividends shall be cumulative, shall accrue (whether or not declared and
whether or not there shall be funds legally available for the payment of
dividends) from the data of original issuance and shall be payable in arrears,
out of assets legally available therefor, when and as declared by the Board of
Directors of the Company, on January 1, April 1, July 1, and October 1 of each
year in which dividends are payable, commencing October 1, 1998, (except that if
any such date is a Saturday, Sunday or a Business Day then such dividend shall
be payable without interest on the next day that is not a Saturday, Sunday or
Business Day) (each three-month period expiring on a dividend payment date being
referred to herein as a "Dividend Period"). Dividends shall be paid to the
holders of record of shares of each Sub-Series entitled thereto as they appear
on the stock register of the Company on such record dates, not exceeding 30 days
preceding the payment dates thereof, as shall be fixed by the Board of
Directors. Dividends on account of arrears for any past Dividend Periods (an
"Arrearage") may be declared and paid at any time, without reference to any
regular dividend payment date, to holders of record on such date, not exceeding
45 days preceding the payment date thereof, as may be fixed by the Board of
Directors. Until paid in full, each Arrearage shall also accrue dividends at the
rate of 4% per annum. All dividends and Arrearages respectively, shall be
declared and paid pro rata on all Sub-Series, based on the aggregate of the
accrued dividends, Arrearages and dividends on Arrearages, respectively, for the
various Sub-Series.
(b) No dividends (other than a dividend in Junior Stock or other than as
provided in Section 2(b)) shall be declared or paid or set apart for payment on
Junior Stock for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for such payment on this Series for all Dividend
Periods terminating on or prior to the date of payment of such full cumulative
dividends Holders of shares of this Series shall not be entitled to any
dividend, whether payable in cash, property or stock, in excess of full
cumulative dividends.
(c) So long as any shares of this Series are outstanding, no dividend
(other than a dividend in Junior Stock or other than as provided in Section
2(b)) shall be declared or paid or set aside for payment or other distribution
declared or made upon the Junior Stock, nor shall any Junior Stock be redeemed,
purchased or otherwise acquired for any consideration (or any moneys be paid to
or made available for a
-2-
<PAGE>
sinking fund for the redemption of any shares of Junior Stock) by the Company
(except by conversion into or in exchange for Junior Stock) unless, in each
case, full cumulative dividends on all outstanding shares of this Series then
payable shall have been paid.
(d) Dividends payable on this Series for a period less than a full
Dividend Period shall be computed on the basis of the ratio of the number of
days in such partial period to the actual number of days in such full Dividend
Period.
SECTION 3. VOTING AND ELECTION OF DIRECTORS.
(a) The holders of outstanding shares of this Series shall be entitled to
vote, with the Common Stock and any other capital stock voting with the Common
Stock, with respect to all matters for which a vote of the holders of Common
Stock is taken. Each holder of outstanding shares of this Series shall be
entitled to that number of votes as are equal to the number of shares of this
Series held by such holder. The record date for holders of shares of the Series
entitled to vote on any matters submitted to the holders of Common Stock for
their vote, whether at an annual or special meeting of shareholders or by
unanimous written consent, shall be the same date as the record date established
for the Common Stock.
(b) So long as any shares of this Series remain outstanding, the
affirmative vote or consent of the holders of a majority of the shares of this
Series outstanding at the time, voting as a single class, given in person or by
proxy, either in writing or at a meeting, shall be necessary to permit, effect
or validate any of the following: (i) the authorization, creation or issuance,
or any increase in the authorized or issued amount, of any class of series of
Senior Stock or Parity Stock (both as defined in Section 8) or (ii) the
amendment, restatement, modification, alteration or repeal of any of the
provisions of this Certificate of Designation.
(c) Until the earlier of (i) the termination of the Stock Rights and
Restrictions Agreement to be entered into on or about June 30, 1998, as it may
be amended from time to time (the "SLOPI Agreement"), between the Company and
Shell Louisiana Onshore Properties, Inc., a Delaware Corporation ("SLOPI") or
(ii) SLOPI and its Affiliates shall Beneficially Own shares of Common Stock
constituting less than 21% of the then outstanding shares of Common Stock, then,
in connection with each election of directors of the Company, whether at an
annual or special meeting, the holders of this Series shall be entitled to elect
at such meeting a number of directors (the "Preferred Directors") such that,
after giving effect to the election of such persons to the Board of Directors of
the Company, the number of Preferred Directors then serving on the Board of
Directors of the Company shall equal the product (rounded downward to the
nearest whole number, but, in any event, not less than one) of (i) the total
number of directors constituting the entire Board of Directors multiplied by
(ii) 20% (the "Director Percentage").
(d) If at any time the number of directors constituting the Board of
Directors of the Company shall decrease so that the holders of the Series would
be entitled to designate fewer directors than are then serving as Preferred
Directors, the holders of
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the Series, one or more of the Preferred Directors shall resign so that the
percentage of the Board of Directors consisting of Preferred Directors does not
exceed the Director Percentage (rounded downward to the nearest whole number but
in no event less than one); provided, that, if a Preferred Director does not
resign, the members of the Board of Directors who are not Preferred Directors
shall be entitled to remove such Preferred Director. Further, (i) upon
termination of the SLOPI Agreement in accordance with its terms or (ii) the
conversion of all outstanding shares of this Series into Common Stock, all
Preferred Directors then serving as directors of the Company shall immediately
cease to be members of the Company's Board of Directors and shall be deemed to
have resigned on the date of such termination.
(e) (i) In the event that any Preferred Director shall cease to serve as a
director for any reason (other than as set forth in Section (d) immediately
above), the vacancy resulting thereby shall be filled by appointment by any
Preferred Director remaining, and in the absence of action by the remaining
Preferred Directors, by the holders of the Series, and such Preferred Director
shall thereafter serve until the expiration of the term of the Preferred
Director replaced by such new Preferred Director.
(ii) Subject to the provisions of Section 3(f) below, if there shall
exist at any time any vacancy or vacancies on the Board of Directors of the
Company as a result of any increase in the number of directors that constitutes
the entire Board of Directors of the Company, which the directors of the Company
then in office intend to fill in accordance with the Company's then existing
Articles of Incorporation, by-laws and applicable law, the holders of the Series
shall be entitled to designate one or more persons to fill such vacancy or
vacancies if and to the extent necessary so that, after giving effect to the
filling of such vacancy or vacancies, the number of Preferred Directors then
serving on the Board of Directors of the Company shall equal the Director
Percentage (rounded downward to the nearest whole number but in no event less
than one).
(f) Notwithstanding anything to the contrary contained herein, no
Preferred Director may be a person who previously has been a director of the
Company and was properly removed for cause from the Board of Directors of the
Company or a person who has been convicted of a felony or a crime involving
moral turpitude.
(g) At all times when there is a Preferred Director on the Company's Board
of Directors, at least one shall be a member of each Audit Committee of the
Board of Directors. All members of the Audit Committee shall have access to the
Company's independent accountants and all audit and tax work papers to the same
extent as any other member of the Audit Committee.
(h) The Preferred Directors will be furnished with all information that is
provided to all other directors of the Company (in their capacities as such) at
the same time as such information is furnished to such other directors (in their
capacities as such).
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(i) All Preferred Directors shall comply with the retirement policies of
the Company as in effect on the date hereof or as hereafter amended or modified
from time to time by the Board of Directors of the Company or its stockholders;
provided that no such amendment or modification to such policies shall be
binding upon a Preferred Director unless at least one Preferred Director shall
have voted in favor of such amendment or modification at the meeting, or in the
action in lieu of a meeting, of the Board of Directors of the Company at or in
which it is considered.
(j) The election of Preferred Directors or approval under paragraph (b)
above shall be by holders of a majority of the issued and outstanding Series as
reflected on the stock books of the Company on the applicable record date, or if
by written consent, on the date of such consent. The record date for holders of
shares of the Series entitled to vote on matters pursuant to this Section 3 at a
meeting of the holders of the Series shall be established by the Board of
Directors of the Company and shall not precede 60 days before such meeting.
Special meetings of the holders of the Series may be called by any holder of
more than 25% of the outstanding shares of the Series, except that the Company
may call a special meeting of the holders of the Series in connection with any
action to be voted on pursuant to paragraph (b) above. Any action taken by
written consent of the holders of the Series need not be unanimous and such
action will be effective upon delivery of such written consent to the Secretary
of the Company.
SECTION 4. LIQUIDATION. In the event of any complete liquidation,
dissolution or winding-up of the Company, whether voluntary or involuntary the
holders of shares of this Series shall each be entitled to receive out of assets
of the Company, whether such assets are capital or surplus, for each share of
this Series a sum equal to the Stated Value plus the amount of any accrued and
unpaid dividends on such share plus interest accrued but unpaid on any
Arrearage, before any distribution shall be made to the holders of Junior Stock
of the Company, and if the assets of the Company shall be insufficient to pay in
full such amounts, then such assets shall be distributed among the holders of
this Series ratably in accordance with the respective amounts that would be
payable on such shares if all amounts payable thereon were paid in full.
SECTION 5. CONVERSION.
(a) Each share of this Series shall be convertible at the option of the
record holder thereof at any time by presentation of the certificate
representing such share by the record holder in person or by registered mail,
return receipt requested with postage prepaid thereof, at the principal office
of the Company, and at such other offices, if any, as the Board of Directors may
determine, into the number of fully paid and nonassessable shares of Common
Stock determined by dividing the Stated Value by the Conversion Price in effect
on the Conversion Date.
(b) The conversion price initially shall be $10.516125 (the "Conversion
Price") and shall be subject to adjustment from time to time as follows:
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(i) If the Company, at any time while any shares of this Series are
outstanding, shall (A) pay a stock dividend or stock dividends or
otherwise make a distribution or distributions on shares of its capital
stock payable in shares of Common Stock (or in securities convertible into
shares of Common Stock), (B) except as set forth in clause (A) above, pay
a stock dividend or make a distribution on shares of its capital stock
payable in shares of its capital stock of any class other than Common
Stock or a class convertible into Common Stock, (C) subdivide outstanding
shares of Common Stock into a larger number of shares, (D) combine
outstanding shares of Common Stock into a smaller number of shares, or (E)
issue by reclassification of shares of Common Stock any shares of capital
stock of the Company of any class or classes, the Conversion Price in
effect immediately prior to such action shall be adjusted so that the
holder of any shares of this Series thereafter surrendered for conversion
shall be entitled to receive the number and class or classes of shares of
the capital stock of the Company which he would have owned or have been
entitled to receive immediately after the happening of any of the events
described above, had such shares of this Series been converted on or
immediately prior to the record date for such dividend or distribution or
the effective date of such subdivision, combination or reclassification,
as the case may be. An adjustment made pursuant to this subsection 5(b)(i)
shall become effective immediately after the record date in the case of a
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or
reclassification.
(ii) If the Company, at any time while any shares of this Series are
outstanding, shall issue rights or warrants to all holders of Common Stock
entitling them (for a period expiring within 45 days after the record date
mentioned below) to subscribe for or purchase shares of Common Stock at a
price per share less than the Per Share Market Value of Common Stock at
the record date mentioned below, the Conversion Price at which each share
of this Series shall thereafter be convertible shall be reduced by
multiplying the Conversion Price in effect immediately prior to such
record date by a fraction, of which the denominator shall be the number of
shares of Common Stock (excluding treasury shares, if any) outstanding on
the date of issuance of such rights or warrants plus the number of
additional shares of Common Stock offered for subscription or purchase,
and of which the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants plus the number of shares which the aggregate
offering price of the total number of shares so offered would purchase at
such Per Share Market Value. Such adjustment shall be made whenever such
rights or warrants are issued, and shall become effective immediately
after the record date for the determination of stockholders entitled to
receive such rights or warrants. However, upon the expiration of any right
or warrant to purchase Common Stock the issuance of which resulted in an
adjustment in the Conversion Price of the shares of this Series pursuant
to this Subsection 5(b)(ii), if any such right or warrant shall expire and
shall not have been fully exercised, the Conversion Price per share of
Common Stock at which
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each share of this Series shall thereafter be convertible shall
immediately upon such expiration be recomputed and effective immediately
upon such expiration be increased to the price which it would have been
(but reflecting any other adjustments in the Conversion Price made
pursuant to the provisions of this Section 6 after the issuance of such
rights or warrants) had the adjustment of the Conversion Price made upon
the issuance of such rights or warrants been made on the basis of offering
for subscription or purchase only that number of shares of Common Stock
actually purchased upon the exercise of such rights or warrants which were
actually exercised. No adjustment shall be made pursuant to this Section
5(b)(ii) if rights and warrants are also distributed to the holders of
this Series on the basis of the number of shares of Common Stock then
issuable on conversion of the shares of this Series.
(iii) If the Company, at any time while shares of this Series are
outstanding, shall distribute to all holders of Common Stock evidences of
its indebtedness or assets (excluding cash dividends or cash distributions
paid out of earned surplus) or rights or warrants to subscribe for or
purchase any security (excluding those referred to in Subsection 5(b)(ii)
above) then in each such case the Conversion Price per share of Common
Stock at which each share of this Series shall thereafter be convertible
shall be determined by multiplying the Conversion Price in effect
immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction, of which
the denominator shall be the Per Share Market Value of Common Stock
determined as of the record date mentioned above, and of which the
numerator shall be such Per Share Market Value of the Common Stock, less
the then fair market value (as determined by the Board of Directors of the
Company (the "Board") in good faith, whose determination shall be
conclusive if made in good faith; provided, however, that in the event of
a distribution or series of related distributions exceeding 10% of the net
assets of the Company, then such fair market value shall be determined by
a nationally recognized or major regional investment banking firm or firm
of independent certified public accountants of recognized standing (which
may be the firm that regularly examines the financial statements of the
Company) selected in good faith by the Board, and in either case shall be
described in a statement provided to all registered holders of this
Series) of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of Common
Stock. Such adjustment shall be made whenever any such distribution is
made and shall become effective immediately after the record date
mentioned above. No adjustment shall be made pursuant to this subsection
5(b)(iii) if such evidence of indebtedness or assets are also distributed
to the holders of this Series on the basis of the number of shares of
Common Stock then issuable on the conversion of the shares of this Series.
(iv) No notification to the holders of any adjustment in the
Conversion Price otherwise required by this Section 5 shall be required
unless such adjustment would require an increase or decrease of at least
1% in such price; provided, however, that any adjustment which by reason
of this
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subsection 5(b)(iv) is not required to be made shall be carried forward
and taken into account in any subsequent adjustments, and that upon
presentment of shares of this Series for conversion, all adjustment shall
be made calculating the conversion rights of such holder. All calculations
under this Section 5 shall be made to the nearest cent or the nearest
1/100th of a share, as the case may be.
(v) Subject to (iv) above, whenever the Conversion Price is
adjusted, as herein provided, the Company shall promptly mail to each
registered holder of shares of this Series a notice setting forth the
Conversion Price after such adjustment and setting forth a brief statement
of the facts requiring such adjustment. Such notice prepared in good faith
shall be conclusive evidence of the correctness of such adjustment absent
manifest error.
(vi) In case:
(A) the Company shall declare a dividend (or any other
distribution) on the Common Stock payable otherwise than in cash out
of its earned surplus; or
(B) the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
(C) the Company shall authorize the granting to the holders of
the Common Stock of rights or warrants to subscribe for or purchase
any shares of capital stock of any class or of any other rights; or
(D) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the Common Stock
of the Company (other than a subdivision or combination of the
outstanding shares of Common Stock), any consolidation or merger to
which the Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, or any compulsory
share exchange whereby the Common Stock is converted into other
securities, cash or property; or
(E) of the voluntary or involuntary dissolution, liquidation
or winding up of the affairs of the Company,
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of the shares of this series, and shall cause to be
mailed to the holders of record of the shares of this Series at their last
addresses as they shall appear upon the stock books of the Company, at least 10
days prior to the applicable record date hereinafter specified, a notice stating
(x) the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution, redemption, rights or warrants are to be
determined, or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation or winding up
is expected to become
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effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up (but no failure to mail such notice or any defect therein or in
the mailing thereof shall affect the validity of the corporate action required
to be specified in such notice).
(c) In case of any reclassification of the Common Stock, then the holders
of the shares of this Series then outstanding shall have the right thereafter to
convert such shares only into the kind and amount of shares of stock and other
securities and property receivable upon or deemed to be held following such
reclassification by a holder of a number of shares of the Common Stock of the
Company into which such shares of this Series could have been converted
immediately prior to such reclassification. This provision shall similarly apply
to successive reclassifications.
(d) In case of any consolidation or merger of the Company with or into
another Person in which the Company is not the surviving entity or any
compulsory share exchange pursuant to any of which the Common Stock is converted
into other securities, cash or property (any such event being hereinafter
referred to as "Reorganization"), then the terms of such Reorganization shall
provide that each holder of share of this Series then outstanding shall have the
right to receive in exchange therefor the kind and amount of shares of stock and
other securities and property receivable upon such Reorganization
("Reorganization Consideration") by a holder of the number of shares of the
Common Stock of the Company into which (x) a share of this Series (or
Sub-Series) could have been converted as of the effective date of the
Reorganization, plus (y) the Arrearage (if any) on a share of this Series could
have been exchanged as of the effective date of the Reorganization.
(e) In case at any time conditions shall arise by reason of action taken
by the Company, which, in the opinion of the Board of Directors of the Company,
are not adequately covered by the other provisions hereof and which might
materially and adversely affect the rights of the holders of shares of this
Series, the Board of Directors of the Company shall appoint a firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company), who
shall give their opinion as to the adjustment, if any (not inconsistent with the
standards established in this Section 5, of the Conversion Price (including, if
necessary, any adjustment as to the securities into which shares of this Series
may thereafter be convertible) which is or would be required to preserve the
rights of the holders of shares of this Series. The Board of Directors of the
Company shall make the adjustment recommended forthwith upon the receipt of such
opinion or the taking of any such action contemplated, as the case may be;
provided, however, that no such adjustment of the Conversion Price shall be made
which in the opinion of the investment banking firm or firm of accountants
giving the aforesaid opinion would result in an increase of the Conversion Price
to more than the Conversion Price then in effect.
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Section 6. MATTERS RELATING TO ISSUANCE OF COMMON STOCK. The following
provisions shall be applicable to issuances of Common Stock upon conversion of
shares of this Series.
(a) The Company covenants that it will at all times reserve and keep
available, out of its authorized and unissued Common Stock solely for the
purpose of issuance upon conversion of this Series as herein provided, free from
preemptive rights or any other actual or contingent purchase rights of Persons
other than the holders of shares of this Series, such number of shares of Common
Stock as shall then be issuable upon the conversion of all outstanding shares of
this Series. The Company covenants that all shares of Common Stock that shall be
so issuable shall upon issue be duly and validly issued and fully paid and
nonassessable.
(b) The Company shall not be required to issue stock certificates
representing fractions of shares of Common Stock, but may, if otherwise
permitted, make a cash payment in respect of any final fraction of a share based
on the Per Share Market Value at such time. If the Company elects not, or is
unable, to make such a cash payment, the holder of a share of this Series shall
be entitled to receive, in lieu of the final fraction of a share, one whole
share of Common Stock.
(c) The issuance of certificates for shares of Common Stock on conversion
of this Series shall be made without charge to the holders thereof for any
documentary stamp or similar taxes that may be payable in respect of the issue
or delivery of such certificate, provided, that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate in a name other than that
of the holder of the shares of this Series converted was made and the Company
shall not be required to issue or deliver such certificates unless or until the
Person or Persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
(d) The exercise by a holder of shares of this Series of the conversion
rights granted herein is subject in all respects to and conditioned upon
compliance by the parties with the HSR Act, and rules and regulations
promulgated pursuant thereto, to the extent that said act, rules and regulations
are applicable to such exercise. The Company and such holder agree to make such
filings with and provide such information to the Federal Trade Commission and
the Department of Justice with respect to such exercise as are required in
connection with the HSR Act in a timely manner and to join each others request
for early termination. The Company and such holder will use such reasonable
efforts to obtain all governmental approval required to permit such exercise and
to cause early termination of the waiting period under the HSR Act.
SECTION 7. AUTOMATIC CONVERSION. If on or after June 30, 2001 (a) any
shares of this Series have not been converted into shares of Common Stock and
(b) the mean average Per Share Market Value exceeds 150% of the Conversion Price
for 75 consecutive Trading Days, then all such shares of this Series shall
automatically be converted into the number of shares of Common Stock determined
by dividing the
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Stated Value by the Conversion Price in effect at the time of conversion;
provided that SLOPI and its Affiliates may elect to retain an aggregate of one
share of Preferred Stock that will not be automatically converted pursuant to
this Section 7.
SECTION 8. DEFINITIONS. For the purposes hereof, the following terms shall
have the following respective meanings:
"Affiliate" shall mean, with respect to any specified Person, any other
Person, directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. For the purposes of this
definition, "control" (including, with correlative meanings, "controlling,"
"controlled by," and "under common control with") means the power to direct or
cause the direction of the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract, or
otherwise and, and with respect to a corporation or partnership, control shall
mean direct or indirect ownership of more than fifty percent (50%) of the voting
stock or general partnership interest or voting interest in any such corporation
or partnership.
"Arrearage" has the meaning specified in Section 2(a).
"Beneficially Own" shall have the meaning assigned to such term in Rule
13d-3 under the Exchange Act in effect on the date hereof. "Beneficial Owner"
and "Beneficial Ownership" shall have correlative meanings.
"Business Day" shall mean any day that commercial banks located in
Houston, Texas are legally open for business.
"Change of Control" shall mean the acquisition by a Person other than
SLOPI or its Affiliates of Beneficial Ownership of more than 50% of the then
outstanding shares of Common Stock.
"Common Stock" means shares now or hereafter authorized of the class of
Common Stock, $0.01 par value, of the Company presently authorized and stock of
any other class into which such shares may hereafter have been reclassified or
changed.
"Conversion Date" means the date the stock certificate is received by the
Company for conversion in accordance with Section 5(a).
"Conversion Price" has the meaning specified in Section 5(b).
"Dividend Period" has the meaning specified in Section 2(a).
"Dividend Rate" has the meaning specified in Section 2(a).
"Fully Diluted Shares" means, at any time, the sum of (i) the shares of
Common Stock then outstanding plus (ii) the number of shares of Common Stock
reserved for issuance or issuable in connection with the exercise, exchange or
conversion of options,
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warrants or securities of the Company then outstanding which are exercisable or
exchangeable for shares of Common Stock or are convertible into shares of Common
Stock (including, without limitation, this Series).
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Junior Stock" means the Common Stock of the Company and any other stock
of the Company over which shares of this Series has a preference as to
distribution of assets and payment of dividends.
"Parity Stock" means any stock of the Company ranking as to distribution
of assets and payment of dividends on a parity with this Series.
"Per Share Market Value" means on any particular date (a) the last sale
price per share of the Common Stock on such date on the principal stock exchange
on which the Common Stock has been listed or, if there is no such price on such
date, then the last sale price on such exchange on the date nearest preceding
such date, or (b) if the Common Stock is not listed on any stock exchange, the
final bid price for a share of Common Stock in the over-the-counter market, as
reported by The Nasdaq Stock Market at the close of business on such date, or
the last sales price if such price is reported and final ibid prices are not
available, or (c) if the Common Stock is not quoted on The Nasdaq Stock Market,
the bid price for a share of Common Stock in the over-the-counter market as
reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding to its functions of reporting prices), or (d)
if the Common Stock is no longer publicly traded, as determined by one of the
investment banking firms listed on Schedule I to the SLOPI Agreement selected in
good faith by the Board of Directors of the Company, provided, that none of the
transactions related to the foregoing shall include purchases by any "affiliate"
(as such term is defined in the General Rules and Regulations under the
Securities Act of 1933) of the Company.
"Person" means any individual, firm, partnership, association, group (as
such term is defined in Section 13(d)(3) of the Exchange Act, as in effect on
the date hereof), corporation, trust, business trust or other entity, and
includes any successor (by merger or otherwise) of any such entity.
"Preferred Stock" means the Company's Preferred Stock, par value $0.01
per share.
"Reorganization" has the meaning specified in Section 5(d).
"Reorganization Consideration" has the meaning specified in
Section 5(d).
"Senior Stock" means any stock of the Company which has a priority over
shares of this Series as to payment of dividends or distribution of assets of
the Company.
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"SLOPI" means Shell Louisiana Onshore Properties, Inc., a Delaware
corporation.
"SLOPI Agreement" has the meaning assinged thereto in Section 3.C.
"Stated Value" has the meaning specified in Section 1.
"Trading Day" means (a) a day on which the Common Stock is traded on the
principal stock exchange on which the Common Stock has been listed, or (b) if
the Common Stock is not listed on any stock exchange, a day on which the Common
Stock is quoted in the over-the-counter market, as reported by National
Association of Securities Dealers Automated Quotation System ("NASDAQ"), or (c)
if the Common Stock is not quoted by NASDAQ, a day on which the Common Stock is
quoted in the over-the-counter market as reported by the National Quotation
Bureau Incorporated (or any similar organization or agency succeeding to its
functions of reporting prices).
IN WITNESS WHEREOF, The Meridian Resource Corporation has caused this
Certificate to be signed by a duly authorized officer, this 30th day of June,
1998.
THE MERIDIAN RESOURCE CORPORATION
By: /s/ JOSEPH A. REEVES, JR.
Joseph A. Reeves, Jr.
Chief Executive Officer and
Chairman of the Board
ATTEST:
By: M. MELINDA FREW
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STOCK RIGHTS AND RESTRICTIONS AGREEMENT
STOCK RIGHTS AND RESTRICTIONS AGREEMENT, dated as of June 30, 1998,
between The Meridian Resource Corporation, a Texas corporation ("TMR"), and
Shell Louisiana Onshore Properties Inc., a Delaware corporation ("SLOPI").
RECITALS:
A. After giving effect to the Closing (as defined below), SLOPI owns
12,082,030 shares of Common Stock (the "Common Shares") and 3,982,906 shares
of Preferred Stock (the "Preferred Shares") (together with any additional Common
Shares or Preferred Shares which SLOPI or any Affiliate of Shell (as defined
below) may from time to time own (collectively, the "Shares")).
B. After giving effect to the Closing, the number of directors
constituting the whole Board of Directors of TMR is seven (7) and the following
person is the initial Preferred Director (as defined below): J.M. Funk.
C. The Boards of Directors of TMR and SLOPI deem it advisable to establish
certain rights and restrictions with respect to the Shares.
ACCORDINGLY, premises considered, the parties have entered into this
Agreement.
1. DEFINITIONS. For purposes of this Agreement, the following terms
have the meanings indicated:
(a) "Affiliate" shall mean, with respect to any specified Person,
any other Person, directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified Person. For the purposes
of this definition, "control" (including, with correlative meanings,
"controlling," "controlled by," and "under common control with") means the power
to direct or cause the direction of the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract, or otherwise and, with respect to a corporation or partnership,
control shall mean direct or indirect ownership of more than fifty percent (50%)
of the voting stock or general partnership interest or voting interest in any
such corporation or partnership.
<PAGE>
(b) "Allocated Price Per Share" shall mean the then existing
conversion price of the Preferred Shares (or if all of the Preferred Shares
shall have been converted, the conversion price that would have then been in
existence had the Preferred Shares not been so converted) as the same may be
adjusted from time to time in accordance with the terms thereof.
(c) "Applicable Percentage" shall mean 21%.
(d) "Average Per Share Market Value" of shares of Common Stock shall
mean the average of the Per Share Market Value of such shares for the 30 Trading
Days immediately preceding (and excluding) the relevant date.
(e) "Beneficially Own" shall have the meaning assigned to such term
in Rule 13d-3 under the Exchange Act in effect on the date hereof. "Beneficial
Owner" and "Beneficial Ownership" shall have correlative meanings.
(f) "Business Combination Transaction" shall mean a merger,
consolidation, "business combination" as defined in Part Thirteen of the TBCA as
in effect on the date hereof, compulsory share exchange, recapitalization or
other transaction in which TMR is a constituent corporation or to which TMR is a
party and pursuant to which the shares of Common Stock are exchanged for cash,
securities or other property or a sale of all or substantially all of the assets
of TMR and its Subsidiaries, taken as a whole; provided that none of the
following shall be deemed a Business Combination Transaction for purposes of
this Agreement: (i) a merger, consolidation, compulsory share exchange,
recapitalization or other transaction in which the Beneficial Ownership of the
capital stock of TMR or the surviving corporation of the transaction (or of the
ultimate parent of TMR or of such surviving corporation) immediately after the
consummation of such transaction is substantially the same as the ownership of
the capital stock of TMR immediately prior to the consummation of the
transaction or (ii) a merger (A) in which TMR is the surviving corporation, (B)
in which all shares of Common Stock immediately prior to the consummation of
such merger remain outstanding immediately after the consummation thereof, (C)
as a result of the consummation of which no Person will own a majority of the
then outstanding shares of Common Stock and (D) following the consummation of
which the Continuing Directors will represent a majority of the Board of
Directors of TMR.
(g) "Certificate of Designation" for the Preferred Shares shall have
the meaning assigned to such term in the Merger Agreement.
(h) "Closing" shall have the meaning assigned to such term in the
Merger Agreement.
(i) "Common Shares" shall have the meaning set forth in Recital
A.
(j) "Common Stock" shall mean TMR's common stock, par value $0.01
per share, and any shares of common stock or similar securities into which the
common stock of TMR are hereafter reclassified into or exchanged for.
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(k) "Continuing Director" shall mean (i) any member of the Board of
Directors of TMR, while such person is a member of such Board of Directors, who
(1) was a member of the Board of Directors of TMR prior to the Effective Time or
(2) is recommended or elected to the Board of Directors by a majority of the
Continuing Directors to fill a vacancy arising as a result of an increase in the
number of directors of TMR occurring after the date hereof, and (ii) any
successor of a Continuing Director, while such successor is a member of the
Board of Directors of TMR, who is recommended or elected to succeed the
Continuing Director by a majority of the Continuing Directors. Notwithstanding
anything to the contrary in this definition, for purposes of this Agreement, the
SLOPI Designee(s) or Preferred Director(s) shall not be considered Continuing
Directors.
(l) "Deficiency Amount" shall mean with respect to any sale by SLOPI
or its Affiliates of Common Shares which were issued upon the conversion of
Preferred Shares, (i) the product of (x) the number of Common Shares sold by
SLOPI or its Affiliates in such sale at a per share price that is less than the
Allocated Price Per Share, times (y) the amount by which the per share sales
price is less than the Allocated Price Per Share. If Common Shares are sold in a
Public Offering, then the net proceeds to selling shareholder (after reasonable
and customary underwriting discounts, commissions, placement fees and expenses
of sale, excluding expenses for Security Holder's legal counsel) shall be deemed
to be the sales price. If Common Shares are sold in a Private Placement or any
transaction other than Public Offering, then the sales price shall be deemed to
be the greater of (i) the actual sales price or (ii) the Average Per Share
Market Value of the Common Stock relating to the date of such sale.
(m) "Director Election Date" shall have the meaning set forth in
Section 2.2(b).
(n) "Director Percentage" shall have the meaning set forth in
Section 2.2(b).
(o) "Effective Time" shall have the meaning assigned to such term in
the Merger Agreement.
(p) "E&P Company" shall have the meaning set forth in the definition
of Private Placement.
(q) "Excess Shares" shall have the meaning set forth in Section 2.5.
(r) "Exchangeable Security" shall mean a security of any type,
including but not limited to debt, equity, warrants or other rights, issued by
TMR or representing the right to acquire Voting Shares from TMR upon exchange,
conversion or exercise thereof.
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(s) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any successor federal statute as in effect from time to time.
(t) "Fully Diluted Shares" shall mean, at any time, the sum of (i)
the shares of Common Stock then outstanding plus (ii) the number of shares of
Common Stock reserved for issuance or issuable in connection with the exercise,
exchange or conversion of options, warrants or securities of TMR then
outstanding which are exercisable or exchangeable for shares of Common Stock or
are convertible into shares of Common Stock (including, without limitation, the
Preferred Shares).
(u) "Merger Agreement" shall mean the Agreement and Plan of Merger
dated March 27, 1998 among TMR, LOPI Acquisition Corp., SLOPI, and Louisiana
Onshore Properties Inc.
(v) "Per Share Market Value" means on any particular date (a) the
last sale price per share of the Common Stock on such date on the principal
stock exchange on which the Common Stock has been listed or, if there is no such
price on such date, then the last price on such exchange on the date nearest
preceding such date, or (b) if the Common Stock is not listed on any stock
exchange, the final bid price for a share of Common Stock in the
over-the-counter market, as reported by The Nasdaq Stock Market at the close of
business on such date, or the last sales price if such price is reported and
final bid prices are not available, or (c) if the Common Stock is not quoted on
The Nasdaq Stock Market, the bid price for a share of Common Stock in the over-
the-counter market as reported by the National Quotation Bureau Incorporated (or
any similar organization or agency succeeding to its functions of reporting
prices), or (d) if the Common Stock is no longer publicly traded, as determined
by one of the investment banking firms listed on Schedule I, as selected by
SLOPI.
(w) "Person" shall mean any individual, firm, partnership,
association, group (as such term is defined in Section 13(d)(3) of the Exchange
Act, as in effect on the date hereof), corporation, trust, business trust or
other entity, and includes any successor (by merger or otherwise) of any such
entity.
(x) "Preferred Director" shall have the meaning assigned to such
term in the Certificate of Designation for the Preferred Stock.
(y) "Preferred Shares" shall have the meaning set forth in Recital
A.
(z) "Preferred Stock" shall mean TMR's Series A Cumulative
Convertible Preferred Stock, par value $1.00 per share.
(aa) "Private Placement" shall mean a Transfer of Shares pursuant to
a transaction not involving a Pubic Offering; provided, however, that (A) the
sale of Shares pursuant to a tender or exchange offer is not a Private
Placement; (B) a Private Placement shall not include a Transfer to any Person
who, directly or indirectly, has as one of its material businesses the
exploration, development or production of crude oil or natural gas (an "E&P
Company") if, as a result of such Private Placement, such E&P Company would
Beneficially Own and/or have the right to acquire upon conversion of shares of
Preferred Stock, such
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number of shares of Common Stock as would constitute 10% or more of the then
outstanding shares of Common Stock, (x) unless any such E&P Company acquiring
such amount of securities enters into an agreement with TMR limiting the
Transfer of such shares on substantially the same terms as this Agreement except
that the term of such agreement shall be 10 years from the date of such
agreement and (y) if any such E&P Company is acquiring registration rights under
the Registration Rights Agreement (as defined in the Merger Agreement), it must
agree that, although any underwriter for such E&P Company shall have customary
access to TMR to perform its due diligence obligations, such underwriter will be
subject to confidentiality obligations that prohibit the sharing or disclosure
of non-public information with such E&P Company; and (C) a private placement
shall not include a Transfer of Shares to any Person in which following such
Transfer such Person Beneficially Owns or has the right to acquire upon
conversion of the Preferred Stock more than 10% of the Common Stock of TMR
unless such Person enters into an agreement with TMR with terms and conditions
restricting the Transfer of such Shares substantially similar to those contained
herein except that the term of such agreement shall be for 10 years from the
date of such agreement. For purposes of the foregoing, in determining whether
any Person Beneficially Owns shares of Common Stock or shares of Preferred
Stock, SLOPI and its Affiliates shall be entitled to rely exclusively on the
existence or non-existence of any reports on Schedule 13D that may have been
filed by such Person with the SEC, without having to make any inquiry of such
Person or otherwise.
(ab) "Public Offering" shall mean a firm commitment underwritten
public offering pursuant to a registration statement which has been declared
effective by the SEC under the Securities Act.
(ac) "Relevant Date" shall have the meaning set forth in Section
2.4(k).
(ad) "Rule 144" and "Rule 145" shall mean Rule 144 and Rule 145
adopted by the SEC under the Securities Act, or any successor rule.
(ae) "SEC" shall mean the Securities and Exchange Commission.
(af) "Securities Act" shall mean the Securities Act of 1933, as
amended, or any successor federal statute as in effect from time to time.
(ag) "Shares" shall have the meaning set forth in Recital A.
(ah) "Shell" shall mean Shell Oil Company, a Delaware corporation,
which is an Affiliate of SLOPI.
(ai) "Subsidiary" shall mean, with respect to any Person, any other
Person of which at least a majority of the voting power of the voting equity
securities or voting equity interest is owned, directly or indirectly, by such
Person.
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(aj) "SLOPI" shall have the meaning set forth in the first paragraph
hereof; and the term "SLOPI" shall include SLOPI and its Affiliates unless the
context otherwise requires.
(ak) "SLOPI Designee(s)" shall have the meaning set forth in Section
2.2(b) hereof.
(al) "TBCA" shall have the meaning set forth in Section 2.1(c).
(am) "TMR" shall have the meaning set forth in the first paragraph
of this Agreement.
(an) "Trading Days" means (a) a day on which the Common Stock is
traded on the principal stock exchange on which the Common Stock has been
listed, or (b) if the Common Stock is not listed on any stock exchange, a day on
which the Common Stock is quoted in the over-the-counter market, as reported by
The Nasdaq Stock Market, or (c) if the Common Stock is not quoted on The Nasdaq
Stock Market, a day on which the Common Stock is quoted in the over-the-counter
market as reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding to its functions of reporting prices).
(ao) "Transfer" shall have the meaning set forth in Section 2.4
hereof.
(ap) "Voting Shares" shall mean the Common Stock and any other
securities of TMR having voting power under ordinary circumstances with respect
to the election of directors of TMR.
2. SHARE RIGHTS AND RESTRICTIONS.
2.1 LIMITATION ON CERTAIN TRANSACTIONS.
(a) Except as otherwise permitted by this Agreement, SLOPI
agrees that SLOPI shall not, during the period from the date of this Agreement
until its termination, (i) engage, or propose to engage, in any Business
Combination Transaction with TMR, or (ii) make any proposal to TMR, the Board of
Directors of TMR or the shareholders of TMR with respect to a tender offer or
exchange offer for shares of Common Stock or a liquidation of TMR, unless either
(A) such transaction shall have been approved by a majority of the Continuing
Directors or (B) (x) the third anniversary of the date of this Agreement shall
have occurred and (y) on the date when such transaction is proposed, either no
Preferred Director(s) or SLOPI Designee(s) shall be serving on the Board of
Directors of TMR or SLOPI and its Affiliates collectively shall Beneficially Own
less than 21% of the then outstanding Common Stock.
(b) Except as otherwise permitted by this Agreement, SLOPI
agrees that SLOPI shall not, during the period from the date of this Agreement
until its termination, (i) request or solicit any Person (A) to make a tender or
exchange offer for shares of Common Stock or (B) to make a proposal for a
Business Combination
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<PAGE>
Transaction, unless either (A) a majority of the Continuing Directors shall have
approved of SLOPI taking such action or (B) (x) the third anniversary of the
date of this Agreement shall have occurred on the date when such action is first
requested or solicited by SLOPI and (y) either no SLOPI Designee(s) or Preferred
Director(s) shall be serving on the Board of Directors of TMR or SLOPI and its
Affiliates shall collectively Beneficially Own less than 21% of the then
outstanding Common Stock.
(c) In connection with the Merger, TMR's Board of Directors
has taken all action to assure that (i) no state takeover statute or similar
statute will apply to the Merger or to any of the transactions contemplated in
the Merger Agreement or the items referenced to in Section 2.3(w), (x), (y) and
(z), (ii) Article Eight of TMR's Articles of Incorporation will not apply to the
Merger or any of the transactions contemplated in the Merger Agreement or in the
documents attached thereto, and (iii) Part Thirteen of the Texas Business
Corporation Act ("TBCA") will not apply to the Merger or any of the transactions
contemplated in the Merger Agreement or the items referenced to in Section
2.3(w), (x), (y) and (z). Further, TMR has no "poison pill" or takeover defense
mechanism other than Article Eight of TMR's Articles of Incorporation except
those that exclude SLOPI and its Affiliates from all effects thereof. TMR shall
not amend or modify any of the foregoing actions nor shall TMR implement any
new, additional, amended or modified poison pill or takeover defense mechanism,
unless, in each and every such case, provision shall be made to exclude SLOPI
and its Affiliates from all effects thereof. This Section 2.1(c) shall survive
the termination of this Agreement.
(d) TMR and SLOPI agree that the operative provisions, as
presently in effect, of Article Eight of TMR's Articles of Incorporation and
Part Thirteen of the TBCA will apply to any business combination transaction
covered by said Article Eight or Part Thirteen between SLOPI and its Affiliates
and TMR for the term of this Agreement, notwithstanding that the operative
provisions of said Article Eight and Part Thirteen might otherwise be applicable
for a shorter period of time.
2.2 TMR BOARD OF DIRECTORS.
(a) Subject to restrictions of applicable law and unless this
Agreement has been terminated, on the Director Election Date (defined below),
TMR shall appoint SLOPI Designee(s) (defined below) to fill the vacancies
created by the removal of the Preferred Director(s) in accordance with the
Certificate of Designation for the Preferred Stock, to serve until their
successors are elected or their earlier resignation or removal.
(b) From and after the date on which all the Preferred Shares
shall have been converted into Common Stock (the "Director Election Date") and
until the earlier of (i) termination of this Agreement or (ii) SLOPI and its
Affiliates shall Beneficially Own Shares constituting less than 21% of the then
outstanding shares of Common Stock, then, in connection with each election of
directors of TMR, whether at an annual or special meeting, TMR will nominate,
and, subject to the fiduciary obligations of the TMR directors, solicit proxies
for, in accordance with its procedures
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for the nomination of, and solicitation of proxies for, management-slate
directors, a number of persons designated by SLOPI (all such persons who, at any
time, are or were designated by SLOPI for purposes of this Agreement are
referred to herein as the "SLOPI Designee(s)") such that, after giving effect to
the election of such persons to the Board of Directors of TMR, the number of
SLOPI Designees then serving on the Board of Directors of TMR shall equal the
product (rounded downward to the nearest whole number, but, in any event, not
less than one) of (i) the total number of directors constituting the entire
Board of Directors of TMR multiplied by (ii) 20% (the "Director Percentage").
(c) If at any time the number of directors constituting the
Board of Directors of TMR shall decrease so that SLOPI would be entitled to
designate fewer directors than are then serving as SLOPI Designees, SLOPI shall
cause one or more of the SLOPI Designees serving as TMR directors to resign so
that the percentage of the Board of Directors consisting of SLOPI Designees does
not exceed the Director Percentage (rounded downward to the nearest whole
number, but, in any event, not less than one); provided, that in no event will
there ever be less than one SLOPI Designee. Further, upon termination of this
Agreement in accordance with its terms, SLOPI shall cause all SLOPI Designees
then serving as directors of TMR to resign immediately.
(d) (i) In the event that any SLOPI Designee shall cease to
serve as a director for any reason (other than as set forth in Section 2.2(c)),
the vacancy resulting thereby shall be filled by the remaining directors of the
Company in accordance with its Articles of Incorporation, by-laws and applicable
law by a new SLOPI Designee and such new SLOPI Designee shall thereafter serve
until the expiration of the term of the SLOPI Designee replaced by such new
SLOPI Designee.
(ii) Subject to the provisions of Section 2.2(e), if,
after the Director Election Date, there shall exist at any time any vacancy or
vacancies on the Board of Directors of TMR as a result of any increase in the
number of directors that constitutes the entire Board of Directors of TMR, which
the directors of TMR then in office intend to fill in accordance with TMR's
Articles of Incorporation, by-laws and applicable law, SLOPI shall be entitled
to designate one or more persons as SLOPI Designees to fill such vacancy or
vacancies if and to the extent necessary so that, after giving effect to the
filling of such vacancy or vacancies, the number of SLOPI Designees then serving
on the Board of Directors of TMR shall equal the Director Percentage (rounded
downward to the nearest whole number, but, in any event, not less than one). TMR
agrees to take all actions appropriate or necessary to ensure that any SLOPI
Designees designated pursuant to the preceding sentence are appointed to the
Board of Directors of TMR to fill any such vacancy or vacancies filled by the
Board of Directors of TMR as provided in the preceding sentence.
(e) Notwithstanding anything to the contrary contained herein,
no SLOPI Designee may be a person who previously has been a director of TMR and
was properly removed for cause from the Board of Directors of TMR or a person
who has been convicted of a felony or a crime involving moral turpitude.
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(f) The SLOPI Designees will be furnished with all information
that is provided to all other directors of TMR (in their capacities as such) at
the same time as such information is furnished to such other directors (in their
capacities as such).
(g) SLOPI shall cause all SLOPI Designees serving as directors
of TMR to comply with the retirement policies of TMR as in effect on the date
hereof or as hereafter amended or modified from time to time by the Board of
Directors of TMR or its shareholders; provided that no such amendment or
modification to such policies shall be binding upon SLOPI or the SLOPI Designees
unless at least one SLOPI Designee shall have voted in favor of such amendment
or modification at the meeting, or in the action in lieu of a meeting, of the
Board of Directors of TMR at or in which it is considered.
(h) At all times when there is a SLOPI Designee on TMR's Board
of Directors, at least one SLOPI Designee shall be a member of each Audit
Committee of the Board of Directors. Each SLOPI Designee who is a member of the
Audit Committee shall have unrestricted access to TMR's independent accountants
and all audit and tax work papers to the same extent as any other member of the
Audit Committee.
2.3 LIMITATION ON ACQUISITION OF ADDITIONAL SHARES BY SLOPI. From
and after the date hereof, SLOPI shall not acquire any shares of Common Stock,
other than the Common Shares and the Preferred Shares owned by SLOPI as of the
Effective Time and after giving effect to the Closing, (i) without the prior
written consent of a majority of the Continuing Directors or (ii) unless (A) the
third anniversary of the date of this Agreement shall have occurred and (B) at
the time of such acquisition no SLOPI Designee(s) or Preferred Director(s) shall
be serving on the Board of Directors of TMR or SLOPI and its Affiliates would
collectively Beneficially Own less than 21% of the then outstanding Common
Stock; provided, however, that nothing in this Section 2.3 shall limit SLOPI's
power and right (w) to convert shares of Preferred Stock into shares of Common
Stock, or (x) to purchase or acquire shares as a result of any stock dividend or
stock split, reclassification of the Common Stock, or the exercise or conversion
of any security received by SLOPI from TMR in respect of its Shares, or (y) to
receive shares of Common Stock pursuant to Section 2.7 to make up a Deficiency
Amount or (z) to acquire shares of Common Stock or any TMR Exchangeable Security
pursuant to Section 2.6 or to convert, exchange or exercise any such TMR
Exchangeable Security.
2.4 RESTRICTIONS ON TRANSFER. From and after the date hereof until
the termination of this Agreement, SLOPI and its Affiliates shall not sell,
transfer or otherwise convey (when used as a verb, "Transfer" and, any sale,
transfer or other conveyance, a "Transfer") Beneficial Ownership of any Shares
(including Shares subject to Exchangeable Securities), without the prior written
consent of a majority of the Continuing Directors, which consent shall not be
unreasonably withheld, except that, in any event, any and all of the following
Transfers shall be permitted:
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(a) One or more Transfers to Shell or a direct or indirect
Affiliate of Shell, provided that Shell and each such Affiliate of Shell agrees
in writing with TMR to be bound by the same restrictions as are applicable to
SLOPI hereunder.
(b) One or more Transfers to TMR or a to a direct or indirect
Subsidiary of TMR (pursuant to a tender offer or otherwise).
(c) One or more Transfers pursuant to a merger, consolidation
or compulsory share exchange, in which TMR is a constituent corporation.
(d) One or more Transfers made as a pro rata dividend or
distribution to the holders of the common stock of SLOPI or its Affiliates,
provided, unless such dividend or distribution is to the public shareholders of
any of the Royal Dutch/Shell Group of Companies, such holders agree in writing
with TMR to be bound by the same restrictions as SLOPI hereunder.
(e) One or more Transfers to any Person (other than SLOPI or
any Affiliate of Shell) who shall have commenced a tender or exchange offer for
shares of Common Stock if, at the time of public announcement of the tender or
exchange offer: (i) SLOPI and its Affiliates collectively Beneficially Own less
than 21% of the then outstanding shares of Common Stock and no SLOPI Designee or
Preferred Director is serving on the TMR Board of Directors, or (ii) SLOPI and
its Affiliates collectively Beneficially Own more than 21% of the then
outstanding shares of Common Stock or any SLOPI Designee or Preferred Director
is serving on the TMR Board of Directors, unless SLOPI and any Affiliates first
provide to TMR a preferential right to purchase, for cash, all such shares which
SLOPI and any Affiliates would be willing to tender or exchange at a price of
105% of the tender offer price which SLOPI and any Affiliates would be willing
to accept (which shall be the market value of the security to be exchanged on
such date if publicly traded or the cash equivalent value as reasonably
determined in good faith by SLOPI and its Affiliates). With respect to clause
(ii) above, SLOPI and its Affiliates shall give TMR notice of its willingness to
accept the tender or exchange offer at least 10 calendar days prior to its then
stated expiration date and, if TMR desires to exercise its preferential purchase
right, it must so notify SLOPI and its Affiliates in writing within said 10
calendar day period. Once TMR has given notice to SLOPI and its Affiliates that
TMR will exercise such preferential right, then, on such then stated expiration
date of the tender or exchange offer, TMR will be obligated to close the
purchase and pay in full in cash, and SLOPI and its Affiliates will be obligated
to sell, at the applicable 105% price notwithstanding anything that may
otherwise occur with respect to the tender or exchange offer, including, without
limitation, withdrawal, extension, modification, or increase or decrease in the
tender or exchange price or other consideration. Once TMR has not exercised a
preferential right to purchase with respect to a particular tender or exchange
offer made by a particular Person, then SLOPI and its Affiliates shall not
thereafter be required to make any additional preferential purchase rights
available to TMR with respect to such particular tender or exchange offer, even
if in such tender or exchange offer there is an extension or modification of or
an increase or decrease in price or other consideration, in any tender or
exchange offer made by such particular Person; provided, however, that SLOPI
will
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be required to provide to TMR a preferential purchase right with respect to any
tender or exchange offer made by each other Person or with respect to any new
tender or exchange offer by such particular Person which SLOPI and its
Affiliates would be willing to accept.
(f) From and after the following anniversaries of the date of
this Agreement, SLOPI and its Affiliates may, collectively, sell the following
percentages of the number of their Common Shares in one or more Public
Offerings, Private Placements and/or transactions described below in paragraphs
(h), (i), or (j):
PERCENTAGE OF
COMMON SHARES
ANNIVERSARY OF PERMITTED TO TRANSFER*
-----------------------------
THIS AGREEMENT INCREMENTAL* AGGREGATE*
-------------- ------------ ----------
Second 25% 25%
Third 25% 50%
Fourth 25% 75%
Fifth 25% 100%
--------------------
*These time restrictions and percentages will also apply to any shares of
Common Stock acquired by SLOPI and its Affiliates upon conversion of any
Preferred Shares into Common Shares, which will result in additional
Common Shares that can be Transferred based on the percentage limitations
being applied to a greater number of Common Shares.
Notwithstanding the above, if, at any time or from time to time, SLOPI or any of
its Affiliates receive Common Shares pursuant to Section 2.7 to make up a
Deficiency Amount, then immediately the same number of Common Shares will be
available for Transfer . Such increased availability for Transfer and any actual
Transfer(s) will not reduce or delay other Transfers otherwise permitted to be
made in accordance with the foregoing.
(g) From and after the following anniversaries of the date of
this Agreement, SLOPI may sell the following percentages of the number of its
Preferred Shares in one or more Private Placements:
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PERCENTAGE OF
PREFERRED SHARES
ANNIVERSARY OF PERMITTED TO TRANSFER
-----------------------------
THIS AGREEMENT INCREMENTAL AGGREGATE
-------------- ----------- ---------
Third 33 1/3% 33 1/3%
Fourth 33 1/3% 66 2/3%
Fifth 33 1/3% 100%
(h) Subject to paragraphs (f) and (g), as such may be modified
pursuant to paragraph (k) below, one or more Transfers in accordance with Rule
144 or Rule 145.
(i) Subject to paragraphs (f) and (g) as such may be modified
pursuant to paragraph (k) below, one or more Transfers of Shares in a Public
Offering or in a public offering (other than a Public Offering) made pursuant to
a registration statement which has been declared effective by the SEC under the
Securities Act (any such Public Offering or public offering, a "Registered
Transaction"); provided, however, that, in connection with any such Registered
Transaction, SLOPI and the Company shall obtain from the managing underwriter of
such Public Offering or from each broker through which such public offering is
made, as the case may be, a commitment to use its reasonable best efforts to
make a broad public distribution of the Shares (including an indirect
distribution of Shares as a result of a distribution of Exchangeable Securities)
to be Transferred in such Registered Transaction. The managing underwriter or
broker, as the case may be, will be advised that, for purposes of this
Agreement, a "broad public distribution" means a distribution such that no
Person is allocated for purchase in such Registered Transaction a number of
Shares in excess of (A) 5% of the then outstanding shares of Common Stock (after
giving effect to the offering of the Common Shares and any other securities
being offered by TMR concurrently therewith in such Registered Offering) or (B)
in the case of a Public Offering, in excess of 20% of the number of shares of
Common Shares being offered in such Public Offering, provided that, in the case
of this clause (B), there shall be disregarded Common Shares allocated for
purchase by a mutual fund, a pension fund, an investment adviser (which
investment adviser shall be registered under the Investment Advisers Act of
1940, as amended) for any mutual fund or pension fund, or any party who is
entitled to report such party's holdings of Common Stock on Schedule 13G
promulgated under the Exchange Act in light of that party's investment intent.
(j) Notwithstanding paragraphs (f) or (g), as such may be
modified pursuant to paragraph (k) below, such numbers of shares of Common Stock
as are equal to the numbers of shares that SLOPI and its Affiliates may from
time to time have received pursuant to Section 2.7 to make up a Deficiency
Amount.
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(k) Notwithstanding paragraphs (f) and (g) above, if (i) TMR
shall ever, in connection with a merger, consolidation, share exchange, or
acquisition of a business or properties or similar transaction, sell or issue or
commit to sell or issue 5,000,000 (as adjusted for stock splits, reverse splits,
reclassifications, and similar actions) or more shares of Common Stock or TMR
Exchangeable Securities that, at the time of issuance, sale or commitment and
assuming full conversion, exchange or exercise thereof, represent 5,000,000 (as
adjusted for stock splits, reverse splits, reclassifications, and similar
actions) or more of the Voting Shares and (ii) at or prior to the meeting of the
TMR Board of Directors approving any such transaction the TMR Board of Directors
shall not have received an opinion letter from an investment banking firm of
national recognition to the effect that the contemplated transaction is fair,
from a financial point of view, to TMR, then (x) SLOPI and its Affiliates will,
immediately or at any time thereafter, be permitted to Transfer an additional
number of Common Shares equal to the number of shares of Common Stock and/or the
Common Stock equivalent of the Voting Shares represented by the transaction as
to which the requisite fairness opinion was not obtained, and (y) if such would
result in earlier or greater Transfers by SLOPI and its Affiliates, the tables
in paragraphs (f) and (g) shall upon the date of issuance, sale or commitment
(the "Relevant Date") be revised to read, in their entirety:
For paragraph (f):
PERCENTAGE OF COMMON
SHARES PERMITTED TO TRANSFER*
--------------------------------
DATE INCREMENTAL* AGGREGATE *
---- ------------ -----------
Immediately 25% 25%
1 year after Relevant Date 25% 50%
2 years after Relevant Date 25% 75%
3 years after Relevant Date 25% 100%
--------------------
*These time restrictions and percentages will also apply to any
shares of Common Stock acquired by SLOPI upon conversion of any
Preferred Shares into Common Shares, which will result in additional
Common Shares that can be Transferred based on the percentage
limitations being applied to a greater number of Common Shares.
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For paragraph (g):
PERCENTAGE OF PREFERRED
SHARES PERMITTED TO TRANSFER
-----------------------------
DATE INCREMENTAL AGGREGATE
---- ----------- ---------
Immediately 33 1/3% 33 1/3%
1 year after Relevant Date 33 1/3% 66 2/3%
2 years after Relevant Date 33 1/3% 100%
2.5 VOTING OF COMMON SHARES. During the term of this Agreement and
prior to the conversion of all of the Preferred Shares, the following provisions
will apply: SLOPI and its Affiliates shall be entitled to vote, in its or their
complete discretion, and on all matters, such number of its Common Shares that,
when added to the votes represented by the Preferred Shares, constitute an
aggregate of up to 23% of the then outstanding votes eligible to be cast for
such matter. After the conversion of all the Preferred Shares, SLOPI and its
Affiliates shall be entitled to vote, in its or their complete discretion, and
on all matters, such number of its Common Shares that constitute up to 23% of
the then outstanding votes eligible to be cast for such matter. If only a
portion of the Preferred Shares has been converted, the voting shall be prorated
between the Common Stock and Preferred Stock for a total of up to 23% of the
then outstanding eligible votes to be cast for such matter. With respect to
those Common Shares, if any, that are in excess of the above amounts of the then
outstanding votes eligible to be cast for such matter (the "Excess Shares"),
SLOPI shall vote such Excess Shares pro rata with the votes of all shares, other
than the Excess Shares, that are actually voted for, against or abstain from
voting on each matter. Notwithstanding the previous sentence, SLOPI shall have
complete discretion in voting all of its Common Shares and Preferred Shares on
any matter (i) that constitutes a Business Combination Transaction, (ii) that
would involve a change of control of TMR (for purposes of this section a change
in control shall mean the acquisition by a Person other than SLOPI or its
Affiliates of Beneficial Ownership of more than 50% of the then outstanding
shares of Common Stock), or (iii) with respect to which a vote is taken when any
of the following shall have occurred or shall exist: (w) the Average Per Share
Market Value for TMR's Common Stock with respect to the day in which the matter
is voted upon has been less than $5.50 per share (such amount to be
appropriately adjusted to give effect to stock splits, reverse splits, stock
dividends, reclassifications, share exchanges, dividends and distributions for
which adjustments to the conversion price of the Preferred Shares may be made),
(x) there are any accrued but unpaid dividends on any Preferred Shares, (y) TMR
shall have failed to issue the additional shares of Common Stock required to be
issued pursuant to Section 2.7, or (z) there shall be a continuing and uncured
default by TMR of any of its material obligations under this Agreement, the
Certificate of Designation or Registration Rights Agreement (both as defined in
the Merger Agreement) or the Merger Agreement. The
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foregoing does not limit or restrict SLOPI's or its Affiliates' complete
discretion in voting its or their Preferred Shares.
2.6 RIGHT TO PARTICIPATE IN CERTAIN ISSUANCES BY TMR.
(a) If, when, and for so long as, SLOPI and its Affiliates
Beneficially Own shares of Common Stock that would constitute, after giving
effect to the proposed transaction (but not prior to the proposed transaction),
less than the Applicable Percentage of the then outstanding shares of Common
Stock, TMR shall not issue any shares of Common Stock or any Exchangeable
Securities, for any consideration or in any type of transaction, unless TMR
shall have first complied with, in the case of an issuance other than pursuant
to Public Offering, the provisions of Section 2.6(b) or, in the case of a Public
Offering, the provisions of Section 2.6(c).
(b) If TMR determines to issue any shares of Common Stock or
any Exchangeable Security, other than in a Public Offering, then TMR shall
provide written notice of such determination to SLOPI, which notice shall
include all the terms of such issuance and shall offer to SLOPI the right to
purchase, at the same price and on the same terms as TMR proposes to issue such
shares of Common Stock or Exchangeable Security to others (or, if TMR proposes
to issue such shares of Common Stock or any Exchangeable Security other than for
cash, at a cash price equal to the current market price of the Common Stock or
if a Exchangeable Security, such value to be determined by agreement between TMR
or SLOPI, or if the parties are unable to agree, by an investment banking firm
or other asset valuation firm of national reputation selected by SLOPI from
Schedule I attached hereto (as such Schedule I may be amended in writing from
time to time by both TMR and SLOPI) with the consent of a majority of the
Continuing Directors, which consent shall not be unreasonably withheld, the cost
of which shall be borne by TMR) a number or amount of the shares of Common Stock
or Exchangeable Securities proposed to be issued that represents the right to
acquire upon exercise, exchange or conversion of such Exchangeable Securities a
number of Voting Shares so that, upon closing of the transaction, SLOPI and its
Affiliates will Beneficially Own the Applicable Percentage of the then to be
outstanding Common Stock (the "Offer Notice"). If SLOPI determines to accept the
offer contained in the Offer Notice, SLOPI shall deliver a written notice to TMR
indicating its acceptance within 10 days after its receipt of the Offer Notice,
which notice shall indicate whether SLOPI has accepted such offer in whole or in
part, and, if accepted in part, the number or amount of shares of Common Stock
or Exchangeable Securities as to which such offer has been accepted (an
"Acceptance Notice"). Any acceptance of the offer contained in an Offer Notice
by delivery of an Acceptance Notice shall be irrevocable and shall constitute a
commitment by SLOPI to purchase from TMR, and by TMR to sell to SLOPI, the
number or amount of shares of Common Stock or Exchangeable Securities covered by
such Acceptance Notice upon the terms contained in the Offer Notice.
(c) If at any time and from time to time, (i) TMR determines
to issue any shares of Common Stock or any Exchangeable Security in a Public
Offering, and (ii) as a result thereof SLOPI and its Affiliates would
Beneficially Own less than
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<PAGE>
the Applicable Percentage of the then to be outstanding shares of Common Stock,
then (y) TMR shall provide written notice of such determination to SLOPI, which
notice shall include the proposed size and other terms of such issuance, to the
extent then known, the name or names of any managing underwriter or placement
agent(s) and the date when it is proposed that any such issuance will be made,
and (z) TMR shall either sell directly or cause the underwriters or placement
agent(s) to offer to SLOPI the right to purchase from TMR directly or from the
underwriters or placement agent(s), at the applicable offering price, a number
or amount of the shares of Common Stock, Exchangeable Securities or other
securities proposed to be issued that, if purchased by SLOPI, would permit SLOPI
and its Affiliates to Beneficially Own a number of shares of Common Stock equal
to Applicable Percentage of the then to be outstanding Common Stock after
closing the proposed issuance.
2.7 TMR SUPPORT OF CERTAIN STOCK SALES.
(a) In the event that, from time to time, SLOPI and/or any Affiliate
of SLOPI or of Shell shall sell any of the Common Shares to be issued upon
conversion of Preferred Shares and the net proceeds (after reasonable and
customary commissions, underwriters discounts, placement fees and expenses of
sale, excluding expenses of legal counsel for the selling shareholder(s))
received by SLOPI or such Affiliate for such Common Shares shall result in a
Deficiency Amount, then TMR shall, at its option, (i) pay to SLOPI an amount of
cash equal to the Deficiency Amount or (ii) issue to SLOPI or such Affiliate
additional fully paid and non-assessable shares of Common Stock equal in value
to the Deficiency Amount. All shares of Common Stock issued by TMR in respect of
a Deficiency Amount (i) shall be valued in the manner set forth in the
definition of Deficiency Amount and (ii) shall be issued as of the closing of
such sale. If TMR issues shares of Common Stock in respect of a Deficiency
Amount, then TMR will cause such shares to be listed for trading on the
principal stock exchange for the Common Stock.
(b) In the event, (i) SLOPI shall propose to Transfer Shares
to a person who has committed to purchase such Shares pursuant to a transaction
not involving a Public Offering at a time when SLOPI is authorized to sell such
Shares, (ii) under the terms of this Agreement, such person would be required to
enter into an agreement with TMR and such person and TMR are unable to effect
such agreement, and (iii) SLOPI shall subsequently sell such Shares pursuant to
a Public Offering, TMR shall pay the reasonable and customary commissions,
underwriters discounts and expenses of sale payable by SLOPI in such sale,
excluding expenses of legal counsel for SLOPI. If this Section 2.7(b) shall be
applicable in the circumstances, then this Section shall control over Section
2.C (11) g of the Registration Rights Agreement.
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<PAGE>
3. STOCK CERTIFICATES AND OTHER RESTRICTIONS.
3.1 ENDORSEMENT OF CERTIFICATES.
(a) All certificates representing Shares shall, subject to
Section 3.1(c), bear the following legend:
"THIS CERTIFICATE IS SUBJECT TO THE PROVISIONS OF A STOCK RIGHTS AND
RESTRICTIONS AGREEMENT BETWEEN THE MERIDIAN RESOURCE CORPORATION AND SHELL
LOUISIANA ONSHORE PROPERTIES, INC. DATED AS OF JUNE 30, 1998. A COPY OF
SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL BUSINESS OFFICE OF THE MERIDIAN
RESOURCE CORPORATION."
(b) All certificates representing Shares shall, subject to
Section 3.1(c), bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND
MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE CONVEYED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR PURSUANT TO RULE 144
UNDER THE ACT, UNLESS THE COMPANY SHALL HAVE BEEN FURNISHED WITH AN
OPINION OF COUNSEL, WHICH OPINION SHALL BE REASONABLY SATISFACTORY TO
COUNSEL FOR TMR ENERGY CORPORATION, THAT REGISTRATION UNDER THE ACT IS NOT
REQUIRED."
(c) After such time as either of the legends set forth in
Sections 3.1(a) and (b) is no longer required hereunder (including without
limitation as a result of the termination of this Agreement in accordance with
its terms) or if the securities represented by a certificate have been
registered under the Securities Act pursuant to an effective registration
statement or are to be sold pursuant to Rule 144, or if the Company shall have
been furnished with an opinion of counsel, which opinion shall be reasonably
satisfactory to counsel for TMR, that registration under the Securities Act is
not required, as the case may be, then, in any such event, upon the request of
SLOPI, TMR shall cause such certificate or certificates to be exchanged for a
certificate or certificates that do not bear any legend.
3.2 IMPROPER TRANSFER. Any attempt by SLOPI or its Affiliates to
Transfer any Shares other than in accordance with this Agreement shall be null
and void and neither TMR nor any transfer agent for such securities shall be
required to give any effect to such attempted Transfer in its stock records.
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<PAGE>
4. GENERAL PROVISIONS.
4.1 REPRESENTATIONS AND WARRANTIES.
(a) TMR represents and warrants to SLOPI that (i) TMR is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas and has the corporate power and authority to enter into
this Agreement and to carry out its obligations hereunder, (ii) the execution
and delivery of this Agreement by TMR and the consummation by TMR of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of TMR and no other corporate proceedings on the
part of TMR are necessary to authorize this Agreement or any of the transactions
contemplated hereby, and (iii) this Agreement has been duly executed and
delivered by TMR and constitutes a valid and binding obligation of TMR, and,
assuming this Agreement constitutes a valid and binding obligation of SLOPI, is
enforceable against TMR in accordance with its terms, subject to applicable
bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance and
similar laws affecting creditors' rights generally from time to time and to
general principles of equity.
(b) SLOPI represents and warrants to TMR that (i) SLOPI is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the corporate power and authority to enter into
this Agreement and to carry out its obligations hereunder, (ii) the execution
and delivery of this Agreement by SLOPI and the consummation by SLOPI of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of SLOPI and no other corporate proceedings on the
part of SLOPI are necessary to authorize this Agreement or any of the
transactions contemplated hereby, and (iii) this Agreement has been duly
executed and delivered by SLOPI and constitutes a valid and binding obligation
of SLOPI, and, assuming this Agreement constitutes a valid and binding
obligation of TMR, is enforceable against SLOPI in accordance with its terms,
subject to applicable bankruptcy, reorganization, insolvency, moratorium,
fraudulent conveyance and similar laws affecting creditors' rights generally
from time to time and to general principles of equity.
4.2 AMENDMENT AND MODIFICATION; WAIVER OF COMPLIANCE. This Agreement
may be amended or waived only by written instrument duly executed by the
parties. In the event of the amendment or modification of this Agreement in
accordance with its terms, the Board of Directors of TMR shall adopt any
amendment to the by-laws of TMR that may be required as a result of such
amendment or modification to this Agreement, and, if required, shall propose any
amendment to the Certificate of Incorporation that may be required as a result
of such amendment or modification to this Agreement to the TMR shareholders
entitled to vote thereon at a meeting duly called and held for such purpose, and
shall recommend that the TMR shareholders vote in favor of such amendment to the
Certificate of Incorporation.
4.3 INJUNCTIVE RELIEF. Each of the parties hereto hereby
acknowledges that in the event of a breach by any of them of any material
provision of this
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Agreement, the aggrieved party may be without an adequate remedy of law. Each of
the parties therefore agrees that in the event of a breach of any material
provision of this Agreement the aggrieved party may elect to institute and
prosecute proceedings in any court of competent jurisdiction to enforce specific
performance or to enjoin the continuing breach of such provision, as well as to
obtain damages for breach of this Agreement. By seeking or obtaining any such
relief, the aggrieved party will not be precluded from seeking or obtaining any
other relief to which it may be entitled in equity or at law.
4.4 BYLAWS. At all times while this Agreement shall be in effect,
TMR shall cause its Bylaws to conform to the provisions of this Agreement,
including by causing its Bylaws to be amended.
4.5 NO ADOPTION OR AMENDMENT OF RIGHTS PLAN. During the term of this
Agreement, TMR's Board of Directors shall not adopt any shareholder rights plan
or amend any rights plan without the approval of a majority of the SLOPI
Designee(s) or Preferred Director(s) then on the Board of Directors of TMR
unless such plan exempts SLOPI and its Affiliates from all effects thereof.
4.6 LIMITATION ON REDUCTIONS OF PUBLIC FLOAT BY TMR. TMR shall not
take any action, including without limitation an acquisition by TMR or any of
its Affiliates of shares of Common Stock then outstanding, or a recapitalization
by TMR, which would reduce the number of shares of Common Stock held by Persons
other than SLOPI, TMR or any Affiliate of either SLOPI or TMR to less than the
minimum number required to maintain TMR's listing on the New York Stock
Exchange, without the prior written consent of SLOPI.
4.7 GOVERNING LAW. This Agreement and the legal relations between
the parties shall be governed by and construed in accordance with the laws of
the State of Texas, without regard to the principles of conflicts of law
thereof.
4.8 TERMINATION.
(a) This Agreement may be terminated:
(i) by the mutual written consent of the parties hereto;
(ii) by SLOPI or TMR if SLOPI shall have become the
Beneficial Owner of less than 10% of the Fully Diluted Shares; or
(iii) by SLOPI if any Person (other than SLOPI or any
Affiliate of SLOPI) shall have proposed to TMR a Business Combination
Transaction and a majority of the Continuing Directors shall have approved such
proposal or shall have retained (or authorized TMR to retain) the services of an
investment banking firm and shall have instructed such investment banking firm
to solicit indications of interest with respect to a Business Combination
Transaction; provided that, if a proposal with respect to a Business Combination
Transaction referred to in this clause (iii) shall have
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<PAGE>
been terminated or withdrawn by the Person who made such proposal and SLOPI
shall have withdrawn, terminated or permitted to expire any tender or exchange
offer or proposal with respect to a Business Combination Transaction made by
SLOPI, then the provisions of this Agreement shall thereafter be reinstated
(without liability to any party for any failure to have complied with the terms
and provisions of this Agreement during the period when it shall have been
terminated in accordance with this Section 4.8(a)(iii)) and this Agreement shall
thereafter continue in full force and effect in accordance with its terms; or
(iv) by SLOPI if (A) any Person other than SLOPI or
its Affiliates shall have acquired Beneficial Ownership of 20% (or, if lower,
the percentage specified in the definition of "Affiliated Shareholder" in Part
Thirteen of the TBCA, as amended from time to time), or more of the Voting
Shares and such Person shall not have entered into an agreement with TMR
containing restrictions and other provisions at least as favorable to TMR as
those contained in this Agreement; or
(v) by SLOPI if the Continuing Directors shall not
constitute a majority of the Board of Directors of TMR; or
(vi) by SLOPI if TMR shall have breached any
material provision of this Agreement, the Merger Agreement, or the Certificate
of Designation or the Registration Rights Agreement (both as defined in the
Merger Agreement) and SLOPI shall have delivered a written notice of such breach
to TMR; provided that, if such breach is reasonably susceptible of cure and TMR
shall proceed diligently to cure such breach, then this Agreement shall not be
terminated unless such breach shall not have been cured on or prior to the fifth
day after the delivery of written notice by SLOPI to TMR that TMR has breached a
material provision of any such instrument; or
(vii) by SLOPI if (x) TMR shall seek relief under any
bankruptcy, insolvency, receivership, custodianship, trusteeship, liquidation,
reorganization, composition, readjustment, moratorium or similar law (an
"Insolvency Law"); or (y) a proceeding or case shall be commenced under an
Insolvency Law by a third party against TMR and such proceeding or case shall
continue undismissed or unstayed for 60 days; or (z) an order for relief under
an Insolvency Law shall be entered against TMR.
(b) Unless this Agreement shall have been earlier terminated
as provided in Section 4.8(a), this Agreement shall terminate on the 10th
anniversary of the date of this Agreement.
4.9 NOTICES. All notices, requests, demands or other communications
required or permitted by this Agreement shall be in writing and effective when
received, and delivery shall be made personally or by registered or certified
mail, return receipt requested, postage prepaid, or overnight courier or
confirmed facsimile transmission, addressed as follows:
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(a) If to TMR:
The Meridian Resource Corporation
15995 N. Barkers Landing, Suite 300
Houston, Texas 77079
Attention: Joseph A. Reeves, Jr., Chairman and
Chief Executive Officer
Fax: (281) 558-5595
with a copy to:
Fulbright & Jaworksi L.L.P.
1301 McKinney Street, Suite 5100
Houston, Texas 77010
Attention: Curtis W. Huff
Fax: (713) 651-5246
(b) If to SLOPI:
Shell Louisiana Onshore Properties Inc.
P.O. Box 7986
Newark, Delaware 19714
Attention: Corporate Secretary
with a copy to:
Shell Oil Company Legal Firm
P.O. Box 2463
Houston, Texas 77252
Attention: Danna M. Walton
Fax: 713-241-5056
4.10 SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the fullest extent possible.
4.11 ENTIRE AGREEMENT. Except as otherwise expressly stated herein,
this Agreement constitutes the entire agreement among the parties with respect
to the subject matter hereof and supersedes all prior agreements and
undertakings, both written and oral, among the parties, or any of them, with
respect to the subject matter
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hereof. Except for the permitted Transfers to Shell and Affiliates of Shell or
SLOPI and except as otherwise expressly permitted or contemplated herein, the
rights and obligations under this Agreement shall not be assigned by operation
of law or otherwise. Nothing in this Agreement shall be construed as prohibiting
TMR from effecting a merger, consolidation or other similar transaction with
another entity, provided that (i) the operative terms of this Agreement shall be
applied in respect of any such transaction and (ii) under the express terms of
such transaction this Agreement will be continued in effect by TMR or any
successor thereto.
4.12 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and to Shell and the Affiliates
of Shell and SLOPI if they receive Permitted Transfers in accordance with this
Agreement. Nothing in this Agreement, express or implied, is intended to or
shall confer upon any other person any rights, benefits or remedies of any
nature whatsoever under or by reason of this Agreement, except as expressly
otherwise contemplated herein.
4.13 HEADINGS. The descriptive headings contained in this Agreement
are included for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
4.14 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
4.15 AUDIT RIGHTS. SLOPI shall have the right to perform, directly
or through its representatives, periodic audits of TMR and its subsidiaries. The
audits may cover financial transactions, operational matters, and other areas
deemed appropriate. The audit frequency will not be more than once a year. The
scope of the audits will be determined by SLOPI. SLOPI will utilize TMR's
independent auditor, Ernst & Young LLP or such other firm as may then be TMR's
outside auditors ("E&Y"), to conduct the audits as long as E&Y performs to
SLOPI's satisfaction. SLOPI reserves the right to use a different E&Y partner to
conduct any audit. SLOPI personnel or representatives may participate in the
audit and/or review all audit work papers. SLOPI will bear the cost of the
audits.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
THE MERIDIAN RESOURCE CORPORATION
By: /s/ JOSEPH A. REEVES, JR.
Name: JOSEPH A. REEVES, JR.
Title: CEO
SHELL LOUISIANA ONSHORE PROPERTIES INC.
By: /s/ S. P. METHVIN
Name: S. P. METHVIN
Title: PRESIDENT
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SCHEDULE I
LIST OF ACCEPTABLE INVESTMENT BANKING
AND ASSET VALUATION FIRMS
1. Goldman Sachs
2. CS First Boston
3. Merrill Lynch
4. Chase Securities
5. Smith Barney
6. Donaldson Lufkin Jenrette
7. Petrie Parkman
8. Dain Rauscher
9. Morgan Stanley
10. Howard Weil
The above list may be revised from time to time by a written instrument signed
by both TMR and SLOPI.
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REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated June 30, 1998 by and between The
Meridian Resource Corporation, a Texas corporation (the "Company"), and Shell
Louisiana Onshore Properties Inc., a Delaware corporation ("Security Holder").
W I T N E S S E T H:
WHEREAS, the Company and Security Holder have entered into an Agreement
and Plan of Merger dated as of March 27, 1998 (the "Merger Agreement") which
provides, among other things, for the execution of this Agreement;
NOW THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and in the Merger Agreement the parties hereto agree as follows:
Section 1. DEFINITIONS. The terms defined in this Section, whenever used
in this Agreement, shall, unless the context otherwise requires, have the
respective meanings hereinafter specified. Terms not defined in this Agreement,
and defined in the Merger Agreement have the meanings assigned them in the
Merger Agreement.
"Agreement" shall mean this Registration Rights Agreement.
"Commission" shall mean the United States Securities and Exchange
Commission.
"Common Stock" shall mean the Company's authorized Common Stock, par value
$0.01 per share.
"Company" shall mean The Meridian Resource Corporation, a Texas
corporation, and any successor corporation by merger, consolidation or otherwise
and any parent corporation resulting from the merger or consolidation of the
Company with or into a subsidiary of another corporation.
"Eligible Stock" means the issued and outstanding shares of Common Stock
(i) that have been issued pursuant to the Agreement and Plan of Merger (the
"Merger Agreement") by and among the Company, the Security Holder, LOPI
Acquisition Corp. and Louisiana Onshore Properties, Inc., (ii) that have been
issued upon conversion of the Series A Convertible Preferred Stock issued
pursuant to the Merger Agreement; (iii) that have been purchased by the Security
Holder upon the exercise of its rights pursuant to the Stock Rights and
Restrictions Agreement; and (iv) that may be issued pursuant to Section 2.7 of
the Stock Rights and Restriction Agreement.
<PAGE>
"Exchange Act" shall mean the Securities Exchange Act of 1934, and the
rules and regulations of the Commission thereunder, all as the same shall be in
effect at the time.
"Person" shall mean an individual, a corporation, a partnership, a trust,
an unincorporated organization or a government or any agency or political
subdivision thereof.
"Public Offering" shall mean a firm commitment underwritten public
offering pursuant to a registration statement under the Securities Act.
"Registrable Securities" shall mean that portion of the shares of Eligible
Stock that any Security Holder is permitted to sell under Section 2.4(f) of the
Stock Rights and Restriction Agreement, as such Section may be adjusted in
accordance with terms of such Agreement.
"Registration" shall mean the registration under the Securities Act of
Registrable Securities pursuant to either Section 2.A hereof or 2.B hereof.
"Registration Statement" shall mean a registration statement filed under
the Securities Act or a similar document filed pursuant to any other statute
then in effect corresponding to the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
"Security Holder" shall mean Shell Louisiana Onshore Properties Inc., a
Delaware corporation, its permitted assigns, or any affiliate thereof holding
Common Stock or any successor corporation to any of the foregoing by merger or
consolidation or otherwise.
"Stock Rights and Restrictions Agreement" means that certain Stock Rights
and Restrictions Agreement of even date herewith between the Company and the
Security Holder.
Section 2. REGISTRATION RIGHTS.
A. DEMAND REGISTRATIONS. Subject to the provisions of Section 5 in the
event of assignment of this Agreement, if the Company shall receive a written
request from Security Holder requesting that the Company file a Registration
Statement relating to Registrable Securities, the Company will as promptly as
practicable prepare and file a Registration Statement and use reasonable best
efforts to cause the Registration Statement to become effective; subject,
however, to the following provisions:
(1) the Company shall be required to file no more than an aggregate
of 5 Registration Statements on behalf of Security Holder (or Security Holders
in the event of an assignment of this Agreement) pursuant to this Subsection
2.A, plus
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any number of additional Registration Statements (not to exceed an aggregate of
an additional 5) as to which, at the time of the first filing with the SEC, the
Security Holder (or Security Holders in the event of an assignment of this
Agreement) and its underwriter(s) have reasonably estimated that the price to
the public of the Registrable Securities to be sold (before discounts,
commissions, and expenses) will be equal to or greater than $50,000,000;
(2) the Company shall not be obligated (i) to file a requested
Registration in the event that the aggregate number of Registrable Securities to
be included in such requested Registration is less than 2 1/2% of the issued and
outstanding Common Stock; or (ii) to prepare or file such Registration Statement
or an amendment or supplement thereto, and may suspend sales, at any time when
the Company reasonably determines (by action of the Company's Board of Directors
or an officer duly authorized by the Board of Directors to make such decision)
that the filing thereof at the time requested, or the offering of Registrable
Securities pursuant thereto, would materially and adversely affect a pending or
proposed offering of securities of the Company, an acquisition, merger,
recapitalization, consolidation, reorganization or similar transaction relating
to the Company or negotiations, discussions or pending proposals with respect
thereto or require premature disclosure of information not otherwise required to
be disclosed to the potential detriment of the Company; PROVIDED, HOWEVER, that
such period of sale or distribution shall resume after any such suspension for a
number of days necessary to keep such Registration effective for permitted sales
thereunder for a term of 90 days. The filing of a Registration Statement, or any
amendment or supplement thereto, by the Company may not be deferred, and the
sale and distribution of shares may not be suspended, in each case pursuant to
the foregoing provisions, for more than 60 days after the abandonment or
consummation (or the completion of the distribution of securities in the case of
a public offering) of any of the proposals or transactions described therein or,
in any event, for more than 120 days during any one year;
(3) a Registration Statement filed pursuant to a request of Security
Holder shall first include all Registrable Securities requested to be included
by Security Holder and, only after such inclusion, may, include securities of
the Company being sold for the account of the Company provided, however, that
securities to be offered on behalf of the Company will be included in such
Registration Statement only to the extent that, in the reasonable opinion of the
managing underwriter for the Public Offering of Registrable Securities on behalf
of Security Holder, such inclusion will not materially adversely affect the
distribution of Registrable Securities on behalf of Security Holder;
(4) the selection of an underwriter for a Public Offering of
Registrable Securities by Security Holder shall be subject to the approval of
the Company, which shall not be unreasonably withheld;
(5) for purposes of paragraph (1) of this Subsection A, if a
requested Registration Statement is filed and the Company otherwise complies
with its obligations hereunder, but the Registration Statement is withdrawn by
Security Holder due to a
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<PAGE>
delay in the offering requested by the Company for a period of more than 15
business days pursuant to Section 2, then no requested Registration Statement
shall be deemed to have been filed; and
(6) no Other Holder (as defined below) shall be entitled to include
securities or piggyback in any Registration demanded by Security Holder.
B. INCIDENTAL/"PIGGY-BACK" REGISTRATIONS. If the Company at any time
proposes to file a Registration Statement (other than a Registration Statement
filed pursuant to Subsection A of this Section) under the Securities Act
relating to a Public Offering of Common Stock to be sold for cash that would
permit the registration of Registrable Securities, it will give Security Holder
as much advance notice, in writing, as is reasonably practicable under the
circumstances, but in any event not less than 5 days, before the filing with the
Commission of such Registration Statement, which notice shall set forth the
securities proposed to be registered. The notice shall offer to include in such
filing such amount of Registrable Securities as Security Holder may request. If
Security Holder wishes to have Registrable Securities registered for sale in the
Public Offering pursuant to this Subsection B, it shall advise the Company in
writing within 20 days after the date of receipt of such offer from the Company
(or such shorter period, but in any event not less than 5 days, as the Company
shall specify in its notice to Security Holder), setting forth the amount of
Registrable Securities for which registration is requested. If the managing
underwriter of the proposed Public Offering of Common Stock by the Company shall
advise the Company in writing that, in the reasonable opinion of the managing
underwriter, the distribution of the Registrable Securities requested by
Security Holder to be included in the Registration Statement concurrently with
securities being registered for sale by the Company would materially adversely
affect the distribution of such securities by the Company and Security Holder,
then the Company shall so advise the Security Holder and the number of
securities that are entitled to be included in the registration and underwriting
shall be allocated as follows: (i) in the event a Registration Statement is
being filed in connection with the exercise of registration rights by a security
holder other than the Security Holder (an "Other Holder"), all of any Other
Holder's shares of Common Stock shall be included in the registration and the
remaining number of securities that are entitled to be included in the
registration shall be allocated (A) 80% to the Company and any other
shareholders (not including the Other Holder or the Security Holder) whose
shares are to be included in such Registration Statement and (B) 20% to the
Security Holder, and (ii) in the event the registration is not being filed in
connection with the exercise of registration rights of any Other Holder (a) 80%
to the Company and any other shareholders (not including Security Holder) whose
shares are to be included in such Registration Statement and (b) 20% to Security
Holder. If any Person does not agree to the terms of any such underwriting, such
Person shall be excluded therefrom by written notice from the Company or the
underwriter.
Nothing contained in this Subsection B shall, however, limit the
Company's right to cancel, postpone or withdraw any such registration proposed
by the Company for any reason.
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<PAGE>
Any obligation of the Company to effect a registration pursuant to
this Subsection B shall be conditioned upon Security Holder entering into an
underwriting agreement with the Company and the managing underwriters of the
registered offering of the type described in paragraph (10) of Subsection C.
C. REGISTRATION PROCEDURES. If the Company is required by the provisions
of Subsections A or B of this Section 2 to effect the Registration of any of the
Registrable Securities under the Securities Act, the Company will, as soon as in
reasonably practicable:
(1) Prepare and file with the Commission a Registration Statement
with respect to such securities and use its reasonable best efforts to cause
such Registration Statement to become and, subject to paragraph (2) of this
Subsection C, remain effective.
(2) Keep such Registration effective, and the prospectus used in
connection therewith, current for a period of ninety (90) days or until the
Security Holder has completed the distribution described in the Registration
Statement relating thereto, whichever first occurs (the "Selling Period");
provided, however, that (a) the Selling Period shall be extended for a period of
time equal to any period that Security Holder refrains from selling any
securities included in such registration pursuant to a suspension under
Subsection A.
(3) Prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective and
such prospectus current in compliance with Section 10 of the Securities Act, and
to comply with the provisions of the Securities Act with respect to the sale or
other disposition of all Common Stock covered by such Registration Statement;
provided, however, that the Company shall have no obligation under this
paragraph (3) after the period required by paragraph (2) of this Subsection C
has lapsed.
(4) Furnish to Security Holder such number of copies of such
Registration Statement and of each amendment and supplement thereto (in each
case including all exhibits), such number of copies of the prospectus included
in such Registration Statement (including each preliminary prospectus, summary
prospectus and prospectus supplement), in conformity with the requirements of
the Securities Act, and such other documents, as Security Holder may reasonably
require in order to facilitate the public offering, sale or other disposition of
the Registrable Securities owned by Security Holder.
(5) Use reasonable best efforts to register or qualify the Common
Stock covered by such Registration Statement under such other securities or blue
sky laws of jurisdictions in the United States of America as Security Holder
shall reasonably request (excluding however any jurisdiction in which the filing
would subject the Company to additional tax liability, and any jurisdiction in
which the Company would be required to execute a general consent to service of
process in effecting such
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<PAGE>
registration or qualification which consent would not be required but for this
paragraph (5)), and do such other acts and things as may be required to enable
Security Holder to consummate the public sale or other disposition in such
jurisdictions of the Registrable Securities owned by Security Holder.
(6) Otherwise use reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement which
satisfies the provisions of Section 11(a) of the Securities Act.
(7) Immediately notify Security Holder at any time when a prospectus
is required to be delivered under the Securities Act within the Selling Period
referred to in paragraph (2) of this Subsection C, of the Company becoming aware
that the prospectus included in the Registration Statement, or as such
prospectus may be amended or supplemented, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading in light of
the circumstances then existing, and at the request of Security Holder to
promptly prepare and furnish to Security Holder a number of copies of an amended
or supplemental 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 in order to make the statements
therein not misleading in the light of the circumstances then existing. In the
event the Company shall give any such notice, Security Holder shall immediately
suspend use of the prospectus and the Selling Period shall be extended by the
number of days during the period from and including the date of the giving of
such notice to and including the date when Security Holder shall have received
the copies of such supplemented or amended prospectus.
(8) In the event that the Company suspends use by Security Holder of
a prospectus relating to an offering of Registrable Securities pursuant to a
suspension under Subsection A, because the Company is conducting negotiations
for a material business combination or due to pending material developments or
events that have not yet been publicly disclosed and as to which the Company
believes public disclosure will be prejudicial to the Company, the Company shall
deliver notice in writing to the effect of the foregoing and, upon receipt of
such notice, the Security Holder shall not use the prospectus, and the Selling
Period shall cease to run or will not commence, until such Security Holder has
received copies of the supplemented or amended prospectus provided for in
paragraph 3 of this Subsection C, or until it is advised in writing by the
Company that the prospectus may be used, and has received copies of any
additional or supplemental filings that are incorporated or deemed incorporated
by reference in such prospectus. The Company will use reasonable best efforts to
ensure that the use of the prospectus may be resumed, and the Selling Period
will commence, as promptly as is practicable and, in any event, promptly after
the earlier of (x) public disclosure of such material business combination or
pending material development or event sufficient to permit an affiliate of the
Company to sell Common Stock or (y) in the judgment of
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<PAGE>
the Company, public disclosure of such material business combination or material
development or event would not be prejudicial to the Company.
(9) Use its reasonable best efforts to list such Registrable
Securities on the primary securities exchange or other trading market on which
the Common Stock is then listed, if such Registrable Securities are not already
so listed and if such listing is then permitted under the rules of such exchange
or other trading market, and to provide a transfer agent and registrar for such
Registrable Securities covered by such Registration Statement not later than the
effective date of such Registration Statement.
(10) Enter into such agreements (including an underwriting agreement
in customary form and containing customary provisions relating to legal opinions
and accountants' letters and customary representations and warranties and
customary provisions for mutual indemnification and contribution between the
Company and the underwriters for Security Holder) and take such other actions as
Security Holder may reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities.
(11) Make available for inspection by Security Holder, 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 Security Holder or any such underwriter, all customary financial and other
records, customary corporate documents and properties of the Company, and cause
all of the Company's officers, directors and employees to supply all customary
information requested by Security Holder, such underwriter, attorney, accountant
or agent, as is reasonably needed in connection with such Registration
Statement; provided such parties execute confidentiality agreements reasonably
acceptable to the Company.
Except as otherwise provided in Section 2.7(b) of the Stock Rights
and Restriction Agreement, underwriting discounts and commissions attributable
to securities offered on behalf of Security Holder plus the fees and expenses of
separate counsel for Security Holder incurred in connection with effecting a
Registration pursuant to this Section 2 shall be borne by Security Holder. All
other expenses incurred in connection with the Registration Statement shall be
borne by the Company.
It shall be a condition precedent to the obligation of the Company
to take any action pursuant to this Section 2 in respect of the Registrable
Securities which are to be registered at the request of Security Holder that
Security Holder shall furnish to the Company such information regarding the
securities held by it and the intended method of disposition thereof as the
Company shall reasonably request and as shall be required in connection with the
action taken by the Company.
D. INDEMNIFICATION.
(1) In the event of any Registration of any Registrable Securities
under the Securities Act pursuant to this Section 2, the Company agrees to
indemnify and hold harmless Security Holder, its directors, officers and
employees, and each other
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<PAGE>
Person, if any, who controls Security Holder within the meaning of Section 15 of
the Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which Security Holder or any such director, officer, employee or
controlling Person may become subject under the Securities Act or any other
statute or at common law, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon (i) any alleged
untrue statement of any material fact contained, on the effective date thereof,
in any Registration Statement under which such securities were registered under
the Securities Act, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto, or (ii) any alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and shall reimburse Security Holder or
such director, officer, employee or controlling Person for reasonable legal or
any other expenses reasonably incurred by Security Holder or such director,
officer, employee or controlling Person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company shall not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon any alleged
untrue statement or alleged omission made in such Registration Statement,
preliminary prospectus, prospectus, or amendment or supplement in reliance upon
and in conformity with written information furnished to the Company in writing
for use therein; and provided, further, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage, liability or
expense arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission in the prospectus if such untrue
statement or alleged untrue statement or omission or alleged omission has been
the subject of a notice given to Security Holder pursuant to paragraph (7) of
Subsection C if Security Holder after receipt of such notice and prior to the
receipt of a corrected prospectus sold a Registrable Security to the Person
asserting such loss, claim, damage, liability or expense who purchased such
Registrable Security which is the subject thereof form Security Holder. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of Security Holder or such director, officer, employee or
participating Person or controlling Person, and shall survive the transfer of
such securities by Security Holder.
(2) Security Holder agrees to indemnify and hold harmless the
Company, its directors, officers and employees and each other Person, if any,
who controls the Company against any losses, claims, damages or liabilities
joint or several, to which the Company or any such director, officer, or
employee or any such Person may become subject under the Securities Act or any
other statute or at common law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any alleged untrue statement of any material fact contained, on the effective
date thereof, in any Registration Statement under which Registrable Securities
were registered under the Securities Act at the request of Security Holder, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereto, or (ii) any alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such
alleged untrue statement or alleged omission was made in such Registration
Statement,
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<PAGE>
preliminary prospectus, prospectus, amendment or supplement in reliance upon and
in conformity with written information furnished to the Company in writing by
Security Holder for use therein, and shall reimburse the Company or such
director, officer, employee or other Person for any reasonable legal or any
other expenses reasonably incurred in connection with investigating or defending
any such loss, claim, damage, liability or action.
(3) 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 the preceding paragraphs of this Subsection E, such indemnified
party will, if a claim in respect thereof is to be made against an indemnifying
party, give written notice to the latter of the commencement of such action;
provided, that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligation under this
Subsection D to the extent the indemnifying party is not materially prejudiced
by such failure. In case any such action is brought against an indemnified
party, the indemnified party shall permit the indemnifying party to assume the
defense of such action or proceeding, provided that counsel for the indemnifying
party, who shall conduct the defense of such action or proceeding shall be
approved by the indemnified party (whose approval shall not be unreasonably
withheld) and the indemnified party may participate in such defense at such
indemnified party's expense unless in the opinion of counsel to such indemnified
party a conflict of interest between such indemnified and indemnifying parties
may exist in respect of such claim that would prevent the indemnified party's
counsel from adequately representing both parties, in which event the
indemnifying party shall pay the reasonable fees and expense of separate counsel
for the indemnified party. No indemnifying party will consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect to such claim or litigation. The
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses of
more than one separate firm for all indemnified parties. The indemnifying party
shall not be liable for any settlement of any proceeding effected without its
written consent.
(4) Indemnification similar to that specified in the preceding
paragraphs of this Subsection E shall be given by the Company and Security
Holder (with such modifications as shall be appropriate) with respect to
liability related to any required registration or other qualification of
Registrable Securities under any Federal or state law or regulation of
governmental authority other than the Securities Act.
(5) If the indemnification provided for in this Subsection D is
unavailable or insufficient to hold harmless an indemnified party under
paragraphs (1) or (2) above, then the indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in paragraphs (1) or (2) above, in
such proportion as is appropriate to reflect the relative fault of the Company
on the one hand and Security Holder on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equity considerations. The relative
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<PAGE>
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or Security Holder and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The Company and Security Holder agree that it would not be just and
equitable if contributions pursuant to this paragraph (5) were to be determined
by pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the first sentence of
this paragraph (5). The amount paid by an indemnified party as a result of the
losses, claims, damages or liabilities referred to in the first sentence of this
paragraph (5) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any action or claim (which shall be limited as provided in paragraph (3) above
if the indemnifying party has assumed the defense of any such action in
accordance with the provisions thereof) which is the subject of this paragraph
(5). Notwithstanding the provisions of this paragraph (5), in respect of any
loss, claim, damage or liability based upon any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact which relates to information other than information supplied by Security
Holder, Security Holder shall not be required to contribute any amount in excess
of the amount by which the total price at which the Registrable Securities
offered by it and distributed to the public were offered to the public exceeds
the amount of any damages which Security Holder has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation. Promptly after receipt
by an indemnified party under this paragraph (5) of notice of the commencement
of any action against such party in respect of which a claim for contribution
may be made against an indemnifying party under this paragraph (5), such
indemnified party shall notify the indemnifying party in writing of the
commencement thereof if the notice specified in paragraph (3) above has not been
given with respect to such action; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party under this paragraph (5) to the extent such omission is
not prejudicial.
E. PUBLIC AVAILABILITY OF INFORMATION. The Company shall comply with all
public information reporting requirements of the Commission, to the extent
required from time to time to enable Security Holder to sell 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 Commission. Upon the request of Security Holder, the
Company will deliver to Security Holder a written statement as to whether it has
complied with such requirements.
F. SUPPLYING INFORMATION. The Company shall cooperate with Security Holder
in supplying such information as may be necessary for Security Holder to
complete and file any information reporting forms presently or hereafter
required by the Commission
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<PAGE>
as a condition to the availability of an exemption from the Securities Act for
the sale of any Registrable Securities.
G. SPECIFIC PERFORMANCE. Each party hereto acknowledges and agrees that
each other party hereto would be irreparably harmed and would have no adequate
remedy of law if any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. Accordingly, it
is agreed that, in addition to any other remedies by law or in equity which may
be available, the parties hereto shall be entitled to obtain temporary and
permanent injunctive relief with respect to any breach or threatened breach of,
or otherwise obtain specific performance of the covenants and other agreements
contained in this Agreement.
Section 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to Security Holder that (a) the Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Texas and has the corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder, (b) the execution and
delivery of this Agreement by the Company and the consummation by the Company of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company and no other corporate proceedings
on the part of the Company are necessary to authorize this Agreement or any of
the transactions contemplated hereby, and (c) this Agreement has been duly
executed and delivered by the Company and constitutes a valid and binding
obligation of the Company, and, assuming this Agreement constitutes a valid and
binding obligation of Security Holder is enforceable against the Company in
accordance with its terms, subject to applicable bankruptcy, reorganization,
insolvency, moratorium, fraudulent conveyance and similar laws affecting
creditors, rights generally from time to time and to general principles of
equity, and except as the enforceability thereof may be limited by
considerations of public policy.
Section 4. REPRESENTATIONS AND WARRANTIES OF SECURITY HOLDER. Security
Holder represents and warrants to the Company that (a) it is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the corporate power and authority to enter into this Agreement
and to carry out its obligations hereunder, (b) the execution and delivery of
this Agreement by Security Holder and the consummation by Security Holder of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Security Holder and no other corporate
proceedings on the part of Security Holder are necessary to authorize this
Agreement or any of the transactions contemplated hereby, and (c) this Agreement
has been duly executed and delivered by Security Holder and constitutes a valid
and binding obligation of Security Holder, and, assuming this Agreement
constitutes a valid and binding obligation of the Company, is enforceable
against Security Holder in accordance with its terms subject to applicable
bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance and
similar laws affecting creditors' rights generally from time to time and to
general principles of equity, and except as the enforceability thereof may be
limited by considerations of public policy.
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<PAGE>
Section 5. STOCK RIGHTS AND RESTRICTIONS AGREEMENT. This Agreement shall
be in all respects subject to the terms and conditions of the Stock Rights and
Restrictions Agreement between the parties hereto and of even date herewith. As
provided in the next sentence, this Agreement may be assigned by Security
Holder, in whole or in part, in connection with any transfer (one or more) of
Registrable Securities that is permitted under the Stock Rights and Restrictions
Agreement except for transfers (i) in a Public Offering or (ii) pursuant to Rule
144 or Rule 145; provided, however, that any such transferee who is not an
Affiliate of Security Holder must acquire from the Security Holder a number of
Registrable Securities equal to at least 25% of the Eligible Stock then held by
Security Holder and its Affiliates. In order for any such transferee to be
entitled to the benefits of this Agreement and thereby become a "Security
Holder," such transferee must agree to be bound by this Agreement by executing a
counterpart of this Agreement. In the event of an assignment or partial
assignment of this Agreement pursuant to this Section 5, notices and requests to
and from the Company pursuant to this Agreement shall continue to be made only
to and from the Security Holder until such time as Security Holder shall
otherwise advise the Company in writing from time to time that a
transferee-Security Holder(s) will give and receive notices and requests.
In the event that any such transferee-Security Holder is an E&P Company
(as defined in the Stock Rights and Restriction Agreement), then any underwriter
for such E&P Company shall have customary access to perform its due diligence
obligations with respect to any Registration Statement subject to
confidentiality obligations that prohibit the sharing or disclosure of
information with such E&P Company, and no such E&P Company shall, by virtue of
this Agreement, have access to non-public information of the Company.
No transfer or assignment of this Agreement shall increase the number of
Registrations which the Company is obligated to make under this Agreement.
Section 6. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or transmitted
by telex, telegram or facsimile transmission or mailed by registered or
certified mail (return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Security Holder, to:
Shell Louisiana Onshore Properties Inc.
P.O. Box 7986
Newark, Delaware 19714
Attention: Corporate Secretary
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with a copy to:
Shell Oil Company Legal Firm
P.O. Box 2463
Houston, Texas 77252
Attention: Danna M. Walton
Fax: 713-241-5056
(b) if to the Company, to:
The Meridian Resource Corporation
15995 N. Barkers Landing, Suite 300
Houston, Texas 77079
Attention: Joseph A. Reeves, Jr., Chairman and
Chief Executive Officer
Fax: (281) 558-5595
with a copy to:
Fulbright & Jaworksi L.L.P.
1301 McKinney Street, Suite 5100
Houston, Texas 77010
Attention: Curtis W. Huff
Fax: (713) 651-5246
Section 7. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas.
Section 8. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, which together shall constitute a single agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their officers thereunto duly authorized.
THE MERIDIAN RESOURCE CORPORATION
By /s/ JOSEPH A. REEVES, JR.
Name JOSEPH A. REEVES, JR.
Title CEO
SHELL LOUISIANA ONSHORE PROPERTIES INC.
By /s/ S.P. METHVIN
Name S. P. METHVIN
Title PRESIDENT
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EXHIBIT 10.1
EXECUTION COPY
$250,000,000
AMENDED AND RESTATED
CREDIT AGREEMENT
AMONG
THE MERIDIAN RESOURCE
CORPORATION,
AS BORROWER,
THE SEVERAL LENDERS
FROM TIME TO TIME PARTIES HERETO,
THE CHASE MANHATTAN BANK,
AS ADMINISTRATIVE AGENT,
BANKERS TRUST COMPANY,
AS SYNDICATION AGENT,
CHASE SECURITIES INC.,
AS ADVISOR,
CHASE SECURITIES INC.,
BT ALEX. BROWN INCORPORATED,
<PAGE>
TORONTO DOMINION (TEXAS), INC.,
AND
CREDIT LYONNAIS NEW YORK BRANCH,
AS CO-ARRANGERS,
AND
TORONTO DOMINION (TEXAS), INC.
AND
CREDIT LYONNAIS NEW YORK BRANCH,
AS CO-DOCUMENTATION AGENTS
DATED AS OF MAY 22, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1. DEFINITIONS...................................................... 2
1.1 Defined Terms................................................... 2
1.2 Other Definitional Provisions................................... 20
SECTION 2. AMOUNT AND TERMS OF REVOLVING
COMMITMENTS ......................................................... 21
2.1 Revolving Credit Commitments.................................... 21
2.2 Procedure for Revolving Credit Borrowing........................ 21
2.3 Repayment of Loans; Evidence of Debt............................ 21
SECTION 3. LETTERS OF CREDIT................................................ 22
3.1 The L/C Commitment.............................................. 22
3.2 Procedure for Issuance of Letters of Credit..................... 23
3.3 Fees, Commissions and Other Charges............................. 23
3.4 L/C Participations.............................................. 24
3.5 Reimbursement Obligation of the Borrower........................ 25
3.6 Obligations Absolute............................................ 25
3.7 Letter of Credit Payments....................................... 25
3.8 L/C Applications................................................ 25
SECTION 4. GENERAL PROVISIONS............................................... 25
4.1 Interest Rates and Payment Dates................................ 25
4.2 Computation of Interest and Fees................................ 26
4.3 Conversion and Continuation Options............................. 26
4.4 Minimum Amounts Maximum Number of Tranches...................... 27
4.5 Optional Prepayments and Commitment Reductions.................. 27
4.6 Commitment Fee; Administrative Agent's Fee; Other Fees.......... 28
4.7 Inability to Determine Interest Rate............................ 29
4.8 Pro Rata Treatment and Payments................................. 29
4.9 Computation of Borrowing Base................................... 30
4.10 Borrowing Base Compliance...................................... 32
4.11 Illegality..................................................... 32
4.12 Requirements of Law............................................ 33
4.13 Taxes.......................................................... 34
4.14 Indemnity...................................................... 35
4.15 Change of Lending Office....................................... 35
SECTION 5. REPRESENTATIONS AND WARRANTIES................................... 36
5.1 Financial Condition............................................. 36
5.2 No Change....................................................... 36
5.3 Corporate Existence; Compliance with Law........................ 36
5.4 Corporate Power; Authorization; Enforceable Obligations......... 37
5.5 No Legal Bar.................................................... 37
5.6 No Material Litigation.......................................... 37
5.7 No Default...................................................... 37
5.8 Ownership of Property; Liens.................................... 37
5.9 Intellectual Property........................................... 38
5.10 No Burdensome Restrictions..................................... 38
5.11 Taxes.......................................................... 38
5.12 Federal Reserve Regulations.................................... 38
<PAGE>
PAGE
5.13 ERISA.......................................................... 39
5.14 Investment Company Act; Other Regulations...................... 39
5.15 Subsidiaries................................................... 39
5.16 Purpose of Loans............................................... 39
5.17 Environmental Matters.......................................... 39
5.18 No Material Misstatements...................................... 40
5.19 Insurance...................................................... 41
5.20 Future Commitments............................................. 41
5.21 Security Documents............................................. 41
5.21. Immaterial Subsidiaries....................................... 41
5.22 Year 2000 Matters.............................................. 41
SECTION 6. CONDITIONS PRECEDENT............................................. 42
6.1 Conditions to Closing Date...................................... 42
6.2 Conditions to Each Extension of Credit.......................... 43
6.3 Conditions to Occurrence of Shell Transaction Completion Date... 44
SECTION 7. AFFIRMATIVE COVENANTS............................................ 45
7.1 Financial Statements............................................ 46
7.2 Certificates; Other Information................................. 46
7.3 Payment of Obligations.......................................... 47
7.4 Conduct of Business and Maintenance of Existence; Compliance
with Law and Contractual Obligations.......................... 47
7.5 Maintenance of Property; Insurance.............................. 47
7.6 Inspection of Property; Books and Records; Discussions.......... 47
7.7 Notices......................................................... 48
7.8 Environmental Laws.............................................. 48
7.9 Additional Collateral........................................... 49
7.10 Maintenance and Operation of Property.......................... 49
7.11 Further Assurances............................................. 50
SECTION 8. NEGATIVE COVENANTS............................................... 51
8.1 Financial Covenant Conditions................................... 51
8.2 Limitation on Indebtedness...................................... 51
8.3 Limitation on Liens............................................. 52
8.4 Limitation on Guarantee Obligations............................. 54
8.5 Limitation on Fundamental Changes............................... 54
8.6 Limitation on Sale of Assets.................................... 55
8.7 Limitation on Dividends......................................... 56
8.8 Limitation on Investments, Loans and Advances................... 56
8.9 Limitation on Optional Payments and Modifications of Debt
Instruments, Other Documents.................................. 57
8.10 Limitation on Transactions with Affiliates..................... 57
8.11 Limitation on Sales and Leasebacks............................. 58
8.12 Limitation on Changes in Fiscal Year........................... 58
8.13 Limitation on Negative Pledge Clauses.......................... 58
8.14 Limitation on Lines of Business................................ 58
8.15 Forward Sales.................................................. 58
8.16 Hedging Agreements............................................. 58
8.17 Limitation on Leases........................................... 59
8.18 Limitation on Immaterial Subsidiaries.......................... 59
- ii -
<PAGE>
PAGE
SECTION 9. EVENTS OF DEFAULT................................................ 59
SECTION 10. THE ADMINISTRATIVE AGENT; OTHERS................................ 62
10.1 Appointment.................................................... 62
10.2 Delegation of Duties........................................... 62
10.3 Exculpatory Provisions......................................... 62
10.4 Reliance by Administrative Agent............................... 62
10.5 Notice of Default.............................................. 63
10.6 Non-Reliance on Administrative Agent and Other Lenders......... 63
10.7 Indemnification................................................ 63
10.8 Administrative Agent in Its Individual Capacity................ 64
10.9 Successor Administrative Agent................................. 64
10.10 Issuing Lender................................................ 64
10.11 Others........................................................ 64
SECTION 11. MISCELLANEOUS................................................... 64
11.1 Amendments and Waivers......................................... 64
11.2 Notices........................................................ 65
11.3 No Waiver; Cumulative Remedies................................. 66
11.4 Survival of Representations and Warranties..................... 66
11.5 Payment of Expenses and Taxes.................................. 66
11.6 Successors and Assigns; Participations and Assignments......... 67
11.7 Adjustments; Set-off........................................... 69
11.8 Counterparts................................................... 70
11.9 Severability................................................... 70
11.10 Integration................................................... 70
11.11 GOVERNING LAW................................................. 70
11.12 Submission To Jurisdiction; Waivers........................... 70
11.13 Acknowledgments............................................... 71
11.14 WAIVERS OF JURY TRIAL......................................... 71
11.15 Production Proceeds........................................... 71
11.16 Release of Mortgaged Properties............................... 72
11.17 Limitation on Interest........................................ 72
- iii -
<PAGE>
SCHEDULES
1.1(a) Commitments
1.1(b) [Reserved]
1.1(c) Assumed Indebtedness
1.1(d) Immaterial Subsidiaries
1.1(e) Southwest Holmwood Properties
3.1 Existing Letters of Credit
5.2 Capital Stock Redemptions
5.15 Subsidiaries
5.20 Future Commitments
8.2 Existing Indebtedness
8.3 Existing Liens
8.4 Guarantee Obligations
8.6 Pennsylvania Properties
8.8 Existing Investments
11.2 Addresses for Notices
EXHIBITS
A Form of Revolving Credit Note
B Form of Guarantee Agreement
C Form of Pledge Agreement
D Existing Mortgage
E-1 Form of Opinion of Fulbright & Jaworski, L.L.P.,
Counsel to the Borrower and its Subsidiaries
E-2 Form of Opinion of Thompson & Knight,
Texas Counsel to the Administrative Agent
E-3 Form of Opinion of Lapeyre & Lapeyre,
Louisiana Counsel to the Administrative Agent
F Form of Closing Certificate
G Form of Assignment and Acceptance
H Form of Mortgage Amendment
I Form of Officer's Certificate
- iv -
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT, dated as of May 22, 1998,
among The Meridian Resource Corporation, a Texas corporation (the "BORROWER"),
the several banks, financial institutions and other entities from time to time
parties to this Agreement (collectively, the "LENDERS"), The Chase Manhattan
Bank, as administrative agent for the Lenders (in such capacity, the
"ADMINISTRATIVE AGENT"), Bankers Trust Company, as syndication agent (in such
capacity, the "SYNDICATION AGENT"), Chase Securities Inc., as advisor to the
Borrower (in such capacity, the "ADVISOR"), Chase Securities Inc., BT Alex.
Brown Incorporated, Toronto Dominion (Texas), Inc. and Credit Lyonnais New York
Branch, as co-arrangers (each in such capacity, a "CO-ARRANGER"), and Toronto
Dominion (Texas), Inc. and Credit Lyonnais New York Branch, as co-documentation
agents (each in such capacity, a "CO-DOCUMENTATION AGENT").
W I T N E S S E T H:
WHEREAS, the Borrower is a party to the Credit Agreement, dated
as of November 5, 1997 (as heretofore amended or otherwise modified, the
"EXISTING CREDIT AGREEMENT"), with the lenders from time to time parties thereto
and The Chase Manhattan Bank, as administrative agent;
WHEREAS, pursuant to the Existing Credit Agreement, the lenders
parties thereto have agreed to make and have made certain loans and other
extensions of credit to or for the account of the Borrower;
WHEREAS, the Borrower, LOPI Acquisition Corp., a Delaware
corporation and wholly-owned subsidiary of the Borrower ("TMR-SUB"), Louisiana
Onshore Properties, Inc., a Delaware corporation ("LOPI"), and Shell Louisiana
Onshore Properties, Inc., a Delaware corporation and subsidiary of Shell Oil
Company, the parent company of LOPI ("SLOPI"), have entered into an Agreement
and Plan of Merger, dated March 27, 1998 (the "MERGER AGREEMENT");
WHEREAS, as contemplated by the Merger Agreement, TMR-Sub shall
merge with and into LOPI (the "LOPI MERGER") and each outstanding share of LOPI
common stock will be converted into the right to receive shares of the
Borrower's common stock and preferred stock on the terms set forth in the Merger
Agreement, whereupon LOPI will become a wholly-owned subsidiary of the Borrower;
WHEREAS, the Borrower and Shell Western E&P, Inc., a wholly-owned
subsidiary of Shell Oil Company ("SWEPI"), are currently negotiating an Asset
Purchase Agreement (the "ASSET PURCHASE AGREEMENT"), pursuant to which the
Borrower will purchase from SWEPI certain oil and gas properties (the "SWEPI
PURCHASE");
WHEREAS, in order to permit the consummation of the LOPI Merger
and the SWEPI Purchase and to increase the availability under the Ex isting
Credit Agreement upon the consummation of such transactions, the Borrower has
requested that the Existing Credit Agreement be amended and restated as provided
herein; and
WHEREAS, the Lenders and the other parties hereto wish to amend
and restate the Existing Credit Agreement as provided herein;
<PAGE>
2
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties hereby agree that on the Closing
Date the Existing Credit Agreement shall be amended and restated in its entirety
as follows:
SECTION 1. DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement, the following terms
shall have the following meanings:
"ABR": for any day, a rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the greatest of (a) the
Prime Rate in effect on such day, (b) the Base CD Rate in effect on such
day plus 1% and (c) the Federal Funds Effective Rate in effect on such
day plus 1/2 of 1%. For purposes hereof: "PRIME RATE" shall mean the
rate of interest per annum publicly announced from time to time by Chase
as its prime rate in effect at its principal office in New York City
(the Prime Rate not being intended to be the lowest rate of interest
charged by Chase in connection with extensions of credit to debtors);
"BASE CD RATE" shall mean the sum of (a) the product of (i) the
Three-Month Secondary CD Rate and (ii) a fraction, the numerator of
which is one and the denominator of which is one minus the C/D Reserve
Percentage and (b) the C/D Assessment Rate; "THREE-MONTH SECONDARY CD
RATE" shall mean, for any day, the secondary market rate for three-month
certificates of deposit reported as being in effect on such day (or, if
such day shall not be a Business Day, the next preceding Business Day)
by the Board of Governors of the Federal Reserve System (the "BOARD")
through the public information telephone line of the Federal Reserve
Bank of New York (which rate will, under the current practices of the
Board, be published in Federal Reserve Statistical Release H.15(519)
during the week following such day), or, if such rate shall not be so
reported on such day or such next preceding Business Day, the average of
the secondary market quotations for three-month certificates of deposit
of major money center banks in New York City received at approximately
10:00 A.M., New York City time, on such day (or, if such day shall not
be a Business Day, on the next preceding Business Day) by the
Administrative Agent from three New York City negotiable certificate of
deposit dealers of recognized standing selected by it; and "FEDERAL
FUNDS EFFECTIVE RATE" shall mean, for any day, the weighted average of
the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as published
on the next succeeding Business Day by the Federal Reserve Bank of New
York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for the day of such
transactions received by the Administrative Agent from three federal
funds brokers of recognized standing selected by it. Any change in the
ABR due to a change in the Prime Rate, the Three-Month Secondary CD Rate
or the Federal Funds Effective Rate shall be effective as of the opening
of business on the effective day of such change in the Prime Rate, the
Three-Month Secondary CD Rate or the Federal Funds Effective Rate,
respectively.
"ABR LOANS": Loans the rate of interest applicable to which is
based upon the ABR.
"ADMINISTRATIVE AGENT": as defined in the Preamble to this
Agreement.
<PAGE>
3
"ADVISOR": as defined in the Preamble to this Agreement.
"AFFILIATE": as to any Person, any other Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with, such Person. For
purposes of this definition, "control" of a Person means the power,
directly or indirectly, either to (a) vote 10% or more of the securities
having ordinary voting power for the election of directors of such
Person or (b) direct or cause the direction of the management and
policies of such Person, whether by contract or otherwise.
"AGGREGATE REVOLVING CREDIT EXPOSURE": as to any Lender at any
time, an amount equal to the sum of (a) the aggregate principal amount
of all Loans made by such Lender then outstanding and (b) such Lender's
Commitment Percentage of the Letter of Credit Outstandings at such time.
"AGREEMENT": this Amended and Restated Credit Agreement, as
further amended, supplemented or otherwise modified from time to time.
"AMOCO": Amoco Production Company and its Affiliates.
"AMOCO BOND": a bond to be provided by the Borrower to secure
the Borrower's obligations to Amoco in the event that the Borrower's
appeal of the Amoco Litigation judgment is unsuccessful.
"AMOCO LITIGATION": the litigation described in the Borrower's
report on Form 10-K for the year ended December 31, 1997, under the
heading "Litigation."
"APPLICABLE MARGIN": (a) prior to the occurrence of the Shell
Transaction Completion Date, for any day with respect to Eurodollar
Loans and ABR Loans, the applicable per annum rate set forth below
opposite the Borrowing Base Usage in effect on such day:
BORROWING BASE EURODOLLAR ABR
USAGE -------------- MARGIN MARGIN
- ----- -------- ------
Less than or equal to 1.25% .25%
33%
Greater than 33% and 1.50% .50%
less than or equal to
66%
Greater than 66% and 1.75% .75%
less than or equal to
85%
Greater than 85% 2.00% 1.00%;
(b) on and after the occurrence of the Shell Transaction
Completion Date, for any day with respect to Eurodollar Loans and ABR
Loans, the applicable per annum rate set forth below opposite the
Borrowing Base Usage in effect on such day:
<PAGE>
4
BORROWING BASE EURODOLLAR ABR
USAGE -------------- MARGIN MARGIN
- ----- -------- ------
Less than or equal to 1.00% 0%
33%
Greater than 33% and 1.25% .25%
less than or equal to
66%
Greater than 66% 1.50% .50%
As used herein, "BORROWING BASE USAGE" on any day means the
percentage equivalent of the ratio of (i) the sum of the aggregate
principal amount of the Loans then outstanding and Letter of Credit
Outstandings on such day to (ii) the Borrowing Base in effect on such
day.
"ASSET PURCHASE AGREEMENT": as defined in the Recitals to this
Agreement.
"ASSET PURCHASE DOCUMENTS": the collective reference to the
Asset Purchase Agreement and any other agreements, instruments or other
documents delivered in connection therewith, as amended, supplemented or
otherwise modified in accordance and with the terms of this Agreement.
"ASSIGNEE": as defined in subsection 11.6(c).
"AVAILABLE COMMITMENT": as to any Lender at any time, an amount
equal to the excess, if any, of (a) the amount of such Lender's
Revolving Credit Commitment over (b) such Lender's Aggregate Revolving
Credit Exposure.
"BORROWER": as defined in the preamble to this Agreement.
"BORROWER REDETERMINATION NOTICE": a notice from the Borrower to
the Administrative Agent requesting that the Administrative Agent
redetermine the Borrowing Base, which notice may be sent by the Borrower
at any time, PROVIDED that (i) no more than one such notice (excluding
any redetermination pursuant to subsection 4.9(e)) may be delivered by
the Borrower during any consecutive 12 month period and (ii) such notice
may not be delivered until after the Initial Period.
"BORROWING BASE": at any time of determination, the amount then
in effect as determined in accordance with subsection 4.9; PROVIDED,
HOWEVER, that until the Borrowing Base is so redetermined in accordance
with subsection 4.9, the Borrowing Base shall be $150,000,000 or, upon
the occurrence of the Shell Transaction Completion Date, $200,000,000
(minus any redetermination previously made pursuant to the first
sentence of subsection 4.9(e)).
"BORROWING BASE AVAILABILITY": as to any Lender at any time, an
amount equal to the excess, if any, of (a) such Lender's Commitment
Percentage of the Borrowing Base in effect at such time over (b) such
Lender's Aggregate Revolving Credit Exposure.
<PAGE>
5
"BORROWING BASE DEFICIENCY": as defined in subsection 4.10.
"BORROWING BASE USAGE": as defined under the definition of
Applicable Margin.
"BORROWING DATE": any Business Day specified in a notice
pursuant to subsection 2.2 or 3.2 as a date on which the Borrower
requests the Lenders to make Loans or the Issuing Lender to issue a
Letter of Credit hereunder.
"BUSINESS DAY": any day that is not a Saturday, Sunday or other
day on which commercial banks in New York City are authorized or
required by law to remain closed; PROVIDED that, when used in connection
with a Eurodollar Loan, the term "BUSINESS DAY" shall also exclude any
day on which banks are not open for dealings in dollar deposits in the
London interbank market.
"CAIRN": Cairn Energy USA, Inc., a wholly-owned subsidiary of
the Borrower.
"CAIRN MERGER": the merger of C. Acquisition Corp. with and into
Cairn on November 5, 1997.
"CAPITAL LEASE": any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance
with GAAP to be capitalized on a balance sheet of the lessee.
"CAPITAL STOCK": any and all shares, interests, participations
or other equivalents (however designated) of capital stock of a
corporation, any and all equivalent ownership interests in a Person
(other than a corporation) and any and all warrants or options to
purchase any of the foregoing.
"CASH EQUIVALENTS": (a) securities with maturities of one year
or less from the date of acquisition issued or fully guaranteed or
insured by the United States Government or any agency thereof, (b)
certificates of deposit and eurodollar time deposits with maturities of
one year or less from the date of acquisition and overnight bank
deposits of any Lender or of any commercial bank (i) having capital and
surplus in excess of $500,000,000 or (ii) which has a short-term
commercial paper rating which satisfies the requirements set forth in
clause (d) below, (c) repurchase obligations of any Lender or of any
commercial bank satisfying the requirements of clause (b) of this
definition, having a term of not more than 30 days with respect to
securities issued, fully guaranteed or insured by the United States
Government or any agency thereof, (d) commercial paper of a domestic
issuer rated at least A-2 by Standard and Poor's Ratings Group ("S&P")
or P-2 by Moody's Investors Service, Inc. ("MOODY'S"), (e) securities
with maturities of one year or less from the date of acquisition issued
or fully guaranteed by any state, commonwealth or territory of the
United States, by any political subdivision or taxing authority of any
such state, commonwealth or territory or by any foreign government, the
securities of which state, commonwealth, territory, political
subdivision, taxing authority or foreign government (as the case may be)
are rated at least A by S&P or A by Moody's, (f) securities with
maturities of one year or less from the date of acquisition backed by
standby letters of credit issued by any Lender or any commercial
<PAGE>
6
bank satisfying the requirements of clause (b) of this definition or (g)
shares of money market mutual or similar funds which invest exclusively
in assets satisfying the requirements of clauses (a) through (f) of this
definition.
"C/D ASSESSMENT RATE": for any day as applied to any ABR Loan,
the annual assessment rate in effect on such day which is payable by a
member of the Bank Insurance Fund maintained by the Federal Deposit
Insurance Corporation (the "FDIC") classified as well-capitalized and
within supervisory subgroup "B" (or a comparable successor assessment
risk classification) within the meaning of 12 C.F.R. ss. 327.4 (or any
successor provision) to the FDIC (or any successor) for the FDIC's (or
such successor's) insuring time deposits at offices of such institution
in the United States.
"C/D RESERVE PERCENTAGE": for any day as applied to any ABR Loan,
that percentage (expressed as a decimal) which is in effect on such day,
as prescribed by the Board of Governors of the Federal Reserve System
(or any successor) (the "BOARD"), for determining the maximum reserve
requirement for a Depositary Institution (as defined in Regulation D of
the Board) in respect of new non-personal time deposits in Dollars
having a maturity of 30 days or more.
"CHANGE IN CONTROL": (a) any Person or "group" (within the
meaning of Section 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended) (i) shall have acquired beneficial ownership of 35% or
more of any outstanding class of Capital Stock having ordinary voting
power in the election of directors of the Borrower or (ii) shall obtain
the power (whether or not exercised) to elect a majority of the
Borrower's directors; or (b) the Board of Directors of the Borrower
shall not consist of a majority of Continuing Directors, PROVIDED that
the consummation of the LOPI Merger in accordance with the terms of the
Merger Agreement and the other transactions expressly contemplated by
the Merger Agreement or the Stock Rights and Restrictions Agreement
shall not be deemed to result in a "Change of Control" under clause
(a)(i) above; "CONTINUING DIRECTORS" shall mean the directors of the
Borrower on the Closing Date and each other director, if such other
director's nomination for election to the Board of Directors of the
Borrower is recommended by a majority of the then Continuing Directors.
"CHASE": The Chase Manhattan Bank.
"CLOSING DATE": the date on which the conditions precedent set
forth in subsection 6.1 shall be satisfied.
"CO-ARRANGERS": as defined in the Preamble to this Agreement.
"CO-DOCUMENTATION AGENTS": as defined in the Preambe to this
Agreement.
"CODE": the Internal Revenue Code of 1986, as amended from time
to time.
"COMMITMENT FEE RATE": (a) prior to the occurrence of the Shell
Transaction Completion Date, for any day, a rate per annum equal to (i)
.375% if
<PAGE>
7
the Borrowing Base Usage in effect on such day is less than or equal to
66% and (ii) .500% if the Borrowing Base Usage in effect on such day is
greater than 66% and (b) on and after the occurrence of the Shell
Transaction Completion Date, for any day, a rate per annum equal to (i)
.300% if the Borrowing Base Usage in effect on such day is less than or
equal to 33% and (ii) .375% if the Borrowing Base Usage in effect on
such day is greater than 33%.
"COMMITMENT PERCENTAGE": as to any Lender at any time, the
percentage which such Lender's Revolving Credit Commitment then
constitutes of the aggregate Revolving Credit Commitments (or, at any
time after the Revolving Credit Commitments shall have expired or
terminated, the percentage which such Lender's Aggregate Revolving
Credit Exposure then outstanding constitutes of the Aggregate Revolving
Credit Exposure then outstanding for all of the Lenders).
"COMMITMENT PERIOD": the period from and including the date
hereof to but not including the Termination Date or such earlier date on
which the Commitments shall terminate as provided herein.
"COMMITMENTS": the collective reference to the Revolving Credit
Commitments and the L/C Commitment.
"COMMODITY HEDGING AGREEMENT": a commodity hedging or purchase
agreement or similar arrangement entered into with the intent of
protecting against fluctuations in commodity prices or the exchange of
notional commodity obligations, either generally or under specific
contingencies.
"COMMONLY CONTROLLED ENTITY": an entity, whether or not
incorporated, which is under common control with the Borrower within the
meaning of Section 4001 of ERISA or is part of a group which includes
the Borrower and which is treated as a single employer under Section 414
of the Code.
"CONSOLIDATED INTEREST EXPENSE": with respect to the Borrower and
its Subsidiaries on a consolidated basis for any period, the sum of (i)
gross interest expense (including all cash and accrued interest expense)
of the Borrower and its Subsidiaries for such period on a consolidated
basis, including to the extent included in interest expense in
accordance with GAAP (x) the amortization of debt discounts and (y) the
portion of any payments or accruals with respect to Capital Leases
allocable to interest expense and (ii) capitalized interest of the
Borrower and its Subsidiaries on a consolidated basis.
"CONSOLIDATED LEASE EXPENSE": for any period, the aggregate
amount of fixed and contingent rentals payable by the Borrower and any
of its Subsidiaries, determined on a consolidated basis in accordance
with GAAP, for such period with respect to leases (other than oil and
gas leases) of real and personal property which are not capitalized
under GAAP.
"CONSOLIDATED NET INCOME": for any period, net income of the
Borrower and its Subsidiaries determined on a consolidated basis in
accordance with GAAP.
<PAGE>
8
"CONSOLIDATED NET WORTH": as of the date of determination, all
items which in conformity with GAAP would be included under
shareholders' equity on a consolidated balance sheet of the Borrower and
its Subsidiaries at such date, plus, amounts paid to Amoco or charges
accrued in respect of the Amoco Litigation up to $15,000,000 to the
extent such amounts have resulted in a decrease in shareholders' equity
from the amount of shareholders' equity that would have existed had no
such payment or charge occurred.
"CONTRACTUAL OBLIGATION": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"CONTROL": the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of a
Person, whether through the ability to exercise voting power, by
contract or otherwise.
"DEFAULT": any of the events specified in Section 8, whether or
not any requirement for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
"DISPOSITION": as defined under the definition of
Redetermination Event.
"DISQUALIFIED STOCK": means any Capital Stock that, by its terms
(or by the terms of any security into which it is convertible or for
which it is exchangeable) or upon the happening of any event, matures or
is mandatorily redeemable for any consideration other than Capital
Stock, pursuant to a sinking fund obligation or otherwise, is
convertible or is exchangeable for Indebtedness or Disqualified Stock or
redeemable for any consideration other than Capital Stock at the option
of the holder thereof, in whole or in part on or prior to the date that
is one year after the earlier of (x) the Termination Date or (y) the
date on which there are no Loans or other obligations hereunder
outstanding and the Commitments are terminated.
"DOLLARS" and "$": dollars in lawful currency of the United
States of America.
"DOMESTIC SUBSIDIARY": any Subsidiary organized under the laws
of any jurisdiction within the United States of America (including
territories thereof).
"EBITDA": with respect to the Borrower and its Subsidiaries, for
any period, Consolidated Net Income for that period, PLUS, without
duplication and to the extent deducted from revenues in determining
Consolidated Net Income for that period, the sum of (a) the aggregate
amount of Consolidated Interest Expense for that period, (b) the
aggregate amount of letter of credit fees paid during that period, (c)
the aggregate amount of income tax expense for that period, (d) all
amounts attributable to depreciation, depletion and amortization for
that period, (e) all non-cash expenses (including without limitation,
non-cash charges and expenses relating to full cost ceiling write-downs)
during that period, (f) transaction fees and expenses relating to the
Cairn Merger and the Shell Transactions and (g) any amounts paid in
respect of the Amoco Litigation up to $15,000,000, and MINUS, to the
extent added to revenues in determining
<PAGE>
9
Consolidated Net Income for that period, all non-cash income during that
period, in each case determined in accordance with GAAP and without
duplication of amounts.
"ENVIRONMENTAL LAWS": any and all laws, rules, orders,
regulations, statutes, ordinances, codes, decrees, or other legally
enforceable requirement (including, without limitation, common law) of
any foreign government, the United States, or any state, local,
municipal or other governmental authority, regulating, relating to or
imposing liability or standards of conduct concerning protection of the
environment or of human health, as has been, is now, or may at any time
hereafter be, in effect.
"ENVIRONMENTAL PERMITS": any and all permits, licenses,
registrations, notifications, approvals, exemptions and any other
authorization required under any Environmental Law.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"EUROCURRENCY RESERVE REQUIREMENTS": for any day as applied to a
Eurodollar Loan, the aggregate (without duplication) of the rates
(expressed as a decimal) of reserve requirements in effect on such day
(including, without limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Board of Governors of
the Federal Reserve System or other Governmental Authority having
jurisdiction with respect thereto) dealing with reserve requirements
prescribed for eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of such Board) maintained by
a member bank of such System.
"EURODOLLAR BASE RATE": with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, the rate per annum
equal to the rate per annum for Dollar deposits with a maturity
comparable to such Interest Period which appears on the Telerate British
Bankers Assoc. Interest Settlement Rates Page at approximately 10:00
a.m., London time, two Business Days prior to the commencement of such
Interest Period; PROVIDED that if there shall no longer exist a Telerate
British Bankers Assoc. Interest Settlement Rates Page (or if such page
is not available on the relevant Business Day), the Eurodollar Base Rate
shall mean an interest rate per annum equal to the average (rounded
upward, if necessary, to the next 1/16th of 1%) of the respective rates
per annum notified to the Administrative Agent by each of the Reference
Banks as the average of the rates at which Dollar deposits (in an amount
comparable to the amount of Chase's Eurodollar Loan to be outstanding
during such Interest Period and for a maturity comparable to such
Interest Period) are offered to such Reference Bank in immediately
available funds by prime banks in the London interbank market at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period. "TELERATE BRITISH BANKERS ASSOC.
INTEREST SETTLEMENT RATES PAGE" shall mean the display designated as
Page 3750 on Teleratesystem Incorporated (or such other replacement page
thereof used to display London interbank offered rates of major banks).
<PAGE>
10
"EURODOLLAR LOANS": Loans the rate of interest applicable to
which is based upon the Eurodollar Rate.
"EURODOLLAR RATE": with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, a rate per annum determined for
such day in accordance with the following formula (rounded upward to the
nearest 1/100th of 1%):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"EVENT OF DEFAULT": any of the events specified in Section 9,
PROVIDED that any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
"EXISTING CREDIT AGREEMENT": as defined in the Recitals to this
Agreement.
"EXISTING LETTERS OF CREDIT": as defined in subsection 3.1(a).
"EXISTING MORTGAGE": the collective reference to the Deed of
Trust, Mortgage, Assignment, Security Agreement and Financing Statement
from Cairn to the Trustee named therein and the Administrative Agent,
covering the assets of Cairn located in the offshore continental shelf
areas offshore Texas and Louisiana, attached hereto as Exhibit D.
"EXTENSION OF CREDIT": as to any Lender, the making of, or the
issuance of, or participation in, a Loan by such Lender, or the issuance
of, or participation in, a Letter of Credit by such Lender.
"FOREIGN SUBSIDIARY": any Subsidiary which is organized and
existing under the laws of any jurisdiction outside of the United States
of America.
"GAAP": generally accepted accounting principles in the United
States of America in effect from time to time, PROVIDED that for
purposes of determining compliance with the covenants contained in
Section 8, "GAAP" shall mean generally accepted accounting principles in
the United States of America as in effect on the date hereof and applied
on a basis consistent with the application used in the financial
statements referred to in subsection 5.1.
"GOVERNMENTAL AUTHORITY": 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.
"GUARANTEE AGREEMENT": the Amended and Restated Guarantee
Agreement to be executed and delivered by each Guarantor substantially
in the form of Exhibit B, as the same may be amended, modified or
supplemented from time to time.
"GUARANTEE OBLIGATION": as to any Person (the "GUARANTEEING
PERSON"), any obligation of (a) the guaranteeing person or (b) another
Person (including,
<PAGE>
11
without limitation, any bank under any letter of credit) to induce the
creation of which the guaranteeing person has issued a reimbursement,
counterindemnity or similar obligation, in either case guaranteeing or
in effect guaranteeing any Indebtedness, leases, dividends or other
obligations (the "PRIMARY OBLIGATIONS") of any other third Person (the
"PRIMARY OBLIGOR") in any manner, whether directly or indirectly,
including, without limitation, any obligation of the guaranteeing
person, whether or not contingent, (i) to purchase any such primary
obligation or any property constituting direct or indirect security
therefor, (ii) to advance or supply funds (1) for the purchase or
payment of any such primary obligation or (2) to maintain working
capital or equity capital of the primary obligor or otherwise to
maintain the net worth or solvency of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the
primary obligor to make payment of such primary obligation or (iv)
otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof; PROVIDED, HOWEVER, that the
term Guarantee Obligation shall not include endorsements of instruments
for deposit or collection in the ordinary course of business. The amount
of any Guarantee Obligation of any guaranteeing person shall be deemed
to be the lower of (a) an amount equal to the stated or determinable
amount of the primary obligation in respect of which such Guarantee
Obligation is made and (b) the maximum amount for which such
guaranteeing person may be liable pursuant to the terms of the
instrument embodying such Guarantee Obligation, unless such primary
obligation and the maximum amount for which such guaranteeing person may
be liable are not stated or determinable, in which case the amount of
such Guarantee Obligation shall be such guaranteeing person's maximum
reasonably anticipated liability in respect thereof as determined by the
Borrower in good faith. Obligations of the Borrower or any Subsidiary
pursuant to indemnities which (a) are granted in the ordinary course of
business, including, without limitation, (i) such obligations in
connection with stock purchase agreements or asset purchase and sale
agreements and (ii) such obligations in connection with the conduct of
the Oil and Gas Business in the ordinary course of business and (b) do
not cover Indebtedness of the types described in clauses (a) through (f)
of the definition of Indebtedness, shall not constitute "Guarantee
Obligations" for purposes of this Agreement.
"GUARANTOR": Each of the Borrower's direct or indirect Domestic
Subsidiaries, other than the Immaterial Subsidiaries.
"HEDGING AGREEMENT": any Interest Rate Protection Agreement,
Commodity Hedging Agreement, foreign currency exchange agreement,
commodity price protection agreement or other interest or currency
exchange rate or commodity price hedging arrangement.
"HYDROCARBON INTERESTS": all rights, titles, interests and
estates now owned or hereafter acquired in and to oil and gas leases,
oil, gas and mineral leases, or other liquid or gaseous hydrocarbon
leases, mineral fee or lease interests, farm-outs overriding royalty and
royalty interests, net profit interests, oil payments, production
payment interests and similar mineral interests, including any reserved
or residual interest of whatever nature.
<PAGE>
12
"HYDROCARBONS": oil, gas, casinghead gas, condensate, distillate,
liquid hydrocarbons, gaseous hydrocarbons, all products refined,
separated, settled and dehydrated therefrom and all products refined
therefrom, including, without limitation, kerosene, liquefied petroleum
gas, refined lubricating oils, diesel fuel, drip gasoline, natural
gasoline, helium, sulfur and all other minerals.
"IMMATERIAL SUBSIDIARIES": the Subsidiaries of the Borrower
listed on Schedule 1.1(d).
"INDEBTEDNESS": of any Person at any date, without duplication,
(a) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services (other than current
trade liabilities incurred in the ordinary course of business and
payable in accordance with customary practices and accrued current
liabilities incurred in the ordinary course of business), (b) any other
indebtedness of such Person which is evidenced by a note, bond,
debenture or similar instrument, (c) all obligations of such Person
under Capital Leases, (d) all obligations of such Person in respect of
letters of credit and acceptances issued or created for the account of
such Person, (e) all obligations of such Person under Commodity Hedging
Agreements and Interest Rate Protection Agreements, (f) all obligations
of others of the type referred to in clauses (a) through (e) above and
which are secured by any Lien on any property owned by such Person even
though such Person has not assumed or otherwise become liable for the
payment thereof, except that the amount of any nonrecourse obligation
shall be deemed to be the lesser of the value of the property securing
such obligation and the amount of such obligation so secured and (g) all
Guarantee Obligations with respect to the items described in clauses (a)
through (e) above; PROVIDED, that for the purposes of subsection 8.1(b)
only, the definition of Indebtedness shall not include the obligations
described in clause (e) above.
"INITIAL PERIOD": the period commencing on the Closing Date and
ending on the earlier of (a) October 1, 1998 and (b) the Shell
Transaction Completion Date.
"INITIAL SCHEDULED BORROWING BASE REDETERMINATION": the first
scheduled redetermination of the Borrowing Base, pursuant to subsection
4.9, which occurs following the delivery by the Borrower to the
Administrative Agent of the Reserve Report dated as of June 30, 1998.
"INSOLVENCY": with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of Section 4245
of ERISA.
"INSOLVENT": pertaining to a condition of Insolvency.
"INTEREST PAYMENT DATE": (a) as to any ABR Loan, the last day of
each March, June, September and December, commencing June 30, 1998 and
the Termination Date, (b) as to any Eurodollar Loan having an Interest
Period of three months or less, the last day of such Interest Period,
and (c) as to any Eurodollar Loan having an Interest Period longer than
three months, each day which is three months, or a whole multiple
thereof, after the first day of such Interest Period and the last day of
such Interest Period.
<PAGE>
13
"INTEREST PERIOD": with respect to any Eurodollar Loan:
(i) initially, the period commencing on the borrowing
or conversion date, as the case may be, with respect to such
Eurodollar Loan and ending one, two, three or six (or, to the
extent available to all of the Lenders, nine or twelve) months
thereafter, as selected by the Borrower in its notice of
borrowing or notice of conversion, as the case may be, given with
respect thereto; and
(ii) thereafter, each period commencing on the last
day of the next preceding Interest Period applicable to such
Eurodollar Loan and ending one, two, three or six (or, to the
extent available to all of the Lenders, nine or twelve) months
thereafter, as selected by the Borrower by irrevocable notice to
the Administrative Agent not less than three Business Days prior
to the last day of the then current Interest Period with respect
thereto;
PROVIDED that, all of the foregoing provisions relating to Interest
Periods are subject to the following:
(1) if any Interest Period pertaining to a Eurodollar Loan
would otherwise end on a day that is not a Business Day, such
Interest Period shall be extended to the next succeeding Business
Day unless the result of such extension would be to carry such
Interest Period into another calendar month in which event such
Interest Period shall end on the immediately preceding Business
Day;
(2) any Interest Period pertaining to a Eurodollar Loan
that begins on the last Business Day of a calendar month (or on a
day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end on
the last Business Day of a calendar month;
(3) the Borrower shall select Interest Periods so as not
to require a payment or prepayment of any Eurodollar Loan during
an Interest Period for such Loan; and
(4) any Interest Period that would otherwise extend beyond
the Termination Date shall end on the Termination Date.
"INTEREST RATE PROTECTION AGREEMENT": an interest rate swap, cap
or collar agreement or similar arrangement entered into with the intent
of protecting against fluctuations in interest rates or the exchange of
notional interest obligations, either generally or under specific
contingencies.
"INVESTMENTS": as defined in subsection 8.8.
"ISSUING LENDER": Chase or any of its respective Affiliates, in
its capacity as issuer of a Letter of Credit, and any other Lender to
whom Chase or any of its respective Affiliates assigns (with the prior
written consent of the Required Lenders) its obligations to issue
Letters of Credit hereunder.
<PAGE>
14
"L/C APPLICATION": as defined in subsection 3.2.
"L/C COMMITMENT": the Issuing Lender's obligation to issue
Letters of Credit pursuant to Section 3 of this Agreement.
"L/C PARTICIPATING INTEREST": with respect to any Letter of
Credit (a) in the case of the Issuing Lender with respect thereto, its
interest in such Letter of Credit and any L/C Application relating
thereto after giving effect to the granting of participating interests
therein, if any, pursuant hereto and (b) in the case of each
Participating Lender, its undivided participating interest in such
Letter of Credit and any L/C Application relating thereto.
"LENDER REDETERMINATION NOTICE": a notice from the Supermajority
Lenders to the Borrower giving notice of their election to redetermine
the Borrowing Base, which notice may be sent by the Supermajority
Lenders at any time they so elect, PROVIDED that (i) such an election
(excluding any mandatory redetermination of the Borrowing Base made in
connection with the issuance of Subordinated Indebtedness pursuant to
subsection 8.2) can be made by the Supermajority Lenders no more than
once during any consecutive 12 month period and (ii) such an election
may not be made until after the Initial Period.
"LETTERS OF CREDIT": as defined in subsection 3.1(a).
"LETTER OF CREDIT OUTSTANDINGS": at any time, the sum of (a) the
aggregate amount available for drawing under Letters of Credit then
outstanding and (b) the aggregate amount of drawings under Letters of
Credit which have not then been reimbursed pursuant to subsection 3.5.
"LIEN": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title
retention agreement and any Capital Lease having substantially the same
economic effect as any of the foregoing), but excluding set-off
arrangements under Hedging Agreements.
"LOAN": as defined in subsection 2.1(a).
"LOAN DOCUMENTS": the collective reference to this Agreement,
any Notes, the L/C Applications, the Guarantee Agreement and the
Security Documents.
"LOAN PARTIES": the collective reference to the Borrower, each
Guarantor and any other Subsidiary from time to time party to any Loan
Document.
"LOPI": as defined in the Recitals to this Agreement.
"LOPI MERGER": as defined in the Recitals to this Agreement.
<PAGE>
15
"MAKE-WHOLE PAYMENTS": the payments by the Borrower in cash or
shares of Common Stock made in accordance with the provisions of the
Stock Rights and Restrictions Agreement.
"MATERIAL ADVERSE EFFECT": a material adverse effect on (a) the
business, assets, property, condition (financial or otherwise) or
prospects of the Borrower and its Subsidiaries taken as a whole, (b) the
ability of the Borrower or any of the other Loan Parties to perform
their respective obligations under the Loan Documents, or (c) the
validity or enforceability of this or any of the other Loan Documents or
the rights and remedies of the Administrative Agent or the Lenders
hereunder or thereunder.
"MATERIAL ENVIRONMENTAL AMOUNT": an amount not covered by
insurance that is payable by the Borrower or any of its Subsidiaries in
excess of $1,000,000 (and $5,000,000 after the occurrence of the Shell
Transaction Completion Date) for remedial costs, compliance costs,
compensatory damages, punitive damages, fines, penalties or any
combination thereof.
"MATERIALS OF ENVIRONMENTAL CONCERN": any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products or
any hazardous or toxic substances, materials, or wastes, defined or
regulated as such in or under any Environmental Law, including, without
limitation, asbestos or asbestos containing material, polychlorinated
biphenyls, urea-formaldehyde insulation, and any other substance that is
regulated under any Environmental Law.
"MERGER AGREEMENT": as defined in the Recitals to this
Agreement.
"MERGER DOCUMENTS": the collective reference to the Merger
Agreement and any other agreements, instruments and other documents
delivered in connection therewith, as amended, supplemented or otherwise
modified in accordance with the terms of this Agreement.
"MORTGAGE AMENDMENT": the Mortgage Amendment, substantially in
the form of Exhibit H, to be entered into on the Closing Date to amend
the Existing Mortgage.
"MORTGAGED PROPERTY": all of the Oil and Gas Properties and
other collateral purported to be subject to the Lien of the Mortgages.
"MORTGAGES": collectively, (i) the Existing Mortgage, as amended
by the Mortgage Amendment, and (ii) each other mortgage, deed of trust,
assignment, security agreement or mortgage executed by the Borrower or
any other Loan Party and in form and substance reasonably satisfactory
to the Administrative Agent which purports to create a Lien in favor of
the Administrative Agent, in each case as amended, supplemented or
otherwise modified from time to time.
"MULTIEMPLOYER PLAN": a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
<PAGE>
16
"NET PROCEEDS": means with respect to any Redetermination Event
or the sale or Disposition of the Pennsylvania Properties, an amount
equal to the gross proceeds in cash (including cash equivalents and any
cash payments received by way of deferred payment of principal pursuant
to a note or installment receivable or purchase price adjustment
receivable or otherwise, but only as and when received) of such
Redetermination Event or such sale or Disposition of the Pennsylvania
Properties, net of attorneys' fees, accountants' fees, brokerage,
consultant and other fees, underwriting commissions and other fees and
expenses actually incurred in connection with such Redetermination Event
or such sale or Disposition of the Pennsylvania Properties, as the case
may be.
"NON-EXCLUDED TAXES": as defined in subsection 4.13(a).
"NON-U.S. LENDER": as defined in subsection 4.13(b).
"NOTES": as defined in subsection 2.3(e).
"OBLIGATIONS": the collective reference to the unpaid principal
of and interest on the Loans and the Reimbursement Obligations and all
other obligations and liabilities of the Borrower (including, without
limitation, interest accruing at the then applicable rate provided in
this Agreement after the maturity of the Loans and interest accruing at
the then applicable rate provided in this Agreement after the filing of
any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Borrower, whether or
not a claim for post-filing or post-petition interest is allowed in such
proceeding) to the Administrative Agent or any of the Lenders.
"OIL AND GAS BUSINESS": (a) the acquisition, exploration,
exploitation, development, operation and disposition of interests in Oil
and Gas Properties and Hydrocarbons, (b) the gathering, marketing,
treating, processing, storage, selling and transporting of any
production from such interests or Oil and Gas Properties, including,
without limitation, the marketing of Hydrocarbons obtained from
unrelated Persons; (c) any business relating to or arising from
exploration for or development, production, treatment, processing,
storage, transportation or marketing of oil, gas and other minerals and
products produced in association therewith; (d) any business relating to
oilfield sales and service, and (e) any activity that is ancillary or
necessary or desirable to facilitate the activities described in clauses
(a) through (d) of this definition.
"OIL AND GAS PROPERTIES": Hydrocarbon Interests; the Properties
now or hereafter pooled or unitized with Hydrocarbon Interests; all
presently existing or future unitization, pooling agreements and
declarations of pooled units and the units created thereby (including
without limitation all units created under orders, regulations and rules
of any Governmental Authority having jurisdiction) which may affect all
or any portion of the Hydrocarbon Interests; all pipelines, gathering
lines, compression facilities, tanks and processing plants; all
interests held in royalty trusts whether presently existing or hereafter
created; all Hydrocarbons in and under and which may be produced, saved,
processed or attributable to the Hydrocarbon Interests, the lands
covered thereby and all hydrocarbons in pipelines, gathering lines,
tanks and processing plants and all rents, issues, profits, proceeds,
products, revenues and other incomes from or
<PAGE>
17
attributable to the Hydrocarbon Interests; all tenements, hereditaments,
appurtenances and Properties in any way appertaining, belonging, affixed
or incidental to the Hydrocarbon Interests, and all rights, titles,
interests and estates described or referred to above, including any and
all real property, now owned or hereafter acquired, used or held for use
in connection with the operating, working or development of any of such
Hydrocarbon Interests or Property and including any and all surface
leases, rights-of-way, easements and servitude together with all
additions, substitutions, replacements, accessions and attachments to
any and all of the foregoing; all oil, gas and mineral leasehold and fee
interests, all overriding royalty interests, mineral interests, royalty
interests, net profits interests, net revenue interests, oil payments,
production payments, carried interests and any and all other interests
in Hydrocarbons; in each case whether now owned or hereafter acquired
directly or indirectly.
"PARTICIPANTS": as defined in subsection 11.6(b).
"PARTICIPATING LENDER": with respect to any Letter of Credit,
any Lender (other than the Issuing Lender with respect to such Letter of
Credit) with respect to its L/C Participating Interest in such Letter of
Credit.
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
"PENNSYLVANIA PROPERTIES": Oil and Gas Properties of the
Borrower described on Schedule 8.6 attached hereto.
"PERMITTED BUSINESS ACQUISITION": the formation of a new
Subsidiary or any acquisition of all or substantially all the assets of,
or shares of capital stock, partnership interests, joint venture
interests, limited liability company interests or other similar equity
interests in, a Person or division or line of business of a Person (or
any subsequent investment made in a Person previously acquired in a
Permitted Business Acquisition), if immediately after giving effect
thereto: (a) no Default or Event of Default shall have occurred and be
continuing or would result therefrom, (b) all transactions related
thereto shall be consummated in accordance with applicable laws, (c)
such acquired or newly formed corporation, partnership, association or
other business entity shall be a Guarantor and all of the Capital Stock
of such acquired or newly formed corporation, partnership, association
or other business entity are owned directly by the Borrower or a
domestic Wholly-Owned Subsidiary and all actions required to be taken,
if any, with respect to such acquired or newly formed Subsidiary under
subsection 7.9 shall have been taken, (d)(i) the Borrower shall be in
compliance, on a PRO FORMA basis after giving effect to such acquisition
or formation, with the covenants contained in subsection 8.1 recomputed
as at the last day of the most recently ended fiscal quarter of the
Borrower as if such acquisition had occurred on the first day of each
relevant period for testing such compliance, and the Borrower shall have
delivered to the Administrative Agent an officers' certificate to such
effect, together with all relevant financial information for such Person
or assets and (ii) any acquired or newly formed Subsidiary (including
its direct and indirect Subsidiaries) shall not be liable for any
Indebtedness or Guarantee Obligations (except for Indebtedness and
Guarantee Obligations permitted by subsections 8.2 and 8.4) and (e) any
acquired or newly formed Subsidiary
<PAGE>
18
(including its direct and indirect Subsidiaries) shall not have any
liabilities (contingent or otherwise, and including, without limitation,
liabilities under Environmental Laws and liabilities with respect to any
Plan) other than (x) Indebtedness and Guarantee Obligations permitted by
subsections 8.2 and 8.4 and (y) such liabilities which could not have a
Material Adverse Effect, and the Borrower shall have delivered to the
Administrative Agent a certificate, signed by a Responsible Officer,
that to the best of such officer's knowledge, the conditions set forth
in this clause (e) have been met.
"PERMITTED BUSINESS INVESTMENTS": investments made in the
ordinary course of, and of a nature that is or shall have become
customary in, the Oil and Gas Business as a means of actively
exploiting, exploring for, acquiring, developing, processing, gathering,
marketing or transporting oil and gas through agreements, transactions,
interests or arrangements which permit one to share risks or costs,
comply with regulatory requirements regarding local ownership or satisfy
other objectives customarily achieved through the conduct of Oil and Gas
Business jointly with third parties, including, without limitation, the
entry into operating agreements, working interests, royalty interests,
mineral leases, processing agreements, farm-out and farm-in agreements,
division orders, contracts for the sale, transportation or exchange of
oil or natural gas, unitization and pooling declarations and agreements
and area of mutual interest agreements, production sharing agreements or
other similar or customary agreements, transactions, properties,
interests, and investments and expenditures in connection therewith;
PROVIDED that an investment in capital stock, partnership interests,
joint venture interests, limited liability company interests or other
similar equity interests in a Person shall not constitute a Permitted
Business Investment.
"PERSON": an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint
venture, limited liability company, Governmental Authority or other
entity of whatever nature.
"PLAN": at a particular time, any employee benefit plan which is
subject to Title IV of ERISA and in respect of which the Borrower or a
Commonly Controlled Entity is (or, if such plan were terminated at such
time, would under Section 4069 of ERISA be deemed to be) an "employer"
as defined in Section 3(5) of ERISA.
"PLEDGE AGREEMENT": the Amended and Restated Pledge Agreement to
be executed and delivered by each of the Loan Parties, substantially in
the form of Exhibit C, as the same may be amended, modified or
supplemented from time to time.
"PLEDGED SECURITIES": the Capital Stock of each direct and
indirect Subsidiary of the Borrower listed on Schedule 5.15 which is a
Guarantor, and each other Subsidiary of the Borrower (whether now formed
or hereafter acquired) whose Capital Stock is pledged to the Lenders
pursuant to the Pledge Agreement or subsection 7.9.
<PAGE>
19
"PLEDGORS": the Borrower and each of its Subsidiaries which is a
party to the Pledge Agreement on the Closing Date or which becomes a
party to a pledge agreement pursuant to subsection 7.9.
"PREFERRED STOCK": the preferred stock to be issued pursuant to
the terms and conditions of the Merger Agreement.
"PREFERRED STOCK DESIGNATION": the Certificate of Designation
dated March 27, 1998 describing the terms and conditions of the
Preferred Stock.
"PRELIMINARY PRO FORMA BALANCE SHEET": the unaudited PRO FORMA
combined balance sheet of the Borrower and its consolidated Subsidiaries
as at December 31, 1997 (including the notes thereto), giving effect (as
if such events had occurred on such date) to the consummation of the
LOPI Merger and the SWEPI Purchase and the payment of the fees and
expenses incurred in connection therewith that is included in the
Confidential Information Memorandum of the Borrower dated April 1998.
"PROPERTIES": any kind of facility, fixture, property or asset,
whether real, personal or mixed, or tangible or intangible owned, leased
or operated by the Borrower or any Subsidiary.
"PROVED RESERVES": the estimated quantities of crude oil,
condensate, natural gas and natural gas liquids that adequate geological
and engineering data demonstrate with reasonable certainty to be
recoverable in future years from proved reservoirs under existing
economic and operating conditions (i.e., prices and costs as of the date
the estimate is made).
"REDETERMINATION DATE": each date that the redetermined
Borrowing Base becomes effective subject to the notice requirements
specified in subsection 4.9.
"REDETERMINATION EVENT": the occurrence of the following events
during the Initial Period: (a) the sale or issuance of Capital Stock of
the Borrower or any of its Subsidiaries for cash, in one transaction or
a series of transactions; (b) the incurrence of Subordinated
Indebtedness by the Borrower, in one transaction or a series of
transactions; (c) any sale, issuance, conveyance, transfer, lease or
other disposition (including, without limitation, through a sale and
leaseback transaction or as a result of casualty or condemnation) by the
Borrower or any Subsidiary (a "DISPOSITION"), in one transaction or a
series of transactions, of any Oil and Gas Properties (other than the
Pennsylvania Properties) to any Person (other than to the Borrower or
any of its Subsidiaries) if such Disposition (or Dispositions) has a
sale price in excess of $250,000 in the aggregate; (d) any Disposition,
in one transaction or a series of transactions, of Property not
constituting Oil and Gas Properties if such Disposition has a sale price
in excess $250,000 (provided that this clause (d) shall not include the
Disposition of equipment used in the ordinary course of the Oil and Gas
Business if the proceeds of such Disposition are used, within 60 days,
to purchase replacement equipment); or (e) the acquisition of Oil and
Gas Properties having Proved Reserves with a value in excess of
$50,000,000 in the aggregate, whether by acquisition of stock or assets
or by merger (an "OIL AND GAS ACQUISITION"); PROVIDED that the
definition of "Redetermination Event" shall
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20
not include the Disposition of Oil and Gas Properties which are not
included in the Borrowing Base (determined by reference to the most
recent Reserve Report) pursuant to farm-ins and farm-outs and transfers
of royalty interests, overriding royalty interests, net revenue
interests and other similar transfers, all pursuant to exploration and
development activity in the ordinary course of business of the Borrower
and its Subsidiaries, including the Disposition of seismic data to the
extent that an interest is retained in such data by the Borrower or its
Subsidiaries.
"REFERENCE BANKS": four major banks in the London interbank
market selected by the Administrative Agent.
"REGISTER": as defined in subsection 11.6(d).
"REGISTRATION RIGHTS AGREEMENT": the Registration Rights
Agreement, substantially in the form attached to the Merger Agreement,
to be entered into by the Borrower and SLOPI in connection with the LOPI
Merger.
"REGULATION U": Regulation U of the Board of Governors of the
Federal Reserve System as in effect from time to time.
"REIMBURSEMENT OBLIGATIONS": the obligation of the Borrower to
reimburse the Issuing Lender pursuant to subsection 3.5(a) for amounts
drawn under Letters of Credit issued by the Issuing Lender in accordance
with the terms of this Agreement and the related L/C Applications.
"REORGANIZATION": with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of
Section 4241 of ERISA.
"REPORTABLE EVENT": any of the events set forth in Section
4043(b) of ERISA, other than those events as to which the thirty day
notice period is waived under subsections .13, .14, .16, .18, .19 or .20
of PBGC Reg. ss. 2615.
"REQUIRED LENDERS": at any time, Lenders the Commitment
Percentages of which aggregate at least 51%.
"REQUIREMENT OF LAW": as to any Person, the certificate or
articles of incorporation and by-laws or other organizational or
governing documents of such Person, and any law, treaty, rule or
regulation or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such
Person or any of its Property or to which such Person or any of its
Property is subject.
"RESERVE REPORT": a report in form and with attachments with
respect to the Oil and Gas Properties of the Borrower and its
Subsidiaries (a) for all reserve reports as of December 31, prepared by
the Borrower and audited by Ryder Scott Company or another independent
engineering firm selected by the Borrower and reasonably acceptable to
the Administrative Agent and (b) for all other reports, prepared by
engineers employed by the Borrower and certified by a Responsible
Officer of the Borrower.
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21
"RESPONSIBLE OFFICER": of any Loan Party, the chief executive
officer or the president of such Loan Party or, with respect to
financial matters, the chief financial officer or treasurer of such Loan
Party.
"REVOLVING CREDIT COMMITMENT": as to any Lender, the obligation
of such Lender to make Loans to the Borrower hereunder in an aggregate
principal amount at any one time outstanding not to exceed the amount
set forth opposite such Lender's name on Schedule 1.1(a) (which amount,
with respect to the Lenders, shall equal $150,000,000 in the aggregate
or, upon occurrence of the Shell Transaction Completion Date,
$250,000,000), as such amount may be reduced from time to time in
accordance with the provisions of this Agreement.
"REVOLVING CREDIT LOANS": as defined in subsection 2.1(a).
"REVOLVING CREDIT NOTE": as defined in subsection 2.3(e).
"SECURITY DOCUMENTS": the collective reference to the Pledge
Agreement, the Mortgages and all other security documents hereafter
delivered to the Administrative Agent granting a Lien on any asset or
assets of any Person to secure the obligations and liabilities of the
Borrower hereunder and under any of the other Loan Documents or to
secure any guarantee of any such obligations and liabilities.
"SENIOR DEBT": with respect to the Borrower and its
Subsidiaries, Indebtedness of the Borrower and its Subsidiaries other
than Subordinated Indebtedness.
"SHELL PROPERTIES": the oil and gas properties to be acquired by
the Borrower in the Shell Transactions.
"SHELL TRANSACTIONS": the LOPI Merger and the separate SWEPI
Purchase, and the transactions contemplated by the Merger Agreement, the
Asset Purchase Agreement, the Stock Rights and Restrictions Agreement,
the Registration Rights Agreement and the Preferred Stock Designation.
"SHELL TRANSACTION COMPLETION DATE": the date on which the
conditions set forth in subsection 6.3 shall have been satisfied;
PROVIDED that such date is no later than November 2, 1998.
"SINGLE EMPLOYER PLAN": any Plan which is covered by Title IV of
ERISA, but which is not a Multiemployer Plan.
"SLOPI": as defined in the Recitals to this Agreement.
"SOUTHWEST HOLMWOOD PROPERTIES": those properties described on
Schedule 1.1(e).
"STOCK RIGHTS AND RESTRICTIONS AGREEMENT": the Stock Rights and
Restrictions Agreement, substantially in the form attached to the Merger
Agreement, to be entered into by the Borrower and SLOPI pursuant to the
terms of the Merger Agreement.
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22
"SUBORDINATED INDEBTEDNESS": any Indebtedness of the Borrower
contractually subordinated to the prior payment in full of the Loans,
Reimbursement Obligations and any other obligations hereunder in a
manner acceptable to the Required Lenders as evidenced by their written
approval.
"SUBSIDIARY": as to any Person, a corporation, partnership or
other entity of which more than 50% of the total voting power of shares
of stock or other equity ownership interests having ordinary voting
power (other than stock or such other ownership interests having such
power only by reason of the happening of a contingency) to vote in the
election of directors, a managing general partner, or majority of
general partners or other managers or trustees thereof, is at the time
owned or controlled, directly or indirectly by such Person or one or
more of the other Subsidiaries of such Person (or a combination
thereof). Unless otherwise qualified, all references to a "Subsidiary"
or to "Subsidiaries" in this Agreement shall refer to any direct or
indirect Subsidiary or Subsidiaries of the Borrower.
"SUPERMAJORITY LENDERS": at any time, Lenders the Commitment
Percentages of which aggregate at least 75%.
"SWEPI": as defined in the Recitals to this Agreement.
"SWEPI PURCHASE": as defined in the Recitals to this Agreement.
"SYNDICATION AGENT": as defined in the Preamble to this
Agreement.
"TERMINATION DATE": the date which is the fifth anniversary of
the Closing Date.
"TMR-SUB": as defined in the Recitals to this Agreement.
"TRANCHE": the collective reference to Eurodollar Loans the then
current Interest Periods with respect to all of which begin on the same
date and end on the same later date (whether or not such Loans shall
originally have been made on the same day); Tranches may be identified
as "EURODOLLAR TRANCHES".
"TRANSFEREE": as defined in subsection 11.6(f).
"TYPE": as to any Loan, its nature as an ABR Loan or a
Eurodollar Loan.
"UNIFORM CUSTOMS": the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, as the same may be amended from time to time.
"WHOLLY-OWNED SUBSIDIARY": a Subsidiary of the Borrower, all of
the outstanding Capital Stock of which (other than directors' qualifying
shares) is owned, directly or indirectly, by the Borrower or one or more
other Wholly-Owned Subsidiaries of the Borrower; provided that each of
the Persons listed on Schedule 1.1(d) shall be deemed not to be
Wholly-Owned Subsidiaries.
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23
1.2 OTHER DEFINITIONAL PROVISIONS. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in any Loan Document or any certificate or other document made or
delivered pursuant hereto or thereto.
(b) As used herein and in any Loan Document, and any certificate
or other document made or delivered pursuant hereto or thereto, accounting terms
relating to the Borrower or any Subsidiary of the Borrower not defined in
subsection 1.1 and accounting terms partly defined in subsection 1.1, to the
extent not defined, shall have the respective meanings given to them under GAAP.
References in this Agreement or any other Loan Document to financial statements
shall be deemed to include all related schedules and notes thereto.
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
subsection, Schedule and Exhibit references are to this Agreement unless
otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
(e) References in this Agreement or any other Loan Document to
knowledge of any Loan Party of events or circumstances shall be deemed to refer
to events or circumstances of which a Responsible Officer has knowledge or
should have had knowledge.
SECTION 2. AMOUNT AND TERMS OF REVOLVING COMMITMENTS
2.1 REVOLVING CREDIT COMMITMENTS. (a) Subject to the terms and
conditions hereof, each Lender severally agrees to make revolving credit loans
("REVOLVING CREDIT LOANS" or "LOANS") to the Borrower from time to time during
the Commitment Period in an aggregate principal amount at any one time
outstanding not to exceed the amount of such Lender's Revolving Credit
Commitment, PROVIDED that no Lender shall make any Revolving Credit Loans if,
after giving effect thereto, the sum of such Lender's Revolving Credit Loans and
Commitment Percentage of Letter of Credit Outstandings (in each case, after
giving effect to the Loans requested to be made and the Letters of Credit
requested to be issued on such date) exceeds the lesser of (i) such Lender's
Revolving Credit Commitment and (ii) such Lender's Commitment Percentage of the
Borrowing Base then in effect. During the Commitment Period, the Borrower may
use the Revolving Credit Commitments by borrowing, prepaying the Revolving
Credit Loans in whole or in part, and reborrowing, all in accordance with the
terms and conditions hereof.
(b) The Revolving Credit Loans may from time to time be (i)
Eurodollar Loans, (ii) ABR Loans or (iii) a combination thereof, as determined
by the Borrower and notified to the Administrative Agent in accordance with
subsections 2.2 and 4.3, PROVIDED that no Revolving Credit Loan shall be made as
a Eurodollar Loan after the day that is one month prior to the Termination Date.
<PAGE>
24
2.2 PROCEDURE FOR REVOLVING CREDIT BORROWING. The Borrower may
borrow under the Revolving Credit Commitments during the Commitment Period on
any Business Day, PROVIDED that the Borrower shall give the Administrative Agent
irrevocable notice (which notice must be received by the Administrative Agent
prior to 10:00 a.m., New York City time, (a) three Business Days prior to the
requested Borrowing Date, if all or any part of the requested Revolving Credit
Loans initially are to be Eurodollar Loans or (b) one Business Day prior to the
requested Borrowing Date, otherwise), specifying (i) the amount to be borrowed,
(ii) the requested Borrowing Date, (iii) whether the borrowing is to be of
Eurodollar Loans, ABR Loans or a combination thereof and (iv) if the borrowing
is to be entirely or partly of Eurodollar Loans, the respective amounts of each
such Type of Loan and the respective lengths of the initial Interest Periods
therefor. Each borrowing under the Revolving Credit Commitments shall be in an
amount equal to (x) in the case of ABR Loans, $5,000,000 or a whole multiple of
$1,000,000 in excess thereof (or, if the then Available Commitments are less
than $5,000,000, such lesser amount) and (y) in the case of Eurodollar Loans,
$5,000,000 or a whole multiple of $1,000,000 in excess thereof. Upon receipt of
any such notice from the Borrower, the Administrative Agent shall promptly
notify each Lender thereof. Each Lender will make the amount of its pro rata
share of each borrowing available to the Administrative Agent for the account of
the Borrower at the office of the Administrative Agent specified in subsection
11.2 prior to 11:00 A.M., New York City time, on the Borrowing Date requested by
the Borrower in funds immediately available to the Administrative Agent. Such
borrowing will then be made available to the Borrower by the Administrative
Agent crediting the account of the Borrower on the books of such office with the
aggregate of the amounts made available to the Administrative Agent by the
Lenders and in like funds as received by the Administrative Agent.
2.3 REPAYMENT OF LOANS; EVIDENCE OF DEBT. (a) The Borrower hereby
unconditionally promises to pay to the Administrative Agent for the account of
each Lender the then unpaid principal amount of each Loan of such Lender on the
Termination Date (or such earlier date on which the Loans become due and payable
pursuant to Section 9). The Borrower hereby further agrees to pay interest on
the unpaid principal amount of the Loans from time to time outstanding from the
date hereof to but not including the date the Loans are paid in full at the
rates per annum, and on the dates, set forth in subsection 4.1.
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing indebtedness of the Borrower to such
Lender resulting from each Loan of such Lender from time to time, including the
amounts of principal and interest payable and paid to such Lender from time to
time under this Agreement.
(c) The Administrative Agent shall maintain the Register pursuant
to subsection 11.6(d), and a subaccount therein for each Lender, in which shall
be recorded (i) the amount of each Loan made hereunder, the Type thereof and
each Interest Period applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Borrower to each
Lender hereunder and (iii) both the amount of any sum received by the
Administrative Agent hereunder from the Borrower and each Lender's share
thereof.
(d) The entries made in the Register and the accounts of each
Lender maintained pursuant to subsection 2.3(b) shall, to the extent permitted
by applicable
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25
law, be PRIMA FACIE evidence of the existence and amounts of the obligations of
the Borrower therein recorded; PROVIDED, HOWEVER, that the failure of the
Administrative Agent or any Lender to maintain the Register or any such account,
or any error therein, shall not in any manner affect the obligation of the
Borrower to repay (with applicable interest) the Loans made to such Borrower by
such Lender in accordance with the terms of this Agreement.
(e) The Borrower agrees that, upon the request to the
Administrative Agent by any Lender, the Borrower will execute and deliver to
such Lender a promissory note of the Borrower evidencing the Revolving Credit
Loans of such Lender, substantially in the form of Exhibit A with appropriate
insertions as to date and principal amount (a "REVOLVING CREDIT NOTE" or
"NOTE").
SECTION 3. LETTERS OF CREDIT
3.1 THE L/C COMMITMENT. (a) Pursuant to the Existing Credit
Agreement, the Issuing Lenders specified on Schedule 3.1 have issued the letters
of credit described on Schedule 3.1 (the "EXISTING LETTERS OF CREDIT"), which
from and after the Closing Date shall continue to be "Letters of Credit"
hereunder. Subject to the terms and conditions hereof, the Issuing Lender, in
reliance on the agreements of the other Lenders set forth in subsection 3.4(a),
agrees to issue letters of credit (together with the Existing Letters of Credit,
the "LETTERS OF CREDIT") for the account of the Borrower on any Business Day
during the Commitment Period in such form as may be approved from time to time
by the Issuing Lender; PROVIDED that the Issuing Lender shall not issue any
Letter of Credit if, after giving effect to such issuance and after giving
effect to any Loans requested to be made or Letters of Credit requested to be
issued on such date, (i) the Letter of Credit Outstandings would exceed
$15,000,000 or (ii) the sum of the Revolving Credit Loans and Letter of Credit
Outstandings would exceed the lesser of (x) the Revolving Credit Commitments and
(y) the Borrowing Base then in effect. Each Letter of Credit shall (i) be issued
to support obligations of the Borrower or any of its Subsidiaries, contingent or
otherwise, which finance the working capital and business needs of the Borrower
and its Subsidiaries, and (ii) shall expire no later than the earlier of (x) one
year (or such later date agreed to by the Issuing Lender) after the date of
issuance and (y) five Business Days prior to the Termination Date, PROVIDED that
any Letter of Credit with a one-year tenor may provide for the extension thereof
for additional one-year periods (which shall in no event extend beyond the date
referred to in clause (y) above). Each Letter of Credit shall be denominated in
Dollars.
(b) Each Letter of Credit shall be subject to the Uniform Customs
and, to the extent not inconsistent therewith, the laws of the State of New
York.
(c) The Issuing Lender shall not at any time be obligated to
issue any Letter of Credit hereunder if such issuance would conflict with, or
cause the Issuing Lender or any Participating Lender to exceed any limits
imposed by, any applicable Requirement of Law.
3.2 PROCEDURE FOR ISSUANCE OF LETTERS OF CREDIT. The Borrower may
from time to time request that the Issuing Lender issue a Letter of Credit by
delivering to the Issuing Lender and the Administrative Agent at their
respective addresses for notices
<PAGE>
26
specified herein a letter of credit application in the Issuing Lender's then
customary form (an "L/C APPLICATION") completed to the satisfaction of the
Issuing Lender, and such other certificates, documents and other papers and
information as may be customary and as the Issuing Lender may reasonably
request. Upon receipt of any L/C Application, the Issuing Lender will process
such L/C Application and the certificates, documents and other papers and
information delivered to it in connection therewith in accordance with its
customary procedures and, upon receipt by the Issuing Lender of confirmation
from the Administrative Agent that issuance of such Letter of Credit will not
contravene subsection 3.1, the Issuing Lender shall promptly issue the Letter of
Credit requested thereby (but in no event shall the Issuing Lender be required
to issue any Letter of Credit earlier than three Business Days after its receipt
of the L/C Application therefor and all such other certificates, documents and
other papers and information relating thereto) by issuing the original of such
Letter of Credit to the beneficiary thereof or as otherwise may be agreed by the
Issuing Lender and the Borrower. The Issuing Lender shall furnish a copy of such
Letter of Credit to the Borrower and the Administrative Agent promptly following
the issuance thereof, and, thereafter, the Administrative Agent shall promptly
furnish a copy thereof to the Lenders.
3.3 FEES, COMMISSIONS AND OTHER CHARGES. (a) The Borrower shall
pay to the Administrative Agent, for the account of (i) the Issuing Lender and
the Participating Lenders, a letter of credit commission with respect to each
Letter of Credit, computed for the period from the date such Letter of Credit is
issued (or in the case of the Existing Letters of Credit, to the extent such
commissions have not already been paid, from the Closing Date) to the date upon
which the next payment is due under this subsection (and, thereafter, from the
date of payment under this subsection to the date upon which the next payment is
due under this subsection) at the rate per annum equal to the Applicable Margin
in effect from time to time for Eurodollar Loans of the daily aggregate amount
available to be drawn under such Letter of Credit during such period, and (ii)
the Issuing Lender, a letter of credit commission with respect to each Letter of
Credit in an amount equal to .125% per annum of the daily aggregate amount
available to be drawn under such Letter of Credit. The letter of credit
commissions payable pursuant to clause (i) and (ii) above shall be payable
quarterly in arrears on the last day of each March, June, September and
December, commencing June 30, 1998, and on the Termination Date.
(b) In addition to the foregoing fees and commissions, the
Borrower shall pay or reimburse the Issuing Lender for such normal and customary
costs and expenses as are incurred or charged by the Issuing Lender in issuing,
effecting payment under, amending, negotiating or otherwise administering any
Letter of Credit.
(c) The Administrative Agent shall, promptly following its
receipt thereof, distribute to the Issuing Lender and the Participating Lenders
all fees and commissions received by the Administrative Agent for their
respective accounts pursuant to this subsection.
3.4 L/C PARTICIPATIONS. (a) Effective on the Closing Date in
respect of Existing Letters of Credit, and effective on the date of issuance of
each Letter of Credit issued after the Closing Date, the Issuing Lender
irrevocably agrees to grant and hereby grants to each Participating Lender, and
each Participating Lender irrevocably agrees to accept and purchase and hereby
accepts and purchases from the Issuing
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27
Lender, on the terms and conditions hereinafter stated, for such Participating
Lender's own account and risk an undivided interest equal to such Participating
Lender's Commitment Percentage in the Issuing Lender's obligations and rights
under each Letter of Credit issued by the Issuing Lender and the amount of each
draft paid by the Issuing Lender thereunder. Each Participating Lender
unconditionally and irrevocably agrees with the Issuing Lender that, if a draft
is paid under any Letter of Credit for which such Issuing Lender is not
reimbursed in full by the Borrower in accordance with the terms of this
Agreement, such Participating Lender shall pay to the Administrative Agent, for
the account of the Issuing Lender, upon demand at the Administrative Agent's
address specified in subsection 11.2, an amount equal to such Participating
Lender's Commitment Percentage of the amount of such draft, or any part thereof,
which is not so reimbursed. On the date that any Assignee becomes a Lender party
to this Agreement in accordance with subsection 11.6, participating interests in
any outstanding Letters of Credit held by the transferor Lender from which such
Assignee acquired its interest hereunder shall be proportionately reallotted
between such Assignee and such transferor Lender. Each Participating Lender
hereby agrees that its obligation to participate in each Letter of Credit, and
to pay or to reimburse the Issuing Lender for its participating share of the
drafts drawn or amounts otherwise paid thereunder, is absolute, irrevocable and
unconditional and shall not be affected by any circumstances whatsoever
(including, without limitation, the occurrence or continuance of any Default or
Event of Default), and that each such payment shall be made without offset,
abatement, withholding or other reduction whatsoever.
(b) If any amount required to be paid by any Participating Lender
to the Issuing Lender pursuant to subsection 3.4(a) in respect of any
unreimbursed portion of any draft paid by the Issuing Lender under any Letter of
Credit is paid to the Issuing Lender within three Business Days after the date
such payment is due, such Participating Lender shall pay to the Administrative
Agent, for the account of the Issuing Lender, on demand, an amount equal to the
product of (i) such amount, times (ii) the daily average Federal Funds Effective
Rate during the period from and including the date such draft is paid to the
date on which such payment is immediately available to the Issuing Lender, times
(iii) a fraction the numerator of which is the number of days that elapse during
such period and the denominator of which is 360. If any such amount required to
be paid by any Participating Lender pursuant to subsection 3.4(a) is not in fact
made available to the Administrative Agent, for the account of the Issuing
Lender, by such Participating Lender within three Business Days after the date
such payment is due, the Issuing Lender shall be entitled to recover from such
Participating Lender, on demand, such amount with interest thereon calculated
from such due date at the rate per annum applicable to ABR Loans hereunder. A
certificate of the Issuing Lender submitted to any Participating Lender with
respect to any amounts owing under this subsection shall be conclusive in the
absence of manifest error.
(c) Whenever, at any time after the Issuing Lender has paid a
draft under any Letter of Credit and has received from any Participating Lender
its PRO RATA share of such payment in accordance with subsection 3.4(a), the
Issuing Lender receives any reimbursement on account of such unreimbursed
portion, or any payment of interest on account thereof, the Issuing Lender will
pay to the Administrative Agent, for the account of such Participating Lender,
its PRO RATA share thereof; PROVIDED, HOWEVER, that in the event that any such
payment received by the Issuing Lender shall be required to be returned by the
Issuing Lender, such Participating Lender shall return
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28
to the Administrative Agent for the account of the Issuing Lender, the portion
thereof previously distributed to it.
3.5 REIMBURSEMENT OBLIGATION OF THE BORROWER. If any draft shall
be presented for payment under any Letter of Credit, the Issuing Lender shall
notify the Borrower and the Administrative Agent of the date and the amount
thereof. The Borrower agrees to reimburse the Issuing Lender (whether with its
own funds or with proceeds of the Revolving Credit Loans) on each date on which
the Issuing Lender pays a draft so presented under any Letter of Credit for the
amount of (i) such draft so paid and (ii) any taxes, fees, charges or other
costs or expenses incurred by the Issuing Lender in connection with such
payment. Each such payment shall be made to the Issuing Lender at its address
for notices specified herein in lawful money of the United States of America and
in immediately available funds. Interest shall be payable on any and all amounts
remaining unpaid by the Borrower under this subsection from the date of payment
of the applicable draft until payment in full thereof, (x) for the period
commencing on the date of payment of the applicable draft to the date which is 3
days thereafter, at the rate which would be payable on ABR Loans at such time
and (y) thereafter, at the rate which would be payable on ABR Loans at such time
plus 2%.
3.6 OBLIGATIONS ABSOLUTE. The Borrower's obligations under this
Section 3 shall be absolute and unconditional under any and all circumstances
and irrespective of any set-off, counterclaim or defense to payment which the
Borrower or any other Person may have or have had against the Issuing Lender or
any other Lender or any beneficiary of a Letter of Credit. The Borrower also
agrees with the Issuing Lender that the Issuing Lender shall not be responsible
for, and the Borrower's obligations under subsection 3.5 shall not be affected
by, among other things, the validity or genuineness of documents or of any
endorsements thereon, even though such documents shall in fact prove to be
invalid, fraudulent or forged, or any dispute between or among the Borrower and
any beneficiary of any Letter of Credit or any other party to which such Letter
of Credit may be transferred or any claims whatsoever of the Borrower against
any beneficiary of such Letter of Credit or any such transferee. The Issuing
Lender shall not be liable for any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit, except for errors or
omissions caused by the Issuing Lender's gross negligence or willful misconduct.
The Borrower agrees that any action taken or omitted by the Issuing Lender under
or in connection with any Letter of Credit or the related drafts or documents,
if done in the absence of gross negligence or willful misconduct and in
accordance with the standards of care specified in the Uniform Commercial Code
of the State of New York, including, without limitation, Article V thereof,
shall be binding on the Borrower and shall not result in any liability of such
Issuing Lender to the Borrower.
3.7 LETTER OF CREDIT PAYMENTS. Without limitation of subsection
3.6, the responsibility of the Issuing Lender to the Borrower in connection with
any draft presented for payment under any Letter of Credit shall, in addition to
any payment obligation expressly provided for in such Letter of Credit, be
limited to determining that the documents (including each draft) delivered under
such Letter of Credit in connection with such presentment are in conformity with
such Letter of Credit.
3.8 L/C APPLICATIONS. To the extent that any provision of any L/C
Application, including any reimbursement provisions contained therein, related
to any
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29
Letter of Credit is inconsistent with the provisions of this Section 3, the
provisions of this Section 3 shall prevail.
SECTION 4. GENERAL PROVISIONS
4.1 INTEREST RATES AND PAYMENT DATES. (a) Each Eurodollar Loan
shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such
Interest Period plus the Applicable Margin in effect on such day.
(b) Each ABR Loan shall bear interest for each day at a rate per
annum equal to the ABR in effect on such day plus the Applicable Margin in
effect on such date.
(c) If all or a portion of (i) any principal of any Loan, (ii)
any interest payable thereon, (iii) any commitment fee or (iv) any other amount
payable hereunder shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), the principal of the Loans and any such overdue
interest, commitment fee or other amount shall bear interest at a rate per annum
which is (x) in the case of principal, the rate that would otherwise be
applicable thereto pursuant to the foregoing provisions of this subsection plus
2% or (y) in the case of any such overdue interest, commitment fee or other
amount, the ABR plus the Applicable Margin in effect on such date plus 2%, in
each case from the date of such non-payment until such overdue principal,
interest, commitment fee or other amount is paid in full (as well after as
before judgment).
(d) Interest shall be payable in arrears on each Interest Payment
Date, PROVIDED that interest accruing pursuant to subsection 4.1(c) shall be
payable from time to time on demand.
4.2 COMPUTATION OF INTEREST AND FEES. (a) Whenever, in the case
of ABR Loans, it is calculated on the basis of the Prime Rate, interest shall be
calculated on the basis of a 365- (or 366-, as the case may be) day year for the
actual days elapsed; and, otherwise, interest and fees shall be calculated on
the basis of a 360-day year for the actual days elapsed. The Administrative
Agent shall as soon as practicable notify the Borrower and the Lenders of each
determination of a Eurodollar Rate. Any change in the interest rate on a Loan
resulting from a change in the ABR, the Eurocurrency Reserve Requirements, the
C/D Assessment Rate or the C/D Reserve Percentage shall become effective as of
the opening of business on the day on which such change becomes effective. The
Administrative Agent shall as soon as practicable notify the Borrower and the
Lenders of the effective date and the amount of each such change in interest
rate.
(b) Each determination of an interest rate by the Administrative
Agent pursuant to any provision of this Agreement shall be conclusive and
binding on the Borrower and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of the Borrower, deliver to the
Borrower a statement showing the quotations and calculations used by the
Administrative Agent in determining any interest rate pursuant to subsection
4.1(a).
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4.3 CONVERSION AND CONTINUATION OPTIONS. (a) The Borrower may
elect from time to time to convert Eurodollar Loans to ABR Loans by giving the
Administrative Agent at least one Business Day's prior irrevocable notice of
such election, PROVIDED that any such conversion of Eurodollar Loans may only be
made on the last day of an Interest Period with respect thereto. The Borrower
may elect from time to time to convert ABR Loans to Eurodollar Loans by giving
the Administrative Agent at least three Business Days' prior irrevocable notice
of such election. Any such notice of conversion to Eurodollar Loans shall
specify the length of the initial Interest Period or Interest Periods therefor.
Upon receipt of any such notice the Administrative Agent shall promptly notify
each Lender thereof. All or any part of outstanding Eurodollar Loans and ABR
Loans may be converted as provided herein, PROVIDED that (i) no Loan may be
converted into a Eurodollar Loan when any Event of Default has occurred and is
continuing and the Administrative Agent has or the Required Lenders have
determined that such a conversion is not appropriate and (ii) no Loan may be
converted into a Eurodollar Loan after the date that is one month prior to the
Termination Date.
(b) Any Eurodollar Loans may be continued as such upon the
expiration of the then current Interest Period with respect thereto by the
Borrower giving notice to the Administrative Agent, in accordance with the
applicable provisions of the term "Interest Period" set forth in subsection 1.1,
of the length of the next Interest Period to be applicable to such Loans,
PROVIDED that no Eurodollar Loan may be continued as such (i) when any Event of
Default has occurred and is continuing and the Administrative Agent has or the
Required Lenders have determined that such a continuation is not appropriate or
(ii) after the date that is one month prior to the Termination Date and
PROVIDED, FURTHER, that if the Borrower shall fail to give such notice or if
such continuation is not permitted such Loans shall be automatically converted
to ABR Loans on the last day of such then expiring Interest Period.
4.4 MINIMUM AMOUNTS MAXIMUM NUMBER OF TRANCHES. All borrowings,
conversions and continuations of Loans hereunder and all selections of Interest
Periods hereunder shall be in such amounts and be made pursuant to such
elections so that, after giving effect thereto, the aggregate principal amount
of the Loans comprising each Eurodollar Tranche shall be equal to $5,000,000 or
a whole multiple of $1,000,000 in excess thereof. In no event shall there be
more than five Eurodollar Tranches outstanding at any time.
4.5 OPTIONAL PREPAYMENTS AND COMMITMENT REDUCTIONS. (a) The
Borrower may, on the last day of any Interest Period with respect thereto, in
the case of Eurodollar Loans, or at any time and from time to time, in the case
of ABR Loans, prepay the Loans, in whole or in part, without premium or penalty,
upon at least one Business Day's irrevocable notice to the Administrative Agent
in the case of ABR Loans, and upon at least three Business Days' irrevocable
notice to the Administrative Agent in the case of Eurodollar Loans, in each case
specifying the date and amount of prepayment and whether the prepayment is of
Eurodollar Loans, ABR Loans or a combination thereof, and, in each case if of a
combination thereof, the amount allocable to each. Upon receipt of any such
notice the Administrative Agent shall promptly notify each Lender thereof. If
any such notice is given, the amount specified in such notice shall be due and
payable on the date specified therein, together with any amounts payable
pursuant to subsection 4.14. Partial prepayments shall be in an aggregate
principal amount of $5,000,000 or a whole multiple thereof.
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31
(b) Subject to subsection 4.5(c), the Borrower shall have the
right, upon not less than three Business Days' notice to the Administrative
Agent, to terminate the Revolving Credit Commitments or, from time to time, to
reduce the amount of the Revolving Credit Commitments. Any such reduction shall
be in an amount equal to $5,000,000 or a whole multiple of $1,000,000 in excess
thereof and shall reduce permanently the Revolving Credit Commitments then in
effect. Termination of the Revolving Credit Commitments shall also terminate the
obligation of the Issuing Lender to issue Letters of Credit.
(c) In the event of any termination of the Revolving Credit
Commitments, the Borrower shall on the date of such termination repay or prepay
all of its outstanding Revolving Credit Loans (together with accrued and unpaid
interest on the Revolving Credit Loans and any amounts payable pursuant to
subsection 4.14 and any other amounts payable hereunder), reduce the Letter of
Credit Outstandings to zero and cause all Letters of Credit to be canceled and
returned to the Issuing Lender (or shall cash collateralize the Letter of Credit
Outstandings (or provide supporting letters of credit from an institution
reasonably acceptable to the Administrative Agent) on terms and pursuant to
documentation reasonably satisfactory to the Issuing Lender and the
Administrative Agent). In the event of any partial reduction of the Revolving
Credit Commitments, then (i) at or prior to the effective date of such
reduction, the Administrative Agent shall notify the Borrower and the Lenders of
the Aggregate Revolving Credit Exposure of all the Lenders and (ii) if the
Aggregate Revolving Credit Exposure of all the Lenders would exceed the
aggregate Commitments after giving effect to such reduction, then, prior to
giving effect to such reduction, the Borrower shall, on the date of such
reduction, FIRST, repay or prepay Revolving Credit Loans and, SECOND, reduce the
Letter of Credit Outstandings (or cash collateralize the Letter of Credit
Outstandings (or provide supporting letters of credit from an institution
reasonably acceptable to the Administrative Agent) on terms and pursuant to
documentation reasonably satisfactory to the Issuing Lender and the
Administrative Agent), in an aggregate amount sufficient to eliminate such
excess.
(d) The Loans shall be repaid, and the Letter of Credit
Outstandings shall be reduced or cash collateralized, to the extent required by
subsection 4.10. All such repayments and cash collateralization shall be made in
accordance with this subsection 4.5.
(e) In the event the amount of any prepayment of the Loans
required to be made above shall exceed the aggregate principal amount of the
outstanding ABR Loans (the amount of any such excess being called the "EXCESS
AMOUNT"), the Borrower shall have the right, in lieu of making such prepayment
in full, to prepay all the outstanding applicable ABR Loans and to deposit an
amount equal to the Excess Amount with, and (ii) in the event that Letter of
Credit Outstandings are required to be cash collateralized, the Borrower shall
deposit an amount equal to the aggregate amount of Letter of Credit Outstandings
to be cash collateralized with, the Administrative Agent in a cash collateral
account maintained (pursuant to documentation reasonably satisfactory to the
Administrative Agent) by and in the sole dominion and control of the
Administrative Agent. Any amounts so deposited shall be held by the
Administrative Agent as collateral for the obligations of the Borrower under
this Agreement and applied to the prepayment of the applicable Eurodollar Loans
at the end of the current Interest Periods applicable thereto or Letter of
Credit Outstandings, as the case may be, or, during an Event of Default, to
payment of any
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32
obligations under this Agreement (including obligations in respect of the
Letters of Credit). On any Business Day on which (i) collected amounts remain on
deposit in or to the credit of such cash collateral account after giving effect
to the payments made on such day pursuant to this subsection 4.5(e) and (ii) the
Borrower shall have delivered to the Administrative Agent a written request or a
telephonic request (which shall be promptly confirmed in writing) that such
remaining collected amounts be invested in the Cash Equivalent specified in such
request, the Administrative Agent shall use its reasonable efforts to invest
such remaining collected amounts in such Cash Equivalent, PROVIDED, HOWEVER,
that the Administrative Agent shall have continuous dominion and full control
over any such investments (and over any interest that accrues thereon) to the
same extent that it has dominion and control over such cash collateral account
and no Cash Equivalent shall mature after the end of the Interest Period for
which it is to be applied. The Borrower shall not have the right to withdraw any
amount from such cash collateral account until the applicable Eurodollar Loans
and accrued interest thereon and Letter of Credit Outstandings are paid in full
or if a Default or Event of Default then exists or would result. Any prepayment
or collateralization pursuant to this subsection 4.5(e) shall be applied in the
order set forth in clause (ii) of the second sentence of subsection 4.5(c).
4.6 COMMITMENT FEE; ADMINISTRATIVE AGENT'S FEE; OTHER FEES. (a)
The Borrower agrees to pay to the Administrative Agent for the account of each
Lender a commitment fee for the period from and including, for each Lender, the
Closing Date to but not including the Termination Date, computed at the
Commitment Fee Rate on the average daily amount of the lesser of (i) the
Available Commitment of such Lender and (ii) the Borrowing Base Availability
with respect to such Lender, during the period for which payment is made,
payable quarterly in arrears on the last day of each March, June, September and
December (commencing on June 30, 1998) and on the Termination Date or such
earlier date as the Revolving Credit Commitments shall terminate as provided
herein, commencing on the first of such dates to occur after the date hereof.
Commitment fees shall be nonrefundable when paid.
(b) The Borrower shall pay to the Administrative Agent the fees
set forth in the fee letter agreement, dated April 4, 1998, among the Borrower,
Chase and Chase Securities Inc., and the fees set forth in the fee letter
agreement, dated April 4, 1998, between the Borrower and BT Alex.Brown
Incorporated, in each case on the dates specified therein.
4.7 INABILITY TO DETERMINE INTEREST RATE. If prior to the first
day of any Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower) that,
by reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for
such Interest Period, or
(b) the Administrative Agent shall have received notice from the
Required Lenders that the Eurodollar Rate determined or to be determined
for such Interest Period will not adequately and fairly reflect the cost
to such Lenders (as conclusively certified by such Lenders) of making or
maintaining their affected Loans during such Interest Period,
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33
the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrower and the Lenders as soon as practicable thereafter. If such notice is
given (x) any Eurodollar Loans requested to be made on the first day of such
Interest Period shall be made as ABR Loans, (y) any Loans that were to have been
converted on the first day of such Interest Period to Eurodollar Loans shall be
continued as ABR Loans and (z) any outstanding Eurodollar Loans shall be
converted, on the first day of such Interest Period, to ABR Loans. Until such
notice has been withdrawn by the Administrative Agent, no further Eurodollar
Loans shall be made or continued as such, nor shall the Borrower have the right
to convert Loans to Eurodollar Loans.
4.8 PRO RATA TREATMENT AND PAYMENTS. (a) Each borrowing by the
Borrower from the Lenders hereunder, each payment by the Borrower on account of
any commitment fee hereunder and any reduction of the Revolving Credit
Commitments of the Lenders shall be made pro rata according to the respective
Commitment Percentages of the Lenders. Each payment (including each prepayment)
by the Borrower on account of principal of and interest on the Loans shall be
made pro rata according to the respective outstanding principal amounts of the
Loans then held by the Lenders. All payments (including prepayments) to be made
by the Borrower hereunder, whether on account of principal, interest, fees or
otherwise, shall be made without set off or counterclaim and shall be made prior
to 12:00 Noon, New York City time, on the due date thereof to the Administrative
Agent, for the account of the Lenders, at the Administrative Agent's office
specified in subsection 11.2, in Dollars and in immediately available funds. The
Administrative Agent shall distribute such payments to the Lenders promptly upon
receipt in like funds as received. If any payment hereunder becomes due and
payable on a day other than a Business Day, such payment shall be extended to
the next succeeding Business Day, and, with respect to payments of principal,
interest thereon shall be payable at the then applicable rate during such
extension.
(b) Unless the Administrative Agent shall have been notified in
writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its Commitment Percentage of such borrowing
available to the Administrative Agent, the Administrative Agent may assume that
such Lender is making such amount available to the Administrative Agent, and the
Administrative Agent may, in reliance upon such assumption, make available to
the Borrower a corresponding amount. If such amount is not made available to the
Administrative Agent by the required time on the Borrowing Date therefor, such
Lender shall pay to the Administrative Agent, on demand, such amount with
interest thereon at a rate equal to the daily average Federal Funds Effective
Rate for the period until such Lender makes such amount immediately available to
the Administrative Agent. A certificate of the Administrative Agent submitted to
any Lender with respect to any amounts owing under this subsection shall be
conclusive in the absence of manifest error. If such Lender's Commitment
Percentage of such borrowing is not made available to the Administrative Agent
by such Lender within three Business Days after such Borrowing Date, the
Administrative Agent shall also be entitled to recover such amount with interest
thereon at the rate per annum applicable to ABR Loans hereunder, on demand, from
the Borrower.
4.9 COMPUTATION OF BORROWING BASE. (a) BORROWING BASE. (i) The
Borrowing Base in effect from time to time shall represent the maximum principal
amount (subject to the aggregate amount of the Revolving Credit Commitments) of
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34
Loans and Letter of Credit Outstandings that the Lenders will allow to remain
outstanding during the Commitment Period. During the Initial Period, the amount
of the Borrowing Base shall be $150,000,000, unless revised upon the occurrence
of a Redetermination Event, as set forth in subsection 4.9(e). The Borrowing
Base will be based upon the value of certain Proved Reserves attributable to the
Oil and Gas Properties of the Borrower and its Subsidiaries and other assets of
the Borrower and its Subsidiaries acceptable to the Administrative Agent in its
sole discretion, and will be determined by the Administrative Agent in
accordance with paragraph (d) of this subsection 4.9, subject to approval by the
Supermajority Lenders (or, with respect to the Initial Scheduled Borrowing Base
Redetermination, all of the Lenders). Until the Commitments are no longer in
effect, all Letters of Credit have terminated and all of the Loans and all other
obligations under this Agreement are paid in full, this Agreement shall be
subject to the then effective Borrowing Base.
(b) RESERVE REPORTS. Prior to March 1 and September 1 of each
year, the Borrower shall, at its own expense, furnish to the Administrative
Agent and to each Lender Reserve Reports, which Reserve Reports shall be dated
as of the immediately preceding December 31 (in the case of Reserve Reports due
on March 1) and June 30 (in the case of Reserve Reports due on September 1), and
shall set forth, among other things, (i) the Oil and Gas Properties, then owned
by the Borrower and its Subsidiaries, (ii) the Proved Reserves attributable to
such Oil and Gas Properties and (iii) a projection of the rate of production and
net income of the Proved Reserves as of the date of such Reserve Report, all in
accordance with the guidelines published by the Securities and Exchange
Commission and such assumptions as the Administrative Agent shall provide.
Concurrently with the delivery of the Reserve Reports, the Borrower shall
furnish to the Administrative Agent and to each Lender a certificate of a
Responsible Officer showing any additions to or deletions from the Oil and Gas
Properties listed in the Reserve Report, which additions or deletions were made
by the Borrower and its Subsidiaries since the date of the previous Reserve
Report.
(c) REDETERMINATIONS OF THE BORROWING BASE AFTER THE INITIAL
PERIOD. The Borrowing Base shall be redetermined (i) subject to the last
sentence hereof, after receipt by the Administrative Agent of each scheduled
Reserve Report, commencing with the Reserve Report as of June 30, 1998, (ii)
upon the delivery, after the Initial Period, of a Lender Redetermination Notice
to the Borrower, and (iii) upon the delivery, after the Initial Period, of a
Borrower Redetermination Notice to the Administrative Agent, all as provided in
this subsection 4.9. Within 15 days after the delivery of a Borrower
Redetermination Notice or a Lender Redetermination Notice, the Borrower shall
furnish to the Administrative Agent and to each Lender a Reserve Report as of
the most recent practicable date. If the Borrower fails to deliver a Reserve
Report within the time period provided for in the preceding sentence, then the
Administrative Agent shall have the right to rely on the last Reserve Report
previously delivered by the Borrower with any such adjustments and taking into
account any additional information as the Administrative Agent may deem
appropriate, in its sole discretion. On or before the date which is 30 days
after receipt (i) of a scheduled semi-annual Reserve Report or (ii) of a Reserve
Report in connection with a Lender Redetermination Notice or a Borrower
Redetermination Notice, the Administrative Agent shall redetermine the Borrowing
Base in its sole discretion, and the Administrative Agent shall notify the
Borrower and the Lenders of its redetermination of the Borrowing Base. Within 10
days after receipt from the Administrative Agent of the amount of the
redetermination of the Borrowing Base, each Lender shall notify the
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35
Administrative Agent stating whether or not such Lender agrees with that
redetermination. Failure of any Lender to give such notice within such period of
time shall be deemed to constitute an acceptance of such redetermination. If the
Supermajority Lenders (or, with respect to the Initial Scheduled Borrowing Base
Redetermination, all of the Lenders) agree with that redetermination, then the
Administrative Agent promptly shall notify the Borrower of the Borrowing Base as
so redetermined, whereupon that redetermined value shall automatically become
effective (and shall remain effective until the Borrowing Base is again
redetermined as provided in this subsection 4.9(c)). If the Supermajority
Lenders (or, with respect to the Initial Scheduled Borrowing Base
Redetermination, all of the Lenders) have not approved or are not deemed to have
approved the Borrowing Base within the 10 day period following their receipt of
the proposed amount from the Administrative Agent, the Borrowing Base shall be
set at the amount of the then current Borrowing Base and the Borrowing Base
shall remain at such level until the Supermajority Lenders (or, with respect to
the Initial Scheduled Borrowing Base Redetermination, all of the Lenders),
utilizing the procedure outlined herein, agree on a new Borrowing Base. Each
redetermination provided for by this subsection 4.9(c) shall be made in
accordance with the provisions of subsection 4.9(d). The Borrowing Base shall be
redetermined within 45 days after the furnishing of each Reserve Report, subject
to the provisions of this paragraph (c); PROVIDED that the Initial Scheduled
Borrowing Base Redetermination shall become effective within 10 Business Days
following October 1, 1998, unless the Shell Transaction Completion Date shall
have occurred prior to such date, in which case the next sentence shall be
applicable. Notwithstanding anything in this subsection 4.9(c) to the contrary,
(i) upon the occurrence of the Shell Transaction Completion Date, the Borrowing
Base shall be $200,000,000 (minus any redetermination previously made pursuant
to the first sentence of subsection 4.9(e)) and the next scheduled
Redetermination Date shall be effective no later than April 15, 1999 and shall
be based on the December 31, 1998 Reserve Report to be delivered on or prior to
March 1, 1999 and (ii) if the Shell Transaction Completion Date occurs prior to
the effectiveness of the Initial Scheduled Borrowing Base Redetermination, such
Initial Scheduled Borrowing Base Redetermination shall not become effective.
(d) CRITERIA. (i) All determinations and redeterminations by the
Administrative Agent provided for in this subsection 4.9 (and any determinations
and decisions by either or both of the Administrative Agent and the
Supermajority Lenders (or, with respect to the Initial Scheduled Borrowing Base
Redetermination, all of the Lenders) in connection therewith, including
effecting any redetermination of the value of any component contained in a
Reserve Report) shall be made by the Administrative Agent and the Lenders in
their sole discretion and shall be made on a reasonable basis and in good faith
based upon the application by the Administrative Agent and the Lenders of their
respective normal oil and gas lending criteria as they exist at the time of
determination.
(ii) Subject to the last sentence in clause (c) of this
subsection 4.9, all redeterminations of the Borrowing Base referred to in this
subsection 4.9 shall become effective immediately upon the delivery of notice by
the Administrative Agent to the Borrower of the redetermination; provided that
the Initial Scheduled Borrowing Base Redetermination shall not become effective
until a date within 10 Business Days after October 1, 1998 unless the Shell
Transaction Completion Date shall have occurred prior to such date.
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36
(iii) (x) Upon the issuance of Subordinated Indebtedness pursuant
to subsection 8.2(f) during the Initial Period, the Borrowing Base shall be
automatically reduced in accordance with subsection 4.9(e) and (y) upon the
issuance of any such Subordinated Indebtedness following the Initial Period, the
Borrowing Base shall be redetermined in accordance with the procedures set forth
in subsection 4.9 which would have applied had a Borrower Redetermination Notice
or a Lender Redetermination Notice been delivered.
(e) REDETERMINATION EVENTS DURING THE INITIAL PERIOD. Upon the
occurrence during the Initial Period of a Redetermination Event described in
clauses (a), (b), (c) or (d) of the definition thereof, the Borrowing Base shall
be automatically reduced by an amount equal to the Net Proceeds of that
Redetermination Event and the Borrower shall promptly provide the Administrative
Agent and the Lenders notice of such a Redetermination Event and the Net
Proceeds realized therefrom (describing the same in reasonable detail). In
addition, an Oil and Gas Acquisition described in clause (e) of the definition
of Redetermination Event shall result in a mandatory redetermination of the
Borrowing Base pursuant to the procedures set forth in this subsection 4.9 for a
redetermination following the delivery of a Lender Redetermination Notice or a
Borrower Redetermination Notice; PROVIDED that any such redetermination of the
Borrowing Base must be approved by all of the Lenders.
(f) TITLE. Concurrently with the delivery to the Administrative
Agent of each Reserve Report, the Administrative Agent may request that the
Borrower furnish to the Administrative Agent reasonable evidence of the
Borrower's title to the Oil and Gas Properties which have been developed or
acquired by the Borrower subsequent to the Reserve Report immediately preceding
such Reserve Report.
4.10 BORROWING BASE COMPLIANCE. If, upon any redetermination of
the Borrowing Base pursuant to subsection 4.9(c) other than in connection with
the issuance of Subordinated Indebtedness provided for in subsection 8.2(f), the
Aggregate Revolving Credit Exposure of the Lenders exceeds the Borrowing Base
then in effect (any such excess, the "BORROWING BASE DEFICIENCY"), the Borrower
shall prepay the Revolving Credit Loans and then cash collateralize the Letter
of Credit Outstandings in an amount equal to at least 50% of the Borrowing Base
Deficiency within 90 days after the effective date of the redetermination
resulting in such Borrowing Base Deficiency, and within the next 90 days prepay
the Revolving Credit Loans and then cash collateralize the Letter of Credit
Outstandings in an amount equal to the balance of such Borrowing Base Deficiency
in each case together with interest accrued to the date of such payment or
prepayment and any amounts payable under subsection 4.14; PROVIDED that, if
there exists a Borrowing Base Deficiency upon the termination of the Initial
Period after giving effect to the Initial Scheduled Borrowing Base
Redetermination, the Borrower shall, within 60 days of the Initial Scheduled
Borrowing Base Redetermination, prepay the Revolving Credit Loans and then cash
collateralize the Letter of Credit Outstandings (together with interest accrued
to the date of such payment or prepayment and any amounts payable under
subsection 4.14) in an amount equal to such Borrowing Base Deficiency. If at any
other time there exists a Borrowing Base Deficiency (including as a result of a
redetermination in connection with the incurrence of Subordinated Indebtedness
provided for in subsection 8.2(f)), the Borrower shall immediately prepay the
Loans and then cash collateralize the Letter of Credit Outstandings in an amount
equal to 100% of such Borrowing Base Deficiency together with (i) interest
accrued to the date of such
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37
payment or prepayment and (ii) any amounts payable under subsection 4.14.
Notwithstanding the foregoing, the Borrower shall immediately apply 100% of the
Net Proceeds of any Redetermination Event described in clauses (a), (b) (c) or
(d) of the definition thereof to prepay outstanding Loans and then cash
collateralize the Letter of Credit Outstandings. Prepayments and
collateralization pursuant to this subsection 4.10 shall be made as set forth in
subsection 4.5(c).
4.11 ILLEGALITY. Notwithstanding any other provision herein, if
the adoption of or any change in any Requirement of Law or in the interpretation
or application thereof after the date hereof shall make it unlawful for any
Lender to make or maintain Eurodollar Loans as contemplated by this Agreement
(a) the commitment of such Lender hereunder to make Eurodollar Loans, continue
Eurodollar Loans as such and convert ABR Loans to Eurodollar Loans shall
forthwith be canceled and (b) such Lender's Loans then outstanding as Eurodollar
Loans, if any, shall be converted automatically to ABR Loans on the respective
last days of the then current Interest Periods with respect to such Loans or
within such earlier period as required by law. If any such conversion of a
Eurodollar Loan occurs on a day which is not the last day of the then current
Interest Period with respect thereto, the Borrower shall pay to such Lender such
amounts, if any, as may be required pursuant to subsection 4.14.
4.12 REQUIREMENTS OF LAW. (a) If the adoption of or any change in
any Requirement of Law or in the interpretation or application thereof after the
date hereof or compliance by any Lender with any request or directive (whether
or not having the force of law) from any central bank or other Governmental
Authority made subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind
whatsoever with respect to this Agreement, any Note, any Letter of
Credit, any L/C Application or any Eurodollar Loan made by it, or change
the basis of taxation of payments to such Lender in respect thereof
(except for Non-Excluded Taxes covered by subsection 4.13, changes in
the rate or computation of tax on the overall net income of such Lender,
franchise taxes imposed in lieu of net income taxes and doing business
taxes);
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets
held by, deposits or other liabilities in or for the account of,
advances, loans or other extensions of credit by, or any other
acquisition of funds by, any office of such Lender which is not
otherwise included in the determination of the Eurodollar Rate
hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or issuing or participating in
Letters of Credit or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrower shall promptly pay such Lender
such additional amount or amounts as will compensate such Lender for such
increased cost or reduced amount receivable.
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(b) If any Lender shall have determined that the adoption of or
any change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder or under any Letter of Credit to a
level below that which such Lender or such corporation could have achieved but
for such adoption, change or compliance (taking into consideration such Lender's
or such corporation's policies with respect to capital adequacy) by an amount
deemed by such Lender to be material, then from time to time, the Borrower shall
promptly pay to such Lender such additional amount or amounts as will compensate
such Lender for such reduction.
(c) If any Lender becomes entitled to claim any additional
amounts pursuant to this subsection, it shall promptly notify the Borrower (with
a copy to the Administrative Agent) of the event by reason of which it has
become so entitled. A certificate as to any additional amounts payable pursuant
to this subsection submitted by such Lender to the Borrower (with a copy to the
Administrative Agent) shall be conclusive in the absence of manifest error. The
agreements in this subsection shall survive the termination of this Agreement
and the payment of the Loans and all other amounts payable hereunder.
4.13 TAXES. (a) All payments made by the Borrower under this
Agreement and any Notes shall be made free and clear of, and without deduction
or withholding for or on account of, any present or future income, stamp or
other taxes, levies, imposts, duties, charges, fees, deductions or withholdings,
now or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding net income taxes, franchise taxes (imposed in
lieu of net income taxes) and doing business taxes imposed on the Administrative
Agent or any Lender as a result of a present or former connection between the
Administrative Agent or such Lender and the jurisdiction of the Governmental
Authority imposing such tax or any political subdivision or taxing authority
thereof or therein (other than any such connection arising solely from the
Administrative Agent or such Lender having executed, delivered or performed its
obligations or received a payment under, or enforced, this Agreement or any
Note). If any such non-excluded taxes, levies, imposts, duties, charges, fees
deductions or withholdings ("NON-EXCLUDED TAXES") are required to be withheld
from any amounts payable to the Administrative Agent or any Lender hereunder or
under any Note, the amounts so payable to the Administrative Agent or such
Lender shall be increased to the extent necessary to yield to the Administrative
Agent or such Lender (after payment of all Non-Excluded Taxes) interest or any
such other amounts payable hereunder at the rates or in the amounts specified in
this Agreement, PROVIDED, HOWEVER, that the Borrower shall not be required to
increase any such amounts payable to any Non-U.S. Lender if such Non-U.S. Lender
fails to comply with the requirements of paragraph (b) of this subsection.
Whenever any Non-Excluded Taxes are payable by the Borrower, as promptly as
possible thereafter the Borrower shall send to the Administrative Agent for its
own account or for the account of such Lender, as the case may be, a certified
copy of an original official receipt received by the Borrower showing payment
thereof. If, when the Borrower is required by this subsection 4.14(a) to pay any
Non-Excluded Taxes, the Borrower fails to pay any Non-Excluded Taxes when due to
the appropriate taxing authority or fails to remit to the Administrative Agent
the
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39
required receipts or other required documentary evidence, the Borrower shall
indemnify the Administrative Agent and the Lenders for any incremental taxes,
interest or penalties that may become payable by the Administrative Agent or any
Lender as a result of any such failure. The agreements in this subsection shall
survive the termination of this Agreement and the payment of the Loans and all
other amounts payable hereunder.
(b) Each Lender (or Transferee) that is not a citizen or resident
of the United States of America, a corporation, partnership or other entity
created or organized in or under the laws of the United States of America, or
any estate or trust that is subject to federal income taxation regardless of the
source of its income (a "NON-U.S. LENDER") shall deliver to the Borrower and the
Administrative Agent (or, in the case of a Participant, to the Lender from which
the related participation shall have been purchased) two copies of either U.S.
Internal Revenue Service form 1001 or Form 4224, or, in the case of a Non-U.S.
Lender claiming exemption from U.S. federal withholding tax under Section 871(h)
or 881(c) of the Code with respect to payments of "portfolio interest," a Form
W-8, or any subsequent versions thereof or successors thereto (and, if such
Non-U.S. Lender delivers a Form W-8, an annual certificate representing that
such Non-U.S. Lender (i) is not a "bank" for purposes of Section 881(c) of the
Code (and is not subject to regulatory or other legal requirements as a bank in
any jurisdiction, and has not been treated as a bank in any filing with or
submission made to any Governmental Authority or rating agency), (ii) is not a
10% shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of the
Borrower and (iii) is not a controlled foreign corporation related to the
Borrower (within the meaning of Section 864(d)(4) of the Code)), properly
completed and duly executed by such Non-U.S. Lender claiming complete exemption
from U.S. federal withholding tax on all payments by the Borrower under this
Agreement and the other Loan Documents, along with such other additional forms
as the Borrower, the Administrative Agent (or, in the case of a Participant, the
Lender from which the related participation shall have been purchased) may
reasonably request to establish the availability of such exemption. Such forms
shall be delivered by each Non-U.S. Lender on or before the date it becomes a
party to this Agreement (or, in the case of any Participant, on or before the
date such Participant purchases the related participation).
4.14 INDEMNITY. The Borrower agrees to indemnify each Lender and
to hold each Lender harmless from any loss or expense which such Lender may
sustain or incur (other than through such Lender's gross negligence or willful
misconduct) as a consequence of (a) default by the Borrower in making a
borrowing of, conversion into or continuation of Eurodollar Loans after the
Borrower has given a notice requesting the same in accordance with the
provisions of this Agreement, (b) default by the Borrower in making any
prepayment of a Eurodollar Loan after the Borrower has given a notice thereof in
accordance with the provisions of this Agreement or (c) the making of a
prepayment of or a conversion of Eurodollar Loans on a day which is not the last
day of an Interest Period with respect thereto. Such indemnification may include
an amount equal to the excess, if any, of (i) the amount of interest which would
have accrued on the amount so prepaid, or converted, or not so borrowed,
converted or continued, for the period from the date of such prepayment or
conversion or of such failure to borrow, convert or continue to the last day of
the applicable Interest Period (or, in the case of a failure to borrow, convert
or continue, the Interest Period that would have commenced on the date of such
failure) in each case at the applicable rate of interest for such Eurodollar
Loans provided for herein (excluding, however, the
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40
percentage added to the Eurodollar Rate pursuant to subsection 4.1(a) to the
extent included therein) over (ii) the amount of interest (as reasonably
determined by such Lender) which would have accrued to such Lender on such
amount by placing such amount on deposit for a comparable period with leading
banks in the interbank eurodollar market. This covenant shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
4.15 CHANGE OF LENDING OFFICE. (a) Each Lender agrees that if it
makes any demand for payment under subsection 4.12 or 4.13(a), or if any
adoption or change of the type described in subsection 4.11 shall occur with
respect to it, it will use reasonable efforts (consistent with its internal
policy and legal and regulatory restrictions and so long as such efforts would
not be disadvantageous to it, as determined in its sole discretion) to designate
a different lending office if the making of such a designation would reduce or
obviate the need for the Borrower to make payments under subsection 4.12 or
4.13(a), or would eliminate or reduce the effect of any adoption or change
described in subsection 4.11.
(b) If any Lender requests compensation under subsection 4.12, or
if the Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to subsection
4.13, or if any Lender defaults in its obligation to fund Loans hereunder, then
the Borrower may, at its expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to, and such Lender promptly shall,
assign and delegate, without recourse (in accordance with and subject to the
restrictions contained in subsection 11.6), all its interests, rights and
obligations under this Agreement to an assignee that shall assume such
obligations (which assignee may be another Lender, if a Lender accepts such
assignment); PROVIDED that (i) if such assignee is not a Lender or an Affiliate
thereof, the Borrower shall have received the prior written consents of the
Administrative Agent and Issuing Lender which consents shall not unreasonably be
withheld, (ii) such Lender shall have received payment of an amount equal to the
outstanding principal of its Loans and participations in Letters of Credit,
accrued interest thereon, accrued fees and all other amounts payable to it
hereunder, from the assignee (at least to the extent of such outstanding
principal) and the Borrower (in the case of all other amounts) and (iii) in the
case of any such assignment resulting from a claim for compensation under
subsection 4.12 or payments required to be made pursuant to subsection 4.13,
such assignment will result in a reduction in such compensation or payments
compared to the compensation or payments payable to the assigning Lender. A
Lender shall not be required to make any such assignment and delegation if,
prior thereto, as a result of a waiver by such Lender or otherwise, the
circumstances entitling the Borrower to require such assignment and delegation
no longer exist or cease to apply.
SECTION 5. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into
this Agreement and to make the Loans and issue or participate in the Letters of
Credit, the Borrower hereby represents and warrants to the Administrative Agent
and each Lender that:
5.1 FINANCIAL CONDITION. (a) The restated consolidated balance
sheets of the Borrower and its consolidated Subsidiaries at December 31, 1996
and December
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41
31, 1997 and the related consolidated statements of operations, of cash flows
and of changes in stockholders' equity for the respective fiscal years ended on
such dates, together with the related notes and schedules thereto, reported on
by Ernst & Young LLP copies of which have heretofore been furnished to each
Lender, present fairly in all material respects the consolidated financial
condition of the Borrower and its consolidated Subsidiaries as at such dates,
and the consolidated results of their operations and their consolidated cash
flows for the respective fiscal years then ended, in conformity with GAAP.
(b) All such financial statements referred to in subsection
5.1(a), including the related schedules and notes thereto, have been prepared in
accordance with GAAP applied consistently throughout the periods involved
(except as approved by such accountants or Responsible Officer, as the case may
be, and as disclosed therein). On the Closing Date, neither the Borrower nor any
of its consolidated Subsidiaries have, at the date of the most recent balance
sheet referred to above, any material Guarantee Obligation, contingent liability
or liability for taxes, or any long-term lease, outstanding debt or Lien or
unusual forward or long-term commitment, including, without limitation, any
interest rate or foreign currency swap or exchange transaction, which (i) is not
disclosed in the financial statements referred to in subsection 5.1(a) or in the
notes thereto to the extent required by GAAP or (ii) in the case of the Amoco
Litigation, does not exceed $15,000,000.
5.2 NO CHANGE. (a) Since December 31, 1997, there has been no
development, circumstance or event which has had or could reasonably be expected
to have a Material Adverse Effect (provided that liability or accrued charges of
the Borrower of up to $15,000,000 in connection with the Amoco Litigation, in
and of itself, and any change in non-cash charges or expenses accrued by the
Borrower to meet ceiling test levels in conformity with Securities and Exchange
Commission Regulation S-X article 4-10(C)(4), in and of itself, shall not be
deemed to be a violation of this subsection 5.2(a)), and (b) during the period
from January 1, 1998 to and including the date hereof, no dividends or other
distributions have been declared, paid or made upon the Capital Stock of the
Borrower nor, except as set forth on Schedule 5.2, has any of the Capital Stock
of the Borrower been redeemed, retired, purchased or otherwise acquired for
value by the Borrower or any of its Subsidiaries.
5.3 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each of the
Borrower and its Subsidiaries (a) is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization, (b) has
the corporate power and authority, and the legal right, to own and operate its
Property, to lease the Property it operates as lessee and to conduct the
business in which it is currently engaged, (c) is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of Property or the conduct of its business
requires such qualification except to the extent that the failure to be so
qualified and in good standing could not reasonably be expected to have, in the
aggregate, a Material Adverse Effect and (d) is in compliance with all
applicable Requirements of Law (including, without limitation, Environmental
Laws) except to the extent that the failure to comply therewith could not
reasonably be expected to have, in the aggregate, a Material Adverse Effect.
5.4 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The
Borrower and each of the other Loan Parties has the corporate power and
authority,
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42
and the legal right, to make, deliver and perform the Loan Documents to which it
is a party and, in the case of the Borrower, to borrow hereunder and has taken
all necessary corporate action to authorize the execution, delivery and
performance of the Loan Documents to which it is a party. No consent or
authorization of, filing with, notice to or other act by or in respect of, any
Governmental Authority or any other Person is required in connection with the
borrowings hereunder or the delivery, performance, validity or enforceability of
the Loan Documents to which each Loan Party is a party other than those which
have been obtained and are in full force and effect. This Agreement has been,
and each other Loan Document to which any Loan Party is a party will be, duly
executed and delivered on behalf of such Loan Party. This Agreement constitutes,
and each other Loan Document to which any Loan Party is a party when executed
and delivered will constitute, a legal, valid and binding obligation of such
Loan Party enforceable against such Loan Party in accordance with its terms,
subject to the effects of bankruptcy, insolvency, fraudulent transfer or
conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, general equitable principles (whether
considered in a proceeding in equity or at law) and an implied covenant of good
faith and fair dealing.
5.5 NO LEGAL BAR. The execution, delivery and performance of the
Loan Documents, the granting of the Liens under the Security Documents, the
borrowings hereunder and the use of the proceeds thereof will not violate any
applicable Requirement of Law or Contractual Obligation of the Borrower or of
any of its Subsidiaries and will not result in, or require, the creation or
imposition of any Lien on any of its or their respective Properties or revenues
pursuant to any such Requirement of Law or Contractual Obligation, other than
any Lien created pursuant to the Security Documents.
5.6 NO MATERIAL LITIGATION. No litigation, investigation or
proceeding of or before any arbitrator or Governmental Authority is pending or,
to the knowledge of the Borrower, threatened by or against the Borrower or any
of its Subsidiaries or against any of its or their respective Properties or
revenues (a) with respect to any of the Loan Documents or any of the
transactions contemplated hereby or thereby, or (b) which could reasonably be
expected to have a Material Adverse Effect; PROVIDED that liability or accrued
charges of the Borrower of up to $15,000,000 in connection with the Amoco
Litigation, in and of itself, shall not be deemed to be a violation of this
subsection 5.6.
5.7 NO DEFAULT. Neither the Borrower nor any of its Subsidiaries
is in default under or with respect to any of its Contractual Obligations in any
respect which could reasonably be expected to have a Material Adverse Effect;
PROVIDED that liability of the Borrower of up to $15,000,000 in connection with
the Amoco Litigation, in and of itself, shall not be deemed to be a violation of
this subsection 5.7. No Default or Event of Default has occurred and is
continuing.
5.8 OWNERSHIP OF PROPERTY; LIENS. (a) Except for the Oil and Gas
Properties, the Borrower and its Subsidiaries each have good title in fee simple
to, or a valid leasehold interest in, all its material real Property and
material interests in real Property, and good title to, or a valid leasehold
interest in, all its other material Property, and none of such Property is
subject to any Lien except as permitted by subsection 8.3.
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43
(b) The Borrower and its Subsidiaries each have good and
defensible title to all of its Oil and Gas Properties which are not personal
property and good title to all such Oil and Gas Properties which are personal
property and material to the Borrower and its Subsidiaries taken as a whole,
except for (i) such imperfections of title as do not in the aggregate materially
detract from the value thereof to, or the use thereof in, the business of the
Borrower or any of its Subsidiaries, (ii) Oil and Gas Properties and interests
therein disposed of since the date of the most recent Reserve Report as
permitted by subsection 8.6 hereof, (iii) imperfections of title relating to the
rights of Amoco in the Southwest Holmwood Properties, to the extent described in
the report of the Borrower on Form 10-K for the year ended December 31, 1997, as
filed with the Securities and Exchange Commission, and (iv) Liens permitted by
subsection 8.3 hereof. The quantum and nature of the interest of the Borrower
and its Subsidiaries in and to the Oil and Gas Properties as set forth in each
Reserve Report includes the entire interest of the Borrower and its Subsidiaries
in such Oil and Gas Properties as of the date of such Reserve Report and are
complete and accurate in all material respects as of the date of such Reserve
Report; and there are no "back-in" or "reversionary" interests held by third
parties which could materially reduce the interest of the Borrower and its
Subsidiaries in such Oil and Gas Properties except as expressly set forth in
such Reserve Report. The ownership of the Oil and Gas Properties by the Borrower
and its Subsidiaries shall not in any material respect obligate any such Person
to bear the costs and expenses relating to the maintenance, development or
operations of each such Oil and Gas Property in an amount in excess of the
working interest of such Person in each Oil and Gas Property set forth in the
most recent Reserve Report.
5.9 INTELLECTUAL PROPERTY. Each of the Borrower and its
Subsidiaries owns, or is licensed to use, all trademarks, tradenames,
copyrights, technology, know-how and processes necessary for the conduct of its
business as currently conducted except for those the failure to own or license
which could not reasonably be expected to have a Material Adverse Effect (the
"INTELLECTUAL PROPERTY"). No claim has been asserted and is pending by any
Person challenging or questioning the use of any such Intellectual Property or
the validity or effectiveness of any such Intellectual Property, nor does the
Borrower know of any valid basis for any such claim which could reasonably be
expected to have a Material Adverse Effect. The use of such Intellectual
Property by the Borrower and its Subsidiaries does not infringe on the rights of
any Person, except for such claims and infringements that, in the aggregate,
could not reasonably be expected to have a Material Adverse Effect.
5.10 NO BURDENSOME RESTRICTIONS. No applicable Requirement of Law
or Contractual Obligation of the Borrower or any of its Subsidiaries has had
during the last fiscal year of the Borrower, or could reasonable be expected to
have, a Material Adverse Effect.
5.11 TAXES. Each of the Borrower and its Subsidiaries has filed
all material tax returns which, to the knowledge of such Loan Party, are
required to be filed by it and has paid or caused to be paid all taxes shown on
said returns and all assessments, fees and other governmental charges levied
upon it or upon any of its Property or income which are due and payable, other
than such taxes, assessments, fees and other governmental charges, if any, as
are being diligently contested in good faith and by appropriate proceedings and
with respect to which there have been established adequate reserves on the books
of the Borrower or its Subsidiaries, as the case may be,
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44
in accordance with GAAP. No tax lien has been filed and, to the knowledge of the
Borrower, no claim is being asserted, with respect to any such taxes or
assessments, fees or other governmental charges.
5.12 FEDERAL RESERVE REGULATIONS. No part of the proceeds of any
Loans will be used for "purchasing" or "carrying" any "margin stock" within the
respective meanings of each of the quoted terms under Regulation U of the Board
of Governors of the Federal Reserve System as now and from time to time
hereafter in effect. If requested by any Lender or the Administrative Agent, the
Borrower will furnish to the Administrative Agent and each Lender a statement to
the foregoing effect in conformity with the requirements of FR Form U-1 referred
to in said Regulation U.
5.13 ERISA. Neither a Reportable Event nor an "accumulated
funding deficiency" (within the meaning of Section 412 of the Code or Section
302 of ERISA) has occurred during the five-year period prior to the date on
which this representation is made or deemed made with respect to any Plan, and
each Plan has complied in all material respects with the applicable provisions
of ERISA and the Code. No termination of a Single Employer Plan has occurred,
and no Lien in favor of the PBGC or a Plan has arisen, during such five-year
period. The present value of all accrued benefits under each Single Employer
Plan (based on those assumptions used to fund such Plans) did not, as of the
last annual valuation date prior to the date on which this representation is
made or deemed made, exceed the value of the assets of such Plan allocable to
such accrued benefits. Neither the Borrower nor any Commonly Controlled Entity
has had a complete or partial withdrawal from any Multiemployer Plan, and
neither the Borrower nor any Commonly Controlled Entity would become subject to
any liability under ERISA if the Borrower or any such Commonly Controlled Entity
were to withdraw completely from all Multiemployer Plans as of the valuation
date most closely preceding the date on which this representation is made or
deemed made. No such Multiemployer Plan is in Reorganization or Insolvent.
5.14 INVESTMENT COMPANY ACT; OTHER REGULATIONS. Neither the
Borrower nor any of its Subsidiaries is (a) an "investment company", or a
company "controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended or (b) a "holding company" as defined
in, or subject to regulation under, the Public Utility Holding Company Act of
1935. Neither the Borrower nor any of its Subsidiaries is subject to regulation
under any Federal or State statute or regulation (other than Regulation X of the
Board of Governors of the Federal Reserve System) which limits its ability to
incur Indebtedness.
5.15 SUBSIDIARIES. The Persons listed on Schedule 5.15 constitute
all the Subsidiaries of the Borrower and LOPI at the date hereof.
5.16 PURPOSE OF LOANS. The proceeds of the Loans and the Letters
of Credit will be used (a) to refinance certain indebtedness of the Borrower,
and to pay fees and expenses related to the Shell Transactions and (b) after the
Closing Date, for working capital and for the general corporate purposes of the
Borrower and its Subsidiaries in the ordinary course of business.
5.17 ENVIRONMENTAL MATTERS. Other than exceptions to any of the
following that could not, in the aggregate, reasonably be expected to either (a)
result in the existence of an unsatisfied liability in excess of a Material
Environmental Amount
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45
or (b) give rise to a Material Adverse Effect or materially adversely affect the
value of the Mortgaged Properties taken as a whole:
(a) each of the Borrower and its Subsidiaries: (i) is, and within
the period of all applicable statutes of limitation has been, in
compliance with all applicable Environmental Laws; (ii) holds all
Environmental Permits (each of which is in full force and effect)
required for any of its current or planned operations or for any
Property owned, leased, or otherwise operated by it; (iii) is, and
within the period of all applicable statutes of limitation has been, in
compliance with all of its Environmental Permits; and (iv) reasonably
believes that (A) each of its Environmental Permits will be timely
renewed without expense, (B) any additional Environmental Permits which
it has reason to believe will be required will be timely obtained
without expense, and (C) the costs of complying with such renewed or
additional Environmental Permits and any other Environmental Laws
applicable to or reasonably expected to apply to the Borrower and its
Subsidiaries will not exceed the Borrower's and its Subsidiaries'
existing costs of complying with Environmental Permits and Environmental
Laws.
(b) Materials of Environmental Concern have not been transported,
disposed of, emitted, discharged, or otherwise released or threatened to
be released, to or at any real Property presently or formerly owned,
leased or operated by the Borrower or any Subsidiary or at any other
location, which could reasonably be expected to (i) give rise to
liability of the Borrower or any Subsidiary under any applicable
Environmental Law or (ii) interfere with the Borrower's continued
operations.
(c) no judicial, administrative, or arbitral proceeding
(including any notice of violation or alleged violation) under or
relating to any Environmental Law to which the Borrower or any
Subsidiary is, or to the knowledge of the Borrower will be, named as a
party is pending or, to the knowledge of the Borrower, threatened.
(d) the Borrower has not received any written request for
information, or been notified that it or any Subsidiary is a potentially
responsible party under the federal Comprehensive Environmental
Response, Compensation, and Liability Act or any similar Environmental
Law, or with respect to any Materials
of Environmental Concern.
(e) neither the Borrower nor any Subsidiary has entered into or
agreed to any consent decree, order, or settlement or other agreement,
nor is subject to any judgment, decree, or order or other agreement, in
any judicial, administrative, arbitral, or other forum, relating to
compliance with or liability under any Environmental Law.
(f) neither the Borrower nor any Subsidiary has assumed or
retained, by contract or operation of law, any liabilities of any kind,
fixed, contingent or otherwise, under any Environmental Law.
5.18 NO MATERIAL MISSTATEMENTS. (a) All written information,
reports, financial statements, exhibits and schedules (including, without
limitation, the
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46
Borrower's report on Form 10-K for the year ended December 31, 1997, as filed
with the Securities and Exchange Commission) furnished to the Administrative
Agent or any Lender by or on behalf of the Borrower or any of its Subsidiaries
in connection with the negotiation of any Loan Document or included therein or
delivered pursuant thereto, when taken as a whole, did not contain, and as they
may be amended, supplemented or modified from time to time, will not contain, as
of the date such statements were made, any untrue statements of a material fact
and did not omit, and as they may be amended, supplemented or modified from time
to time, will not omit, to state as of the date such statements were made, any
material fact necessary in order to make the statements contained therein, in
the light of the circumstances under which they were, are or will be made, not
materially misleading.
(b) All projections and estimates concerning the Borrower and its
Subsidiaries that are or have been made available to the Administrative Agent or
any Lender by or on behalf of the Borrower or any of its Subsidiaries
(including, without limitation, the pro forma financial statements included in
the Confidential Information Memorandum of the Borrower dated April 1998, a copy
of which has been provided by the Borrower to each of the Lenders prior to the
date hereof), have been or will be prepared based on good faith estimates and
based upon assumptions believed by the Borrower to be reasonable in all material
respects at the time of such preparation.
5.19 INSURANCE. Each of the Borrower and its Subsidiaries carries
and maintains with respect to its insurable properties insurance (including, to
the extent consistent with past practices, self-insurance) with financially
sound and reputable insurers of the types, to such extent and against such risks
as is customary with companies in the same or similar businesses.
5.20 FUTURE COMMITMENTS. As of the date hereof and as of the
Closing Date, except as set forth on Schedule 5.20, on a net basis there are no
material gas imbalances, material take-or-pay or other prepayments with respect
to any Oil and Gas Property of the Borrower or any Subsidiary (or, in the case
of Oil and Gas Properties operated by operators other than the Borrower or its
Subsidiaries, to the Borrower's knowledge after reasonable investigation) which
would require the Borrower or any Subsidiary to deliver Hydrocarbons produced
from Oil and Gas Properties at some future time without then or thereafter
receiving full payment therefor.
5.21 SECURITY DOCUMENTS. (a) The provisions of the Pledge
Agreement delivered to the Administrative Agent are effective to create in favor
of the Administrative Agent, for the ratable benefit of the Lenders, a legal,
valid and enforceable security interest in the Pledged Securities and proceeds
thereof and, when certificates representing or constituting the Pledged
Securities are delivered to the Administrative Agent, the Pledge Agreement shall
constitute a fully perfected first priority lien on, and security interest in,
all right, title and interest of the pledgor party therein in such Pledged
Securities and the proceeds thereof, in each case prior and superior in right to
any other Person.
(b) On the Closing Date, the shares of Capital Stock listed on
Schedule I to the Pledge Agreement will constitute all the issued and
outstanding shares of Capital Stock of the direct and indirect Subsidiaries of
the Borrower; all such shares have been duly and validly issued and are fully
paid and nonassessable; and the relevant Pledgor of said shares is the record
and beneficial owner of said shares.
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(c) The provisions of the Mortgages will be effective to grant to
the Administrative Agent, for the ratable benefit of the Lenders, legal, valid
and enforceable mortgage liens on all of the right, title and interest of the
Borrower and its Subsidiaries in the mortgaged property described therein. Such
Mortgages have been recorded in the appropriate recording office and constitute
perfected first liens on, and security interest in, such mortgaged property.
5.21. IMMATERIAL SUBSIDIARIES. The value of the assets owned by
the Immaterial Subsidiaries does not exceed $500,000 (and $1,000,000 after the
occurrence of the Shell Transaction Completion Date) in the aggregate.
5.22 YEAR 2000 MATTERS. Any reprogramming required to permit the
proper functioning (but only to the extent that such proper functioning would
otherwise be impaired by the occurrence of the year 2000) in and following the
year 2000 of computer systems and other equipment containing embedded
microchips, in either case owned or operated by the Borrower or any of its
Subsidiaries or used or relied upon in the conduct of their business, and the
testing of all such systems and other equipment as so reprogrammed, will be
completed by January 1, 1999, except for such failures to reprogram as would
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. The costs to the Borrower and its Subsidiaries that have not
been incurred as of the date hereof for such reprogramming and testing and for
the other reasonably foreseeable consequences to them of any improper
functioning of other computer systems and equipment containing embedded
microchips due to the occurrence of the year 2000 would not reasonably be
expected to result in a Default or Event of Default or to have a Material
Adverse Effect.
SECTION 6. CONDITIONS PRECEDENT
6.1 CONDITIONS TO CLOSING DATE. This Agreement shall become
effective upon, and the Closing Date shall occur upon satisfaction of, the
following conditions precedent:
(a) LOAN DOCUMENTS. The Administrative Agent shall have received
(with the number of original counterparts requested by the
Administrative Agent) (i) this Agreement, executed and delivered by a
duly authorized officer of the Borrower, (ii) the Guarantee Agreement,
executed and delivered by a duly authorized officer of each Loan Party
thereto, (iii) the Pledge Agreement, executed and delivered by a duly
authorized officer of each Loan Party thereto and (iv) the Mortgage
Amendment, executed and delivered by a duly authorized officer of each
Loan Party thereto.
(b) CLOSING CERTIFICATE. The Administrative Agent shall have
received (with the number of original counterparts requested by the
Administrative Agent), a certificate of the Borrower, dated the Closing
Date, substantially in the form of Exhibit F, with appropriate
insertions and attachments, satisfactory in form and substance to the
Administrative Agent, executed by a Responsible Officer of the Borrower.
(c) CORPORATE PROCEEDINGS OF THE LOAN PARTIES. The Administrative
Agent shall have received (with the number of original counterparts
requested
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48
by the Administrative Agent), a copy of the resolutions, in form and
substance satisfactory to the Administrative Agent, of the Board of
Directors of each Loan Party authorizing (i) the execution, delivery and
performance of this Agreement and the Loan Documents to which it is a
party, (ii) in the case of the Borrower, the borrowings contemplated
hereunder and (iii) the granting by it of the Liens created pursuant to
the Loan Documents, certified by the Secretary or an Assistant Secretary
of such Loan Party as of the Closing Date, which certificate shall be in
form and substance reasonably satisfactory to the Administrative Agent
and shall state that the resolutions thereby certified have not been
amended, modified, revoked or rescinded.
(d) LOAN PARTY INCUMBENCY CERTIFICATES. The Administrative Agent
shall have received (with the number of original counterparts requested
by the Administrative Agent), a certificate of each Loan Party, dated
the Closing Date, as to the incumbency and signature of the officers of
such Loan Party executing any Loan Document reasonably satisfactory in
form and substance to the Administrative Agent, executed by the
President or any Vice President and the Secretary or any Assistant
Secretary of such Loan Party.
(e) CORPORATE DOCUMENTS. The Administrative Agent shall have
received (with the number of original counterparts requested by the
Administrative Agent), true and complete copies of the certificate of
incorporation and by-laws of each Loan Party, certified as of the
Closing Date as complete and correct copies thereof by the Secretary or
an Assistant Secretary of such Loan Party.
(f) CONSENTS, LICENSES AND APPROVALS. All governmental and third
party approvals (including consents) necessary or, in the discretion of
the Administrative Agent, advisable in connection with the continuing
operations of the Borrower and its Subsidiaries and the execution,
delivery and performance of the Loan Documents shall have been obtained
and be in full force and effect, and all applicable waiting periods
shall have expired without any action being taken or threatened by any
competent authority which would restrain, prevent or otherwise impose
adverse conditions on this Agreement and the other Loan Documents and
the transactions contemplated hereby and thereby. The Administrative
Agent shall have received, with a counterpart for each Lender, a
certificate of the Borrower as to the foregoing.
(g) FEES. The Lenders, the Administrative Agent, the
Co-Arrangers, the Co-Documentation Agents and the Syndication Agent
shall have received all fees and expenses required to be paid on or
before the Closing Date for which invoices have been presented.
(h) LEGAL OPINIONS. (i) The Administrative Agent shall have
received the executed legal opinion of Fulbright & Jaworski
L.L.P., counsel to the Borrower and each other Loan Party,
substantially in the form of Exhibit E-1.
(ii) The Administrative Agent shall have received the
executed legal opinion of Thompson & Knight, Texas counsel to the
Administrative Agent, substantially in the form of Exhibit E-2.
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49
(iii) The Administrative Agent shall have received the
executed legal opinion of Lapeyre & Lapeyre, Louisiana counsel to
the Administrative Agent, substantially in the form of Exhibit
E-3.
Such legal opinions shall cover such other matters incident to the
transactions contemplated by this Agreement and the other Loan Documents
as the Administrative Agent may reasonably require.
(i) REPRESENTATIONS AND WARRANTIES. Each of the representations
and warranties made by each Loan Party in or pursuant to the Loan
Documents shall be true and correct on and as of such date as if made on
and as of such date (unless such representations and warranties are
stated to relate to a specific earlier date, in which case such
representations and warranties shall be true and correct as of such
earlier date).
(j) NO DEFAULT. No Default or Event of Default shall have
occurred and be continuing on such date.
(k) ADDITIONAL MATTERS. All corporate and other proceedings, and
all documents, instruments and other legal matters in connection with
the transactions contemplated by this Agreement and the other Loan
Documents shall be reasonably satisfactory in form and substance to the
Administrative Agent, and the Administrative Agent shall have received
such other documents and legal opinions in respect of any aspect or
consequence of the transactions contemplated hereby or thereby as it
shall reasonably request.
6.2 CONDITIONS TO EACH EXTENSION OF CREDIT. The agreement of each
Lender to make any Extension of Credit requested to be made by it on any date
(including, without limitation, its initial Loans) is subject to the
satisfaction of the following conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations
and warranties made by each Loan Party in or pursuant to the Loan
Documents shall be true and correct on and as of such date as if made on
and as of such date (unless such representations and warranties are
stated to relate to a specific earlier date, in which case such
representations and warranties shall be true and correct as of such
earlier date).
(b) NO DEFAULT. No Default or Event of Default shall have
occurred and be continuing on such date or after giving effect to the
Extensions of Credit requested to be made on such date.
(c) MAINTENANCE OF BORROWING BASE. After giving effect to the
Extensions of Credit requested to be made on any date, the Aggregate
Revolving Credit Exposure of the Lenders shall not exceed the Borrowing
Base then in effect.
(d) ADDITIONAL MATTERS. All corporate and other proceedings, and
all documents, instruments and other legal matters in connection with
the transactions contemplated by this Agreement and the other Loan
Documents shall be reasonably satisfactory in form and substance to the
Administrative
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50
Agent, and the Administrative Agent shall have received such other
documents and legal opinions in respect of any aspect or consequence of
the transactions contemplated hereby or thereby as it shall reasonably
request.
Each borrowing by, and Letter of Credit issued on behalf of, the Borrower
hereunder shall constitute a representation and warranty by the Borrower as of
the date thereof that the conditions contained in (a) and (b) of this subsection
have been satisfied.
6.3 CONDITIONS TO OCCURRENCE OF SHELL TRANSACTION COMPLETION
DATE. The Shell Transaction Completion Date shall be deemed to occur on the date
that the following conditions have been satisfied:
(a) RELATED AGREEMENTS. The Administrative Agent shall have
received true and correct copies, certified as to authenticity by the
Borrower, of the Merger Documents, the Asset Purchase Documents and such
other documents or instruments as may be reasonably requested by the
Administrative Agent, each in form and substance reasonably satisfactory
to the Administrative Agent and the Required Lenders.
(b) CONSENTS, LICENSES AND APPROVALS. All governmental and third
party approvals (including consents) necessary or, in the reasonable
discretion of the Administrative Agent, advisable in connection with the
LOPI Merger shall have been obtained and be in full force and effect,
and all applicable waiting periods shall have expired without any action
being taken or, to the knowledge of the Borrower, threatened by any
competent authority which would restrain, prevent or otherwise impose
adverse conditions on the LOPI Merger and the transactions contemplated
thereby.
(c) MERGER AND PURCHASE. The LOPI Merger and the SWEPI Purchase
shall have been consummated in accordance with the applicable law, the
Merger Documents, the Asset Purchase Documents and all related
documentation on terms acceptable to the Required Lenders and the
Administrative Agent and the capital, corporate and ownership structures
of the Loan Parties, after giving effect to the LOPI Merger and the
SWEPI Purchase, shall be satisfactory to the Required Lenders and the
Adminstrative Agent. None of the material conditions to the obligations
of any of the parties to the Merger Agreement to consummate the LOPI
Merger or the Asset Purchase Agreement to consummate the SWEPI Purchase
shall have been waived, and no material provision of the Merger
Agreement or the Asset Purchase Agreement shall have been amended,
supplemented or otherwise modified, without the prior written consent of
the Administrative Agent, which consent may not be unreasonably
withheld.
(d) COLLATERAL GUARANTEE. All actions required by subsection 7.9
in respect of all Subsidiaries acquired pursuant to the Merger Agreement
(including delivery of legal opinions with respect thereto as provided
in subsection 7.9) shall have been taken so that such Subsidiaries are
parties to the Guarantee Agreement and the Capital Stock of such Person
owned by the Borrower or any Subsidiary is pledged to the Administrative
Agent for the ratable benefit of the Lenders.
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51
(e) OFFICER'S CERTIFICATE. The Administrative Agent shall have
received a certificate of the Borrower, dated the proposed Shell
Transaction Completion Date, substantially in the form of Exhibit I,
certifying, among other things certain of the matters set forth in this
subsection 6.3.
(f) CORPORATE PROCEEDINGS OF THE LOAN PARTIES. The Administrative
Agent shall have received (with the number of certified counterparts
requested by the Administrative Agent), a copy of the resolutions, in
form and substance satisfactory to the Administrative Agent, of the
Board of Directors of LOPI and each of its Subsidiaries authorizing (i)
the execution, delivery and performance of the Loan Documents to which
it is a party and (ii) the granting by it of the Liens created pursuant
to the Loan Documents, certified by the Secretary or an Assistant
Secretary of such party as of the Shell Transaction Completion Date,
which certificate shall be in form and substance reasonably satisfactory
to the Administrative Agent and shall state that the resolutions thereby
certified have not been amended, modified, revoked or rescinded.
(g) LOAN PARTY INCUMBENCY CERTIFICATES. The Administrative Agent
shall have received (with the number of certified counterparts requested
by the Administrative Agent), a certificate of each of LOPI and its
Subsidiaries, dated the Shell Transaction Completion Date, as to the
incumbency and signature of the officers of such party executing any
Loan Document reasonably satisfactory in form and substance to the
Administrative Agent, executed by the President or any Vice President
and the Secretary or any Assistant Secretary of such party.
(h) CORPORATE DOCUMENTS. The Administrative Agent shall have
received (with the number of original counterparts requested by the
Administrative Agent), true and complete copies of the certificate of
incorporation and by-laws of LOPI and each of its Subsidiaries that is a
party to a Loan Document, certified as of the proposed Shell Transaction
Completion Date as complete and correct copies thereof by the Secretary
or an Assistant Secretary of such party.
(i) REPAYMENT OF INDEBTEDNESS. All outstanding Indebtedness of
LOPI and its subsidiaries shall have been repaid in full.
(j) PRO FORMA BALANCE SHEET. The Administrative Agent shall have
received (with a copy for each Lender) copies of the unaudited PRO FORMA
combined balance sheet of the Borrower and its consolidated Subsidiaries
as at December 31, 1997 (including the notes thereto), giving effect (as
if such events had occurred on such date) to the consummation of the
LOPI Merger and the SWEPI Purchase and the payment of the fees and
expenses incurred in connection therewith that was included in the proxy
statement mailed by the Borrower to the Borrower's shareholders relating
to the meeting of such stockholders to be held in connection with the
issuance of capital stock pursuant to the Merger Agreement and such
balance sheet shall not, in the reasonable determination of the
Administrative Agent and the Required Lenders, contain any material
difference from the Preliminary Pro Forma Balance Sheet (it being agreed
that any change in non-cash charges or expenses accrued by the Borrower
to meet ceiling test levels in conformity with Securities and Exchange
Commission Regulation S-X article 4-10(c)(4) shall not be deemed to
constitute such a material difference).
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52
(k) FEES. The Lenders, the Administrative Agent, the Co-Arrangers
and the Syndication Agent shall have received all fees and expenses
required to be paid on or before the Shell Transaction Closing Date.
SECTION 7. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments
remain in effect, any Loan, or Letter of Credit or Note remains outstanding and
unpaid or any amount is owing to any Lender or the Administrative Agent
hereunder or under any other Loan Document, the Borrower shall and (except in
the case of delivery of financial information, reports and notices) shall cause
each of its Subsidiaries to:
7.1 FINANCIAL STATEMENTS. Furnish to the Administrative Agent and
to each of the Lenders:
(a) as soon as available, but in any event within 105 days after
the end of each fiscal year of the Borrower, (i) a copy of the
consolidated balance sheet of the Borrower and its consolidated
Subsidiaries as at the end of such year and the related consolidated
statements of operations, cash flows and changes in stockholders' equity
for such year, setting forth in each case in comparative form the
figures for the previous year, reported on without a "going concern" or
like qualification or exception, or qualification arising out of the
scope of the audit, by Ernst & Young LLP or other independent certified
public accountants of nationally recognized standing reasonably
acceptable to the Required Lenders; and
(b) as soon as available, but in any event not later than 50 days
after the end of each of the first three quarterly fiscal periods of
each fiscal year of the Borrower and its consolidated Subsidiaries, the
unaudited consolidated balance sheet of the Borrower and its
consolidated Subsidiaries as at the end of such quarter and the related
unaudited consolidated statements of operations, cash flows and changes
in stockholders' equity of the Borrower and its consolidated
Subsidiaries for such quarter and the portion of the fiscal year through
the end of such quarter, setting forth in each case in comparative form
the figures for the previous year, certified by a Responsible Officer as
being fairly stated in all material respects (subject to normal year-end
and audit adjustments);
all such financial statements shall be complete and correct in all material
respects and shall be prepared in accordance with GAAP applied consistently
throughout the periods reflected therein and with prior periods (except as
approved by such accountants or officer, as the case may be, and disclosed
therein).
7.2 CERTIFICATES; OTHER INFORMATION. Furnish to the
Administrative Agent and to each of the Lenders:
(a) concurrently with the delivery of the financial statements
referred to in subsection 5.1(a), a certificate of the independent
certified public accountants reporting on such financial statements
stating that in making the examination necessary therefor no knowledge
was obtained of any Default or Event of Default, except as specified in
such certificate;
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53
(b) concurrently with the delivery of the financial statements
referred to in subsections 7.1(a) and (b), a certificate of a
Responsible Officer stating that, to the best of such Officer's
knowledge, during such period (i) no Subsidiary has been formed or
acquired (or, if any such Subsidiary has been formed or acquired, the
Borrower has complied with the requirements of subsection 7.9 with
respect thereto) and (ii) the Borrower has observed or performed all of
its covenants (and setting forth the calculations used to determine
compliance with the covenants set forth in subsection 8.1) and other
agreements, and satisfied every condition, contained in this Agreement
and the other Loan Documents to be observed, performed or satisfied by
it, and that such officer has obtained no knowledge of any Default or
Event of Default except as specified in such certificate;
(c) within five Business Days after the same are sent, copies of
all financial statements and reports which the Borrower sends to its
stockholders, and within five days after the same are filed, copies of
all financial statements and reports, if any, which the Borrower may
make to, or file with, the Securities and Exchange Commission or any
successor or analogous Governmental Authority;
(d) promptly upon receipt thereof, copies of all reports and
management letters submitted to the Borrower or any Subsidiary by
independent public accountants in connection with any interim or special
audit of the books or operations of the Borrower or such Subsidiary made
by such accountants;
(e) together with any Reserve Report delivered pursuant to
subsection 4.9, a schedule identifying as of the last day of the fiscal
period for which the financial statements are delivered or as of the
date of delivery of such Reserve Report, as the case may be, each
commodity fixed price contract having a term longer than one year then
in effect as to which the Borrower or any of its Subsidiaries is bound
which provides for payments during any year of such contract of
$1,000,000 or more, and setting forth the names of the parties thereto
and of any guarantees thereof, and the volumes attributable to each such
contract; and
(f) promptly, such additional financial and other information
concerning the Borrower and its Subsidiaries as any Lender (acting
through the Administrative Agent) may from time to time reasonably
request.
7.3 PAYMENT OF OBLIGATIONS. Pay, discharge or otherwise satisfy
at or before maturity or before they become delinquent, as the case may be, all
of its obligations of whatever nature, except where (x) the amount or validity
thereof is currently being contested in good faith by appropriate proceedings
and reserves in conformity with GAAP with respect thereto have been provided on
the books of the Borrower or the applicable Subsidiary, as the case may be, or
(y) the failure to pay, discharge or otherwise satisfy such obligations, in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
7.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE; COMPLIANCE
WITH LAW AND CONTRACTUAL OBLIGATIONS. Continue to engage in business of the same
general type as now conducted by it and preserve, renew and keep in full force
and effect its
<PAGE>
54
corporate existence and take all reasonable action to maintain all rights,
privileges and franchises necessary or desirable in the normal conduct of its
business, except as otherwise permitted by subsection 8.5; comply with all
Contractual Obligations and Requirements of Law except to the extent that
failure to comply therewith could not reasonably be expected to have, in the
aggregate, a Material Adverse Effect.
7.5 MAINTENANCE OF PROPERTY; INSURANCE. Maintain all Property
useful and necessary in its business in accordance with past practices and
customary industry norms, (x) ordinary wear and tear and (y) casualty events
which could not reasonably be expected to have a Material Adverse Effect
excepted; maintain with financially sound and reputable insurance companies
insurance of such types, in such amounts and against such risks as is customary
to be maintained by companies engaged in the same or a similar business in the
same general area; and furnish to the Administrative Agent, upon written
request, full information as to the insurance carried.
7.6 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. Keep
proper books of records and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities; and permit
representatives of any Lender to visit and inspect any of its properties and
examine and make abstracts from any of its books and records at any reasonable
time and as often as may reasonably be requested through the Administrative
Agent and to discuss the business, operations, properties and financial and
other condition of the Borrower and its Subsidiaries with officers and employees
of the Borrower and its Subsidiaries and with its independent certified public
accountants.
7.7 NOTICES. Promptly give notice to the Administrative Agent of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of the Borrower or any of its Subsidiaries or (ii)
litigation, investigation or proceeding which may exist at any time
between the Borrower or any of its Subsidiaries and any Governmental
Authority, which in the case of either clause (i) or (ii), if not cured
or if adversely determined, as the case may be, could have, in the
opinion of a Responsible Officer, a Material Adverse Effect;
(c) any litigation or proceeding affecting the Borrower or any of
its Subsidiaries which could reasonably be expected, in the opinion of a
Responsible Officer, to result in an adverse judgment of $1,500,000 (and
$3,000,000 after the occurrence of the Shell Transaction Completion
Date) or more not covered by insurance or in which injunctive or similar
relief is sought;
(d) the following events, as soon as possible and in any event
within 30 days after the Borrower knows or has reason to know thereof:
(i) the occurrence or expected occurrence of any Reportable Event with
respect to any Plan, a failure to make any required contribution to a
Plan, the creation of any Lien in favor of the PBGC or a Plan or any
withdrawal from, or the termination, Reorganization or Insolvency of,
any Multiemployer Plan or (ii) the institution of proceedings or the
taking of any other action by the PBGC or the Borrower or any Commonly
Controlled Entity or any Multiemployer Plan with respect to
<PAGE>
55
the withdrawal from, or the terminating, Reorganization or Insolvency
of, any Plan;
(e) any Redetermination Event that has occurred, describing the
same in reasonable detail; and
(f) any event or circumstance which has had a Material Adverse
Effect.
Each notice pursuant to this subsection shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what the Borrower and its Subsidiaries have taken or propose to take
with respect thereto.
7.8 ENVIRONMENTAL LAWS. (a) Except as, individually or in the
aggregate, could not reasonably be expected to either (i) result in the payment
of a Material Environmental Amount or (ii) have a Material Adverse Effect, (x)
comply with all Environmental Laws, and obtain, comply with and maintain any and
all Environmental Permits necessary for its operations as conducted and as
planned; and (y) take all reasonable efforts to ensure that all of its tenants,
subtenants, contractors, subcontractors, and invitees comply with all
Environmental Laws, and obtain, comply with and maintain any and all
Environmental Permits, applicable to any of them.
(b) Except to the extent that the failure to comply could not
reasonably be expected either to (i) result in the payment of a Material
Environmental Amount or (ii) give rise to a Material Adverse Effect, comply with
all orders and directives of all Governmental Authorities regarding
Environmental Laws, other than such orders and directives as to which an appeal
or other appropriate action to contest such order or directive has been timely
and properly taken in good faith.
(c) Prior to acquiring any ownership or leasehold interest in
real property or other interest in any real property that could give rise to the
Borrower being subject to potential significant liability under or violations of
any Environmental Law, which potential liabilities or violations, if incurred,
could reasonably be expected to have a Material Adverse Effect: (i) notify the
Administrative Agent; and (ii) if requested by the Administrative Agent, provide
to the Administrative Agent a written report by an environmental consultant
reasonably acceptable to the Administrative Agent assessing the presence or
potential presence of significant levels of any Materials of Environmental
Concern on, under, in, or about the property, or of other conditions that could
give rise to potentially significant liability or violations of any
Environmental Law.
(d) On or prior to the end of the Initial Period, the
Administrative Agent shall have received environmental assessment reports
reasonably acceptable to it with respect to processing and other facilities and
other parcels of real property which are owned or leased by the Borrower and its
Subsidiaries and which were acquired pursuant to the LOPI Merger.
7.9 ADDITIONAL COLLATERAL. (a) With respect to any Person that,
subsequent to the Closing Date, becomes a Subsidiary (other than a Foreign
Subsidiary), promptly: (i) cause such Person to become a party to the Guarantee
Agreement, pursuant to documentation which is in form and substance reasonably
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56
satisfactory to the Administrative Agent, (ii) cause the Capital Stock of such
Person owned by the Borrower or any Subsidiary to be pledged to the
Administrative Agent, for the ratable benefit of the Lenders, pursuant to
documentation reasonably satisfactory to the Administrative Agent, and take all
actions reasonably necessary or advisable to cause the Lien thereon to be duly
perfected in accordance with all applicable Requirements of Law, and deliver any
certificates representing such Capital Stock to the Administrative Agent,
together with undated stock powers executed and delivered in blank by a duly
authorized officer of the Borrower or such Subsidiary, as the case may be, and
(iii) if requested by the Administrative Agent, deliver to the Administrative
Agent legal opinions relating to the matters described in clauses (i) and (ii)
immediately preceding, which opinions shall be in form and substance, and from
counsel, reasonably satisfactory to the Administrative Agent.
(b) With respect to any Person that, subsequent to the Closing
Date, becomes a Subsidiary and is a Foreign Subsidiary, promptly: execute and
deliver to the Administrative Agent a new pledge agreement as the Administrative
Agent shall deem reasonably necessary or advisable to grant to the
Administrative Agent, for the benefit of the Lenders, a Lien on the Capital
Stock of such Subsidiary which is owned by the Borrower or any Subsidiary
(provided that in no event shall more than 65% of the Capital Stock of any such
Subsidiary be required to be so pledged), (ii) deliver to the Administrative
Agent any certificates representing such Capital Stock, together with undated
stock powers executed and delivered in blank by a duly authorized officer of the
Borrower or such Subsidiary, as the case may be, and take or cause to be taken
all such other actions under the law of the jurisdiction of organization of such
Foreign Subsidiary as may be reasonably necessary or advisable to perfect such
Lien on such Capital Stock and (iii) if requested by the Administrative Agent,
deliver to the Administrative Agent legal opinions relating to the matters
described in clauses (i) and (ii) immediately preceding, which opinions shall be
in form and substance, and from counsel, reasonably satisfactory to the
Administrative Agent.
7.10 MAINTENANCE AND OPERATION OF PROPERTY. Except to the extent
that the failure to comply could not reasonably be expected to have a Material
Adverse Effect and consistent with the standards of a reasonably prudent
operator under the same circumstances:
(a) Maintain, develop, and operate Borrower's and the
Guarantors' Oil and Gas Properties, and oil and gas gathering assets in
a good and workmanlike manner, and observe and comply with all of the
terms and provisions, express or implied, of all oil and gas leases
relating to the Properties so long as the oil and gas leases are capable
of producing Hydrocarbons in quantities and at prices providing for
continued efficient and profitable operation of business;
(b) Comply in all material respects with all contracts and
agreements applicable to or relating to Borrower's and the Guarantors'
Oil and Gas Properties or the production and sale of hydrocarbons and
accompanying elements therefrom;
(c) At all times, maintain, preserve, and keep all
operating equipment used with respect to Borrower's and the Guarantors'
Oil and Gas Properties, and oil and gas gathering assets in proper
repair, working order and
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57
condition, and make all necessary or appropriate repairs, renewals,
replacements, additions and improvements thereto so that the efficiency
of the operating equipment shall at all times be properly preserved and
maintained, provided that no item of operating equipment need be so
repaired, renewed, replaced, added to or improved, if Borrower or its
Subsidiaries shall in good faith determine that the action is not
necessary or desirable for such Person's continued efficient and
profitable operation of business.
(d) With respect to Borrower's and the Guarantors' Oil and
Gas Properties, and oil and gas gathering assets which are operated by
operators other than Borrower or a Subsidiary, seek to enforce the
operators' contractual obligations to maintain, develop, and operate
such Properties subject to the applicable operating agreements.
(e) If and when any of the wells located on the Oil and
Gas Properties of the Borrower or its Subsidiaries ceases producing
Hydrocarbons in paying quantities and is of no further use and the
Borrower or any other Person is required to do so under any agreement or
law or when doing so would be in conformity with generally accepted
practices then prevalent in the Borrower's industry, the Borrower will
plug and abandon, or cause to be plugged and abandoned, any and all such
wells in accordance in all material respects with industry practice and
the local state and/or federal laws and regulations then in force and
regulating the plugging of Hydrocarbon wells.
7.11 FURTHER ASSURANCES. Upon the request of the Administrative
Agent, promptly perform or cause to be performed any and all acts and execute or
cause to be executed any and all documents (including, without limitation,
financing statements and continuation statements) for filing under the
provisions of the Uniform Commercial Code or any other Requirement of Law which
are necessary or advisable to maintain in favor of the Administrative Agent, for
the benefit of the Lenders, Liens on the Pledged Securities and on the Oil and
Gas Properties subject to the Mortgages that are duly perfected in accordance
with all applicable Requirements of Law; PROVIDED that the Liens created by such
Mortgages shall be released after the end of the Initial Period (pursuant to
documentation reasonably satisfactory to the Administrative Agent) if, at such
time, (x) no Default or Event of Default has occurred and is continuing and (y)
the Borrower has made any mandatory prepayment required by subsection 4.10 to be
made within 60 days after the Initial Scheduled Borrowing Base Redetermination.
SECTION 8. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments
remain in effect, any Loan, Letter of Credit or any Note remains outstanding and
unpaid or any amount is owing to any Lender or the Administrative Agent
hereunder or under any other Loan Document, the Borrower shall not, and shall
not (except with respect to subsection 8.1) permit any Subsidiary to, directly
or indirectly:
8.1 FINANCIAL COVENANT CONDITIONS. (a) Total Debt Interest
Coverage Ratio. Permit, for any period of four consecutive fiscal quarters
(commencing September 30, 1998) the ratio of EBITDA to Consolidated Interest
Expense of the
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58
Borrower and its Subsidiaries for such four consecutive fiscal quarters to be
less than 3.0 to 1.0.
(b) Total Debt Leverage Ratio. Permit the ratio of Indebtedness
of the Borrower and its Subsidiaries, as of the last day of any fiscal quarter
(commencing September 30, 1998), to EBITDA, for the period of four consecutive
fiscal quarters then ended, to be greater than 3.25 to 1.0.
(c) Consolidated Net Worth. Permit the Consolidated Net Worth of
the Borrower and its Subsidiaries during any period to be less than the sum of
(i) $100,000,000 plus (ii) amounts accrued in the shareholders' equity section
of the Borrower's balance sheet, on account of the issuance by the Borrower to
Shell Oil Company or its Affiliates of shares of Common Stock, and Preferred
Stock upon the closing of the transactions contemplated in the Merger Agreement
minus (iii) any non-cash charges or expenses accrued by Borrower to meet ceiling
test levels in conformity with Securities and Exchange Commission Regulation S-X
article 4-10(c)(4) and minus (iv) all other non-cash charges or expenses accrued
by Borrower as a result of the Shell Transactions.
8.2 LIMITATION ON INDEBTEDNESS. Create, incur, assume or suffer
to exist any Indebtedness, except:
(a) Indebtedness of the Borrower or any Guarantor under any Loan
Document;
(b) Indebtedness outstanding on the date hereof and listed on
Schedule 8.2 and any refinancings, refundings, renewals or extensions
thereof on terms and conditions reasonably acceptable to the
Administrative Agent;
(c) Indebtedness of the Borrower under Interest Rate Protection
Agreements entered into in the ordinary course of business of the
Borrower and not for speculative purposes, in each case having terms and
conditions reasonably satisfactory to the Administrative Agent;
(d) Indebtedness of the Borrower under Commodity Hedging
Agreements entered into in the ordinary course of business of the
Borrower and not for speculative purposes, in each case having terms and
conditions reasonably satisfactory to the Administrative Agent; PROVIDED
that the aggregate amount of such Commodity Price Risk Management
Agreements may not exceed the following: (i) for oil, the total volumes
to be hedged for any year shall not exceed 80% of expected oil
production of the Borrower and (ii) for gas, the total volumes to be
hedged for any year shall not exceed 80% of expected gas production of
the Borrower for such year;
(e) Indebtedness of the Borrower issued or owed to any
Wholly-Owned Subsidiary which is a Guarantor (other than Indebtedness
incurred at any time when a Default or Event of Default shall have
occurred and be continuing) and Indebtedness of any Wholly-Owned
Subsidiary which is a Guarantor issued or owed to the Borrower or to any
other Wholly-Owned Subsidiary which is a Guarantor;
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59
(f) Subordinated Indebtedness that is issued on terms which are
satisfactory to the Administrative Agent and the Required Lenders with
respect to provisions regarding maturity, interest rate, covenants,
events of default and subordination language, PROVIDED that after giving
effect to the issuance of such Subordinated Indebtedness, the Borrower
is in compliance with the covenants contained in subsection 8.1 and
subsection 8.7 hereof, PROVIDED FURTHER that (i) upon the issuance of
any such Subordinated Indebtedness during the Initial Period, the
Borrowing Base shall be automatically reduced in accordance with
subsection 4.9(e) and (ii) upon the issuance of any such Subordinated
Indebtedness following the Initial Period, the Borrowing Base shall be
redetermined in accordance with the procedures set forth in subsection
4.9(c);
(g) Guarantee Obligations permitted by subsection 8.4;
(h) Indebtedness of the Borrower in a principal amount of up to
$15,000,000 under the Amoco Bond;
(i) Indebtedness for Make-Whole Payments accruing on or after the
Shell Transaction Completion Date in connection with the consummation of
the Shell Transactions, provided such payments are made in accordance
with the terms of the Merger Agreement and the Stock Rights and
Restrictions Agreement and do not exceed $10,000,000 in the aggregate in
cash and/or an unlimited amount in Common Stock; and
(j) Indebtedness of the Borrower and its Wholly-Owned
Subsidiaries created, incurred or assumed after the date hereof not
otherwise permitted pursuant to this subsection 8.2, provided that the
aggregate outstanding principal amount of such Indebtedness shall not
exceed $5,000,000 (and $10,000,000 after the occurrence of the Shell
Trnasaction Completion Date) at any one time outstanding.
8.3 LIMITATION ON LIENS. Create, incur, assume or suffer to exist
any Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired, except for:
(a) Liens for taxes, assessments or other governmental charges or
levies not yet due or which are being contested in good faith by
appropriate proceedings, PROVIDED that adequate reserves with respect
thereto are maintained on the books of the Borrower or its applicable
Subsidiary, as the case may be, in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's,
landlords', repairmen's or other like Liens arising in the ordinary
course of business securing obligations which are not overdue for a
period of more than 60 days or which are being contested in good faith
by appropriate proceedings, which proceedings would have the effect of
preventing the forfeiture or sale of the property or assets subject to
any such Lien;
(c) pledges or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and
other social security legislation;
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60
(d) deposits made to secure the performance of bids, tenders,
trade contracts (other than for borrowed money), leases, statutory
obligations, surety and appeal bonds, performance and return-of-money
bonds and other obligations of a like nature incurred in the ordinary
course of business;
(e) easements, rights-of-way, servitudes, permits, reservations,
exceptions, covenants and other restrictions as to the use of real
property and other similar encumbrances incurred in the ordinary course
of business which, with respect to all of the foregoing, do not secure
the payment of Indebtedness of the type described in clauses (a)-(d) of
the definition thereof and which, in the aggregate, are not substantial
in amount and which do not in any case materially detract from the value
of the Property subject thereto or materially interfere with the
ordinary conduct of the business of the Borrower or any Subsidiary;
(f) Liens in existence on the date hereof listed on Schedule 8.3,
securing Indebtedness permitted by subsection 8.2(b), PROVIDED that no
such Lien is amended after the date of this Agreement to cover any
additional Property or to secure additional Indebtedness and that the
amount of Indebtedness secured thereby is not increased;
(g) Liens created pursuant to the Security Documents and other
Liens created after the date hereof and securing Indebtedness hereunder
or under any other Loan Document;
(h) Liens reserved in customary oil, gas and/or mineral leases
for bonus or rental payments and for compliance with the terms of such
leases and Liens reserved in customary operating agreements, farm-out
and farm-in agreements, exploration agreements, development agreements
and other similar agreements for compliance with the terms of such
agreements, to the extent that (x) any such Lien referred to in this
clause (h) does not materially impair the use or value of the property
subject to such Lien for the purposes for which such property is held
and (y) in the case of customary operating agreements, farm-out and
farm-in agreements, exploration agreements, development agreements and
other similar agreements, the amount of any obligations secured thereby
that are delinquent, that are not diligently contested in good faith and
for which adequate reserves are not maintained by the Borrower or the
applicable Subsidiary, as the case may be, do not exceed, at any time
outstanding, the amount owing by the Borrower or any Subsidiary, as
applicable, for one month's billed operating expenses or other
expenditures attributable to such entity's interest in the Property
covered thereby;
(i) defects, irregularities and deficiencies in the title of any
rights of way or other Property of the Borrower or any Subsidiary of the
Borrower which in the aggregate do not materially impair the use of such
rights of way or other property for the purposes for which such rights
of way and other Property are held by the Borrower or any Subsidiary of
the Borrower, and defects, irregularities and deficiencies in title to
any property of the Borrower or any Subsidiary of the Borrower, which
defects, irregularities or deficiencies have been cured by possession
under applicable statutes of limitation;
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(j) royalties, overriding royalties, revenue interests, net
revenue interests, production payments (other than production payments
granted or created in connection with the incurrence of Indebtedness)
and advance payment obligations (other than obligations in respect of
advance payments received in connection with the incurrence of
Indebtedness), PROVIDED that the value of the Oil and Gas Properties
shown on the Borrower's Reserve Reports is net of such Liens;
(k) any Lien securing Indebtedness, neither assumed nor
guaranteed by the Borrower or any of its Subsidiaries nor on which it
customarily pays interest, existing upon real estate or rights in or
relating to real estate acquired by the Borrower for substation,
metering station, pump station, storage gathering line, transmission
line, transportation line, distribution line or for right-of-way
purposes, and any Liens reserved in leases for rent and for compliance
with the terms of the leases in the case of leasehold estates, to the
extent that any such Lien referred to in this paragraph (k) does not
materially impair the use or value of the property subject to such Lien
for the purposes for which such property is held;
(l) Liens on Property of a Subsidiary of the Borrower, PROVIDED
that such Liens secure only obligations owing to the Borrower;
(m) judgment and other similar Liens arising in connection with
court proceedings, provided that the judgment relating thereto shall
have been stayed or bonded pending appeal, PROVIDED that no such Lien
shall encumber any Oil and Gas Property;
(n) Liens arising out of all presently existing and future
division and transfer orders, advance payment agreements, processing
contracts, gas processing plant agreements, operating agreements, gas
balancing or deferred production agreements, pooling, unitization or
communitization agreements, pipeline, gathering or transportation
agreements, platform agreements, drilling contracts, injection or
repressuring agreements, cycling agreements, construction agreements,
salt water or other disposal agreements, leases or rental agreements,
farm-out and farm-in agreements, exploration and development agreements,
and any and all other contracts or agreements covering, arising out of,
used or useful in connection with or pertaining to the exploration,
development, operation, production, sale, use, purchase, exchange,
storage, separation, dehydration, treatment, compression, gathering,
transportation, processing, improvement, marketing, disposal or handling
of any property of the Borrower or any Subsidiary of the Borrower,
PROVIDED that such agreements are entered into in the ordinary course of
business and contain terms customary for such agreements in the industry
and PROVIDED FURTHER that no Liens described in this paragraph (n) shall
be granted or created in connection with the incurrence of Indebtedness;
(o) customary preferential rights to purchase and calls on
productions by sellers relating to Properties acquired by the Borrower
or any Subsidiary of the Borrower after the date hereof;
(p) Liens described in subsection 5.8(b); and
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(q) Liens securing any other Indebtedness expressly permitted by
subsection 8.2 provided that (i) the aggregate outstanding principal
amount of such Indebtedness does not exceed $2,500,000 (and $5,000,000
after the occurrence of the Shell Transaction Completion Date) at any
one time and (ii) no such Lien shall encumber any Oil & Gas Property.
8.4 LIMITATION ON GUARANTEE OBLIGATIONS. Create, incur, assume or
suffer to exist any Guarantee Obligation except (a) Guarantee Obligations in
existence on the date hereof and listed on Schedule 8.4, (b) Guarantee
Obligations arising under the Loan Documents, (c) Guarantee Obligations with
respect to Indebtedness permitted by subsection 8.2 and (d) Guarantee
Obligations issued by the Borrower or by any of its Subsidiaries in the ordinary
course of business of obligations of other Persons (other than in respect of
Indebtedness) in connection with current oil and gas drilling, oil and gas
production, oil and gas transportation, crude oil purchasing, oil and gas
exploration or other similar programs or operations.
8.5 LIMITATION ON FUNDAMENTAL CHANGES. Enter into any merger,
consolidation or amalgamation (other than the LOPI Merger consummated on the
terms set forth in the Merger Agreement) as a constituent party, or liquidate,
wind up or dissolve itself (or suffer any liquidation or dissolution), or
convey, sell, lease, assign, transfer or otherwise dispose of, all or
substantially all of its property, business or assets, or make any material
change in its present method of conducting business except:
(a) (i) any Subsidiary of the Borrower (including a Foreign
Subsidiary) may be merged or consolidated with or into the Borrower
(PROVIDED that the Borrower shall be the continuing or surviving
corporation) or with or into any one or more Wholly-Owned Subsidiaries
which are Domestic Subsidiaries (PROVIDED that such Wholly-Owned
Subsidiary or Subsidiaries shall be the continuing or surviving Person)
and (ii) any Foreign Subsidiary of the Borrower may be merged or
consolidated with or into any one or more Wholly-Owned Subsidiaries
which are Foreign Subsidiaries (PROVIDED that such Wholly-Owned
Subsidiary or Subsidiaries shall be the continuing or surviving Person);
(b) (i) any Wholly-Owned Subsidiary (including a Wholly-Owned
Subsidiary which is a Foreign Subsidiary) of the Borrower may sell,
lease, transfer or otherwise dispose of any or all of its assets (upon
voluntary liquidation or otherwise) to the Borrower or any Wholly-Owned
Subsidiary which is a Domestic Subsidiary and (ii) any Wholly-Owned
Subsidiary of the Borrower which is a Foreign Subsidiary may sell,
lease, transfer or otherwise dispose of any or all of its assets (upon
voluntary liquidation or otherwise) to any Wholly-Owned Subsidiary which
is a Foreign Subsidiary; and
(c) any Wholly-Owned Subsidiary may be merged or consolidated
with any Person acquired in connection with a Permitted Business
Acquisition, which acquisition complies with subsection 8.8(g) and is
made in the ordinary course of the Oil and Gas Business, PROVIDED that
such Wholly-Owned Subsidiary shall be the continuing or surviving
Person.
8.6 LIMITATION ON SALE OF ASSETS. Convey, sell, lease, assign,
transfer or otherwise dispose of any of its property, business or assets
(including, without
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63
limitation, receivables and leasehold interests), whether now owned or hereafter
acquired, or issue or sell any shares of the Borrower's Disqualified Stock
(other than Preferred Stock issued pursuant to the Merger Agreement) or such
Subsidiary's Capital Stock to any Person other than the Borrower or any domestic
Wholly-Owned Subsidiary, except:
(a) the sale or other disposition of obsolete or worn out
property in the ordinary course of business;
(b) the sale of inventory (including Hydrocarbons or other
mineral products or surplus) in the ordinary course of business;
(c) as permitted by subsection 8.5(b);
(d) the sale or other Disposition of any Oil and Gas Properties
included in the Borrowing Base, PROVIDED that (i) during the Initial
Period, the Net Proceeds of any such sale or other Disposition which
constitutes a Redetermination Event are used to reduce the Borrowing
Base and prepay Loans pursuant to subsections 4.9 and 4.10 and (ii)
after the Initial Period, the aggregate value (determined by reference
to the most recent Reserve Report) of all Oil and Gas Properties (other
than the Pennsylvania Properties) included in the Borrowing Base so sold
or disposed of in any fiscal year of the Borrower shall not exceed
$2,500,000 (and $5,000,000 after the occurrence of the Shell Transaction
Completion Date);
(e) the sale or other Disposition of the Pennsylvania Properties,
PROVIDED that 100% of the Net Proceeds of such sale or Disposition shall
be applied within three Business Days after the receipt of such Net
Proceeds toward the prepayment of the Loans;
(f) sales or other Dispositions of Property not constituting Oil
and Gas Properties included in the Borrowing Base (other than the
Capital Stock of any direct or indirect Subsidiaries of the Borrower);
PROVIDED that during the Initial Period, the Net Proceeds of any such
sale or other Disposition which constitutes a Redetermination Event are
used to reduce the Borrowing Base and prepay Loans pursuant to
subsections 4.9 and 4.10; and
(g) Dispositions of Oil and Gas Properties not constituting
Proved Reserves pursuant to farm-ins and farm-outs and transfers of
royalty interests, overriding royalty interests, net revenue interests
and other similar transfers, all pursuant to exploration and development
activity in the ordinary course of business of the Borrower and its
Subsidiaries.
8.7 LIMITATION ON DIVIDENDS. Declare or pay any dividend on
(other than dividends payable solely in common stock of the Borrower), or make
any payment on account of, or set apart assets for a sinking or other analogous
fund for, the purchase, redemption, defeasance, retirement or other acquisition
of, any shares of any class of Capital Stock of the Borrower or any Subsidiary
or any warrants or options to purchase any such Capital Stock, whether now or
hereafter outstanding, or make any other distribution in respect thereof, either
directly or indirectly, whether in cash or property or in obligations of the
Borrower or any Subsidiary, except that:
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(a) any Subsidiary may declare and pay dividends to or make other
distributions to the Borrower or to any other Wholly-Owned Subsidiary
which is a Guarantor; and
(b) so long as no Default or Event of Default shall have occurred
and be continuing or would result therefrom, (i) the Borrower, following
the Initial Period, may redeem or purchase Capital Stock or rights to
acquire Capital Stock using proceeds from the issuance of Capital Stock
or rights to acquire Capital Stock, (ii) the Borrower may use and issue
its own Capital Stock (A) to purchase or acquire issued and outstanding
shares of its Capital Stock, warrants, options, debt instruments
convertible into or other rights to purchase the Borrower's Capital
Stock, (B) to satisfy the exercise of stock options or warrants or (C)
in connection with any employee benefit plan of the Borrower or its
Subsidiaries, (iii) the Borrower may redeem rights to purchase preferred
stock or common stock issued to the Borrower's shareholders for an
aggregate amount not to exceed $250,000 during the term of this
Agreement, (iv) on or after the Shell Transaction Completion Date, the
Borrower may pay dividends on the Preferred Stock and (v) the Borrower,
following the Initial Period, may declare and pay cash dividends or,
repurchase, redeem or acquire shares of its Capital Stock, so long as no
more than $1,000,000 (and $2,000,000 after the Shell Transaction
Completion Date) in the aggregate is expended for such purpose during
any fiscal year of the Borrower.
8.8 LIMITATION ON INVESTMENTS, LOANS AND ADVANCES. Make any
advance, loan, extension of credit or capital contribution to, or incur any
Guarantee Obligation on behalf or for the benefit of, or purchase any stock,
bonds, notes, debentures or other securities of or any assets constituting a
business unit of, or make any other investment (including by the issuance of
letters of credit) in (collectively, "Investments"), any Person, except:
(a) extensions of trade credit in the ordinary course of
business;
(b) Investments in Cash Equivalents;
(c) loans and advances to officers and employees of the Borrower
or any Subsidiary for travel, entertainment and relocation expenses in
the ordinary course of business in an aggregate amount for the Borrower
and its Subsidiaries not to exceed $500,000 (and $1,000,000 after the
occurrence of the Shell Transaction Completion Date) at any one time
outstanding;
(d) investments, loans or advances, the material details of which
have been set forth on Schedule 8.8;
(e) so long as no Default or Event of Default shall have occurred
and be continuing, Investments by the Borrower in any Wholly-Owned
Subsidiary which is a Guarantor and Investments by any Wholly-Owned
Subsidiary which is a Guarantor in the Borrower or in other Wholly-Owned
Subsidiaries which are Guarantors;
(f) (i) Investments constituting Permitted Business Investments
constituting Dispositions of Oil and Gas Properties which are not Proved
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Reserves in connection with the farm-out of such Oil and Gas Properties
pursuant to farm-out agreements entered into in the ordinary course of
business of the Borrower and its Subsidiaries, and (ii) other
Investments constituting Permitted Business Investments made or entered
into in the ordinary course of the Oil and Gas Business in an amount
(valued at the time of making thereof) not to exceed, in the aggregate,
$2,500,000 (and $5,000,000 after the occurrence of the Shell Transaction
Completion Date) during any fiscal year of the Borrower;
(g) Investments constituting Permitted Business Acquisitions made
or entered into in the ordinary course of the Oil and Gas Business;
PROVIDED that with respect to a Permitted Business Acquisition which is
not an acquisition funded entirely with the common stock of the
Borrower, after giving effect to the consummation of the transactions
contemplated by such Permitted Business Acquisition and the Loans to be
made and the Letters of Credit to be issued hereunder in connection
therewith, the sum of (i) the cash and Cash Equivalents then held by the
Borrower and (ii) an amount equal to the difference between (A) the
aggregate Revolving Credit Commitments (or, if less, the Borrowing Base)
in effect at such time and (B) the Aggregate Revolving Credit Exposure
of all the Lenders at such time, equals at least $20,000,000 (and
$10,000,000 after the occurrence of the Shell Transaction Completion
Date);
(h) obligations (in each case not outstanding for more than 90
days) owed by or to Affiliates under operating agreements relating to
Oil and Gas Properties in an aggregate amount not to exceed $5,000,000
(and $10,000,000 after the occurrence of the Shell Transaction
Completion Date) at any time;
(i) transactions expressly permitted under (i) subsection 8.2
(PROVIDED, that no loans may be made by the Borrower pursuant to
subsection 8.2(e) at any time when a Default or Event of Default shall
have occurred and be continuing), (ii) subsection 8.3, (iii) subsection
8.4, (iv) subsection 8.5 or (v) subsection 8.16, as applicable;
(j) Investments in joint ventures made pursuant to exploration
and development activity in the ordinary course of business of the
Borrower and its Subsidiaries to the extent that the Borrower's or a
Subsidiary's Investment therein is limited to the contribution by the
Borrower or such Subsidiary of (i) Oil and Gas Properties which are not
Proved Reserves and (ii) seismic data to the extent that an interest is
retained in such data by the Borrower or its Subsidiaries;
(k) Investments made in LOPI pursuant to the Merger Agreement and
assets purchased pursuant to the Asset Purchase Agreement; and
(l) Investments not otherwise permitted hereunder in an amount at
any time not in excess of $1,000,000 (and $2,500,000 after the
occurrence of the Shell Transaction Completion Date).
8.9 LIMITATION ON OPTIONAL PAYMENTS AND MODIFICATIONS OF DEBT
INSTRUMENTS, OTHER DOCUMENTS. (a) Make any optional payment or prepayment on or
redemption, defeasance or purchase of (i) any Indebtedness (other than
Indebtedness
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under this Agreement and Make-Whole Payments permitted under subsection 8.2(i))
which has an aggregate principal amount in excess of $2,500,000 (and $5,000,000
after the occurrence of the Shell Transaction Completion Date) or (ii) any
Subordinated Indebtedness, or (b) amend, modify or change, or consent or agree
to any amendment, modification or change to any of the terms (including the
subordination provisions) of any such Indebtedness described in clauses (i) or
(ii) immediately preceding (other than any such amendment, modification or
change which would extend the maturity or reduce the amount of any payment of
principal thereof or which would reduce the rate or extend the date for payment
of interest thereon).
(b) Amend or modify the certificate of incorporation (including,
without limitation, the Preferred Stock Designation) or bylaws of the Borrower,
unless such amendment or modification is immaterial to the interests of the
Lenders.
(c) Amend, modify or change in any material respect the terms of
any of the Merger Agreement, the Stock Rights and Restrictions Agreement or the
Registration Rights Agreement.
8.10 LIMITATION ON TRANSACTIONS WITH AFFILIATES. Enter into any
transaction, including, without limitation, any purchase, sale, lease or
exchange of Property or the rendering of any service, with any Affiliate (other
than transactions between or among the Borrower and its Wholly-Owned
Subsidiaries which are Domestic Subsidiaries) unless such transaction is (a)
otherwise permitted under this Agreement or, if the Shell Transaction Completion
Date has occurred, is expressly contemplated by the Stock Rights and Resolution
Agreement, Registration Rights Agreement and Preferred Stock Designation, (b) in
the ordinary course of the Borrower's or the applicable Subsidiary's business
and (c) upon fair and reasonable terms no less favorable to the Borrower or the
applicable Subsidiary, as the case may be, than it would obtain in a comparable
arm's length transaction with a Person which is not an Affiliate or, in the
event no comparable transaction with an unaffiliated Person is available, on
terms that are fair from a financial point of view to the Borrower or the
applicable Subsidiary PROVIDED, HOWEVER, this subsection 8.10 shall not apply to
(i) the payment of reasonable and customary fees to directors of the Borrower
who are not employees of the Borrower; (ii) loans or advances made pursuant to
subsection 8.8(c); or (iii) any other transaction with any employee, officer or
director of the Borrower pursuant to drilling arrangements, exploration and
production arrangements, Plans, compensation or other similar arrangements
entered into the ordinary course of business and approved by a majority of the
disinterested members of the Board of Directors of the Borrower.
8.11 LIMITATION ON SALES AND LEASEBACKS. Enter into any
arrangement (a "SALE AND LEASEBACK TRANSACTION") with any Person providing for
the leasing by the Borrower or any Subsidiary of real or personal property which
has been or is to be sold or transferred by the Borrower or such Subsidiary to
such Person or to any other Person to whom funds have been or are to be advanced
by such Person on the security of such property or rental obligations of the
Borrower or any Subsidiary.
8.12 LIMITATION ON CHANGES IN FISCAL YEAR. Permit the fiscal year
of the Borrower and its Subsidiaries to end on a day other than December 31.
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8.13 LIMITATION ON NEGATIVE PLEDGE CLAUSES. Enter into with any
Person any agreement, other than this Agreement, which prohibits or limits the
ability of the Borrower or any of its Subsidiaries to create, incur, assume or
suffer to exist any Lien upon any of its property, assets or revenues, whether
now owned or hereafter acquired.
8.14 LIMITATION ON LINES OF BUSINESS. Enter into any business,
either directly or through any Subsidiary, except for those businesses in which
the Borrower and its Subsidiaries are engaged on the date of this Agreement or
which are directly related thereto or to the Oil and Gas Business.
8.15 FORWARD SALES. Except in accordance with ordinary practice
in the Oil and Gas Business, enter into or permit to exist any advance payment
agreement or other arrangement pursuant to which the Borrower or any of its
Subsidiaries, having received full or substantial payment of the purchase price
for a specified quantity of Hydrocarbons upon entering such agreement or
arrangement, is required to deliver, in one or more installments subsequent to
the date of such agreement or arrangement, such quantity of Hydrocarbons
pursuant to and during the terms of such agreement or arrangement.
8.16 HEDGING AGREEMENTS. Enter into any Hedging Agreement, other
than Hedging Agreements entered into in the ordinary course of business to hedge
or mitigate risks to which the Borrower or any of its Subsidiaries is exposed in
the conduct of its business or the management of its liabilities; PROVIDED that
the aggregate amount of Commodity Price Risk Management Agreements may not
exceed the following: (i) for oil, the total volumes to be hedged for any year
shall not exceed 80% of expected oil production of the Borrower and (ii) for
gas, the total volumes to be hedged for any year shall not exceed 80% of
expected gas production of the Borrower for such year;
8.17 LIMITATION ON LEASES. Permit Consolidated Lease Expense for
any fiscal year of the Borrower to exceed $2,500,000 (and $5,000,000 after the
occurrence of the Shell Transaction Completion Date).
8.18 LIMITATION ON IMMATERIAL SUBSIDIARIES. Permit each direct or
indirect Immaterial Subsidiary to acquire any additional assets or to conduct
any material additional business, either directly or indirectly, unless prior to
owning such assets or conducting such business such Immaterial Subsidiary
executes and delivers to the Administrative Agent those documents set forth in
subsection 7.9(a).
SECTION 9. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Loan or
any Reimbursement Obligation when due in accordance with the terms
thereof or hereof; or the Borrower shall fail to pay any interest on any
Loan, or any other amount payable hereunder, within three Business Days
after any such interest or other amount becomes due in accordance with
the terms thereof or hereof; or
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(b) Any representation or warranty made or deemed made by any
Loan Party herein or in any other Loan Document or which is contained in
any certificate, document or financial or other statement furnished by
it at any time under or in connection with this Agreement or any such
other Loan Document shall prove to have been incorrect in any material
respect on or as of the date made or deemed made; or
(c) The Borrower or any of its Subsidiaries shall default in the
observance or performance of any agreement applicable to it contained in
subsections 4.10, 7.7(a) or 7.9 of this Agreement, Section 8 of this
Agreement or Section 5(b) of the Pledge Agreement; or
(d) The Borrower or any of its Subsidiaries shall default in the
observance or performance of any other agreement applicable to it
contained in this Agreement or any other Loan Document (other than as
provided in paragraphs (a) through (c) of this Section), and such
default shall continue unremedied for a period of 30 consecutive days;
or
(e) The Borrower or any of its Subsidiaries shall (i) default in
any payment of principal of or interest of any Indebtedness (excluding
the Loans or any guarantee thereof), or in the payment of any Guarantee
Obligation, beyond the period of grace (not to exceed 30 days), if any,
provided in the instrument or agreement under which such Indebtedness or
Guarantee Obligation was created; PROVIDED that the aggregate principal
amount of such Indebtedness and Guarantee Obligations equals or exceeds
$2,000,000 (and $4,000,000 after the occurrence of the Shell Transaction
Completion Date); or (ii) default in the observance or performance of
any other agreement or condition relating to any such Indebtedness or
Guarantee Obligation or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur
or condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders of such
Indebtedness or beneficiary or beneficiaries of such Guarantee
Obligation (or a trustee or agent on behalf of such holder or holders or
beneficiary or beneficiaries) to cause, with the giving of notice if
required, such Indebtedness to become due prior to its stated maturity
or such Guarantee Obligation to become payable, PROVIDED that the
aggregate principal amount of all such Indebtedness and Guarantee
Obligations which would then become due and payable would equal or
exceed $2,000,000 (and $4,000,000 after the occurrence of the Shell
Transaction Completion Date); or
(f) (i) The Borrower or any of its Subsidiaries shall commence
any case, proceeding or other action (A) under any existing or future
law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an
order for relief entered with respect to it, or seeking to adjudicate it
a bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or other
relief with respect to it or its debts, or (B) seeking appointment of a
receiver, trustee, custodian, conservator or other similar official for
it or for all or any substantial part of its assets, or the Borrower or
any of its Subsidiaries shall make a general assignment for the benefit
of its creditors; or (ii) there shall be commenced against the Borrower
or any of its Subsidiaries any
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case, proceeding or other action of a nature referred to in clause (i)
above which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of 60 days; or (iii) there shall be commenced
against the Borrower or any of its Subsidiaries any case, proceeding or
other action seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial part of its
assets which results in the entry of an order for any such relief which
shall not have been vacated, discharged, or stayed or bonded pending
appeal within 60 days from the entry thereof; or (iv) the Borrower or
any of its Subsidiaries shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the
acts set forth in clause (i), (ii), or (iii) above; or (v) the Borrower
or any of its Subsidiaries shall generally not, or shall be unable to,
or shall admit in writing its inability to, pay its debts as they become
due; or
(g) (i) Any Person shall engage in any "prohibited transaction"
(as defined in Section 406 of ERISA or Section 4975 of the Code)
involving any Plan, (ii) any "accumulated funding deficiency" (as
defined in Section 302 of ERISA), whether or not waived, shall exist
with respect to any Plan or any Lien in favor of the PBGC or a Plan
shall arise on the assets of the Borrower or any Commonly Controlled
Entity, (iii) a Reportable Event shall occur with respect to, or
proceedings shall commence to have a trustee appointed, or a trustee
shall be appointed, to administer or to terminate, any Single Employer
Plan, which Reportable Event or commencement of proceedings or
appointment of a trustee is, in the reasonable opinion of the Required
Lenders, likely to result in the termination of such Plan for purposes
of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for
purposes of Title IV of ERISA, (v) the Borrower or any Commonly
Controlled Entity shall, or in the reasonable opinion of the Required
Lenders is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer
Plan or (vi) any other event or condition shall occur or exist with
respect to a Plan; and in each case in clauses (i) through (vi) above,
such event or condition, together with all other such events or
conditions, if any, could have a Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered against the
Borrower or any Subsidiary involving in the aggregate a liability (to
the extent not paid or covered by insurance) of $1,000,000 (and
$2,000,000 after the occurrence of the Shell Transaction Completion
Date) or more, and all such judgments or decrees shall not have been
vacated, discharged, stayed or bonded pending appeal (or otherwise paid
or satisfied in full) within 90 days after the entry thereof; or
(i) A material provision of any Loan Document or the guarantee of
any of the Guarantors under the Guarantee Agreement shall cease, for any
reason, to be in full force and effect, or any Loan Party, any of their
Affiliates, or any officer or employee of any of the foregoing, shall so
assert; or
(j) The subordination provisions contained in any Subordinated
Indebtedness shall cease, for any reason, to be in full force and
effect, or any Person that is a party thereto or holders of at least 25%
of the aggregate
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principal amount of such Subordinated Indebtedness shall so assert in
writing; or
(k) Environmental liabilities aggregating in excess of a Material
Environmental Amount shall be outstanding at any time with respect to
the Borrower or any of its Subsidiaries and the Borrower and such
Subsidiaries are not using their best efforts to remedy the liability;
or
(l) Any Lien created by the Pledge Agreement or any other
Security Document shall cease to be enforceable and of the same effect
and priority purported to be created thereby; or
(m) A Change of Control shall occur;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) of this Section, automatically the
Commitments shall immediately terminate and the Loans hereunder (with accrued
and unpaid interest thereon) and all other amounts owing under this Agreement
(including, without limitation, all Letter of Credit Outstandings, whether or
not the beneficiaries of the then outstanding Letters of Credit shall have
presented the documents required thereunder) and the other Loan Documents shall
immediately become due and payable, and (B) if such event is any other Event of
Default, either or both of the following actions may be taken: (i) with the
consent of the Required Lenders, the Administrative Agent may, or upon the
request of the Required Lenders, the Administrative Agent shall, by written
notice to the Borrower, declare the Commitments to be terminated forthwith,
whereupon the Commitments shall immediately terminate; and (ii) with the consent
of the Required Lenders, the Administrative Agent may, or upon the request of
the Required Lenders, the Administrative Agent shall, by written notice to the
Borrower, declare the Loans hereunder (with accrued and unpaid interest thereon)
and all other amounts owing under this Agreement (including, without limitation,
all amounts of Letter of Credit Outstandings, whether or not the beneficiaries
of the then outstanding Letters of Credit shall have presented the documents
required thereunder) and the other Loan Documents to be due and payable
forthwith, whereupon the same shall immediately become due and payable.
With respect to all Letters of Credit with respect to which
presentment for honor shall not have occurred at the time of an acceleration
pursuant to the preceding paragraph, the Borrower shall at such time deposit in
a cash collateral account opened by the Administrative Agent an amount equal to
the aggregate then unexpired amount that is available to be drawn under such
Letters of Credit. The Borrower hereby grants to the Administrative Agent, for
the benefit of the Issuing Lender and the L/C Participants, a security interest
in such cash collateral to secure all obligations of the Borrower under this
Agreement and the other Loan Documents. Amounts held in such cash collateral
account shall be applied by the Administrative Agent to the payment of drafts
drawn under such Letters of Credit, and the unused portion thereof after all
such Letters of Credit shall have expired, been cancelled or been fully drawn
upon, if any, shall be applied to repay other obligations of the Borrower
hereunder and under the Notes. After all such Letters of Credit shall have
expired, been cancelled or been fully drawn upon, all Reimbursement Obligations
shall have been satisfied and all other obligations of the Borrower hereunder
and under the other Loan Documents shall have been paid in full, the balance, if
any, in such cash collateral account shall be returned to
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71
the Borrower. The Borrower shall execute and deliver to the Administrative
Agent, for the account of the Issuing Lender and the L/C Participants, such
further documents and instruments as the Administrative Agent may reasonably
request to evidence the creation and perfection of the within security interest
in such cash collateral account. Except as expressly provided above in this
Section, presentment, demand, protest and all other notices of any kind are
hereby expressly waived.
SECTION 10. THE ADMINISTRATIVE AGENT; OTHERS
10.1 APPOINTMENT. Each Lender hereby irrevocably designates and
appoints Chase as Administrative Agent of such Lender under this Agreement and
the other Loan Documents, and each such Lender irrevocably authorizes the
Administrative Agent, in such capacity, to take such action on its behalf under
the provisions of this Agreement and the other Loan Documents and to exercise
such powers and perform such duties as are expressly delegated to the
Administrative Agent by the terms of this Agreement and the other Loan
Documents, together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary contained elsewhere in this
Agreement, the Administrative Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the
Administrative Agent.
10.2 DELEGATION OF DUTIES. The Administrative Agent may execute
any of its duties under this Agreement and the other Loan Documents by or
through agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent shall
not be responsible for the negligence or misconduct of any agents or attorneys
in-fact selected by it with reasonable care.
10.3 EXCULPATORY PROVISIONS. Neither the Administrative Agent nor
any of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates shall be (i) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement or any
other Loan Document (except for its or such Person's own gross negligence or
willful misconduct) or (ii) responsible in any manner to any of the Lenders for
any recitals, statements, representations or warranties made by any Loan Party
or any officer thereof contained in this Agreement or any other Loan Document or
in any certificate, report, statement or other document referred to or provided
for in, or received by the Administrative Agent under or in connection with,
this Agreement or any other Loan Document or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Loan Document or for any failure of any Loan Party to perform its
obligations hereunder or thereunder. The Administrative Agent shall not be under
any obligation to any Lender to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement or any other Loan Document, or to inspect the properties, books or
records of any Loan Party.
10.4 RELIANCE BY ADMINISTRATIVE AGENT. The Administrative Agent
shall be entitled to rely, and shall be fully protected in relying, upon any
Note, writing, resolution, notice, consent, certificate, affidavit, letter,
telecopy, telex or teletype message, statement, order or other document or
conversation believed by it to be
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72
genuine and correct and to have been signed, sent or made by the proper Person
or Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Loan Parties), independent accountants and other
experts selected by the Administrative Agent. The Administrative Agent may deem
and treat the payee of any Note as the owner thereof for all purposes unless a
written notice of assignment, negotiation or transfer thereof shall have been
filed with the Administrative Agent. The Administrative Agent shall be fully
justified in failing or refusing to take any action under this Agreement or any
other Loan Document unless it shall first receive such advice or concurrence of
the Required Lenders (or, where unanimous consent of the Lenders is expressly
required hereunder, such Lenders) as it deems appropriate or it shall first be
indemnified to its satisfaction by the Lenders against any and all liability and
expense which may be incurred by it by reason of taking or continuing to take
any such action. The Administrative Agent shall in all cases be fully protected
in acting, or in refraining from acting, under this Agreement and the other Loan
Documents in accordance with a request of the Required Lenders (or, where
unanimous consent of the Lenders or the Supermajority Lenders is expressly
required hereunder, such Lenders or Supermajority Lenders, as applicable), and
such request and any action taken or failure to act pursuant thereto shall be
binding upon all the Lenders and all future holders of the Loans.
10.5 NOTICE OF DEFAULT. The Administrative Agent shall not be
deemed to have knowledge or notice of the occurrence of any Default or Event of
Default hereunder unless the Administrative Agent has received notice from a
Lender or the Borrower referring to this Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of default". In the
event that the Administrative Agent receives such a notice, the Administrative
Agent shall give notice thereof to the Lenders. The Administrative Agent shall
take such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Lenders; PROVIDED that unless and until the
Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable in the best interests of the Lenders.
10.6 NON-RELIANCE ON ADMINISTRATIVE AGENT AND OTHER LENDERS. Each
Lender expressly acknowledges that neither the Administrative Agent nor any of
its officers, directors, employees, agents, attorneys-in-fact or Affiliates has
made any representations or warranties to it and that no act by the
Administrative Agent hereafter taken, including any review of the affairs of any
Loan Party, shall be deemed to constitute any representation or warranty by the
Administrative Agent to any Lender. Each Lender represents to the Administrative
Agent that it has, independently and without reliance upon the Administrative
Agent or any other Lender, and based on such documents and information as it has
deemed appropriate, made its own appraisal of and investigation into the
business, operations, property, financial and other condition and
creditworthiness of each Loan Party and made its own decision to make its
Extensions of Credit hereunder and enter into this Agreement. Each Lender also
represents that it will, independently and without reliance upon the
Administrative Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Loan Documents, and to make such investigation as
it deems necessary to inform itself as to the business, operations, property,
financial and other condition and creditworthiness
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73
of each Loan Party. Except for notices, reports and other documents expressly
required to be furnished to the Lenders by the Administrative Agent hereunder,
the Administrative Agent shall not have any duty or responsibility to provide
any Lender with any credit or other information concerning the business,
operations, property, condition (financial or otherwise), prospects or
creditworthiness of any Loan Party which may come into the possession of the
Administrative Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates.
10.7 INDEMNIFICATION. The Lenders agree to indemnify the
Administrative Agent in its capacity as such (to the extent not reimbursed by
the Borrower and without limiting the obligation the Borrower to do so), ratably
according to their respective Commitment Percentages in effect on the date on
which indemnification is sought, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind whatsoever which may at any time
(including, without limitation, at any time following the payment of the
obligations under this Agreement) be imposed on, incurred by or asserted against
the Administrative Agent in any way relating to or arising out of, the
Commitments, this Agreement, any of the other Loan Documents or any documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by the
Administrative Agent under or in connection with any of the foregoing; PROVIDED
that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting solely from the Administrative
Agent's gross negligence or willful misconduct. The agreements in this
subsection shall survive the payment of all obligations under this Agreement and
all other amounts payable hereunder.
10.8 ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY. The
Administrative Agent and its Affiliates may make loans to, accept deposits from
and generally engage in any kind of business with any Loan Party as though the
Administrative Agent were not the Administrative Agent hereunder and under the
other Loan Documents. With respect to the Extensions of Credit made by it, the
Administrative Agent shall have the same rights and powers under this Agreement
and the other Loan Documents as any Lender and may exercise the same as though
it were not the Administrative Agent, and the terms "Lender" and "Lenders" shall
include the Administrative Agent in its individual capacity.
10.9 SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may
resign as Administrative Agent upon 30 days' notice to the Lenders. If the
Administrative Agent shall resign as Administrative Agent under this Agreement
and the other Loan Documents, then the Required Lenders shall appoint from among
the Lenders a successor agent for the Lenders, which successor agent, with the
consent of the Borrower (such consent not to be unreasonably withheld or
delayed), shall succeed to the rights, powers and duties of the Administrative
Agent hereunder. Effective upon such appointment and approval, the term
"Administrative Agent" shall mean such successor agent, and the former
Administrative Agent's rights, powers and duties as Administrative Agent shall
be terminated, without any other or further act or deed on the part of such
former Administrative Agent or any of the parties to this Agreement or any
holders of the Loans. After any retiring Administrative Agent's resignation as
Administrative Agent, the provisions of this Section 10 shall inure to its
benefit as to
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any actions taken or omitted to be taken by it while it was Administrative Agent
under this Agreement and the other Loan Documents.
10.10 ISSUING LENDER. The provisions of this Section 10
applicable to the Administrative Agent shall apply to the Issuing Lender in the
performance of its duties under the Loan Documents, MUTATIS MUTANDIS.
10.11 OTHERS. None of the Advisor, the Syndication Agent, the
Co-Arrangers and the Co-Documentation Agents, in such respective capacities,
shall have any duties or responsibilities, or incur any liabilities, under this
Agreement or the other Loan Documents.
SECTION 11. MISCELLANEOUS
11.1 AMENDMENTS AND WAIVERS. Neither this Agreement nor any other
Loan Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this subsection. The
Required Lenders may, or, with the written consent of the Required Lenders, the
Administrative Agent may, from time to time, (a) enter into with the applicable
Loan Parties written amendments, supplements or modifications hereto and to the
other Loan Documents for the purpose of adding any provisions to this Agreement
or the other Loan Documents or changing in any manner the rights of the Lenders
or of the applicable Loan Parties hereunder or thereunder or (b) waive, on such
terms and conditions as the Required Lenders or the Administrative Agent, as the
case may be, may specify in such instrument, any of the requirements of this
Agreement or the other Loan Documents or any Default or Event of Default and its
consequences; PROVIDED, HOWEVER, that no such waiver and no such amendment,
supplement or modification shall (i) reduce the amount, or extend the scheduled
date of final maturity, of any Loan, or reduce the stated rate of any interest
or fee payable hereunder or extend the scheduled date of any payment thereof or
increase the amount or extend the expiration date of any Lender's Commitments,
in each case without the consent of each Lender affected thereby, or (ii) amend,
modify or waive any provision of this subsection or reduce the percentage
specified in the definition of Required Lenders or Supermajority Lenders (or
modify any provision of this Agreement or any other Loan Document to provide
that an action currently requiring the approval of or consent by the
Supermajority Lenders may be taken with the consent or approval by a lower
percentage of Lenders), or consent to the assignment or transfer by any Loan
Party of any of its rights and obligations under this Agreement and the other
Loan Documents other than in accordance with the terms of the applicable Loan
Documents, in each case without the written consent of all the Lenders, (iii)
release, or subordinate the interest of the Administrative Agent in, all or
substantially all of the collateral for the obligations hereunder or release all
or substantially all of the Guarantors from their respective obligations under
the Guarantee Agreement without the written consent of each Lender, (iv) change
subsection 4.8(a) or subsection 11.7(a) in a manner that would alter the pro
rata sharing of payments required thereby, without the written consent of each
Lender, or (v) amend, modify or waive any provision of Section 10 without the
written consent of the then Administrative Agent and Issuing Lender. Any
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such waiver and any such amendment, supplement or modification shall apply
equally to each of the Lenders and shall be binding upon the Loan Parties, the
Lenders, the Administrative Agent and all future holders of the Loans. In the
case of any waiver, the Loan Parties, the Lenders and the Administrative Agent
shall be restored to their former positions and rights hereunder and under the
other Loan Documents, and any Default or Event of Default waived shall be deemed
to be cured and not continuing; no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereon.
11.2 NOTICES. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
facsimile transmission) and, unless otherwise expressly provided herein, shall
be deemed to have been duly given or made (a) in the case of delivery by hand or
by courier service, when delivered, (b) in the case of delivery by mail, three
Business Days after being deposited in the mails, postage prepaid, or (c) in the
case of delivery by facsimile transmission, when sent and receipt has been
confirmed, addressed as follows in the case of the Borrower and the
Administrative Agent, and as set forth in Schedule 11.2 in the case of the other
parties hereto, or to such other address as may be hereafter notified by the
respective parties hereto:
The Borrower: The Meridian Resource Corporation
15995 N. Barkers Landing, Suite 300
Houston, Texas 77079
Attention: Joseph A. Reeves, Jr.
Fax: (713)-558-5595
The Administrative
Agent: The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Attention: Alana Rahn and Mary Jo Woodford
Fax: (212) 270-2519
With a copy to:
Chase Manhattan Bank Agency Services
One Chase Manhattan Plaza, 8th Floor
New York, New York 10081
Attention: Sandra Miklave
Tel: (212) 552-7953
Fax: (212) 552-5658
PROVIDED that any notice, request or demand to or upon the Administrative Agent
or the Lenders pursuant to subsection 2.2, 4.3, 4.5 or 4.8 shall not be
effective until received.
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11.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and
no delay in exercising, on the part of the Administrative Agent, the Issuing
Lender or any Lender, any right, remedy, power or privilege hereunder or under
the other Loan Documents shall operate as a waiver thereof; nor shall any single
or partial exercise of any right, remedy, power or privilege hereunder preclude
any other or further exercise thereof or the exercise of any other right,
remedy, power or privilege. The rights, remedies, powers and privileges herein
provided are cumulative and not exclusive of any rights, remedies, powers and
privileges provided by law.
11.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made hereunder, in the other Loan Documents and
in any document, certificate or statement delivered pursuant hereto or in
connection herewith shall survive the execution and delivery of this Agreement
and the making of the Extensions of Credit hereunder.
11.5 PAYMENT OF EXPENSES AND TAXES. The Borrower agrees (a) to
pay or reimburse the Administrative Agent and its Affiliates for all their
reasonable and documented out-of-pocket costs and expenses incurred in
connection with the development, syndication, preparation and execution of, and
any amendment, supplement or modification to, this Agreement and the other Loan
Documents and any other documents prepared in connection herewith or therewith,
and the consummation and administration of the transactions contemplated hereby
and thereby, including, without limitation, the reasonable fees and
disbursements of (i) counsel to the Administrative Agent and (ii) the
Administrative Agent customarily charged by it in connection with syndicated
credits, (b) to pay or reimburse each Lender and the Administrative Agent for
all its reasonable and documented costs and expenses incurred in connection with
the enforcement or preservation of any rights under this Agreement, the other
Loan Documents and any such other documents, including, without limitation, the
reasonable fees and disbursements of counsel to the Administrative Agent and to
the several Lenders, (c) to pay, indemnify, and hold each Lender and the
Administrative Agent (and their respective Affiliates and their respective
directors, officers, employees and agents) harmless from, any and all recording
and filing fees and any and all liabilities with respect to, or resulting from
any delay in paying, stamp, excise and other taxes, if any, which may be payable
or determined to be payable in connection with the execution and delivery of, or
consummation or administration of any of the transactions contemplated by, or
any amendment, supplement or modification of, or any waiver or consent under or
in respect of, this Agreement, the other Loan Documents and any such other
documents, and (d) to pay, indemnify, and hold each Lender, the Administrative
Agent (and their respective directors, officers, employees, agents and
affiliates) harmless from and against any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever with respect to the
execution, delivery, enforcement, performance and administration of this
Agreement, the other Loan Documents or the use or the proposed use of proceeds
contemplated by this Agreement, including, without limitation, any of the
foregoing relating to the violation of, noncompliance with or liability under,
any Environmental Law applicable to any Loan Party or any of the Properties (all
the foregoing in this clause (d), collectively, the "indemnified liabilities"),
PROVIDED that the Borrower shall have no obligation under this clause (d) to any
Administrative Agent or any Lender (or any of their respective directors,
officers, employers, agents or affiliates), with respect to indemnified
liabilities to the extent such liabilities are determined by a court of
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competent jurisdiction by final and nonappealable judgment to have resulted from
the gross negligence or willful misconduct of such Person. Without limiting the
foregoing, and to the extent permitted by applicable law, the Borrower agrees
not to assert, and hereby waives, and agrees to cause each of its Subsidiaries
not to assert and to so waive, all rights for contribution or any other rights
of recovery with respect to all claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature, under or
related to Environmental Laws, that any of them might have by statute or
otherwise against any Person entitled to indemnification under this subsection
11.5. The agreements in this subsection shall survive repayment of the Loans and
all other amounts payable hereunder and the termination of this Agreement.
11.6 SUCCESSORS AND ASSIGNS; PARTICIPATIONS AND ASSIGNMENTS. (a)
This Agreement shall be binding upon and inure to the benefit of the Borrower,
the Lenders, the Administrative Agent, all future holders of the Loans and any
Notes hereunder and their respective successors and assigns, except that the
Borrower may not assign or transfer any of its rights or obligations under this
Agreement without the prior written consent of each Lender.
(b) Any Lender may, in the ordinary course of its commercial
banking or lending business and in accordance with applicable law and at no cost
or expense to the Borrower, at any time sell to one or more banks or other
entities ("PARTICIPANTS") participating interests in any Loan owing to such
Lender, any Commitment of such Lender or any other interest of such Lender
hereunder and under the other Loan Documents. In the event of any such sale by a
Lender of a participating interest to a Participant, (i) such Lender's
obligations under this Agreement to the other parties to this Agreement shall
remain unchanged, (ii) such Lender shall remain solely responsible for the
performance thereof, (iii) such Lender shall remain the holder of any such Loan
(and any Note evidencing such Loan) for all purposes under this Agreement and
the other Loan Documents, (iv) the Borrower and the Administrative Agent shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement and the other Loan
Documents, and (v) in any proceeding under the Bankruptcy Code the Lender shall
be, to the extent permitted by law, the sole representative with respect to the
obligations held in the name of such Lender, whether for its own account or for
the account of any Participant. No Lender shall be entitled to create in favor
of any Participant, in the participation agreement pursuant to which such
Participant's participating interest shall be created or otherwise, any right to
vote on, consent to or approve any matter relating to this Agreement or any
other Loan Document except for those specified in clauses (i) and (ii) of the
proviso to subsection 11.1. The Borrower agrees that each Participant shall be
entitled to the benefits of subsections 4.13 and 4.14 with respect to its
participation in the Commitments and the Loans and Letters of Credit outstanding
from time to time as if it was a Lender; PROVIDED that, in the case of
subsection 4.13, such Participant shall have complied with the requirements of
said subsection and PROVIDED, FURTHER, that no Participant shall be entitled to
receive any greater amount pursuant to any such subsection than the transferor
Lender would have been entitled to receive in respect of the amount of the
participation transferred by such transferor Lender to such Participant had no
such transfer occurred.
(c) Any Lender may, in the ordinary course of its commercial
banking or lending business and in accordance with applicable law, at any time
and from time to time assign to any Lender or, with the prior consent of each
Issuing Lender, any
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Affiliate thereof or, with the prior written consent of the Administrative
Agent, the Borrower and each Issuing Lender (which in each case shall not be
unreasonably withheld), to an additional bank or financial institution or other
entity (an "ASSIGNEE") all or any part of its rights and obligations under this
Agreement and the other Loan Documents including, without limitation, its
Revolving Credit Commitments, L/C Commitments, Revolving Credit Loans and L/C
Participating Interests, pursuant to an Assignment and Acceptance, substantially
in the form of Exhibit G, executed by such Assignee, such assigning Lender (and,
in the case of an Assignee that is not then a Lender, by the Borrower, the
Administrative Agent and each Issuing Lender) and delivered to the
Administrative Agent for its acceptance and recording in the Register, PROVIDED
that (i) (unless the Borrower and the Administrative Agent otherwise consent in
writing) no such transfer to an Assignee (other than a Lender or any Affiliate
thereof) shall be in an aggregate principal amount less than $10,000,000 in the
aggregate (or, if less, the full amount of such assigning Lender's Revolving
Credit Loans, L/C Participating Interests and Revolving Credit Commitments) and
(ii) if any Lender assigns all or any part of its rights and obligations under
this Agreement to one of its Affiliates in connection with or in contemplation
of the sale or other disposition of its interest in such Affiliate, the
Borrower's prior written consent shall be required for such assignment. Upon
such execution, delivery, acceptance and recording, from and after the effective
date determined pursuant to such Assignment and Acceptance, (x) the Assignee
thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Lender hereunder
with a Revolving Credit Commitment and L/C Commitment as set forth therein, and
(y) the assigning Lender thereunder shall, to the extent provided in such
Assignment and Acceptance, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all or the remaining
portion of an assigning Lender's rights and obligations under this Agreement,
such assigning Lender shall cease to be a party hereto). Notwithstanding any
provision of this paragraph (c) and paragraph (e) of this subsection, the
consent of the Borrower shall not be required, and, unless requested by the
Assignee and/or the assigning Lender, new Notes shall not be required to be
executed and delivered by the Borrower, for any assignment which occurs at any
time when any of the events described in subsection 9(f) shall have occurred and
be continuing.
(d) The Administrative Agent, on behalf of the Borrower, shall
maintain at the address of the Administrative Agent referred to in subsection
11.2 a copy of each Assignment and Acceptance delivered to it and a register
(the "REGISTER") for the recordation of the names and addresses of the Lenders
and the Commitments of, and principal amounts of the Loans owing to, each Lender
from time to time. The entries in the Register shall be conclusive, in the
absence of manifest error, and the Borrower, the Administrative Agent and the
Lenders may (and, in the case of any Loan or other obligation hereunder not
evidenced by a Note, shall) treat each Person whose name is recorded in the
Register as the owner of a Loan or other obligation hereunder as the owner
thereof for all purposes of this Agreement and the other Loan Documents,
notwithstanding any notice to the contrary. Any assignment of any Loan or other
obligation hereunder not evidenced by a Note shall be effective only upon
appropriate entries with respect thereto being made in the Register. The
Register shall be available for inspection by the Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
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79
(e) Notwithstanding anything in this Agreement to the contrary,
no assignment under subsection 11.6(c) of any rights or obligations under or in
respect of the Loans, the Notes or the Letters of Credit shall be effective
unless and until the Administrative Agent shall have recorded the assignment
pursuant to subsection 11.6(d). Upon its receipt of an Assignment and Acceptance
executed by an assigning Lender and an Assignee (and, in the case of an Assignee
that is not then a Lender or an affiliate thereof, by the Borrower and the
Administrative Agent) together with payment to the Administrative Agent of a
registration and processing fee of $3,500 (other than in the case of an
assignment by a Lender to an affiliate of such Lender), the Administrative Agent
shall (i) promptly accept such Assignment and Acceptance and (ii) on the
effective date determined pursuant thereto record the information contained
therein in the Register and give notice of such acceptance and recordation to
the Lenders and the Borrower. On or prior to such effective date, the assigning
Lender shall surrender any outstanding Notes held by it all or a portion of
which are being assigned, and the Borrower, at its own expense, shall, upon the
request to the Administrative Agent by the assigning Lender or the Assignee, as
applicable, execute and deliver to the Administrative Agent (in exchange for the
outstanding Notes of the assigning Lender) a new Revolving Credit Note to the
order of such Assignee in an amount equal to the lesser of (A) the amount of
such Assignee's Revolving Credit Commitment and (B) the aggregate principal
amount of all Revolving Credit Loans made by such Assignee, after giving effect
to such Assignment and Acceptance and, if the assigning Lender has retained a
Revolving Credit Commitment hereunder, a new Revolving Credit Note to the order
of the assigning Lender in an amount equal to the lesser of (A) the amount of
such Lender's Revolving Credit Commitment and (B) the aggregate principal amount
of all Revolving Credit Loans made by such Lender, after giving effect to such
Assignment and Acceptance. Any such new Notes shall be dated the Closing Date
and shall otherwise be in the form of the Note replaced thereby. Any Notes
surrendered by the assigning Lender shall be returned by the Administrative
Agent to the Borrower marked "canceled".
(f) The Borrower authorizes each Lender to disclose to any
Participant or Assignee (each, a "TRANSFEREE") and any prospective Transferee,
any and all financial information in such Lender's possession concerning the
Loan Parties and their Affiliates which has been delivered to such Lender by or
on behalf of the Borrower pursuant to this Agreement or which has been delivered
to such Lender by or on behalf of the Borrower in connection with such Lender's
credit evaluation of the Loan Parties and their Affiliates prior to becoming a
party to this Agreement.
(g) For avoidance of doubt, the parties to this Agreement
acknowledge that the provisions of this subsection concerning assignments of
Loans and Notes relate only to absolute assignments and that such provisions do
not prohibit assignments creating security interests, including, without
limitation, any pledge or assignment by a Lender of any Loan or Note to any
Federal Reserve Bank in accordance with applicable law.
11.7 ADJUSTMENTS; SET-OFF. (a) If any Lender (a "BENEFITTED
LENDER") shall at any time receive any payment of all or part of its Loans or
Reimbursement Obligations, or interest thereon, or receive any collateral in
respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to
events or proceedings of the nature referred to in subsection 9(f), or
otherwise), in a greater proportion than any such payment to or collateral
received by any other Lender, if any, in respect of such other
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80
Lender's Loans or Reimbursement Obligations, or interest thereon, such
Benefitted Lender shall purchase for cash from the other Lenders a participating
interest in such portion of each such other Lender's Loans or Reimbursement
Obligations, or shall provide such other Lenders with the benefits of any such
collateral, or the proceeds thereof, as shall be necessary to cause such
Benefitted Lender to share the excess payment or benefits of such collateral or
proceeds ratably with each of the Lenders; PROVIDED, HOWEVER, that if all or any
portion of such excess payment or benefits is thereafter recovered from such
Benefitted Lender, such purchase shall be rescinded, and the purchase price and
benefits returned, to the extent of such recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders
provided by law, each Lender shall have the right, without prior notice to the
Borrower, any such notice being expressly waived by the Borrower to the extent
permitted by applicable law, upon any amount becoming due and payable by the
Borrower hereunder (whether at the stated maturity, by acceleration or
otherwise) to set-off and appropriate and apply against such amount any and all
deposits (general or special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in any currency, in
each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by such Lender or any branch or agency
thereof to or for the credit or the account of the Borrower, as the case may be.
Each Lender agrees promptly to notify the Borrower and the Administrative Agent
after any such set-off and application made by such Lender, PROVIDED that, to
the extent permitted by applicable law, the failure to give such notice shall
not affect the validity of such set-off and application.
11.8 COUNTERPARTS. This Agreement may be executed by one or more
of the parties to this Agreement on any number of separate counterparts
(including by facsimile transmission), and all of said counterparts taken
together shall be deemed to constitute one and the same instrument. A set of the
copies of this Agreement signed by all the parties shall be lodged with the
Borrower and the Administrative Agent.
11.9 SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11.10 INTEGRATION. This Agreement and the other Loan Documents
represent the agreement of the Borrower, the other Loan Parties, the
Administrative Agent and the Lenders with respect to the subject matter hereof,
and there are no promises, undertakings, representations or warranties by the
Administrative Agent or any Lender relative to subject matter hereof not
expressly set forth or referred to herein or in the other Loan Documents.
11.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
<PAGE>
81
11.12 SUBMISSION TO JURISDICTION; WAIVERS. The Borrower hereby
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to
which it is a party, or for recognition and enforcement of any judgment
in respect thereof, to the non-exclusive general jurisdiction of the
Courts of the State of New York, the courts of the United States of
America for the Southern District of New York, and appellate courts from
any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have
to the venue of any such action or proceeding in any such court or that
such action or proceeding was brought in an inconvenient court and
agrees not to plead or claim the same;
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to the Borrower at its address set forth in subsection 11.2 or
at such other address of which the Administrative Agent shall have been
notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit
the right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or proceeding
referred to in this subsection any special, exemplary, punitive or
consequential damages.
11.13 ACKNOWLEDGMENTS. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution
and delivery of this Agreement and the other Loan Documents;
(b) neither the Administrative Agent nor any Lender has any
fiduciary relationship with or duty to the Borrower arising out of or in
connection with this Agreement or any of the other Loan Documents, and
the relationship between Administrative Agent and Lenders, on one hand,
and the Borrower, on the other hand, in connection herewith or therewith
is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan
Documents or otherwise exists by virtue of the transactions contemplated
hereby among the Lenders or among the Borrower and the Lenders.
11.14 WAIVERS OF JURY TRIAL. THE BORROWER, THE ADMINISTRATIVE
AGENT AND THE LENDERS HEREBY KNOWINGLY AND INTENTIONALLY, IRREVOCABLY AND
UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
<PAGE>
82
11.15 PRODUCTION PROCEEDS. Notwithstanding that, by the terms of
the Mortgages, Cairn is and will be assigning to the Administrative Agent and
Lenders all of the "Production Proceeds" (as defined in the Mortgage) accruing
to the property covered thereby, so long as no Event of Default has occurred
Cairn may continue to receive from the purchasers of production all such
Production Proceeds, and the Administrative Agent shall reasonably cooperate
with Cairn so that the purchasers of production pay such Production Proceeds
directly to Cairn and not to the Administrative Agent nor the Lenders. Upon the
occurrence and continuation of an Event of Default, the Administrative Agent and
Lenders may exercise all rights and remedies granted under the Mortgages,
including the right to obtain possession of all Production Proceeds then held by
Cairn or to receive directly from the purchasers of production all other
Production Proceeds. In no case shall any failure, whether purposed or
inadvertent, by the Administrative Agent or Lenders to collect directly any such
Production Proceeds constitute in any way a waiver, remission or release of any
of their rights under the Mortgages, nor shall any release of any Production
Proceeds by Administrative Agent or Lenders to Cairn constitute a waiver,
remission, or release of any other Production Proceeds or of any rights of
Administrative Agent or Lenders to collect other Production Proceeds thereunder.
11.16 RELEASE OF MORTGAGED PROPERTIES. The Administrative Agent
is hereby authorized by the Lenders to execute, at the cost and expense of the
Borrower and pursuant to documentation reasonably acceptable to the
Administrative Agent, partial releases of the Mortgaged Properties to the extent
such Mortgaged Properties are sold in accordance with the terms of the Mortgage
and subsection 8.6.
11.17 LIMITATION ON INTEREST. The Borrower, the Loan Parties, the
Administrative Agent and the Lenders intend to contract in strict compliance
with applicable usury law from time to time in effect. In furtherance thereof
such persons stipulate and agree that none of the terms and provisions contained
in the Loan Documents shall ever be construed to provide for interest in excess
of the maximum amount of interest permitted to be charged by applicable law from
time to time in effect. Neither any Loan Party nor any present or future
guarantors, endorsers, or other Persons hereafter becoming liable for payment of
any Obligation shall ever be liable for unearned interest thereon or shall ever
be required to pay interest thereon in excess of the maximum amount that may be
lawfully charged under applicable law from time to time in effect, and the
provisions of this section shall control over all other provisions of the Loan
Documents which may be in conflict or apparent conflict herewith. The
Administrative Agent and the Lenders expressly disavow any intention to charge
or collect excessive unearned interest or finance charges in the event the
maturity of any Obligation is accelerated. If (a) the maturity of any Obligation
is accelerated for any reason, (b) any Obligation is prepaid and as a result any
amounts held to constitute interest are determined to be in excess of the legal
maximum, or (c) any Lender or may other holder of any or all of the Obligations
shall otherwise collect moneys which are determined to constitute interest which
would otherwise increase the interest on any or all of the Obligations to an
amount in excess of that permitted to be charged by applicable law then in
effect, then all sums determined to constitute interest in excess of such legal
limit shall, without penalty, be promptly applied to reduce the then outstanding
principal of the related Obligations or, at such Lender's or holder's option,
promptly returned to Borrower or the other payor thereof upon such
determination. In determining whether or not the interest paid or payable, under
any specific circumstance, exceeds the maximum amount permitted under applicable
law, Lenders,
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83
the Administrative Agent and the Loan Parties (and any other payers thereof)
shall to the greatest extent permitted under applicable law, (i) characterize
any non-principal payment as an expense, fee or premium rather than as interest,
(ii) exclude voluntary prepayments and the effects thereof, and (iii) amortize,
prorate, allocate, and spread the total amount of interest throughout the entire
contemplated term of the instruments evidencing the Obligations in accordance
with the amounts outstanding from time to time thereunder and the maximum legal
rate of interest from time to time in effect under applicable law in order to
lawfully charge the maximum amount of interest permitted under applicable law.
[Remainder of Page Intentionally Left Blank]
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84
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered by their proper and duly authorized officers
as of the day and year first above written.
THE MERIDIAN RESOURCE
CORPORATION
By: /s/ JOSEPH A. REEVES, JR.
Title: Authorized Signatory
THE CHASE MANHATTAN BANK, as
Administrative Agent, Issuing
Lender and as a Lender
By: /s/ AUTHORIZED SIGNATORY
Title:
BANKERS TRUST COMPANY, as
Syndication Agent
By: /s/ AUTHORIZED SIGNATORY
Title:
CHASE SECURITIES INC., as
Advisor and Co-Arranger
By: /s/ AUTHORIZED SIGNATORY
Title:
BT ALEX.BROWN INCORPORATED, as
Co-Arranger
By: /s/ AUTHORIZED SIGNATORY
Title:
TORONTO DOMINION (TEXAS),
INC., as Co-Arranger, Co-
Documentation Agent and as a
Lender
By: /s/ AUTHORIZED SIGNATORY
Title:
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85
CIBC Inc.
By: /s/ AUTHORIZED SIGNATORY
Title:
Mees Pierson, N.V.
By: /s/ AUTHORIZED SIGNATORY
Title:
The Sanwa Bank, Limited
By: /s/ AUTHORIZED SIGNATORY
Title:
Societe Generale, Southwest
Agency
By: /s/ AUTHORIZED SIGNATORY
Title:
The Fuji Bank, Limited
By: /s/ AUTHORIZED SIGNATORY
Title:
NationsBank, N.A.
By: /s/ AUTHORIZED SIGNATORY
Title:
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86
CREDIT LYONNAIS NEW YORK
BRANCH, as Co-Arranger, Co-
Documentation Agent and as a
Lender
By: /s/ AUTHORIZED SIGNATORY
Title:
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87
Schedule 1.1(a) Commitments
LENDER COMMITMENT COMMITMENT ON
PRIOR TO THE SHELL AND AFTER THE
TRANSACTION SHELL
COMPLETION DATE TRANSACTION
($MM) COMPLETION DATE
($MM)
- ------------------------------------ ------------------- -------------------
The Chase Manhattan Bank $18,000,000 $30,000,000
Bankers Trust Company $18,000,000 $30,000,000
Credit Lyonnais New York Branch $18,000,000 $30,000,000
Toronto Dominion $18,000,000 $30,000,000
CIBC Oppenheimer Corp. $15,000,000 $25,000,000
MeesPierson, N.V. $15,000,000 $25,000,000
The Sanwa Bank, Limited $15,000,000 $25,000,000
Societe Generale, Southwest Agency $15,000,000 $25,000,000
The Fuji Bank, Limited $9,000,000 $15,000,000
NationsBank, N.A. $9,000,000 $15,000,000
TOTAL $150,000,000 $250,000,000
EXHIBIT 10.2
SECOND AMENDED AND RESTATED GUARANTEE
SECOND AMENDED AND RESTATED GUARANTEE, dated as of June 30, 1998 (this
"GUARANTEE"), made by each of the corporations that are signatories hereto (the
"GUARANTORS"), in favor of THE CHASE MANHATTAN BANK, as Administrative Agent (in
such capacity, the "ADMINISTRATIVE AGENT") for the lenders (the "LENDERS") from
time to time parties to the Amended and Restated Credit Agreement, dated as of
May 22, 1998 (as amended, supplemented or otherwise modified from time to time,
the "CREDIT AGREEMENT"), among THE MERIDIAN RESOURCE CORPORATION (the
"BORROWER"), the Lenders, the Administrative Agent, Bankers Trust Company, as
syndication agent (in such capacity, the "SYNDICATION AGENT"; collectively with
the Administrative Agent, the "AGENTS"), Chase Securities Inc., as advisor (in
such capacity, the "ADVISOR"), Chase Securities Inc., BT Alex.Brown
Incorporated, Toronto Dominion (Texas), Inc., and Credit Lyonnais New York
Branch, as co-arrangers (each in such capacity, a "CO-ARRANGER"), and Toronto
Dominion (Texas), Inc., and Credit Lyonnais New York Branch, as co-documentation
agent (each in such capacity, a "CO-DOCUMENTATION AGENT").
W I T N E S S E T H:
WHEREAS, the Borrower entered into the Credit Agreement, dated as of
November 5, 1997 (the "EXISTING CREDIT AGREEMENT"), with the Administrative
Agent and the banks and other financial institutions from time to time parties
thereto;
WHEREAS, in connection with the Existing Credit Agreement, the Borrower
has executed the Guarantee, dated November 5, 1997 (the "EXISTING GUARANTEE"),
in favor of the Administrative Agent for the ratable benefit of the lenders
under the Existing Credit Agreement, as the same may be amended, supplemented or
otherwise modified from time to time;
WHEREAS, the Borrower, the Agents, the Advisor, the Co-Arrangers and the
Lenders have entered into the Credit Agreement to amend and restate the Existing
Credit Agreement;
WHEREAS, each of the Guarantors is a Subsidiary (as defined in the Credit
Agreement) of the Borrower;
WHEREAS, the proceeds of the Extensions of Credit will be used in part to
enable the Borrower to provide for financing of the Shell Transaction (as
defined in the Credit Agreement) and related costs and expenses, and for the
refinancing of certain existing indebtedness of the Borrower and its
Subsidiaries;
<PAGE>
2
WHEREAS, the Borrower and the Guarantors are engaged in related
businesses, and each Guarantor will derive substantial direct and indirect
benefit from the making of the Extensions of Credit; and
WHEREAS, it is a condition precedent to the obligation of the Lenders to
make their respective Extensions of Credit to the Borrower under the Credit
Agreement that the Guarantors shall have amended and restated the Existing
Guarantee to confirm and continue their joint and several obligations to
guarantee the Obligations (as defined below) pursuant to the Amended and
Restated Guarantee, dated as of May 22, 1998 (the "Amended Guarantee"), made by
the Guarantors (other than Louisiana Onshore Properties Inc. ("LOPI")) in favor
of the Administrative Agent for the ratable benefit of the Lender; and
WHEREAS, on the date hereof LOPI shall become a Subsidiary of the Borrower
and, pursuant to the terms of the Credit Agreement, is required to become a
Guarantor hereunder;
NOW, THEREFORE, in consideration of the premises hereinafter set forth and
the mutual agreements set forth in the Credit Agreement, the Guarantors hereby
agree with the Administrative Agent, for the ratable benefit of the Lenders,
that on the date hereof, the Amended Guarantee shall be amended and restated in
its entirety as follows:
1. DEFINED TERMS. (a) Unless otherwise defined herein, terms defined in
the Credit Agreement and used herein shall have the meanings given to them in
the Credit Agreement.
(b) As used herein, "OBLIGATIONS" means the collective reference to the
unpaid principal of and interest on the Loans and the Reimbursement Obligations
and all other obligations and liabilities of the Borrower (including, without
limitation, interest accruing at the then applicable rate provided in the Credit
Agreement after the maturity of the Loans and interest accruing at the then
applicable rate provided in the Credit Agreement after the filing of any
petition in bankruptcy, or the commencement of any insolvency, reorganization or
like proceeding, relating to the Borrower, whether or not a claim for
post-filing or post-petition interest is allowed in such proceeding) to the
Administrative Agent or any of the Lenders (or, in the case of any Hedging
Agreement referred to below, any Affiliate of any Lender), whether direct or
indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection with, the
Credit Agreement, any Notes, any Letter of Credit, the other Loan Documents or
any Hedging Agreement entered into by the Borrower with any Lender (or any
Affiliate of any Lender) or any other document made, delivered or given in
connection therewith, in each case whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses or otherwise
(including, without limitation, all fees and disbursements of counsel to the
Administrative Agent or to the Lenders that are required to be paid by the
Borrower or the Guarantors pursuant to the terms of the Credit Agreement or this
Agreement or any other Loan Document).
<PAGE>
3
(c) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Guarantee shall refer to this Guarantee as a whole and
not to any particular provision of this Guarantee, and section and paragraph
references are to this Guarantee unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.
2. GUARANTEE. (a) Subject to the provisions of paragraph 2(b), each of the
Guarantors hereby, jointly and severally, unconditionally and irrevocably,
guarantees to the Administrative Agent, for the ratable benefit of the Lenders
and their respective successors, indorsees, transferees and assigns, the prompt
and complete payment and performance by the Borrower when due (whether at the
stated maturity, by acceleration or otherwise) of the Obligations.
(b) Anything herein or in any other Loan Document to the contrary
notwithstanding, the maximum liability of each Guarantor hereunder and under the
other Loan Documents shall in no event exceed the amount which can be guaranteed
by such Guarantor under applicable federal and state laws relating to the
insolvency of debtors (after giving affect to the right of contribution
established in Section 3).
(c) Each Guarantor further agrees to pay any and all expenses (including,
without limitation, all fees and disbursements of counsel) which may be paid or
incurred by the Administrative Agent or any Lender in enforcing, or obtaining
advice of counsel in respect of, any rights with respect to, or collecting, any
or all of the Obligations and/or enforcing any rights with respect to, or
collecting against, such Guarantor under this Guarantee. This Guarantee shall
remain in full force and effect until the Obligations are paid in full, no
Letter of Credit shall be outstanding, and the Commitments are terminated,
notwithstanding that from time to time prior thereto the Borrower may be free
from any Obligations.
(d) Each Guarantor agrees that the Obligations may at any time and from
time to time exceed the amount of the liability of such Guarantor hereunder
without impairing this Guarantee or affecting the rights and remedies of the
Administrative Agent or any Lender hereunder.
(e) No payment or payments made by the Borrower, any of the Guarantors,
any other guarantor or any other Person or received or collected by the
Administrative Agent or any Lender from the Borrower, any of the Guarantors, any
other guarantor or any other Person by virtue of any action or proceeding or any
set-off or appropriation or application at any time or from time to time in
reduction of or in payment of the Obligations shall be deemed to modify, reduce,
release or otherwise affect the liability of any Guarantor hereunder which
shall, notwithstanding any such payment or payments other than payments made by
such Guarantor in respect of the Obligations or payments received or collected
from such Guarantor in respect of the Obligations, remain liable for the
Obligations up to the maximum liability of such Guarantor hereunder until the
Obligations are paid in full, no Letter of Credit shall be outstanding, and the
Commitments are terminated.
<PAGE>
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(f) Each Guarantor agrees that whenever, at any time, or from time to
time, it shall make any payment to the Administrative Agent or any Lender on
account of its liability hereunder, it will notify the Administrative Agent in
writing that such payment is made under this Guarantee for such purpose.
3. RIGHT OF CONTRIBUTION. Each Guarantor hereby agrees that to the extent
that a Guarantor shall have paid more than its proportionate share of any
payment made hereunder, such Guarantor shall be entitled to seek and receive
contribution from and against any other Guarantor hereunder who has not paid its
proportionate share of such payment. Each Guarantor's right of contribution
shall be subject to the terms and conditions of Section 5 hereof. The provisions
of this Section shall in no respect limit the obligations and liabilities of any
Guarantor to the Administrative Agent and the Lenders, and each Guarantor shall
remain liable to the Administrative Agent and the Lenders for the full amount
guaranteed by such Guarantor hereunder.
4. RIGHT OF SET-OFF. Each Guarantor hereby irrevocably authorizes each
Lender at any time and from time to time, so long as an Event of Default has
occurred and is continuing, without notice to such Guarantor or any other
Guarantor, any such notice being expressly waived by each Guarantor, to set-off
and appropriate and apply any and all deposits (general or special, time or
demand, provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by such Lender to or for the credit or the account of such Guarantor, or
any part thereof in such amounts as such Lender may elect, against and on
account of the obligations and liabilities of such Guarantor to such Lender
hereunder and claims of every nature and description of such Lender against such
Guarantor, in any currency, whether arising hereunder, under the Credit
Agreement, any Note, any Letter of Credit, any other Loan Document or otherwise,
as such Lender may elect, whether or not the Administrative Agent or any Lender
has made any demand for payment and although such obligations, liabilities and
claims may be contingent or unmatured. The Administrative Agent and each Lender
shall notify such Guarantor promptly of any such set-off and the application
made by the Administrative Agent or such Lender, PROVIDED that the failure to
give such notice shall not affect the validity of such set-off and application.
The rights of the Administrative Agent and each Lender under this Section are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) which the Administrative Agent or such Lender may have.
5. NO SUBROGATION. Notwithstanding any payment or payments made by any of
the Guarantors hereunder or any set-off or application of funds of any of the
Guarantors by the Administrative Agent or any Lender, no Guarantor shall be
entitled to be subrogated to any of the rights of the Administrative Agent or
any Lender against the Borrower or any other Guarantor or any collateral
security or guarantee or right of offset held by any Lender for the payment of
the Obligations, nor shall any Guarantor seek or be entitled to seek any
contribution or reimbursement from the Borrower or any other Guarantor in
respect of payments made by such Guarantor hereunder, until all amounts owing to
the Administrative Agent and the Lenders by the
<PAGE>
5
Borrower on account of the Obligations are paid in full, no Letter of Credit
shall be outstanding and the Commitments are terminated. If any amount shall be
paid to any Guarantor on account of such subrogation rights at any time when all
of the Obligations shall not have been paid in full, such amount shall be held
by such Guarantor in trust for the Administrative Agent and the Lenders,
segregated from other funds of such Guarantor, and shall, forthwith upon receipt
by such Guarantor, be turned over to the Administrative Agent in the exact form
received by such Guarantor (duly indorsed by such Guarantor to the
Administrative Agent, if required), to be applied against the Obligations,
whether matured or unmatured, in such order as the Administrative Agent may
determine.
6. AMENDMENTS, ETC. WITH RESPECT TO THE OBLIGATIONS; WAIVER OF RIGHTS.
Each Guarantor shall remain obligated hereunder notwithstanding that, without
any reservation of rights against any Guarantor and without notice to or further
assent by any Guarantor, any demand for payment of any of the Obligations made
by the Administrative Agent or any Lender may be rescinded by such Person and
any of the Obligations continued, and the Obligations, or the liability of any
other Person upon or for any part thereof, or any collateral security or
guarantee therefor or right of offset with respect thereto, may, from time to
time, in whole or in part, be renewed, extended, amended, modified, accelerated,
compromised, waived, surrendered or released by the Administrative Agent or any
Lender, and the Credit Agreement, any Notes and the other Loan Documents and any
other documents executed and delivered in connection therewith may be amended,
modified, supplemented or terminated, in whole or in part, as the Administrative
Agent (or the Required Lenders, as the case may be) may deem advisable from time
to time, and any collateral security, guarantee or right of offset at any time
held by the Administrative Agent or any Lender for the payment of the
Obligations may be sold, exchanged, waived, surrendered or released. Neither the
Administrative Agent nor any Lender shall have any obligation to protect,
secure, perfect or insure any Lien at any time held by it as security for the
Obligations or for this Guarantee or any property subject thereto. When making
any demand hereunder against any of the Guarantors, the Administrative Agent or
any Lender may, but shall be under no obligation to, make a similar demand on
the Borrower or any other Guarantor or guarantor, and any failure by the
Administrative Agent or any Lender to make any such demand or to collect any
payments from the Borrower or any such other Guarantor or guarantor or any
release of the Borrower or such other Guarantor or guarantor shall not relieve
any of the Guarantors in respect of which a demand or collection is not made or
any of the Guarantors not so released of their several obligations or
liabilities hereunder, and shall not impair or affect the rights and remedies,
express or implied, or as a matter of law, of the Administrative Agent or any
Lender against any of the Guarantors. For the purposes hereof "demand" shall
include the commencement and continuance of any legal proceedings.
7. GUARANTEE ABSOLUTE AND UNCONDITIONAL. Each Guarantor waives any and all
notice of the creation, renewal, extension or accrual of any of the Obligations
and notice of or proof of reliance by the Administrative Agent or any Lender
upon this Guarantee or acceptance of this Guarantee, the Obligations, and any of
them, shall conclusively be deemed to have been created, contracted or incurred,
or renewed, extended, amended or waived, in reliance upon this
<PAGE>
6
Guarantee; and all dealings between the Borrower and any of the Guarantors, on
the one hand, and the Administrative Agent and the Lenders, on the other hand,
likewise shall be conclusively presumed to have been had or consummated in
reliance upon this Guarantee. Each Guarantor waives diligence, presentment,
protest, demand for payment and notice of default or nonpayment to or upon the
Borrower or any of the Guarantors with respect to the Obligations. Each
Guarantor understands and agrees that this Guarantee shall be construed as a
continuing, absolute and unconditional guarantee of payment without regard to
(a) the validity, regularity or enforceability of the Credit Agreement, any Note
or any other Loan Document, any of the Obligations or any other collateral
security therefor or guarantee or right of offset with respect thereto at any
time or from time to time held by the Administrative Agent or any Lender (b) any
defense, set-off or counterclaim (other than a defense of payment or
performance) which may at any time be available to or be asserted by the
Borrower against the Administrative Agent or any Lender, or (c) any other
circumstance whatsoever (with or without notice to or knowledge of the Borrower
or such Guarantor) which constitutes, or might be construed to constitute, an
equitable or legal discharge of the Borrower for the Obligations, or of such
Guarantor under this Guarantee, in bankruptcy or in any other instance. When
pursuing its rights and remedies hereunder against any Guarantor, the
Administrative Agent and any Lender may, but shall be under no obligation to,
pursue such rights and remedies as it may have against the Borrower or any other
Person or against any collateral security or guarantee for the Obligations or
any right of offset with respect thereto, and any failure by the Administrative
Agent or any Lender to pursue such other rights or remedies or to collect any
payments from the Borrower or any such other Person or to realize upon any such
collateral security or guarantee or to exercise any such right of offset, or any
release of the Borrower or any such other Person or any such collateral
security, guarantee or right of offset, shall not relieve such Guarantor of any
liability hereunder, and shall not impair or affect the rights and remedies,
whether express, implied or available as a matter of law, of the Administrative
Agent and the Lenders against such Guarantor. This Guarantee shall remain in
full force and effect and be binding in accordance with and to the extent of its
terms upon each Guarantor and the successors and assigns thereof, and shall
inure to the benefit of the Administrative Agent and the Lenders, and their
respective successors, indorsees, transferees and assigns, until all the
Obligations and the obligations of each Guarantor under this Guarantee shall
have been satisfied by payment in full, no Letter of Credit shall be
outstanding, and the Commitments shall be terminated, notwithstanding that from
time to time during the term of the Credit Agreement the Borrower may be free
from any Obligations.
8. REINSTATEMENT. This Guarantee shall continue to be effective, or be
reinstated, as the case may be, if at any time payment, or any part thereof, of
any of the Obligations is rescinded or must otherwise be restored or returned by
the Administrative Agent or any Lender upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the Borrower or any Guarantor, or
upon or as a result of the appointment of a receiver, intervenor or conservator
of, or trustee or similar officer for, the Borrower or any Guarantor or any
substantial part of its property, or otherwise, all as though such payments had
not been made.
<PAGE>
7
9. PAYMENTS. Each Guarantor hereby guarantees that payments hereunder will
be paid to the Administrative Agent without set-off or counterclaim in Dollars
at the office of the Administrative Agent located at 270 Park Avenue, New York,
New York 10017.
10. REPRESENTATIONS AND WARRANTIES. Each Guarantor hereby represents and
warrants to the Administrative Agent and each Lender that, the representations
and warranties set forth in Section 5 of the Credit Agreement as they relate to
such Guarantor or to the Loan Documents to which such Guarantor is a party, each
of which is hereby incorporated herein by reference, are true and correct, and
the Administrative Agent and each Lender shall be entitled to rely on each of
them as if they were fully set forth herein; PROVIDED that each reference in
each such representation and warranty to the Borrower's knowledge shall, for the
purposes of this Section 10 be deemed to be a reference to such Guarantor's
knowledge.
Each Guarantor agrees that the foregoing representations and
warranties shall be deemed to have been made by such Guarantor on the date of
each Extension of Credit under the Credit Agreement on and as of such date of
Extension of Credit as though made hereunder on and as of such date.
11. COVENANTS. Each Guarantor covenants and agrees with the Administrative
Agent and each Lender that, from and after the date of this Guarantee until the
Obligations shall have been paid in full, no Letter of Credit shall be
outstanding and the Commitments shall have terminated, such Guarantor shall
take, or shall refrain from taking, as the case may be, each action that is
necessary to be taken or not taken, as the case may be, so that no Default or
Event of Default is caused by the failure to take such action or to refrain from
taking such action by such Guarantor or any of its Subsidiaries.
12. AUTHORITY OF ADMINISTRATIVE AGENT. Each Guarantor acknowledges that
the rights and responsibilities of the Administrative Agent under this Guarantee
with respect to any action taken by the Administrative Agent or the exercise or
non-exercise by the Administrative Agent of any option, right, request, judgment
or other right or remedy provided for herein or resulting or arising out of this
Guarantee shall, as between the Administrative Agent and the Lenders, be
governed by the Credit Agreement and by such other agreements with respect
thereto as may exist from time to time among them, but, as between the
Administrative Agent and such Guarantor, the Administrative Agent shall be
conclusively presumed to be acting as agent for the Lenders with full and valid
authority so to act or refrain from acting, and no Guarantor shall be under any
obligation, or entitlement, to make any inquiry respecting such authority.
13. NOTICES. All notices, requests and demands to or upon the
Administrative Agent, any Lender or any Guarantor shall be effected in the
manner provided for in subsection 11.2 of the Credit Agreement, addressed as
follows:
(a) if to the Administrative Agent or any Lender, at its address or
transmission number for notices provided in subsection 11.2 of the Credit
Agreement; and
<PAGE>
8
(b) if to any Guarantor, at its address or transmission number for notices
set forth under its signature below.
The Administrative Agent, each Lender and each Guarantor may change its
address and transmission numbers for notices by notice in the manner provided in
this Section.
14. COUNTERPARTS. This Guarantee may be executed by one or more of the
Guarantors on any number of separate counterparts, and all of said counterparts
taken together shall be deemed to constitute one and the same instrument.
15. SEVERABILITY. Any provision of this Guarantee which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
16. INTEGRATION. This Guarantee represents the agreement of each Guarantor
with respect to the subject matter hereof and there are no promises or
representations by the Administrative Agent or any Lender relative to the
subject matter hereof not reflected herein.
17. AMENDMENTS IN WRITING; NO WAIVER; CUMULATIVE REMEDIES. (a) None of the
terms or provisions of this Guarantee may be waived, amended, supplemented or
otherwise modified except in accordance with subsection 11.1 of the Credit
Agreement.
(b) Neither the Administrative Agent nor any Lender shall by any act
(except by a written instrument pursuant to paragraph 17(a) hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any Default or Event of Default or in any
breach of any of the terms and conditions hereof. No failure to exercise, nor
any delay in exercising, on the part of the Administrative Agent or any Lender,
any right, power or privilege hereunder shall operate as a waiver thereof. No
single or partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. A waiver by the Administrative Agent or any Lender of
any right or remedy hereunder on any one occasion shall not be construed as a
bar to any right or remedy which the Administrative Agent or such Lender would
otherwise have on any future occasion.
(c) The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
18. SUBMISSION TO JURISDICTION; WAIVERS. Each of the Guarantors hereby
irrevocably and unconditionally: (1) submits for itself and its property in any
legal action or proceeding relating to this Guarantee and the other Loan
Documents to which it is a party, or for recognition and enforcement of any
judgment in respect thereof, to the non-exclusive general jurisdiction of the
<PAGE>
9
Courts of the State of New York, the courts of the United States of America for
the Southern District of New York, and appellate courts from any thereof; (2)
consents that any such action or proceeding may be brought in such courts and
waives any objection that it may now or hereafter have to the venue of any such
action or proceeding in any such court or that such action or proceeding was
brought in an inconvenient court and agrees not to plead or claim the same; (3)
agrees that service of process in any such action or proceeding may be effected
by mailing a copy thereof by registered or certified mail (or any substantially
similar form of mail), postage prepaid, to such Guarantor at its address set
forth on the signature page hereof or at such other address of which the
Administrative Agent shall have been notified pursuant thereto; (4) agrees that
nothing herein shall affect the right to effect service of process in any other
manner permitted by law or shall limit the right to sue in any other
jurisdiction; and (5) waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or proceeding referred
to in this subsection any special, exemplary, punitive or consequential damages.
19. WAIVERS OF JURY TRIAL. THE GUARANTORS HEREBY KNOWINGLY AND
INTENTIONALLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS GUARANTEE OR ANY OTHER LOAN DOCUMENT AND
FOR ANY
COUNTERCLAIM THEREIN.
20. SECTION HEADINGS. The section headings used in this Guarantee are for
convenience of reference only and are not to affect the construction hereof or
be taken into consideration in the interpretation hereof.
21. SUCCESSORS AND ASSIGNS. This Guarantee shall be binding upon the
successors and assigns of each Guarantor and shall inure to the benefit of the
Administrative Agent and the Lenders and their successors and assigns.
22. GOVERNING LAW. This Guarantee shall be governed by, and construed and
interpreted in accordance with, the law of the State of New York.
<PAGE>
10
IN WITNESS WHEREOF, each of the undersigned has caused this
Guarantee to be duly executed and delivered by its duly authorized officer as of
the day and year first above written.
CAIRN ENERGY USA, INC.
By /s/ Joseph A. Reeves, Jr.
Title CEO
Address for Notices:
15995 N. Barker's Landing, Suite 300
Houston, Texas 77079
Fax: (281) 558-5595
THE MERIDIAN RESOURCE &
EXPLORATION COMPANY
By /s/ Joseph A. Reeves, Jr.
Title CEO
Address for Notices:
15995 N. Barker's Landing, Suite 300
Houston, Texas 77079
Fax: (281) 558-5595
THE MERIDIAN PRODUCTION
CORPORATION
By /s/ Joseph A. Reeves, Jr.
Title CEO
Address for Notices:
15995 N. Barker's Landing, Suite 300
Houston, Texas 77079
Fax: (281) 558-5595
<PAGE>
11
THE MERIDIAN RESOURCE &
EXPLORATION COMPANY
By /s/ Joseph A. Reeves, Jr.
Title CEO
Address for Notices:
15995 N. Barker's Landing, Suite 300
Houston, Texas 77079
Fax: (281) 558-5595
LOUISIANA ONSHORE PROPERTIES INC.
By /s/ Joseph A. Reeves, Jr.
Title CEO
Address for Notices:
15995 N. Barker's Landing, Suite 300
Houston, Texas 77079
Fax: (281) 558-5595
EXHIBIT 10.3
AMENDED AND RESTATED PLEDGE AGREEMENT
AMENDED AND RESTATED PLEDGE AGREEMENT, dated as of May 22,
1998 (this "PLEDGE AGREEMENT"), made by each of the signatories hereto (together
with any other entity that may become a party hereto, the "PLEDGORS"), in favor
of THE CHASE MANHATTAN BANK, as administrative agent (in such capacity, the
"ADMINISTRATIVE AGENT") for the several lenders (the "LENDERS") from time to
time parties to the Amended and Restated Credit Agreement, dated as of May 22,
1998 (as amended, supplemented or otherwise modified from time to time, the
"CREDIT AGREEMENT"), among THE MERIDIAN RESOURCE CORPORATION, a Texas
corporation (the "BORROWER"), the Lenders, the Administrative Agent, Bankers
Trust Company, as syndication agent (in such capacity, the "SYNDICATION AGENT";
collectively with the Administrative Agent, the "AGENTS"), Chase Securities
Inc., as advisor (in such capacity, the "ADVISOR"), Chase Securities Inc., BT
Alex.Brown Incorporated, Toronto Dominion (Texas), Inc., and Credit Lyonnais New
York Branch, as co-arrangers (each in such capacity, a "CO-ARRANGER"), and
Toronto Dominion (Texas), Inc., and Credit Lyonnais New York Branch, as
co-documentation agent (each in such capacity, a "CO-DOCUMENTATION AGENT").
W I T N E S S E T H:
WHEREAS, the Borrower entered into the Credit Agreement, dated November
5, 1997 (the "EXISTING CREDIT AGREEMENT"), with the Administrative Agent and the
Lenders from time to time parties thereto;
WHEREAS, in connection with the Existing Credit Agreement, the Borrower
has executed the Pledge Agreement, dated November 5, 1997 (the "EXISTING PLEDGE
AGREEMENT"), in favor of the Administrative Agent for the ratable benefit of the
lenders under the Existing Credit Agreement, as the same may be amended,
supplemented or otherwise modified from time to time;
WHEREAS, the Borrower, the Agents, the Advisor, the Co-Arrangers and
the Lenders have entered into the Credit Agreement to amend and restate the
Existing Credit Agreement; and
WHEREAS, it is a condition precedent to the obligation of the Lenders
to make their respective Extensions of Credit to the Borrower under the Credit
Agreement that each Pledgor shall have amended and restated the Existing Pledge
Agreement.
NOW, THEREFORE, in consideration of the premises and to induce
the Agents and the Lenders to enter into the Credit Agreement and to induce the
Lenders to make their respective Extensions of Credit to the Borrower, each
Pledgor hereby agrees with the Administrative Agent, for the ratable benefit of
the Lenders, as follows:
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2
1. DEFINED TERMS. (a) Unless otherwise defined herein, terms defined in
the Credit Agreement and used herein shall have the meanings given to them in
the Credit Agreement.
(b) The following terms shall have the following meanings:
"AGREEMENT": this Amended and Restated Pledge Agreement, as the same
may be amended, restated, modified or otherwise supplemented from time to time.
"BORROWER OBLIGATIONS": the collective reference to the unpaid
principal of and interest on the Loans and Reimbursement Obligations and all
other obligations and liabilities of the Borrower (including, without
limitation, interest accruing at the then applicable rate provided in the Credit
Agreement after the maturity of the Loans and Reimbursement Obligations and
interest accruing at the then applicable rate provided in the Credit Agreement
after the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to the Borrower, whether
or not a claim for post-filing or post-petition interest is allowed in such
proceeding) to the Administrative Agent or any Lender (or, in the case of any
Hedging Agreement referred to below, any Affiliate of any Lender), whether
direct or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, which may arise under, out of, or in connection
with, the Credit Agreement, this Agreement, the other Loan Documents, any Letter
of Credit or any Hedging Agreement entered into by the Borrower with any Lender
(or any Affiliate of any Lender) or any other document made, delivered or given
in connection therewith, in each case whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses or otherwise
(including, without limitation, all fees and disbursements of counsel to the
Administrative Agent or to the Lenders that are required to be paid by the
Borrower pursuant to the terms of any of the foregoing agreements).
"CODE": the Uniform Commercial Code from time to time in effect in the
State of New York.
"COLLATERAL": the Pledged Stock and all Proceeds.
"COLLATERAL ACCOUNT": any account established to hold money Proceeds,
maintained under the sole dominion and control of the Administrative Agent,
subject to withdrawal by the Administrative Agent for the account of the Lenders
only as provided in paragraph 8(a).
"GUARANTOR OBLIGATIONS": with respect to any Guarantor, the collective
reference to (i) the Borrower Obligations and (ii) all obligations and
liabilities of such Guarantor which may arise under or in connection with this
Agreement, the Amended and Restated Guarantee Agreement or any other Loan
Document to which such Guarantor is a party, in each case whether on account of
guarantee obligations, reimbursement obligations, fees, indemnities, costs,
expenses or otherwise (including, without limitation, all fees and disbursements
of counsel to the Administrative Agent or to the Lenders that are required to be
paid by such Guarantor pursuant to the terms of this Agreement or any other Loan
Document).
<PAGE>
3
"GUARANTORS": the collective reference to each Pledgor other than the
Borrower.
"ISSUERS": the collective reference to the companies identified on
SCHEDULE 1 attached hereto as the issuers of the Pledged Stock; individually,
each an "ISSUER".
"PLEDGED STOCK": the shares of capital stock listed on SCHEDULE 1
hereto, together with all stock certificates, options or rights of any nature
whatsoever that may be issued or granted by any Issuer to any Pledgor while this
Agreement is in effect.
"PROCEEDS": all "proceeds" as such term is defined in Section 9-306(1)
of the Uniform Commercial Code in effect in the State of New York on the date
hereof and, in any event, shall include, without limitation, all dividends or
other income from the Pledged Stock, collections thereon or distributions with
respect thereto.
"SECURED OBLIGATIONS": (i) in the case of the Borrower, the Borrower
Obligations and (ii) in the case of each Guarantor, its Guarantor Obligations.
"SECURITIES ACT": the Securities Act of 1933, as amended.
(c) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and section and paragraph
references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
2. PLEDGE; GRANT OF SECURITY INTEREST. Each Pledgor hereby delivers to
the Administrative Agent, for the ratable benefit of the Lenders, all of such
Pledgor's Pledged Stock and hereby grants to Administrative Agent, for the
ratable benefit of the Lenders, a first priority security interest in the
Collateral, as collateral security for the prompt and complete payment and
performance when due (whether at the stated maturity, by acceleration or
otherwise) of the Secured Obligations.
3. STOCK POWERS. Concurrently with the delivery to the Administrative
Agent of each certificate representing one or more shares of Pledged Stock to
the Administrative Agent, the relevant Pledgor shall deliver an undated stock
power covering such certificate, duly executed in blank by such Pledgor with, if
the Administrative Agent so requests, signature guaranteed.
4. REPRESENTATIONS AND WARRANTIES. Each Pledgor represents and warrants
that:
(a) The shares of such Pledgor's Pledged Stock constitute all the
issued and outstanding shares of all classes of the capital stock of each Issuer
thereof.
<PAGE>
4
(b) All the shares of the Pledged Stock pledged by such Pledgor have
been duly and validly issued and are fully paid and nonassessable.
(c) Such Pledgor is the record and beneficial owner of, and has good
and marketable title to, such Pledgor's Pledged Stock, free of any and all Liens
or options in favor of, or claims of, any other Person, except the security
interest created by this Agreement.
5. COVENANTS. Each Pledgor covenants and agrees with the Administrative
Agent and the Lenders that, from and after the date of this Agreement until this
Agreement is terminated and the security interests created hereby are released:
(a) If such Pledgor shall, as a result of its ownership of the Pledged
Stock, become entitled to receive or shall receive any stock certificate
(including, without limitation, any certificate representing a stock dividend or
a distribution in connection with any reclassification, increase or reduction of
capital or any certificate issued in connection with any reorganization), option
or rights, whether in addition to, in substitution of, as a conversion of, or in
exchange for any shares of the Pledged Stock, or otherwise in respect thereof,
such Pledgor shall accept the same as the agent of the Administrative Agent and
the Lenders, hold the same in trust for the Agent and the Lenders and deliver
the same forthwith to the Agent in the exact form received, duly indorsed by
such Pledgor to the Administrative Agent, if required, together with an undated
stock power covering such certificate duly executed in blank by such Pledgor and
with, if the Administrative Agent so requests, signature guaranteed, to be held
by the Administrative Agent, subject to the terms hereof, as additional
collateral security for the Secured Obligations. Any sums paid upon or in
respect of the Pledged Stock upon the liquidation or dissolution of any Issuer
shall be paid over to the Administrative Agent to be held by it hereunder as
additional collateral security for the Secured Obligations, and in case any
distribution of capital shall be made on or in respect of the Pledged Stock or
any property shall be distributed upon or with respect to the Pledged Stock
pursuant to the recapitalization or reclassification of the capital of any
Issuer or pursuant to the reorganization thereof, the property so distributed
shall be delivered to the Administrative Agent to be held by it hereunder as
additional collateral security for the Secured Obligations. If any sums of money
or property so paid or distributed in respect of the Pledged Stock shall be
received by such Pledgor, such Pledgor shall, until such money or property is
paid or delivered to the Administrative Agent, hold such money or property in
trust for the Lenders, segregated from other funds of such Pledgor, as
additional collateral security for the Secured Obligations.
(b) Without the prior written consent of the Administrative Agent, such
Pledgor shall not (1) vote to enable, or take any other action to permit, any
Issuer to issue any stock or other equity securities of any nature or to issue
any other securities convertible into or granting the right to purchase or
exchange for any stock or other equity securities of any nature of any Issuer,
(2) sell, assign, transfer, exchange, or otherwise dispose of, or grant any
option with respect to, the Collateral, (3) create, incur or permit to exist any
Lien or option in favor of, or any claim of any Person with respect to, any of
the Collateral, or any interest therein, except for the security interests
created by this Agreement or (4) enter into any agreement or undertaking
restricting the
<PAGE>
5
right or ability of such Pledgor or the Administrative Agent to sell, assign or
transfer any of the Collateral.
(c) Such Pledgor shall maintain the security interest created by this
Agreement as a first, perfected security interest and shall defend such security
interest against claims and demands of all Persons whomsoever. At any time and
from time to time, upon the written request of the Administrative Agent, and at
the sole expense of such Pledgor, such Pledgor will promptly and duly execute
and deliver such further instruments and documents and take such further actions
as the Administrative Agent may reasonably request for the purposes of obtaining
or preserving the full benefits of this Agreement and of the rights and powers
herein granted. If any amount payable under or in connection with any of the
Collateral shall be or become evidenced by any promissory note, other instrument
or chattel paper, such note, instrument or chattel paper shall be immediately
delivered to the Administrative Agent, duly endorsed in a manner satisfactory to
the Administrative Agent, to be held as Collateral pursuant to this Agreement.
(d) Such Pledgor shall pay, and save the Administrative Agent and the
Lenders harmless from, any and all liabilities with respect to, or resulting
from any delay in paying, any and all stamp, excise, sales or other taxes which
may be payable or determined to be payable with respect to any of the Collateral
or in connection with any of the transactions contemplated by this Agreement.
6. CASH DIVIDENDS; VOTING RIGHTS. Unless an Event of Default shall have
occurred and be continuing and the Administrative Agent shall have given notice
to a Pledgor or Pledgors of the Administrative Agent's intent to exercise its
corresponding rights pursuant to Section 7 below, all Pledgors shall be
permitted to receive all cash dividends paid in the normal course of business of
the Issuers, to the extent permitted in the Credit Agreement, in respect of the
Pledged Stock and to exercise all voting and corporate rights with respect to
the Pledged Stock; PROVIDED, HOWEVER, that no vote shall be cast or corporate
right exercised or other action taken which, in the Administrative Agent's
reasonable judgment, would impair the Collateral or which would be inconsistent
with or result in any violation of any provision of the Credit Agreement, the
Notes, this Agreement or any other Loan Document.
7. RIGHTS OF THE LENDERS AND THE ADMINISTRATIVE AGENT. (a) All money
Proceeds received by the Administrative Agent hereunder shall be held by the
Administrative Agent for the benefit of the Lenders in a Collateral Account. All
Proceeds while held by the Administrative Agent in a Collateral Account (or by a
Pledgor in trust for the Administrative Agent and the Lenders) shall continue to
be held as collateral security for all the Secured Obligations and shall not
constitute payment thereof until applied as provided in paragraph 8(a).
(b) If an Event of Default shall occur and be continuing and the
Administrative Agent shall give notice of its intent to exercise such rights to
the relevant Pledgor or Pledgors, (1) the Administrative Agent shall have the
right to receive any and all cash dividends paid in respect of the Pledged Stock
and make application thereof to the Secured Obligations in such order as the
Administrative Agent may determine, and (2) all shares of the Pledged Stock
shall be registered in
<PAGE>
6
the name of the Administrative Agent or its nominee, and the Administrative
Agent or its nominee may thereafter exercise (A) all voting, corporate and other
rights pertaining to such shares of the Pledged Stock at any meeting of
shareholders of the applicable Issuer or Issuers or otherwise and (B) any and
all rights of conversion, exchange, subscription and any other rights,
privileges or options pertaining to such shares of the Pledged Stock as if it
were the absolute owner thereof (including, without limitation, the right to
exchange at its discretion any and all of the Pledged Stock upon the merger,
consolidation, reorganization, recapitalization or other fundamental change in
the corporate structure of such Issuer, or upon the exercise by such Pledgor or
the Administrative Agent of any right, privilege or option pertaining to such
shares of the Pledged Stock, and in connection therewith, the right to deposit
and deliver any and all of the Pledged Stock with any committee, depositary,
transfer agent, registrar or other designated agency upon such terms and
conditions as the Administrative Agent may determine), all without liability
except to account for property actually received by it, but the Administrative
Agent shall have no duty to such Pledgor to exercise any such right, privilege
or option and shall not be responsible for any failure to do so or delay in so
doing.
8. REMEDIES. (a) If an Event of Default shall have occurred and be
continuing, at any time at the Administrative Agent's election, the
Administrative Agent may apply all or any part of Proceeds held in any
Collateral Account in payment of the Secured Obligations in such order as the
Administrative Agent may elect.
(b) If an Event of Default shall occur and be continuing, the
Administrative Agent, on behalf of the Lenders, may exercise, in addition to all
other rights and remedies granted in this Agreement and in any other instrument
or agreement securing, evidencing or relating to the Secured Obligations, all
rights and remedies of a secured party under the Code. Without limiting the
generality of the foregoing, the Administrative Agent, without demand of
performance or other demand, presentment, protest, advertisement or notice of
any kind (except any notice required by law referred to below) to or upon any
Pledgor or any other Person (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, assign, give option or options to
purchase or otherwise dispose of and deliver the Collateral or any part thereof
(or contract to do any of the foregoing), in one or more parcels at public or
private sale or sales, in the over-the-counter market, at any exchange, broker's
board or office of the Administrative Agent or any Lender or elsewhere upon such
terms and conditions as it may deem advisable and at such prices as it may deem
best, for cash or on credit or for future delivery without assumption of any
credit risk. The Administrative Agent or any Lender shall have the right upon
any such public sale or sales, and, to the extent permitted by law, upon any
such private sale or sales, to purchase the whole or any part of the Collateral
so sold, free of any right or equity of redemption in the relevant Pledgor,
which right or equity is hereby waived or released. The Administrative Agent
shall apply any Proceeds from time to time held by it and the net proceeds of
any such collection, recovery, receipt, appropriation, realization or sale,
after deducting all reasonable costs and expenses of every kind incurred in
respect thereof or incidental to the care or safekeeping of any of the
Collateral or in any way relating to the Collateral or the rights of the
Administrative Agent and the Lenders hereunder, including, without
<PAGE>
7
limitation, reasonable attorneys' fees and disbursements of counsel to the
Administrative Agent, to the payment in whole or in part of the Secured
Obligations, in such order as the Administrative Agent may elect, and only after
such application and after the payment by the Administrative Agent of any other
amount required by any provision of law, including, without limitation, Section
9-504(1)(c) of the Code, need the Administrative Agent account for the surplus,
if any, to the relevant Pledgor. To the extent permitted by applicable law, each
Pledgor waives all claims, damages and demands it may acquire against the
Administrative Agent or any Lender arising out of the exercise by them of any
rights hereunder. If any notice of a proposed sale or other disposition of
Collateral shall be required by law, such notice shall be deemed reasonable and
proper if given at least 10 days before such sale or other disposition.
(c) Each Pledgor waives and agrees not to assert any rights or
privileges which it may acquire under Section 9-112 of the Code. The Pledgors
shall remain liable for any deficiency if the proceeds of any sale or other
disposition of Collateral are insufficient to pay the Secured Obligations and
the fees and disbursements of any attorneys employed by the Administrative Agent
or any Lender to collect such deficiency.
9. REGISTRATION RIGHTS; PRIVATE SALES. (a) If the Administrative Agent
shall determine to exercise its right to sell any or all of the Pledged Stock
pursuant to paragraph 8(b) hereof, and if in the opinion of the Administrative
Agent it is necessary or advisable to have the Pledged Stock, or that portion
thereof to be sold, registered under the provisions of the Securities Act, each
Pledgor will cause the Issuer thereof to (1) execute and deliver, and cause the
directors and officers of such Issuer to execute and deliver, all such
instruments and documents, and do or cause to be done all such other acts as may
be, in the opinion of the Administrative Agent, necessary or advisable to
register the Pledged Stock, or that portion thereof to be sold, under the
provisions of the Securities Act, (2) to use its best efforts to cause the
registration statement relating thereto to become effective and to remain
effective for a period of one year from the date of the first public offering of
the Pledged Stock, or that portion thereof to be sold, and (3) to make all
amendments thereto and/or to the related prospectus which, in the opinion of the
Administrative Agent, are necessary or advisable, all in conformity with the
requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable thereto. Each Pledgor agrees to
cause such Issuer to comply with the provisions of the securities or "Blue Sky"
laws of any and all jurisdictions which the Administrative Agent shall designate
and to make available to its security holders, as soon as practicable, an
earnings statement (which need not be audited) which will satisfy the provisions
of Section 11(a) of the Securities Act.
(b) Each Pledgor recognizes that the Administrative Agent may be unable
to effect a public sale of any or all the Pledged Stock, by reason of certain
prohibitions contained in the Securities Act and applicable state securities
laws or otherwise, and may be compelled to resort to one or more private sales
thereof to a restricted group of purchasers which will be obliged to agree,
among other things, to acquire such securities for their own account for
investment and not with a view to the distribution or resale thereof. Each
Pledgor acknowledges and agrees that any such private sale may result in prices
and other terms less favorable than if such sale were a public
<PAGE>
8
sale and, notwithstanding such circumstances, agrees that any such private sale
shall be deemed to have been made in a commercially reasonable manner. The
Administrative Agent shall be under no obligation to delay a sale of any of the
Pledged Stock for the period of time necessary to permit the Issuer thereof to
register such securities for public sale under the Securities Act, or under
applicable state securities laws, even if such Issuer would agree to do so.
(c) Each Pledgor further agrees to use its best efforts to do or cause
to be done all such other acts as may be necessary to make such sale or sales of
all or any portion of the Pledged Stock pursuant to this Section 9 valid and
binding and in compliance with any and all other applicable Requirements of Law.
Each Pledgor further agrees that a breach of any of the covenants contained in
this Section 9 will cause irreparable injury to the Administrative Agent and the
Lenders, that the Administrative Agent and the Lenders have no adequate remedy
at law in respect of such breach and, as a consequence, that each and every
covenant contained in this Section shall be specifically enforceable against
such Pledgor, and such Pledgor hereby waives and agrees not to assert any
defenses against an action for specific performance of such covenants except for
a defense that no Event of Default has occurred under the Credit Agreement.
10. IRREVOCABLE AUTHORIZATION AND INSTRUCTION TO ISSUER. Each Pledgor
hereby authorizes and instructs each Issuer to comply with any instruction
received by it from the Administrative Agent in writing that (a) states that an
Event of Default has occurred and (b) is otherwise in accordance with the terms
of this Agreement, without any other or further instructions from such Pledgor,
and each Pledgor agrees that each Issuer shall be fully protected in so
complying.
11. ADMINISTRATIVE AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT. (a) Each
Pledgor hereby irrevocably constitutes and appoints the Administrative Agent and
any officer or agent of the Administrative Agent, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of such Pledgor and in the name of
such Pledgor or in the Administrative Agent's own name, from time to time in the
Administrative Agent's discretion, for the purpose of carrying out the terms of
this Agreement, to take any and all appropriate action and to execute any and
all documents and instruments which may be necessary or desirable to accomplish
the purposes of this Agreement, including, without limitation, any financing
statements, endorsements, assignments or other instruments of transfer.
(b) Each Pledgor hereby ratifies all that said attorneys shall lawfully
do or cause to be done pursuant to the power of attorney granted in paragraph
11(a). All powers, authorizations and agencies contained in this Agreement are
coupled with an interest and are irrevocable until this Agreement is terminated
and the security interests created hereby are released.
12. DUTY OF ADMINISTRATIVE AGENT. The Administrative Agent's sole duty
with respect to the custody, safekeeping and physical preservation of the
Collateral in its possession, under Section 9-207 of the Code or otherwise,
shall be to deal with it in the same manner as the Administrative Agent deals
with similar securities and property for its own account, except that the
Administrative Agent shall have no obligation to invest funds held in any
Collateral Account and may hold the same as demand deposits. Neither the
Administrative Agent, any Lender nor
<PAGE>
9
any of their respective directors, officers, employees or agents shall be liable
for failure to demand, collect or realize upon any of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of any Pledgor or any other Person or to take
any other action whatsoever with regard to the Collateral or any part thereof.
13. EXECUTION OF FINANCING STATEMENTS. Pursuant to Section 9-402 of the
Code, each Pledgor authorizes the Administrative Agent to file financing
statements with respect to the Collateral without the signature of such Pledgor
in such form and in such filing offices as the Administrative Agent reasonably
determines appropriate to perfect the security interests of the Administrative
Agent under this Agreement. A carbon, photographic or other reproduction of this
Agreement shall be sufficient as a financing statement for filing in any
jurisdiction.
14. AUTHORITY OF ADMINISTRATIVE AGENT. Each Pledgor acknowledges that
the rights and responsibilities of the Administrative Agent under this Agreement
with respect to any action taken by the Administrative Agent or the exercise or
non-exercise by the Administrative Agent of any option, voting right, request,
judgment or other right or remedy provided for herein or resulting or arising
out of this Agreement shall, as between the Administrative Agent and the
Lenders, be governed by the Credit Agreement and by such other agreements with
respect thereto as may exist from time to time among them, but, as between the
Administrative Agent and the Pledgors, the Administrative Agent shall be
conclusively presumed to be acting as agent for the Lenders with full and valid
authority so to act or refrain from acting, and neither the Pledgors nor any
Issuer shall be under any obligation, or entitlement, to make any inquiry
respecting such authority.
15. NOTICES. All notices, requests and demands to or upon the
Administrative Agent or the Pledgors to be effective shall be effected in the
manner provided for in subsection 11.2 of the Credit Agreement, addressed as
follows:
(1) if to the Administrative Agent, at its address or transmission
number for notices provided in subsection 11.2 of the Credit Agreement; and
(2) if to a Pledgor, at its address or transmission number for notices
set forth on Schedule 2 hereto. The Administrative Agent and the Pledgors may
change their addresses and transmission numbers for notices by notice in the
manner provided in this subsection 11.2 of the Credit Agreement.
16. SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
<PAGE>
10
17. AMENDMENTS IN WRITING; NO WAIVER; CUMULATIVE REMEDIES. (a) None of
the terms or provisions of this Agreement may be waived, amended, supplemented
or otherwise modified in accordance with subsection 11.01 of the Credit
Agreement.
(b) Neither the Administrative Agent nor any Lender shall by any act
(except by a written instrument pursuant to paragraph 17(a) hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any Default or Event of Default or in any
breach of any of the terms and conditions hereof. No failure to exercise, nor
any delay in exercising, on the part of the Administrative Agent or any Lender,
any right, power or privilege hereunder shall operate as a waiver thereof. No
single or partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. A waiver by the Administrative Agent or any Lender of
any right or remedy hereunder on any one occasion shall not be construed as a
bar to any right or remedy which the Administrative Agent or such Lender would
otherwise have on any future occasion.
(c) The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
18. SECTION HEADINGS. The section headings used in this Agreement are
for convenience of reference only and are not to affect the construction hereof
or be taken into consideration in the interpretation hereof.
19. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
successors and assigns of each Pledgor and shall inure to the benefit of the
Administrative Agent and the Lenders and their successors and assigns.
20. GOVERNING LAW. This Agreement shall be governed by, and construed
and interpreted in accordance with, the law of the State of New York.
<PAGE>
11
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be
duly executed and delivered as of the date first above written.
THE MERIDIAN RESOURCE CORPORATION
By /s/ Joseph A. Reeves, Jr.
Title Chief Executive Officer
<PAGE>
ACKNOWLEDGEMENT AND CONSENT
The undersigned hereby acknowledges receipt of a copy of the Amended
and Restated Pledge Agreement dated as of May 22, 1998, made by [Name of
Pledgor] (the "PLEDGOR") for the benefit of The Chase Manhattan Bank, as
Administrative Agent (the "PLEDGE AGREEMENT"). The undersigned agrees for the
benefit of the Administrative Agent and the Lenders as follows:
1. The undersigned will be bound by the terms of the Pledge Agreement
and will comply with such terms insofar as such terms are applicable to the
undersigned.
2. The undersigned will notify the Administrative Agent promptly in
writing of the occurrence of any of the events described in paragraph 5(a) of
the Pledge Agreement.
3. The terms of paragraph 9(c) of the Pledge Agreement shall apply to
it, MUTATIS MUTANDIS, with respect to all actions that may be required of it
under or pursuant to or arising out of Section 9 of the Pledge Agreement.
[NAME OF ISSUER]
By ---------------------------------------------------
Title ------------------------------------------------
Address for Notices:
------------------------------------------------------
------------------------------------------------------
Telex:------------------------------------------------
Fax:--------------------------------------------------
<PAGE>
SCHEDULE 1
TO PLEDGE AGREEMENT
DESCRIPTION OF PLEDGED STOCK
Issuer Class of Stock Stock Certificate No. No. of shares
- ------------------------- --------------- --------------------- -------------
Cairn Energy USA, Inc. common C1 1,000
The Meridian Resource & common 1 1,000
Exploration Company
The Meridian Production common 1 1,000
Corporation
The Meridian Resource common 1 1,000
Corporation (Delaware
subsidiary)
<PAGE>
SCHEDULE 2
TO PLEDGE AGREEMENT
ADDRESS FOR NOTICES
Notices for all parties should be sent:
c/o Chief Executive Officer
The Meridian Resource Corporation
15995 N. Barkers Landing, Suite 300
Houston, Texas 77079
Fax: (713) 58-5595
EXHIBIT 10.4
EXECUTION COPY
FIRST AMENDMENT
FIRST AMENDMENT, dated as of June 30, 1998 (this "AMENDMENT"), to the
Amended and Restated Pledge Agreement (as amended, supplemented or otherwise
modified from time to time), dated as of May 22, 1998 (the "PLEDGE AGREEMENT"),
among The Meridian Resource Corporation, a Texas corporation (the "PLEDGOR"), in
favor of The Chase Manhattan Bank, as the Administrative Agent (in such
capacity, the "ADMINISTRATIVE AGENT") fro the several lenders (the "LENDERS")
from time to time parties to the Amended and Restated Credit Agreement, dated as
of May 22, 1998 (as amended, supplemented or otherwise modified from time to
time, the "CREDIT AGREEMENT"), among The Meridian Resource Corporation, a Texas
corporation (the "BORROWER"), the Lenders, the Administrative Agent, Bankers
Trust Company, as Syndication Agent (in such capacity, the "SYNDICATION AGENT"),
Chase Securities Inc., as advisor to the Borrower (in such capacity, the
"ADVISOR"), Chase Securities Inc., BT Alex.Brown Incorporated, Toronto Dominion
(Texas), Inc. and Credit Lyonnais New York Branch, as co-arrangers (each in such
capacity, a "CO-ARRANGER"), and Toronto Dominion (Texas), Inc. and Credit
Lyonnais New York Branch, as co-documentation agents (each in such capacity, a
"CO-DOCUMENTATION AGENT"). Terms defined in the Pledge Agreement and used herein
shall, unless otherwise indicated, have the meanings given to them in the Pledge
Agreement.
W I T N E S S E T H:
WHEREAS, the Borrower has requested, and, upon this Amendment becoming
effective, the Administrative Agent and the Lenders have agreed to enter into
this Amendment in connection with the occurrence of the Shell Transaction
Completion Date and the increase in the Revolving Credit Commitment to
$250,000,000 and the Borrowing Base to $200,000,000 and certain other
modifications set forth in the Credit Agreement; and
WHEREAS, the parties hereto wish to amend certain provisions of the Pledge
Agreement on the terms set forth herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereto hereby agree that the Pledge
Agreement shall be amended as of the date hereof as follows:
1. AMENDMENT TO THE PLEDGE AGREEMENT
(a) Schedule 1. Schedule 1 of the Pledge Agreement is hereby amended
by adding at the end thereof the stock described on Annex A hereto (the "LOPI
STOCK") and such stock shall be deemed part of the Pledged Stock and shall
secure all Secured Obligations.
-1-
<PAGE>
(b) GRANT OF SECURITY INTEREST. The Pledgor hereby grants to the
Administrative Agent, for the ratable benefit of the Lenders, a first priority
security interest in the LOPI Stock, as collateral security for the prompt and
complete payment and performance when due (whether at the stated maturity, by
acceleration otherwise) of the Secured Obligations.
2. STOCK POWERS. Concurrently with the delivery to the Administrative
Agent of each certificate representing one or more shares of LOPI Stock to the
Administrative Agent, the Pledgor shall deliver an undated stock power covering
such certificate, duly executed in blank by the Pledgor with, if the
Administrative Agent so requests, signature guaranteed.
3. REPRESENTATIONS AND WARRANTIES. The Borrower as of the date hereof and
after giving effect to the amendments contained herein, hereby confirms,
reaffirms and restates that (a) representations and warranties made by it in
Section 5 to the Credit Agreement are true and correct on and as of the date
hereof (except to the extent such representations and warranties are stated to
relate to a specific earlier date) and (b) no Default or Event of Default has
occurred and is continuing on the date hereof.
4. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS; LIMITED EFFECT. On and
after the date hereof and the satisfaction of the conditions contained in
Section 2 of this Amendment, each reference in the Pledge Agreement to "this
Agreement", "hereunder", "hereof" or words of like import referring to the
Pledge Agreement, and each reference in the other Loan Documents to "the Pledge
Agreement", "thereunder", "thereof" or words of like import referring to the
Pledge Agreement, shall mean and be a reference to the Pledge Agreement as
amended hereby. The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of any Lender or the Agent under any of the Loan
Documents, nor constitute a waiver of any provisions and covenants of the Pledge
Agreement and the other Loan Documents are and shall continue to remain in full
force and effect in accordance with the terms thereof and are hereby in all
respects ratified and confirmed.
5. COUNTERPARTS. This Amendment may be executed by one or more of the
parties hereto in any number of separate counterparts (which may include
counterparts delivered by facsimile transmission) and all of said counterparts
taken together shall be deemed to constitute one and the same instrument. Any
executed counterpart delivered by facsimile transmission shall be effective as
for all purposes hereof.
6. GOVERNING LAW. This Amendment and the rights and obligations of the
parties hereto shall be governed by, and construed and interpreted in accordance
with, the laws of the State of New York.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
THE MERIDIAN RESOURCE CORPORATION
By /s/ JOSEPH A. REEVES, JR.
Title: CEO
Acknowledged and Agreed:
THE CHASE MANHATTAN BANK,
as Administrative Agent
By /s/ AUTHORIZED SIGNATORY
Title:
-3-
<PAGE>
ANNEX A
DESCRIPTION OF PLEDGED STOCK
<TABLE>
<CAPTION>
STOCK CERTIFICATE NO. OF
ISSUER CLASS OF STOCK NO. SHARES
- ---------------------------------- ------------------ ----------------- -----------
<S> <C> <C>
Louisiana Onshore Properties, Inc. Common B-1 1,000
</TABLE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (No. 33-86788 and 333-40009) of The Meridian Resource
Corporation of our report dated May 12, 1998 on the Historical Statement of
Revenues and Direct Operating Expenses of the LOPI Properties appearing on page
F-1 of this Form 8-K and of our report dated May 12, 1998 on the Historical
Statement of Revenues and Direct Operating Expenses of the SWEPI Properties
appearing on page F-7 of this Form 8-K.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
July 6, 1998
THE MERIDIAN RESOURCE CORPORATION
SHAREHOLDERS APPROVE SHELL TRANSACTIONS
The Meridian Resource Corporation (NYSE:TMR) announced today that,
following approval of its shareholders, it consummated the previously announced
merger (the "Merger") of Louisiana Onshore Properties Inc., an indirect
subsidiary of Shell Oil Company ("Shell"), and LOPI Acquisition Corp., a
wholly-owned subsidiary of Meridian. Meridian also announced that, immediately
following consummation of the Merger, it completed a separate purchase (with the
Merger, the "Shell Transactions") of oil and gas property interests from a
subsidiary of Shell. Consummation of the Shell Transactions provides Meridian
with substantially all of Shell's and its direct and indirect subsidiaries'
onshore oil and gas property interests in south Louisiana, and access to
substantially all of Shell's and its direct and indirect subsidiaries' 2-D and
3-D seismic data covering onshore south Louisiana. In connection with the
Merger, affiliates of Shell received a 39.9% interest in the Company, assuming
exercise of all outstanding options and warrants, comprised of 12,082,030 shares
of common stock and shares of a new series of preferred stock convertible into
12,837,428 shares of common stock. Meridian paid $42.5 million in connection
with the separate acquisition of oil and gas property interests, subject to
adjustment for production, expenses and other items since October 1, 1997.
Joe Reeves, Chairman and CEO of Meridian, stated "We are very excited
about this new relationship with Shell. The addition of the oil and gas property
interests acquired in the Shell Transactions significantly strengthens the
Company's presence and operating leverage in the south Louisiana oil and gas
producing region."
Transition of the operations of the properties acquired in the Shell
Transactions and analysis of the extensive 3-D and 2-D seismic data began with
the execution of a Transition Management Agreement on May 21, 1998.
Exploration/exploitation activities on the Shell properties have resulted in
field production increases of approximately 13 MMCFe/D plus two discoveries, as
follows:
o On May 15, 1998, Meridian, as Operator and 25% working interest
owner of the West Gueydan prospect, completed the Anna Belle Bourque
#1, in the Marg Howei sand at a depth of 12,500 feet. The well was
tested at 3,377 MCF/D, 218 BC/D and 62 BW/D through a 14/64" choke
at 3,520 psi FTP. Two additional wells are planned for the West
Gueydan prospect in 1998, including the Vermillion Parish School
Board No. 1 well, which currently is drilling at 10,002 feet with a
planned total depth of 15,700 feet.
o On June 29, 1998, Meridian, as Operator and 100% working interest
owner, logged the Myles Salt No. 32 at a total depth of 7,440 feet.
Electric log analysis indicates the presence of 551 feet of gross
pay. Two development wells are currently planned following
completion of the No. 32 well.
<PAGE>
Meridian also announced that the voting on the proposal to increase
Meridian's authorized shares of common stock from 100,000,000 to 200,000,000
shares was deferred to give shareholders additional time to vote on the
proposal. The Special Meeting of Shareholders will reconvene on July 20, 1998,
at 9:00 a.m., at Meridian's offices to complete voting on such proposal.
The Meridian Resource Corporation is an independent oil and natural gas
company engaged in the exploration and development of oil and natural gas
properties utilizing 3-D seismic technology, primarily in south Louisiana,
southeast Texas and offshore Gulf of Mexico. Meridian's offices are located in
Houston, Texas and its common stock is traded on the New York Stock Exchange
under the symbol "TMR". For additional information, visit our website at
WWW.TMRC.COM or our E-mail address at [email protected].
Certain of the foregoing statements may be deemed "forward-looking
statements" within the meaning of the Securities Exchange Act of 1934. Although
Meridian believes that the expectations reflected in such forward-looking
statements are reasonable, there can be no assurance that such expectations will
prove to have been correct. Certain risks and uncertainties inherent in
Meridian's business are set forth in Meridian's filings with the Securities and
Exchange Commission. These risks include (i) the continued production from
existing wells at their current or projected levels, (ii) price changes for oil
and gas, (iii) the ability of the Company to successfully complete those wells
that have been logged and reflect potential production, (iv) the ability of the
Company to successfully complete and produce those reserves scheduled as
"non-producing" or "undeveloped", (v) the ability of the Company to acquire
leases and timely drill its exploratory prospects, (vi) risks regarding
estimates of reserves, (vii) production risks, (viii) governmental regulations
and (ix) general risks regarding the exploration for, and production of, oil and
gas reserves, including uncertainties with respect to preliminary logging and
well tests.
CONTACT: Meridian Resource Corporation, Houston Joseph A. Reeves, Jr.,
Michael J. Mayell or P. Richard "Dick" Gessinger, 281/558-8080
