ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On June 30, 1995, National Energy Group, Inc. (the "Company") completed the
acquisition of producing gas properties in the Oak Hill Field in Rusk County,
Texas ("Oak Hill") from Sierra 1994 I Limited Partnership ("Sierra"). The
acquisition follows the purchase of a producing oil and gas property in the
Mustang Island Field in offshore Nueces County, Texas ("Mustang") from Sierra
Mineral Development, L.C. and LLOG Production Company (the Company assumed
Sierra Mineral's contractual rights and obligations with LLOG), which purchase
was consummated on April 28, 1995.
Collectively, the Oak Hill and Mustang interests have proved reserves with
a present value discounted at 10% (PV 10) of approximately $18,000,000 and such
properties are estimated to contain nearly 30 billion cubic feet of gas
equivalent. Collectively, the Oak Hill and Mustang interests are currently
producing at an aggregate rate of approximately 6 million cubic feet of gas and
100 barrels of oil per day. The Company will operate both properties.
The Company based the consideration given for the Oak Hill acquisition on
the value of the acquired reserves, cash flow from the acquired working interest
and development opportunities in the Oak Hill Field. The consideration paid by
the Company to Sierra for the Oak Hill acquisition consisted of $7,200,000 in
cash, 612,311 shares of the Company's Class A Common Stock and Warrants to
purchase 200,000 shares of Class A Common Stock at a price per share of $2.00.
The cash portion of the acquisition was funded primarily by the Company's new
reducing, revolving credit facility with Bank One, Texas, N.A. ("Bank One") (See
"Item 5 - Other Events" below). The consideration given for the acquisition of
the Mustang Interests consisted of $900,000 in cash and 352,500 shares of the
Company's Class A Common Stock. The Company based the consideration given for
the Mustang acquisition on the value of the acquired reserves, cash flow from
the acquired interests and development opportunities in the Mustang Island
Field. The Company funded the Mustang acquisition with internal cash.
In addition, on June 30, 1995, the Company completed the acquisition of
producing oil and gas properties in Eddy County, New Mexico from Enron Oil and
Gas Company ("Enron"), pursuant to a Purchase and Sale Agreement dated as of
March 29, 1995 between the Company and Enron. The acquisition consists of six
gas wells and two oil wells, which contain approximately 4 billion cubic feet of
gas equivalent. The Company will be the operator of a majority of the
properties. The consideration given for the acquisition was $2,119,295 in cash.
The Company based the consideration given for the acquisition on the value of
acquired reserves and cash flow from the acquired properties. This acquisition
was funded by the Company's new credit facility with Bank One and internal cash.
ITEM 5. OTHER EVENTS.
On June 30, 1994, National Energy Group, Inc. (the "Company") consummated a
$33,000,000 reducing revolving line of credit facility (the "Facility") with
Bank One, Texas, N.A. ("Bank One"). The initial funding was $15,500,000, of
which $12,500,000 was drawn upon. The initial advance was used to purchase the
Oak Hill and Enron properties described in Item 2 above, to pay off the
Company's credit facility with Texas Gas Fund I and for closing fees. In the
future, the Facility will be used for the further development of the Goldsmith
Adobe Unit (GAU) in Ector County, Texas and for acquisitions and limited
exploration.
The Facility consists of two parts: a Revolving Note of up to $30,000,000,
with an interest rate of prime plus 1% (subject to reduction in certain
circumstances) or LIBOR plus 3.75% (subject to reduction in certain
circumstances), and an Advance Note of up to $3,000,000 (primarily for the
development of GAU) at a rate of prime plus 4%. Payments of interest and
principal will be made monthly. The Facility is secured by all of the Company's
principal oil and gas properties, related equipment, oil and gas inventory and
related revenues. Prepayments are allowed at any time.
The Revolving Note has a maturity date of June 30, 1999 and the Advance
Note has a maturity date of June 30, 1996. Payment of the Advance Note is
subordinated to payment of the Revolving Note. Beginning July 31, 1995, the
Company is required to make monthly payments of $175,000 (which amount can be
redetermined semi-annually by Bank One).
The Facility contains restrictive and affirmative covenants and maintenance
of required financial ratios. The Company cannot merge with another entity
unless (i) the Company is the surviving corporation or (ii) Bank One consents,
and (iii) no Event of Default shall occur. The Company must keep a current
ratio of at least 1.0 to 1.0, a debt service ratio of 1.10 to 1.00, a total
liabilities to total equity ratio of no more than 1.25 to 1.00, and total bank
debt may not exceed 67% of the present value of the Company's oil and gas
properties on January 1, 1996, and 65% of such present value on April 1, 1996.
The Company cannot pay any dividends on or redeem common stock. However, cash
dividends on and redemptions of Preferred Stock are allowed, so long as no Event
of Default has occurred and is continuing or would occur as a result of such
payment.
In addition, on June 15, 1995, the Company consummated the sale of
$4,000,000 of the Company's 10 1/2% Cumulative Convertible Preferred Stock,
Series C, which was privately placed with affiliates of Kayne, Anderson
Investment Management, Inc. of Los Angeles, California ("Purchasers"). Forty
thousand shares of 10 1/2% Cumulative Convertible Preferred Stock, Series C
("Series C") were sold by the Company at $100.00 per share, and the Series C is
convertible into shares of the Company's Class A Common Stock ("Class A") at a
conversion price of $2.00 per share of Class A.
The Series C has a liquidation and dividend preference over the Class A,
and is parity stock to the previously issued 10% Cumulative Convertible
Preferred Stock, Series B ("Series B"). The Series C has a 10 1/2% dividend,
payable semi-annually. The Company has the option to make six dividend payments
in Series C; after the sixth such payment, the Purchasers have the option to
receive additional dividends in Series C or to accrue such dividends in cash.
If the Company makes four dividend payments in Series C, the Purchasers (voting
as a class with other affected series of Preferred Stock with similar voting
rights) have the right to appoint one-third of the members of the Company's
Board of Directors; provided, however, that if the holders of Series B are
presently entitled to a similar right, then the holder of Series C shall have no
such right until the right of the holders of Series B terminates. The Series C
is not redeemable by the Company for two years; between two years and three
years from June 14, 1995, the Series C is redeemable at $110.00 per share and,
thereafter, at $100.00 per share, plus accrued and unpaid dividends. No shares
of Series B shall be redeemed by the Company unless and until all outstanding
shares of Series C have been redeemed by the Company. The holders of the Series
C have the right to appoint one member to the Company's Board of Directors.
The holders of Series C are entitled to one vote for each share as to
matters upon which by law they are entitled to vote as a class, and the approval
of a majority of the holders of Series C is required to make changes to the
Company's Certificate of Incorporation or By-Laws which adversely affect the
Series C, to issue preferred stock equal to or senior to the Series C as to
dividends or liquidation, or to effect an extraordinary transaction that
requires a vote of the Company stockholders. As a result, a class vote of the
holders of Series C, as well as the Series B, would be required for the Company
to merge or be acquired and may therefore delay, defer, or prevent a change in
control of the Company.
The shares of Class A which may be issued upon conversion of the Series C
are to be included in a registration statement which the Company will file with
the Securities and Exchange Commission. The Purchasers have certain other
registration and underwriting rights.
Proceeds from the offering of Series C will be used to develop the
Company's GAU property in Ector County, Texas, and to recomplete, enhance and
exploit certain of the Company's other selected properties. The proceeds also
are to be used for the acquisition of producing properties or companies, or the
securities of such companies, and for limited, low-risk exploration drilling.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired. It is impracticable to
provide the required financial statements for the acquired assets at the time of
this report. The Company, however, will file the required financial statements
as they are available and, in any event, shall file the required financial
statements by amendment to this Form 8-K as soon as practicable, but not later
than 60 days after the date that this report must be filed.
(b) Pro Forma Financial Information. It is impracticable to provide the
required pro forma financial information for the acquired assets at the time of
this report. The Company, however, will file the required pro forma financial
information as it is available and, in any event, shall file the required pro
forma financial information by amendment to this Form 8-K as soon as
practicable, but not later than 60 days after the date that this report must be
filed.
(c) Exhibits. The following documents are filed as exhibits to this
Current Report on Form 8-K, under the indicated exhibit number: Agreement for
Purchase and Sale (Oak Hill), dated April 12, 1995, between the Company and
Sierra 1994 I Limited Partnership (Exhibit 10.1); Purchase and Sale Agreement
dated as of March 29, 1995, between the Company and Enron Oil and Gas Company
(Exhibit 10.2); Loan Agreement, dated June 30, 1995, between National Energy
Group, Inc. and Bank One, Texas, N.A. (Exhibit 10.3); Stock Purchase Agreement,
dated as of June 14, 1995, among the Company, Arbco Associates L.P., Offense
Group Associates L.P., Kayne, Anderson Nontraditional Investments L.P. and
Opportunity Associates L.P. (Exhibit 10.4); and Certificate of Designations of
National Energy Group, Inc. of 10 1/2% Cumulative Convertible Preferred Stock,
Series C (Exhibit 10.5)
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.
NATIONAL ENERGY GROUP, INC. (Registrant)
Date: July 17, 1995
/s/ Miles D. Bender
Miles D. Bender
President and Chief Executive Officer
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.
NATIONAL ENERGY GROUP, INC. (Registrant)
Date: July 17, 1995
Miles D. Bender
President and Chief Executive Officer
EXHIBIT INDEX
Exhibit Number Description Page Number
10.1 Agreement for Purchase and Sale (Oak Hill) 1 - 76
dated April 12, 1995, between the Company
and Sierra 1994 I Limited Partnership.
10.2 Agreement for Purchase and Sale (Mustang 1 - 40
Island), dated April 20, 1995, between the
Company and Sierra Mineral Development, L.C.
10.3 Purchase and Sale Agreement, dated as of 1 - 48
March 29, 1995, between the Company and
Enron Oil and Gas Co.
10.4 Loan Agreement, dated June 30, 1995, between 1 - 73
National Energy Group, Inc. and Bank One, Texas,
N.A.
10.5 Stock Purchase Agreement, dated as of 1 - 47
June 14, 1995, among the Company, Arbco
Associates L.P., Offense Group Associates
L.P., Kayne, Anderson Nontraditional
Investments L.P. and Opportunity
Associates L.P.
10.6 Certificate of Designations of National 1 - 14
Energy Group, Inc. of 10 1/2% Cumulative
Convertible Preferred Stock, Series C
AGREEMENT FOR PURCHASE AND SALE
(OAK HILL)
THIS AGREEMENT FOR PURCHASE AND SALE (this Agreement ) dated as
of the 12th day of April, 1995, is entered into by and between Sierra 1994 I
Limited Partnership, a Texas limited partnership (herein referred to as Seller
), and National Energy Group, Inc., a Delaware corporation (herein referred to
as Buyer ).
W I T N E S S E T H:
WHEREAS, Seller owns certain oil and gas properties and related
assets; and
WHEREAS, Seller desires to sell and Buyer desires to acquire such
properties and
related assets on the terms and conditions herein provided;
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements set forth herein , the parties hereby agree as follows:
1. Sale and Purchase.
(a) Included Assets. Subject to the terms and conditions of this
Agreement, Seller agrees to sell, convey, assign and deliver and Buyer agrees to
purchase and pay for the following described interests, rights and properties
(herein collectively referred to as the Purchased Properties ):
(i) Subject Interests. All of Seller s right, title and interest in
and to the oil, gas and/or mineral leases, royalty interests, overriding royalty
interests, mineral fee interests, lands and wells described in Exhibit A
attached hereto, together with all of Seller s right, title and interest in and
to all leases, royalty interests, overriding royalty interests and mineral
interests pooled or unitized with the leases described in Exhibit A and all
reversionary interests related thereto (collectively, the Subject Interests )
even though the Subject Interests may be incorrectly or incompletely described
in or omitted from Exhibit A.
(ii) Incidental Rights. All of Seller s right, title and interest in
and to the following, to the extent that same are attributable to the Subject
Interests: (A) all rights with respect to the use and occupancy of the surface
of and the subsurface depths under the land (the Land ) covered by such Subject
Interests; (B) all rights with respect to any pooled, communitized or unitized
acreage by virtue of any Subject Interests being a part thereof; (C) all rights
in and to all easements, licenses, permits, rights-of-way, servitudes and other
estates related to or otherwise affecting the Subject Interests; (D) all real
and personal property, facilities, fixtures, inventory and equipment located
upon the Lands and used in connection with the exploration, development or
operation of the Subject Interests or the production, treatment, sale or
transportation of hydrocarbons produced therefrom; (E) all rights in and to all
agreements and contractual rights related to the Subject Interests (including
hydrocarbon sales agreements, operating agreements and unit agreements) to the
extent same are transferable; (F) all hydrocarbon production from or
attributable to the Subject Interestswith respect to all periods after the
Effective Time and all proceeds attributable thereto; (G)all rights to claim
revenues or hydrocarbons resulting from underproduction attributable tothe
Subject Interests; and (H) all other rights and interests in, to and under the
SubjectInterests to the extent attributable to periods after the Effective Time
(collectively, the Incidental Rights ).
(iii) Records. All lease files, land files, well files, oil and
gas sales contracts files,gas processing files, division order files, abstracts,
title opinions, production and severancetax records, engineering, geological and
geophysical data, and all other similar files, maps,logs and other records of
Seller (excluding interpretive or proprietary geological andgeophysical data and
other interpretive data) that are directly related to Subject Interests
andIncidental Rights and to the extent same are transferable (the Records ).
(b) Excluded Assets. Notwithstanding the foregoing, the Purchased
Properties shall not include, and there is excepted, reserved and excluded from
the sale contemplated hereby (I) any accounts receivable or accounts payable
accruing before the Effective Time, (ii) all corporate, financial, tax and legal
(other than title) records of Seller, (iii) all contracts of insurance or
indemnity,(iv) all hydrocarbon production from or attributable to the Subject
Interests with respect to all periods prior to the Effective Time, all proceeds
attributable thereto, and all hydrocarbons that, at the Effective Time, are
owned by Seller and are in storage, within processing plants or in pipelines,
(v) any refund of costs, taxes or expenses borne by Seller attributable to the
period prior to the Effective Time, (vi) Title Defect Properties excluded from
the purchase and sale contemplated by this Agreement under Section 5(c), and
(vii) any other right or interest in and to the Purchased Properties to the
extent attributable to the period prior to the Effective Time. Buyer shall not
be responsible for, and Seller expressly retains, all liabilities related to the
Excluded Assets, whether such liabilities arise before or after the Effective
Time.
(c) Conveyance at Closing. Subject to the terms and conditions of
this Agreement, Seller shall convey to Buyer all of its right, title and
interest in the Purchased Properties (other than the Excluded Assets) at
Closing.
2. Consideration and Effective Time.
(a) Purchase Price and Purchase Shares. Subject to the terms and
conditions of this Agreement, as consideration for the purchase, sale and
conveyance of the Purchased Properties to Buyer is (i) Buyer s payment to Seller
of the sum of Seven Million Two Hundred Thousand and No/100 Dollars
($7,200,000), such amount (the Stated Amount ), as adjusted pursuant to the
terms of this Agreement, shall be referred to as the Purchase Price, (ii)
Buyer s delivery to Seller of 852,363 shares of Class A common stock of Buyer
($.01 par value) (the Class A Stock ), such shares (the Stated Shares ), as
adjusted pursuant to the terms of this Agreement, shall be referred to as the
Purchase Shares and (iii) Buyer s delivery to Seller of Warrants to purchase an
aggregate of 200,000 shares of Class A Stock (the Warrants ). For purposes of
any adjustment to the Stated Shares under the terms of this Agreement, the value
of the Stated Shares shall equal Two Dollars ($2) per share. The Purchase Price
shall be paid by Buyer to Seller at Closing by means of a completed Federal
Funds transfer to the account of Seller, Account No. 1883836163, at Bank One,
Texas, N.A., Houston, Texas, ABA Routing No. 111000614. Certificates
representing the aggregate Purchase Shares in the name of Seller, or in the name
or names of such transferees of Seller as Seller shall designate prior to
Closing, and in the denominations provided to Buyer by Seller prior to Closing
shall be issued at Closing. The Purchase Shares shall be subject to the rights
and covenants related to the Purchase Shares as set forth in Section 16. The
Warrants shall be issued to Seller by delivery at Closing of Warrant
Certificates in such number as Seller may reasonably request prior to Closing in
the name of Seller, or to such transferees of Seller as Seller shall designate
prior to Closing, which Warrants shall be in the form attached hereto as Exhibit
E.
(b) Value Allocations. Buyer s consideration hereunder, in the form
of the Stated Amount and the Stated Shares, is allocated to the various wells
and units or other producing subdivisions constituting the Purchased Properties
in Exhibit B (an Allocated Amount ). Seller and Buyer acknowledge that this is
a proper allocation of value to the Purchased Properties; that the Purchase
Price and Purchase Shares shall be allocated to the subdivisions in the same
amounts after accounting for any adjustments pursuant to the terms of this
Agreement; and Seller and Buyer each agree that they will not take any position
inconsistent with this allocation in preparing tax returns which relate to the
transactions evidenced by this Agreement.
(c) Effective Time. The term Effective Time shall mean 7:00 a.m.
Central Time on April 1, 1995.
3. Seller s Representations. Seller represents to Buyer as of the
date hereof and as of Closing that:
(a) Seller is a limited partnership duly organized and validly
existing under the laws of the State of Texas, the General Partner of Seller is
a general partnership dulyorganized and validly existing under the laws of the
State of Texas and the Managing Partnerof the General Partner of Seller is a
limited liability company duly organized and validlyexisting under the laws of
the State of Texas;
(b) Seller, the General Partner of Seller and the Managing Partner of
the GeneralPartner of Seller have all requisite power and authority to carry on
their respective businessesas presently conducted and, subject to the approval
by the limited partners of Seller of theexecution, delivery and performance of
this Agreement, to enter into this Agreement, and toperform Seller s obligations
hereunder. Subject to Existing Encumbrances and any necessaryconsents,
approvals, or waivers set forth in the Material Contracts below and provided
thatthe approval by the limited partners of Seller of the execution, delivery
and performance ofthis Agreement is received, the consummation of the
transactions contemplated by thisAgreement will not violate or be in conflict
with any provision of Seller s amended andrestated partnership agreement or
other governing documents, or any material agreement orinstrument to which it is
a party or by which it is bound, or any judgment, decree, order,statute, rule or
regulation applicable to Seller;
(c) upon approval by the limited partners of Seller to the execution,
delivery andperformance of this Agreement, the execution, delivery and
performance of this Agreementand the transactions contemplated hereunder will
have been duly and validly authorized byall requisite action on the part of
Seller;
(d) upon approval by the limited partners of Seller of the execution,
delivery andperformance of this Agreement, this Agreement will constitute, and
all documents andinstruments required hereunder to be executed and delivered by
Seller at Closing, willconstitute, valid, legal and binding obligations of
Seller in accordance with their respectiveterms, subject to applicable
bankruptcy and other similar laws of general application withrespect to
creditors;
(e) there are no bankruptcy, reorganization or arrangement
proceedings pending,being contemplated by, or to the knowledge of the officers
of Sierra Mineral Development,L.C., managing partner of the general partner of
Seller, threatened against Seller;
(f) Seller has incurred no liability, contingent or otherwise, for
broker s or finder sfees with respect to the transactions contemplated by this
Agreement for which Buyer shallhave any responsibility whatsoever;
(g) except as set forth in Exhibit C-1 attached hereto, Seller has no
knowledge ofany demand or suit, action or other proceeding pending or threatened
before any court orgovernmental agency pertaining to the Purchased Properties;
(h) Seller has no knowledge of any violations by Seller of any
applicable laws,decrees, rules, regulations or orders of any governmental agency
having jurisdiction over thePurchased Properties which affect in any material
respect the value of the PurchasedProperties taken as a whole;
(i) Seller is an experienced and knowledgeable investor in the oil
and gasbusiness. Seller is acquiring the Purchase Shares for its own account
and not for distributionor resale in any manner which would violate any state or
federal securities law; provided thatcertain shares may be transferred to other
knowledgeable and sophisticated investors ifallowed by applicable law;
(j) Exhibit C-2 attached hereto contains a complete list of all
material contractsand agreements to which Seller is a party related to the
Purchased Properties (the MaterialContracts ). Seller has performed all of its
obligations under the Material Contracts and isnot in default thereunder,
wherein such non-performance or default would materially andadversely affect the
Purchased Properties taken as a whole;
(k) the historical hydrocarbon production data, statements of prior
revenues, costsand expenses and all other information relating to the Purchased
Properties that have beenprovided by Seller to Buyer are, to Seller s knowledge,
true and correct in all materialrespects; provided, however, Seller makes no
warranty or representation with respect to anyreserve report, title opinion,
future cost, pricing or other economic assumptions, thequantity, quality or
deliverability of hydrocarbon reserves attributable to the PurchasedProperties
or any geological, geophysical or other interpretive data furnished by Seller
toBuyer;
(l) Seller has paid all taxes, including penalty and interest, on or
relating to thePurchased Properties, or any production or revenues attributable
thereto, which are currentlydue and payable as required by law prior to
delinquency, except to the extent Seller iscontesting the same in good faith;
(m) other than as set forth in Exhibit C-3 attached hereto, there is
no outstandingjoint interest billing with respect to the Purchased Properties
which exceeds $10,000 and ismore than ninety (90) days old;
(n) no affiliate of Seller has the right or option to purchase or
market anyhydrocarbons produced from the Subject Interests, and, other than as
set forth in Exhibit C-4attached hereto, Seller is not a party to any contract
covering the sale of hydrocarbons fromthe Purchased Properties which is not
cancellable by Seller upon prior notice of ninety (90)days or less;
(o) Seller is not obligated under any contract for the sale of
hydrocarbons todeliver hydrocarbons produced from the Subject Interests in the
future without then beingentitled to receive full payment therefor, and Seller
is not an overproduced party under anygas balancing arrangements relating to
the Subject Interests;
(p) except as set forth in Exhibit C-5 attached hereto, to Seller s
knowledge, thereare no preferential purchase rights in favor of third parties
that pertain to the PurchasedProperties;
(q) except as set forth in Exhibit C-6 attached hereto, there are no
outstandingdrilling commitments that pertain to the Purchased Properties, other
than implied covenantsthat may exist under the leases that create the Subject
Interests;
(r) there are no outstanding AFE s pertaining to the Subject
Interests; and
(s) except as set forth in Exhibit C-7 attached hereto, no private or
governmentalthird party has given any notice, made a demand, asserted any claim
or commenced any suit,action (including common law action) or proceeding or, to
Seller s knowledge, threatenedany such suit, action or proceeding for
environmental conditions, situations, circumstances,events or incidents on, at
or concerning, originating at or relating to the Purchased Propertiesarising
directly or indirectly from (i) the use, transportation, handling, storage,
treatment,disposal, emission, discharge, spill, leak, injection, escape,
dumping, release or threatenedrelease in any work place or to the air, land,
surface waters, groundwaters or other medium,on or off-site, of any Hazardous
Substances or the lack of any permit required therefor, or(ii) the related
investigation, reporting, study, corrective action, cleanup,
removal,remediation, or monitoring with respect thereto (collectively, together
with all expenses,penalties and fines, the Environmental Liabilities ).
Hazardous Substances shall mean anyhazardous substance, hazardous material,
hazardous waste, toxic substance, pollutant,contaminant, hazardous constituent,
petroleum (including without limitation crude oil or anyfraction thereof), or
any variation thereof, as defined in (A) the Comprehensive
EnvironmentalResponse, Compensation and Liability Act of 1980, as amended by the
SuperfundAmendment and Reauthorization Act of 1986 and otherwise, 42 U.S.C.
9601, et. seq., theEmergency Planning and Community Right-to-Know Act of 1986,
42 U.S.C. 6901, et. seq.,the Resource Conservation and Recovery Act, 42 U.S.C.
6901, et. seq., the Clean Air Act,42 U.S.C. 7401, et. seq., the Toxic
Substance Control Act, 15 U.S.C. 2601, et. seq., theFederal Insecticide,
Fungicide and Rodenticide Act. 7 U.S.C. 136, et. seq., the SafeDrinking Water
Act, 42 U.S.C. 300f, et. seq., the Federal Water Pollution Control Act,
33U.S.C. 1251. et. seq., the Occupational Safety and Health Act, 29 U.S.C.
641, et. seq.,the Oil Pollution Control Act of 1990, 33 U.S.C. 2701, et. seq.,
the Hazardous MaterialsTransportation Act., 49 U.S.C. 1801, et. seq., and
other federal laws relating to protectionof health, safety, human welfare or the
environment; (B) regulations relating to such federallaws; or (C) similar state
and local laws, ordinances, and regulations (collectively, Environmental Laws ).
Except as set forth in Exhibit C-7, to Seller s knowledge, thereexists no
condition at, on, under or with respect to the Purchased Properties or any
otherbusiness conducted by Seller relating to the Purchased Properties that
constitutes the basisfor any Environmental Liability or requires remedial
measures under any Environmental Law. Except as set forth in Exhibit C-7, to
Seller s knowledge, there are no underground or aboveground storage tanks,
incinerators or surface impoundments at, on or under any of thePurchased
Properties.
4. Buyer s Representations. Buyer represents to Seller as of the
date hereof and as of Closing that:
(a) it is a corporation duly organized, validly existing and in good
standing underthe laws of the State of Delaware, and Buyer is duly qualified to
carry on its business in theState of Texas;
(b) it has all requisite power and authority to carry on its business
as presentlyconducted, to enter into this Agreement, to purchase the Purchased
Properties on the termsdescribed in this Agreement, and to perform its other
obligations under this Agreement. Subject to the consents required under Buyer s
Credit Agreement with Texas Gas Fund I, theconsummation of the transactions
contemplated by this Agreement will not violate, or be inconflict with, any
provision of Buyer s charter, by-laws or other governing documents, or
anymaterial agreement or instrument to which Buyer is party or by which Buyer is
bound, or anyjudgment, decree, order, statute, rule or regulation applicable to
Buyer;
(c) the execution, delivery and performance of this Agreement and
thetransactions contemplated hereunder have been duly and validly authorized by
all requisiteaction on the part of Buyer;
(d) this Agreement constitutes, and all documents and instruments
requiredhereunder to be executed and delivered by Buyer at Closing, will
constitute, legal, valid andbinding obligations of Buyer in accordance with
their respective terms, subject to applicablebankruptcy and other similar laws
of general application with respect to creditors;
(e) there are no bankruptcy, reorganization or arrangement
proceedings pending,being contemplated by, or to the knowledge of the officers
of Buyer, threatened againstBuyer;
(f) Buyer has not incurred any liability, contingent or otherwise,
for broker s orfinder s fees in connection with the transactions contemplated by
this Agreement for whichSeller shall have any responsibility whatsoever;
(g) Buyer has duly authorized the issuance of the Purchase Shares
and, whenissued in accordance with this Agreement, the Purchase Shares will be
validly issued,outstanding and non-assessable. Buyer s capitalization
authorized by Buyer at the date of thisAgreement consists of 50,000,000 shares
of Class A common stock (par value $.01 pershare), 200,000 shares of Class B
common stock (par value $.01 per share) and 1,000,000shares of preferred stock
(par value $1.00 per share), of which 8,877,892 shares of Class Acommon stock,
129,644 shares of Class B common stock and 52,500 shares of preferredstock, in a
series designated as 10% Cumulative Convertible Preferred Stock, Series B ,
areissued and outstanding. Buyer is current in its obligations to file all
periodic reports andproxy statements with the Securities and Exchange Commission
required to be filed under theSecurities Exchange Act of 1934, as amended, and
applicable rules and regulationspromulgated thereunder;
(h) Buyer s Annual Report on Form 10-KSB for the year ended December
31,1994 (the SEC Document ) does not contain an untrue statement of a material
fact or omitto state a material fact required to be stated therein or necessary
to make the statementstherein not misleading. Since December 31, 1994, there
have been no material developments,transactions or events affecting Buyer (other
than developments or events affecting the oil andgas exploration and production
industry generally) other than as have been disclosed by Buyerin the SEC
Document or to Seller in writing. There are no material liabilities of
Buyer(contingent or otherwise), other than as disclosed in the SEC Document and
the financialstatements included therein; and
(i) Buyer is an experienced and knowledgeable investor in the oil and
gasbusiness. Prior to entering into this Agreement, Buyer was advised by and
has relied on itsown legal, tax, engineering, geological, environmental and
other professional counsel andadvisors concerning this Agreement, the Purchased
Properties and the value thereof. Buyerhas completed its own investigation,
evaluation and review of the Purchased Properties,including an on-site
environmental review and it has relied solely on (i) its own
investigation,evaluation and review of the Purchased Properties and (ii) the
representations and warrantiesof Seller made in Section 3 as the basis for
entering into this Agreement. Buyer is acquiringthe Purchased Properties for
its own account and not for distribution or resale in any mannerwhich would
violate any state or federal securities law.
5. Title Matters.
(a) Limitation on Title Representations and Warranties. Seller shall
convey to Buyer all of Seller s right, title and interest in and to the
Purchased Properties; such conveyance to be subject to the Existing Encumbrances
and without any warranty of title, either express, implied, statutory or
otherwise, except as expressly provided in the form of Assignment, Bill of Sale
and Conveyance attached hereto as Exhibit D. The term Existing Encumbrances
shall mean any of the following matters:
(i) the terms, conditions, restrictions, exceptions, reservations,
limitations andother matters contained in the agreements, instruments and
documents which create orreserve to Seller its interests in any of the Purchased
Properties, to the extent they do notprevent Buyer from receiving the proceeds
of production from the wells or units attributableto the net revenue interest as
reflected in Exhibit A or do not increase the working interestin the wells or
units as reflected in Exhibit A (unless the net revenue interest therein
isproportionately increased);
(ii) any liens for taxes and assessments not yet delinquent;
(iii) any liens or security interests created by law or reserved
in oil and gas leasesfor royalty, bonus or rental, or created to secure
compliance with the terms of the SubjectInterests;
(iv) any obligations or duties affecting the Purchased Properties to
any municipalityor public authority with respect to any franchise, grant,
license or permit, and all applicablelaws, rules and orders of governmental
authority provided that such items do not materiallyinterfere with the ownership
or operation of the Purchased Properties;
(v) (A) easements, rights-of-way, servitudes, permits, surface leases
and otherrights in respect of surface operations, pipelines, grazing, hunting,
fishing, lodging, canals,ditches, reservoirs or the like, and (B) easements for
streets, alleys, highways, pipelines,telephone lines, power lines, railways and
other similar rights-of-way provided that such itemsdo not materially interfere
with the ownership or operation of the Purchased Properties;
(vi) all lessors royalties, overriding royalties, net profits
interests, carried interests,production payments, reversionary interests and
other burdens on or deductions from theproceeds of production if the net
cumulative effect of such burdens or deductions does notreduce the net revenue
interest of Seller in the Subject Interests below the net revenue interestfor
the wells or units as reflected in Exhibit A attached hereto;
(vii) all rights to consent by, required notices to, filings with,
or other actions bygovernmental entities in connection with the sale or
conveyance of oil and gas leases orinterests therein to the extent same are
customarily obtained after such sale or conveyance andrelate to the transactions
contemplated by this Agreement;
(viii) production sales contracts; division orders; contracts for
sale, purchase,exchange, refining, or processing of Hydrocarbons; unitization
and pooling designations,declarations, orders and agreements; operating
agreements; agreements of development; areaof mutual interest agreements; gas
balancing or deferred production agreements; processingagreements; plant
agreements; pipeline, gathering and transportation agreements; salt wateror
other disposal agreements; seismic or geophysical permits or agreements; and any
and allother agreements which are ordinary and customary in the oil, gas and
other mineralexploration, development or extraction business, to the extent such
declarations, order andagreements described in Section 5(a)(viii) (A) do not
reduce the net revenue interest in anywell or unit as reflected in Exhibit A and
do not increase the working interest in any well orunit as reflected in Exhibit
A (unless the net revenue interest is proportionately increased), (B)do not
materially interfere with or have a material adverse effect on, the
exploration,development or operation of the Purchased Properties or (C) do not
impair Buyer s right toreceive the proceeds of production attributable to the
Subject Interests; and
(ix) any other encumbrance, title defect or other matter (whether or
notconstituting a Title Defect) waived in writing or deemed waived by Buyer
pursuant toSection 5(c) hereof.
(b) Title Defects. Each well or unit listed in Exhibit A shall be
deemed to have a Title Defect if Seller has less than Defensible Title to
the Subject Interests included in or attributable to such well or unit as of the
Effective Time. Defensible Title means that:
(i) Seller has such title to such portion of the Subject Interests
that (A) entitlesSeller to receive not less than the net revenue interest of
Seller for the wells and units set forthin Exhibit A of all oil and gas
produced, saved and marketed from or attributable to such wellor unit, and (B)
obligates Seller to bear the costs and expenses relating to the
maintenance,development and operation of such well or unit in an amount not
greater than the workinginterest of Seller for such well or unit set forth in
Exhibit A unless Seller s net revenue interesttherein is proportionately
increased;
(ii) all royalties, rentals, Pugh clause payments, shut-in gas
payments and otherpayments due with respect to such portion of the Subject
Interests have been properly andtimely paid, except for payments held in
suspense for title or other reasons which arecustomary in the industry and which
will not result in grounds for cancellation of Seller srights in such portion of
the Subject Interests or require additional payments;
(iii) Seller is not in default under the terms of any leases,
farmout agreements orother contracts or agreements respecting such portion of
the Subject Interests which could(A) materially interfere with the operation,
value or use thereof, (B) materially prevent Sellerfrom receiving the proceeds
of production attributable to Seller s interest therein, or (C) resultin
cancellation of Seller s interest therein;
(iv) the Subject Interests attributable to such well or unit are free
and clear of allliens and encumbrances, other than Existing Encumbrances; and
(v) there exists no bona fide adverse claim asserted or threatened
with respect toany of the matters set forth in items (i) through (iv) above
which is of such significance thata reasonable and prudent operator would be
unwilling to accept and pay for the PurchasedProperties or portion thereof which
is affected thereby without a reduction in the purchaseprice.
(c) Buyer s Title Review.
(i) During the period commencing on the day following the execution
date of thisAgreement and ending at 5:00 p.m. Central Time on April 27, 1995
(the Title ExaminationPeriod ), Seller shall permit Buyer and/or its
representatives to examine, at all reasonabletimes in Seller s offices, all
abstracts of title, title opinions, title files, ownership maps, leasefiles,
assignments, division orders, operating records and other documents and
agreementspertaining to the Purchased Properties insofar as same may now be in
existence and in thepossession of Seller. During the Title Examination Period,
Buyer and its representatives shallbe entitled to conduct an on-site inspection
of the Purchased Properties during normalbusiness hours; provided that, Buyer
shall indemnify Seller (and its partners and theirrespective directors,
officers, managers, employees and representatives) from and against anyand all
losses, damages, liabilities, costs and expenses arising from Buyer s or
itsrepresentatives on-site inspection of the Purchased Properties.
(ii) Prior to the end of the Title Examination Period, Buyer may
notify Seller inwriting of any matters which, in Buyer s reasonable opinion,
constitute Title Defects withrespect to any portion of the Subject Interests.
For purposes of clause (iii) of this Section5(c), Buyer shall be deemed to have
waived any Title Defects that Buyer (A) has actualknowledge of or relates to a
matter filed of record in Rusk County, Texas and (B) fails toassert prior to the
expiration of the Title Examination Period.
(iii) Seller shall have until three (3) business days prior to the
Closing Date, at itscost and expense, if it so elects but without obligation, to
cure, or cause to be cured, all ora portion of such asserted Title Defects. If
such asserted Title Defects are waived in writingby Buyer or cured within such
time, the parties shall proceed with Closing and any suchwaived Title Defects
shall be deemed Existing Encumbrances. If Seller within such time failsor
elects not to cure any Title Defect of which Buyer has given timely written
notice asrequired above and which Buyer has not waived, the portion of the
Subject Interests affectedby such uncured and unwaived Title Defects shall be
Title Defect Properties. Subject toSection 5(d)(vi), Buyer, no later than two
(2) business days prior to the Closing Date, shallelect by written notice to
Seller either (A) to proceed with the Closing and waive such TitleDefects which
shall then be deemed Existing Encumbrances hereunder, (B) to exclude theTitle
Defect Properties from the purchase and sale contemplated by this Agreement
andreduce the Stated Amount and the Stated Shares by the Title Defect Amount for
theaggregate of each such Title Defect Property as determined pursuant to
Section 5(d) or (C)to retain the Title Defect Properties as part of the
Purchased Properties and reduce the StatedShares and the Stated Amount by the
Title Defect Amount for the aggregate of each suchTitle Defect Property as
determined pursuant to Section 5(d). Failure of Buyer to make anelection with
respect to any Title Defect Property within the aforesaid period shall be
deemedan election to proceed with Closing and waive such Title Defect.
(d) Title Defect Amounts.
(i) The adjustment value for any Title Defect Property (the Title
DefectAmount) shall be the amount determined by mutual agreement between Seller
and Buyer ingood faith negotiations, based on but not exceeding the Allocated
Amount of the relevantTitle Defect Property, and taking into account the nature
and certainty of the Title Defect, thelikely adverse economic effect of such
Title Defect over the productive life of the Title DefectProperty and whether
the Title Defect Property is excluded from the Purchased Properties.
(ii) If the parties do not agree upon a Title Defect Amount for any
Title DefectProperty on or before the Closing Date, Buyer and Seller shall
jointly select as sole arbitratoran independent petroleum engineering firm of
national reputation to determine such TitleDefect Amount and the Closing Date
shall be extended until two (2) business days after suchdetermination is made.
(iii) The arbitrator shall determine the Title Defect Amount for
any Title DefectProperty (not to exceed the Allocated Amount for such Title
Defect Property) to which theparties cannot agree after considering the
parameters set forth in Section 5(d)(i). The partiesmay present evidence in one
or more hearings held in Houston, Texas, within five (5) businessdays after the
arbitrator is selected. Such hearings shall be conducted in accordance with
theCommercial Arbitration Rules of the American Arbitration Association (to the
extent suchrules do not conflict with the terms hereof). The arbitrator may
consult with and engagedisinterested third parties, including attorneys and
consultants, to advise the arbitrator. (iv) The decision of the arbitrator
shall be final and binding upon the parties andmay be enforced in any court of
competent jurisdiction. The parties shall bear their own legalfees and other
costs incurred in the arbitration. The charges and expenses of the
arbitrationshall be shared equally by the parties. (v) Subject to Section
5(d)(vi), if the aggregate Title Defect Amount is less thanor equal to
$1,704,726, the Stated Shares shall be reduced by the number of Stated
Sharesequal in value to the Title Defect Amount, based on a value of Two Dollars
($2) per StatedShare, and, if the Title Defect Amount is greater than
$1,704,726, the Stated Shares shall bereduced to zero and the Stated Amount
shall be reduced by an amount equal to the portionof the Title Defect Amount
that exceeds $1,704,726. (vi) Notwithstanding anything herein to the
contrary, if the aggregate Title DefectAmount (net of the aggregate Additional
Interest Amount) shall exceed One HundredThousand Dollars ($100,000), either
Buyer or Seller may terminate this Agreement withoutany liability to the other
party resulting from such termination.
(e) Additional Interests.
(i) At any time prior to the end of the Title Examination Period,
Seller may notifyBuyer in writing of any increases in net revenue interests for
any well or unit above the netrevenue interest for such well or unit as
reflected in Exhibit A (an Additional Interest ). Buyer shall have a reasonable
opportunity to review Seller s title to each such AdditionalInterest for seven
(7) business days after receiving notice from Buyer.
(ii) The adjustment value for the Subject Interests pertaining to such
AdditionalInterest (the Additional Interest Amount ) shall be the amount
determined by mutualagreement between Seller and Buyer in good faith
negotiations. If Seller and Buyer do notagree on the Additional Interest
Amount, the Additional Interest Amount shall be determinedin accordance with the
arbitration procedures set forth in Section 5(d)(ii) - (iv).
(iii) The Stated Shares shall be increased by the number of shares
of Class A Stockequal in value to the aggregate Additional Interest Amount based
on a value of Two Dollars($2) per share.
6. Pre-Closing Covenants.
(a) Operation of the Purchased Properties Pending Closing. From and
after the Effective Time and until Closing, except as otherwise consented to by
Buyer in writing (which consent will not be unreasonably withheld or delayed)
and subject to the constraints of applicable operating and other agreements,
Seller (i) shall continue to operate (or, with respect to Purchased Properties
not operated by Seller, use its reasonable efforts to cause third-party
operators to operate) the Purchased Properties as would a reasonably prudent
operator in the ordinary course of business, in material compliance with all
applicable laws, rules and regulations, (ii) shall not make any expenditure or
commitment for expenditure on the Purchased Properties related to workover,
recompletion, drilling or construction operations, other than routine operating
expenses, (iii) shall not sell, convey, encumber, dispose of, grant preferential
purchase rights to, or enter into any farmout, gas sales agreement or other
similar agreements with respect to, the Purchased Properties, without the
approval of Buyer and (iv) shall maintain in effect the insurance coverage for
the Purchased Properties set forth in Exhibit F attached hereto.
Notwithstanding the other provisions of this Section 6(a), Seller s failure to
comply with any of the requirements of this Section 6(a) shall not be deemed a
default by Seller hereunder or afford Buyer the right not to close this sale if
such failure does not have a material adverse effect on the value of the
Purchased Properties taken as a whole.
(b) Consents and Waivers. Seller shall use reasonable efforts to
obtain (i) all necessary consents and approvals to assign the Purchased
Properties (other than consents and approvals customarily obtained after a sale
or transfer) and (ii) waivers from third parties holding preferential purchase
rights pertaining to all or any part of the Purchased Properties, in each case,
known to Seller or identified to Seller by Buyer prior to Closing.
(c) Notice of Proceedings. If between the Effective Time and
Closing, Seller should obtain actual knowledge of (i) any pending or threatened
suit, action, claim or proceeding that relates to the Purchased Properties or
(ii) any material adverse change to the Purchased Properties (other than changes
caused by general economic, industry or market conditions and changes to laws or
regulatory policy), Seller shall give prompt written notice to Buyer of such
matter.
7. Seller s Closing Conditions. The obligations of Seller under
this Agreement are subject, at the option of Seller, to the satisfaction at or
prior to Closing of the following conditions:
(a) all representations and warranties of Buyer contained in this
Agreement shall be true in all material respects at and as of Closing as if such
representations and warrantieswere made at and as of Closing, and Buyer shall
have performed and satisfied all agreementsrequired by this Agreement to be
performed and satisfied by Buyer at or prior to Closing;
(b) Seller shall have received a certificate dated as of Closing,
executed by a dulyauthorized officer of Buyer, to the effect that to such
officer s knowledge the statementsmade under Section 4 above are true at and as
of Closing;
(c) Buyer and Sierra Mineral Development, L.C. (or an affiliate
thereof) shall haveentered into a purchase and sale agreement covering State of
Texas Oil and Gas Lease No.69153, covering State Tract 901-S, and other related
assets, and the closing under suchpurchase and sale agreement shall have
occurred or shall occur simultaneously with theClosing under this Agreement;
(d) all necessary consents and approvals from third parties to
transfer thePurchased Properties shall have been obtained and all preferential
purchase rights affectingthe Purchased Properties shall have been waived or
deemed waived, except for such consentsor approvals that are typically obtained
in the ordinary course of business promptly afterClosing;
(e) there shall not be Environmental Liabilities with respect to the
PurchasedProperties that have an aggregate cost to remediate or otherwise
satisfy in excess of$100,000;
(f) the liability or obligation of Seller, if any, to pay for the
construction of CentralDehydration Facilities pursuant to the Amendment to
Agreement, dated February 1994,between Hydrocarbon, Ltd. and Sierra Mineral
Development, L.C. shall have been resolvedto the mutual satisfaction of Seller
and Buyer;
(g) no suit or other proceedings brought against Seller shall be
pending before anycourt seeking to restrain, prohibit or declare illegal or
seeking material damages in connectionwith the sale contemplated by this
Agreement; and
(h) the execution, delivery and performance of this Agreement shall
have beenduly and validly approved by the limited partners of Seller in
accordance with the limitedpartnership agreement governing Seller.
8. Buyer s Closing Conditions. The obligations of Buyer under this
Agreement are subject, at the option of Buyer, to the satisfaction at or prior
to Closing of the following conditions:
(a) all representations and warranties of Seller contained in this
Agreement shallbe true in all material respects at and as of Closing as if such
representations and warrantieswere made at and as of Closing, and Seller shall
have performed and satisfied all agreements required by this Agreement to be
performed and satisfied by Seller at or prior to Closing;
(b) Buyer shall have received a certificate dated as of Closing,
executed by amanager or officer of Sierra Mineral Development, L.C., managing
partner of the generalpartner of Seller, to the effect that to such manager s or
officer s knowledge the statementsmade under Section 3 above by Seller are true
at and as of Closing;
(c) Buyer and Sierra Mineral Development, L.C. (or an affiliate
thereof) shall haveentered into a purchase and sale agreement covering State of
Texas Oil and Gas Lease No.69153, covering State Tract 901-S, and other related
assets, and the closing under suchpurchase and sale agreement shall have
occurred or shall occur simultaneously with theClosing under this Agreement;
(d) all necessary consents and approvals from third parties to
transfer thePurchased Properties shall have been obtained and all preferential
purchase rights affectingthe Purchased Properties shall have been waived or
deemed waived, except for such consentsor approvals that are typically obtained
in the ordinary course of business promptly afterClosing;
(e) Buyer shall have obtained adequate financing to fund the Purchase
Price;
(f) no material adverse change to the Purchased Properties shall have
occurredsince the Effective Time (other than changes caused by general economic,
industry or marketconditions and changes to law or regulatory policy);
(g) there shall not be Environmental Liabilities with respect to the
PurchasedProperties that have an aggregate cost to remediate or otherwise
satisfy in excess of$100,000;
(h) Section 8.4 of the certain Purchase and Sale Agreement, dated
October 25,1994, between Sierra Mineral Development, L.C. and Heritage Energy
Corporation, et al.,shall have been amended to postpone the obligation to
commence drilling operations for thesecond development well until such time as
the gas price at the wellhead for the SubjectInterests covered by such Purchase
and Sale Agreement shall equal or exceed $1.80/MMBtufor two consecutive months;
(i) Seller shall have settled and received a full release from the
matter listed on Exhibit C-1;
(j) the liability or obligation of Seller, if any, to pay for the
construction of Central Dehydration Facilities pursuant to the Amendment to
Agreement, dated February 1994, between Hydrocarbon, Ltd. and Sierra Mineral
Development, L.C. shall have been resolved to the mutual satisfaction of Seller
and Buyer;
(k) documents, in a form reasonably satisfactory to Buyer, signed by
each purchaser
(k) no suit or other proceedings brought against Buyer shall be
pending before any court seeking to restrain, prohibit or declare illegal or
seeking material damages in connection with the sale contemplated by this
Agreement; and
(l) the execution, delivery and performance of this Agreement shall
have been
duly and validly approved by the limited partners of Seller in accordance
with the limited
partnership agreement governing seller.
9. Termination. This Agreement may be terminated at or prior to
Closing:
(a) by mutual written consent of Buyer and Seller;
(b) by Buyer or Seller if the aggregate Title Defect Amount (net of
the aggregateAdditional Interest Amount) exceeds $100,000;
(c) by Buyer or Seller if the aggregate Casualty Loss Amount exceeds
$100,000;
(d) by Buyer or Seller if the Closing shall not have occurred by May
16, 1995, ifthe failure to close on or before such date is not caused by any
material breach of thisAgreement by the party electing to terminate pursuant to
this Section 9(d);
(e) by Buyer if the conditions set forth in Section 8 have not been
satisfied byClosing; or
(f) by Seller if the conditions set forth in Section 7 have not been
satisfied byClosing.
If this Agreement is terminated under this Section 9, this Agreement
shall be null and void and there shall be no liability on the part of either
Buyer or Seller, except for the breaches of this Agreement prior to such
termination.
10. Closing.
(a) Time and Place. The closing of this transaction (the Closing )
shall take place at the offices of Seller on May 9, 1995 or such other date as
contemplated by this Agreement or as Buyer and Seller shall mutually agree (the
Closing Date ). Regardless of when the Closing shall occur, Closing shall be
effective with respect to each Purchased Property as of the Effective Time.
(b) Seller s Closing Obligations. At Closing, Seller shall deliver
to Buyer the following:
(i) the Assignment, Bill of Sale and Conveyance substantially in the
form attachedhereto as Exhibit D, and such other documents as may be reasonably
necessary or asreasonably requested by Buyer to convey all Seller s right, title
and interest in and to thePurchased Properties to Buyer in accordance with the
provisions hereof, including letters inlieu of transfer or division orders;
(ii) documents evidencing the approval of the transactions
contemplated by thisAgreement by the limited partners of Seller;
(iii) the Suspense Accounts as provided for under Section 12; and
(iv) the certificate of Seller referred to in Section 8(b) hereof.
(c) Buyer s Closing Obligations. At Closing, Buyer shall deliver to
Seller the following:
(i) the Purchase Price in immediately available funds in the manner
provided inSection 2(a) hereof;
(ii) certificates representing the Purchase Shares in the manner
provided inSection 2(a) hereof;
(iii) the Warrants in the manner provided in Section 2(a) hereof;
(iv) an opinion from counsel to Buyer, reasonably acceptable to
Seller, withrespect to (A) the due incorporation and valid existence of Buyer,
(B) the absence ofconflicts, breaches or violations of the certificate of
incorporation, bylaws or materialagreements of Buyer as a result of the
consummation of the transactions contemplated by thisAgreement, (C) the
authorized and outstanding capital stock of Buyer and (D) the validauthorization
and issuance of the Purchase Shares and the Warrants (and, when issued
inaccordance with the terms of the Warrants, the Warrant Shares), and the status
of such sharesas fully paid and non-assessable; and
(v) the certificate of Buyer referred to in Section 7(b) hereof.
(d) Post-Closing Covenants. As soon as practicable after Closing,
Seller shall deliver the Records to Buyer; provided that Seller may retain
copies of any of the Records to the extent that such Records relate to the
ownership and operation of the Purchased Properties prior to
the Effective Time.
11. Effect of Closing. The following terms, provisions, prorations,
assumptions and indemnifications shall be effective upon Closing:
(a) Revenues. All proceeds from production, accounts receivable,
notes receivable, income, revenues, monies, accounts payable, costs and expenses
and other items with respect to the Purchased Properties which are attributable
under generally accepted accounting principles, consistently applied ( GAAP ) to
the period prior to the Effective Time shall be attributable to Seller, and
those which are attributable under GAAP to the period commencing with the
Effective Time shall be attributable to Buyer.
(b) Taxes. Ad valorem and property taxes with respect to the
Purchased Properties shall be prorated to the Effective Time with Seller paying
a fraction thereof based upon the number of days in the calendar year prior to
the Effective Time and Buyer paying the balance thereof.
(c) Assumption and Indemnity. Buyer agrees to assume and pay,
perform, fulfill and discharge all Assumed Obligations, and agrees to indemnify
and hold Seller (and its partners and their respective directors, officers,
managers, employees and representatives) harmless from and against any and all
claims, losses, damages, costs, expenses, causes of action or judgments of any
kind or character, with respect to any of the Assumed Obligations, including any
interest, penalty, reasonable attorneys fees and other costs and expenses
incurred in connection therewith or the defense thereof. The term Assumed
Obligations shall mean (i) all costs, expenses, taxes, judgments, fines,
assessments, risks, liabilities and obligations of any kind or character,
whether recorded or unrecorded, disclosed or undisclosed, absolute or contingent
arising out of, in connection with, or resulting from the ownership or operation
of the Purchased Properties after the Effective Time (including, without
limitation, Existing Encumbrances to the extent they relate to periods after the
Effective Time, plugging and abandonment costs and liabilities related to all
existing wells, and completion costs for the Cherokee Water Co. No. 2 well), and
(ii) all other costs, expenses, risks, liabilities and obligations expressly
assumed or agreed to be paid by Buyer under the terms of this Agreement. Seller
agrees to retain and pay, perform, fulfill and discharge (y) all costs,
expenses, taxes, judgments, fines, assessments, risks, liabilities and
obligations of any kind or character, whether recorded or unrecorded, disclosed
or undisclosed, absolute or contingent arising out of, in connection with, or
resulting from the ownership or operation of the Purchased Properties before the
Effective Time (including, without limitation, Existing Encumbrances to the
extent they relate to periods prior to the Effective Time and any amounts owed
by Seller to any of its partners or affiliates), and (z) all other costs,
expenses, risks, liabilities and obligations expressly retained or agreed to be
paid by Seller under the terms of this Agreement (such costs, expenses, taxes,
judgments, fines, assessments, risks, liabilities and obligations being herein
referred to as the Retained Obligations ). Seller agrees to indemnify and hold
Buyer (and its directors, officers, employees and representatives) harmless from
and against any and all claims, losses, damages, costs, expenses, causes of
action or judgments of any kind or character with respect to the Retained
Obligations (including any interest, penalty, reasonable attorney s fees and
other costs and expenses incurred in connection therewith or the defense
thereof).
12. Settlement of Prorations and Suspense Accounts. Prior to
Closing, Seller shall furnish Buyer with an estimated accounting showing in
reasonable detail the prorating of any amounts as provided in Section 11. (With
respect to revenues, costs and expenses attributable to periods after the
Effective Time, such estimated accounting shall be based on revenues received by
Seller prior to Closing and costs and expenses paid by Seller prior to Closing).
If pursuant to such estimated accounting either Seller or Buyer shall owe any
obligation to the other, then the Stated Amount shall be adjusted to reflect
such charges and credits which are necessary to make such adjustment; provided,
however, that no adjustment shall be made for (a) revenues from the sale of
hydrocarbons produced from the Purchased Properties after the Effective Time
except for any such revenues received by Seller prior to Closing or (b) costs
and expenses attributable to the ownership and operation of the Purchased
Properties after the Effective Time unless such costs and expenses are paid by
Seller prior to Closing. Promptly after the Closing Date (but not later than
ninety (90) days thereafter), Seller and Buyer shall jointly prepare a final
accounting showing in reasonable detail the prorating of any amounts as provided
in Section 11. Final settlement shall be made within three (3) days after such
final accounting has been completed. At Closing, Seller shall transfer to Buyer
all suspense accounts maintained by Seller and relating to the Purchased
Properties (the Suspense Accounts ). Buyer agrees to indemnify and hold Seller
harmless from and against all claims by third parties that arise out of or are
related to Buyer s administration of such Suspense Accounts, such
indemnification to be limited in each case to the amount of the suspended funds
transferred by Seller to Buyer.
13. Limitations on Warranties and Remedies. The express
representations and warranties of Seller contained in this Agreement and the
Assignment, Bill of Sale and Conveyance are exclusive and are in lieu of all
other representations and warranties, express, implied or statutory, including
without limitation any representation or warranty with respect to the quality,
quantity or volume of the reserves of Hydrocarbons attributable to the Subject
Interests or the condition of the Purchased Properties. The items of personal
property, equipment, fixtures and appurtenances conveyed as part of the
Purchased Properties are sold hereunder AS IS, WHERE IS and no warranties or
representations of any kind or character, express or implied, including any
warranty of quality, merchantability, fitness for a particular purpose or
condition, are given by or on behalf of Seller. THE WARRANTIES OF SELLER
CONTAINED IN THIS AGREEMENT AND IN THE
ASSIGNMENT, BILL OF SALE AND CONVEYANCE ARE EXCLUSIVE AND IN LIEU OF
ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, AND BUYER HEREBY WAIVES ALL
OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING (i) ANY EXPRESS OR
IMPLIED WARRANTY OF MERCHANTABILITY, (ii) ANY EXPRESS OR IMPLIED
WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, (iii) ANY EXPRESS OR
IMPLIED WARRANTY AS TO CONDITION OR (iv) ANY EXPRESS OR IMPLIED
WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS. To the
maximum extent permitted by law, Seller and Buyer waive all provisions of the
Texas Deceptive Trade Practices Act, Chapter 17, Texas Business and Commerce
Code (other than Section 17.555 thereof), insofar as the provisions of such act
may be applicable to this Agreement or the transactions contemplated hereby; and
Seller and Buyer each expressly represents and warrants to the other that it
meets all requirements for granting such waiver under the terms of such act.
14. Survival. The liability of Buyer and Seller under each of their
respective representations, warranties, covenants and indemnities made under
this Agreement shall survive Closing. After Closing, any assertion that Seller
is liable for any breach of any representation, warranty or covenant hereunder
or for indemnity under the terms of this Agreement must be made in writing and
delivered to Seller within two years of the Closing Date.
15. Casualty Loss and Condemnation.
(a) Casualty Loss. Subject to Sections 15(c) and (d), if after the
Effective Time and prior to Closing any part of the Purchased Properties shall
be damaged or destroyed by fire or other casualty or if any part of the
Purchased Properties shall be taken in condemnation or under the right of
eminent domain or if proceedings for such purposes shall be pending or
threatened (each such event a Casualty Loss ), this Agreement shall remain in
full force and effect notwithstanding any such destruction, taking or proceeding
or the threat thereof.
(b) Proceeds and Awards. To the extent any insurance proceeds,
condemnation awards or other payments received by Seller on account of any such
Casualty Loss are not committed, used or applied by Seller prior to the Closing
Date to repair, restore or replace such damaged, destroyed or taken Purchased
Properties, Seller shall be entitled to retain such payments.
(c) Casualty Loss Amount. The decrease in value to the Purchased
Properties due to Casualty Losses (the Casualty Loss Amount ) shall be
determined by mutual agreement between Seller and Buyer in good faith
negotiations. If Seller and Buyer do not agree on the Casualty Loss Amount, the
Casualty Loss Amount shall be determined in accordance with the arbitration
procedures set forth in Section 5(d)(ii) -(iv). Subject to Section 15(d), if
the Casualty Loss Amount is less than or equal to $1,704,726, the Stated Shares
shall be reduced by the number of Stated Shares equal in value to the Casualty
Loss Amount, based on a value of Two Dollars ($2) per Stated Share, and if the
Casualty Loss Amount is greater than $1,704,726, the Stated Shares shall be
reduced to zero and the Stated Amount shall be reduced by an amount equal to the
portion of the Casualty Loss Amount that exceeds $1,704,726.
(d) Option to Terminate. Notwithstanding the foregoing provisions of
this Section 15, if the Casualty Loss Amount shall exceed One Hundred Thousand
and No/100 Dollars ($100,000), Buyer or Seller may terminate this Agreement
without any liability to the other party resulting from such termination.
16. Rights and Covenants Related to Purchase Shares.
(a) Restricted Stock. Subject to Section 16(b), all of the Purchase
Shares and the Warrants have been issued without being registered under the
Securities Act of 1933 (the Act ), and the subsequent transfer of the Purchase
Shares and the Warrants is limited and must be conducted in accordance with
applicable rules and regulations promulgated under the Act, including Rule 144.
Buyer shall timely file the reports required to be filed by it under the Act and
the Securities Exchange Act of 1934 (the Exchange Act ) (including but not
limited to reports under Sections 13 and 15(d) of the Exchange Act referred to
in subparagraph (c)(1) of Rule 144 adopted by the Securities and Exchange
Commission under the Act) and the rules and regulations adopted by the
Commission thereunder (or, if Buyer is not required to file such reports, will
upon the request of Seller, make publicly available other information) and will
take such further action as Seller may reasonably request, all to the extent
required from time to time to enable Seller to sell the Purchase Shares, or the
shares of Class A Stock of Buyer issuable upon exercise of the Warrants (the
Warrant Shares ), without registration under the Act within the limitation of
the exemptions provided by (a) Rule 144 under the Act, as such Rule may be
amended from time to time, or (b) any similar rule or regulation hereafter
adopted by the Securities and Exchange Commission. Upon the request of Seller,
Buyer will deliver to Seller a written statement as to whether it has complied
with such requirements. Buyer agrees to file within forty-five (45) days of
Closing all applications to list the Purchase Shares and Warrant Shares on the
NASDAQ Small Cap Market and pay all fees required in connection with such
listing. Buyer will use reasonable efforts to maintain the listing of Buyer s
Class A Stock on the NASDAQ Small Cap Market or, at the option of Buyer, the
NASDAQ National Market or New York or American Stock Exchanges.
(b) Registration Rights.
(i) On or before 45 days from the date of Closing, Buyer shall file a
registrationstatement, on an appropriate registration form, which registration
statement shall includeone-half of the number of Purchase Shares to the extent
required to permit the resale or otherdisposition of such shares (in accordance
with the intended methods thereof specified bySeller in writing prior to the
filing of such registration statement) by Seller. On or before 225days from the
date of Closing, Buyer shall file an additional registration statement,
whichregistration statement shall include the remaining one-half of the Purchase
Shares and theWarrant Shares, if any, to the extent required to permit the
resale or other disposition (inaccordance with the intended method thereof
specified by Seller in writing prior to the filingof such registration
statement) by Seller. In the case of either of the foregoing
registrations,Buyer will use its best efforts to cause such registration
statements to be declared effectivewithin 90 days and 270 days, respectively,
from the date of Closing and to remain effectivefor so long as may reasonably be
necessary to complete the resale or other disposition of thePurchase Shares or
Warrant Shares, provided that Buyer will not in any event be required touse its
best efforts to maintain the effectiveness of such registration statements for
period inexcess of three years from the date of Closing. Buyer may, in its sole
discretion, include othershares of Class A Stock in either of such registration
statements. Buyer shall pay all auditfees and expenses, costs of printing, NASD
and registration fees, listing fees, blue skyexpenses for Texas and such other
states (but in any event no more than four additionalstates) to the extent
necessary to afford Seller reasonable access to secondary trading marketsfor
Class A Stock, and all other governmental and regulatory fees in connection with
each ofthe foregoing registration statements and all amendments thereto and
shall supply Seller withcopies of any prospectuses included therein (and, if
necessary, with copies of any prospectusmeeting the requirements of Section
10(a)(3) of the Act) in such quantities as may bereasonably necessary for the
purposes of such proposed sale or distribution; provided,however, that Seller
shall pay the full amount of brokerage and underwriting commissions ordiscounts
applicable to the Purchase Shares or Warrant Shares and the fees and expenses,
ifany, of counsel to Seller. Buyer shall furnish to Seller copies of the
registration statementsand prospectuses in the amount and manner described in
subsection (b)(ii)(D) below. Inaddition, subsections (b)(ii)(E) and (F) below
shall apply to the registration of PurchaseShares and Warrant Shares pursuant to
this subsection (b)(i).
(ii) (A) If, at any time after the date of Closing, Buyer proposes to
register sharesof Class A Stock under the Securities Act of 1933, as amended
(the Act ) for sale for cash(on a form of registration statement appropriate
for the registration of common stock for apublic offering by the holders
thereof), it shall give at least thirty (30) days advance writtennotice to the
Seller of the proposed filing. Upon the written request of the Seller given
withinten (10) days after the actual receipt of any such notice, Buyer shall
cause all or any part, atthe sole discretion of Seller, of the Purchase Shares
or Warrant Shares ( Seller s RegistrationShares ) to be included in the
registration statement to be registered under the Act, all to theextent required
to permit the sale or other disposition (in accordance with the intendedmethod
thereof) by Seller; provided, however, that the obligation to include any shares
insuch registration statement shall be subject and subordinate to any prior
registration rights ofpurchasers of 10% Cumulative Convertible Preferred Stock,
Series B of the Company( Series B Preferred Stock ) pursuant to agreements
entered into by Buyer prior to the dateof this Agreement.
(B) Buyer may at any time withdraw or cease proceeding with any
suchregistration if it shall at the same time withdraw or cease proceeding with
the registration ofsuch other securities originally proposed to be registered.
Additionally, in connection withany registered public offering involving an
underwriting, the underwriter may, if in itsreasonable opinion marketing factors
so require, limit the number of securities included insuch offering (including
Seller s Registration Shares); provided that in any event Seller shallbe
entitled to include a number of Seller s Registration Shares at least equal to
ten percent(10%) of the number of total shares to be included in the proposed
offering (excluding anyunderwriter s overallotment option) and provided,
further, that Seller s entitlement to 10%shall be subject and subordinate to any
prior registration rights of purchasers of Series BPreferred Stock of the
Company granted prior to the date of this Agreement. In the event ofany
limitation in the number of Seller s Registration Shares to be included in such
offering,the securities proposed to be registered by persons other than the
Seller (other than holderswith registration rights as of the date of this
Agreement) shall first be eliminated fromregistration before any of Seller s
Registration Shares shall be eliminated.
(C) Any request of Seller for registration of or inclusion in any
registration ofSeller s Registration Shares pursuant to this Section 16(b) shall
also include the agreementof Seller to sell the applicable amount of Seller s
Registration Shares only through theunderwriters, if applicable, and at the
price and upon the terms fixed by the agreement amongBuyer and the underwriters
or brokers for such transaction.
(D) In connection with any registration under the Act of Seller s
RegistrationShares, Buyer shall furnish Seller a copy of the registration
statement and all amendmentsthereto and shall supply Seller with copies of any
prospectus included therein (and, ifnecessary, with copies of a prospectus
meeting the requirements of Section 10(a)(3) of theAct; provided, however, that
no such prospectus need be supplied more than nine (9) monthsafter the effective
date of such registration statement) in such quantities as may be
reasonablynecessary for the purposes of such proposed sale or distribution.
(E) In connection with any registration of shares pursuant to this
Section 16(b),Seller shall furnish Buyer with such information concerning Seller
and the proposed sale ordistribution as shall, in the opinion of counsel for
Buyer, be required for use in the preparationof the registration statement and
shall cooperate fully in the preparation and filing of theregistration
statement. Buyer shall qualify Seller s Registration Shares for sale under
thesecurities laws of the states in which Buyer causes the shares it is to issue
to be so qualified.
(F) Buyer shall indemnify and hold harmless Seller from and against
all losses, claims, demands, liabilities and expenses (including reasonable
attorneys fees) arising out of any alleged untrue statement of a material
fact in any registration statement or any amendment thereto or any prospectus
or supplement thereto, or any alleged omission to state a material fact
required to be stated therein or necessary to make the statement therein not
misleading, unless any such alleged untrue statement or omission was made in
conformity with written information given to Buyer by or on behalf of Seller
specifically for use in connection with such registration statement or
amendment thereto or prospectus or supplement thereto. Seller shall likewise
indemnify and hold harmless Buyer and any underwriter offering any of Seller s
Registration Shares with respect to such written information given to Buyer by
or on behalf of Seller.
(G) The costs and expenses of any registration statement and related
documentation relating to Seller s Registration Shares registered pursuant to
this Section 16 shall be paid by Buyer, including, without limitation, all
audit fees and expenses, costs of printing, NASD and registration fees,
listing fees, blue sky expenses for Texas and such other states (but in any
event no more than four additional states) to the extent necessary to afford
Seller reasonable access to secondary trading markets for Class A Stock, and
all other governmental and regulatory fees; provided, however, that Seller
shall pay the full amount of brokerage and underwriting commissions or
discounts applicable to the Seller s Registration Shares and the fees and
expenses, if any, of counsel for Seller.
(iii) It is contemplated that as soon as practicable following
Closing, Seller will dissolve and distribute the Purchase Shares and Warrants
to its partners as a liquidating distribution. Some of the partners of
Seller will in turn liquidate and distribute such Purchase Shares and
Warrants in such liquidation. Buyer and Seller agree that the rights afforded
Seller under Section 16 shall inure to the benefit of each holder of the
Purchase Shares and Warrants who receive such shares by way of a liquidating
distribution and to any successors, heirs and assigns of such holder provided
that such holder executes and delivers to Buyer a written instrument which
includes (A) an agreement of such holder to be bound by the provisions of
this Section 16 to the extent Seller is so bound, (B) a representation of holder
that it is holding such shares for investment and, subject to the
registration rights granted in this Section 16, not with a present view to
engage in a distribution, and (C) an agreement of such holder not to sell or
otherwise dispose of such shares except pursuant to an effective registration
under Section 5 of the Securities Act or an available exemption from such
registration and to indemnify Buyer for violation of any securities laws as a
result of any such transfer. In the event of a distribution or assignment of
Purchase Shares and Warrants to such holder, and delivery of such written
instrument, such holder will have all rights and obligations of Seller under
this Section 16 with respect to its Purchase Shares and Warrant Shares that
may be issued upon exercise of Warrants held by such holder and, where
relevant, such rights shall be in proportion to the number of Purchase Shares
and Warrant Shares held by such holder at the time relative to the aggregate
number of Purchase Shares and Warrant Shares then outstanding. Subject to
the foregoing, Seller represents that it is acquiring the Purchased Shares and
Warrants for investment and not with a present view to engage in a
distribution.
(iv) Seller shall, to the fullest extent permitted by law,
indemnify and hold Buyer harmless from and against any loss, claim or damages
caused by or resulting from (A) the transfer or distribution of any Purchase
Shares, Warrants or Warrant Shares by Seller to any subsequent transferee
(except for loss, claim or damages caused by or resulting from any material
misstatements or omissions by the Company in any registration statement) or (B)
the inaccuracy of any information concerning Seller (or its transferees as
selling stockholders) furnished by Seller or its transferees for inclusion in
a registration statement effective under this Section 16.
17. Further Assurances. After the Closing, each of the parties will
execute, acknowledge and deliver to the other such further instruments, and take
such other actions, as may be reasonably requested in order to more effectively
assure to said party all of the respective properties, rights, titles,
interests, estates and privileges intended to be assigned, delivered or inuring
to the benefit of such party in consummation of the transactions contemplated
hereby.
18. Notices. All communications required or permitted under this
Agreement shall be in writing and any communication or delivery hereunder shall
be deemed to have been duly given when actually received by the party to be
notified, or, if sent by certified mail postage prepaid, return receipt
requested to the address set forth below of the party to be notified, three days
after deposited in the U.S. mail.
If to Seller:
Sierra 1994 I Limited Partnership
1201 Louisiana, Suite 3125
Houston, Texas 77002
Telecopy No. (713) 658-1118
Attn: John Eads
If to Buyer:
National Energy Group, Inc.
1400 One Energy Square
4925 Greenville Avenue
Dallas, Texas 75206
Telecopy No. (214) 692-9310
Attn: Miles D. Bender
Any party may, by written notice so delivered to the other, change the address
to which delivery shall
thereafter be made.
19. Incidental Expenses. Buyer shall bear and pay (i) all State or
local government sales taxes incident to the transfer of the Purchased
Properties to Buyer, (ii) all documentary, transfer and other State and local
government taxes incident to the transfer of the Purchased Properties to Buyer,
(iii) all filing, recording or registration fees for any assignment or
conveyance delivered hereunder and (iv) all costs or fees required to obtain
consent to assign any Federal or State leases included in the Purchased
Properties. Each party shall bear its own respective expenses incurred in
connection with the closing of this transaction, including its own consultants
fees, attorneys fees, accountants fees and other similar costs and expenses.
20. Post-Closing Arbitration. All disputes arising after Closing
between Seller and Buyer related to this Agreement and the transactions
contemplated by this Agreement, which are not resolved by negotiation of the
parties, shall be resolved by mediation, with a mutually acceptable mediator or,
if mediation does not resolve the dispute, arbitration in accordance with the
following procedures:
(a) The party desiring to initiate such post-closing arbitration
shall give notice to that effect to the other party, specifying the matter to
be arbitrated and suggesting an arbitrator. Within ten days after the
service of such notice, the other party shall give notice to the first party
specifying that the suggested arbitrator is acceptable or offering another
arbitrator. If the second party fails to notify the first party within the
time specified in the preceding sentence, or if the parties fail to agree on
an arbitrator within ten days thereafter, then either party, on behalf of
both and on notice to the other, may request the appointment of the arbitrator
through a request to the American Arbitration Association. The arbitrator so
chosen shall meet as soon as practicable after the appointment. The
arbitrator chosen or so appointed pursuant to this Section 20 shall be a
person having at least ten years experience in a calling connected with the
dispute and shall be disinterested.
(b) Any arbitration pursuant hereto shall be conducted, to the
extent consistent with this Agreement, in accordance with the prevailing
Commercial Arbitration Rules of the American Arbitration Association (or any
organization successor thereto) in Houston, Texas.
(c) The decision of the arbitrator shall be final and binding upon
the parties and may be enforced in any court of competent jurisdiction. The
parties shall bear their own legal fees and other costs incurred in the
arbitration. The charges and expenses of the arbitration shall be shared
equally by the parties. Except as described in this Section 20(c), no dispute
arising after Closing between Seller and Buyer related to this Agreement or
the transactions contemplated by this Agreement shall be brought before any
court of law or equity.
21. Entire Agreement. This Agreement embodies the entire agreement
between the parties and may be supplemented, altered, amended, modified or
revoked by writing only, signed by Seller and Buyer. The headings herein are
for convenience only and shall have no significance in the interpretation
hereof.
22. Governing Law. This Agreement shall be governed, construed and
enforced in accordance with the laws of The State of Texas.
23. Exhibits. All exhibits and schedules hereto which are referred
to herein are hereby made a part hereof and incorporated herein by such
reference.
24. Counterparts. This Agreement may be executed in any number of
counterparts, and each and every counterpart shall be deemed for all purposes
one (1) agreement.
25. Waiver. Any of the terms, provisions, covenants,
representations, warranties or conditions hereof may be waived, only by a
written instrument executed by the party waiving compliance. No waiver by any
party of any condition, or of the breach of any term, provision, covenant,
representation or warranty contained in this Agreement, whether by conduct or
otherwise, in any one of more instances, shall be deemed to be or construed as a
further or continuing waiver of any such condition or breach or a waiver of any
other condition or of the breach of any other term, provision, covenant,
representation or warranty.
26. Binding Effect; Assignment. All the terms, provisions,
covenants, representations, warranties and conditions of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors; but, except as otherwise expressly
provided for in this Agreement with respect to the Purchase Shares, the Warrants
and the Warrant Shares, this Agreement and the rights and obligations hereunder
shall not be assignable or delegable by any party without the express written
consent of the non-assigning or non-delegating parties.
27. No Solicitation. Until the earlier of Closing or the date this
Agreement is terminated, Seller shall not negotiate with, or solicit offers
from, third parties with respect to the purchase and sale of the Purchased
Properties.
28. Construction of Agreement. In construing this Agreement:
(a) no consideration shall be given to the captions of the articles,
section, subsections, or clauses, which are inserted for convenience in
locating the provisions of this Agreement and not as an aid in its
construction;
(b) no consideration shall be given to the fact or presumption that
one party had a greater or lesser hand in drafting this Agreement;
(c) examples shall not be construed to limit, expressly or by
implication, the matter they illustrate;
(d) the word includes and its derivatives means includes, but is
not limited to and corresponding derivative expressions;
(e) a defined term has its defined meaning throughout this Agreement
and each exhibit, attachment, and schedule to this Agreement, regardless of
whether it appears before or after the place where it is defined;
(f) the plural shall be deemed to include the singular, and vice
versa; and
(g) each exhibit, attachment, and schedule to this Agreement is a
part of this Agreement, but if there is any conflict or inconsistency between
the main body of this Agreement and any exhibit, attachment, or schedule, the
provisions of the main body of this Agreement shall prevail.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers or representatives as of the date
first above written.
SIERRA 1994 I LIMITED PARTNERSHIP
By: Sierra Mineral 1994 Partnership,
General Partner
By: Sierra Mineral Development, L. C.,
Managing Partner
By: John Eads
Title: President
SELLER
NATIONAL ENERGY GROUP, INC.
By: Miles D. Bender
Title: President and CEO
BUYER
AGREEMENT FOR PURCHASE AND SALE
(MUSTANG ISLAND)
THIS AGREEMENT FOR PURCHASE AND SALE (this "Agreement") dated as of the 20th day
of April, 1995, is entered into by and between Sierra Mineral Development, L.C.,
a Texas limited liability company (herein referred to as "Seller"), and
National Energy Group, Inc., a Delaware corporation (herein referred to as
"Buyer").
W I T N E S S E T H:
WHEREAS, Seller owns the rights to acquire certain oil and gas properties and
related assets pursuant to a Purchase and Sale Agreement dated April 3, 1995 by
between LLOG Production Company ("LLOG") and Seller, as amended by that certain
Amendment to Purchase and Sale Agreement dated April 5, 1995 between LLOG and
Seller, and the letter agreement, dated April 20, 1995, among LLOG, Seller and
Buyer, and as further amended by that certain agreement substantially in the
form attached hereto as Exhibit B ("the LLOG Agreement"); and
WHEREAS, Seller desires to sell and Buyer desires to acquire all interests of
Seller in the LLOG Agreement on the terms and conditions herein provided;
NOW, THEREFORE, for and in consideration of the mutual covenants and agreements
set forth herein , the parties hereby agree as follows:
1. Sale and Purchase.
(a) Included Assets. Subject to the terms and conditions of this
Agreement, Seller agrees to sell, convey, assign and deliver and Buyer agrees to
purchase and pay for all of Seller's right, title and interest in and to the
LLOG Agreement and in and to the Assets as defined in the LLOG Agreement
(herein referred to as the "Subject Interests "). The assignment and conveyance
of the Subject Interests by Seller to Buyer shall be made by execution and
delivery of that certain Assignment, the form of which is attached hereto as
Exhibit A ( the "Assignment").
(b) Excluded Assets. Notwithstanding the foregoing and any provision
of the Assignment to the contrary, the Subject Interests shall not include, and
there is excepted, reserved and excluded from the sale contemplated hereby (i)
all hydrocarbon production from or attributable to the "Assets" (as defined in
the LLOG Agreement) with respect to all periods on or after the Effective Date
(as defined in the LLOG Agreement) and prior to the Effective Time, all proceeds
attributable thereto, and the rights to receive such production and proceeds, to
the extent that such production and proceeds and right to receive same are to be
conveyed under the LLOG Agreement, and (ii) all hydrocarbons that, at the
Effective Time, are owned by or for the benefit of the buyer under the LLOG
Agreement and are in storage, within processing plants or in pipelines, and
(iii) any refund of costs, taxes or expenses borne by the buyer under the LLOG
Agreement attributable to the period prior to the Effective Time.
(c) Conveyance at Closing. Subject to the terms and conditions of
this Agreement, Seller shall convey to Buyer all of its right, title and
interest in the Subject Interests (other than the Excluded Assets) at Closing.
2. Consideration and Effective Time.
(a) Purchase Price and Purchase Shares. Subject to the terms and
conditions of this Agreement, as consideration for the purchase, sale and
conveyance of the Subject Interests to Buyer is (i) Buyer's payment to Seller
of the sum of Two Hundred Thousand and No/100 Dollars ($200,000), reduced by any
down payment made at the execution of this Agreement, such amount (the "Stated
Amount"), as adjusted pursuant to the terms of this Agreement, shall be referred
to as the "Purchase Price," and (ii) Buyer's delivery to Seller of 352,500
shares of Class A common stock of Buyer, $.01 par value (the "Class A Stock"),
such shares (the "Stated Shares"), as adjusted pursuant to the terms of this
Agreement, shall be referred to as the "Purchase Shares". Other than any down
payment made at execution of this Agreement, Buyer shall not be obligated to pay
Seller any consideration if Buyer does not consummate the purchase of the Assets
(as defined in the LLOG Agreement) pursuant to the LLOG Agreement. For purposes
of any adjustment to the Stated Shares or the Purchase Shares under the terms of
this Agreement, the value of the Stated Shares or the Purchase Shares shall
equal Two Dollars ($2) per share. The Purchase Price shall be paid by Buyer to
Seller at Closing by means of a completed Federal Funds transfer to the account
of Seller, Account No. 5099353, Post Oak Bank, N.A., Houston, Texas, ABA Routing
No. 113001446. Certificates representing the aggregate Purchase Shares in the
name of Seller, or in the name or names of such transferees of Seller as Seller
shall designate prior to Closing and in the denominations provided to Buyer by
Seller prior to Closing shall be issued at `Closing. The Purchase Shares shall
be subject to the rights and covenants related to the Purchase Shares as set
forth in Section 15.
(b) Adjustments to Stated Amount and Stated Shares
(i) The Stated Amount shall be adjusted at Closing (A) upward by the
aggregate amount of any downward adjustments to the LLOG purchase price pursuant
to Sections 2.02 (b)(1) or 2.02 (b)(3) of the LLOG Agreement and (B) downward by
the aggregate amount of any upward adjustments to the LLOG purchase price
pursuant to Sections 2.02 (a)(1), 2.02 (a)(2), and 2.02 (a)(3) of the LLOG
Agreement, but in each case (A) and (B), only to the extent that such
adjustments relate to periods prior to the Effective Time
(ii) If the purchase price under the LLOG Agreement is reduced due to
Article V or Section 2.02 (b)(2) of the LLOG Agreement, then the Stated Amount
and the number of Stated Shares under this Agreement shall each be reduced by
the same percentage as the percentage reduction of the purchase price under the
the LLOG Agreement, provided, however, that if such reduction of the purchase
price under the LLOG Agreement is not related to an adjustment to the working
interest or net revenue interest of the Assets (as defined in the LLOG
Agreement) then such reduction will be only to the Stated Amount.
(c) Effective Time. The term "Effective Time" shall mean 7:00 a.m. Central
Time on April 1, 1995.
3. Seller's Representations. Seller represents to Buyer as of the date hereof
and as of Closing that:
(a) Seller is a limited liability company duly organized,validly existing and
in good standing under the laws of the State of Texas;
(b) Seller has all requisite power and authority to carry on
its business as presently conducted and, to enter into this Agreement and the
Assignment, and to perform Seller's obligations hereunder and under the
Assignment. Subject to obtaining the consent of LLOG as described in the
agreement attached hereto as Exhibit B, the consummation of the transactions
contemplated by this Agreement will not violate or be in conflict with any
provision of Seller's charter, bylaws or other governing documents, or any
material agreement or instrument to which it is a party or by which it is bound,
or any judgment, decree, order, statute, rule or regulation applicable to
Seller;
(c) the execution, delivery and performance of ths Agreement and the
Assignment and the transactions contemplated hereunder and thereunder will have
been duly and validly authorized by all requisite action on the part of Seller;
(d) this Agreement constitutes, and all documents and instruments
required hereunder to be executed and delivered by Seller at Closing, including
the Assignment, will constitute, valid, legal and binding obligations of Seller
in accordance with their respective terms, subject to applicable bankruptcy and
other similar laws of general application with respect to creditors;
(e) there are no bankruptcy, reorganization or arrangement proceedings
pending, being contemplated by, or to the knowledge of the officers of Seller,
threatened against Seller;
(f) Seller has incurred no liability, contingent or otherwise,
for brokers or finder's fees with respect to the transactions contemplated by
this Agreement or the LLOG Agreement for which Buyer shall have any
responsibility whatsoever;
(g) Seller has no knowledge of any demand or suit, action or
other proceeding pending or threatened before any court or governmental agency
pertaining to the Subject Interests ;
(h) Seller is an experienced and knowledgeable investor in the oil
and gas business. Seller is acquiring the Purchase Shares for its own account
and not for distribution or resale in any manner which would violate any state
or federal securities law; provided that certain shares may be transferred to
other knowledgeable and sophisticated investors if allowed by applicable law;
(i) the historical hydrocarbon production data, statements of prior
revenues, costs and expenses and all other information relating to the Subject
Interests that have been provided by Seller to Buyer are, to Seller's knowledge,
true and correct in all material respects; provided, however, Seller makes no
warranty or representation with respect to any reserve report, title opinion,
future cost, pricing or other economic assumptions, the quantity, quality or
deliverability of hydrocarbon reserves attributable to the Purchased Properties
or any geological, geophysical or other interpretive data furnished by Seller or
LLOG to Buyer;
(j) Seller has not assigned, conveyed, transferred, pledged or otherwise
encumbered the Subject Interests;
(k) no affiliate of Seller has the right or option to purchase or market
any hydrocarbons produced from the Subject Interests.
(l) to Seller's knowledge, there are no preferential purchase rights in
favor of third parties that pertain to the Subject Interest ;
(m) to Seller's knowledge, there are no outstanding drilling
commitments that pertain to the Subject Interests , other than implied covenants
that may exist under the leases that create the Subject Interests;
(n) to Seller's knowledge, there are no outstanding AFE's pertaining to
the Subject Interests;
(o) With respect to the LLOG Agreement:
(A) A copy of the LLOG Agreement attached hereto as Exhibit C is a true
and correct copy of the LLOG Agreement. No party has terminated, or given
notice of any intent to terminate, the LLOG Agreement.
(B) The LLOG Agreement constitutes the only agreement between Seller and
LLOG with respect to the transactions contemplated thereby and no written or
oral agreements have been entered into by Seller and LLOG since the execution of
the LLOG Agreement.
(C) The representations of Seller contained in the LLOG Agreement are
true and correct.
(D) Seller has not breached and is not in default under the terms of the
LLOG Agreement, and, to the knowledge of the officers of Seller, LLOG has not
breached and is not in default under the terms of the LLOG Agreement.
(E) Seller has not assigned, conveyed, transferred, pledged or
otherwise encumbered the LLOG Agreement.
4. Buyer's Representations. Buyer represents to Seller as of the date hereof
and as of Closing that:
(a) it is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and Buyer is duly qualified to
carry on its business in the State of Texas;
(b) it has all requisite power and authority to carry on its business
as presently conducted, to enter into this Agreement and the Assignment, to
purchase the Subject Interests on the terms described in this Agreement, to
purchase the Assets on the terms described in the LLOG Agreement, and to perform
its other obligations under this Agreement, the Assignment, and when assigned to
Buyer, the LLOG Agreement. Subject to the consents required under Buyer's
Credit Agreement with Texas Gas Fund I, the consummation of the transactions
contemplated by this Agreement and the LLOG Agreement will not violate, or be
in conflict with, any provision of Buyer's charter, by-laws or other governing
documents, or any material agreement or instrument to which Buyer is party or by
which Buyer is bound, or any judgment, decree, order, statute, rule or
regulation applicable to Buyer;
(c) the execution, delivery and performance of this Agreement, the
Assignment, and the transactions contemplated hereunder and under the LLOG
Agreement have been duly and validly authorized by all requisite action on the
part of Buyer;
(d) this Agreement constitutes, and all documents and instruments
required hereunder to be executed and delivered by Buyer at Closing, including
the Assignment, will constitute, legal, valid and binding obligations of Buyer
in accordance with their respective terms, subject to applicable bankruptcy and
other similar laws of general application with respect to creditors;
(e) there are no bankruptcy, reorganization or arrangement
proceedings pending, being contemplated by, or to the knowledge of the officers
of Buyer, threatened against Buyer;
(f) Buyer has not incurred any liability, contingent or otherwise,
for broker's or finder's fees in connection with the transactions contemplated
by this Agreement for which Seller shall have any responsibility whatsoever;
(g) Buyer has duly authorized the issuance of the Purchase Shares
and, when issued in accordance with this Agreement, the Purchase Shares will be
validly issued, outstanding and non-assessable. Buyer's capitalization
authorized by Buyer at the date of this Agreement consists of 50,000,000 shares
of Class A common stock (par value $.01 per share), 200,000 shares of Class B
common stock (par value $.01 per share) and 1,000,000 shares of preferred stock
(par value $1.00 per share), of which 8,877,892 shares of Class A common stock,
129,644 shares of Class B common stock and 52,500 shares of preferred stock, in
a series designated as "10% Cumulative Convertible Preferred Stock, Series B",
are issued and outstanding. Buyer is current in its obligations to file all
periodic reports and proxy statements with the Securities and Exchange
Commission required to be filed under the Securities Exchange Act of 1934, as
amended, and applicable rules and regulations promulgated thereunder;
(h) Buyer's Annual Report on Form 10-KSB for the year ended December
31, 1994 (the "SEC Document") does not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading. Since December 31, 1994, there
have been no material and adverse developments, transactions or events affecting
Buyer (other than developments or events affecting the oil and gas exploration
and production industry' generally) other than as have been disclosed by Buyer
in the SEC Document or to Seller in writing. There are no material liabilities
of Buyer (contingent or otherwise), other than as disclosed in the SEC Document
and the financial statements included therein; and
(i) Buyer is an experienced and knowledgeable investor in the oil and gas
business. Prior to entering into this Agreement, Buyer was advised by and has
relied on its own legal, tax, engineering, geological, environmental and other
professional counsel and advisors concerning this Agreement, the LLOG Agreement
and the Assets and the value thereof. Buyer has completed its own
investigation, evaluation and review of the LLOG Agreement and the Assets,
including an on-site environmental review, and it has relied solely on (i) its
own investigation, evaluation and review (ii) the representations and warranties
of Seller made in Section 3, and (iii) the representations and warranties made
by LLOG in the LLOG Agreement, as the basis for entering into this Agreement and
the Assignment. Buyer is acquiring the Subject Interests for its own account
and not for distribution or resale in any manner which would violate any state
or federal securities law.
5. Performance Bonds. Seller shall use its reasonable efforts to assist
Buyer in arranging for the issuance of the performance bonds required to be
delivered by buyer under Section 2.04 of the LLOG Agreement. Buyer agrees to
cooperate with Seller in obtaining such bonds. The cost of such bonds shall be
borne by Buyer.
6. Assumption of Liabilities and Indemnity. Seller agrees to assume and pay,
perform, fulfill and discharge all Seller Obligations (as defined below), and
agrees to indemnify and hold Buyer (and its directors, officers, managers,
employees and representatives) harmless from and against any and all claims,
losses, damages, costs, expenses, causes of action or judgments of any kind or
character, with respect to any of the Seller Obligations, including any
interest, penalty, reasonable attorneys' fees and other costs and expenses
incurred in connection therewith or the defense thereof. The term "Seller
Obligations" shall mean all costs, expenses, taxes, judgments, fines,
assessments, risks, liabilities and obligations of any kind or character,
whether recorded or unrecorded, disclosed or undisclosed, absolute or contingent
arising out of, in connection with, or resulting from (a) the ownership or use
of the Subject Interests for the period beginning on the "Effective Date," as
defined in the LLOG Agreement, and ending at the Effective Time, (b) any breach
of a representation or warranty of Seller under this Agreement or the Assignment
or failure to comply with any agreement or covenant contained in this Agreement
or the Assignment, (c) any action taken or inaction not taken by Seller without
Buyer's written consent with respect to the LLOG Agreement which causes Buyer to
be in breach of the LLOG Agreementand (d) Seller's investigation of the Assets
prior to Closing under Section 6.01 of the LLOG Agreement which results in Buyer
being obligated to indemnify LLOG under that Section. After the closing of the
LLOG Agreement, Buyer agrees to assume and pay, perform, fulfill and discharge
all Buyer Obligations, and agrees to indemnify and hold Seller (and its
directors, officers, managers, employees and representatives) harmless from and
against any and all claims, losses, damages, costs, expenses, causes of action
or judgments of any kind or character, with respect to any of the Buyer
Obligations, including any interest, penalty, reasonable attorneys' fees and
other costs and expenses incurred in connection therewith or the defense
thereof. The term "Buyer Obligations" shall mean all costs, expenses, taxes,
judgments, fines, assessments, risks, liabilities and obligations of any kind or
character, whether recorded or unrecorded, disclosed or undisclosed, absolute or
contingent arising out of, in connection with, or resulting from (i) the
ownership or use of the Assets after the Effective Time, (ii) the duties and
obligations of the buyer under the LLOG Agreement, except for the Seller
Obligations, (iii) any breach of a representation or warranty of Buyer under
this Agreement or failure of Buyer to comply with any agreement or covenant
contained in this Agreement and (iv) any action taken or inaction not taken by
Buyer without Seller's written consent with respect to the LLOG Agreement which
causes Seller to be in breach of the LLOG Agreement. The provisions of this
Section 6 shall apply notwithstanding anything to the contrary contained in the
LLOG Agreement or any other agreement among LLOG, Seller and Buyer.
7. Pre-Closing Covenants. During the period between the execution of this
Agreement and Closing:
(a) Seller shall continue to perform its obligations under the LLOG
Agreement and shall notify Buyer in the event Seller or, to the knowledge of the
officers of Seller, LLOG, breaches the terms of the LLOG Agreement.
(b) Seller shall immediately provide copies to Buyer of (I) all notices or
other documents received from LLOG with respect to the LLOG Agreement or the
transactions contemplated thereby and (ii) all title opinions, title information
and other documents it receives related to the LLOG Agreement.
(c) Seller shall consult with and obtain the written consent of Buyer
regarding all significant actions required of Seller or requested of Seller by
LLOG under the terms of the LLOG Agreement, which consent shall not be
unreasonably withheld, including but not limited to the actions required of
Seller under the terms and conditions of the LLOG Agreement with respect to the
following: (i) calculations of the adjustments to the purchase price under
Section 2.02 of the LLOG Agreement;
(ii) obtaining the tidal disposal permit pursuant to Section 7.01(d) of the
LLOG Agreement;
(iii) determining the inventory value pursuant to Section 2.08 of the
LLOG Agreement;
(iv) calculating the prorations of Taxes under Section 3.01 of the LLOG
Agreement;
(v) determining the amount of Title Defects, adjustments to the LLOG
purchase price as a result thereof and whether to waive any Title Defects or
terminate the LLOG Agreement, all under Article 5 of the LLOG Agreement;
(vi) all actions and consents requested by LLOG of Seller with respect to
operations pending the Closing as specified in Section 6.03 of the LLOG
Agreement;
(vii) determining whether to terminate the LLOG Agreement as a result of any
casualty losses under Section 6.04 of the LLOG Agreement;(viii) whether all
conditions precedent of buyer to the Closing have been satisfied under
Article VII of the LLOG Agreement; and
(ix) such other matters as shall be presented to Seller by LLOG for
discussion or action prior to the Closing under the LLOG Agreement.
(d) Seller shall not enter into any additional agreements with LLOG with
respect to the subject matter of this Agreement or the LLOG Agreement and shall
not amend the LLOG Agreement without the prior written consent of Buyer.
(e) Seller shall not assign, sell, pledge or otherwise transfer or dispose of
the Subject Interests.
8. Seller's Closing Conditions. The obligations of Seller under
this Agreement are subject, at the option of Seller, to the satisfaction at or
prior to Closing of the following conditions:
(a) all representations and warranties of Buyer contained in this
Agreement shall be true in all material respects at and as of Closing as if such
representations and warranties were made at and as of Closing, and Buyer shall
have performed and satisfied all agreements required by this Agreement to be
performed and satisfied by Buyer at or prior to Closing;
(b) Seller shall have received a certificate dated as of Closing,
executed by a duly authorized officer of Buyer, to the effect that to such
officer's knowledge the statements made under Section 4 above are true at and as
of Closing;
(c) all of the seller's conditions to closing under Section 7.01 and
buyer's conditions to closing under Section 7.02 of the LLOG Agreement shall
have been satisfied or waived at or prior to Closing ;
(d) all necessary' consents and approvals from third parties to transfer
the Subject Interests shall have been obtained and all preferential purchase
rights affecting the Subject Interests , if any, shall have been waived or
deemed waived, except for such consents or approvals that are typically obtained
in the ordinary' course of business promptly after Closing;
(e) LLOG shall have consented to the assignment of the LLOG
Agreement to Buyer; and
(f) no suit or other proceedings brought against Seller shall be pending
before any court seeking to restrain, prohibit or declare illegal or seeking
material damages in connection with the sale contemplated by this Agreement.
9. Buyer's Closing Conditions. The obligations of Buyer under this Agreement
are subject, at the option of Buyer, to the satisfaction at or prior to Closing
of the following conditions:
(a) all representations and warranties of Seller contained in this Agreement
shall be true in all material respects at and as of Closing as if such
representations and warranties were made at and as of Closing, and Seller shall
have performed and satisfied all agreements required by this Agreement to be
performed and satisfied by Seller at or prior to Closing;
(b) Buyer shall have received a certificate dated as of Closing, executed by an
officer of Seller to the effect that to such officer's knowledge the statements
made under Section 3 above by Seller are true at and as of Closing;
(c) all of seller's conditions to closing under Section 7.01 and buyer's
conditions to closing under Section 7.02 of the LLOG Agreement shall have been
satisfied or waived at or prior to Closing and the transactions contemplated by
the LLOG Agreement shall close before or simultaneous with the Closing under
this Agreement; and shall have signed the form of Exhibit B.
(d) LLOG shall have consented to the Assignment of the LLOG Agreement to Buyer
and shall have signed the Second Amendment to Purchase and Sale Agreement in the
form of Exhibit B; and
(e) no suit or other proceedings brought against Buyer shall be pending
before any court seeking to restrain, prohibit or declare illegal or seeking
material damages in connection with the sale contemplated by this Agreement.
10. Termination. This Agreement may be terminated at or prior to
,closing:
(a) by mutual written consent of Buyer and Seller;
(b) by Buyer or Seller if the Closing shall not have occurred by May
16, 1995, if the failure to close on or before such date is not caused by any
material breach of this Agreement by the party electing to terminate pursuant to
this Section 10(b);
(c) by Buyer if the conditions set forth in Section 9 have not been
satisfied by Closing; or
(d) by Seller if the conditions set forth in Section 8 have not been
satisfied by Closing.
If this Agreement is terminated under this Section 10, this Agreement
shall be null and void and there shall be no liability on the part of either
Buyer or Seller, except for the breaches of this Agreement prior to such
termination.
11. Closing.
(a) Time and Place. The closing of this transaction (the "Closing") shall take
place at the offices of LLOG on April 27 , 1995 or such other date and place as
contemplated by this Agreement and the LLOG Agreement or as Buyer, LLOG and
Seller shall mutually agree (the "Closing Date") and the Closing shall be
simultaneous with the closing under the LLOG Agreement. Regardless of when the
Closing shall occur, Closing shall be effective with respect to each Subject
Interest as of the Effective Time.
(b) Seller's Closing Obligations. At Closing, Seller shall deliver to Buyer
the following:
(i) the Assignment, substantially in the form attached hereto as Exhibit A,
and such other documents as may be reasonably necessary or as reasonably
requested by Buyer to convey all of Seller's right, title and interest in and to
the Subject Interests to Buyer in accordance with the provisions hereof;
(ii) the certificate of Seller referred to in Section 9(b) hereof.
(iii) Seller shall deliver to LLOG an executed copy of the Assignment.
(iv) Buyer agrees to execute and deliver to LLOG an executed copy of the
Second Amendment to Purchase and Sale Agreement substantially in the form
attached hereto as Exhibit B.
(v) Seller shall cooperate with and assist Buyer in closing the
transactions contemplated by the LLOG Agreement.
(c) Buyer's Closing Obligations. At Closing, Buyer shall deliver to Seller
the following:
(i) the Purchase Price in immediately available funds in the manner
provided in Section 2(a) hereof;
(ii) certificates representing the Purchase Shares in the manner provided
in Section 2(a) hereof; and
(iii) the certificate of Buyer referred to in Section 8(b) hereof.
(d) Seller shall use its best efforts to aid and assist Buyer in acquiring
access to all information neccessary to produce two years of audited financials
as required by SEC rules and regulations. Buyer shall pay the cost of any such
audit and related expense.
(e) Any information obtained by Seller in connection with the LLOG Agreement
or the Assets described therein shall remain confidential and shall not be
disclosed by Seller without the prior written consent of Buyer unless required
pursuant to order of a court or governmental agency exercising proper
jurisdiction over Seller and the matters related hereto or unless such
information is public information.
12. Post Closing Final Settlement:
(a) Seller shall cooperate with Buyer in determining the Final Purchase
Price under the LLOG Agreement. Buyer shall obtain Seller's written consent,
which consent shall not be unreasonably withheld, prior to agreeing to any final
adjustments to the LLOG purchase price to the extent such final adjustments
pertain to the period between the Effective Date under the LLOG Agreement and
the Effective Time. Upon receiving Seller's written consent to any final
adjustment as provided for in the previous sentence and agreeing to the Final
Settlement Statement with LLOG, Buyer shall immediately furnish Seller with a
copy of the Final Settlement Statement.
(b) As soon as practicable after receiving a copy of such Final Settlement
Statement under the LLOG Agreement, Buyer shall prepare and deliver to Seller in
accordance with this Agreement and generally accepted accounting principles, a
statement (the "Final Mustang Settlement Statement") setting forth each
adjustment or payment that was not finally determined as of Closing and showing
the calculation of such adjustments, using the adjustments made in the Final
Settlement Statement under the LLOG Agreement and the adjustments required by
Section 2(b) of this Agreement. Within fifteen (15) days after receipt of the
Final Mustang Settlement Statement, Seller shall deliver to Buyer a written
report containing any changes that Seller proposes be made to the Final Mustang
Settlement Statement. The parties shall undertake to agree with respect to the
amounts due pursuant to such post-closing adjustment no later than fifteen (15)
days after Buyer has received Seller's proposed changes. The date upon which
such agreement is reached or upon which the final purchase price under this
Agreement (the "Final Mustang Purchase Price") is established, shall be called
the "Final Mustang Settlement Date." If the parties cannot agree to the
adjustment of the Final Mustang Purchase Price, then either Buyer or Seller may
submit such disputed adjustments to the Dallas office of the accounting firm of
Ernst and Young and the determination made as to such disputed adjustments by
such accounting firm shall be final and binding upon Buyer and Seller. The
fees charged by such accounting firm shall be paid by the non-prevailing party
If (i) the Final Mustang Purchase Price is more than the Purchase Price paid at
closing, Buyer shall pay in immediately available federal funds the amount of
such difference to Seller or to Seller's account (as designated by Seller), or
(ii) the Final Mustang Purchase Price is less than the Purchase Price paid at
closing Seller shall pay in immediately available federal funds the amount of
such difference to Buyer or to Buyer's account (as designated by Buyer).
Payment by Buyer or Seller shall be made within five (5) days after the Final
Mustang Settlement Date.
13. Limitations on Warranties and Remedies. The express
representations and warranties of Seller contained in this Agreement and the
Assignment are exclusive and are in lieu of all other representations and
warranties, express, implied or statutory, including without limitation any
representation or warranty with respect to the quality, quantity or volume of
the reserves of Hydrocarbons attributable to the Subject Interests or the
condition of the Assets . To the maximum extent permitted by law, Seller and
Buyer waive all provisions of the Texas Deceptive Trade Practices Act, Chapter
17, Texas Business and Commerce Code (other than Section 17.555 thereof),
insofar as the provisions of such act may be applicable to this Agreement or the
transactions contemplated hereby; and Seller and Buyer each expressly represents
and warrants to the other that it meets all requirements for granting such
waiver under the terms of such act.
14. Survival. The liability of Buyer and Seller under each of their respective
representations, warranties, covenants and indemnities made under this Agreement
shall survive Closing. After Closing, any assertion that Seller is liable for
any breach of any representation, warranty or covenant hereunder or for
indemnity under the terms of this Agreement must be made in writing and
delivered to Seller within two years of the Closing Date.
15. Rights and Covenants Related to Purchase Shares.
(a) Restricted Stock. Subject to Section 15(b), all of the
Purchase Shares have been issued without being registered under the Securities
Act of 1933 (the "Act"), and the subsequent transfer of the Purchase Shares is
limited and must be conducted in accordance with applicable rules and
regulations promulgated under the Act, including Rule 144. Buyer shall timely
file the reports required to be filed by it under the Act and the Securities
Exchange Act of 1934 (the "Exchange Act") (including but not limited to reports
under Sections 13 and 15(d) of the Exchange Act referred to in subparagraph
(C)(1) of Rule 144 adopted by the Securities and Exchange Commission under the
Act) and the rules and regulations adopted by the Commission thereunder (or, if
Buyer is not required to file such reports, will upon the request of Seller,
make publicly available other information) and will take such further action as
Seller may reasonably request, all to the extent required from time to time to
enable Seller to sell the Purchase Shares, without registration under the Act
within the limitation of the exemptions provided by (a) Rule 144 under the Act,
as such Rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the Securities and Exchange Commission. Upon the
request of Seller, Buyer will deliver to Seller a written statement as to
whether it has complied with such requirements. Buyer agrees to file within
seventy-five (75) days of Closing all applications to list the Purchase Shares
on the NASDAQ Small Cap Market and pay all fees required in connection with such
listing. Buyer will use reasonable efforts to maintain the listing of Buyer's
Class A Stock on the NASDAQ Small Cap Market or, at the option of Buyer, the
NASDAQ National Market or New York or American Stock Exchanges.
(b) Registration Rights.
(i) On or before 75 days from the date of Closing, Buyer shall file a
registration statement, on an appropriate registration form, which registration
statement shall include one-half of the number of Purchase Shares to the extent
required to permit the resale or other disposition of such shares (in accordance
with the intended methods thereof specified by Seller in writing prior to the
filing of such registration statement) by Seller. On or before 255 days from the
date of Closing, Buyer shall file an additional registration statement, which
registration statement shall include the remaining one-half of the Purchase
Shares , if any, to the extent required to permit the resale or other
disposition (in accordance with the intended method thereof specified by
Seller in writing prior to the filing of such registration statement) by
Seller. In the case of eitherof the foregoing registrations, Buyer will use its
best efforts to cause such registration statements to be declared effective
within 135 days and 300 days, respectively, from the date of Closing and to
remain effective for so long as may reasonably be necessary to complete the
resale or other disposition of the Purchase Shares , provided that Buyer will
not in any event be required to use its best efforts to maintain the
effectiveness of such registration statements for period in excess of three
years from the date of Closing. Buyer may, in its sole discretion,
include other shares of Class A Stock in either of such registration
statements. Buyer shall pay all audit fees and expenses, costs of printing,
NASD and registration fees, listing fees, blue sky expenses for Texas and such
other states (but in any event no more than four additional states) to the
extent necessary to afford Seller reasonable access to secondary trading
markets for Class A Stock, and all other governmental and regulatory fees in
connection with each of the foregoing registration statements and all
amendments thereto and shall supply Seller with copies of any prospectuses
included therein (and, if necessary, with copies of any prospectus meeting the
requirements of Section 10(a)(3) of the Act) in such quantities as may be
reasonably necessary for the purposes of such -proposed sale or
distribution; provided, however, that Seller shall pay the full amount of
brokerage and underwriting commissions or discounts applicable to the
Purchase Shares and the fees and expenses, if any, of counsel to Seller.
Buyer shall furnish to Seller copies of the registration statements and
prospectuses in the amount and manner described in subsection (b)ii)(D)
below. In addition, subsections (b)(ii)(E) and (F) below shall apply to
the registration of Purchase Shares pursuant to this subsection (b(i).
(ii) (A) If, at any time after the date of Closing, Buyer
proposes to register shares of Class A Stock under the Securities Act of 1933,
as amended (the "Act") for sale for cash (on a form of registration statement
appropriate for the registration of common stock for a public offering by the
holders thereof), it shall give at least thirty (30) days advance written notice
to the Seller of the proposed filing. Upon the written request of the Seller
given within ten (10) days after the actual receipt of any such notice, Buyer
shall cause all or any part, at the sole discretion of Seller, of the Purchase
Shares ("Seller's Registration Shares") to be included in the registration
statement to be registered under the Act, all to the extent required to permit
the sale or other disposition (in accordance with the intended method
thereof) by Seller; provided, however, that the obligation to include any shares
in such registration statement shall be subject and subordinate to any prior
registration rights of purchasers of 10% Cumulative Convertible Preferred Stock,
Series B of the Company ("Series B Preferred Stock") pursuant to agreements
entered into by Buyer prior to the date of this Agreement.
(B) Buyer may at any time withdraw or cease proceeding with any
such registration if it shall at the same time withdraw or cease proceeding
with the registration of such other securities originally proposed to be
registered. Additionally, in connection with any registered public offering
involving an underwriting, the underwriter may, if in its reasonable opinion
marketing factors so require, limit the number of securities included in such
offering (including Seller's Registration Shares); provided that in any event
Seller shall be entitled to include a number of Seller's Registration Shares at
least equal to ten percent (10%) of the number of total shares to be included in
the proposed offering (excluding any underwriter's overallotment option) and
provided, further, that Seller's entitlement to 10% shall be subject and
subordinate to any prior registration rights of purchasers of Series B Preferred
Stock of the Company granted prior to the date of this Agreement, and such
entitlement shall be further reduced by any shares registered for the Seller
under the Agreement for Purchase and Sale (Oak Hill) dated April 12, 1995,
between Sierra_1994 I, Limited Partnership and Buyer In the event of any
limitation in the number of Seller's Registration Shares to be included in such
offering, the securities proposed to be registered by persons other than the
Seller (other than holders with registration rights as of the date of this
Agreement) shall first be eliminated from registration before any of Seller's
Registration Shares shall be eliminated.
(C) Any request of Seller for registration of or inclusion in any
registration of Seller's Registration Shares pursuant to this Section 15(b)
shall also include the agreement of Seller to sell the applicable amount of
Seller's Registration Shares only through the underwriters, if applicable, and
at the price and upon the terms fixed by the agreement among Buyer and the
underwriters or brokers for such transaction.
(D) In connection with any registration under the Act of Seller's
Registration Shares, Buyer shall furnish Seller a copy of the registration
statement and all amendments thereto and shall supply Seller with copies of any
prospectus included therein (and, if necessary, with copies of a prospectus
meeting the requirements of Section 10(a)(3) of the Act; provided, however, that
no such prospectus need be supplied more than nine (9) months after the
effective date of such registration statement) in such quantities as may be
reasonably necessary for the purposes of such proposed sale or distribution.
(E) In connection with any registration of shares pursuant to this
Section 15(b), Seller shall furnish Buyer with such information concerning
Seller and the proposed sale or distribution as shall, in the opinion of counsel
for Buyer, be required for use in the preparation of the registration statement
and shall cooperate fully in the preparation and filing of the registration
statement. Buyer shall qualify Seller's Registration Shares for sale under the
securities laws of the states in which Buyer causes the shares it is to issue to
be so qualified.
(F) Buyer shall indemnify and hold harmless Seller from and against
all losses, claims, demands, liabilities and expenses (including reasonable
attorneys' fees) arising out of any alleged untrue statement of a material fact
in any registration statement or any amendment thereto or any prospectus or
supplement thereto, or any alleged omission to state a material fact required to
be stated therein or necessary to make the statement therein not misleading,
unless any such alleged untrue statement or omission was made in conformity with
written information given to Buyer by or on behalf of Seller specifically for
use in connection with such registration statement or amendment thereto or
prospectus or supplement thereto. Seller shall likewise indemnify and hold
harmless Buyer and any underwriter offering any of Seller's Registration Shares
with respect to such written information given to Buyer by or on behalf of
Seller.
(G) The costs and expenses of any registration statement and related
documentation relating to Seller's Registration Shares registered pursuant to
this Section 15 shall be paid by Buyer, including, without limitation, all audit
fees and expenses, costs of printing, NASD and registration fees, listing fees,
blue sky expenses for Texas and such other states (but in any event no more than
four additional states) to the extent necessary to afford Seller reasonable
access to secondary trading markets for Class A Stock, and all other
governmental and regulatory fees; provided, however, that Seller shall pay the
full amount of brokerage and underwriting commissions or discounts applicable to
the Seller's Registration Shares and the fees and expenses, if any, of counsel
for Seller.
(iii) It is contemplated that as soon as practicable following Closing, Seller
will dissolve and distribute the Purchase Shares to its members as a
liquidating distribution. Some of the members of Seller will in turn liquidate
and distribute such Purchase Shares in such liquidation. Buyer and
Seller agree that the rights afforded Seller under Section 15 shall inure to the
benefit of each holder of the Purchase Shares who receive such shares by way of
a liquidating distribution and to any successors, heirs and assigns of such
holder provided that such holder executes and delivers to Buyer a written
instrument which includes (A) an agreement of such holder to be bound by the
provisions of this Section 15 to the extent Seller is so bound, (B) a
representation of holder that it is holding such shares for investment and,
subject to the registration rights granted in this Section 15, not with a
present view to engage in a distribution, and (C) an agreement of such
holder not to sell or otherwise dispose of such shares except pursuant to an
effective registration under Section 5 of the Securities Act or an available
exemption from such registration and to indemnify Buyer for violation of
any securities laws as a result of any such transfer. In the event of a
distribution or assignment of Purchase Shares to such holder, and delivery of
such written instrument, such holder will have all rights and obligations of
Seller under this Section 15 with respect to its Purchase Shares held by
such holder and, where relevant, such rights shall be in proportion to the
number of Purchase Shares held by such holder at the time relative to the
aggregate number of Purchase Shares then outstanding. Subject to the
foregoing, Seller represents that it is acquiring the Purchased Shares for
investment and not with a present view to engage in a distribution.
(iv) Seller shall, to the fullest extent permitted by law, indemnify and hold
Buyer harmless from and against any loss, claim or damages caused by or
resulting from (A) the transfer or distribution of any Purchase Shares by
Seller to any subsequent transferee (except for loss, claim or damages caused
by or resulting from any material misstatements or omissions by the Company
in any registration statement) or (B) the inaccuracy of any information
concerning Seller (or its transferees as selling stockholders) furnished by
Seller or its transferees for inclusion in a registration statement effective
under this Section 15.
16. Further Assurances. After the Closing, each of the parties will
execute, acknowledge and deliver to the other such further instruments, and take
such other actions, as may be reasonably requested in order to more effectively
assure to said party all of the respective properties, rights, titles,
interests, estates and privileges intended to be assigned, delivered or inuring
to the benefit of such party in consummation of the transactions contemplated
hereby are so assigned, delivered or inuring.
17. Notices. All communications required or permitted under this
Agreement shall be in writing and any communication or delivery hereunder shall
be deemed to have been duly given when actually received by the party to be
notified, or, if sent by certified mail postage prepaid, return receipt
requested to the address set forth below of the party to be notified, three days
after deposited in the U.S. mail.
If to Seller: Sierra Mineral Development, L.C.
1201 Louisiana, Suite 3125
Houston, Texas 77002
Telecopy No. (713) 658-1118
Attn.: John Eads
If to Buyer: National Energy Group, Inc.
1400 One Energy Square
4925 Greenville Avenue
Dallas, Texas 75206
Telecopy No. (214) 692-9310
Attn.: Miles D. Bender
Any party may, by written notice so delivered to the other, change the address
to which delivery shall thereafter be made.
18. Expenses. Each party shall bear its own respective expenses incurred
in connection with the closing of this transaction, including its own
consultants' fees, attorneys' fees, accountants' fees and other similar costs
and expenses.
19. Post-Closing Arbitration. All disputes arising after Closing between
Seller and Buyer related to this Agreement and the transactions contemplated by
this Agreement (other than those to be resolved in accordance with Section 12
(b)), which are not resolved by negotiation of the parties, shall be resolved by
mediation, with a mutually acceptable mediator or, if mediation does not resolve
the dispute, arbitration in accordance with the following procedures:
(a) The party desiring to initiate such post-closing arbitration
shall give notice to that effect to the other party, specifying the matter to
be arbitrated and suggesting an arbitrator. Within ten days after the service of
such notice, the other party shall give notice to the first party specifying
that the suggested arbitrator is acceptable or offering another arbitrator. If
the second party fails to notify the first party within the time specified in
the preceding sentence, or if the parties fail to agree on an arbitrator within
ten days thereafter then either party, on behalf of both and on notice to the
other, may request the appointment of the arbitrator through a request to the
American Arbitration Association. The arbitrator so chosen shall meet as soon as
practicable after the appointment. The arbitrator chosen or so appointed
pursuant to this Section 19 shall be a person having at least ten years
experience in a calling connected with the dispute and shall be disinterested.
(b) An arbitration pursuant hereto shall be conducted, to the extent
consistent wit this Agreement, in accordance with the prevailing Commercial
Arbitration Rules of the American Arbitration Association (or any organization
successor thereto) in Houston, Texas.
(c) The decision of the arbitrator shall be final and binding upon the parties
and may be enforced in any court of competent jurisdiction. The parties shall
bear their own legal fees and other costs incurred in the arbitration. The
charges and expenses of the arbitration shall be shared equally by the parties.
Except as described in this Section 19(c), no dispute arising after Closing
between Seller and Buyer related to this Agreement or the transactions
contemplated by this Agreement shall be brought before any court of law or
equity.
20. Entire Agreement. This Agreement and the other agreements referred to
herein between Seller and Buyer embody the entire agreement between the parties
and may be supplemented, altered, amended, modified or revoked by writing only,
signed by Seller and Buyer. The headings herein are for convenience only and
shall have no significance in the interpretation hereof.
21. Governing Law. This Agreement shall be governed, construed and
enforced in accordance with the laws of The State of Texas.
22. Exhibits. All exhibits and schedules hereto which are referred to
herein are hereby made a part hereof and incorporated herein by such reference.
23. Counterparts. This Agreement may be executed in any number of
counterparts, and each and every counterpart shall be deemed for all purposes
one (1) agreement.
24. Waiver. Any of the terms, provisions, covenants, representations,
warranties or conditions hereof may be waived, only by a written instrument
executed by the party waiving compliance. No waiver by any party of any
condition, or of the breach of any term, provision, covenant, representation or
warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances, shall be deemed to be or construed as a further or
continuing waiver of any such condition or breach or a waiver of any other
condition or of the breach of any other term, provision, covenant,
representation or warranty.
25. Binding Effect: Assignment. All the terms, provisions, covenants,
representations, warranties and conditions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the parties hereto and
their respective successors; but, except as otherwise expressly provided for in
this Agreement with respect to the Purchase Shares, this Agreement and the
rights and obligations hereunder shall not be assignable or delegable by any
party without the express written consent of the non-assigning or non-delegating
parties.
26. No Solicitation. Until the earlier of Closing or the date this
Agreement is terminated, Seller shall not negotiate with, or solicit offers
from, third parties with respect to the purchase and sale of theSubject
Interests.
27. Construction of Agreement. In construing this Agreement:
(a) no consideration shall be given to the captions of the articles,
sections, subsections, or clauses, which are inserted for convenience in
locating the provisions of this Agreement and not as an aid in its construction;
(b) no consideration shall be given to the fact or presumption that
one party had a greater or lesser hand in drafting this Agreement;
(c) examples shall not be construed to limit, expressly or by implication,
the matter they illustrate;
(d) the word "includes" and its derivatives means "includes, but is not
limited to" and corresponding derivative expressions;
(e) a defined term has its defined meaning throughout this Agreement and
each exhibit, attachment, and schedule to this Agreement, regardless of whether
it appears before or after the place where it is defined;
(f) the plural shall be deemed to include the singular, and vice versa;
and
(g) each exhibit, attachment, and schedule to this Agreement is a part of
this Agreement, but if there is any conflict or inconsistency between the main
body of this Agreement and any exhibit, attachment, or schedule, the provisions
of the main body of this Agreement shall prevail.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized officers or representatives as of the date first above
written.
SIERRA MINERAL DEVELOPMENT, L.C.
By: John Eads
Title: President
"SELLER"
NATIONAL ENERGY GROUP, INC.
By:Miles D. Bender
Title:President and CEO
"BUYER"
PURCHASE AND SALES AGREEMENT
THIS AGREEMENT, dated as of March 29, 1995, is between Enron Oil & Gas
Company ("Seller"), with offices at 4000 North Big Spring, Suite 500, Midland,
Texas 79705 and National Energy Group, Inc. ("Buyer") with offices at 1400 One
Energy Square, 4925 Greenville Avenue, Dallas, Texas 75206.
Subject to the terms and conditions of this Purchase and Sales Agreement,
Seller desires to sell, assign, transfer and convey to Buyer and Buyer desires
to purchase from Seller all of Seller's right, title and interest in, to and
under or derived from the oil and gas leases, oil, gas and mineral leases and
other interests therein referred to in Exhibit "A", attached hereto and made a
part hereof for all purposes, insofar and only insofar as said Leases apply to
the lands, depths, formations, wellbore rights and/or other rights specified on
Exhibit "A" together with identical interests in and to all property and rights
incident thereto, including without limitation, all materials, equipment,
personal property and fixtures located thereon or used in connection therewith
(the "Equipment") and all of Seller's rights in, to and under all agreements,
leases, permits, rights-of-way, easements, licenses, options and orders in any
way relating thereto as of 7:00 A.M. local time, May 1, 1995 (the "Effective
Time"), all of the foregoing properties, rights and interests being hereinafter
sometimes called the "Interests".
THEREFORE, in consideration of the above recitals and of the covenants and
agreements herein contained, Seller and Buyer agree as follows:
1. SALE AND PURCHASE: Subject to and upon all of the terms and
conditions hereinafter set forth, Seller shall sell, transfer, assign, convey
and deliver unto Buyer all of Seller's right, title and interest in and to the
Interests, and Buyer shall purchase, receive, pay for and accept the Interests
from Seller, as of the Effective Time. This sale is made by Seller without
representative covenants or warranties as to title or quantum of interest
conveyed, either express or implied.
2. SALE PRICE: The sale price for the Interests shall be $2,354,846.00,
subject only to any applicable price adjustment as provided for hereinbelow.
Buyer has previously paid Seller by wire transfer or certified funds of cash
twenty percent (20%) of the above-stated unadjusted sale price. At Closing
Buyer shall pay and deliver to Seller the remaining unpaid portion of the total
sale price after any applicable price adjustment as provided for hereinbelow.
3. INFORMATION AND ACCESS: Seller shall make a good-faith effort to give
Buyer and Buyer's authorized representatives, at any reasonable time(s) before
Closing, (i) physical access to the wells and other Equipment included in the
Interests, at Buyer's sole risk, cost and expense, for the purpose of inspecting
the same, conducting witnessed tests of production from the wells, and (ii)
access to all production, engineering and other technical data and records, and
to all contract, land and lease records, to the extent such data and records are
in Seller's possession and relate to the Interests; provided, however, Seller
shall have no obligation to provide Buyer such access to any data or information
which Seller considers proprietary or confidential to it or which access Seller
cannot legally provide Buyer because of third-party restrictions on Seller.
4. TITLE DEFECTS: For the purpose of this Agreement, a "Title Defect"
shall mean a material deficiency in one (or more) of the following respects, to-
wit:
(a) Seller's title at the Effective Time, as to one or more
properties, is subject to an outstanding mortgage, deed of trust, lien or
encumbrance or other adverse claim which would induce a pipeline purchaser to
suspend payment of proceeds as to Seller's interest or require the furnishing of
security or indemnity. Evidence that Seller is currently receiving its full
share of proceeds from a pipeline purchaser or third-party operator (not under a
100% or other division order requiring Seller to further distribute proceeds to
third parties) for the Interests shall be considered a presumption that no
defect exists with respect to this interest;
(b) Seller owns less than the net revenue interest described on
Exhibit "A-1" or more than the working interest described on Exhibit "A-1"
without a corresponding increase in net revenue interest;
(c) Seller's rights and interests are subject to being reduced by
virtue of the exercise by a third party of reversionary, back-in or other
similar right not reflected on Exhibit" A-1"; and,
(d) Seller is in default under some material provision of a lease,
farmout agreement or agreement affecting the Interests.
5. SALE PRICE ADJUSTMENTS: Buyer may, by delivery of written notice to
Seller of the existence of a Title Defect, request reduction of the sale price
for the property affected. Seller may request an increase in the sale price of
a property by delivery to Buyer of written notice that the net revenue interest
actually owned by Seller therein is greater than that shown on Exhibit "A-1".
Any such notice by Buyer or Seller shall include appropriate evidence
to substantiate its position and shall be delivered to the other party on or
before April 20, 1995. In the event any such notice is not timely delivered,
the claimant shall thereafter have no right to claim a Title Defect or different
revenue interest.
Upon timely delivery of a notice either by Buyer of a Title Defect or
by Seller of an increase in net revenue interest, Buyer and Seller shall meet
and use their best efforts to agree on the validity of the claim and the amount
of any required price adjustment.
In the event the net amount of the sale price adjustments downward
exceeds ten percent (10%) of the total purchase price, then Seller or Buyer may,
upon written notice to the other party, cancel this Agreement and the same shall
be of no further force and effect. Seller shall in such event return the twenty
percent (20%) deposit paid by Buyer pursuant to Article 2 within three (3)
business days of receipt of such cancellation notice by the party to whom it was
addressed.
If Buyer shall receive an adjustment at Closing on account of a Title
Defect, Seller shall have until October 1, 1995 to cure such Title Defect at its
cost. If by such date it can demonstrate to Buyer's reasonable satisfaction
that such Title Defect has been cured, then Seller shall be entitled to
reimbursement by Buyer for the amount of the adjustment received by Buyer at
Closing as a result of such Title Defect. Buyer shall pay such amount to Seller
within fifteen (15) business days of the date Seller demonstrates to Buyer
reasonable satisfaction that such title defect has been cured.
In the event it is determined that a net gas imbalance exists with
respect to operations relating to the Interests, the sale price paid by Buyer
for the subject property shall be adjusted upward or downward as the case may
be, to reflect the effect of such net gas imbalance for the Interests, as of the
Effective Time. Such adjustments shall be calculated by multiplying the per Mcf
amount of the net gas imbalance, as of the Effective Time, by $1.25 per Mcf.
6. CONDITIONS OF CLOSING BY BUYER: The obligation of Buyer to close is
subject to the satisfaction of the following conditions:
(a) Buyer shall have had reasonable access during normal business
hours to all data and records obligated to be provided Buyer in Section 3(ii)
hereof.
(b) Buyer shall have received Seller's assurance that (i) the
consummation of the transaction contemplated hereby will not violate the
provisions of Seller's corporate charter and by-laws or any agreement,
instrument, order, judgment or law by which it is bound, and (ii) all title
documents delivered hereunder are validly executed on behalf of Seller.
(c) Seller shall have obtained and delivered to Buyer (i) all
prerequisite waivers of preferential rights of purchase, and (ii) all necessary
consents for transfer of the Interests, except those which by their nature
cannot be requested or obtained until after Closing, or Buyer and Seller shall
have adjusted the sale price in accordance with the provisions of Section
5.
7. CONDITIONS OF CLOSING BY SELLER: The obligation of Seller to close is
subject to Seller receiving evidence satisfactory to Seller that Buyer has all
requisite corporate, partnership or other power and authority to purchase the
Interests on the terms described in this Agreement and to perform its other
obligations hereunder and that all corporate, partnership and/or other
prerequisites of whatsoever nature have been fulfilled.
8. CLOSING: The Closing shall be held on or before May 31, 1995, at
10:00 A.M., at the offices of Seller at 4000 North Big Spring, Suite 500,
Midland, Texas, 79705, or at such other place as Seller and Buyer may mutually
agree in writing. At Closing the following will occur:
(a) Seller and Buyer shall execute, acknowledge and deliver an
Assignment and Bill of Sale substantially in the form of Exhibit "B" attached
hereto.
(b) Buyer shall deliver to Seller by either wire transfer or
certified funds the remaining balance of the total sale price as adjusted
hereunder, subject to further adjustment after Closing as provided for herein.
(c) Seller and Buyer shall execute any necessary forms required by
governmental agencies for the transfer of the Interests and Buyer shall file
same immediately following Closing.
(d) Seller shall (subject to the terms of any applicable agreements
and to the other provisions hereof) deliver to Buyer exclusive possession of the
Interests, effective as of the Effective Time.
(e) All books, records and files in the possession of Seller
pertaining to the Interests, including, without limitation, all well files,
correspondence, geological and engineering information, shall be made available
for delivery to Buyer at Seller's offices where currently maintained, within
five (5) days after the Closing. Seller shall have the right to retain copies
of any or all of such books, records and files and to retain canceled checks and
general ledger, purchasing and other general accounting records of Seller.
Seller reserves the right to later examine the records and information delivered
to Buyer pursuant to this paragraph (e) to the extent such examination is
necessary for any relevant business purpose. All information and data shall be
furnished as a matter of convenience only to Buyer and Buyer's reliance on same
shall be at Buyer's sole risk.
9. RESERVATIONS AND EXCEPTIONS: Sale and purchase of the Interests is
made subject to all reservations, exceptions, limitations, contracts and other
burdens or instruments which are of record or of which Buyer has actual or
constructive notice, including any matter included or referenced in the
materials made available by Seller to Buyer.
In the event Seller reserves any interests (including without
limitation, overriding royalties and/or deep rights) in any properties subject
to this Agreement, Seller shall also reserve concurrent interests in any and all
applicable easements, rights-of-way, contracts or other rights relating to
the reserved interests.
10. ASSUMPTION OF LIABILITIES AND INDEMNITIES: As used in this paragraph
10, and the subparagraphs hereunder "claims" shall include claims, demands,
causes of action, liabilities, damages, penalties and judgments of any kind or
character and all costs and fees in connection therewith.
(A) BUYER SHALL, (I) AT THE EFFECTIVE TIME ASSUME, AND BE RESPONSIBLE
FOR AND COMPLY WITH ALL DUTIES AND OBLIGATIONS OF SELLER, EXPRESS OR
IMPLIED, WITH RESPECT TO THE INTERESTS, INCLUDING, WITHOUT LIMITATION,
THOSE ARISING UNDER OR BY VIRTUE OF ANY LEASE, CONTRACT,
AGREEMENT, DOCUMENT, PERMIT, APPLICABLE STATUTE OR RULE,
REGULATION OR ORDER OF ANY GOVERNMENTAL AUTHORITY (SPECIFICALLY
INCLUDING, WITHOUT LIMITATION, ANY GOVERNMENTAL REQUEST OR
REQUIREMENT TO PLUG, RE-PLUG AND/OR ABANDON ANY WELL OF
WHATSOEVER TYPE, STATUS OR CLASSIFICATION, OR TAKE ANY CLEAN-UP OR
OTHER ACTION WITH RESPECT TO THE PROPERTY OR PREMISES), AND (II)
DEFEND, INDEMNIFY AND HOLD SELLER HARMLESS FROM ANY AND ALL
CLAIMS IN CONNECTION THEREWITH, EXCEPT ANY SUCH CLAIMS ARISING
DIRECTLY OR INDIRECTLY FROM, OR INCIDENT TO, SELLER'S OWNERSHIP OF
THE INTERESTS PRIOR TO THE EFFECTIVE TIME.
(B) SELLER SHALL INDEMNIFY AND HOLD HARMLESS BUYER FROM ANY AND ALL
CLAIMS, COSTS, EXPENSES, LIABILITIES OR CAUSES OF ACTION TO OR BY
THIRD PARTIES ARISING FROM ACTIVITIES WHICH OCCUR PRIOR TO THE
EFFECTIVE TIME INVOLVING THE INTERESTS TRANSFERRED PURSUANT TO
THIS AGREEMENT. BUYER SHALL INDEMNIFY AND HOLD HARMLESS SELLER
FROM ANY AND ALL CLAIMS, COSTS, EXPENSES, LIABILITIES OR CAUSES OF
ACTION TO OR BY THIRD PARTIES ARISING FROM ACTIVITIES WHICH OCCUR
ON OR AFTER THE EFFECTIVE TIME INVOLVING THE INTERESTS TRANSFERRED
PURSUANT TO THIS AGREEMENT. EACH INDEMNIFIED PARTY HEREUNDER
AGREES THAT UPON ITS DISCOVERY OF FACTS GIVING RISE TO A CLAIM FOR
INDEMNITY UNDER THE PROVISIONS OF THIS AGREEMENT, INCLUDING
RECEIPT BY IT OF NOTICE OF ANY DEMAND, ASSERTION, CLAIM, ACTION OR
PROCEEDING, JUDICIAL OR OTHERWISE, BY ANY THIRD PARTY (SUCH THIRD
PARTY ACTIONS BEING COLLECTIVELY REFERRED TO HEREIN AS THE "CLAIM"),
WITH RESPECT TO ANY MATTER AS TO WHICH IT IS ENTITLED TO INDEMNITY
UNDER THE PROVISIONS OF THIS AGREEMENT, IT WILL GIVE PROMPT NOTICE
THEREOF IN WRITING TO THE INDEMNIFYING PARTY TOGETHER WITH A
STATEMENT OF SUCH INFORMATION RESPECTING ANY OF THE FOREGOING AS
IT SHALL THEN HAVE. SUCH NOTICE SHALL INCLUDE A FORMAL DEMAND FOR
INDEMNIFICATION UNDER THIS AGREEMENT. THE INDEMNIFIED PARTY SHALL
AFFORD THE INDEMNIFYING PARTY A REASONABLE OPPORTUNITY TO PAY,
SETTLE OR CONTEST THE CLAIM AT ITS EXPENSE.
(C) SELLER SHALL (I) BE RESPONSIBLE FOR ANY AND ALL CLAIMS ARISING
OUT OF THE PRODUCTION OR SALE OF HYDROCARBONS FROM THE INTERESTS -- OR
THE PROPER ACCOUNTING OR PAYMENT TO PARTIES FOR THEIR INTERESTS
THEREIN -- INSOFAR AS SUCH CLAIMS RELATE TO PERIODS OF TIME PRIOR TO
THE EFFECTIVE TIME, AND (II) DEFEND, INDEMNIFY AND HOLD BUYER
HARMLESS FROM ANY AND ALL SUCH CLAIMS. BUYER SHALL BE RESPONSIBLE
FOR ALL OF SAID TYPES OF CLAIMS INSOFAR AS THEY RELATE TO PERIODS OF
TIME FROM AND AFTER THE EFFECTIVE TIME AND SHALL DEFEND, INDEMNIFY
AND HOLD SELLER HARMLESS THEREFROM.
11. CLOSING ADJUSTMENTS: All ad valorem taxes, real property taxes and
similar obligations ("Property Taxes") for the year 1995 shall be prorated and
settlement shall be made at Closing or as soon thereafter as possible.
All proceeds (including proceeds held in suspense or escrow) from the
sale of production actually sold and delivered by Seller prior to the Effective
Time and attributable to the Interests shall belong to Seller and all proceeds
from the sale of production actually sold and delivered after the Effective Time
attributable to the Interests shall belong to Buyer. In addition, all oil,
condensate or liquid hydrocarbons (hereinafter in this paragraph called "oil")
in storage above the pipeline connection shall be gauged and all gas meter
charts shall be replaced at the Effective Time (with Buyer having the right to
have a representative present). Buyer shall pay Seller for such oil at the
highest posted field price prevailing at the Effective Time for oil of like
trade and gravity for the particular field.
Except as otherwise specifically provided in this Agreement, all
costs, expenses and obligations relating to the Interests which accrue prior to
the Effective Time shall be paid and discharged by Seller; and all costs,
expenses and obligations relating to the Interests which accrue after the
Effective Time shall be paid and discharged by Buyer.
12. Post-Closing Accounting: As soon as practicable after the Closing,
Seller shall prepare and deliver to Buyer, in accordance with this Agreement and
generally accepted accounting principles, a statement (the "Intermediate
Settlement Statement") setting forth each adjustment or payment that was not
finally determined as of the Closing and showing the calculation of such
adjustments to the sale price. As soon as practicable after receipt of the
Intermediate Settlement Statement, Buyer shall deliver to Seller a written
report containing any changes that Buyer proposes be made to the Intermediate
Settlement Statement. The parties undertake to agree with respect to the
Intermediate Settlement Statement no later than July 1, 1995, such agreement
constituting and to be embodied in the "Final Settlement Statement" and to
establish the "Final Sale Price", and the date upon which the Final Sale Price
is established to be the "Final Settlement Date". In the event Buyer and Seller
are unable to mutually agree upon the amount of the Final Settlement Statement,
an audit shall be conducted by a mutually agreed upon accounting firm. Buyer
and Seller agree to be bound by the finds of such audit, insofar as the Final
Settlement Statement amount is concerned, and each shall bear one half of all
expenses associated with such audit. In the event that (i) the Final Sale Price
is more than the amount paid at Closing, Buyer shall pay to Seller the amount of
such difference, or (ii) the Final Sale Price is less than the amount paid at
Closing, Seller shall pay to Buyer the amount of such difference, in either
event by wire transfer in immediately available funds, or, if the amount of such
difference is less than $25,000, by corporate check.
Seller shall be responsible for the settlement of all joint billing
audits which relate to accounting periods prior to the Effective Time. Buyer
shall be responsible for the settlement of all joint billing audits which relate
to accounting periods after the Effective Time. Any credits received by Buyer
after the Effective Time Attributable to expenses paid prior to the Effective
Time shall be promptly reimbursed to Seller by Buyer.
13. TAXES: The sale price provided for hereunder excludes any sales taxes
or other taxes in connection with the sale of property pursuant to this
Agreement because the parties believe that this sale is exempt from sales tax.
If a determination is ever made that a sales tax or other transfer tax applies,
Buyer shall be liable for such tax as well as any applicable conveyance,
transfer and recording fees, and real estate transfer stamps or taxes imposed on
any transfer of property pursuant to this Agreement. Buyer shall defend and
hold Seller harmless with respect to the payment of all such taxes, if any,
including any interest or penalties assessed thereon.
All taxes (other than ad valorem and income taxes) which are imposed
on or with respect to the production of oil, natural gas or other hydrocarbons
or minerals or the receipt of proceeds therefrom (including but not limited to
severance, production, excise and windfall profit taxes) shall be apportioned
between the parties based upon the respective shares of production taken by the
parties. Payment or withholding of all such taxes which have accrued prior to
the Effective Time and filing of all statements, returns and documents pertinent
thereto shall be the responsibility of Seller. Payment or withholding of all
such taxes which have accrued from and after the Effective Time and the filing
of all statements, returns and documents incident thereto shall be the
responsibility of Buyer.
14. SUBSEQUENT DRILLING OPERATIONS: After full execution of this
Agreement and prior to delivery of possession of the Interests to Buyer under
the applicable provisions of this Agreement, Seller shall not, without Buyer's
prior written consent, propose or conduct any operations for the drilling,
testing, completing, reworking, re-completing, sidetracking, deepening, plugging
back or plugging and abandoning a well with respect to the Interests (a
"Drilling Operation") under the terms of any operating agreement or other
contract (except repairs or operations made necessary by emergency conditions,
after which Seller shall promptly give Buyer notice with full details of the
work done and the cost thereof). If any party (other than Seller) to an
operating agreement or compulsory pooling order, proposes a Drilling Operation
prior to such delivery of possession of the Interests, Seller shall promptly
notify Buyer of such proposal and will promptly provide Buyer with all
information, data or other material in Seller's possession that may be relevant
to a decision whether or not to participate in such Drilling Operation. Seller
shall accept or reject participation in the proposed Drilling Operation based
upon Buyer's election with respect thereto given in writing by Buyer to Seller
within the period allowed in such proposal. Failure by Buyer to make an
election within such period shall be deemed an election by Buyer not to
participate. No election by Buyer to participate or not to participate in such
a Drilling Operation shall result in any adjustment in the sale price allocated
to the property affected thereby; however, all costs and expenses on account of
Buyer's decision to participate in any such Drilling Operation shall be borne by
Buyer, notwithstanding anything herein to the contrary.
15. FURTHER OPERATION OF SELLER-OPERATED INTERESTS: Subject to the
provisions of Section 14 hereof, Seller shall, as to the Interests it now
operates, continue to operate the same until the Effective Time, when such
operation shall be turned over to, and become the responsibility of, Buyer. In
the event Closing occurs after the Effective Time, however, Seller shall, unless
Buyer and Seller otherwise agree, continue the physical operation of such
Interests until Closing: such operation from and after the Effective Time shall
be conducted by Seller for and on behalf of Buyer; and for any such services
performed by Seller from and after the Effective Time, Buyer shall pay Seller
for all reasonable and necessary expenses incurred by Seller in such operation,
protection or maintenance of the Interests. Such expenses may be recovered by
Seller as part of the closing or post-closing adjustments, as appropriate.
In all of its operations after full execution of this Agreement,
Seller shall exercise the same standard of care as an ordinary prudent operator
under the same or similar circumstances and shall notify Buyer of any material
adverse change in the productive capability of any well included in the
Interests.
16. BROKER'S FEE: Seller represents and warrants to Buyer that Seller has
incurred no liability, contingent or otherwise, for broker's or finder's fees in
respect of this Agreement or the transactions contemplated hereby for which
Buyer shall have any responsibility whatsoever; and Buyer represents and
warrants to Seller that Buyer has incurred no fees in respect of this Agreement
or the transactions contemplated hereby for which Seller shall have any
responsibility whatsoever.
17. NOTICES: All communications required or permitted under this
Agreement shall be in writing and any communication or delivery hereunder shall
be deemed to have been fully made if actually delivered, or if mailed by
registered or certified mail, postage prepaid, to the address as set forth
below:
SELLER BUYER
Enron Oil & Gas Company National Energy Group, Inc.
P. O. Box 2267 1400 One Energy Square
Midland, Texas 79702 4925 Greenville Avenue
Attn: Frank C. Estep Dallas, Texas 75206
Attn: William T. Jones
18. FURTHER ASSURANCE: After Closing each of the parties shall execute,
acknowledge and deliver to the other such further instruments, and take such
other actions as may be reasonably necessary to carry out the provisions of this
Agreement. However, Buyer shall assume all responsibility for notifying the
purchaser of oil and gas production from the Interests, and such other
designated persons who may be responsible for disbursing payments for the
purchase of such production, of the change of ownership of the Interests. Buyer
shall take all actions necessary to effectuate the transfer of such payments to
Buyer as of the Effective Time. Seller shall have no responsibility or
liability for the proper distribution of proceeds from and after the Effective
Time.
19. DISCLAIMER OF WARRANTIES: ANY ASSIGNMENT AND BILL OF SALE EXECUTED
PURSUANT HERETO SHALL BE EXECUTED WITHOUT ANY EXPRESS OR IMPLIED
WARRANTY OR REPRESENTATION AS TO THE MERCHANTABILITY OF ANY OF THE
WELLS OR EQUIPMENT OR THEIR FITNESS FOR ANY PURPOSE, AND WITHOUT ANY
OTHER EXPRESS OR IMPLIED WARRANTY OR REPRESENTATION WHATSOEVER. IT IS
UNDERSTOOD AND AGREED THAT BUYER SHALL HAVE INSPECTED THE PROPERTY
AND PREMISES AND SATISFIED ITSELF AS TO THEIR PHYSICAL AND ENVIRONMENTAL
CONDITION, BOTH SURFACE AND SUBSURFACE, AND THAT BUYER SHALL ACCEPT ALL
OF THE SAME IN THEIR "AS IS, WHERE IS" CONDITION. IN ADDITION, SELLER SHALL
MAKE NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, AS TO THE
ACCURACY OR COMPLETENESS OF ANY DATA, INFORMATION OR MATERIALS
HERETOFORE OR HEREAFTER FURNISHED BUYER IN CONNECTION WITH THE
INTERESTS, OR AS TO THE QUALITY OR QUANTITY OF HYDROCARBON RESERVES (IF
ANY) ATTRIBUTABLE TO THE INTERESTS OR THE ABILITY OF THE INTERESTS TO
PRODUCE HYDROCARBONS. ANY AND ALL SUCH DATA, INFORMATION AND OTHER
MATERIALS FURNISHED BY SELLER IS PROVIDED BUYER AS A CONVENIENCE AND ANY
RELIANCE ON OR USE OF THE SAME SHALL BE AT BUYER'S SOLE RISK. BUYER
EXPRESSLY WAIVES THE PROVISIONS OF CHAPTER XVII, SUBCHAPTER E, SECTIONS
17.41 THROUGH 17.63, INCLUSIVE (OTHER THAN SECTION 17.555, WHICH IS NOT
WAIVED), VERNON'S TEXAS CODE ANNOTATED BUSINESS AND COMMERCE CODE (THE
"DECEPTIVE TRADE PRACTICES ACT").
20. ENVIRONMENTAL ASSESSMENT AND INDEMNIFICATION:
20.1 "Adverse Environmental Conditions" means any individual
contamination or condition that would require $10,000 or more of out of pocket
costs and expenses to remedy, or aggregate contaminations or conditions that
would require $25,000 or more out of pocket costs and expenses to remedy, and
that is not otherwise permanently authorized by permit or law, resulting from
any discharge, release, disposal, production, storage, treatment, or any other
activities on, in or from the Interests, or the migration or transportation from
other lands to the Interests prior to the Closing Date, of any wastes,
pollutants, contaminants, hazardous materials or other materials or substances
that are subject to regulation under any laws, rules or regulations relating to
the protection of health or the environment ("Environmental Laws"), including
but not limited to the Clean Air Act, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Federal Water Pollution Control Act,
the Safe Drinking Water Act, the Toxic Substance Control Act, the Hazardous and
Solid Waste Amendments Act of 1984, the Superfund Amendments and Reauthorization
Act of 1986, the Hazardous Materials Transportation Act, the Clean Water Act,
the National Environmental Policy Act, the Endangered Species Act, the Fish and
Wildlife Coordination Act, the National Historic Preservation Act and the Oil
Pollution Act of 1990, as well as any state and local regulation or law
governing the same, similar or related matters. The term "Adverse Environmental
Conditions" shall include any such individual contamination or condition that
would require $10,000 or more of out of pocket costs and expenses to remedy, or
aggregate contaminations or conditions that would require $25,000 or more out of
pocket costs and expenses to remedy.
20.2 Buyer shall advise Seller promptly of any Adverse
Environmental Conditions discovered after the date hereof as a result of its
investigation of the Interests and the estimated costs for remediating such
conditions which are located on the Interests. Buyer shall provide such
information regarding such Adverse Environmental Conditions as Seller may
reasonably request. If Seller receives timely notice from Buyer prior to
Closing of any Adverse Environmental Condition, (a) Seller shall have the right
(i) to agree to remedy the Adverse Environmental Condition to Buyer's reasonable
satisfaction, all at Seller's sole cost and expense, in which case there shall
be no adjustment to the Sale Price in respect of such Adverse Environmental
Condition, or (ii) if the parties have agreed upon an adjustment to the Sale
Price in respect of such Adverse Environmental Condition, to reduce the Sale
Price by the amount of such adjustment, in which event Seller shall have no
obligation or liability in respect of such Adverse Environmental Condition, and
(b) if the reasonable cost of remedying the Adverse Environmental Condition
exceeds 2% of the Sale Price, Seller shall have the right to terminate this
Agreement. Each party shall notify the other of any election under the
preceding sentence no later than the fifth business day prior to Closing. If
Seller receives timely notice from Buyer of any Adverse Environmental Condition
after Closing but on or before the 365th day following the Closing Date, Seller
shall remedy the Adverse Environmental Condition to Buyer's reasonable
satisfaction, all at Seller's sole cost and expense. Seller shall have no
liability or obligation to Buyer under this Section 20.2 for any Adverse
Environmental Condition for which Seller did not receive timely written notice
of such condition on or before the 365th day following the Closing Date. If
Seller elects or is obligated to remedy an Adverse Environmental Condition under
this Section 20.2, Seller agrees that it will exercise all reasonable efforts
and diligence to complete any required remediation within six (6) months, but
any failure to complete such effort by such time shall not relieve Seller of its
duty to fully and completely satisfy its obligation hereunder. Buyer shall
grant Seller and its representatives such access to the Interests as may be
reasonably necessary provided such access does not interfere with Buyer's
operations. Seller shall indemnify, defend and hold Buyer harmless from and
against any and all claims for personal injuries, death or property damage
arising from Seller's remediation activities under this Section 20.2, including,
without limitation, any claims by Seller's employees, representatives or agents.
Notwithstanding the foregoing, if Seller elects to remedy an Adverse
Environmental Condition and the parties agree in writing on the cost of such
remediation, Buyer shall have the right to remedy the Adverse Environmental
Condition by giving written notice to Seller within 10 days after the parties
agree to the cost of the remediation, in which event Buyer shall have assumed
Seller's obligation to remediate the Adverse Environmental Condition, and Seller
shall reimburse Buyer for all costs and expenses incurred by Buyer in effecting
such remediation, but not to exceed the agreed upon cost of such remediation.
20.3. EXCEPT FOR ANY COSTS OR EXPENSES INCURRED BY SELLER IN
DISCHARGING ANY REMEDIATION OBLIGATIONS UNDER SECTION 20.2 OR FOR WHICH
BUYER IS ENTITLED TO REIMBURSEMENT UNDER THE LAST SENTENCE OF SECTION
20.2, IF THE CLOSING HEREUNDER OCCURS BUYER SHALL INDEMNIFY, DEFEND AND
HOLD SELLER HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS DEMANDS,
CAUSES OF ACTION, LIABILITIES AND OBLIGATIONS, AND ALL COSTS AND EXPENSES
(INCLUDING WITHOUT LIMITATION, REASONABLE ATTORNEYS' FEES) ASSOCIATED
THEREWITH, ARISING OUT OF OR RELATING TO ANY DISCHARGE, RELEASE, DISPOSAL,
PRODUCTION, STORAGE, TREATMENT OR ANY ACTIVITIES ON, IN OR FROM THE
INTERESTS, OR THE MIGRATION OR TRANSPORTATION FROM ANY OTHER LANDS TO
THE INTERESTS, WHETHER BEFORE OR AFTER THE EFFECTIVE DATE, OF MATERIALS
OR SUBSTANCES THAT ARE PRESENTLY, OR BECOME IN THE FUTURE, SUBJECT TO
REGULATION UNDER ENVIRONMENTAL LAWS, WHETHER SUCH ENVIRONMENTAL
LAWS ARE PRESENTLY EXISTING OR ARE HEREAFTER ENACTED, INCLUDING,
WITHOUT LIMITATION, ANY CLAIMS, DEMANDS, CAUSES OF ACTION, LIABILITIES, OR
OBLIGATIONS ARISING IN WHOLE OR IN PART FROM THE SOLE OR CONCURRENT
NEGLIGENCE OR GROSS NEGLIGENCE OF SELLER.
21. PRESS RELEASE: There shall be no press release or public
communication concerning this purchase and sale by either party except with
the written consent of the party not originating said release or
communication, with the exception being those reports reasonably required by
applicable state or federal law or regulations.
22. ENTIRE AGREEMENT: This instrument states the entire agreement between
the parties and may be supplemented, altered, amended, modified or revoked by
writing only, signed by both parties.
23. SURVIVAL: The representations, warranties and agreements contained in
this Purchase and Sales Agreement and in any certificate or other instrument
delivered by or on behalf of either party pursuant to this Purchase and Sales
Agreement shall survive the Closing and shall be unaffected by any
investigation made by the other party.
24. HEADINGS: The headings are for guidance only and shall have no
significance in the interpretations of this Agreement.
25. ARBITRATION: In the case of a disagreement between the Buyer and Seller as
to any right, obligation, term or provision hereof, the Buyer and Seller shall
make an earnest effort to settle such disagreement to their mutual
satisfaction. In the event any dispute regarding this agreement cannot be
reconciled by the Buyer and Seller, then either party may provide notice to the
other, specifying with particularity, the items of disagreement and a request
that the matter be resolved by mediation. If the dispute is not resolved by
mediation to the satisfaction of the Buyer and Seller or if the Buyer and
Seller are unable to agree upon a mediator, within thirty (30) days after
receipt of such written notice, then any such dispute shall be settled by
arbitration and the result of such arbitration shall be binding upon the Buyer
and Seller in all respects as set forth below.
Arbitration may be initiated by written notice from either the Buyer or
Seller to the other party that the previously noticed dispute has not been
resolved by mediation and is being submitted to arbitration under the terms of
this Agreement. Any arbitration conducted pursuant to this Section shall be
conducted in Midland, Texas, in accordance with the Commercial Arbitration Rules
of the American Arbitration Association; provided, however, that the parties
hereby agree to modify those rules by adoption of the following provisions of
this Section, which the arbitrators shall be bound to apply. On or before the
fifth day after receipt by either party of written notice that a dispute is
being submitted to arbitration, SELLER must name its choice of an arbitrator and
BUYER must name its choice of an arbitrator. Within seven days thereafter, the
two arbitrators so chosen shall name a third arbitrator. If any of the three
arbitrators has not been named within the appointed time, then any party may
apply to the American Arbitration Association for appointment of the
arbitrator(s) necessary to complete the panel within ten days. All arbitrators
shall be individuals who are not and never have been officers, directors or
employees of any of the parties or any affiliate of SELLER or BUYER, who do
not have a material business, family or other relationship with any of the
foregoing or with SELLER, BUYER, or any of their affiliates, that might
reasonably result in such person being biased in favor of any party hereto, and
who are qualified by education, knowledge and experience to determine the
matters submitted to them. SELLER shall pay the compensation and expenses of
the arbitrator named by or for it, BUYER shall pay the compensation and
expenses of the arbitrator named by or for it, and SELLER and BUYER shall each
pay one-half of the compensation and expenses of the third arbitrator. Within
five days following the date that a three-person panel is established, the
three arbitrators shall meet and proceed with due dispatch to hear the parties
with respect to such matters. The decision of the arbitration panel, or a
majority thereof, shall be rendered in writing no later than 30 days after the
arbitrators have met and heard the parties. Such decision shall be final and
binding on the parties.
SELLER
ENRON OIL & GAS COMPANY
By:
Gary L. Thomas
Title: Vice President
BUYER
NATIONAL ENERGY GROUP, INC.
By:
Miles D. Bender
Title: President
STATE OF TEXAS
COUNTY OF MIDLAND
BEFORE ME, the undersigned authority, on this day personally appeared GARY
L. THOMAS, known to me to be the person whose name is subscribed to the
foregoing instrument, and known to me to be the Vice President of Enron Oil &
Gas Company, a Delaware corporation, and acknowledged to me that he executed
said instrument for the purposes and consideration therein expressed, and as
the act of said corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this day of
, 1995.
Notary Public
STATE OF TEXAS
COUNTY OF ______________
BEFORE ME, the undersigned authority, on this day personally appeared Miles
D. Bender, known to me to be the person whose name is subscribed to the
foregoing instrument, and known to me to be the President of National Energy
Group, Inc., a corporation, and acknowledged to me that he executed said
instrument for the purposes and consideration therein expressed, and as the
act of said corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this day of
, 1995.
Notary Public
LOAN AGREEMENT
BETWEEN
NATIONAL ENERGY GROUP, INC.
("Borrower")
AND
BANK ONE, TEXAS, N.A.
("Bank")
JUNE 30, 1995
LOAN AGREEMENT
TABLE OF CONTENTS
Page
1. Definitions 1
2. Commitments of the Bank 9
(a) Revolving Commitment 9
(b) Advance Line of Credit 9
(c) Procedure for Borrowing 9
(d) Monthly Reduction of Revolving Commitment 10
(e) Voluntary Reduction of Revolving Commitment 10
(f) Subordination of Advance Line of Credit 10
3. Notes Evidencing Loans 11
(a) Form of Revolving Note 11
(b) Form of Advance Note 11
(c) Interest Rate on the Notes 12
(d) Payment of Interest on the Notes 12
(e) Payment of Principal the Notes 12
(f) General 12
4. Interest Rates 12
(a) Options For Revolving Loan 12
(b) Interest Rate Determination 13
(c) Conversion Option 13
(d) Advance Loan 13
(e) Recoupment 14
5. Special Provisions Relating to Eurodollar Loans 14
(a) Unavailability of Funds or Inadequacy of Pricing14
(b) Reserve Requirements 14
(c) Taxes 15
(d) Change in Laws 15
(e) Option to Fund 16
(f) Indemnity 16
(g) Payments Not at End of Interest Period 16
6. Collateral Security 17
7. Borrowing Base 17
(a) Initial Borrowing Base 17
(b) Subsequent Determinations of Borrowing Base 17
8. Fees 19
(a) Unused Portion Fee 19
(b) Commitment Fee 19
(c) Facility Fee 19
(d) Engineering Fee 20
9. Prepayments 20
(a) Voluntary Prepayments of Notes 20
(b) Mandatory Prepayment of Revolving Note 20
10. Representations and Warranties 20
(a) Corporate Existence 20
(b) Corporate Power and Authorization 20
(c) Binding Obligations 21
(d) No Legal Bar or Resultant Lien 21
(e) No Consent 21
(f) Financial Condition 21
(g) Liabilities 21
(h) Litigation 22
(i) Taxes; Governmental Charges 22
(j) Titles, Etc. 22
(k) Defaults 22
(l) Casualties; Taking of Properties 22
(m) Use of Proceeds; Margin Stock 22
(n) Location of Business and Offices 23
(o) Compliance with the Law 23
(p) No Material Misstatements 23
(q) Not A Utility 23
(r) ERISA 24
(s) Public Utility Holding Company Act 24
(t) Subsidiaries 24
(u) Environmental Matters 24
(v) Liens 24
11. Conditions of Lending 24
12. Affirmative Covenants 26
(a) Financial Statements and Reports 27
(b) Certificates of Compliance 28
(c) Accountants' Certificate 28
(d) Taxes and Other Liens 28
(e) Compliance with Laws 29
(f) Further Assurances 29
(g) Performance of Obligations 29
(h) Insurance 29
(i) Accounts and Records 30
(j) Right of Inspection 30
(k) Notice of Certain Events 30
(l) ERISA Information and Compliance 30
(m) Environmental Reports and Notices 31
(n) Maintenance 31
(o) Operation of Properties 31
(p) Compliance with Leases and Other Instruments 32
(q) Certain Additional Assurances Regarding Maintenance
and Operations of Properties 32
(r) Title Matters 32
(s) Curative Matters 33
(t) Change of Principal Place of Business 33
13. Negative Covenants 33
(a) Liens 33
(b) Consolidations, Mergers and Sales of Assets 33
(c) Current Ratio 33
(d) Debt Service Ratio 33
(e) Total Liabilities To Total Equities 34
(f) Total Bank Debt 34
(g) Debts, Guaranties and Other Obligations 34
(h) Dividends 34
(i) Loans and Advances 35
(j) Investments 35
(k) Sale or Discount of Receivables 35
(l) Nature of Business 35
(m) Hedging Transactions 35
(n) Amendment of Articles of Incorporation or Bylaws35
(o) Sale of Assets 35
(p) Transactions with Affiliates 35
(q) Issuance of Preferred Stock 36
14. Events of Default 36
15. Exercise of Rights 38
16. Notices 38
17. Expenses 38
18. Indemnity 39
19. Invalid Provisions 40
20. Maximum Interest Rate 40
21. Amendments 40
22. Multiple Counterparts 40
23. Conflict 41
24. Survival 41
25. Parties Bound 41
26. Participations 41
27. Financial Terms 41
28. Governing Law 41
29. Choice of Forum: Consent to Service of Process
and Jurisdiction 42
30. Other Agreements 42
EXHIBITS
Exhibit "A" - Notice of Borrowing
Exhibit "B" - Revolving Note
Exhibit "C" - Guaranty Agreement
Exhibit "D" - Compliance Certificate
SCHEDULES
Schedule 1 - Permitted Liens
Schedule 2 - Financial Condition
Schedule 3 - Liabilities
Schedule 4 - Litigation
Schedule 5 - Environmental Matters
Schedule 6 - Ownership of Borrower
Schedule 7 - Title Matters
Schedule 8 - Curative Matters
Schedule 9 - Debts, Guarantees and other Obligations
Schedule 10 - Loans and Advances
LOAN AGREEMENT
THIS LOAN AGREEMENT (hereinafter referred to as the "Agreement") executed
as of the 30th day of June, 1995, between NATIONAL ENERGY GROUP, INC., a
Delaware corporation (hereinafter referred to as the "Borrower") and BANK ONE,
TEXAS, N.A., a national banking association (hereinafter sometimes referred to
as "Bank").
W I T N E S S E T H:
WHEREAS, Borrower has requested that the Bank provide Borrower with a
reducing revolving line of credit facility and Bank is willing to make such
facility available to Borrower.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
Definitions. When used herein the terms "Agreement," "Borrower" and "Bank"
shall have the meanings indicated above. When used herein the following terms
shall have the following meanings:
Advance or Advances - A loan or loans hereunder.
Advance Line of Credit - The commitment contained in Section 2(b) hereof.
Advance Loan - Loan or loans made under the Advance Line of Credit pursuant
to Section 2(b) hereof.
Advance Loan Maturity Date - June 30, 1996.
Advance Note - The $3,000,000 Advance Note described in Section 3(b)
hereof.
Affiliate - Any Person which, directly or indirectly, controls, is
controlled by or is under common control with the relevant Person. For the
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlled by" and "under common control with"), as used with respect
to any Person, shall mean a member of the board of directors, a partner or an
officer of such Person, or any other Person with possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person, through the ownership (of record, as trustee, or by
proxy) of voting shares, partnership interests or voting rights, through a
management contract or otherwise. Any Person owning or controlling directly or
indirectly ten percent or more of the voting shares, partnership interests or
voting rights, or other equity interest of another Person shall be deemed to be
an Affiliate of such Person.
Base Rate - The fluctuating rate of interest per annum established from
time to time by Bank as its Base Rate (which rate of interest may not be the
lowest, best or most favorable rate of interest which Bank may charge on loans
to its customers). Each change in the Base Rate shall become effective without
prior notice to Borrower automatically as of the opening of business on the date
of such change in the Base Rate.
Base Rate Interest Period - With respect to any Base Rate Loan, the period
ending on the last day of each month, provided, however, that (i) if any Base
Rate Interest Period would end on a day which is not a Business Day, such
Interest Period shall be extended to the next succeeding Business Day, and(ii)
if any Base Rate Interest Period would otherwise end after the Maturity Date
such Interest Period shall end on the Maturity Date.
Base Rate Loan - Any loan during any period which bears interest at the
Base Rate plus the Base Rate Margin, or which would bear interest at such rate
if the Maximum Rate ceiling was not in effect at a particular time.
Base Rate Margin - Until the Advance Loan is paid in full, the Base Rate
Margin shall be 1.0. Thereafter the Base Rate Margin will be as follows:
Ratio of Total Bank Debt to EBIDA Base Rate Margin
3.0 to 1.0 or greater 1.00%
From 2.99 to 1.0 to 2.5 to 1.0 .50%
Below 2.49 to 1.0 .00%
Borrowing Base - The value assigned by the Bank from time to time to the
Oil and Gas Properties and other collateral in accordance with Section 7(b)
hereof. Until the next determination of the Borrowing Base pursuant to Section
7(b) hereof the Borrowing Base for the Revolving Commitment shall be
$12,500,000.00, subject to the provisions of Section 7(a) hereof.
Borrowing Date - The date elected by the Borrower pursuant to Section 2
hereof for an Advance on the Total Bank Debt.
Business Day - The normal banking hours during any day (other than
Saturdays or Sundays) that banks are legally open for business in Dallas, Texas.
Cash Flow - Borrower's net income or loss plus non-cash items such as
depletion, depreciation and gains or losses, all as calculated in accordance
with GAAP.
Change of Management - A Change of Management shall occur if Miles D.
Bender ceases to act as President and Chief Executive Officer.
Collateral - Collateral is used herein as defined in Section 6 hereof.
Current Assets - The total of Borrower' consolidated current assets,
determined in accordance with GAAP.
Current Liabilities - The total of Borrower' current liabilities as
determined in accordance with GAAP, excluding therefrom current maturities of
the principal and interest due on the Total Bank Debt.
Debt Service - The total of the Monthly Commitment Reduction plus any cash
dividends paid on Borrower's preferred stock.
Determination Date - Determination Date is used herein as defined in
Section 7 hereof.
EBIDA - Earnings for any period before interest expense, depreciation,
depletion and amortization for such period.
Effective Date - The date of this Agreement.
Environmental Laws - The Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended by the Super Fund Amendments and
Reauthorization Act of 1986, 42 U.S.C.A. 9601, et seq., the Resource
Conservation and Recovery Act, as amended by the Hazardous Solid Waste Amendment
of 1984, 42 U.S.C.A. 6901, et seq., the Clean Air Act, 42 U.S.C.A. 1251, et
seq., the Toxic Substances Control Act, 15 U.S.C.A. 2601, et seq., The Oil
Pollution Act of 1990, 33 U.S.G. 2701, et seq., and all other laws, statutes,
codes, acts, ordinances, orders, judgments, decrees, injunctions, rules,
regulations, order and restrictions of any federal, state, county, municipal and
other governments, departments, commissions, boards, agencies, courts,
authorities, officials and officers, domestic or foreign, relating to air
pollution, water pollution, noise control and/or the handling, discharge,
disposal or recovery of on-site or off-site asbestos or "hazardous substances"
as defined by 42 U.S.C. 9601, et seq., as amended, as each of the foregoing may
be amended from time to time.
Environmental Liability - Any claim, demand, obligation, cause of action,
accusation, allegation, order, violation, damage, injury, judgment, penalty or
fine, cost of enforcement, cost of remedial action or any other costs or expense
whatsoever, including reasonable attorneys' fees and disbursements, resulting
from the violation or alleged violation of any Environmental Law or the
imposition of any Environmental Lien (as hereinafter defined).
Environmental Lien - A Lien in favor of any court, governmental agency or
instrumentality or any other Person (i) for any Environmental Liability or (ii)
for damages arising from or cost incurred by such court or governmental agency
or instrumentality or other person in response to a release or threatened
release of hazardous or toxic waste, substance or constituent into the
environment.
ERISA - The Employee Retirement Income Security Act of 1974, as amended.
Eurodollar Business Day - A Business Day on which dealings in U.S. Dollar
deposits are carried on in the London interbank market.
(bb) Eurodollar Interest Period - With respect to any Eurodollar Loan
(i) initially, the period commencing on the date such Eurodollar Loan is made
and ending thirty (30), sixty (60) or ninety (90) days thereafter and (ii)
thereafter, each period commencing on the day following the last day of the next
preceding Interest Period applicable to such Eurodollar Loan and ending thirty
(30), sixty (60) or ninety (90) days thereafter; provided, however, that (i) if
any Eurodollar Interest Period would otherwise expire on a day which is not a
Eurodollar Business Day, such Interest Period shall expire on the next
succeeding Eurodollar Business Day unless the result of such extension would be
to extend such Interest Period into the next calendar month, in which case such
Interest Period shall end on the immediately preceding Eurodollar Business Day,
(ii) if any Eurodollar Interest Period begins on the last Eurodollar 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) such
Interest Period shall end on the last Eurodollar Business Day of a calendar
month, and (iii) any Eurodollar Interest Period which would otherwise expire
after the Revolving Maturity Date shall end on such Revolving Maturity Date.
Borrower shall not be permitted to have outstanding at any time more than three
(3) Eurodollar Tranches.
(cc) Eurodollar Loan - Any loan during any period which bears interest
at the Eurodollar Rate, or which would bear interest at such rate if the Maximum
Rate ceiling was not in effect at a particular time.
(dd) Eurodollar Margin - Until the Advance Loan is paid in full, the
Eurodollar Margin shall be 3.75. Thereafter the Eurodollar Margin shall be as
follows:
Ratio of Total Bank Debt to EBIDA Base Rate Margin
3.0 to 1.0 or greater 3.75%
From 2.99 to 1.0 to 2.5 to 1.0 3.25%
Below 2.49 to 1.0 2.50%
(ee) Eurodollar Rate - With respect to each Eurodollar Loan a rate per
annum equal to the following:
Interbank Offered Rate + Eurodollar
Margin
1.0 - Eurodollar Reserve Requirement
(ff) Eurodollar Reserve Requirement. On any day, that percentage
(expressed as a decimal) which is in effect on such day, as provided by the
Board of Governors of the Federal Reserve System (or any successor governmental
body) applied for determining the maximum reserve requirements for Bank
(including without limitation, basic, supplemental, marginal and emergency
reserves) under Regulation D with respect to "Eurocurrency liabilities" as
currently defined in Regulation D, or under any similar or successor regulation
with respect to Eurocurrency liabilities or Eurocurrency funding. Each
determination by Bank of the Eurodollar Reserve Requirement shall, in the
absence of manifest error, be conclusive and binding.
(gg) Eurodollar Tranche - A Eurodollar Loan.
(hh) Financial Statements - Balance sheets, income statements,
statements of cash flow, and, on an annual basis, appropriate footnotes and
schedules, prepared in accordance with GAAP.
(ii) GAAP - Generally accepted accounting principles, consistently
applied.
(jj) Interbank Offered Rate - With respect to each Eurodollar Interest
Period, the rate of interest per annum at which deposits in immediately
available and freely transferable funds in U.S. Dollars are offered to the Agent
(at approximately 10:00 a.m., Dallas, Texas time three Eurodollar Business Days
prior to the first day of each Eurodollar Interest Period) in the London
interbank market for delivery on the first day of such Eurodollar Interest
Period in an amount equal to or comparable to the principal amount of the
Eurodollar Loan to which such Eurodollar Interest Period relates. Each
determination of the Interbank Offered Rate by the Agent shall, in the absence
of error, be conclusive and binding.
(kk) Interest Payment Date - The earlier of (i) the last day of each
Interest Period or (ii) the first day of each calendar month.
(ll) Interest Period - Any Base Rate Interest Period, or Eurodollar
Interest Period.
(mm) Lien - Any lien, mortgage, security interest, tax lien, pledge,
encumbrance, Environmental Lien, consolidated sale or title retention
arrangement or other interest in property designed to secure repayment of a
liability whether arising by agreement or under law, or otherwise.
(nn) Loan Documents - This Agreement, the Notes, the Security
Instruments and all other documents executed in connection with the transaction
described in this Agreement.
(oo) Material Adverse Effect - Any circumstances or events which could
(i) have a material adverse effect on the assets or properties, liabilities,
financial condition, business, operations, affairs or circumstances of Borrower
or from the facts represented or warranted in this Agreement or any other
Security Instrument (other than any representation or warranty related solely to
a different point in time), or (ii) materially impair the ability of Borrower to
carry out its business as it exists on the date of this Agreement or as proposed
at the date of this Agreement to be conducted or to meet its obligations under
the Notes, this Agreement or the other Security Instruments on a timely basis.
(pp) Maximum Rate - At any particular time in question, the maximum
rate of interest which under applicable law may then be charged on the Note. If
such maximum rate changes after the date hereof, the Maximum Rate shall be
automatically increased or decreased, as the case may be, without notice to
Borrower from time to time as the effective date of each change in such maximum
rate. If the applicable law ceases to provide for a maximum rate of interest,
the Maximum Rate shall be equal to eighteen percent (18%) per annum.
(qq) Monthly Commitment Reduction - Monthly Commitment Reduction is
used herein as defined in Section 2 hereof.
(rr) Notes - The Revolving Note and the Advance Note.
(ss) Oil and Gas Properties - All oil, gas and mineral properties and
interests, and related personal properties, in which Borrower have granted and
hereinafter grants to Bank a first and prior lien and security interest.
(tt) Permitted Liens - The term Permitted Lien shall mean (i)
royalties, overriding royalties, reversionary interests, production payments and
similar burdens on any of the Oil and Gas Properties that existed as of the
Effective Date or otherwise may be consented to by the Banks; (ii) sales
contracts or other arrangements for the sale of production of oil, gas or
associated liquid or gaseous hydrocarbons which would not (when considered
cumulatively with the matters discussed in clause (i) above) deprive the
Borrower of any material right in respect of any of Borrower' assets or
properties (except for rights customarily granted with respect to such contracts
and arrangements); (iii) statutory Liens for taxes or other assessments that are
not yet delinquent (or that, if delinquent, are being contested in good faith by
appropriate proceedings, levy and execution having been stayed and continue to
be stayed, and for which the Borrower have set aside on their books adequate
reserves in accordance with GAAP); (iv) easements, rights of way, servitudes,
permits, surface leases and other rights in respect to surface operations,
pipelines, grazing, logging, canals, ditches, reservoirs or the like,
conditions, covenants and other restrictions, and easements of streets, alleys,
highways, pipelines, telephone lines, power lines, railways and other easements
and rights of way on, over or in respect of any of Borrower' assets or
properties and that do not, individually or in the aggregate, cause a Material
Adverse Effect; (v) materialmen's, mechanic's, repairman's, employee's,
warehousemen's, landlord's, carrier's, pipeline's, contractor's, sub-
contractor's, operator's, non-operators (arising under operating or joint
operating agreements), and other Liens (including any financing statements filed
in respect thereof) incidental to the construction, maintenance, development,
transportation, storage or operation of Borrower' assets or properties to the
extent not delinquent (or which, if delinquent, are being contested in good
faith by appropriate proceedings and for which the Borrower have set aside on
its books adequate reserves in accordance with GAAP); (vi) all contracts,
agreements and instruments, and all defects and irregularities and other matters
affecting the Borrower' assets and properties which are in existence at the
Effective Date and all routine operational agreements entered into in the
ordinary course of business, which contracts, agreements, instruments, defects,
irregularities and other matters and routine operational agreements are not such
as to, individually or in the aggregate, interfere materially with the
operation, value or use of Borrower' assets and properties, considered in the
aggregate; (vii) liens in connection with workmen's compensation, unemployment
insurance or other social security, old age pension or public liability
obligations; (viii) legal or equitable encumbrances deemed to exist by reason of
the existence of any litigation or other legal proceeding or arising out of a
judgment or award with respect to which an appeal is being prosecuted in good
faith and levy and execution thereon have been stayed and continue to be stayed;
(ix) rights reserved to or vested in any municipality, governmental, statutory
or other public authority to control or regulate any Borrower' assets and
properties in any manner, and all applicable laws, rules and orders from any
governmental authority; (x) Liens created by or pursuant to this Agreement or
the Security Instruments; (xi) Liens existing at the date of this Agreement
which have been disclosed to Bank on Schedule "1" hereto; (xii) Liens previous
granted to Texas Gas Fund I which are either being assigned to Bank on the
Effective Date or released; or (xiii) any and all renewals and extensions of
all or any of the foregoing.
(uu) Person - An individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
(vv) Plan - Any plan subject to Title IV of ERISA and maintained by
Borrower, or any such plan to which Borrower are required to contribute on
behalf of their employees.
(ww) Revolving Commitment - The commitment contained in Section 2(a)
of this Agreement.
(xx) Revolving Loan - Loan or loans made under the Revolving
Commitment pursuant to Section 2(a) hereof.
(yy) Revolving Maturity Date - June 30, 1999.
(zz) Revolving Note - The $30,000,000.00 Revolving Note described in
Section 3(a) hereof.
(aaa) Security Instruments - The term Security Instruments is used
collectively herein to mean this Agreement, all Deeds of Trust, Mortgages,
Security Agreements, Assignments of Production and Financing Statements, all
Mortgages, Security Agreements, Assignments of Production and Financing
Statements, and other collateral documents covering certain of Borrower's Oil
and Gas Properties, and related personal property, equipment, oil and gas
inventory and proceeds of the foregoing, all such documents to be in form and
substance reasonably satisfactory to Bank.
(bbb) Subsidiary - Any corporation or other entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are at the time directly or indirectly owned by the Borrower.
(ccc) Total Bank Debt - As of any date, the aggregate principal
amount outstanding on the Revolving Note and the Advance Note.
(ddd) Total Liabilities - All liabilities which would be reflected
on a balance sheet prepared in accordance with GAAP.
(eee) Total Stockholder's Equity - An amount equal to Borrower's
stockholder's equity, as determined in accordance with GAAP.
(fff) Unscheduled Redeterminations - A redetermination of the
Borrowing Base made at any time other than on the dates set for the regular
semi-annual redetermination of the Borrowing Base which are made (A) at the
reasonable request of Borrower, (B) at any time it appears to the Bank, in the
exercise of its discretion, that either (i) there has been a material decrease
in the value of the Oil and Gas Properties, or (ii) an event has occurred which
is reasonably expected to have a Material Adverse Effect.
Commitments of the Bank.
Revolving Commitment. On the terms and conditions hereinafter set forth,
the Bank agrees to make Advances to the Borrower from time to time during the
period beginning on the Effective Date and ending on the Revolving Maturity Date
in such amounts as Borrower may request up to an amount not to exceed, in the
aggregate principal amount outstanding at any time, the lesser of (i) the
Borrowing Base or (ii) $30,000,000.00 (the "Revolving Commitment"). Within the
limit of this Section 2, the Borrower may borrow, repay without premium or
penalty, and reborrow. Notwithstanding any other provision of this Agreement,
no Advance shall be required to be made hereunder if any Event of Default (as
hereinafter defined) has occurred and is continuing or if any event or condition
has occurred that may, with notice, be an Event of Default. Each Advance under
the revolving line of credit shall be an aggregate amount of at least $100,000.
Advance Line of Credit. On the terms and conditions hereinafter set forth,
the Bank agrees to make Advances to Borrower from time to time during the period
beginning on the Effective Date and ending on the Advance Loan Maturity Date in
such amounts as Borrower may request up to the aggregate amount of $3,000,000.00
(the "Advance Line of Credit"). Provided, however, that until the Enron
Acquisition (as hereinafter defined) closes and the Bank receives Security
Instruments covering the Oil and Gas Properties acquired by Borrower, the amount
available under the Advance Line shall be $2,000,000. After such closing the
amount available to Borrower shall increase to $3,000,000; provided, however,
that if the Enron Acquisition does not close within thirty (30) days after the
Effective Date, the amount available shall remain at $2,000,000 until the
Advance Loan Maturity Date. Once repaid, amounts may not be reborrowed
hereunder. Advances on the Advance Loan may only be made as Base Rate Loans.
Notwithstanding any other provision of this Agreement, no Advance shall be
required to be made hereunder if any Event of Default (as hereinafter defined)
has occurred and is continuing or if any event or condition has occurred that
may, with notice, be an Event of Default. Each Advance under the Advance Line
of Credit shall be an aggregate amount of at least $100,000.00. All Advances
under the Advance Line of Credit shall be Base Rate Loans.
Procedure for Borrowing. Whenever Borrower desires an Advance on either
the Revolving Loan or the Advance Loan, it shall give Bank telegraphic, telex,
facsimile or telephonic notice ("Notice of Borrowing") of such requested
Advance, which in the case of telephonic notice, shall be promptly confirmed in
writing. Each Notice of Borrowing shall be in the form of Exhibit "A" attached
hereto and shall be received by Bank not later than 11:00 a.m. Dallas, Texas
time, (i) one Business Day prior to the Borrowing Date in the case of Base Rate
Loans; and (ii) three (3) Business Days prior to any proposed Borrowing Date in
the case of Eurodollar Loans. Each Notice of Borrowing shall specify (i)
whether the Advance is a Revolving Loan or Advance Loan, (ii) the Borrowing Date
(which, if a Base Rate Loan shall be a Business Day, and if a Eurodollar Loan, a
Eurodollar Business Day), (iii) the principal amount to be borrowed, (iv) the
portion of the borrowing constituting Base Rate Loans and/or Eurodollar Loans,
(v) if any portion of the proposed borrowing is to constitute Eurodollar Loans,
the initial Interest Period selected by Borrower pursuant to Section 4 hereof to
be applicable thereto, and (vi) the date upon which disbursement is required.
Not later than 2:00 p.m., Dallas, Texas time, on the date for which the Advance
was requested, Bank shall make available to Borrower at the same office, in
immediately available funds, the aggregate amount of such requested Advance.
Bank shall not incur any liability to Borrower in acting upon any notice
referred to above which Bank believes in good faith to have been given by a duly
authorized officer or other person authorized to borrow on behalf of Borrower or
for otherwise acting in good faith under this Section 2(c).
Monthly Reduction of Revolving Commitment. The Revolving Commitment shall
be reduced as of the last day of each month beginning July 31, 1995, by an
amount determined by the Bank pursuant to Section 7(b) hereof (the "Monthly
Commitment Reduction"). The Monthly Commitment Reduction shall be $152,000 per
month until the acquisition transaction between Enron Oil and Gas Company and
Borrower which is described in that certain Purchase and Sale Agreement between
such parties dated March 29, 1995 (the "Enron Acquisition") closes and
thereafter the Monthly Commitment Reduction shall increase to $175,000.00 per
month and remain at such amount until redetermined pursuant to Section 7(b)
hereof.
Voluntary Reduction of Revolving Commitment. Borrower may at any time, or
from time to time, upon not less than three (3) Business Days prior written
notice to Bank, reduce or terminate either the Revolving Commitment or the
Advance Line of Credit or both, provided, however, that (i) each reduction must
be in a minimum amount of at least $100,000 and (ii) each reduction must be
accompanied by a prepayment of the Revolving Note or the Advance Note, as the
case may be, in the amount by which the principal balance of the Revolving Note
or the Advance Note, as the case may be, exceeds the Revolving Commitment or the
Advance Line of Credit, as the case may be, as reduced pursuant to this Section
2(e).
Subordination of Advance Line of Credit. The payment of the Advance Line
of Credit shall be subordinated to the prior payment in full of the Revolving
Commitment. Notwithstanding the foregoing, the Borrower shall pay, when due,
all principal and interest due on the Advance Line of Credit until such time as
a Subordination Event occurs. Once a Subordination Event occurs no payment of
principal or interest shall be made by Borrower on the Advance Line of Credit
until such Subordination Event has been cured to the satisfaction of the Bank.
"Subordination Event" means the occurrence of an Event of Default under Section
14(a), 14(f) or 14(g) hereof. During any such period in which Borrower is
prohibited from paying principal or interest pursuant to the provisions of this
Section 2(f), such past due principal, and to the extent permitted by law, past
due interest, shall bear interest at a rate per annum equal to the Maximum Rate.
Notes Evidencing Loans. The loans described above in Section 2 shall be
evidenced by a promissory note of Borrower as follows:
Form of Revolving Note - The Revolving Loan shall be evidenced by a
Revolving Note in the face amount of $30,000,000.00, and shall be in the form of
Exhibit "B" hereto with appropriate insertion. Notwithstanding the principal
amount of the Revolving Note, as stated on the face thereof, the actual
principal amount due from Borrower to Bank on account of the Revolving Note, as
of any date of computation, shall be the sum of Advances then and theretofore
made on account thereof, less all principal payments or prepayments actually
received by Bank in collected funds with respect thereto. Although the
Revolving Note shall be dated as of the Effective Date, interest in respect
thereof shall be payable only for the period during which the loans evidenced
thereby are outstanding and, although the stated amount of the Revolving Note
may be higher, the Revolving Note shall be enforceable, with respect to
Borrower's obligation to pay the principal amount thereof, only to the extent of
the unpaid principal amount of the applicable Advances.
Form of Advance Note. The Advance Loan shall be evidenced by a Advance
Note in the face amount of $3,000,000.00, and shall be in the form of Exhibit
"C" attached hereto with appropriate insertions. Notwithstanding the principal
amount of the Advance Note, as stated on the face thereof, the actual principal
amount due from Borrower to Bank on account of the Advance Note, as of any date
of computation, shall be the sum of Advances then and theretofore made on
account thereof, less all principal payments funds with respect thereto.
Although the Advance Note shall be dated as of the Effective Date, interest in
respect thereof shall be payable only for the period during which the loans
evidenced thereby are outstanding and, although the stated amount of the Advance
Note may be higher, the Advance Note shall be enforceable, with respect to
Borrower's obligation to pay the principal amount thereof, only to the extent of
the unpaid principal amount of the applicable Advances.
Interest Rate on the Notes - The unpaid principal balance of the Revolving
Note and the Advance Note shall bear interest from time to time as set forth in
Section 4(a) hereof.
Payment of Interest on the Notes - Interest on the Notes shall be payable
on the last day of each Interest Period.
Payment of Principal the Notes - Principal of the Revolving Note shall be
due on the Revolving Maturity Date, unless earlier due in whole or in part
pursuant to the mandatory prepayment requirements of Section 9(b) hereof.
Principal of the Advance Note shall be due on the Advance Loan Maturity Date,
unless earlier due in whole or in part pursuant to the provisions of this
Agreement.
General - Borrower shall pay the outstanding principal amount of each
Eurodollar Loan on the last day of the Interest Period applicable thereto, which
may be done by reborrowing hereunder so long as (i) the aggregate unpaid
principal balance outstanding after any such reborrowing does not exceed the
Revolving Commitment in effect at such time, as the same may be reduced from
time to time hereunder, and (ii) no Event of Default has occurred and is
continuing.
Interest Rates.
Options For Revolving Loan.
Base Rate Loans. Borrower agrees to pay interest on the
Revolving Note calculated on the basis of the actual days elapsed in a year
consisting of 365 or, if appropriate, 366 days with respect to the unpaid
principal amount of each Base Rate Loan from the date the proceeds thereof are
made available to Borrower until maturity (whether by acceleration or
otherwise), at a varying rate per annum equal to the lesser of (i) the Maximum
Rate (defined herein), or (ii) the Base Rate plus the applicable Base Rate
Margin. Subject to the provisions of this Agreement as to prepayment, the
principal of the Revolving Note representing Base Rate Loans shall be payable as
specified in Section 3(e) hereof and the interest in respect of each Base Rate
Loan shall be payable on each Interest Payment Date. Past due principal and, to
the extent permitted by law, past due interest in respect to each Base Rate
Loan, shall bear interest, payable on demand, at a rate per annum equal to the
Maximum Rate.
Eurodollar Loans. Borrower agrees to pay interest calculated on the basis
of a year consisting of 360 days with respect to the unpaid principal amount of
each Eurodollar Loan from the date the proceeds thereof are made available to
Borrower until maturity (whether by acceleration or otherwise), at a varying
rate per annum equal to the lesser of (i) the Maximum Rate, or (ii) the
Eurodollar Rate. Subject to the provisions of this Agreement with respect to
prepayment, the principal of the Revolving Note shall be payable as specified in
Section 3(e) hereof and the interest with respect to each Eurodollar Loan shall
be payable on each Interest Payment Date. Past due principal and, to the extent
permitted by law, past due interest shall bear interest, payable on demand, at a
rate per annum equal to the Maximum Rate. Upon three (3) Eurodollar Business
Days written notice prior to the making by the Bank of any Eurodollar Loan (in
the case of the initial Interest Period therefor) or the expiration date of each
succeeding Interest Period (in the case of subsequent Interest Periods),
Borrower shall have the option, subject to compliance by Borrower with all of
the provisions of this Agreement, as long as no Event of Default exists, to
specify whether the Interest Period commencing on any date shall be a 30, 60 or
90 day period. If Bank shall not have received timely notice of a designation
of such Interest Period as herein provided, Borrower shall be deemed to have
elected to convert all maturing Eurodollar Loans to Base Rate Loans. Borrower
shall not be permitted to have outstanding at any time more than three (3)
Eurodollar Tranches.
Interest Rate Determination. The Bank shall determine each interest rate
applicable to the Revolving Note hereunder. The Bank shall give prompt notice
to the Borrower of each rate of interest so determined and its determination
thereof shall be conclusive absent error.
Conversion Option. Borrower may elect from time to time (i) to convert all
of any part of their Eurodollar Loans to Base Rate Loans by giving Bank
irrevocable notice of such election in writing prior to 10:00 a.m. (Dallas,
Texas time) on the conversion date and such conversion shall be made on the
requested conversion date, provided that any such conversion of Eurodollar Loan
shall only be made on the last day of the Eurodollar Interest Period with
respect thereof, (ii) to convert all or any part of their Base Rate Loans to
Eurodollar Loans by giving the Bank irrevocable written notice of such election
three (3) Eurodollar Business Days prior to the proposed conversion and such
conversion shall be made on the requested conversion date or, if such reques
ted conversion date is not a Eurodollar Business Day or a Business Day, as the
case may be, on the next succeeding Eurodollar Business Day or Business Day, as
the case may be. Any such conversion shall not be deemed to be a prepayment of
any of the loans for purposes of this Agreement or the Revolving Note.
Advance Loan. The unpaid principal balance of the Advance Note shall bear
interest (calculated on the basis of actual days in a year consisting of 365 or,
if appropriate, 366 days) at a fluctuating rate per annum from day to day equal
to the lesser of (i) the Maximum Rate, or (ii) the Base Rate plus 4%. Past due
principal and, to the extent permitted by law, past due interest in respect of
the Advance Loan, shall bear interest, payable on demand, at a rate per annum
equal to the Maximum Rate.
Recoupment. If at any time the applicable rate of interest selected
pursuant to Sections 4(a)(i), 4(a)(ii) or 4(d) above shall exceed the Maximum
Rate, thereby causing the interest on the Note to be limited to the Maximum
Rate, then any subsequent reduction in the interest rate so selected or
subsequently selected shall not reduce the rate of interest on the Note below
the Maximum Rate until the total amount of interest accrued on the Note equals
the amount of interest which would have accrued on the Note if the rate or rates
selected pursuant to Sections 4(a)(i), 4(a)(ii) or 4(d), as the case may be, had
at all times been in effect.
Special Provisions Relating to Eurodollar Loans.
Unavailability of Funds or Inadequacy of Pricing. In the event that, in
connection with any proposed Eurodollar Loan, Bank (i) shall have determined
that U.S. Dollar deposits of the relevant amount and for the relevant Eurodollar
Interest Period for Eurodollar Loans are not available to Bank in the London
interbank market; or (ii) in good faith determines that the Eurodollar Interest
Rate will not adequately reflect the cost to the Bank of maintaining or funding
the Eurodollar Loans for such Interest Period, the obligations of the Bank to
make the Eurodollar Loans, as the case may be, shall be suspended until such
time as Bank in its sole discretion reasonably exercised determines that the
event resulting in such suspension has ceased to exist. If Bank shall make such
determination it shall promptly notify Borrower in writing and Borrower, at its
option, shall either repay the outstanding Eurodollar Loans, as the case may be,
owed to Bank, without penalty, on the last day of the current Interest Period
or convert the same to Base Rate Loans in the case of Eurodollar Loans on the
last day of the then current Interest Period for such Eurodollar Loan.
Reserve Requirements. In the event of any change in any applicable law,
treaty or regulation or in the interpretation or administration thereof, or in
the event any central bank or other fiscal monetary or other authority having
jurisdiction over the Bank or the loans contemplated by this Agreement shall
impose, modify or deem applicable any reserve requirement of the Board of
Governors of the Federal Reserve System on any Eurodollar Loan or loans, or any
other reserve, special deposit, or similar requirements against assets or
deposits with or for the account of, or credit extended by, the Bank or shall
impose on the Bank or the London interbank market, as the case may be, any other
condition affecting this Agreement or the Eurodollar Loans and the result of any
of the foregoing is to increase the cost to the Bank in making or maintaining
its Eurodollar Loans or to reduce any amount (or the effective return on any
amount) received by the Bank hereunder, then Borrower, at its option, shall
either (i) pay to the Bank upon demand of the Bank as additional interest on the
Revolving Note evidencing the Eurodollar Loans such additional amount or amounts
as will reimburse the Bank for such additional cost or such reduction or (ii)
convert such Eurodollar Loans to Base Rate Loans. The Bank shall give notice to
Borrower upon becoming aware of any such change or imposition which may result
in any such increase or reduction. A certificate of the Bank setting forth the
basis for the determination of such amount necessary to compensate the Bank as
aforesaid shall be delivered to Borrower and shall be conclusive as to such
determination and such amount, absent error.
Taxes. Both principal and interest on the Revolving Note evidencing any
Eurodollar Loan are payable without withholding or deduction for or on account
of any taxes. If any taxes are levied or imposed on or with respect to the
Revolving Note evidencing the Eurodollar Loan or on any payment on the Revolving
Note evidencing the Eurodollar Loans made to the Bank, then, and in any such
event, Borrower shall pay to the Bank upon demand of the Bank such additional
amounts as may be necessary so that every net payment of principal and interest
on the Revolving Note evidencing the Eurodollar Loan, after withholding or
deduction for or on account of any such taxes, will not be less than any amount
provided for herein. In addition, if at any time when the Eurodo
llar Loan are outstanding any laws enacted or promulgated, or any court of law
or governmental agency interprets or administers any law, which, in any such
case, materially changes the basis of taxation of payments to the Bank of
principal of or interest on the Revolving Note evidencing the Eurodollar Loan by
reason of subjecting such payments to double taxation or otherwise (except
through an increase in the rate of tax on the overall net income of Bank) then
Borrower will pay upon demand by Bank the amount of loss to the extent that such
loss is caused by such a change. The Bank shall give notice to Borrower upon
becoming aware of the amount of any loss incurred by the Bank through enactment
or promulgation of any such law which materially changes the basis of taxation
of payments to the Bank. The Bank shall also give notice on becoming aware of
any such enactment or promulgation which may result in such payments becoming
subject to double taxation or otherwise. A certificate of the Bank setting
forth the basis for the determination of such loss and the computation of such
amounts shall be delivered to Borrower and shall be conclusive of such
determination and such amount, absent error.
Change in Laws. If at any time any new law or any change in existing laws
or in the interpretation of any new or existing laws shall make it unlawful for
the Bank to maintain or fund its Eurodollar Loan hereunder, then the Bank shall
promptly notify Borrower in writing and Borrower, at its option, shall either
(i) repay the outstanding Eurodollar Loan owed to the Bank, without penalty, on
the last day of the current Interest Periods (or, if the Bank may not lawfully
continue to maintain and fund such Eurodollar Loan, immediately), or (ii)
Borrower may convert such Eurodollar Loan at such appropriate time to Base Rate
loans.
Option to Fund. The Bank shall have the option if Borrower elect a
Eurodollar Loan, to purchase one or more deposits in order to fund or maintain
its funding of the principal balance of the Revolving Note to which such
Eurodollar Loan is applicable during the Interest Period in question; it being
understood that the provisions of this Agreement relating to such funding are
included only for the purpose of determining the rate of interest to be paid
under such Eurodollar Loan and any amounts owing hereunder and under the
applicable Revolving Note. The Bank shall be entitled to fund and maintain its
funding of all or any part of that portion of the principal balance of the
Revolving Note in any manner it sees fit, but all such determinations hereunder
shall be made as if the Bank have actually funded and maintained that portion of
the principal balance of the Revolving Note to which a Eurodollar Loan is
applicable during the applicable Interest Period through the purchase of
deposits in an amount equal to the principal balance of the Revolving Note to
which such Eurodollar Loan is applicable and having a maturity corresponding to
such Interest Period. The Bank may fund the outstanding principal balance of
the Revolving Note which is to be subject to any Eurodollar Loan from any branch
or office of the Bank as the Bank may designate from time to time.
Indemnity. Borrower shall indemnify and hold harmless the Bank against all
reasonable and necessary out-of-pocket costs and expenses which the Bank may
sustain (i) if (other than as a result of a default by the Bank hereunder) the
making of any loan or loans as a Eurodollar Loan does not occur on the date, if
any, specified therefor in the notice given by Borrower pursuant to Section
2(c)(ii), (ii) as a consequence of any default by Borrower under this Agreement,
or (iii) any other loss suffered by the Bank as a result of the making of any
loan or loans as a Eurodollar Loan.
Payments Not at End of Interest Period. If the Borrower make any payment
of principal with respect to any Eurodollar Loan on any day other than the last
day of the Interest Period applicable to such Eurodollar Loan, then Borrower
shall reimburse the Bank on demand for any loss, cost or expense incurred by the
Bank as a result of the timing of such payment or in redepositing such principal
amount, including the sum of (i) the cost of funds to the Bank in respect of
such principal amount so paid, for the remainder of the Interest Period
applicable to such sum, reduced, if the Bank is able to redeposit such principal
amount so paid for the balance of the Interest Period, by the interest earned by
Bank as a result of so redepositing such principal amount, plus (ii) any expense
or penalty incurred by the Bank in redepositing such principal amount. A
certificate of Bank setting forth the basis for the determination of the amount
owed by Borrower pursuant to this Section 5(g) shall be delivered to the Borrowe
r and shall be conclusive in the absence of manifest error.
Collateral Security. To secure the performance by Borrower of their
obligations hereunder, and under the Note and Security Instruments, whether now
or hereafter incurred, matured or unmatured, direct or contingent, joint or
several, or joint and several, including extensions, modifications, renewals and
increases thereof, and substitutions therefore, Borrower shall contemporaneously
with or prior to the execution of this Agreement and the Note, grant and assign
to the Bank a first and prior security interest and Lien on certain of its Oil
and Gas Properties, and on certain related equipment, oil and gas inventory and
proceeds of the foregoing. To further secure the foregoing, Bank shall have the
right to acquire the note and liens previously granted to the Texas Gas Fund I
or any holders thereof by Borrower. All Oil and Gas Properties and other
collateral in which Borrower have herewith granted or hereafter grants to the
Bank a first and prior Lien (to the satisfaction of the Bank) in accordance with
this Section 6 or Oil and Gas Properties covered by the Liens which are acquired
by Bank from the Texas Gas Fund I or any holders thereof, as such properties and
interests are from time to time constituted, are hereinafter collectively called
the "Collateral."
The granting and assigning of such security interests and Liens by Borrower
shall be pursuant to Security Instruments in form and substance reasonably
satisfactory to the Bank. Concurrently with the delivery of each of the
Security Instruments, Borrower shall furnish to the Bank mortgage and title
opinions and other documents reasonably satisfactory to Bank with respect to the
title and Lien status of Borrower' interests in such of the Oil and Gas
Properties covered by the Security Instruments as Bank shall have designated.
Borrower will cause to be executed and delivered to the Bank, in the future,
additional Security Instruments if the Bank reasonably deems such are necessary
to insure perfection or maintenance of Bank's security interests and Liens in
the Oil and Gas Properties or any part thereof.
Borrowing Base.
Initial Borrowing Base. During the period from the date hereof to the next
Determination Date (as hereinafter defined), the Borrowing Base shall be
$12,500,000.00. The amount of the initial Borrowing Base available to Borrower
shall be $11,000,000 until the Enron Acquisition closes and Bank receives
satisfactory evidence of such closing and Security Instruments covering the Oil
and Gas Properties being acquired. After such closing the Borrowing Base shall
be $12,500,000 until redetermined pursuant to Section 7(b); provided, however,
that if the Enron Acquisition does not close within thirty (30) days after the
Effective Date, no increase shall be made in the Borrowing Base as a result of
such closing.
Subsequent Determinations of Borrowing Base. The next Borrowing Base
determination shall be made on January 1, 1996. Subsequent determinations of
the Borrowing Base shall be made by the Bank at least semi-annually on April 1
and October 1 of each year, beginning April 1, 1996, or as Unscheduled
Redeterminations. In connection with each such redetermination of the Borrowing
Base, the Bank shall also redetermine the Monthly Commitment Reduction.
Borrower shall furnish to the Bank as soon as possible but in any event no later
than March 1 of each year, beginning March 1, 1996, with an engineering report
in form and substance satisfactory to Bank prepared by an independent petroleum
engineer acceptable to Bank covering the Oil and Gas Properties utilizin
g pricing parameters used by Bank as established from time to time, together
with such other information concerning the value of the Collateral as the Bank
may deem necessary to determine the value of such Collateral. By December 1,
1995 and each September 1 thereafter, beginning September 1, 1996, or within
thirty (30) days after either (i) receipt of notice from Bank that it requires
an Unscheduled Redetermination, or (ii) Borrower give notice to Bank of their
desire to have an Unscheduled Redetermination performed, Borrower shall furnish
to Bank an engineering report in form and substance satisfactory to Bank
prepared by Borrower' in-house engineering staff valuing the Oil and Gas
Properties using substantially the same methodology utilized by the ind
ependent petroleum engineer who prepared the most recent independent engineering
report, together with such other information, reports and data concerning the
value of the Collateral as the Bank shall deem reasonably necessary to determine
the value of such Collateral. The engineering reports furnished March 1 and
September 1 pursuant to this Section 7 shall be prepared as of the preceding
December 31 and June 30, respectively. Bank shall notify Borrower of the new
Borrowing Base and Monthly Commitment Reduction for the period beginning on the
date of such notice (herein called the "Determination Date") and continuing
until, but not including, the next Determination Date. If an Unscheduled
Redetermination is made by the Bank, the Bank shall notify Borrower within a
reasonable time after receipt of all requested information of the new Borrowing
Base, if any, and such new Borrowing Base shall continue until the next
Determination Date. If Borrower do not furnish all such information, reports
and data by the date specified in this Section 7(b), unless such failure is of
no fault of Borrower, the Bank may nonetheless designate the Borrowing Base and
Monthly Commitment Reduction at any amounts which the Bank determines in its
discretion and may redesignate the Borrowing Base from time to time thereafter
until the Bank receives all such information, reports and data, whereupon the
Bank shall designate a new Borrowing Base and Monthly Commitment Reduction as
described above. The Bank shall determine the amount of the Borrowing Base
based upon the loan collateral value which it in its discretion (using such
methodology, assumptions and discounts rates as Bank customarily uses in
assigning collateral value to oil and gas properties) assigns to such Oil and
Gas Properties of Borrower at the time in question and based upon such other
credit factors consistently applied (including, without limitation, the assets,
liabilities, cash flow, business, properties, prospects, management and
ownership of Borrower and its affiliates) as the Bank customarily considers in
evaluating similar oil and gas credits. If at any time any of the Collateral is
sold by Borrower, the Borrowing Base then in effect shall automatically be
reduced by a sum equal to the value attributable to such Collateral for
Borrowing Base purposes. It is expressly understood that the Bank has no
obligation to designate the Borrowing Base or the Monthly Commitment Reduction
at any particular amount, except in the exercise of its discretion, whether in
relation to the Revolving Commitment or otherwise, and that the Bank's
commitment to advance funds hereunder is determined by reference to the
Borrowing Base from time to time in effect. Provided, however, that the Bank
shall never have the obligation to designate a Borrowing Base in excess of its
legal or internal lending limits.
Fees.
Unused Portion Fee. For and in consideration of the Revolving Commitment,
Borrower shall pay to Bank an Unused Portion Fee (hereinafter referred to as the
"Unused Portion Fee") equivalent to one-half of one percent (1/2%) per annum on
the daily average of the unadvanced amount of the Borrowing Base. The Unused
Portion Fee shall be payable in arrears on the first Business Day of each
calendar quarter beginning September 1, 1995, with the final fee payment due on
the Revolving Maturity Date for any period then ending for which the Unused
Portion Fee shall not have been theretofore paid. In the event the Revolving
Commitment terminates on any date prior to the end of any such quarterly period,
Borrower shall pay to Bank, on the date of such termination, the pro rated
portion of the total Unused Portion Fee due for the period in which such
termination occurs.
Commitment Fee. For and in consideration of the Advance Line of Credit,
Borrower shall pay to Bank an Commitment Fee (hereinafter referred to as the
"Commitment Fee") equivalent to one-half of one percent (1/2%) per annum on the
daily average of the unadvanced amount of the Advance Line of Credit. The
Commitment Fee shall be payable in arrears on the first Business Day of each
calendar quarter beginning September 1, 1995, with the final fee payment due on
the Advance Loan Maturity Date for any period then ending for which the
Commitment Fee shall not have been theretofore paid. In the event the Advance
Line of Credit terminates on any date prior to the end of any such quarterly
period, Borrower shall pay to Bank, on the date of such termination, the pro
rated portion of the total Commitment Fee due for the period in which such
termination occurs.
Facility Fee. For and in consideration of the Revolving Commitment and the
Advance Line of Credit, Borrower shall pay to Bank on the Effective Date the
following Facility Fees (hereinafter referred to as "Facility Fees", or
separately as a "Facility Fee
"):
on the Revolving Commitment, a Facility Fee of $125,000.00; and
on the Advance Line of Credit, a Facility Fee of $90,000.00.
Engineering Fee. Borrower agrees to pay to Bank, an annual Engineering Fee
(hereinafter referred to as the "Engineering Fee") for engineering services
performed by the Bank, said Engineering Fee to be in the amount of $5,000.00 per
annum and shall be payable on the Effective Date and thereafter on each
subsequent anniversary of the Effective Date.
Prepayments.
Voluntary Prepayments of Notes. The Borrower may at any time and from time
to time, without penalty or premium, prepay the Notes, in whole or in part. Each
such prepayment shall be made on at least one (1) Business Day's notice to Bank
and shall be in a minimum amount of $100,000 or the unpaid balance on the Notes
or Notes being prepaid, whichever is less. Provided, however, that if Borrower
shall prepay the principal of any Eurodollar Loan on any date other than the
last day of the Interest Period applicable thereto, Borrower shall make the
additional payments, if any, required by Section 5(g) hereof.
Mandatory Prepayment of Revolving Note. In the event the aggregate
principal amount outstanding on the Revolving Note ever exceeds the Borrowing
Base as determined by Bank pursuant to Section 7(b) hereof, Borrower shall,
within thirty (30) days after notification from the Bank, either (A) by
instruments reasonably satisfactory in form and substance to the Bank, provide
the Bank with additional collateral with value and quality in amounts
satisfactory to the Bank in its sole discretion in order to increase the
Borrowing Base by an amount at least equal to such excess, or (B) prepay,
without premium or penalty, the principal amount of the Revolving Note in an
amount at least equal to such excess plus interest thereon to the date of such
prepayment.
Representations and Warranties. In order to induce the Bank to enter into
this Agreement, Borrower hereby represents and warrants to the Bank (which
representations and warranties will survive the delivery of the Note) that:
Corporate Existence. Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it was
incorporated and is duly qualified as a foreign corporation in all
jurisdictions wherein the failure to qualify could result in Material Adverse
Effect.
Corporate Power and Authorization. Borrower is duly authorized and
empowered to create and issue the Notes; and Borrower is duly authorized and
empowered to execute, deliver and perform the Security Instruments, including
this Agreement; and all corporate and other action on Borrower's part requisite
for the due creation and issuance of the Notes and on the Borrower's part
requisite for the due execution, delivery and performance of the Security
Instruments, including this Agreement has been duly and effectively taken.
Binding Obligations. This Agreement does, and the Notes and other Security
Instruments upon their creation, issuance, execution and delivery will,
constitute valid and binding obligations of Borrower enforceable in accordance
with their respective terms (except that enforcement may be subject to any
applicable bankruptcy, insolvency, or similar debtor relief laws now or
hereafter in effect and relating to or affecting the enforcement of creditors
rights generally).
No Legal Bar or Resultant Lien. The Notes, the Security Instruments,
including this Agreement, do not and will not, to the best of Borrower's
knowledge, violate any provisions of any contract, agreement, law, regulation,
order, injunction, judgment, decree or writ to which Borrower is subject, or
result in the creation or imposition of any lien or other encumbrance upon any
assets or properties of Borrower, other than those contemplated by this
Agreement.
No Consent. The execution, delivery and performance by Borrower of the
Notes and the Security Instruments, including this Agreement does not require
the consent or approval of any other person or entity, including without
limitation any regulatory authority or governmental body of the United States or
any state thereof or any political subdivision of the United States or any state
thereof except for consents required for federal, state and, in some instances,
private leases, right of ways and other conveyances or encumbrances of oil and
gas leases (all of which consents have been obtained by Borrower) and other than
those the failure to obtain could cause a Material Adverse Effect.
Financial Condition. The Financial Statements of Borrower dated March 31,
1995 which have been delivered to Bank are complete and correct in all material
respects, and fully and accurately reflect in all material respects the
financial condition and results of the operations of the Borrower as of the date
or dates and for the period or periods stated, and such Financial Statements
have been prepared in accordance with GAAP. No change has since occurred in the
condition, financial or otherwise, of Borrower which could have a Material
Adverse Effect, except as disclosed to the Bank in Schedule "2" attached hereto.
Liabilities. Borrower does not have any material (individually or in the
aggregate) liability, direct or contingent, except as disclosed to the Bank in
the Financial Statements or on Schedule "3" attached hereto. No unusual or
unduly burdensome restrictions, restraint, or hazard exists by contract, law or
governmental regulation or otherwise relative to the business, assets or
properties of Borrower which could have a Material Adverse Effect.
Litigation. Except as described in the Financial Statements, or as
otherwise disclosed to the Bank in Schedule "4" attached hereto, there is no
litigation, legal or administrative proceeding, investigation or other action of
any nature pending or, to the knowledge of the officers of Borrower, threatened
against or affecting Borrower which involves the possibility of any judgment or
liability not fully covered by insurance, and which could have a Material
Adverse Effect.
Taxes; Governmental Charges. Borrower has filed all tax returns and
reports required to be filed and has paid all taxes, assessments, fees and other
governmental charges levied upon it or its assets, properties or income which
are due and payable, including interest and penalties, the failure of which to
pay could have a Material Adverse Effect, or has provided adequate reserves, if
required, in accordance with GAAP for the payment thereof, except such as are
being contested in good faith by appropriate proceedings and for which adequate
reserves for the payment thereof as required by GAAP has been provided and levy
and execution thereon have been stayed and continue to be stayed.
Titles, Etc. Borrower has good and defensible title to all of its assets,
including without limitation, the Oil and Gas Properties, free and clear of all
liens or other encumbrances except Permitted Liens.
Defaults. Borrower is not in default and no event or circumstance has
occurred which, but for the passage of time or the giving of notice, or both,
would constitute a default under any loan or credit agreement, indenture,
mortgage, deed of trust, security agreement or other agreement or instrument to
which Borrower is a party in any respect that could have a Material Adverse
Effect. No Event of Default hereunder has occurred and is continuing.
Casualties; Taking of Properties. Since the dates of the latest Financial
Statements of Borrower delivered to Bank, neither the business nor the assets or
properties of Borrower have been affected (to the extent it could have a
Material Adverse Effect), as a result of any fire, explosion, earthquake, flood,
drought, windstorm, accident, strike or other labor disturbance, embargo,
requisition or taking of property or cancellation of contracts, permits or
concessions by any domestic or foreign government or any agency thereof, riot,
activities of armed forces or acts of God or of any public enemy.
Use of Proceeds; Margin Stock. The proceeds of the Revolving Loan will be
used by Borrower for the purposes of refinancing of existing debt, working
capital, general corporate purposes, for acquisitions and for other oil and gas
purposes. The proceeds of the Advance Loan will be used by Borrower only for
development drilling expenditures. Borrower is not engaged principally or as
one of its important activities in the business of extending credit for the
purpose of purchasing or carrying any "margin stock" as defined in Regulation U
of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 221), or
for the purpose of reducing or retiring any indebtedness which was originally
incurred to purchase or carry a margin stock or for any other purpose which
might constitute this transaction a "purpose credit" within the meaning of said
Regulation U.
Neither Borrower nor any person or entity acting on behalf of Borrower
have taken or will take any action which might cause the loans hereunder or any
of the Security Instruments, including this Agreement, to violate Regulation U
or any other regulation of the Board of Governors of the Federal Reserve System
or to violate the Securities Exchange Act of 1934 or any rule or regulation
thereunder, in each case as now in effect or as the same may hereafter be in
effect.
Location of Business and Offices. The principal place of business of
Borrower is located at 4925 Greenville Avenue, Suite 1400, Dallas, Texas 75206.
Compliance with the Law. To the best of Borrower's knowledge, Borrower:
is not in violation of any law, judgment, decree, order, ordinance, or
governmental rule or regulation to which Borrower, or any of its assets or
properties are subject; and
has not failed to obtain any license, permit, franchise or other
governmental authorization necessary to the ownership of any of its assets or
properties or the conduct of their business;
which violation or failure is reasonably expected to have a Material
Adverse Effect.
No Material Misstatements. No information, exhibit or report furnished by
Borrower to the Bank in connection with the negotiation of this Agreement
contained any material misstatement of fact or omitted to state a material fact
or any fact necessary to make the statement contained therein not materially
misleading.
Not A Utility. Borrower is not an entity engaged in the State of Texas in
the (i) generation, transmission, or distribution and sale of electric power;
(ii) transportation, distribution and sale through a local distribution system
of natural or other gas for domestic, commercial, industrial, or other use;
(iii) ownership or operation of a pipeline for the transmission or sale of
natural or other gas, crude oil or petroleum products to other pipeline
companies, refineries, local distribution systems, municipalities, or industrial
consumers; (iv) provision of telephone or telegraph service to others; (v)
production, transmission, or distribution and sale of steam or water; (vi)
operation of a railroad; or (vii) provision of sewer service to others.
ERISA. Borrower is in compliance in all material respects with the
applicable provisions of ERISA, and no "reportable event", as such term is
defined in Section 4043 of ERISA, has occurred with respect to any Plan of
Borrower which is reasonably likely to cause a Material Adverse Effect.
Public Utility Holding Company Act. Borrower is not a "holding company",
or "subsidiary company" of a "holding company", or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company", or a "public
utility" within the meaning of the Public Utility Holding Company Act of 1935,
as amended.
Subsidiaries. Borrower has no Subsidiaries.
Environmental Matters. Except as disclosed on Schedule "5", Borrower (i)
has not received notice or otherwise learned of any Environmental Liability
which could individually or in the aggregate have a Material Adverse Effect
arising in connection with (A) any non-compliance with or violation of the
requirements of any Environmental Law or (B) the release or threatened release
of any toxic or hazardous waste into the environment, (ii) has no threatened or
actual liability in connection with the release or threatened release of any
toxic or hazardous waste into the environment which could individually or in the
aggregate have a Material Adverse Effect or (iii) has not received notice or
otherwise learned of any federal or state investigation evaluating whether any
remedial action is needed to respond to a release or threatened release of any
toxic or hazardous waste into the environment for which Borrower is or may be
liable which could result in a Material Adverse Effect.
Liens. Except for Permitted Liens, the assets and properties of Borrower
are free and clear of all liens and encumbrances.
Conditions of Lending.
The obligation of the Bank to make the initial Advance under the Revolving
Commitment and the initial Advance under the Advance Line of Credit shall be
subject to the following conditions precedent:
Execution and Delivery. Borrower shall have executed and delivered to the
Bank the Notes, the Security Instruments and other required documents, all in
form and substance satisfactory to the Bank;
Legal Opinion. The Bank shall have received from Borrower's legal counsel
a favorable legal opinion in form and substance satisfactory to Bank (i) as to
the matters set forth in Subsections 10(a), (b), (c), (d), (e) and (h) hereof,
and (ii) as to such other matters as Bank or its counsel may reasonably request;
Corporate Resolutions. The Bank shall have received appropriate certified
corporate resolutions of Borrower;
Good Standing and Existence. The Bank shall have received evidence of
existence and good standing for the Borrower;
Incumbency. The Bank shall have received a signed certificate of the
officers of Borrower, certifying the names of each of the officers of Borrower
authorized to sign loan documents on behalf of the Borrower, together with the
true signatures of each such officer. The Bank may conclusively rely on such
certificate until the Bank receives a further certificate of the authorized
officers of Borrower canceling or amending the prior certificate and submitting
signatures of the officers named in such further certificate;
Articles of Incorporation and Bylaws. The Bank shall have received copies
of the Articles of Incorporation of Borrower and all amendments thereto,
certified by the Secretary of State of the state of the Borrower's incorporation
and a copy of the bylaws of the Borrower and all amendments thereto, certified
by one or more officers of Borrower as being true, correct and complete;
Title. The Bank shall have received satisfactory evidence as to the state
of the title to the Oil and Gas Properties;
Evidence of Closing of Acquisitions. The Bank shall have received
satisfactory evidence of the closing of the Sierra Mineral Development LC
acquisition and the release of all liens on the properties being acquired.
Preferred Stock. The Bank shall have received copies of Borrower's
preferred stock agreement and other documents related thereto.
Termination Agreement. The Bank shall have received an executed copy of
the Termination Agreement between Borrower and Texas Gas Fund I, and said
agreement shall be in form and substance satisfactory to Bank.
Other Documents. The Bank shall have received such other instruments and
documents incidental and appropriate to the transaction provided for herein as
the Bank or its counsel may reasonably request, and all such documents shall be
in form and substance reasonably satisfactory to the Bank; and
Legal Matters Satisfactory. All legal matters incident to the consummation
of the transactions contemplated hereby shall be reasonably satisfactory to
special counsel for the Bank retained at the expense of Borrower.
The obligation of the Bank to make any Advance (including the initial
Advance) on the Revolving Commitment or Advance Line of Credit shall be subject
to the following additional conditions precedent that, at the date of making
each such Advance and after giving effect thereto:
(i) Representation and Warranties. With respect to any Advance,
the representations and warranties of Borrower under this Agreement are true and
correct in all material respects as of such date, as if then made (except to the
extent that such representations and warranties related solely to an earlier
date);
(ii) No Event of Default. No Event of Default shall have
occurred and be continuing nor shall any event have occurred or failed to occur
which, with the passage of time or service of notice, or both, would constitute
an Event of Default;
(iii) Other Documents. The Bank shall have received such
other instruments and documents incidental and appropriate to the transaction
provided for herein as the Bank or its counsel may reasonably request, and all
such documents shall be in form and substance reasonably satisfactory to the
Bank; and
(iv) Legal Matters Satisfactory. All legal matters incident to
the consummation of the transactions contemplated hereby shall be reasonably
satisfactory to special counsel for the Bank retained at the expense of
Borrower.
Affirmative Covenants. A deviation from the provisions of this Section 12
shall not constitute an Event of Default under this Agreement if such deviation
is consented to in writing by the Bank. Without the prior written consent of the
Bank, Borrower will at all times comply with the covenants contained in this
Section 12 from the date hereof and for so long as any part of the Revolving
Commitment or Advance Line of Credit is in existence.
Financial Statements and Reports. Borrower shall promptly furnish to the
Bank from time to time upon request such information regarding the business and
affairs and financial condition of the Borrower, as the Bank may reasonably
request, and will furnish to the Bank:
Annual Audited Financial Statements - as soon as available, and in any
event within ninety (90) days after the close of each fiscal year, the annual
audited Financial Statements of the Borrower, prepared by an independent
accounting firm reasonably acceptable to the Bank;
Quarterly Financial Statements - as soon as available, and in any event
within forty-five (45) days after the end of each calendar quarter of each year
(except the last calendar quarter in any fiscal year), the quarterly unaudited
Financial Statements of the Borrower;
Quarterly Lease Operating Reports - within forty-five (45) days after the
end of each fiscal quarter, a quarterly report, in form and substance reasonably
satisfactory to Bank, indicating sales volumes, sales revenues, production
taxes, operating expenses, net operating income and other production information
from the Goldsmith Adobe Unit, Ector County, Texas, with detailed calculations
and worksheets, all in form and substance reasonably satisfactory to Bank;
Report on Properties - as soon as available and in any event on or before
December 1, 1995, and thereafter or March 1, and September 1 of each calendar
year, and at such other times as the Bank, in accordance will Section 7 hereof,
may request, the engineering reports required to be furnished to the Bank under
such Section 7 on the Oil and Gas Properties;
Budget - contemporaneously with the delivery of the annual Financial
Statements required above in Subsection 12(a)(i), provide a budget setting forth
all anticipated sources and uses of funds for the succeeding twelve (12) months;
and
Additional Information - promptly upon request of the Bank from time to
time any additional financial information or other information that the Bank may
reasonably request.
All such information, reports, balance sheets and Financial Statements
referred to in Subsection 12(a) above shall be in such detail as the Bank may
reasonably request and shall be prepared in a manner consistent with the
Financial Statements.
Certificates of Compliance. Concurrently with the furnishing of the annual
audited Financial Statements pursuant to Subsection 12(a)(i) hereof and each of
the quarterly unaudited Financial Statements pursuant to Subsection 12(a)(ii)
hereof, Borrower will furnish or cause to be furnished to the Bank a certificate
in the form of Exhibit "D" attached hereto, signed by the President, Chief
Executive Officer or chief financial officer of the Borrower (i) stating that
the Borrower have fulfilled in all material respects its obligations under the
Note and the Security Instruments, including this Agreement, and that all
representations and warranties made herein and therein continue (except to the
extent they relate solely to an earlier date) to be true and correct in all
material respects (or specifying the nature of any change), or if an Event of
Default has occurred, specifying the Event of Default and the nature and status
thereof; (ii) to the extent requested from time to time by the Bank,
specifically affirming compliance of the Borrower in all material respects with
any of its representations (except to the extent they relate solely to an
earlier date) or obligations under said instruments; (iii) setting forth the
computation, in reasonable detail as of the end of each period covered by such
certificate, of compliance with Sections 13(c), (d), (e) and (f); and (iv)
containing or accompanied by such financial or other details, information and
material as the Bank may reasonably request to evidence such compliance.
Accountants' Certificate. Concurrently with the furnishing of the annual
audited Financial Statement pursuant to Section 12(a)(i) hereof, Borrower will
furnish a statement from the firm of independent public accountants which
prepared such statements to the effect that nothing has come to their attention
to cause them to believe that there existed on the date of such statements any
Event of Default.
Taxes and Other Liens. The Borrower will pay and discharge promptly all
taxes, assessments and governmental charges or levies imposed upon Borrower or
upon the income or any assets or property of the Borrower as well as all claims
of any kind (including claims for labor, materials, supplies and rent) which, if
unpaid, might become a Lien or other encumbrance upon any or all of the assets
or property of Borrower and which could reasonably be expected to result in a
Material Adverse Effect; provided, however, that Borrower shall not be required
to pay any such tax, assessment, charge, levy or claim if the amount,
applicability or validity thereof shall currently be contested in good faith by
appropriate proceedings diligently conducted, levy and execution thereon have
been stayed and continue to be stayed, and Borrower shall have set up adequate
reserves therefor, if required, under GAAP.
Compliance with Laws. Borrower will observe and comply, in all material
respects, with all applicable laws, statutes, codes, acts, ordinances, orders,
judgments, decrees, injunctions, rules, regulations, orders and restrictions
relating to environmental standards or controls or to energy regulations of all
federal, state, county, municipal and other governments, departments,
commissions, boards, agencies, courts, authorities, officials and officers,
domestic or foreign.
Further Assurances. Borrower will cure promptly any defects in the
creation and issuance of the Note and the execution and delivery of the Note and
the Security Instrument, including this Agreement. Borrower at its sole expense
will promptly execute and deliver to Bank upon its reasonable request all such
other and further documents, agreements and instruments in compliance with or
accomplishment of the covenants and agreements in this Agreement, or to correct
any omissions in the Note or more fully to state the obligations set out herein.
Performance of Obligations. Borrower will pay the Notes and other
obligations incurred by it hereunder according to the reading, tenor and effect
thereof and hereof; and Borrower will do and perform every act and discharge all
of the obligations provided to be performed and discharged by Borrower under the
Security Instruments, including this Agreement, at the time or times and in the
manner specified.
Insurance. Borrower now maintains and will continue to maintain insurance
with financially sound and reputable insurers with respect to their assets
against such liabilities, fires, casualties, risks and contingencies and in such
types and amounts as is customary in the case of persons engaged in the same or
similar businesses and similarly situated. Upon request of the Bank, Borrower
will furnish or cause to be furnished to the Bank from time to time a summary of
the respective insurance coverage of Borrower in form and substance satisfactory
to the Bank, and, if requested, will furnish the Bank copies of the applicable
policies. Upon demand by Bank any insurance policies covering any such property
shall be endorsed (i) to provide that such policies may not be canceled, reduced
or affected in any manner for any reason without fifteen (15) days prior notice
to Bank, (ii) to provide for insurance against fire, casualty and other hazards
normally insured against, in the amount of the full value (less a reasonable
deductible not to exceed amounts customary in the industry for similarly
situated business and properties) of the property insured, and (iii) to provide
for such other matters as the Bank may reasonably require. Borrower shall at
all times maintain adequate insurance with respect to the Collateral against
their liability for injury to persons or property, which insurance shall be by
financially sound and reputable insurers and shall without limitation provide
the following coverages: comprehensive general liability (including coverage
for damage to underground resources and equipment, damage caused by blowouts or
cratering, damage caused by explosion, damage to underground minerals or
resources caused by saline substances, broad form property damage coverage,
broad form coverage for contractually assumed liabilities and broad form
coverage for acts of independent contractors), worker's compensation and
automobile liability. Borrower shall at all times maintain cost of control of
well insurance with respect to the Collateral which shall insure Borrower
against seepage and pollution expense if deemed economical in the reasonable
discretion of Borrower; redrilling expense; and cost of control of well; fires,
blowouts, etc. Additionally, Borrower shall at all times maintain adequate
insurance with respect to all of their other assets and wells in accordance with
prudent business practices.
Accounts and Records. Borrower will keep books, records and accounts in
which full, true and correct entries will be made of all dealings or
transactions in relation to its business and activities, prepared in a manner
consistent with prior years, subject to changes required by GAAP or suggested by
Borrower' auditors.
Right of Inspection. Borrower will permit any officer, employee or agent
of the Bank to examine Borrower' books, records and accounts, and take copies
and extracts therefrom, all at such reasonable times and as often as the Bank
may reasonably request. The Bank will keep all such information confidential
and will not without prior written consent disclose or reveal the information or
any part thereof to any person other than the Bank's officers, employees, legal
counsel, regulatory authorities or advis
ors to whom it is necessary to reveal such information for the purpose of
effectuating the agreements and undertakings specified herein or as otherwise
required by law or in connection with the enforcement of the Bank's rights and
remedies and this Agreement, the Notes and the Security Instruments.
Notice of Certain Events. Borrower shall promptly notify the Bank if
Borrower learn of the occurrence of (i) any event which constitutes an Event of
Default, together with a detailed statement by Borrower of the steps being taken
to cure the Event of Default; or (ii) any legal, judicial or regulatory
proceedings affecting the Borrower, or any of the assets or properties of the
Borrower which, if adversely determined, could have a Material Adverse Effect;
or (iii) any dispute between the Borrower and any governmental or regulatory
body or any other person or entity which, if adversely determined, could cause a
Material Adverse Effect; or (iv) any other matter which in Borrower's opinion
could have a Material Adverse Effect.
ERISA Information and Compliance. Borrower will promptly furnish to the
Bank immediately upon becoming aware of the occurrence of any "reportable
event", as such term is defined in Section 4043 of ERISA, or of any "prohibited
transaction", as such term is defined in Section 4975 of the Internal Revenue
Code of 1954, as amended, in connection with any Plan or any trust created
thereunder, a written notice signed by the President or the chief financial
officer of the Borrower specifying the nature thereof, what action Borrower are
taking or proposes to take with respect thereto, and, when known, any action
taken by the Internal Revenue Service with respect thereto.
Environmental Reports and Notices. Borrower will deliver to the Bank (i)
promptly upon its becoming available, one copy of each report sent by the
Borrower to any court, governmental agency or instrumentality pursuant to any
Environmental Law, (ii) notice, in writing, promptly upon Borrower's learning
that they have received notice or otherwise learned of any claim, demand,
action, event, condition, report or investigation indicating any potential or
actual liability arising in connection with (x) the non-compliance with or
violation of the requirements of any Environmental Law which could have a
Material Adverse Effect; (y) the release or threatened release of any toxic or
hazardous waste into the environment which could have a Material Adverse Effect
or which release Borrower would have a duty to report to any court or government
agency or instrumentality, or (iii) the existence of any Environmental Lien on
any properties or assets of the Borrower, and Borrower shall immediately deliver
a copy of any such notice to Bank.
Maintenance. Borrower will (i) observe and comply in all material respects
with all Environmental Laws; (ii) except as provided in Subsections 12(o) and
12(p) below, maintain the Oil and Gas Properties and other assets and properties
in good and workable condition at all times and make all repairs, replacements,
additions, betterments and improvements to the Oil and Gas Properties and other
assets and properties as are needed and proper so that the business carried on
in connection therewith may be conducted properly and efficiently at all times
in the opinion of the Borrower exercised in good faith; (iii) take or cause to
be taken whatever actions are necessary or desirable to prevent an event or
condition of default by Borrower under the provisions of any gas purchase or
sales contract or any other contract, agreement or lease comprising a part of
the Oil and Gas Properties or other collateral security hereunder which default
could result in a Material Adverse Effect; and (iv) furnish Bank upon reques
t evidence satisfactory to Bank that there are no Liens, claims or encumbrances
superior to the Lien of Bank on the Oil and Gas Properties, except laborers',
vendors', repairmen's, mechanics', worker's, or materialmen's liens arising by
operation of law or incident to the construction or improvement of property if
the obligations secured thereby are not yet due or are being contested in good
faith by appropriate legal proceedings or Permitted Liens.
Operation of Properties. Except as provided in Subsection 12(p) and (q)
below, Borrower will operate, or use reasonable efforts to cause to be operated,
all Oil and Gas Properties in a careful and efficient manner in accordance with
the practice of the industry and in compliance in all material respects with all
applicable laws, rules, and regulations, and in compliance in all material
respects with all applicable proration and conservation laws of the jurisdiction
in which the properties are situated, and all applicable laws, rules, and
regulations, of every other agency and authority from time to time constituted
to regulate the development and operation of the properties and the production
and sale of hydrocarbons and other minerals therefrom; provided, however, that
Borrower shall have the right to contest in good faith by appropriate
proceedings, the applicability or lawfulness of any such law, rule or regulation
and pending such contest may defer compliance therewith, as long as such
deferment shall not subject the properties or any part thereof to foreclosure or
loss.
Compliance with Leases and Other Instruments. Borrower will pay or cause
to be paid and discharge all rentals, delay rentals, royalties, production
payments and indebtedness required to be paid by the Borrower (or required to
keep unimpaired in all material respects the rights of Borrower in the Oil and
Gas Properties) accruing under, and perform or cause to be performed in all
material respects each and every act, matter, or thing required of the Borrower
by each and all of the assignments, deeds, leases, subleases, contracts, and
agreements in any way relating to the Borrower or any of the Oil and Gas
Properties and do all other things necessary of the Borrower to keep unimpaired
in all material respects the rights of the Borrower thereunder and to prevent
the forfeiture thereof or default thereunder; provided, however, that nothing in
this Agreement shall be deemed to require the Borrower to perpetuate or renew
any oil and gas lease or other lease by payment of rental or delay rental or by
commencement or continuation of operations nor to prevent the Borrower from
abandoning or releasing any oil and gas lease or other lease or well thereon
when, in any of such events, in the opinion of Borrower exercised in good faith,
it is not in the best interest of the Borrower to perpetuate the same.
Certain Additional Assurances Regarding Maintenance and Operations of
Properties. With respect to those Oil and Gas Properties which are being
operated by operators other than Borrower, Borrower shall not be obligated to
perform any undertakings contemplated by the covenants and agreement contained
in Subsections 12(o) or 12(p) hereof which are performable only by such
operators and are beyond the control of Borrower; however, Borrower agree to
promptly take all actions available under any operating agreements or otherwise
to bring about the performance of any such undertakings required to be performed
thereunder.
Title Matters. Within ninety (90) days after the date of this Agreement,
Borrower shall provide additional title opinions and/or acceptable title
information on the Oil and Gas Properties listed on Schedule "7" hereto. As to
any Oil and Gas Properties hereafter mortgaged to Bank, Borrower will promptly
(but in no event more than sixty (60) days following such mortgaging), furnish
Bank with title opinions and/or title information reasonably satisfactory to
Bank showing good and defensible title of Borrower to such Oil and Gas
Properties subject only to Permitted Liens.
Curative Matters. Within ninety (90) days after the date hereof with
respect to matters listed on Schedule "8" and, thereafter, within ninety (90)
days after receipt by Borrower from Bank or its counsel of written notice of
title defects the Bank reasonably requires to be cured, Borrower shall either
(i) provide such curative information, in form and substance satisfactory to
Bank, or (ii) substitute Oil and Gas Properties of value and quality
satisfactory to the Bank for all of Oil and Gas Properties for which such title
curative was requested but upon which Borrower elected not to provide such title
curative information, and, within ninety (90) days of such substitution, provide
title opinions or title information satisfactory to the Bank covering the Oil
and Gas Properties so substituted.
Change of Principal Place of Business. Borrower shall give Bank at least
thirty (30) days prior written notice of its intention to move its principal
place of business from the address set forth in Section 10(n) hereof.
Negative Covenants. A deviation from the provisions of this Section 13
shall not constitute an Event of Default under this Agreement if such deviation
is consented to in writing by the Bank. Without the prior written consent of
the Bank, Borrower will at all times comply with the covenants contained in this
Section 13 from the date hereof and for so long as any part of the Revolving
Commitment or Advance of Line of Credit is in existence.
Liens. Borrower will not create, incur, assume or permit to exist any
lien, security interest or other encumbrance on any of its assets or properties
except Permitted Liens.
Consolidations, Mergers and Sales of Assets. The Borrower will not
consolidate or merge with or into any other Person, except that the Borrower may
merge with another Person if (i) the Borrower is the corporation surviving such
merger, or (ii) Bank has consented to such mergers or consolidations, and (iii)
if, after giving effect thereto, no Event of Default shall have occurred and be
continuing.
Current Ratio. Borrower will not suffer or permit their ratio of
consolidated Current Assets to consolidated Current Liabilities to ever be less
than 1.0 to 1.0.
Debt Service Ratio. Borrower will not suffer or permit its ratio of Cash
Flow to Debt Service to ever be less than 1.10 to 1.00, said ratio to be tested
on September 30, 1995 for the preceding three (3) calendar months; on December
31, 1995 for the preceding six (6) calendar months; on March 31, 1996 for the
preceding nine (9) calendar months; and on June 30, 1996, and the last day of
each June, September, December and March thereafter, for the preceding twelve
(12) months..
Total Liabilities To Total Equities. Borrower will not suffer or permit
its ratio of Total Liabilities to Total Stockholder's Equity to ever be more
than 1.25 to 1.00.
Total Bank Debt. Borrower will not permit the amount of its Total Bank
Debt to exceed an amount equal to (i) sixty-seven percent (67%) of the present
value of the Oil and Gas Properties as determined by the Bank on January 1,
1996, and (ii) sixty-five percent (65%) of the present value of the Oil and Gas
Properties as determined by Bank on April 1, 1996.
Debts, Guaranties and Other Obligations. Borrower Subsidiaries will not
incur, create, assume or in any manner become or be liable in respect of any
indebtedness, liabilities or other obligations, nor will the Borrower guarantee
or otherwise in any manner become or be liable in respect of any indebtedness,
liabilities or other obligations of any other person or entity, whether by
agreement to purchase the indebtedness of any other person or entity or
agreement for the furnishing of funds to any other person or entity through the
purchase or lease of goods, supplies or services (or by way of stock purchase,
capital contribution, advance or loan) for the purpose of paying or discharging
the indebtedness of any other person or entity, or otherwise, except that the
foregoing restrictions shall not apply to:
the Notes, or other indebtedness of Borrower heretofore disclosed to Bank
in Borrower's Financial Statements or on Schedule "9" hereto;
taxes, assessments or other government charges which are not yet due or are
being contested in good faith by appropriate action promptly initiated and
diligently conducted, if such reserve as shall be required by GAAP shall have
been made therefor and levy and execution thereon have been stayed and continue
to be stayed;
indebtedness incurred in the ordinary course of business as such business
is being conducted on the Effective Date; or
renewals and extensions of any or all of the foregoing.
Dividends. Borrower will not declare or pay any cash dividend, purchase,
redeem or otherwise acquire for value any of its stock now or hereafter
outstanding, return any capital to stockholders, or make any distribution or its
assets to its stockholders as such; provided, however, that the foregoing
restriction shall not apply to cash dividends paid on preferred stock or
redemptions of preferred stock so long as no Event of Default has occurred and
is continuing or would occur as the result of payment of any such cash dividends
or redemptions.
Loans and Advances. Borrower shall not make or permit to remain
outstanding any loans or advances to any person or entity, except that the
foregoing restriction shall not apply to:
loans, advances or investments the material details of which have been set
forth in the Financial Statements of Borrower heretofore furnished to Bank or
have otherwise heretofore been disclosed to Bank on Schedule "10" hereto;
advances made, or accounts receivable created in the ordinary course of
Borrower's oil and gas business.
Investments. The Borrower shall not make any non oil and gas investments
in any Person or entity.
Sale or Discount of Receivables. Borrower will not discount or sell with
recourse, or sell for less than the greater of the face or market value thereof,
any of their notes receivable or accounts receivable.
Nature of Business. Borrower will not permit any material change to be
made in the character of their business as carried on at the date hereof.
Hedging Transactions. Borrower will not enter into any transaction or
transactions providing for the hedging, forward sale or swap of crude oil or
natural gas.
Amendment of Articles of Incorporation or Bylaws. Borrower will not permit
any amendment to, or other alteration of, their Articles of Incorporation or
Bylaws.
Sale of Assets. Borrower shall not sell, transfer or otherwise dispose of
any of its assets except for production from oil, gas and mineral property and
other assets sold in the ordinary course of Borrower' business. In the event
any Oil and Gas Properties (other than production sold in the ordinary course of
business) are sold with the prior written consent of the Bank, Borrower shall
pay over to Bank an amount equal to the value attributable of such Oil and Gas
Properties for Borrowing Base purposes; provided, however, that Borrower may
sell up to an aggregate value of $100,000 per year of Oil and Gas Properties and
retain in full all proceeds from such sale or sales.
Transactions with Affiliates. The Borrower will not enter into any
transaction with any of its Affiliates, except transactions upon terms no less
favorable to it than would be obtained in a transaction negotiated at arm's
length with a unrelated third p
arty.
Issuance of Preferred Stock. The Borrower will not issue any additional
preferred stock after the Effective Date without the prior written consent of
the Bank.
Events of Default. Any one or more of the following events shall be
considered an "Event of Default" as that term is used herein:
Borrower shall fail to pay when due or declared due the principal of, and
the interest on, either of the Notes or any fee or any other indebtedness of
Borrower incurred pursuant to this Agreement or any other Security Instrument;
or
Any representation or warranty made by Borrower under this Agreement, or in
any certificate or statement furnished or made to Bank pursuant hereto, or in
connection herewith, or in connection with any document furnished hereunder,
shall prove to be untrue in any material respect as of the date on which such
representation or warranty is made (or deemed made), or any representation,
statement (including Financial Statements), certificate, report or other data
furnished or to be furnished or made by Borrower under any Security Instrument,
including this Agreement, proves to have been untrue in any material respect, as
of the date as of which the facts therein set forth were stated or certified; or
Default shall be made in the due observance or performance of any of the
covenants or agreements of the Borrower contained in the Security Instruments,
including this Agreement (excluding covenants contained in Section 13 of the
Agreement for which there is no cure period), and such default shall continue
for more than thirty (30) days after notice thereof from Bank to Borrower; or
Default shall be made in the due observance or performance of any of the
covenants of the Borrower contained in Section 13 of this Agreement; or
Default shall be made in respect of any obligation for borrowed money,
other than the Notes, for which the Borrower is liable (directly, by assumption,
as guarantor or otherwise), or any obligations secured by any mortgage, pledge
or other security interest, lien, charge or encumbrance with respect thereto, on
any asset or property of the Borrower or in respect of any agreement relating to
any such obligations, and such default shall continue beyond the applicable
grace period, if any; or
The Borrower shall commence a voluntary case or other proceedings seeking
liquidation, reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking an appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, or shall consent
to any such relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced against it, or
shall make a general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due, or shall take any corporate
action or authorizing the foregoing; or
An involuntary case or other proceeding, shall be commenced against the
Borrower seeking liquidation, reorganization or other relief with respect to it
or its debts under any bankruptcy, insolvency or similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator, custodian
or other similar official of it or any substantial part of its property, and
such involuntary case or other proceeding shall remain undismissed and unstayed
for a period of sixty (60) days; or an order for relief shall be entered against
the Borrower under the federal bankruptcy laws as now or hereinafter in effect;
or
A final judgment or order for the payment of money in excess of $200,000.00
(or judgments or orders aggregating in excess of $200,000.00) shall be rendered
against the Borrower and such judgments or orders shall continue unsatisfied and
unstayed for a period of thirty (30) days; or
The aggregate principal amount outstanding under the Revolving Note shall
exceed the Borrowing Base established for the Revolving Note and Borrower shall
fail to either provide additional Collateral or prepay a portion of the
principal of the Revolving Note, in compliance with the provisions of Section
9(b) hereof; or
A Change of Management shall occur.
Upon occurrence of any Event of Default specified in Subsections 14(f) and
(g) hereof, the Revolving Commitment shall terminate and the entire principal
amount due under the Note and all interest then accrued thereon, and any other
liabilities of Borrower hereunder, shall become immediately due and payable all
without notice and without presentment, demand, protest, notice of protest or
dishonor or any other notice of default of any kind, all of which are hereby
expressly waived by Borrower. In any other Event of Default, the Bank may by
notice to Borrower terminate the Revolving Commitment and declare the principal
of, and all interest then accrued on, the Note and any other liabilities
hereunder to be forthwith due and payable, whereupon the same shall forthwith
become due and payable without presentment, demand, protest or other notice of
any kind, all of which Borrower hereby expressly waives, anything contained
herein or in the Note to the contrary notwithstanding. Nothing contained in
this Section shall be construed to limit or amend in any way the Events of
Default enumerated in the Note, or any other document executed in connection
with the transaction contemplated herein.
Upon the occurrence and during the continuance of any Event of Default, the
Bank is hereby authorized at any time and from time to time, without notice to
Borrower (any such notice being expressly waived by Borrower), to set-off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by the Bank to
or for the credit or the account of the Borrower against any and all of the
indebtedness of the Borrower under the Note and the Security Instrument,
including this Agreement, irrespective of whether or not the Bank shall have
made any demand under the Security Instrument, including this Agreement or the
Note and although such indebtedness may be unmatured. Any amount set-off by the
Bank shall be applied against the indebtedness owed the Bank by Borrower
pursuant to this Agreement and the Note. The Bank agrees promptly to notify
Borrower after any such setoff and application, provided that the failure to
give such notice shall not affect the validity of such set-off and application.
The rights of the Bank under this Section are in addition to other rights and
remedies (including, without limitation, other rights of set-off) which the Bank
may have.
Exercise of Rights. No failure to exercise, and no delay in exercising, on
the part of the Bank, any right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right. The rights of the Bank
hereunder shall be in addition to all other rights provided by law. No
modification or waiver of any provision of the Security Agreement, including
this Agreement, or the Note nor consent to departure therefrom, shall be
effective unless in writing, and no such consent or waiver shall extend beyond
the particular case and purpose involved. No notice or demand given in any case
shall constitute a waiver of the right to take other action in the same, similar
or other circumstances without such notice or demand.
Notices. Any notices or other communications required or permitted to be
given by this Agreement or any other documents and instruments referred to
herein must be given in writing (which may be by facsimile transmission) and
must be personally delivered, faxed and confirmed by telephone call, or mailed
by prepaid certified or registered mail to the party to whom such notice or
communication is directed at the address of such party as follows: (a)
Borrower: NATIONAL ENERGY GROUP, INC., 4925 Greenville Avenue, Suite 1400,
Dallas, Texas 75206, Facsimile No. (214) 692-9310, Attention: Miles D. Bender,
President; and (b) BANK: BANK ONE, TEXAS, N.A., 1717 Main Street, Dallas, Texas
75201, Facsimile No. 214-290-2627, Attention: Wm. Mark Cranmer, Assistant
Vice President. Any such notice or other communication shall be deemed to have
been given on the day it is personally delivered as aforesaid or, if mailed, on
the fifth day after it is mailed as aforesaid. Any party may change its address
for purposes of this Agreement by giving notice of such change to the other
party pursuant to this Section.
Expenses. The Borrower shall pay (i) all reasonable and necessary out-of-
pocket expenses of the Bank, including reasonable fees and disbursements of
special counsel for the Bank, in connection with the preparation of this
Agreement, any waiver or consent hereunder or any amendment hereof or any
default or Event of Default or alleged default or Event of Default hereunder,
(ii) all reasonable and necessary out-of-pocket expenses of the Bank, including
reasonable fees and disbursements of special counsel for the Bank in connection
with the preparation of any participation agreement for a participant or
participants requested by Borrower or any amendment thereof and (iii) if a
default or an Event of Default occurs, all reasonable and necessary out-of-
pocket expenses incurred by the Bank, including fees and disbursements of
counsel, in connection with such default and Event of Default and collection and
other enforcement proceedings resulting therefrom. The Borrower shall indemnify
the Bank against any transfer taxes, document taxes, assessments or charges made
by any governmental authority by reason of the execution and delivery of this
Agreement or the Note.
Indemnity. The Borrower agrees to indemnify and hold harmless the Bank and
its respective officers, employees, agents, attorneys and representatives
(singularly, an "Indemnified Party", and collectively, the "Indemnified
Parties") from and against any loss, cost, liability, damage or expense
(including the reasonable fees and out-of-pocket expenses of counsel to the
Bank, including all local counsel hired by such counsel) ("Claim") incurred by
the Bank in investigating or preparing for, defending against, or providing
evidence, producing documents or taking any other action in respect of any
commenced or threatened litigation, administrative proceeding or investigation
under any federal securities law, federal or state environmental law, or any
other statute of any jurisdiction, or any regulation, or at common law or
otherwise, which is alleged to arise out of or is based upon any acts, practices
or omissions or alleged acts, practices or omissions of the Borrower or its
agents or arises in connection with the duties, obligations or performance of
the Indemnified Parties in negotiating, preparing, executing, accepting,
keeping, completing, countersigning, issuing, selling, delivering, releasing,
assigning, handling, certifying, processing or receiving o
r taking any other action with respect to the Loan Documents and all documents,
items and materials contemplated thereby even if any of the foregoing arises out
of an Indemnified Party's ordinary negligence. The indemnity set forth herein
shall be in addition to any other obligations or liabilities of the Borrower to
the Bank hereunder or at common law or otherwise, and shall survive any
termination of this Agreement, the expiration of the Loan and the payment of all
indebtedness of the Borrower to the Bank hereunder and under the Note, provided
that the Borrower shall have no obligation under this Section to the Bank with
respect to any of the foregoing arising out of the gross negligence or willful
misconduct of the Bank. If any Claim is asserted against any Indemnified Party,
the Indemnified Party shall endeavor to notify the Borrower of such Claim (but
failure to do so shall not affect the indemnification herein made except to the
extent of the actual harm caused by such failure). The Indemnified Party shall
have the right to employ, at the Borrower' expense, counsel of the Indemnified
Parties' choosing and to control the defense of the Claim. The Borrower may at
its own expense also participate in the defense of any Claim. Each Indemnified
Party may employ separate counsel in connection with any Claim to the extent
such Indemnified Party believes it reasonably prudent to protect such
Indemnified Party. The parties intend for the provisions of this Section to
apply to and protect each Indemnified Party from the consequences of its own
negligence, whether or not that negligence is the sole, contributing, or
concurring cause of any Claim.
Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future laws effective during
the term of this Agreement, such provisions shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part of this Agreement, and the
remaining provisions of the Agreement shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable provision or by
its severance from this Agreement.
Maximum Interest Rate. Regardless of any provisions contained in this
Agreement or in any other documents and instruments referred to herein, the Bank
shall never be deemed to have contracted for or be entitled to receive, collect
or apply as interest on the Note any amount in excess of the maximum rate of
interest permitted to be charged by applicable law, and in the event the Bank
ever receives, collects or applies as interest any such excess, or if
acceleration of the maturities of the Note or if any prepayment by Borrower
results in Borrower having paid any interest in excess of the maximum rate, such
amount which would be excessive interest shall be applied to the reduction of
the unpaid principal balance of the Note for which such excess was received,
collected or applied, and, if the principal balance of the Note is paid in full,
any remaining excess shall forthwith be paid to Borrower. All sums paid or
agreed to be paid to the Bank for the use, forbearance or detention of the
indebtedness evidenced by the Note and/or this Agreement shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of such indebtedness until payment in full so that the
rate or amount of interest on account of such indebtedness does not exceed the
maximum lawful rate permitted under applicable law. In determining whether or
not the interest paid or payable under any specific contingency exceeds the
maximum rate of interest permitted by law, Borrower and the Bank shall, to the
maximum extent permitted under applicable law, (i) characterize any non-
principal payment as an expense, fee or premium, rather than as interest; and
(ii) exclude voluntary prepayments and the effect thereof; and (iii) compare the
total amount of interest contracted for, charged or received with the total
amount of interest which could be contracted for, charged or received throughout
the entire contemplated term of the Note at the maximum lawful rate under
applicable law.
Amendments. This Agreement may be amended only by an instrument in writing
executed by an authorized officer of the party against whom such amendment is
sought to be enforced.
Multiple Counterparts. This Agreement may be executed in a number of
identical separate counterparts, each of which for all purposes is to be deemed
an original, but all of which shall constitute, collectively, one agreement. No
party to this Agreement shall be bound hereby until a counterpart of this
Agreement has been executed by all parties hereto.
Conflict. In the event any term or provision hereof is inconsistent with
or conflicts with any provision of the Security Instruments, the terms or
provisions contained in this Agreement shall be controlling.
Survival. All covenants, agreements, undertakings, representations and
warranties made in the Security Instruments, including this Agreement, the Note
or other documents and instruments referred to herein shall survive all closings
hereunder and shall not be affected by any investigation made by any party.
Parties Bound. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors, assigns, heirs,
legal representatives and estates, provided, however, that Borrower may not,
without the prior written consent of the Bank, assign any rights, powers, duties
or obligations hereunder.
Participations. The Bank shall have the right at any time and from time to
time to sell one or more participations in the Note or any Advance thereunder.
To the extent of any such participation the provisions of this Agreement shall
inure to the benefit of, and be binding on, each participant, including, but not
limited to, any indemnity from Borrower to the Bank. The Borrower shall have no
obligation or liability to and no obligation to negotiate or confer with, any
participant, and Borrower shall be entitled to treat the Bank as the sole owner
of the Note without regard to notice or actual knowledge of any such
participation. Upon the occurrence of a default or an Event of Default, each
participant will have and is hereby granted the right to setoff against and to
appropriate and apply from time to time, without prior notice to the Borrower or
any other party, any such notice being hereby expressly waived, any and all
deposits (general or special or other indebtedness or claims, direct or
indirect, contingent or otherwise), at any time held or owing by the participant
to or for the credit or account of Borrower against the payment of any such
participant's pro rata interest in the Note and any other obligations of the
Borrower hereunder, provided, however, none of the rights granted in this
Section shall apply to any deposits held by any participant constituting trust
funds and so identified to such participant at the time the applicable deposit
account is created. Within five (5) Business Days after such setoff or
appropriation by a participant, that participant shall give Borrower and Bank
written notice thereof. However, a failure to give such notice will not affect
the validity of this setoff or appropriation.
Financial Terms. All accounting terms used in the Agreement which are not
specifically defined herein shall be construed in accordance with GAAP.
Governing Law. THIS AGREEMENT IS BEING EXECUTED AND DELIVERED, AND IS
INTENDED TO BE PERFORMED, IN DALLAS, TEXAS, AND THE SUBSTANTIVE LAWS OF TEXAS
SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF THIS
AGREEMENT AND ALL OTHER DOCUMENTS AND INSTRUMENTS REFERRED TO HEREIN, UNLESS
OTHERWISE SPECIFIED THEREIN.
Choice of Forum: Consent to Service of Process and Jurisdiction. THE
OBLIGATIONS OF BORROWER UNDER THE LOAN DOCUMENTS ARE PERFORMABLE IN DALLAS
COUNTY, TEXAS. ANY SUIT, ACTION OR PROCEEDING AGAINST BORROWER WITH RESPECT TO
THE LOAN DOCUMENTS OR ANY JUDGMENT ENTERED BY ANY COURT IN RESPECT THEREOF, MAY
BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS, COUNTY OF DALLAS, OR IN THE
UNITED STATES COURTS LOCATED IN DALLAS, TEXAS AND BORROWER HEREBY SUBMIT TO THE
NON-EXCLUSIVE JURISDICTION OF SUCH COURTS FOR THE PURPOSE OF ANY SUCH SUIT,
ACTION OR PROCEEDING. BORROWER HEREBY IRREVOCABLY CONSENTS TO SERVICE OF
PROCESS IN ANY SUIT, ACTION OR PROCEEDING IN SAID COURT BY THE MAILING THEREOF
BY BANK BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO BORROWER, AS
APPLICABLE, AT THE ADDRESS FOR NOTICES AS PROVIDED IN SECTION 16. BORROWER
HEREBY IRREVOCABLY WAIVE ANY OBJECTION WHICH THEY MAY NOW OR HEREAFTER HAVE TO
THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO ANY LOAN DOCUMENT BROUGHT IN THE COURTS LOCATED IN THE STATE OF TEXAS, COUNTY
OF DALLAS, AND HEREBY FURTHER IRREVOCABLY WAIVE ANY CLAIM THAT ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
Other Agreements. THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
BORROWER:
NATIONAL ENERGY GROUP, INC.
a Delaware corporation
By:
Miles D. Bender, President
BANK:
BANK ONE, TEXAS, N.A.,
a national banking association
By:
Wm. Mark Cranmer, Assistant Vice President
EXHIBIT "A"
NOTICE OF BORROWING
The undersigned hereby certifies that he is the President of NATIONAL
ENERGY GROUP, INC., a Delaware corporation ("Borrower"), and that as such he is
authorized to execute this Notice of Borrowing on behalf of Borrower. With
reference to that certain Loan Agreement dated as of June 30, 1995 (as same may
be amended, modified, increased, supplemented and/or restated from time to time,
the "Agreement") entered into by and between Borrower and BANK ONE, TEXAS, N.A.
("Bank One"), the undersigned further certifies, represents and warrants on
behalf of Borrower that all of the foregoing statements are true and correct
(each capitalized term used herein having the same meaning given to it in the
Agreement unless otherwise specified):
(a) Borrower requests that the Bank advance Borrower on (i) the
Revolving Loan __, or (ii) the Advance Loan __ [check one], the aggregate sum of
$________________ by no later than __________________. Immediately following
such Advance, the aggregate outstanding balance of Advances shall equal
$_________________ or the Revolving Loan and $__________________ on the Advance
Loan.
(b) As of the date hereof, and as a result of the making of the
requested Advance, there does not and will not exist any Default or Event of
Default.
(c) Borrower has performed and complied with all agreements and
conditions contained in the Agreement which are required to be performed or
complied with by Borrower before or on the date hereof.
(d) The representations and warranties contained in the Agreement are
true and correct in all material respects as of the date hereof and shall be
true and correct upon the making of the Advance, with the same force and effect
as though made on and as o
f the date hereof and thereof.
(e) No change that would cause a Material Adverse Effect to the
condition, financial or otherwise, of Borrower has occurred since the most
recent Financial Statement provided to the Banks.
EXECUTED AND DELIVERED this _____ day of ___________, 199__.
NATIONAL ENERGY GROUP, INC.
By:
EXHIBIT "B"
REVOLVING NOTE
$30,000,000.00 Dallas, Texas June 30, 1995
FOR VALUE RECEIVED, the undersigned NATIONAL ENERGY GROUP, INC., a Delaware
corporation (referred to herein as "Borrower") hereby unconditionally promises
to pay to the order of BANK ONE, TEXAS, N.A., a national banking association
(referred to herein as "Bank"), at its banking offices in Dallas County, Texas,
the principal sum of THIRTY MILLION AND No/100 DOLLARS ($30,000,000.00), or so
much thereof as may be advanced and outstanding to or for the benefit of
Borrower by Bank pursuant to the Loan Agreement (as hereinafter defined), in
lawful money of the United States of America together with interest from the
date hereof until paid at the rates specified in the Loan Agreement. All
payments of principal and interest due hereunder are payable at the offices of
Bank at 1717 Main Street, 4th Floor, Bank One Center, P.O. Box 655415, Dallas,
Texas 75265-5415, attention: Energy Department, or at such other address as
Bank shall designate in writing to Borrower.
The principal and all accrued interest on this Note shall be due and
payable in accordance with the terms and provisions of the Loan Agreement.
This Note is executed pursuant to that certain Loan Agreement dated of even
date herewith between Borrower and Bank (the "Loan Agreement"), and is the
Revolving Note referred to therein. This Note is secured by certain Security
Instruments (as such term is defined in the Loan Agreement) of even date
herewith between Borrower and Bank. Reference is made to the Loan Agreement and
the Security Instruments for a statement of prepayment, rights and obligations
of Borrower, description of the properties mortgaged and assigned, the nature
and extent of such security and the rights of the parties under the Security
Instruments in respect to such security and for a statement of the terms and
conditions under which the due date of this Note may be accelerated. Upon the
occurrence of an Event of Default, as that term is defined in the Loan Agreement
and Security Instruments, the holder hereof (i) may declare forthwith to be
entirely and immediately due and payable the principal balance hereof and the
interest accrued hereon, and (ii) shall have all rights and remedies of the Bank
under the Loan Agreement and Security Instruments. This Note may be prepaid at
any time in full or in part without any premium or fee in accordance with the
terms and provisions of the Loan Agreement.
Regardless of any provision contained in this Note, the holder hereof shall
never be entitled to receive, collect or apply, as interest on this Note, any
amount in excess of the Maximum Rate (as such term is defined in the Loan
Agreement), and, if the holder hereof ever receives, collects, or applies as
interest, any such amount which would be excessive interest, it shall be deemed
a partial prepayment of principal and treated hereunder as such; and, if the
indebtedness evidenced hereby is paid in full, any remaining excess shall
forthwith be paid to Borrower. In determining whether or not the interest paid
or payable, under any specific contingency, exceeds the Maximum Rate, Borrower
and the holder hereof shall, to the maximum 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) spread the total amount of interest throughout the entire
contemplated ter
m of the obligations evidenced by this Note and/or referred to in the Loan
Agreement so that the interest rate is uniform throughout the entire term of
this Note; provided that, if this Note is paid and performed in full prior to
the end of the full contemplated term thereof and if the interest received for
the actual period of existence thereof exceeds the Maximum Rate, the holder
hereof shall refund to Borrower the amount of such excess or credit the amount
of such excess against the indebtedness evidenced hereby, and, in such event,
the holder hereof shall not be subject to any penalties provided by any laws for
contracting for, charging, taking, reserving or receiving interest in excess of
the Maximum Rate.
If any payment of principal or interest on this Note shall become due on a
Saturday, Sunday or public holiday or while the Bank is not open for business,
such payment shall be made on the next succeeding business day and such
extension of time shall in such case be included in computing interest in
connection with such payment.
If this Note is placed in the hands of an attorney for collection, or if it
is collected through any legal proceeding at law or in equity or in bankruptcy,
receivership or other court proceedings, Borrower agrees to pay all costs of
collection, including, but not limited to, court costs and reasonable attorneys'
fees.
Borrower and each surety, endorser, guarantor and other party ever liable
for payment of any sums of money payable on this Note, jointly and severally
waive presentment and demand for payment, notice of intention to accelerate the
maturity, notice of acceleration of the maturity, protest, notice of protest and
nonpayment, as to this Note and as to each and all installments hereof, and
agree that their liability under this Note shall not be affected by any renewal
or extension in the time of payment hereof, or in any indulgences, or by any
release or change in any security for the payment of this Note, and hereby
consent to any and all renewals, extensions, indulgences, releases or changes.
This Note shall be governed by and construed in accordance with the
applicable laws of the United States of America and the laws of the State of
Texas, except that Tex. Rev. Civ. Stat. Ann. art. 5069, Chapter 15 (which
regulates certain revolving credit loan accounts and revolving tri-party
accounts) shall not apply to this Note.
THIS WRITTEN NOTE, THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENTS BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN
ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED as of the 30th day of June, 1995.
BORROWER:
NATIONAL ENERGY GROUP, INC.
a Delaware corporation
By:
Miles D. Bender, President
EXHIBIT "C"
ADVANCE NOTE
$3,000,000.00 Dallas, Texas June 30, 1995
FOR VALUE RECEIVED, the undersigned NATIONAL ENERGY GROUP, INC., a Delaware
corporation (referred to herein as "Borrower") hereby unconditionally promises
to pay to the order of BANK ONE, TEXAS, N.A., a national banking association
(referred to herein as "Bank"), at its banking offices in Dallas County, Texas,
the principal sum of THREE MILLION AND No/100 DOLLARS ($3,000,000.00), or so
much thereof as may be advanced to or for the benefit of Borrower by Bank
pursuant to the Loan Agreement (as hereinafter defined) in lawful money of the
United States of America together with interest from the date hereof until paid
at the rates specified in the Loan Agreement. All payments of principal and
interest due hereunder are payable at the offices of Bank at 1717 Main Street,
4th Floor, Bank One Center, P.O. Box 655415, Dallas, Texas 75265-5415,
attention: Energy Department, or at such other address as Bank shall designate
in writing to Borrower.
The principal and all accrued interest on this Note shall be due and
payable in accordance with the terms and provisions of the Loan Agreement.
This Note is executed pursuant to that certain Loan Agreement dated of even
date herewith between Borrower and Bank (the "Loan Agreement"), and is the
Advance Note referred to therein. This Note is secured by certain Security
Instruments (as such term is defined in the Loan Agreement) of even date
herewith between Borrower and Bank. Reference is made to the Loan Agreement and
the Security Instruments for a statement of prepayment, rights and obligations
of Borrower, description of the properties mortgaged and assigned, the nature
and extent of such security and the rights of the parties under the Security
Instruments in respect to such security and for a statement of the terms and
conditions under which the due date of this Note may be accelerated. Upon the
occurrence of an Event of Default, as that term is defined in the Loan Agreement
and Security Instruments, the holder hereof (i) may declare forthwith to be
entirely and immediately due and payable the principal balance hereof and the
interest accrued hereon, and (ii) shall have all rights and remedies of the Bank
under the Loan Agreement and Security Instruments. This Note may be prepaid at
any time in full or in part without any premium or fee in accordance with the
terms and provisions of the Loan Agreement.
Regardless of any provision contained in this Note, the holder hereof shall
never be entitled to receive, collect or apply, as interest on this Note, any
amount in excess of the Maximum Rate (as such term is defined in the Loan
Agreement), and, if the holder hereof ever receives, collects, or applies as
interest, any such amount which would be excessive interest, it shall be deemed
a partial prepayment of principal and treated hereunder as such; and, if the
indebtedness evidenced hereby is paid in full, any remaining excess shall
forthwith be paid to Borrower. In determining whether or not the interest paid
or payable, under any specific contingency, exceeds the Maximum Rate, Borrower
and the holder hereof shall, to the maximum 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) spread the total amount of interest throughout the entire
contemplated ter
m of the obligations evidenced by this Note and/or referred to in the Loan
Agreement so that the interest rate is uniform throughout the entire term of
this Note; provided that, if this Note is paid and performed in full prior to
the end of the full contemplated term thereof; and if the interest received for
the actual period of existence thereof exceeds the Maximum Rate, the holder
hereof shall refund to Borrower the amount of such excess or credit the amount
of such excess against the indebtedness evidenced hereby, and, in such event,
the holder hereof shall not be subject to any penalties provided by any laws for
contracting for, charging, taking, reserving or receiving interest in excess of
the Maximum Rate.
If any payment of principal or interest on this Note shall become due on a
Saturday, Sunday or public holiday or while the Bank is not open for business,
such payment shall be made on the next succeeding business day and such
extension of time shall in such case be included in computing interest in
connection with such payment.
If this Note is placed in the hands of an attorney for collection, or if it
is collected through any legal proceeding at law or in equity or in bankruptcy,
receivership or other court proceedings, Borrower agrees to pay all costs of
collection, including, but not limited to, court costs and reasonable attorneys'
fees.
Borrower and each surety, endorser, guarantor and other party ever liable
for payment of any sums of money payable on this Note, jointly and severally
waive presentment and demand for payment, notice of intention to accelerate the
maturity, notice of acceleration of the maturity, protest, notice of protest and
nonpayment, as to this Note and as to each and all installments hereof, and
agree that their liability under this Note shall not be affected by any renewal
or extension in the time of payment hereof, or in any indulgences, or by any
release or change in any security for the payment of this Note, and hereby
consent to any and all renewals, extensions, indulgences, releases or changes.
This Note shall be governed by and construed in accordance with the
applicable laws of the United States of America and the laws of the State of
Texas, except that Tex. Rev. Civ. Stat. Ann. art. 5069, Chapter 15 (which
regulates certain revolving credit loan accounts and revolving tri-party
accounts) shall not apply to this Note.
THIS WRITTEN NOTE, THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENTS BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN
ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED as of the 30th day of June, 1995.
BORROWER:
NATIONAL ENERGY GROUP, INC.
a Delaware corporation
By:
Miles D. Bender, President
EXHIBIT "D"
CERTIFICATE OF COMPLIANCE
The undersigned hereby certifies that he is the ___________ of NATIONAL
ENERGY GROUP, INC., a Delaware corporation (the "Company"), and that as such he
is authorized to execute this Certificate of Compliance on behalf of the
Company. With reference to that certain Loan Agreement, dated as of June 30,
1995 (as same may be amended, modified, increased, supplemented and/or restated
from time to time, the "Agreement") entered into between Company and BANK ONE,
TEXAS, N.A., a national banking association ("Bank"), the undersigned further
certifies, represents and warrants on behalf of the Company that all of the
following statements are true and correct (each capitalized term used herein
having the same meaning given to it in the Agreement unless otherwise
specified):
(a) The Company has fulfilled in all material respects its
obligations under the Note and Security Instruments, including the Loan
Agreement, and all representations and warranties made herein and therein
continue (except to the extent they relate solely to an earlier date) to be true
and correct in all material respects [if the representations and warranties are
not true and correct, the party signing this certificate shall except from the
foregoing statement the matters for which such representations and warranties
are no longer true specifying the nature of any such change.]
(b) No Event of Default has occurred under the Security Instruments,
including the Loan Agreement [if an Event of Default has occurred, the party
certifying hereto shall specify the facts constituting the Event of Default and
the nature and status there
of].
(c) To the extent requested from time to time by the Bank, the
certifying party shall specifically affirm compliance of the Company in all
material respects with any of its representations and warranties (except to the
extent they relate solely to an earlier date) or obligations under said
instruments.
(d) Financial Computations (provide calculation):
(i) Current Ratio;
(ii) Debt Service Ratio;
(iii) Total Liabilities to Total Equities; and
(iv) Total Bank Debt (year-end only).
EXECUTED, DELIVERED AND CERTIFIED TO this ____ day of _____, 19__.
NATIONAL ENERGY GROUP, INC.
By:
Name:
Title:
SCHEDULE 1
PERMITTED LIENS
NONE
SCHEDULE 2
FINANCIAL CONDITION
NONE
SCHEDULE 3
LIABILITIES
NONE
SCHEDULE 4
LITIGATION
NONE
SCHEDULE 5
ENVIRONMENTAL MATTERS
NONE
SCHEDULE 6
TITLE MATTERS
Provide title opinions or title information for the following:
Hargis No. 1, Eddy County, New Mexico
Verna Roberts #1, Ellis County, Oklahoma
Adobe Goldsmith Unit, Ector County, Texas
Tweedy A. Lease, Irion County, Texas
Spears Lease, Young County, Texas
Marianne - Madex Fed. #13-1, Sweetwater County, Wyoming
Verna Roberts #2, Ellis County, Oklahoma
Morgan No. 3, Major County, Oklahoma
SL 901 S, Nueces County, Texas
Gladney Gas Unit #1 (Upper and Lower), Rusk County, Texas
Gladney Gas Unit #2, Rusk County, Texas
Gladney Gas Unit #3, Rusk County, Texas
Gladney Gas Unit #4, Rusk County, Texas
Shelton No. 1, Rusk County, Texas
McHaney No. 1, Rusk County, Texas
Willow Lake #15-1, Eddy County, New Mexico
SCHEDULE 7
CURATIVE MATTERS
NONE
SCHEDULE 8
DEBTS, GUARANTIES AND OTHER OBLIGATIONS
NONE
SCHEDULE 9
LOANS AND ADVANCES
NONE
STOCK PURCHASE AGREEMENT
Dated as of June 14, 1995
By and Among
National Energy Group, Inc.
and
Arbco Associates L.P., Offense Group Associates L.P., Kayne, Anderson
Nontraditional Investments L.P., Opportunity Associates L.P.
TABLE OF CONTENTS
Article Page
1 - DEFINITIONS 1
1.1 Certain Defined Terms 1
1.2 Accounting Terms 4
1.3 References to Instruments 4
1.4 Singular and Plural 4
2 - PURCHASE AND SALE OF STOCK 4
2.1 Issuance, Sale and Purchase 4
2.2 Deliveries of the Company 4
2.3 Deliveries of Purchasers 5
2.4 Taking of Necessary Action 5
2.5 Legend. 5
3 - REGISTRATION RIGHTS 5
3.1 Shelf Registration 5
3.2 Piggy-Back Registration 6
3.3 Registration Procedures 7
3.4 Registration Expenses 10
3.5 Indemnification; Contribution 10
3.6 Participation in Underwritten Registrations 14
3.7 Rule 144 14
4 - REPRESENTATIONS AND WARRANTIES OF THE COMPANY 14
4.1 Organization 14
4.2 Authority 14
4.3 Authorization 14
4.4 Binding Agreement 15
4.5 No Conflicts 15
4.6 Capitalization 15
4.7 Valid Issuance 16
4.8 Absence of Bankruptcy Proceedings 16
4.9 Brokers 16
4.10 Financial Statements 16
4.11 No Material Adverse Change 16
4.12 Commission Documents 16
4.13 Properties 17
4.14 Registration Rights 17
4.15 Offering 17
4.16 No Defaults 18
4.17 Litigation 18
4.18 Compliance with Laws 18
4.19 Taxes 18
4.20 ERISA 18
4.21 Compliance with Environmental Laws 19
5 - REPRESENTATIONS AND WARRANTIES
OF PURCHASERS 19
5.1 Organization 19
5.2 Authority 19
5.3 Authorization 20
5.4 Binding Agreement 20
5.5 No Conflicts 20
5.6 Absence of Bankruptcy Proceedings 20
5.7 No Brokers 20
5.8 Accredited Investor, Etc. 20
5.9 Information Available 21
6 - CONDITIONS 21
6.1 The Company's Conditions 21
6.2 Purchasers' Conditions 22
7 - MISCELLANEOUS 22
7.1 Survival of Representations and Warranties 22
7.2 Indemnification 23
7.3 Public Announcements 23
7.4 Antitrust Laws 23
7.5 Notices 23
7.6 Expenses 24
7.7 Entire Agreement 24
7.8 Governing Law 24
7.9 Counterparts 24
7.10 Waiver 24
7.11 Binding Effect; Assignment 25
7.12 Brokers 25
7.13 Construction 25
Schedule A Purchased Shares
Exhibit A Certificate of Designation
Exhibit B Opinion of Randall A. Carter, General Counsel
STOCK PURCHASE AGREEMENT
THIS AGREEMENT (this "Agreement"), dated as of the 14th day of June, 1995,
is by and among National Energy Group, Inc., a Delaware corporation (the
"Company"),and each Person whose name appears on the signature page hereof as a
purchaser (collectively, "Purchasers").
W I T N E S S E T H:
WHEREAS, the Company desires to issue and sell to each Purchaser, and each
Purchaser desires to purchase from the Company, in the amount indicated opposite
such Purchaser's name on Schedule A hereto, shares of the Company's authorized
but unissued 10r% Cumulative Convertible Preferred Stock, Series C, par value
$1.00 per share (the "Preferred Stock"), which shares shall have such rights,
preferences, privileges and restrictions as set forth in the Certificate of
Designation of 10r% Cumulative Convertible Preferred Stock, Series C of the
Company attached hereto as Exhibit A (the "Certificate of Designation"), which
rights include, subject to certain conditions, the right to convert the
Preferred Stock into shares of Class A Common Stock, par value $.01 per share,
of the Company ("Common Stock"); and
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties set forth in this Agreement, the parties to this
Agreement hereby agree as follows:
- DEFINITIONS
Certain Defined Terms. The following terms, as used in this Agreement,
shall have the following meanings:
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
the rules and regulations thereunder as in effect on the date hereof.
"Commission Documents" shall have the meaning assigned to that term in
Section 4.12.
"EnCap Agreement" shall mean that certain credit agreement dated as of
June 1, 1994 between Texas Gas Fund I and the Company, as amended.
"Environmental Laws" shall be as defined in Section 4.21.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, or any
successor statute, as at the time in effect. Reference to a particular section
of such Act shall include a reference to the comparable section, if any, of such
successor statute.
"Financial Statements" shall mean the financial statements of the
Company and its consolidated subsidiaries, including the notes thereto, as of
and for the year ended December 31, 1994 and as of and for the three months
ended March 31, 1995.
"Form 10-K" shall mean the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1994.
"GAAP" shall mean generally accepted accounting principles, as set
forth in the opinions of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements of the Financial
Accounting Standards Board or in such opinions and statements of such other
entities as shall be approved by a significant segment of the accounting
profession in the United States of America.
"Governmental Authority" shall mean (i) the United States of America
or any state within the United States of America and (ii) any court or any
governmental department, commission, board, bureau, agency or other
instrumentality of the United States of America or of any state within the
United States of America.
"Holder" means the Purchasers and any other holder from time to time
of Preferred Stock (other than the Company or any Subsidiary).
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"Inspectors" shall be as defined in Section 3.3(g).
"Law" shall mean any applicable statute, law, ordinance, regulation,
rule, ruling, order, restriction, requirement, writ, injunction, decree or other
official act of or by any Governmental Authority.
"Material Adverse Effect" with respect to a Person shall mean a
material and adverse effect on the financial condition, results of operations,
business or properties of such Person and its consolidated subsidiaries, taken
as a whole.
"Person" shall mean an individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization, a limited liability
company, a government or any department or agency of a government.
"Pollutants" shall be as defined in Section 4.21.
"Purchase Price" shall be as defined in Section 2.1.
"Records" shall be as defined in Section 3.3(g).
"Registrable Securities" means (i) any Common Stock issued or issuable
upon the conversion of the Preferred Stock, and (ii) any Common Stock issued as,
or issuable upon the conversion or exercise of any warrant, option, right or
other security that is issued or issuable as, a dividend or other distribution
with respect to, or in exchange for, or in replacement of, the Preferred Stock.
"Registration Expenses" shall be as defined in Section 3.4.
"Releases" shall be as defined in Section 4.21.
"SEC" shall mean the United States Securities and Exchange Commission
or any successor agency.
"Securities Act" shall mean the Securities Act of 1933, or any
successor statute, as at the time in effect. Reference to a particular section
of such Act shall include a reference to the comparable section, if any, of such
successor statute.
"Selling Holder" shall mean a holder of Registrable Securities who is
selling such Registrable Securities pursuant to a registration statement.
"Shares" shall be as defined in Section 2.1.
"Shelf Registration Statement" shall be as defined in Section 3.1(a).
"Subsidiary" means (a) a corporation a majority of whose voting stock
is at the time, directly or indirectly, owned by the Company, by one or more
subsidiaries of the Company or by the Company and one or more subsidiaries of
the Company or (b) any other Person (other than a corporation) in which the
Company, a subsidiary of the Company or the Company and one or more subsidiaries
of the Company, directly or indirectly, at the date of determination thereof,
has (I) at least a majority ownership or (ii) the power to elect or direct the
election of a majority of the directors or other governing body of such Person.
Accounting Terms. For the purposes of this Agreement, all accounting terms
not otherwise defined in this Agreement shall have the meanings assigned to such
terms in accordance with GAAP.
References to Instruments. Unless the context otherwise indicates,
references in this Agreement to a particular section, exhibit or schedule are to
the corresponding section of, or the corresponding exhibit or schedule to, this
Agreement.
Singular and Plural. The definitions contained in Section 1.1 are equally
applicable to both the singular and plural form of the terms defined in such
Section.
- PURCHASE AND SALE OF STOCK
Issuance, Sale and Purchase. The Company hereby issues and sells to each
Purchaser, and each Purchaser hereby purchases from the Company, the number of
shares of Preferred Stock (the "Shares") listed on Schedule A at a purchase
price of $100.00 per Share. The aggregate purchase price that shall be payable
by Purchasers to the Company for the Shares is $4,000,000 (the "Purchase
Price").
Deliveries of the Company. The Company delivers herewith the following:
(a) Certificates representing the Shares, each such certificate
executed by the Company's President and Secretary or Assistant Secretary and
appropriately registered in the name of each Purchaser;
(b) A certificate of the Secretary or the Assistant Secretary of the
Company certifying, among other things, as to the due authorization of the
transactions contemplated hereby;
(c) The legal opinion of Randall A. Carter, General Counsel to the
Company, substantially in the form attached hereto as Exhibit B;
(d) Certificates of existence and good standing for the Company in
the jurisdiction of its incorporation and each jurisdiction in which it is
qualified or licensed to do business and own material assets;
(e) A copy of any required written consent and waiver to the
transactions contemplated hereby executed by the third party or appropriate
Governmental Authority; and
(f) Evidence satisfactory to Purchasers of the filing of the
Certificate of Designation with the Secretary of State of the State of Delaware.
Deliveries of Purchasers. Purchasers hereby deliver to the Company the
following:
(a) The Purchase Price in immediately available funds to the Company
as provided in Section 2.1; and
(b) Counterparts of this Agreement duly executed by each Purchaser.
Taking of Necessary Action. Subject to the terms and conditions of this
Agreement and to applicable law, each of the parties to this Agreement shall use
all reasonable efforts promptly to take or cause to be taken all action and
promptly to do or cause to be done all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement.
Legend. Each Purchaser agrees that each certificate, if any, evidencing
Shares to be issued to the Purchaser by the Company shall bear a legend
concerning the restrictions on transfer of such Shares in substantially the
following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED OR QUALIFIED
UNDER THE SECURITIES ACT OF 1933 AS AMENDED OR ANY APPLICABLE STATE SECURITIES
LAWS AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED OR QUALIFIED UNDER SAID ACT AND ALL
APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM SUCH REGISTRATION OR
QUALIFICATION IS AVAILABLE AND SUCH OFFER, SALE, TRANSFER, PLEDGE OR
HYPOTHECATION DOES NOT VIOLATE THE PROVISIONS OF THE ACT OR APPLICABLE LAWS.
- REGISTRATION RIGHTS
Shelf Registration.
(a) The Company shall, as expeditiously as reasonably possible, but,
in any event, within 45 days of the date hereof, prepare and file with the SEC a
shelf registration statement (the "Shelf Registration Statement") on an
appropriate form pursuant to Rule 415 (or any similar provision that may be
adopted by the SEC) under the Securities Act with respect to the Registrable
Securities.
(b) The Company agrees to use its best efforts to have the Shelf
Registration Statement declared effective as soon as practicable after the
filing thereof and to keep the Shelf Registration Statement continuously
effective until such time as all of the Registrable Securities can be resold
pursuant to Rule 144(k) under the Securities Act (or any successor provision).
Further, the Company shall maintain the quotation of the Common Stock on the
Nasdaq/Small Cap quotation service or the Nasdaq Stock Market or a listing with
a national securities exchange.
(c) Notwithstanding any other provisions of this Agreement to the
contrary, the Company shall cause the Shelf Registration Statement and the
related prospectus and any amendment or supplement thereto, as of the effective
date of the Shelf Registration Statement, amendment or supplement, as the case
may be (i) to comply in all material respects with the applicable requirements
of the Securities Act and the rules and regulations of the SEC and (ii) not to
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading other than statements or omissions made in reliance upon and in
conformity with information furnished to the Company in writing by the holders
of Registrable Securities expressly for use in such Shelf Registration Statement
and the related prospectus or any amendment or supplement thereto.
Piggy-Back Registration.
(a) If at any time the Company proposes to file a registration
statement under the Securities Act with respect to a firm commitment
underwritten offering by the Company whether or not for sale for its own account
(other than a registration statement on Form S-4 or S-8 (or any substitute form
for comparable purposes that may be adopted by the SEC) or a registration
statement filed in connection with an exchange offer or an offering of
securities solely to the Company's existing security holders), then the Company
shall in each such case give written notice of such proposed filing to the
holders of Registrable Securities as soon as practicable (but in no event less
than 10 days before the anticipated filing date), and such notice shall offer
such holders of Registrable Securities the opportunity to register such
Registrable Securities and such number of shares of Registrable Securities as
each such holder may request.
(b) The Company shall use its best efforts to cause the managing
underwriter or underwriters of a proposed underwritten offering to permit the
Registrable Securities requested to be included in the registration statement
for such offering to be included on the same terms and conditions as any similar
securities of the Company or of any selling stockholder included therein.
Notwithstanding the foregoing, if the managing underwriter or underwriters of
such offering deliver a written notice to the holders of such Registrable
Securities that either because of (i) the kind of securities which such holders,
the Company and any other persons or entities intend to include in such offering
or (ii) the size of the offering which the holders of Registrable Securities,
the Company and such other persons intend to make, the success of the offering
would be materially and adversely affected by inclusion of the Registrable
Securities requested to be included, then (a) in the event that the size of the
offering is the basis of such managing underwriter's opinion, the amount of
securities to be offered for the accounts of holders of Registrable Securities
shall be reduced pro rata to the extent necessary to reduce the total amount of
securities to be included in such offering to the amount recommended by such
managing underwriter or underwriters; provided that if securities are being
offered for the account of other persons or entities as well as the Company, the
proportion by which the amount of such class of securities intended to be
offered by holders of Registrable Securities is reduced shall not exceed the
proportion by which the amount of such class of securities intended to be
offered by such other persons or entities is reduced; and (b) in the event that
the combination of securities to be offered is the basis of such managing
underwriter's opinion, (x) the Registrable Securities to be included in such
offering shall be reduced as described in clause (a) above (subject to the
proviso in clause (a)) or, (y) if the actions described in clause (x) would, in
the judgment of the managing underwriter, be insufficient to substantially
eliminate the adverse effect that inclusion of the Registrable Securities
requested to be included would have on such offering, such Registrable
Securities will be excluded from such offering.
Registration Procedures. In connection with any registration pursuant to
Section 3.1 or Section 3.2 hereof, the following provisions shall apply:
(a) The Company shall (i) prior to filing the Shelf Registration
Statement or any other registration statement registering Registrable Securities
(a "Registration Statement") or prospectus or any amendments or supplements
thereto, furnish to one counsel selected by the holders of a majority in
aggregate principal amount or number of shares, as the case may be, of the
Registrable Securities covered by such Registration Statement copies of all such
documents proposed to be filed, which documents will be subject to the
reasonable review of such counsel and (ii) as soon as reasonably possible,
furnish to each Selling Holder, prior to filing a Registration Statement, copies
of such Registration Statement as proposed to be filed, and thereafter furnish
to such Selling Holder such number of copies of such Registration Statement,
each amendment and supplement thereto (in each case including all exhibits
thereto), the prospectus included in such Registration Statement (including each
preliminary prospectus) and such other documents as such Selling Holder may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such Selling Holder;
(b) The Company shall notify the holders of Registrable Securities in
writing:
(i) when the Registration Statement and any amendment thereto
has been filed with the SEC and when the Registration Statement or any post-
effective amendment thereto has become effective;
(ii) of any request by the SEC for amendments or supplements to
the Registration Statement or the prospectus included therein or for additional
information relating to such registration;
(iii) of the issuance by the SEC of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose; and
(iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Registrable Securities for
sale in any jurisdiction or the initiation or threatening of any proceeding for
such purpose.
(c) The Company shall use its best efforts to register or qualify
such Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any Selling Holder reasonably requests and do any and all other
acts and things which may be reasonably necessary or advisable to enable such
Selling Holder to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such Selling Holder; provided that the Company
will not be required to (i) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this paragraph (c),
(ii) subject itself to taxation in any such jurisdiction or (iii) consent to
general service of process in any such jurisdiction.
(d) The Company shall use reasonable efforts to prevent the issuance
or obtain the withdrawal of any order suspending the effectiveness of the
Registration Statement at the earliest possible time.
(e) The Company shall notify each Selling Holder of such Registrable
Securities, at any time when a prospectus relating thereto is required to be
delivered under the Securities Act, of the occurrence of an event requiring the
preparation of a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading and promptly file with the SEC and make
available to each Selling Holder any such supplement or amendment.
(f) If requested in writing by the holders beneficially owning at
least 25%, collectively, of the Registrable Securities (including holders of
Preferred Stock) and the Company's 10% Cumulative Convertible Preferred Stock,
Series B (the "Series B"), the Company shall enter into customary agreements
(including an underwriting agreement in customary form with customary terms with
underwriters reasonably approved by the Company) and take such other actions as
are reasonably required in order to expedite or facilitate the disposition of
such Registrable Securities and any Common Stock issued or issuable upon the
conversion of the Series B and any Common Stock issued as, or issuable upon the
conversion or exercise of any warrant, option, right or other security that is
issued or issuable as, a dividend or other distribution with respect to, or in
exchange for, or in replacement of, the Series B; provided that the Company
shall not be required to participate in more than two underwritten offerings
under the Shelf Registration Statement; provided further that the decision as to
whether to include securities issued or issuable upon conversion of either the
Preferred Stock, the Series B or both of such series in an underwritten offering
shall be at the sole discretion of the holders thereof.
(g) The Company shall make available for inspection by any Selling
Holder of such Registrable Securities, any underwriter participating in any
disposition pursuant to such Registration Statement, and any attorney,
accountant or other professional retained by any such Selling Holder or
underwriter (collectively, the "Inspectors"), all financial and other records,
pertinent corporate documents and properties of the Company and its Subsidiaries
(collectively, the "Records") as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause the Company's and its
Subsidiaries' officers, directors and employees to supply all information
reasonably requested by any such Inspector in connection with such Registration
Statement. Each Selling Holder of such Registrable Securities agrees that
information obtained by it as a result of such inspections which is deemed
confidential shall not be used by it as the basis for any market transactions in
securities of the Company unless and until such is made generally available to
the public. Each Selling Holder of such Registrable Securities further agrees
that it will, upon learning that disclosure of such Records is sought in a court
of competent jurisdiction, give notice to the Company and allow the Company, at
the Company's expense, to undertake appropriate action to prevent disclosure of
the Records deemed confidential.
(h) The Company will use its best efforts to comply with all the
rules and regulations of the SEC to the extent and so long as they are
applicable to the Registration Statement and will make generally available to
its security holders after the effective date of the applicable Registration
Statement an annual earnings statement satisfying the provisions of Section
11(a) of the Securities Act.
The Company may require each Selling Holder of Registrable Securities
as to which any registration is being effected to furnish to the Company such
information regarding the distribution of such Registrable Securities as the
Company may from time to time reasonably request in writing and such other
information as may be legally required in connection with such registration.
Each Selling Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3.3(e)
hereof, such Selling Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such Selling Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3.3(e) hereof, and,
if so directed by the Company, such Selling Holder will deliver to the Company
(at the Company's expense) all copies, other than permanent file copies then in
such Selling Holder's possession, of the prospectus covering such Registrable
Securities current at the time of receipt of such notice.
Registration Expenses. All expenses incident to the Company's performance
of or compliance with this Article 3, including, without limitation, all
registration and filing fees, fees and expenses of compliance with securities or
blue sky laws (including reasonable fees and disbursements of counsel in
connection with blue sky qualifications of the Registrable Securities), printing
expenses, messenger and delivery expenses, internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the fees and expenses incurred in connection with
the listing of the securities to be registered on each securities exchange on
which similar securities issued by the Company are then listed, and fees and
disbursements of counsel for the Company and its independent certified public
accountants, the reasonable fees and expenses of any special experts retained by
the Company in connection with such registration, fees and expenses of other
persons retained by the Company, and reasonable fees and expenses (limited to
$15,000 per registration) of one counsel (who shall be reasonably acceptable to
the Company) for the holders of Registrable Securities incurred in connection
with each registration hereunder (but not including any underwriting discounts
or commissions attributable to the sale of Registrable Securities) will be borne
by the Company (all such expenses being herein called "Registration Expenses").
Indemnification; Contribution.
(a) Indemnification by the Company. The Company agrees to indemnify
and hold harmless each Selling Holder of Registrable Securities, its officers,
directors, partners and agents and each person, if any, who controls such
Selling Holder within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act, from and against any and all losses, claims, damages
(whether in contract, tort or otherwise), liabilities and expenses (including
reasonable costs of investigation) whatsoever (as incurred or suffered) arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus relating to
the Registrable Securities or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses arise out of, or are based
upon, any such untrue statement or omission or allegation thereof based upon
information furnished in writing to the Company by such Selling Holder or on
such Selling Holder's behalf expressly for use therein. The Company also agrees
to indemnify any underwriters of the Registrable Securities, their officers,
partners and directors and each person who controls such underwriters on
substantially the same basis as that of the indemnification of the Selling
Holders provided in this Section 3.5(a) or such other indemnification
customarily obtained by underwriters at the time of offering.
(b) Conduct of Indemnification Proceedings. If any action or
proceeding (including any governmental investigation) shall be brought or
asserted against any Selling Holder (or its officers, directors, partners or
agents) or any person controlling any such Selling Holder in respect of which
indemnity may be sought from the Company, the Company shall assume the defense
thereof, including the employment of counsel reasonably satisfactory to such
Selling Holder, and shall assume the payment of all expenses. Such Selling
Holder or any controlling person of such Selling Holder shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Selling Holder or such controlling person unless (i) the Company has agreed
to pay such fees and expenses or (ii) the named parties to any such action or
proceeding (including any impleaded parties) include both such Selling Holder or
such controlling person and the Company, and such Selling Holder or such
controlling person shall have been advised by counsel that there may be one or
more legal defenses available to such Selling Holder or such controlling person
which differ from those available to the Company (in which case, if such Selling
Holder or such controlling person notifies the Company in writing that it elects
to employ separate counsel at the expense of the Company, the Company shall not
have the right to assume the defense of such action or proceeding on behalf of
such Selling Holder or such controlling person; it being understood, however,
that the Company shall not, in connection with any one such action or proceeding
or separate but substantially similar or related actions or proceedings in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the fees and expenses of more than one separate firm of attorneys
(together with appropriate local counsel) at any time for such Selling Holder
and such controlling persons, which firm shall be designated in writing by such
Selling Holder). The Company shall not be liable for any settlement of any such
action or proceeding effected without the Company's written consent, but if
settled with its written consent, or if there be a final judgment for the
plaintiff in any such action or proceeding, the Company agrees to indemnify and
hold harmless such Selling Holder and such controlling person from and against
any loss or liability (to the extent stated above) by reason of such settlement
or judgment.
(c) Indemnification by Selling Holders. Each Selling Holder agrees,
severally but not jointly, to indemnify and hold harmless the Company, its
directors, officers and agents and each person, if any, who controls the Company
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act, as amended, to the same extent as the indemnity contained in
Section 3.5(a) from the Company to such Selling Holder, but only with respect to
information furnished in writing by such Selling Holder or on such Selling
Holder's behalf expressly for use in any registration statement or prospectus
relating to the Registrable Securities, or any amendment or supplement thereto,
or any preliminary prospectus. In case any action or proceeding shall be
brought against the Company or its directors, officers or agents, or any such
controlling person, in respect of which indemnity may be sought against such
Selling Holder, such Selling Holder shall have the rights and duties given to
the Company, and the Company or its directors, officers or agents or such
controlling person shall have the rights and duties given to such Selling Holder
by the preceding Section 3.5(b). Each Selling Holder also agrees to indemnify
and hold harmless underwriters of the Registrable Securities, their officers and
directors and each person who controls such underwriters on substantially the
same basis as that of the indemnification of the Company provided in this
Section 3.5(c).
(d) Contribution. If the indemnification provided for in this
Section 3.5 is unavailable to the Company, the Selling Holders or the
underwriters in respect of any losses, claims, damages, liabilities or judgments
referred to herein, then each such indemnifying party, in lieu of indemnifying
such indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities and
judgments (i) as between the Company and the Selling Holders on the one hand and
the underwriters on the other, in such proportion as is appropriate to reflect
the relative benefits received by the Company and the Selling Holders on the one
hand and the underwriters on the other from the offering of the Registrable
Securities, or if such allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and the Selling Holders on the one hand and of
the underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or judgments, as
well as any other relevant equitable considerations and (ii) as between the
Company, on the one hand, and each Selling Holder on the other, in such
proportion as is appropriate to reflect the relative fault of the Company and of
each Selling Holder in connection with such statements or omissions, as well as
any other relevant equitable considerations. The relative benefits received by
the Company and the Selling Holders on the one hand and the underwriters on the
other shall be deemed to be in the same proportion as the total proceeds from
the offering (net of underwriting discounts and commissions but before deducting
expenses) received by the Company and the Selling Holders bear to the total
underwriting discounts and commissions received by the underwriters, in each
case as set forth in the table on the cover page of the prospectus. The
relative fault of the Company and the Selling Holders on the one hand and of the
underwriters on the other 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 and the Selling Holders or by the underwriters. The
relative fault of the Company on the one hand and of each Selling Holder on the
other 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 such party,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Selling Holders agree that it would not be just
and equitable if contribution pursuant to this Section 3.5 were determined by
pro rata allocation (even if the underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages, liabilities or judgments referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 3.5(d), no
underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Registrable Securities underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such underwriter has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission, and
no Selling Holder shall be required to contribute any amount in excess of the
amount by which the total price at which the Registrable Securities of such
Selling Holder were offered to the public exceeds the amount of any damages
which such Selling 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 Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
Participation in Underwritten Registrations. No person may participate in
any underwritten registration hereunder unless such person (a) agrees to sell
such person's securities on the basis provided in any underwriting arrangements
approved by the persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements and this Agreement.
Rule 144. The Company covenants that it will file any reports required to
be filed by it under the Securities Act and the Exchange Act, and that it will
take such further action as any holder of Registrable Securities may reasonably
request, all to the extent required from time to time to enable holders of
Registrable Securities to sell Registrable Securities without registration under
the Securities Act within the limitation of the exemptions provided by (a) Rule
144 under the Securities Act, as such Rule may be amended from time to time, or
(b) any similar rule or regulation hereafter adopted by the SEC. Upon the
request of any holder of Registrable Securities, the Company will deliver to
such holder a written statement as to whether it has complied with such
requirements.
- REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Purchasers as of the date of
this Agreement as follows:
Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. The
Company is duly qualified or licensed to do business as a foreign corporation,
and in good standing, in every jurisdiction in which its ownership of property
or the conduct of its business requires such qualification or licensing, except
where the failure to be so qualified or licensed would not have Material Adverse
Effect upon the Company. Attached hereto as Exhibit A is a true and complete
copy of the Certificate of Designation. True and complete copies of the
Certificate of Incorporation and Bylaws of the Company, each as amended to date,
have been provided to Purchasers. The Company has no Subsidiaries.
Authority. The Company has all requisite corporate power and authority to
carry on its business as presently conducted and to enter into this Agreement
and to perform its obligations contemplated by this Agreement.
Authorization. The execution, delivery and performance of this Agreement
and the transactions contemplated by this Agreement have been duly and validly
authorized by all requisite corporate action on the part of the Company.
Binding Agreement. This Agreement has been duly executed and delivered by
the Company and constitutes a legal, valid and binding obligation of the Company
enforceable against it in accordance with its terms, subject to applicable
bankruptcy and other similar laws of general application with respect to
creditors and subject to principles of equity and public policy that affect
enforceability of agreements generally.
No Conflicts. Neither the execution or delivery of this Agreement nor the
consummation of the transactions contemplated hereby will result in a breach or
violation of, or constitute a default under, the certificate of incorporation,
bylaws or other governing documents of the Company, or any material agreement,
indenture or other instrument to which the Company is a party or by which it is
bound or to which any of its properties are subject, nor will the performance by
the Company of its obligations hereunder violate any Law or result in the
creation or imposition of any material lien, charge, claim or encumbrance upon
any property or assets of the Company. No permit, consent, approval,
authorization or order of any Governmental Authority or other Person is required
in connection with the consummation by the Company of the transactions
contemplated by this Agreement, except such as have been obtained and as
otherwise contemplated by this Agreement.
Capitalization.
The authorized capital stock of the Company consists of (i) 50,200,000
shares of common stock, par value $.01 per share, of which 50,000,000 have been
designated as Class A Common Stock, 11,045,832 of which are issued and
outstanding, and 200,000 of which have been designated as Class B Common Stock,
0 of which are issued and outstanding, (ii) 1,000,000 shares of preferred stock,
par value $1.00 per share, of which 100,000 have been authorized as 10%
Cumulative Convertible Preferred Stock, Series B, 52,500 of which are issued and
outstanding, and of which 80,000 have been authorized as 10r% Cumulative
Convertible Preferred Stock, Series C, 40,000 of which the Company expects to be
outstanding following the completion of the sales contemplated in connection
with this Agreement. All of the outstanding shares of capital stock of the
Company are duly authorized, validly issued, fully paid, nonassessable and free
of preemptive rights. The Company has a total of 540,000 shares of Common Stock
issuable upon exercise of outstanding options issued to officers, directors or
employees of the Company. In addition, 428,692 shares of Common Stock are
issuable upon exercise of various outstanding warrants. Except for the
foregoing and as described on Schedule 4.14, there are no outstanding
subscriptions, options, warrants, rights, convertible securities or other
agreements or commitments of any character obligating the Company to purchase,
redeem, issue, transfer or deliver any shares of Common Stock, preferred stock
or other equity security.
Valid Issuance.
(a) The issuance, sale and delivery of the Shares in accordance with
this Agreement have been duly authorized by all necessary corporate action on
the part of the Company, and the Shares when so issued, sold and delivered
against payment therefor in accordance with this Agreement will be duly and
validly issued, fully paid and nonassessable.
(b) The issuance, sale and delivery of the shares of Common Stock
issuable upon conversion of the Preferred Stock have been duly authorized by all
necessary corporate action on the part of the Company, and such shares of Common
Stock have been duly reserved for issuance and, when issued upon such
conversion, will be duly and validly issued, fully paid and nonassessable.
Absence of Bankruptcy Proceedings. There are no bankruptcy or
reorganization proceedings pending against, being contemplated by, or to the
knowledge of the Company, threatened against, the Company.
Brokers. No broker or finder has acted for or on behalf of the Company in
connection with this Agreement or the transactions contemplated by this
Agreement, and no broker or finder is entitled to any brokerage or finder's fee
or commission in respect thereof based in any way on agreements, arrangements or
understandings made by or on behalf of the Company.
Financial Statements. The Financial Statements (i) present fairly the
financial position of the Company and its consolidated subsidiaries as of
December 31, 1994 and March 31, 1995, (ii) present fairly the results of
operations, cash flows and changes in stockholders' equity of the Company and
its consolidated subsidiaries for the year ended December 31, 1994 and the three
months ended March 31, 1995, and (iii) were prepared in accordance with GAAP
consistently followed throughout the periods involved, except as otherwise noted
therein. The Company has no material liabilities, contingent or otherwise, not
reflected in the balance sheet as of December 31, 1994 (or the notes thereto) or
the balance sheet as of March 31, 1995 (or the notes thereto) included in the
Financial Statements, other than any such liabilities incurred in the ordinary
course of business since March 31, 1995.
No Material Adverse Change. Since December 31, 1994, there has not been
any material adverse change in the financial condition, results of operations,
business or properties of the Company.
Commission Documents. The Company has filed all registration statements,
proxy statements, reports and other documents required to be filed by it under
the Securities Act or the Exchange Act, and all amendments thereto
(collectively, the "Commission Documents"); and the Company has furnished
Purchasers or their representatives copies of all Commission Documents, each as
filed with the SEC, since December 31, 1992. Each Commission Document complied
as to form when filed in all material respects with the rules and regulations of
the SEC. Each Commission Document did not on the date of filing, contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Properties.
(a) The Company has good and defensible title to all of its
respective interests in all of their respective oil and gas leases, free and
clear of any encumbrances, except as described in the Commission Documents and
except for liens under the EnCap Agreement, subject only to liens for taxes or
charges of mechanics or materialmen not yet due and to encumbrances under gas
sales contracts, operating agreements, unitization and pooling agreements and
other similar agreements as are customarily found in connection with comparable
drilling and producing operations and to title defects and other encumbrances
that are, singularly and in the aggregate, not material in amount and do not
interfere with its use or enjoyment of its oil and gas properties. The Company
has complied in all material respects with the terms of the oil and gas leases
in which it purports to own an interest, and all of such leases are in full
force and effect (except where the failure so to comply or to be in full force
and effect will not have a Material Adverse Effect) upon the Company.
(b) The Company has good and marketable title in fee simple to all
properties and assets described in the Commission Documents as owned by it, and
valid, subsisting and enforceable leases for the properties described in the
Commission Documents as leased by it, in each case free and clear of all liens,
charges, encumbrances or restrictions, except for (i) such as are described in
the Commission Documents (ii) liens under the EnCap Agreement or (iii) liens,
charges, encumbrances or restrictions as do not have a Material Adverse effect
on the Company.
Registration Rights. Except as set forth on Schedule 4.14, there are no
contracts, agreements or understandings between the Company and any person
granting such person the right to require the Company to include such securities
in any SEC registration statement.
Offering. Subject to the accuracy of the Purchasers' representations in
Article 5 hereof, the offer, sale and issuance of the Shares and the Registrable
Securities as contemplated by this Agreement are exempt from the registration
requirements of the Securities Act and the securities laws of any state having
jurisdiction with respect to the transactions contemplated by this Agreement,
and neither the Company nor anyone acting on its behalf has or will take any
action that would cause the loss of such exemption.
No Defaults. The Company is not (a) in violation of any provision of its
charter or bylaws, (b) in breach, violation or default, in any material respect,
of or under any material contract, lease, commitment or instrument to which it
is a party or by which it is bound or to which any of its properties or assets
are subject, and no event has occurred which (whether with or without notice,
lapse of time or the happening or occurrence of any other event) would
constitute such a material breach, violation or default or (c) in material
violation of any Law.
Litigation. There is no action, suit, proceeding or investigation pending
or, to the knowledge of the Company, threatened against or affecting the Company
or any properties or rights of it by or before any Governmental Authority that
(i) relates to or challenges the legality of this Agreement or the Preferred
Stock, (ii) would reasonably be expected to have a Material Adverse Effect upon
the Company (except as disclosed in the Commission Documents) or (iii) would
reasonably be expected to impair the ability of the Company to perform fully on
a timely basis any obligations that it has under this Agreement or any documents
related hereto.
Compliance with Laws. The Company is in compliance in all material
respects with all laws and regulations in all jurisdictions where the failure to
effect such compliance would reasonably be expected to have a Material Adverse
Effect upon the Company.
Taxes. All tax returns required to be filed by the Company in any
jurisdiction have been so filed, and all taxes, assessments, fees and other
charges shown thereon to be due and payable have been paid, other than those
being contested in good faith. The Company does not know of any actual or
proposed material additional tax assessments for any fiscal period against it.
None of the Company's tax returns are under audit, and no waivers of the statute
of limitations or extensions of time with respect to any tax returns have been
granted to the Company, except such audits, waivers or extensions as would not
reasonably be expected to have a Material Adverse Effect upon the Company.
ERISA. Neither the execution and delivery of this Agreement nor the sale
of the Shares to be purchased by the Purchasers is a prohibited transaction
(within the meaning of Section 406 of ERISA or Section 4975 of the Code) on the
part of the Company that is not exempt by statute, regulation or class
exemption. The Company is in compliance in all material respects with all
presently applicable provisions of ERISA; no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for
which the Company would have any material liability; the Company has not
incurred and does not expect to incur liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any "pension plan" or (ii)
Sections 412 (whether or not waived) or 4971 of the Code; and each "pension
plan" for which the Company would have any liability that is intended to be
qualified under Section 401(a) of the Code is so qualified in all material
respects and nothing has occurred, whether by action or by failure to act, that
would cause the loss of such qualification.
Compliance with Environmental Laws. The business and properties of the
Company have been operated in compliance with all applicable federal, state or
local laws, rules, regulations or orders (collectively, "Environmental Laws")
relating to pollution or protection of the environment including, without
limitation, any law, rule, regulation or order relating to emissions,
discharges, releases or threatened releases ("Releases") of chemicals,
pollutants, contaminants, wastes, petroleum or petroleum products, toxic
substances or hazardous substances ("Pollutants") for which noncompliance would
have a Material Adverse Effect upon the Company. The Company has not received
any written communication, whether from a Governmental Authority, citizens'
group, landowner, or employee, nor, to the best knowledge of the executive
officers of the Company, has the Company received any oral communication from a
Governmental Authority, alleging that (i) the Company is not in compliance with
any Environmental Law applicable to it and its business and properties, or (ii)
any employee or third party has suffered bodily injury or property damage as a
result of one or more Releases of Pollutants arising out of or resulting from
the operations of the Company, or prior owners and operators of its business or
property, which allegation, if true, would have a Material Adverse Effect upon
the Company. Except as disclosed in the Commission Documents, the Company has
no material obligation to remediate, repair or replace any property, whether
real or personal, owned by the Company or any third party, as a result of one or
more Releases of Pollutants arising out of or resulting from the operations of
the Company or prior owners and operators of their business or properties.
- REPRESENTATIONS AND WARRANTIES OF PURCHASERS
Each Purchaser severally represents and warrants with respect to itself to
the Company as of the date hereof as follows:
Organization. Each Purchaser is a corporation or limited partnership duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization.
Authority. Each Purchaser has all requisite power and authority to enter
this Agreement and the other documents and agreements contemplated hereby, to
purchase the Shares on the terms described in this Agreement and to perform its
other obligations contemplated by this Agreement.
Authorization. The execution, delivery and performance of this Agreement
and the transactions contemplated hereunder have been duly and validly
authorized by all requisite corporate or partnership action on the part of each
Purchaser.
Binding Agreement. This Agreement has been duly executed and delivered by
each Purchaser and constitutes a legal, valid and binding obligation of such
Purchaser enforceable against such Purchaser in accordance with its terms,
subject to bankruptcy and other similar laws of general application with respect
to creditors and subject to principles of equity and public policy that affect
enforceability of agreements generally.
No Conflicts. Neither the execution or delivery of this Agreement nor the
consummation of the transactions contemplated hereby will result in a breach or
violation of, or constitute a default under, the governing documents of the
Purchasers, or any agreement, indenture or other instrument to which the
Purchasers are a party or by which any of them are bound or to which any of
their properties are subject, nor will the performance by the Purchasers of
their obligations hereunder violate any Law or result in the creation or
imposition of any lien, charge, claim or encumbrance upon any property or assets
of the Purchasers. No permit, consent, approval, authorization or order of any
Governmental Authority or other Person is required in connection with the
consummation by the Purchasers of the transactions contemplated by this
Agreement, except such as have been obtained and as otherwise contemplated by
this Agreement.
Absence of Bankruptcy Proceedings. There are no bankruptcy or
reorganization proceedings pending against, being contemplated by, or to any
Purchaser's knowledge, threatened against, any Purchaser.
No Brokers. No broker or finder has acted for or on behalf of Purchasers
in connection with this Agreement or the transactions contemplated by this
Agreement, and no broker or finder is entitled to any brokerage or finder's fee
or commission in respect thereof based in any way on agreements, arrangements or
understandings made by or on behalf of Purchasers.
Accredited Investor, Etc. Each Purchaser is an "accredited investor"
within the meaning of Rule 501 under the Securities Act. Each Purchaser is
acquiring the Shares for its own account and not for distribution or resale,
with no present intention of distributing or reselling said Shares or Conversion
Shares or any part thereof; provided that the disposition of such Purchaser's
property shall at all times remain within its control. Each Purchaser agrees:
(a) that such Purchaser will not sell, assign, pledge, give, transfer or
otherwise dispose of the Shares or any interest therein, or make any offer or
attempt to do any of the foregoing, except pursuant to a registration of the
Shares under the Securities Act and all applicable state securities laws or in a
transaction which, in the written opinion of counsel for such Purchaser
satisfactory to the Company (which requirement may be waived by the Company upon
advice of counsel), is exempt from the registration provisions of the Securities
Act and all applicable state securities laws; (b) that the certificate(s) for
the Shares will bear a legend making reference to the foregoing restrictions
for so long as such legend may be required pursuant to applicable federal
securities laws; and (c) that the Company and any transfer agent for the Shares
shall not be required to give effect to any purported transfer of any of the
Shares except upon compliance with the foregoing restrictions.
Information Available. Each Purchaser has been given the opportunity to
ask questions of and receive answers from the officers of the Company or their
designated representatives concerning the terms and conditions of the offering
of the Shares and the Company, and to obtain any additional information that the
Company possesses or can acquire without unreasonable effort or expense that is
necessary to verify the accuracy of information furnished in the Commission
Documents.
- CONDITIONS
The Company's Conditions. If Shares are to be delivered on a date after
the date hereof, the obligations of the Company under this Agreement are
subject, at the option of the Company, to the satisfaction at or prior to the
date of delivery of the Shares of the following conditions:
(a) All representations of Purchasers contained in this Agreement
shall be true at and as of the delivery date as if such representations were
made at and as of date of delivery, and Purchasers shall have performed and
satisfied all agreements required by this Agreement to be performed and
satisfied by Purchasers at or prior to the delivery date;
(b) The Company shall have received a certificate dated as of the
delivery date, executed by a duly authorized officer of each Purchaser or of the
general partner of each Purchaser that is a partnership, to the effect that to
such officer's knowledge the conditions set forth in Section 6.1(a) above are
satisfied at and as of the date of delivery;
(c) As of the delivery date, no suit, action or other proceeding
(excluding any such matter initiated by the Company) shall be pending or
threatened before any Governmental Authority seeking to restrain the Company or
prohibit the transactions contemplated hereby or seeking damages against the
Company as a result of the consummation of this Agreement.
Purchasers' Conditions. If Shares are to be delivered on a date after the
date hereof, the obligations of Purchasers under this Agreement are subject, at
the option of Purchasers, to the satisfaction at or prior to the date of
delivery of the following conditions:
(a) All representations of the Company contained in this Agreement
shall be true at and as of the date of delivery as if such representations were
made at and as of the date of delivery, and the Company shall have performed and
satisfied all agreements required by this Agreement to be performed and
satisfied by the Company at or prior to the date of delivery;
(b) Purchasers shall have received certificates dated as of the date
of delivery, executed by duly authorized officers of the Company, to the effect
that to such officer's knowledge the conditions set forth in Section 6.2(a)
above are satisfied at and as of the date of delivery;
(c) Purchasers shall have received a legal opinion dated as of the
date of delivery from Randall A. Carter, General Counsel for the Company, in
substantially the form of Exhibit B hereto;
(d) Purchasers shall have received evidence that the transactions
contemplated hereby do not violate the EnCap Agreement;
(e) As of the delivery date, no suit, action or other proceeding
(excluding any such matter initiated by Purchasers) shall be pending or
threatened before any Governmental Authority seeking to restrain Purchasers or
prohibit the transactions contemplated by this Agreement or seeking damages
against Purchasers as a result of the consummation of this Agreement;
(f) The Certificate of Designation shall have been duly filed by the
Company with the Secretary of State of the State of Delaware; and
(g) Except for the Certificate of Designation, no amendments to the
Certificate of Incorporation or Bylaws of the Company as in effect on June 15,
1994 shall have been effected.
- MISCELLANEOUS
Survival of Representations and Warranties. All representations,
warranties, covenants and agreements of the Company contained in this Agreement
or made in writing by the Company in connection herewith, and all
representations and warranties of any Purchaser contained in this Agreement or
made in writing by any Purchaser in connection herewith, shall survive the
execution, delivery and performance of this Agreement and the transfer of the
Shares, regardless of any investigation made by such party or on such party's
behalf and without any other document being delivered at the date hereof.
Indemnification. The Company shall indemnify and hold harmless each
Purchaser, and each Purchaser shall severally and not jointly indemnify and hold
harmless the Company, from and against any and all claims, losses, damages and
liabilities (and actions in respect thereof) and any and all costs and expenses
(including reasonable attorneys' fees and expenses) that such person may sustain
or incur as a result of any misrepresentation or breach of warranty or the
nonperformance of any obligation on the part of the other under this Agreement.
Public Announcements. Except as set forth in the following sentence, the
parties to this Agreement agree that prior to making any public announcement or
statement with respect to the transactions contemplated by this Agreement, the
party desiring to make such public announcement or statement shall consult with
the other party and exercise reasonable efforts to (i) agree upon the text of a
joint public announcement or statement to be made by both of such parties or
(ii) obtain approval of the other party to the text of a public announcement or
statement to be made solely by the Company or Purchasers, as the case may be.
Nothing contained in this Section 7.3 shall be construed to require either party
to obtain approval of the other party to disclose information with respect to
any disclosure (I) required by applicable law or by any applicable rules,
regulations or orders of any Governmental Authority having jurisdiction or (ii)
necessary to comply with disclosure requirements of any applicable stock
exchange.
Antitrust Laws. Purchasers and the Company agree to use their best efforts
to make such filings with and provide such information to the Federal Trade
Commission or the Department of Justice with respect to the transactions
contemplated by this Agreement as may be required under the HSR Act,
sufficiently in advance of any transaction which may require such filings so as
to permit the lapse of the normal waiting period as described in the HSR Act in
advance of such transaction and to join in a request for early termination.
Purchasers and the Company agree to use such best efforts to obtain all such
governmental approvals required to consummate the transactions contemplated by
this Agreement and to cause early termination of the waiting period under the
HSR Act.
Notices. Except as otherwise expressly provided in this Agreement, all
communications required or permitted under this Agreement shall be in writing
and any such communication or delivery shall be deemed to have been duly given
and received when actually delivered to the address set forth below of the party
to be notified personally (by a recognized commercial courier or delivery
service that provides a receipt) or by telecopier (confirmed in writing by a
personal delivery as set forth above), addressed as follows:
If to the Company: National Energy Group, Inc.
4925 Greenville Ave., Suite 1400
Dallas, Texas 75206
Attention: Mr. Miles Bender
Telecopy No.: (214) 692-9310
If to Purchasers: c/o Kayne, Anderson Investment Management, Inc.
1800 Avenue of the Stars, Suite 1425
Los Angeles, California 90067
Telecopy No.: (310) 203-8348
Attention: Robert V. Sinnott
Any party may, by written notice so delivered to the other, change the address
to which delivery shall thereafter be made.
Expenses. The Company shall promptly pay after receipt of an invoice all
accrued fees and expenses of Purchasers, including fees and expenses of Baker &
Botts, L.L.P., counsel to the Purchasers, in connection with the negotiation,
preparation, execution and delivery of the Agreement and related documents and
the consummation of the transactions contemplated hereby.
Entire Agreement. This Agreement embodies the entire agreement between the
parties with respect to the subject matter of this Agreement (superseding all
prior agreements, arrangements, understandings and solicitations of interest or
offers related to the subject matter of this Agreement), and this Agreement may
be supplemented, altered, amended, modified or revoked by writing only, signed
by all of the parties to this Agreement. The headings in this Agreement are for
convenience only and shall have no significance in the interpretation of any
term or provision of this Agreement.
Governing Law. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO RULES
CONCERNING CONFLICTS OF LAWS.
Counterparts. This Agreement may be executed in any number of
counterparts, and each and every counterpart shall be deemed for all purposes
one agreement.
Waiver. Any of the terms, provisions, covenants, representations,
warranties or conditions contained in this Agreement may be waived only by a
written instrument executed by the party waiving compliance. No waiver by any
party of any condition, or of the breach of any term, provision, covenant,
representation or warranty contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be or construed as a
further or continuing waiver of any such condition or breach or a waiver of any
other condition or of the breach of any other term, provision, covenant,
representation or warranty.
Binding Effect; Assignment. All the terms, provisions, covenants,
representations, warranties and conditions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the parties to this
Agreement and their respective successors and assigns; but this Agreement and
the rights and obligations hereunder shall not be assignable or delegable by any
party without the express written consent of the non assigning or non delegating
parties.
Brokers. Without limiting the parties' respective representations in
Sections 4.9 and 5.7, each party agrees to indemnify and hold the other harmless
from and against any claim for a brokerage or finder's fee or commission in
connection with this Agreement or the transactions contemplated by this
Agreement to the extent such claim arises from or is attributable to the actions
of such indemnifying party.
Construction. Each party hereby acknowledges and agrees that such party
has consulted legal counsel in connection with the negotiation of this Agreement
and that such party has bargaining power equal to that of the other party in
connection with the negotiation and execution of this Agreement. Accordingly,
the parties agree that the rule of contract construction that an agreement shall
be construed against the draftsman shall have no application in the construction
or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the date first above written.
NATIONAL ENERGY GROUP, INC.
By
Name:
Title:
ARBCO ASSOCIATES L.P.
By: KAYNE, ANDERSON INVESTMENT
MANAGEMENT, INC., General Partner
By
Name:
Title:
OFFENSE GROUP ASSOCIATES L.P.
By: KAYNE, ANDERSON INVESTMENT
MANAGEMENT, INC., General Partner
By
Name:
Title:
KAYNE, ANDERSON NONTRADITIONAL INVESTMENTS L.P.
By: KAYNE, ANDERSON INVESTMENT
MANAGEMENT, INC., General Partner
By
Name:
Title:
OPPORTUNITY ASSOCIATES L.P.
By: KAYNE, ANDERSON INVESTMENT
MANAGEMENT, INC., General Partner
By
Name:
Title:
SCHEDULE A
PURCHASED SHARES
PurchasersNumber ofSharesPurchasePriceArbco Associates
L.P.14,400$1,440,000Offense Group Associates L.P.12,0001,200,000Kayne, Anderson
Nontraditional Investments L.P.11,2001,120,000Opportunity Associates L.P.
2,40040,000 240,000$4,000,000
??
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APPENDIX B
CERTIFICATE OF DESIGNATIONS
OF
NATIONAL ENERGY GROUP, INC.
OF
10 1/2% CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES C
Pursuant to the provisions of the General Corporation Law of Delaware, the
undersigned, Miles D. Bender and Randall A. Carter, being respectively President
and Secretary of National Energy Group, Inc., a Delaware corporation (the
"Company"), hereby certify that:
1. The name of the Company is National Energy Group, Inc.
2. The following resolutions establishing and designating the 10 1/2%
Cumulative Convertible Preferred Stock, Series C, of the Company, were duly
adopted by the Board of Directors at a meeting of the Board of Directors on June
9, 1995.
RESOLVED, that pursuant to authority expressly granted to the Board of
Directors by the provisions of the Certificate of Incorporation of the Company,
as amended, the Board of Directors hereby creates a class of Cumulative
Convertible Preferred Stock, Series C, having a par value of $1.00 per share,
and hereby fixes the designations, powers, conversion privileges, preferences
and other special rights, qualifications, limitations and restrictions
applicable to such Preferred Stock as follows:
(i) Serial Designation. The distinctive serial designation of this
series shall be 10 1/2% Cumulative Convertible Preferred Stock, Series C
(hereinafter called "Series C"). Shares of Series C shall have a stated value of
$100.00 per share.
(ii) Authorized Shares. The number of authorized shares in Series C
shall be 80,000, which number may from time to time be increased (subject to
section (xi)) or decreased by the Board of Directors, and with 40,000 to be
issued on June 14, 1995. Shares of Series C purchased by the Company or
converted into Common Stock shall be canceled and shall revert to authorized but
unissued Preferred Stock undesignated as to Series, and such shares shall not be
deemed to be outstanding for purposes hereof.
(iii) Ranking. The Series C, with respect to dividends and upon
liquidation, dissolution or winding up, ranks (i) junior to any series of
preferred stock of the Company the terms of which specifically provide that such
series ranks senior to the Series C (the "Senior Stock"), (ii) pari passu with
the 10% Cumulative Convertible Preferred Stock, Series B ("Series B") and any
other series of preferred stock of the Company the terms of which specifically
provide that such series ranks pari passu with the Series C ("Parity Stock") and
(iii) senior to the Class A and Class B Common Stock (collectively "Common
Stock") and any series of preferred stock the terms of which specifically
provide that such series ranks junior and subordinate to the Preferred Stock or
the terms of which do not specify its rank with respect to the Series C (the
"Junior Stock").
(iv) Dividends. Holders of Series C will be entitled to receive,
when, as and if declared by the Board of Directors, out of funds at the time
legally available therefore, cash dividends at an annual rate of 10 1/2% (equal
to $10.50 per share, with $5.25 semi-annual payments on June 14 and December 14,
commencing on December 14, 1995), except that if any such date is a Saturday,
Sunday or legal holiday, then such dividend will be payable on the next day that
is not a Saturday, Sunday or legal holiday. Dividends will accrue and be
cumulative from the date of first issuance of the Series C (whether or not
declared and whether or not there shall be funds legally available for the
payment of dividends) and will be payable to holders of record as they appear on
the books of the Company on such record dates, which shall not be less than 10
days nor more than 60 days preceding the payment date, as are fixed by the Board
of Directors. If, however, shares of Series C are called for redemption on a
redemption date falling between a dividend payment record date and the dividend
payment date, in lieu of receiving such dividend on the dividend payment date
fixed therefore, the holders of the shares to be redeemed will receive such
dividend payment together with all other accrued and unpaid dividends on the
date fixed for redemption (unless such holders convert such shares in accordance
with the Certificate of Designation). Dividends on account of arrears for any
past dividend periods 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.
The Company has the right to pay the 10 1/2% dividend and accrued unpaid
dividends in shares of Series C with each share valued at $100.00, with any
resulting issuable fractional share being rounded up to a full share of Series
C. If the Company elects to pay dividends in shares of Series C, all accrued
and unpaid dividends shall be included in the share dividend payment. Dividends
not declared and not paid on a payment date shall be deemed dividends payable in
shares of Series C, and such number of shares of Series C as would have been
payable as a dividend shall be allocated to the holders of Series C for dividend
purposes as if such dividend had been paid, and each such unissued dividend
share of Series C shall, when issued, be entitled to receive all dividends,
whether in cash or additional shares of Series C, to which such share would have
been entitled if it had been issued; such dividends to accrue for the applicable
unissued shares from the applicable missed date of payment. Upon calculation of
liquidation preference, redemption, conversion or voting rights, accrued but
unissued dividend shares of Series C shall be treated as if issued and
outstanding with any accrued dividends thereon. If the Company pays the
dividend with Series C, or does not pay dividends in either stock or cash, for
four dividend payments, the holders of a majority of the outstanding Series C
(voting as a class with all other affected classes or series of Parity Stock
upon which like voting rights have been conferred and are exercisable) have the
right to appoint the number of directors that would equal one-third of the
directors on the Company's Board of Directors (including all directors
previously appointed by any such holders); provided, however, that if the
holders of Series B are presently entitled to such similar right, then the
holders of Series C shall have no right to appoint directors pursuant to this
sentence, unless and until such right of the holders of Series B shall have
terminated. If the Company pays the dividend with Preferred Stock for six total
dividend payments, holders of a majority of the outstanding shares of Series C
may determine whether dividends paid thereafter will be paid in Preferred Stock
or will be accrued on a cash basis. The Board of Directors shall authorize
additional shares of Series C to be available for issuance as dividends if the
number of authorized Series C is insufficient to continue accruing or paying
dividends in shares of Series C.
The Series C will have priority as to dividends over the Common Stock and
any other class or series of capital stock hereafter issued except for Senior
Stock, Series B or other Parity Stock approved by requisite vote or consent of
the holders of Series C. The Series C is equal as to dividends with any series
of Parity Stock. So long as any shares of the Series C are outstanding, no
dividend or distribution may be declared, paid or set apart for payment on the
Common Stock or any other Junior Stock, other than a dividend or distribution
payable in Junior Stock or warrants or other rights to purchase Junior Stock,
nor may any shares of Junior Stock be purchased, redeemed or acquired by the
Company unless all accrued and unpaid dividends on the Series C have been paid
or declared and set apart for payment. Whenever all accrued dividends are not
paid in full on the Series C or any Parity Stock, all dividends declared on the
Series C and any such Parity Stock will be declared or made pro rata so that the
amount of dividends declared per share on the Series C and any such Parity Stock
will bear to each other the same ratio that accrued and unpaid dividends per
share on the Series C and such Parity Stock bear to each other. Subject to
Section (vi) hereof, the Series B and Series C are Parity Stock with respect to
one another.
The amount of dividends payable for any period shorter than a full annual
dividend period will be computed on the basis of a 360 day year. No interest or
sum of money in lieu of interest (but excluding dividends payable pursuant to
the provisions hereof) will be payable in respect of any dividend payment on the
Series C which may be in arrears. Holders of Series C will not be entitled to
any participating dividends or other distributions, whether payable in cash,
property or securities, in excess of the full cumulative dividends described
above.
(v) Liquidation Rights. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company, holders of Series C are
entitled to receive out of the assets of the Company available for distribution
to shareholders the liquidation preference of $100.00 per share, plus an amount
equal to any accrued and unpaid dividends to the payment date, and no more,
before any payment or distribution is made to the holders of Common Stock, or
any series or class of the Company's stock hereafter issued that ranks junior as
to liquidation rights to the Series C. The holders of Series B and Series C,
and any Parity Stock hereafter issued that rank on a parity as to liquidation
rights with the Series B and Series C, will be entitled to share ratably, in
accordance with the respective preferential amounts payable on such stock, in
any distribution which is not sufficient to pay in full the aggregate of the
amounts payable thereon. After payment in full of the liquidation preference of
the shares of the Series B and Series C, the holders of such shares will not be
entitled to any further participation in any distribution of assets by the
Company. Neither a consolidation, merger or other business combination of the
Company with or into another corporation or other entity nor a sale, lease, or
exchange or transfer of all or part of the Company's assets for cash, securities
or other property will be considered a liquidation, dissolution or winding up of
the Company.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company which will involve the distribution of assets other
than cash, the Company shall promptly engage competent independent appraisers to
determine the value of the assets to be distributed to the holders of shares of
Series C and the holders of shares of Common Stock and any other capital stock
of the Company. The Company shall, upon receipt of such appraiser's valuation,
give prompt written notice to each holder of shares of Series C of the
appraiser's valuation.
(vi) Redemption Rights. The Series C may not be redeemed before June
14, 1997. Thereafter, the Company, at the option of the Board of Directors, may
redeem, in cash, the whole or any part of the shares of Series C at the time
outstanding, upon notice given as hereafter specified, at the following
redemption prices: from June 14, 1997, to June 14, 1998, $110.00 per share of
Series C and, thereafter, $100.00 per share of Series C, together with all
accrued and unpaid dividends to the redemption date. No shares of Series B
shall be redeemed by the Company unless and until all outstanding shares of
Series C have been redeemed by the Company.
If fewer than all of the outstanding shares of Series C are to be redeemed,
the Company will select those to be redeemed pro rata. There is no mandatory
redemption or sinking fund obligation with respect to the Series C. If the
Company has failed to pay accrued dividends on the Series C, it may not redeem
any of the then outstanding shares of the Series C until all such accrued and
unpaid dividends and (except with respect to shares to be redeemed) the then
current semi-annual dividend have been paid in full.
Written notice of every redemption of shares of Series C shall be provided
in accordance with the notice provisions of subparagraph 2 (xiii) hereof,
addressed to the holder of record of the Series C at its last address as it
shall appear on the books of the Company. Such written notice shall be provided
at least 20 days and not more than 60 days prior to the date fixed for
redemption. Such written notice shall specify the redemption price and the
place at which and the date of redemption, which date shall not be a legal
holiday in the United States, on which the shares called for redemption will be
redeemed and shall specify the shares called for redemption. Any written notice
which is provided in the manner herein described shall be conclusively presumed
to have been duly given, whether or not the shareholder receives such written
notice, and failure duly to give such written notice as provided herein, or any
defect in such written notice, to any holder of shares of Series C designated
for redemption shall not affect the validity of the proceedings for the
redemption.
If written notice of redemption shall have been duly given, and if, on or
before the redemption date specified therein, all funds necessary for such
redemption shall have been set aside by the Company, then, notwithstanding that
any certificate for shares so called for redemption shall not have been
surrendered for cancellation, all shares so called for redemption shall no
longer be deemed outstanding on and after such redemption date, and all rights
with respect to such shares shall forthwith on such redemption date cease and
terminate, except only the right of the holder thereof to receive the amount
payable on redemption thereof as hereinabove provided, without interest, and the
right to exercise, on or before the date fixed for redemption, privileges of
exchange or conversion, if any, not theretofore expiring.
Any funds so set aside by the Company which shall not be required for such
redemption because of the exercise of any right of conversion or exchange
subsequent thereto shall be released to the Company forthwith. Any funds so set
aside and unclaimed at the end of three years from such redemption date shall,
to the extent permitted by law, be released or repaid to the Company, after
which repayment the holders of the shares so called for redemption shall look
only to the Company for payment thereof.
(vii) Conversion Rights. The holders of shares of Series C shall
have the rights, at their option, to convert such shares into Class A Common
Stock, $.01 par value ("Class A") of the Company at any time before redemption
as provided below, subject to the following terms and conditions:
(a) The shares of Series C shall be convertible at the principal
office of the Company, and at such other office or offices, if any, as the Board
of Directors may designate in writing in accordance with the notice provisions
of subparagraph 2(xiii) hereof, into fully paid and non-assessable shares
(calculated as to each conversion to the nearest 1/100th of a share) of Class A
of the Company, at the conversion price of $2.00 per share of Class A, subject
to adjustment as described below (the "Conversion Price"), with each share of
Series C being taken at $100.00 for the purposes of such conversion, together
with accrued and unpaid dividends (whether or not declared) to the conversion
date, which dividends shall be paid in shares of Class A based upon the
Conversion Price.
(b) In order to convert shares of Series C into Class A the
holder thereof shall surrender at the office hereinabove mentioned the
certificate or certificates therefor, duly endorsed or assigned to the Company
or in blank, accompanied by written notice to the Company at said office that he
elects to convert such shares.
Conversion shall be deemed to have been effected on the date when such
delivery is made (herein called the "Conversion Date"), and the person entitled
to receive the shares of Class A issuable upon such conversions shall be treated
for all purposes as the record holder of such Class A on the applicable
Conversion Date. As promptly as practicable on or after the applicable
Conversion Date, the Company shall issue and shall deliver at said office (or by
mail if so requested by the person converting), a certificate or certificates
for the number of full shares of Class A issuable upon such conversion, together
with a check for cash in lieu of any fraction of a share, as hereinafter
provided, to the person entitled to receive the same. Upon conversion of only a
portion of the number of shares of Series C represented by a certificate
surrendered for conversion, the Company shall issue and deliver to or upon the
written order of the holder of the certificate so surrendered for conversion, a
new certificate covering the number of shares of Series C representing the
unconverted portion of the certificate so surrendered.
In case shares of Series C are called for redemption, the right to
convert such shares shall cease and terminate at the close of business on the
business day prior to the date fixed for redemption, unless default shall be
made in payment of the redemption price.
(c) No fractional shares of Class A shall be issued upon
conversion of shares of Series C, but, instead of any fraction which would
otherwise be issuable in respect of the aggregate number of shares of Series C
surrendered for conversion at one time by the same holder, the Company shall pay
a cash adjustment in an amount equal to the same fraction of the Closing Price
(as hereinafter defined) on the applicable Conversion Date, or, if such date is
not a Trading Day (as hereinafter defined), on the next Trading Day.
(d) The holder of the shares of Series C shall pay any and all
issue and similar (e.g., documentary stamp) taxes that may be payable in respect
of any issue or delivery of shares of Class A on conversion of Series C pursuant
hereto.
(e) The Conversion Price from time to time in effect shall be
adjusted from time to time as follows:
(A) In case the Company shall (i) subdivide its shares of
outstanding Class A into a larger number of shares of Class A, (ii) combine
shares of its outstanding Class A into a smaller number of shares of Class A or
(iii) issue stock as a dividend on its Class A; then the holder of any shares of
Series C after the close of business on the effective date of such subdivision,
combination or stock dividend, as the case may be (the close of business times
being hereinafter in this clause (A) referred to as "such record date"), shall
be entitled to receive, upon actual conversion of the shares of Series C, the
aggregate number and kind of shares of capital stock of the Company which, if
such shares of Series C had been converted immediately prior to such record date
at the Conversion Price then in effect, he would have been entitled to receive
by virtue of such subdivision, combination or stock dividend; and the Conversion
Price shall be deemed to have been adjusted after such record date to apply to
such aggregate number and kind of shares. Such adjustment shall be made
whenever any of the events listed above shall occur.
(B) No notification to the holders of any adjustment in the
conversion price otherwise required by this subparagraph (vii) to be made must
be made, if such adjustment (plus any other adjustments not heretofore made)
would not require any increase or decrease of 5% or more in the Conversion
Price; provided, however, that upon presentment of shares of Series C for
conversion, all adjustments shall be made in calculating the conversion rights
of such holder. Whenever the Conversion Price is adjusted by 5% or more, as
herein provided, the Company shall promptly mail to each registered holder of
shares of Series C 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.
(C) In the event that at any time, as a result of an
adjustment, the holder of any shares of Series C thereafter surrendered for
conversion shall become entitled to receive any shares of capital stock of the
Company other than shares of Class A thereafter, the number of such other shares
so receivable upon conversion of such shares of Series C shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the shares of Class A contained in
Clauses (A) and (B), inclusive, above, and the other provisions of this
subparagraph (e) with respect to the shares of Class A shall apply on like terms
to any such other shares.
(D) In case of any reclassification of the Class A (other
than a change in par value, or from par value to no par value, or from no par
value to par value), any consolidation of the Company with, or merger of the
Company into, any other person, any merger of any person into the Company (other
than a merger that does not result in any reclassification of, or change in the
outstanding shares of Class A), any sale or transfer of all or substantially all
of the assets of the Company (other than a sale-lease back, collateral
assignment, mortgage or other similar financing transaction), or any compulsory
share exchange whereby the Class A is converted into other securities, cash or
other properties, then the holder of each share of Series C then outstanding
shall have the right thereafter, during the period such share of Series C shall
be convertible, to convert such share into the kind and amount of securities,
cash or other property receivable upon such reclassification, consolidation,
merger, sale, transfer or share exchange by a holder of the number of shares of
Class A into which such share of Series C might have been converted immediately
prior to such reclassification, consolidation, merger, sale, transfer or share
exchange.
(E) In case the Company at any time while any shares of
Series C are outstanding shall issue shares of Class A, warrants or rights to
acquire Class A or securities convertible into Class A (excluding options or
shares of Class A or Class B Common Stock or other common stock issued to
officers, employees or directors) (i) at a price per Class A share purchased,
purchasable, or issuable upon conversion that is less than the Conversion Price,
if such Class A shares are the subject of a registered public offering or are
subject to registration rights exercisable within one year, or (ii) at a price
per share that is 10% lower than the Conversion Price, if such shares of Class A
are the subject of a private offering and are restricted and are not entitled to
registration rights until after the expiration of one year, or (iii) at a price
per share that is 20% lower than the Conversion Price, if such shares of Class A
are the subject of a private offering and are restricted and are not entitled to
registration rights until after the expiration of two years, then the Conversion
Price at which each share of Series C shall thereafter be convertible shall be
reduced by multiplying the Conversion Price in effect on the date of issuance of
such shares, warrants, rights or convertible securities by a fraction, of which
the denominator shall be the number of shares of Class A (excluding treasury
shares, if any) outstanding on the date of issuance of such shares, warrants,
rights or convertible securities plus the number of additional shares of Class A
issued, offered for subscription or purchase or issuable upon conversion, and of
which the numerator shall be the number of shares of Class A (excluding treasury
shares, if any) outstanding on the date of issuance of such shares, warrants,
rights or convertible securities plus the number of shares of Class A that the
aggregate offering price of the total number of shares so offered, issued, or
issuable, or, with respect to convertible securities, the aggregate
consideration received by the Company for the convertible securities, would
purchase at the prior Conversion Price. Such adjustment shall be made whenever
shares, warrants, rights or convertible securities are issued, and shall become
effective immediately after such issuance date. However, upon the expiration of
any warrant, right or conversion right to purchase Class A, the issuance of
which resulted in an adjustment in the Conversion Price of the shares of Series
C pursuant to this subsection (E), if any such warrant, right or convertible
rights shall expire and shall not have been exercised, the Conversion Price per
share of Class A at which each share of Series C 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 (vii)(e) after the issuance of such warrants, rights
or convertible securities) had the adjustment of the Conversion Price made upon
the issuance of such warrants, rights or convertible securities been made on the
basis of offering for subscription or purchase only that number of shares of
Class A actually purchased upon the exercise of the warrants or rights actually
exercised or the conversion of the convertible security actually converted. For
purposes of this subsection (e), the term Class A shall include (i) any common
equity security into which the Class A is reclassified or for which it is
exchanged, or (ii) any common equity security of the Company that has equal or
superior voting rights with the Class A.
(F) In case the Company, at any time while shares of Series
C are outstanding, shall distribute to all holders of Class A evidences of its
indebtedness or assets (excluding cash dividends or cash distributions paid out
of earned surplus) or rights to subscribe (excluding those referred to in
subsection (E) above) then in each such case the Conversion Price per share of
Class A at which each share of Series C shall thereafter be convertible shall be
determined by multiplying the Conversion Price in effect prior to the record
date fixed for determination for stockholders entitled to receive such
distribution by a fraction, of which the denominator shall be the Closing Price
of a share of Class A determined as of the record date mentioned above, and of
which the numerator shall be such Closing Price of a share of Class A, less the
then fair market value per share (as determined by the Board of Directors of the
Company in good faith, whose determination shall be conclusive if made in good
faith and shall be described in a statement provided to all registered holders
of Series C) of the portion of assets or evidences of indebtedness so
distributed or of such subscription rights. Such adjustment shall be made
whenever any such distribution is made and shall become effective immediately
after the record date mentioned above.
(G) In case;
1. the Company shall declare a dividend (or any other distribution)
on the Class A payable otherwise than in cash out of its earned surplus; or
2. the Company shall declare a special nonrecurring cash dividend on
or a redemption of its Class A; or
3. the Company shall authorize the granting to the holders of the
Class A of rights or warrants to subscribe for or purchase any shares of capital
stock of any class or of any other rights; or
4. the approval of any stockholders of the Company shall be required
in connection with any reclassification of the Class A of the Company (other
than a subdivision or combination of the outstanding shares of Class A), any
consolidation or merger to which the Company is party or any sale or transfer of
all or substantially all of the assets of the Company, or
5. of the voluntary or involuntary dissolution, liquidation or
winding up of the affairs of the Company; then the Company shall, at least 10
days prior to the applicable record date hereinafter specified, contact by
telephone and cause to be mailed to the holders of record of the shares of
Series C at their last addresses as they shall appear upon the stock books of
the Company, 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 Class A 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, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is expected that
holders of Class A of record shall be entitled to exchange their shares of Class
A for securities or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up.
(H) 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
Series C, or in case at any time any such conditions are expected to arise by
reason of any action contemplated by the Company, 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 (vii)),
of the Conversion Price (including, if necessary, any adjustment as to the
securities into which shares of Series A may thereafter be convertible) which is
or would be required to preserve without dilution the rights of the holders of
shares of Series C. The Board of Directors of the Company may, in its
judgement, make the adjustment recommended upon the receipt of such opinion;
provided, however, that no adjustment pursuant to this subsection (H) of the
Conversion Price shall be made which in the opinion of the accountant 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.
(f) The Company shall at all times after June 14, 1995, reserve
and keep available, free from preemptive rights, out of its authorized but
unissued shares of Class A solely for the purpose of issuance upon conversion of
the shares of Series C, the full number of shares of Class A then deliverable
upon the conversion of all shares of Series A then outstanding. The Company
covenants and agrees that all shares which may be issued upon the exercise of
the rights represented by the Series C will, upon issuance, be legally and
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges of any nature whatsoever.
(g) As used in this subparagraph (vii), the term "Closing Price" on any day
shall mean the higher of (i) the reported closing sales price per share of Class
A on the principal national securities exchange on which the shares of Class A
are at the time listed on such day or (ii) the average of the closing sales
prices for the twenty Trading Days prior to such day. In case no such sale
takes place on a day, the Closing Price shall be the average of the reported
closing bid and asked prices, or, if the shares of Class A shall not be so
listed, the average of the high bid and low ask prices in the over-the-counter
market as reported by the National Association of Securities Dealers' Automated
Quotation System, or, if not so reported, as reported by the National Quotation
Bureau, Incorporated, or any successor thereof, or, if not so reported, the
average of the closing bid and asked prices as furnished by any member of the
National Association of Securities Dealers, Inc. selected from time to time by
the Company for that purpose. The term "Trading Day" shall mean a day on which
the principal national securities exchange on which the shares of Class A are
listed or admitted to trading is open for the transaction of business or, if the
shares of Class A are not listed or admitted to trading on any national
securities exchange, a Monday, Tuesday, Wednesday, Thursday, or Friday on which
banking institutions in the City of Dallas, State of Texas, are not authorized
or obligated by law or executive order to close.
(h) Upon conversion of Series C, the rights of holders of shares
so converted will be limited to the right to receive shares of Class A at the
Conversion Price then in effect.
(viii) Voting Rights. (a) The holders of Series C shall be
entitled to one vote for each share of Series C so held on the record date for
the determination of stockholders entitled to vote, but only as to matters upon
which by law they are entitled to vote as a single class or as hereinafter
provided.
(b) Holders of a majority of the outstanding shares of
Series C have the right to appoint one member to the Company's Board of
Directors while the Series C is outstanding, and, pursuant to Section (iv), may,
voting together with the holders of Parity Stock, obtain the right to appoint a
number of directors that equals one-third of the members of the Board of
Directors.
(c) The holders of Series C will also have the voting
rights specified in (xi) below.
(ix) Certain Definitions. As used herein with respect to Series A,
the following terms shall have the following meanings:
(a) The term "Common Stock" shall mean the Class A, the Class B
Common Stock, $.01 per share, and any and all other classes and series of shares
of common stock of the Company hereafter authorized. The shares of Series C
will have preference and priority in the payment of dividends or in the
distribution of assets on any liquidation, dissolution or winding up of the
Company over any and all such shares of Common Stock, if any.
(b) The term "accrued dividends," with respect to any share of
any class or series, shall mean an amount computed at the annual dividend rate
for the class or series of which the particular share is a part, from the date
on which dividends on such share became cumulative to and including the date to
which such dividends are to be accrued, less the aggregate amount of all
dividends theretofore paid thereon.
(x) Other Rights. The shares of Series C shall not have any
relative, participating, optional or other special rights and powers other than
as set forth herein.
(xi) Changes Affecting Series C. So long as any shares of Series C
are outstanding, the Company shall not, without first obtaining the approval by
vote or written consent, in the manner provided by law, of the holders of a
majority of the shares of Series C outstanding, voting separately as a class, to
(i) amend, alter or repeal any provision of the Certificate of Incorporation or
the Bylaws of the Company so as to adversely affect the relative rights,
preferences, qualifications, limitations or restrictions of the Series C, (ii)
authorize or issue, or increase the authorized number of shares of, the Series
C, any additional class or series of stock, or any security convertible into
stock of such class or series, ranking senior or equal to the Series C as to
dividends or upon liquidation, dissolution or winding up of the Company, (iii)
effect any reclassification of the Series C, or (iv) effect any extraordinary
transaction that requires a vote of the Company's stockholders, such as a merger
or sale of substantially all of the Company's assets (but not including election
of directors, selection of auditors or any other such regular matters upon which
the stockholders vote); provided, however, that no such consent of the holders
of Series C shall be required if, at or prior to the time when such amendment,
alteration, reclassification, increase in shares or repeal is to take effect or
when the issuance of any such senior shares or convertible security is to be
made or an extraordinary transaction entered into, as the case may be, provision
is made for the redemption of all shares of Series C at the time outstanding.
Subject to these limitations, additional classes of preferred stock may be
designated and issued from time to time in one or more series with such
designations, voting powers, or other preferences and relative rights or
qualifications as are determined by the Board of Directors.
(xii) The holders of shares of Series C shall have no preemptive
rights with respect to any securities of the Company.
(xiii) Notices. Except as otherwise provided in the event of
conversion of shares of Series C under subparagraph (vi)(b) hereof, all notices
or other communications required by this Agreement shall be in writing and shall
be sent either (a) by courier, or (b) by telecopy as well as by registered or
certified mail, and shall be regarded as properly given in the case of a courier
upon actual delivery to the proper place of address; in the case of telecopy, on
the day following the date of transmission if properly addressed and sent
without transmission error to the correct number and receipt is confirmed by
telephone within 48 hours of the transmission; in the case of a letter for which
a telecopy could not be successfully transmitted or receipt of which could not
be confirmed as herein provided, three (3) days after the registered or
certified mailing date if the letter is properly addressed and postage prepaid;
and shall be regarded as properly addressed if sent to the parties or their
representatives at the addresses given below:
To the Company:4925 Greenville Ave., Ste. 1400
Dallas, TX 75206
Attn: Miles D. Bender
Phone: (214) 692-9211
Facsimile: (214) 692-9310
To the Holder: Kayne Anderson Investment Management, Inc.
1800 Ave. of the Stars, Ste. 1424
Los Angeles, CA 90067
Attn: Robert V. Sinnott
Phone: (310) 556-2721
Facsimile: (310) 203-8348
or such other address as any of the above may have furnished to the other
parties in writing by registered mail, return receipt requested.
IN WITNESS WHEREOF, we have signed this certificate on the 12th day of
June, 1995, and we acknowledge and affirm, under penalties of perjury, that the
instrument is the act and deed of the Company, and that the facts contained
herein are true.
NATIONAL ENERGY GROUP, INC., a
Delaware corporation
Attest:
By:
Secretary
Miles D. Bender, President
Attest:
By:
Assistant Secretary
Randall A. Carter, Secretary
