<PAGE> 1
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission File No. 0-19136
NATIONAL ENERGY GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-1922764
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
1400 One Energy Square
4925 Greenville Avenue
Dallas, Texas 75206
(Address of principal executive offices)
(214) 692-9211
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes xx No
Outstanding shares of each of the issuer's classes of Common Stock
as of November 13, 1996:
Class A Common Stock ($0.01 par value) 35,369,500 shares
<PAGE> 2
NATIONAL ENERGY GROUP, INC.
INDEX
<TABLE>
<CAPTION>
PART I. CONSOLIDATED FINANCIAL INFORMATION Page No.
--------
<S> <C>
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets -
December 31, 1995 and September 30, 1996 1
Consolidated Statements of Operations -
Three and Nine months ended September 30, 1995 and 1996 3
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1995 and 1996 4
Consolidated Statement of Changes in Stockholders' Equity -
Nine months ended September 30, 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 2. Changes in Securities 25
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 27
Item 6. Exhibits and Reports on Form 8-K 27
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONAL ENERGY GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
---------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,076 $ 8,650
Marketable securities 1,825 -
Accounts receivable - oil and gas sales 1,407 5,043
Accounts receivable - joint interest and other 263 1,910
Prospect inventory held for resale - 1,300
Other 336 1,389
---------------------------------
Total current assets 9,907 18,292
Oil and gas properties (full cost accounting method):
Proved oil and gas properties 37,493 149,351
Unproved oil and gas properties 708 7,726
---------------------------------
38,201 157,077
Accumulated depletion, depreciation and amortization 5,366 10,289
---------------------------------
Net oil and gas properties 32,835 146,788
Other property and equipment 372 1,506
Accumulated depreciation 236 747
---------------------------------
Net other property and equipment 136 759
Other assets 613 995
---------------------------------
Total assets $ 43,491 $166,834
=================================
</TABLE>
1
<PAGE> 4
NATIONAL ENERGY GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------------------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 3,630 $ 6,744
Accounts payable - revenue and other 984 4,103
Accounts payable - broker margin 979 161
Accrued merger costs - 2,520
Accrued interest 129 -
Note payable and current portion of long-term debt 6,500 3,016
-------------------------
Total current liabilities 12,222 16,544
Long-term debt, less current portion 13,475 63,337
Deferred income taxes - 6,631
Other long-term liabilities 19 3,180
Stockholders' equity:
Convertible preferred stock, $1.00 par:
Authorized shares - 1,000,000
Issued shares - 92,500 and 242,500 at December 31, 1995 and
September 30, 1996, respectively
Aggregate liquidation preference - $9,250 and $24,250 at
December 31, 1995 and September 30, 1996, respectively 93 243
Common stock, $.01 par value:
Authorized shares - 100,000,000
Issued shares - 11,880,125 and 35,221,928 at December 31, 1995
and September 30, 1996, respectively 119 352
Additional paid-in capital 21,485 107,791
Unrealized gain (loss) on available-for-sale securities, net (248) -
Deficit (3,674) (31,244)
-------------------------
Total stockholders' equity 17,775 77,142
-------------------------
Total liabilities and stockholders' equity $43,491 $166,834
=========================
</TABLE>
See accompanying notes.
2
<PAGE> 5
NATIONAL ENERGY GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1995 1996
---------------------- ---------------------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales $ 2,207 $ 5,490 $ 4,861 $ 13,181
Well operator fees 37 215 101 314
---------------------- ---------------------
2,244 5,705 4,962 13,495
Costs and expenses:
Lease operating 425 894 1,138 2,096
Oil and gas production taxes 112 270 261 663
Depreciation, depletion, and amortization 853 2,239 1,711 5,444
Write-down of oil and gas
properties (Note 2) - 43,497 - 43,497
General and administrative 427 909 1,015 1,957
---------------------- ---------------------
1,817 47,809 4,125 53,657
---------------------- ---------------------
Operating income (loss) 427 (42,104) 837 (40,162)
Interest expense (308) (850) (653) (1,826)
Interest income and other 33 125 81 154
Gain (loss) on sale of marketable securities (3) 10 221 (118)
---------------------- ---------------------
Income (loss) before income taxes 149 (42,819) 486 (41,952)
Benefit for income taxes (Note 2) - 15,146 - 15,146
---------------------- ---------------------
Income (loss) before extraordinary item 149 (27,673) 486 (26,806)
Extraordinary charge for early
extinguishment of debt - (292) (432) (292)
---------------------- ---------------------
Net income (loss) 149 (27,965) 54 (27,098)
Preferred stock dividend requirements 236 236 512 708
---------------------- ---------------------
Net income (loss) applicable to common
stockholders $ (87) $(28,201) $ (458) $(27,806)
====================== =====================
Net income per common share:
Income before extraordinary item $ (0.01) $ (1.40) $ (0.00) $ (1.87)
====================== =====================
Net income (loss) $ (0.01) $ (1.42) $ (0.04) $ (1.89)
====================== =====================
Weighted average number of common shares
outstanding 11,945 19,880 10,307 14,693
====================== =====================
</TABLE>
See accompanying notes.
3
<PAGE> 6
NATIONAL ENERGY GROUP, INC.
(UNAUDITED)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1995 1996
-------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 54 $(27,098)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation, depletion, and amortization 1,711 5,444
Write down of oil and gas properties - 43,497
Amortization of loan costs 16 71
Amortization of deferred compensation 31 35
Benefit for deferred income taxes - (15,146)
Extraordinary charge for early extinguishment of debt 432 292
Common stock, options and warrants issued for services 4 138
---------------------------
2,248 7,233
Changes in operating assets and liabilities, net of effects of
business acquisitions:
Accounts receivable (1,094) (1,107)
Accounts receivable from related parties 24 -
Other current assets (194) (822)
Accounts payable and accrued liabilities 1,506 (524)
---------------------------
Net cash provided by operating activities 2,490 4,780
INVESTING ACTIVITIES
Purchases of marketable securities (2,917) (9)
Proceeds from sales of marketable securities 1,892 1,750
Proceeds from broker margin account 1,011 -
Purchases of furniture, fixtures, and equipment (38) (163)
Oil and gas acquisition, exploration, and development expenditures (15,147) (15,039)
Acquisition of Alexander Energy Corporation, net of cash acquired
of $1,333 - (1,489)
Proceeds from sales of oil and gas properties 69 -
Purchases of prospect inventory held for resale - (1,300)
Purchases of other long-term assets and other (15) (600)
---------------------------
Net cash used in investing activities (15,145) (16,850)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt, net 13,186 72,036
Repayments of long-term debt (6,597) (69,010)
Proceeds from exercise of stock options and warrants 456 150
Proceeds from issuance of convertible preferred stock 3,980 15,000
Preferred stock dividends (263) (472)
Repayments of note payable - (3,060)
---------------------------
Net cash provided by financing activities 10,762 14,644
---------------------------
Increase (decrease) in cash and cash equivalents (1,893) 2,574
Cash and cash equivalents at beginning of period 2,593 6,076
---------------------------
Cash and cash equivalents at end of period $ 700 $ 8,650
===========================
Supplemental cash flow information:
Interest paid in cash $ 716 $ 1,927
===========================
</TABLE>
See accompanying notes.
4
<PAGE> 7
NATIONAL ENERGY GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS) ON
ADDITIONAL AVAILABLE-
CONVERTIBLE PAID-IN FOR-SALE
PREFERRED STOCK COMMON STOCK CAPITAL SECURITIES
------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 92,500 $93 11,880,125 $119 $ 21,485 $(248)
Common stock issued upon exercise of
options and warrants - - 113,045 1 180 -
Common stock, options and warrants issued
for services - - 50,000 1 174 -
Common stock issued to acquire interests
in oil and gas properties - - 1,899,317 18 6,175 -
Issuance of Series D and Series E
convertible preferred stock and related
warrants to purchase common stock 150,000 150 - - 14,850 -
Common stock, stock options and warrants
issued or assumed in the acquisition of
Alexander Energy Corporation - - 21,279,441 213 64,927 -
Preferred stock dividends - - - - - -
Change in unrealized gain on marketable
securities - - - - - 248
Net loss - - - - - -
-------------------------------------------------------------------------
Balance at September 30, 1996 242,500 $243 35,221,928 $352 $107,791 $ -
=========================================================================
<CAPTION>
TOTAL
STOCKHOLDERS'
DEFICIT EQUITY
---------------------------
<S> <C> <C>
Balance at December 31, 1995 $ (3,674) $17,775
Common stock issued upon exercise of
options and warrants - 181
Common stock, options and warrants issued
for services - 175
Common stock issued to acquire interests
in oil and gas properties - 6,193
Issuance of Series D and Series E
convertible preferred stock and related
warrants to purchase common stock - 15,000
Common stock, stock options and warrants
issued or assumed in the acquisition of
Alexander Energy Corporation - 65,140
Preferred stock dividends (472) (472)
Change in unrealized gain on marketable
securities - 248
Net loss (27,098) (27,098)
------------------------
Balance at September 30, 1996 $(31,244) $77,142
========================
</TABLE>
See accompanying notes.
5
<PAGE> 8
National Energy Group, Inc.
Notes to Consolidated Financial Statements
September 30, 1995 and 1996
1. BASIS OF PRESENTATION
In management's opinion, the accompanying consolidated financial statements
contain all adjustments (consisting solely of normal recurring accruals)
necessary to present fairly the consolidated financial position of National
Energy Group, Inc. and its subsidiaries (the "Company") as of September 30,
1996, the consolidated results of operations for the three and nine month
periods ended September 30, 1995 and 1996 and the consolidated cash flows for
the nine month periods ended September 30, 1995 and 1996. All significant
intercompany accounts and transactions have been eliminated.
The accompanying unaudited consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to those rules and regulations, although
the Company believes that the disclosures made are adequate to make the
information presented not misleading. These consolidated financial statements
should be read in conjunction with the Company's financial statements and notes
thereto included in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1995.
The Company capitalizes internal general and administrative costs that can be
directly identified with acquisition, exploration, and development activities.
These costs totaled $85,616 for the nine months ended September 30, 1995 and
$173,033 for the nine months ended September 30, 1996.
Certain previously reported amounts have been reclassified to conform with the
1996 presentation.
The results of operations for the nine months ended September 30, 1996 are not
necessarily indicative of the results expected for the full year.
Primary earnings (loss) per common and common equivalent share data is computed
by dividing net income (loss) adjusted for preferred stock dividend
requirements by the weighted average number of common and common equivalent
shares outstanding during each period. Shares issuable upon exercise of options
and warrants are included in the computation of earnings per common and common
equivalent share to the extent they are dilutive. Fully diluted earnings (loss)
per share computations also assume conversion of the Company's preferred stock
if such conversion has a dilutive effect.
For the three and nine months ended September 30, 1995 and 1996, neither the
common equivalent shares nor the assumed conversion of the preferred stock had
a dilutive effect on the loss per share calculations. Accordingly, the loss per
share calculations for such periods are based on the weighted average number of
common shares outstanding for the period.
6
<PAGE> 9
National Energy Group, Inc.
Notes to Consolidated Financial Statements (continued)
2. ACQUISITIONS
In April 1995, the Company purchased a 100% working interest (77% net revenue
interest) in State of Texas Lease No. 69153, State Tract 901-S Field, in
Nueces County, Texas ("Mustang Island"). Consideration for Mustang Island
consisted of $900,000 in cash and 352,500 shares of Class A common stock
("Common Stock"). The cash portion was funded from available cash.
In June 1995, the Company completed the acquisition of producing gas properties
in the Oak Hill Field in Rusk County, Texas ("Oak Hill") for $7,200,000 in cash
and 612,301 shares of Common Stock and warrants to purchase 200,000 shares of
Common Stock at $2.00 per share. The cash portion was funded primarily by
borrowings under the Company's prior credit facility with BankOne, Texas, N.A.
("BankOne").
In addition, in June 1995, the Company completed the acquisition of producing
oil and gas properties in Eddy County, New Mexico from Enron Oil and Gas
Company (the "Enron Properties"). Consideration for the Enron Properties
consisted of $2,119,295 in cash, and was funded under the prior credit facility
with BankOne and available cash.
In January 1996, the Company completed the acquisition of oil and gas
properties in offshore Nueces County, Texas, adjacent to the Company's Mustang
Island property, from C/A Limited, Chartex Petroleum Company and Petrotex
Engineering Company (the "CA Acquisition"). The acquisition included interests
in five wells, a pipeline and separation facility related to Mustang Island.
The consideration for this acquisition consisted of 140,857 shares of the
Company's Common Stock and $675,000 in cash. The cash portion was funded by
borrowings under the prior credit facility with BankOne and available cash.
In February 1996, the Company completed the acquisition of two oil and gas
wells on one offshore block, interests in five additional offshore blocks, and
a related production platform and equipment in offshore Nueces County, Texas,
adjacent to the Company's Mustang Island property, from UMC Petroleum
Corporation (the "UMC Acquisition"). The Company paid UMC Petroleum Corporation
$1,500,000 in cash, and was funded by borrowings under the prior credit
facility with BankOne.
In April 1996, the Company won exploration rights on 16 offshore tracts
(covering 7,765 acres) in the Mustang Island area in offshore Nueces County,
Texas through successful bids with the State of Texas (the "Offshore Lease
Acquisition"). The Company paid $1,437,302 in cash for these rights and the
purchase was funded by borrowings under the prior credit facility with BankOne
and available cash. A portion of the exploration rights associated with the
Offshore Lease Acquisition is expected to be sold within the next year and the
related costs have been classified as prospect inventory held for sale in the
accompanying balance sheet as of September 30, 1996.
On August 29, 1996, the Company completed the acquisition of Alexander Energy
Corporation ("Alexander"). The transaction consisted of a merger (the "Merger")
of Alexander with and into National Energy Group of Oklahoma, Inc., formerly
known as NEG-OK, Inc., a wholly-owned subsidiary of the Company ("NEG-OK").
Pursuant to the Merger, (a) the separate corporate existence of Alexander
terminated and NEG-OK, as the surviving corporation of the Merger, continues as
a wholly-owned subsidiary of the Company with the combined assets and
liabilities of Alexander and NEG-OK, (b) each
7
<PAGE> 10
National Energy Group, Inc.
Notes to Consolidated Financial Statements (continued)
2. ACQUISITIONS (CONTINUED)
share of Alexander common stock, par value $.03 per share ("Alexander Common
Stock"), together with certain rights associated with the Alexander Common
Stock outstanding immediately before the Merger, were converted into 1.7 shares
of the Company's Common Stock and (c) all outstanding options and warrants to
purchase Alexander Common Stock were assumed by the Company and converted into
options and warrants to purchase Common stock. In lieu of fractional shares,
Alexander shareholders otherwise entitled to receive fractional shares of
Common Stock were paid in cash an amount equal to $4.375 multiplied by the
fraction of a share of Common Stock to be received.
In connection with the Merger, on August 29, 1996, the Company, NEG-OK and
Boomer Marketing Corporation ("Boomer Marketing"), a wholly owned subsidiary of
NEG-OK, entered into a new credit facility. See Note 3. On August 29, 1996, the
Company also closed the sale of 100,000 shares of its Convertible Preferred
Stock, Series D, $1.00 par value per share, the sale of 50,000 shares of its
Convertible Preferred Stock, Series E, $1.00 par value per share, and warrants
to purchase 1,050,000 shares of Common Stock. See Note 5.
The cost of acquiring NEG-OK was approximately $69.4 million, consisting of the
following (in thousands):
<TABLE>
<S> <C>
Fair value of 21.1 million shares of the Company's Common Stock $63,404
issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of 105,740 shares of Alexander common stock owned by the 288
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NEG-OK stock options and warrants assumed . . . . . . . . . . . . . 340
Estimated fair value of 122,324 shares of the Company's Common
Stock and 800,000 warrants issued for services provided by
investment advisors . . . . . . . . . . . . . . . . . . . . . . 1,322
Other investment advisor, legal and accounting professional fees
and other Merger related costs . . . . . . . . . . . . . . . . . 4,009
-------
$69,363
=======
</TABLE>
The fair value of the securities issued in connection with the Merger has been
calculated using the price of the Company's Common Stock at the time the Merger
was announced to the public of $3.00 per share.
The Company's purchase price has been allocated to the consolidated assets and
liabilities of NEG-OK based on preliminary estimates of fair values with the
remaining purchase price allocated to proved oil and gas properties. No
goodwill has been recorded in this transaction.
8
<PAGE> 11
National Energy Group, Inc.
Notes to Consolidated Financial Statements (continued)
2. ACQUISITIONS (CONTINUED)
The preliminary allocation of the purchase price is summarized as follows (in
thousands):
<TABLE>
<S> <C>
Working capital (deficit) assumed, excluding current portion of
long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (87)
Oil and gas properties:
Proved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132,756
Unproved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,319
Other property and equipment . . . . . . . . . . . . . . . . . . . . . 970
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . 198
Long-term debt assumed . . . . . . . . . . . . . . . . . . . . . . . . (45,853)
Other non-current liabilities assumed . . . . . . . . . . . . . . . . . (3,163)
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . (21,777)
----------
$ 69,363
==========
</TABLE>
Under the full cost method of accounting, the carrying value of oil and gas
properties (net of related deferred taxes) is generally not permitted to exceed
the sum of the present value (10% discount rate) of estimated future net cash
flows, after tax, from proved reserves, based on current prices and costs, plus
the lower of cost or estimated fair value of unproved properties (the "cost
center ceiling"). Based upon the combined cost center ceiling at August 29,
1996 and the preliminary allocation of the Company's purchase price, the
purchase price allocated to oil and gas properties was in excess of the cost
center ceiling using oil and natural gas prices being received by the Company
and NEG-OK in August 1996 of $20.75 per bbl and $2.21 per mcf. The amount of
such excess was charged to expense in the third quarter of 1996 broken down as
follows (in thousands):
<TABLE>
<S> <C>
Writedown of oil and gas properties $ 43,497
Deferred income tax benefit (15,224)
-----------
$ 28,273
===========
</TABLE>
In September 1996, the Company acquired an approximate 87.5% working interest
in two wells and certain proved undeveloped reserves in South Lake Boeuf,
Louisiana ("Lake Boeuf") for approximately $7.2 million, consisting of $1.5
million in cash and approximately $5.7 million in shares of Common Stock.
The following pro forma data presents the results of the Company for the nine
months ended September 30, 1995 and 1996, as if the acquisitions of Mustang
Island, Oak Hill, the Enron Properties, NEG-OK, and Lake Boeuf had occurred on
January 1, 1995. The historical results of the CA Acquisition, the UMC
Acquisition were not significant. The pro forma results of operations are
presented for comparative purposes only and are not necessarily indicative of
the results which would have been obtained had the acquisitions been
consummated as presented. The following data reflect pro forma adjustments for
oil and gas revenues, production costs, depreciation and depletion related to
the properties and businesses acquired, interest on borrowed funds, additional
preferred stock dividend requirements and the related income tax effects (in
thousands, except per share amounts).
9
<PAGE> 12
National Energy Group, Inc.
Notes to Consolidated Financial Statements (continued)
2. ACQUISITIONS (CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA
---------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------------------------------
1995 1996 1995 1996
---------------------------------------------------------
<S> <C> <C> <C> <C>
Total Revenues . . . . . . . . . . . . . . . . $ 6,655 $ 9,180 $ 21,352 $ 27,117
=========================================================
Income (loss) before extraordinary item . . . . $ (1,092) $ 1,185 $ (3,337) $ 2,404
=========================================================
Income (loss) before extraordinary item per
common share . . . . . . . . . . . . . . . . $ (.04) $ .02 $ (.12) $ .04
=========================================================
</TABLE>
3. CREDIT FACILITIES
Note payable and long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
------------------------------
<S> <C> <C>
Credit Facility . . . . . . . . . . . . . . $ - $ 65,000
Prior credit facility . . . . . . . . . . . 19,975 -
Other . . . . . . . . . . . . . . . . . . . - 1,353
------------------------------
19,975 66,353
Less note payable and current maturities of
long-term debt . . . . . . . . . . . . . . 6,500 3,016
------------------------------
$ 13,475 $ 63,337
==============================
</TABLE>
On August 29, 1996, the Company, NEG-OK and Boomer Marketing, entered into a
credit facility (the "Credit Facility") with BankOne, as Bank and
Administrative Agent, and the Credit Lyonnais New York Branch, as Bank and
Syndication Agent (collectively, the "Banks"). The Credit Facility consisted of
a $100.0 million reducing revolving line of credit, with an initial borrowing
base of $60.0 million, and a $5.0 million term loan. Interest under the
reducing revolving line of credit was payable monthly at the BankOne base rate.
The proceeds from the Credit Facility were used to refinance existing
indebtedness of the Company and NEG-OK.
10
<PAGE> 13
National Energy Group, Inc.
Notes to Consolidated Financial Statements (continued)
3. CREDIT FACILITIES (CONTINUED)
On November 1, 1996, the Company repaid the outstanding borrowings under the
Credit Facility with a portion of proceeds from the issuance of $100 million
principal amount of 10 3/4% Senior Notes due 2006 ("Senior Notes"). See Note 4.
In connection with the issuance of the Senior Notes, the Company amended the
Credit Facility. The borrowing base, pursuant to the amendment Credit Facility,
was reduced to $25.0 million. Comprised of $15.0 million for general corporate
purposes and $10.0 million for acquisitions of producing oil and gas
properties. The borrowing base will be redetermined at least semiannually and
may require mandating monthly principal reductions by an amount determined by
the Banks from time to time. No principal reductions will be required before
the next borrowing base redetermination scheduled for April 1, 1997. The
principal is due at maturity, August 29, 2000. Interest is payable monthly and
is calculated at the BankOne base rate, as determined from time to time by
BankOne (which increases by .25% if the outstanding loan balance is greater
than 75% of the borrowing base). The Company may elect to calculate interest
under the EuroDollar Rate, as defined in the Credit Facility.
The Company is required to pay a commitment fee on the unused portion of the
borrowing base equal to 3/8ths of 1% per annum and paid a facility fee equal to
3/4% of the initial borrowing base under the Credit Facility.
The Company granted to the Banks liens on a minimum of 90% of the present worth
of NEG-OK's oil and natural gas properties, liens on certain of the Company's
oil and natural gas properties, whether currently owned or hereafter acquired,
and a negative pledge on all other oil and natural gas properties. The Credit
Facility requires, among other things, semiannual engineering reports covering
oil and natural gas properties, and maintenance of certain financial ratios,
including the maintenance of a minimum interest coverage, a current ratio, and
a minimum tangible net worth.
The Credit Facility includes other covenants prohibiting cash dividends,
distributions, loans or advances to third parties, except that cash dividends
on preferred stock will be allowed so long as no event of default exists or
would exist as result of the payment thereof. In addition, if the Company is
required to purchase or redeem any portion of the Senior Notes, or if any
portion of the Senior Notes become due, the borrowing base is subject to
reduction.
4. 10 3/4% SENIOR NOTES DUE 2006
On November 1, 1996, the Company completed the sale of $100 million principal
amount of 10 3/4% Senior Notes due 2006. The net proceeds of the Senior Notes
of approximately $96.8 million were used to repay approximately $62 million of
borrowings outstanding under the Credit Facility and to increase the Company's
working capital. The Senior Notes bear interest at an annual rate of 10 3/4%,
payable semiannually in arrears on May 1 and November 1 of each year. The
Senior Notes are senior, unsecured obligations of the Company, ranking pari
passu with all existing and future senior indebtedness of the Company, and
senior in right of payment to all future subordinated indebtedness of the
Company. Subject to certain limitations set forth in the indenture covering
the Senior Notes (the "Indenture"), the Company and its subsidiaries may incur
additional senior indebtedness and other indebtedness.
11
<PAGE> 14
National Energy Group, Inc.
Notes to Consolidated Financial Statements (continued)
4. 10 3/4% SENIOR NOTES DUE 2006 (CONTINUED)
The Indenture contains certain covenants limiting the Company and its
Restricted Subsidiaries, as defined, with respect to the following: (i) assets
sales; (ii) restricted payments; (iii) the incurrence of additional
indebtedness and the issuance of certain redeemable preferred stock; (iv)
liens; (v) sale and leaseback transactions; (vi) lines of business; (vii)
dividend and other payment restrictions affecting subsidiaries; (viii) mergers
and consolidations; and (ix) transactions with affiliates.
At any time on or after November 1, 2001, the Company may, at its option,
redeem all or any portion of the Senior Notes at the redemption prices
(expressed as percentages of the principal amount of the Senior Notes) set
forth below, plus, in each case, accrued and unpaid interest thereon to the
applicable redemption date, if redeemed during the 12-month period beginning
November 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105.375%
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102.688%
2003 and thereafter . . . . . . . . . . . . . . . . . . . . . 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to November 1, 2001, the
Company may, at its option, redeem all or any portion of the Senior Notes at
the Make-Whole Price, as defined, plus accrued and unpaid interest to the date
of redemption. In addition, in the event the Company consummates one or more
Equity Offerings, as defined, on or prior to November 1, 1999, the Company, at
its option, may redeem up to $35.0 million of the aggregate principal amount of
the Senior Notes with all or a portion of the aggregate net proceeds received
by the Company from such Equity Offering or Equity Offerings at a redemption
price of 110.75% of the aggregate principal amount of the Senior Notes so
redeemed, plus accrued and unpaid interest thereon to the redemption date;
provided, however, that following such redemption, at least $65.0 million of
the aggregate principal amount of the Senior Notes remains outstanding.
Upon a Change of Control, as defined, the Company will be required, subject to
certain conditions, to offer to repurchase all outstanding Senior Notes at 101%
of the principal amount thereof, plus accrued and unpaid interest to the date
of purchase.
The Senior Notes will be unconditionally guaranteed (the "Guarantee") by NEG-OK
(the "Guarantor"), the sole Restricted Subsidiary of the Company. The Guarantee
is a general unsecured senior obligation of NEG-OK, ranking pari passu with all
existing and future senior indebtedness of the Guarantor and senior in right of
payment to all future subordinated indebtedness of Guarantor. The Indenture
provides that all existing and future Restricted Subsidiaries shall enter into
a Guarantee.
Separate financial statements and other disclosures concerning the Guarantor
are not presented because management has determined they are not material to
investors. Information for 1995 and the 242 days ended August 29, 1996
presented below is based on the historical financial statements of the
Guarantor.
12
<PAGE> 15
National Energy Group, Inc.
Notes to Consolidated Financial Statements (continued)
4. 10 3/4% SENIOR NOTES DUE 2006 (CONTINUED)
Information subsequent thereto reflects the effect of allocating the Company's
cost of acquiring the Guarantor to the assets and liabilities acquired. The
condensed financial information of the Guarantor is as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
-------------
<S> <C>
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,111
Oil and gas properties, net . . . . . . . . . . . . . . . . . . . . . . 95,206
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,152
--------
$102,469
========
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,204
Long-term liabilities, including $44,851 due to parent . . . . . . . . 55,616
Stockholder's equity . . . . . . . . . . . . . . . . . . . . . . . . . 41,649
--------
$102,469
========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED 242 DAYS ENDED 32 DAYS ENDED
SEPTEMBER 30, AUGUST 29, SEPTEMBER 30,
1995 1996 1996
----------------------------------------------
<S> <C> <C> <C>
Revenues:
Oil and gas sales . . . . . . . . . . . . . . . . . $12,793 $12,415 $1,616
Well operator and management fees . . . . . . . . . 2,082 1,313 154
----------------------------------------
14,875 13,728 1,770
Costs and expenses:
Lease operating . . . . . . . . . . . . . . . . . . 3,843 2,460 227
Oil and gas production taxes . . . . . . . . . . . . 785 761 99
Depreciation, depletion, and amortization . . . . . 6,387 5,564 747
Writedown of oil and gas properties . . . . . . . . - - 43,497
General and administrative . . . . . . . . . . . . . 2,494 1,672 193
Other non-recurring expenses . . . . . . . . . . . . 732 - -
----------------------------------------
14,241 10,457 44,763
----------------------------------------
Operating income (loss) . . . . . . . . . . . . . . . . 634 3,271 (42,993)
Interest expense . . . . . . . . . . . . . . . . . . . (2,982) (2,571) (342)
Interest income and other . . . . . . . . . . . . . . . 268 377 36
----------------------------------------
Income before provision (benefit) for income taxes. . . (2,080) 1,077 43,299
Benefit (provision) for income taxes . . . . . . . . . 770 (366) 15,146
----------------------------------------
Net income (loss) . . . . . . . . . . . . . . . . . . . $(1,310) $ 711 $(28,153)
========================================
</TABLE>
13
<PAGE> 16
National Energy Group, Inc.
Notes to Consolidated Financial Statements (continued)
5. STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Company has authorized 330,000 shares of $1.00 par value convertible
preferred stock designated in four series B through E:
<TABLE>
<CAPTION>
SERIES B SERIES C SERIES D SERIES E
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Number of authorized shares . . . . . . . . . 100,000 80,000 100,000 50,000
Number of shares issued and
outstanding:
December 31, 1995 52,500 40,000 - -
September 30, 1996 52,500 40,000 100,000 50,000
Conversion price per common share . . . . . .
$ 1.625 $ 2.00 $ 2.25 $ 2.25
Liquidation preference value per
share . . . . . . . . . . . . . . . . . . $100.00 $100.00 $100.00 $ 100.00
Dividend rights . . . . . . . . . . . . . . . 10% payable 10 1/2% Participates Participates
semi- payable with common with common
annually semi- stock stock
(cumulative) annually
(cumulative)
</TABLE>
In connection with the Merger and related transactions, the date the Company
may first redeem its 10% Cumulative Convertible Preferred Stock Series B
("Series B) and its 10-1/2% Cumulative Convertible Preferred Stock, Series C
("Series C") was extended from June 14, 1997 to June 14, 1999.
On August 29, 1996, the Company closed the sale for $10.0 million to High River
Limited Partnership ("High River") of 100,000 shares of its Convertible
Preferred Stock, Series D, $1.00 par value per share ("Series D") and warrants
to purchase 700,000 shares of Common Stock exercisable immediately at $2.50 per
share, which warrants expire five years from their date of issuance. The rights
and preferences of the Series D are described in the Certificate of
Designations of the Series D and include the immediate right to convert all the
shares of the Series D into 4,444,444 shares of Common Stock, based upon the
initial conversion price of $2.25 per share.
The holders of the Series D are entitled to one vote for each share when
entitled to vote as described below and as to matters upon which by law they
are entitled to vote as a class. The holders of Series D will have the right to
appoint one member to the Board of Directors. The Company may not, without the
consent of the director appointed by the holders of Series D, voluntarily file
for protection under federal or other bankruptcy laws. In addition, the holders
of Series D will have the right to choose to appoint one-half of the members of
the Board of Directors plus one member (including the member appointed by the
Series D) if the Series D contingent voting rights are triggered and the
holders of the Series D exercise their rights.
14
<PAGE> 17
National Energy Group, Inc.
Notes to Consolidated Financial Statements (continued)
5. STOCKHOLDERS' EQUITY (CONTINUED)
The right of the holders of the Series D to choose to appoint one-half of the
Board of Directors plus one member (including the member appointed by the
holders of the Series D Preferred Stock) is triggered by the following events:
(i) if an involuntary case under federal bankruptcy laws or other applicable
federal or state insolvency laws is commenced against the Company (including a
case for the appointment of a receiver, liquidator, custodian, trustee or
similar official for the Company or its assets) which does not seek emergency
or expedited relief if such case is not dismissed or stayed within 15 days or,
if such case seeks emergency or expedited relief against Series D an opinion of
counsel which states that the Company, without condition, will prevail on the
petition for permanent relief, or (ii) if a default shall have occurred under
notes or other evidences of indebtedness of the Company where the aggregate
outstanding principal amount exceeds $10.0 million, and one of the following
three circumstances exists. First, such indebtedness is due in full by reason
of failure to pay such indebtedness and the default is not cured within 30
days. Second, such indebtedness is accelerated and such acceleration is not
rescinded within 15 days. Third, notice of foreclosure on collateral securing
such indebtedness has been given to the Company and has not been rescinded
after five days or the proposed date of the sale of the collateral is less than
five days away.
On August 29, 1996, simultaneously with the closing of the sale for $10.0
million of the Series D to High River, the Company also closed the sale for
$5.0 million to two insurance companies and four affiliates of Kayne, Anderson
Investment Management, Inc. ("KAIM"), a registered investment adviser, of
50,000 shares of Convertible Preferred Stock, Series E, $1.00 par value per
share ("Series E") and warrants to purchase 350,000 shares of the Common Stock
exercisable immediately at $2.50 per share, which warrants expire five years
from their date of issuance. The Series E has the rights and preferences
described in the Certificate of Designations of the Series E which include the
immediate right to convert all of the shares of the Series E into 2,222,222
shares of the Common Stock, based upon the initial conversion price of $2.25
per share. The Series E will vote together with the Common Stock on all matters
submitted to the holders of Common Stock and shall have that number of votes
per share equal to the number of shares of Common Stock into which such share
is convertible as of the record date for the vote.
COMMON STOCK
In connection with the Merger, the Company shareholders approved an amendment
to the Company's Certificate of Incorporation to eliminate the authorization of
the Class B Common Stock, to change the name of Class A Common Stock to "Common
Stock," and to increase the number of authorized shares of Common Stock from
50,000,000 to 100,000,000 shares.
As a result of the Merger, the Company assumed 129,501 outstanding stock
options previously issued pursuant to three stock option plans of Alexander.
No additional stock options will be granted pursuant to such plans. The stock
options assumed may be exercised to purchase shares of Common Stock at prices
ranging from $0.88 to $2.94 per share. The Company also assumed 396,015
warrants to purchase Common Stock at prices ranging from $2.07 to $3.00 per
share.
On August 29, 1996, the Board of Directors approved the issuance of options to
purchase 700,000 shares of Common Stock to the Company's chief executive
officer. The options have an exercise price of $4 1/16 per share. The options
become exercisable when the price of the Common Stock reaches and
15
<PAGE> 18
COMMON STOCK (CONTINUED)
remains at or above $8 1/8 for a period of 30 days. If the price target is not
met within five years, the options expire.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
CONSOLIDATED RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain information regarding the production
volumes, oil and gas sales, average sales prices, average lease operating
expenses and general and administrative expenses associated with the Company's
oil and gas sales for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1995 1996
(In thousands except per share data)
-------------------- --------------------
<S> <C> <C> <C> <C>
Net production:
Oil (Bbls) 81 121 177 344
Gas (Mcf) 556 1,421 1,065 2,997
Mcfe 1,045 2,150 2,125 5,060
Oil and gas sales:
Oil $1,340 $2,663 $3,040 $ 7,077
Gas 867 2,827 1,821 6,104
------ ------ ------ -------
Total $2,207 $5,490 $4,861 $13,181
====== ====== ====== =======
Average sales price:
Oil (Bbls) $16.44 $21.93 $17.24 $ 20.62
Gas (Mcf) $ 1.56 $ 1.99 $ 1.71 $ 2.04
Average lease operating expenses:
Per Mcfe $ .41 $ .42 $ .54 $ .41
General and administrative expenses:
Per Mcfe $ .41 $ .42 $ .48 $ .38
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1995
Revenues
Total revenues increased by $8.5 million (172%) to $13.5 million for 1996 from
$5.0 million for 1995. The increase in revenues is due to the increase in
production from the development of the GAU, and the increase in production due
to the acquisitions of Mustang Island, Oak Hill, and the Enron Properties, the
UMC Acquisition and the CA Acquisition completed during the first quarter of
1996, and the Merger with Alexander Energy Corporation completed August 29,
1996. The acquisition of Mustang Island, Oak Hill and the Enron Properties are
collectively referred to herein as the "1995 Acquisitions", and the UMC
Acquisition and CA Acquisition are referred to herein as the "1996
Acquisitions." In 1996, the Company produced 344,000 barrels of oil, an
increase of 95% over 177,000 barrels in 1995, and 2,997,000 Mcf of gas, an
increase of 181% over 1,065,000 Mcf in 1995.
16
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
CONSOLIDATED RESULTS OF OPERATIONS (CONTINUED)
Also contributing to the increase in revenues was the increase in average oil
prices of $3.38 per barrel to $20.62 for 1996 from $17.24 for 1995, and the
increase in average gas prices of $.33 per Mcf to $2.04 for 1996 from $1.71 for
1995. In addition, in 1996, the Company recognized $20,315 in hedging gains
from commodity swap agreements.
Costs and Expenses
Total costs and expenses, excluding the write-down, increased $8.0 million
(194%) to $12.1 million for 1996 from $4.1 million for 1995. Lease operating
expenses and production taxes increased $1.4 million (97%) to $2.8 million for
1996 from $1.4 million for 1995 primarily due to the development of GAU, the
1995 and 1996 Acquisitions and the Merger. Lease operating expenses per Mcfe
decreased by $.13 to $.41 per Mcfe for 1996 from $.54 per Mcfe for 1995. This
decrease is a result of the lower operating costs of the acquired properties
combined with reductions in costs at the GAU obtained through economies of
scale resulting from the additional wells drilled since August 1994.
Depreciation, depletion, and amortization increased $3.7 million (218%) to $5.4
million for 1996 compared to $1.7 million for 1995. This increase is due to the
increased production from the GAU, the 1995 and 1996 Acquisitions and the
Merger. The depletion rate per Mcfe was $1.02 for 1996 compared to $.79 for
1995. This increase in the depletion rate is primarily due to downward
revisions in estimated proved reserves at December 31, 1995 in connection with
the Company's change in independent reserve engineers to Netherland, Sewell &
Associates, Inc.
At August 29, 1996, as a result of allocating the cost of acquiring Alexander,
under the purchase method of accounting to the proved oil and gas properties
acquired in connection with the Merger, the Company recognized a non-cash
writedown of the oil and gas properties, net of related deferred income taxes
of $28.3 million, based on prices received in August 1996 of $20.75 per Bbl and
$2.21 per Mcf. Such writedown is based on the preliminary purchase price of
the Merger. See Note 2 of Notes to Consolidated Financial Statements.
Although general and administrative expenses ("G&A") increased $.9 million to
$2.0 million for 1996, G&A per Mcfe decreased to $.38 (19%) for 1996 from $.47
for 1995. This decrease is attributable to the increase in production from the
GAU, the 1995 and 1996 Acquisitions and to a lesser extent the Merger, without
a proportionate increase in the G&A costs to the Company.
Other Income and Expenses
The increase of $1.2 million (180%) in interest expense to $1.8 million for
1996 from $.6 million for 1995, was due to the increase in the amount of
outstanding debt as a result of borrowings under a prior credit facility and
the Credit Facility to fund the 1996 Acquisitions and the Merger during 1996,
and was partially offset by the decline in weighted average interest rates. The
average debt outstanding for 1996 was $26 million as compared to only $8.8
million for 1995. The weighted average interest rate for 1996 was 8.92% as
compared to 9.72% for 1995.
17
<PAGE> 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
CONSOLIDATED RESULTS OF OPERATIONS (CONTINUED)
Net Loss
A net loss of $27.0 million was generated for 1996, compared with net income of
$54,000 for 1995. Net income for 1995 includes an extraordinary charge
resulting from the write-off of unamortized loan costs attributable to a prior
credit facility which was paid off out of proceeds from the Credit Facility.
The net loss for 1996 includes a net non-cash write down of $28.3 million to
the Company's oil and gas properties, attributable to the preliminary
allocation of the Company's purchase price related to the Merger, which is
partially offset by the increased production on the GAU, the 1995 and 1996
Acquisitions and due to the Merger. Also included in the net loss was a loss on
sale of marketable securities of $118,000 for 1996 as compared to a gain of
$221,000 for 1995.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1995
Revenues
Total revenues increased by $3.5 million (154%) to $5.7 million for 1996 from
$2.2 million for 1995. The increase in revenues is principally due to the
continued development of the GAU, the increase in production due to the 1995
and 1996 Acquisitions and the Merger. In 1996, the Company produced 121,000
barrels of oil, an increase of 49% over 81,000 barrels in 1995, and 1,421,000
Mcf of gas, an increase of 156% over 556,000 Mcf in 1995. The increase in oil
production was primarily a result of the GAU's increased oil production
resulting from the development since August 1994. The 1995 and 1996
Acquisitions and the Merger accounted for the majority of the increased gas
production. Also contributing to the increase in revenues was the increase in
average oil prices of $5.25 per barrel to $21.89 for 1996 from $16.64 for 1995
and the increase in average gas prices of $.43 per Mcf to $1.99 for 1996 from
$1.56 for 1995.
Costs and Expenses
Total costs and expenses, excluding the write-down, increased $2.5 million
(137%) to $4.3 million for 1996 from $1.8 million for 1995. Lease operating
expenses and production taxes increased $.7 million (117%) to $1.2 million for
1996 from $.5 million for 1995 primarily due to the development of the GAU, the
1995 and 1996 Acquisitions and the Merger. Lease operating expenses per Mcfe
were relatively unchanged at $.42 per Mcfe for 1996 compared to $.41 for 1995.
Depreciation, depletion, and amortization increased $1.4 million (162%) to $2.2
million for 1996 compared to $.8 million for 1995. This increase was, in part,
related to the increased production from the GAU, the 1995 and 1996
Acquisitions and the Merger. The depletion rate per Mcfe was $1.02 for 1996
compared to $.79 for 1995. This increase in the depletion rate is primarily due
to downward revisions in estimated proved reserves at December 31, 1995, in
connection with the Company's change in independent reserve engineers, and the
Merger.
18
<PAGE> 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
CONSOLIDATED RESULTS OF OPERATIONS (CONTINUED)
At August 29, 1996, as a result of allocating the cost of acquiring Alexander,
under the purchase method of accounting to the proved oil and gas properties
acquired in connection with the Merger, the Company recognized a net non-cash
write-down of $28.3 million to the Company's oil and gas properties, based on
prices recorded in August of 1996 of $20.75 per Bbl and $2.21 per Mcf. Such
writedown is based on the preliminary purchase price of the Merger. See Note 2
of Notes to Consolidated Financial Statements.
G&A increased $.4 million to $.8 million for 1996 while G&A per Mcfe remained
relatively unchanged at $.42 compared to $.41 for 1995.
Other Income and Expenses
The increase of $.6 million (176%) in interest expense to $.9 million for 1996
from $.3 million for 1995, was due to the increase in the amount of outstanding
debt as a result of borrowings under a prior credit facility and the Credit
Facility to fund the 1996 Acquisitions and the Merger during 1996 and was
partially offset by a decline in weighted average interest rates. The average
debt outstanding for 1996 was $37 million as compared to only $12.5 million for
1995. The weighted average interest rate for 1996 was 9.12% as compared to
9.60% for 1995. During 1996, the Company realized a gain of $10,000 on the sale
of marketable securities.
Net Loss
A net loss of $27.9 million was generated for 1996, compared with net income of
$149,000 for 1995. Net income for 1995 includes an extraordinary charge
resulting from the write-off of unamortized loan costs attributable to a prior
credit facility which was paid off out of proceeds from the Credit Facility and
the net loss for 1996 includes a non-cash net writedown of $28.3 million to the
Company's oil and gas properties, attributable to the preliminary allocation of
the Company's purchase price related to the Merger, which was partially offset
by the increased production on the GAU, the 1995, and 1996 Acquisitions and the
Merger. Included in the net loss was a gain on sale of marketable securities of
$10,000 in 1996 compared to a loss of $3,000 in 1995.
Pro Forma Results of Operations
The following table sets forth certain information regarding the pro forma
combined production volumes, oil and gas sales, average sales prices, average
lease operating expenses and general and administrative expenses, operating
income and EBITDA, assuming the Merger had been consummated on January 1, 1995.
The pro forma combined information does not purport to represent the actual
results which would have occurred had the Merger been consummated on such date.
19
<PAGE> 22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
CONSOLIDATED RESULTS OF OPERATIONS (CONTINUED)
PRO FORMA
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1995 1996
------------------------ ------------------------
<S> <C> <C> <C> <C>
Net production:
Oil (Bbls) . . . . . . . . . . . . . 123 142 325 429
Natural gas (Mcf) . . . . . . . . . 2,766 2,660 8,157 8,198
Natural gas equivalent (Mcfe) . . . 3,506 3,511 10,105 10,773
Oil and natural gas sales (in thousands)
Oil . . . . . . . . . . . . . . . . $ 1,991 $ 3,073 $ 5,561 $ 8,715
Natural gas . . . . . . . . . . . . 3,920 5,636 12,093 16,861
------------------------ ------------------------
Total . . . . . . . . . . . . . . $ 5,911 $ 8,709 $ 17,654 $ 25,576
======================== ========================
Average sale price:
Oil (per Bbl) . . . . . . . . . . . $ 16.15 $ 21.67 $ 17.13 $ 20.31
Natural gas (per Mcf) . . . . . . . 1.42 2.12 1.48 2.06
Natural gas equivalent (per Mcfe) . 1.69 2.48 1.75 2.37
Lease operating expenses per Mcfe . . . .43 .43 .49 .42
General and administrative expenses
per Mcfe (1) . . . . . . . . . . . . .34 .37 .35 .32
Operating income (2) . . . . . . . . . $ 267 $ 1,454 $ 2,531 $ 7,023
EBITDA (3) . . . . . . . . . . . . . . 3,717 6,169 10,871 18,029
</TABLE>
(1) General and administrative expenses per Mcfe is calculated using general
and administrative expenses before well operator overhead reimbursements
billed to working interest owners.
(2) Excludes a non-cash write-down of oil and gas properties of approximately
$43.5 million, before related benefit for deferred income taxes of $15.2
million.
(3) EBITDA is earnings before interest expense, income taxes, depletion,
depreciation and amortization, excluding extraordinary items and
significant non-recurring revenues and expenses.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1995
Net cash provided by operating activities was $4.8 million for the nine months
ended September 30, 1996, compared to $2.5 million for the same period in 1995.
The increase in cash flow from operating activities is primarily due to the
significant increase in income from operations related to the Merger and the
1995 and 1996 Acquisitions before depreciation, depletion, and amortization as
discussed above.
20
<PAGE> 23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
CONSOLIDATED RESULTS OF OPERATIONS (CONTINUED)
Net cash used in investing activities was $16.8 million for 1996 compared with
$15.1 million for 1995. This decrease was principally due to the fact that
virtually no expenditures were made for the purchase of marketable securities
during 1996 as compared to $2.9 million purchased in 1995.
Net cash provided by financing activities was $14.6 million for 1996 compared
with $10.8 million for 1995. The cash used by financing activities during 1996
primarily consisted of repayments of borrowings under various credit facilities
and debt assumed in the Merger of $69 million offset by borrowings of $72
million and proceeds from the issuance of preferred stock of $15 million.
Borrowings under the prior credit facility were used to fund acquisitions,
development of GAU and working capital.
The Company's working capital at September 30, 1996 was $1.7 million.
EBITDA
The Company's EBITDA increased by $5.9 million to $8.8 million for the nine
months ended September 30, 1996. The increase in EBITDA occurred primarily as a
result of the Merger and the continued successful development of the GAU
combined with the 1995 and 1996 Acquisitions.
For the three months ended September 30, 1996, EBITDA increased by $2.5 million
to $3.8 million over the same period in 1995. The increase in EBITDA occurred
primarily as a result of the Merger and the continued successful development of
the GAU combined with the 1995 and 1996 Acquisitions.
Pro forma combined EBITDA for the Company and NEG-OK for the three months and
nine months ended September 30, 1996 was $6.2 million and $18.0 million
respectively. The compares to $3.7 million and $10.9 million for the same
respective periods in 1995 on a pro forma basis.
EBITDA should not be considered an alternative to net income as an indicator of
the Company's operating performance or an alternative to cash flows as a
measure of liquidity.
FUTURE CAPITAL REQUIREMENTS
The Company has made, and will continue to make, substantial capital
expenditures for acquisition, development and production of oil and natural gas
reserves, particularly since a substantial portion of the proved reserves of
the Company consist of proved undeveloped reserves, which require substantial
capital expenditures to prove and develop.
In October 1996, the Company acquired an additional 14% working interest in the
East Bayou Sorrel discovery well (the Schwing No. 1) and related acreage,
located in Iberville Parish, Louisiana, increasing the Company's interest in
such well to approximately 31% (the "East Bayou Sorrel Acquisition"). The
purchase price was approximately $3.3 million cash. The East Bayou Sorrel
acquisition will also reduce the interest in the Pending Acquisition described
below that the Company will be required to offer to all other interest owners
pursuant to area of mutual interest provisions contained in the existing East
Bayou Sorrel operating agreement.
21
<PAGE> 24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
CONSOLIDATED RESULTS OF OPERATIONS (CONTINUED)
In November 1996, the Company signed a purchase and sale agreement to acquire a
100% working interest in the Bayou Sorrel field in Iberville Parish, Louisiana
(the "Pending Acquisition"), which field is located adjacent to the Company's
recently announced discovery well at East Bayou Sorrel. The purchase price is
approximately $11 million, consisting of $9 million cash and $2 million in
shares of Common Stock (the amount of such shares to be based upon the average
closing price per share during the ten trading days prior to closing). The
Company's interest in the Pending Acquisition may be reduced, along with a
commensurate reduction in the cash portion of the purchase price, pursuant to
area of mutual interest provisions contained in the existing operating
agreement for East Bayou Sorrel, which requires the Company to make
proportionate offers to all other working interest owners in East Bayou Sorrel.
The Pending Acquisition is subject to due diligence. The Company anticipates
that it will close the Pending Acquisition in November 1996. The cash portion
of the purchase price will be funded from available cash or proceeds from the
Credit Facility.
The Company has budgeted capital expenditures of approximately $46.8 million
for the three months ended December 31, 1996 and the year ended December 31,
1997, excluding the East Bayou Sorrel Acquisition and the Pending Acquisition.
The Company is not contractually committed to expend these funds. The Company
currently expects that available cash, cash flows from operations, proceeds
from the issuance of the Senior Notes and available borrowings under the Credit
Facility, will be sufficient to fund planned capital expenditures for its
existing properties through 1997, including the Pending Acquisition. At
November 1, 1996, following closing of the issuance of the Senior Notes, the
Company had cash and cash equivalents of $34 million, an increase of $25
million from $9 million at September 30, 1996. However, the Company may need to
raise additional capital to fund acquisitions which may become available to the
Company in the future, and the development thereof.
For periods after 1997, the Company may seek additional capital, if required,
from traditional reserve base borrowings, equity and debt offerings or joint
ventures to further develop and explore its properties and to acquire
additional properties. The Company's ability to access additional capital will
depend on its continued success in exploring for and developing its oil and
natural gas reserves and the status of the capital markets at the time such
capital is sought. Accordingly, there can be no assurance that capital will be
available to the Company from any source or that, if available, it will be at
prices or on terms acceptable to the Company. Should the Company be unable to
access the capital markets or should sufficient capital not be available, the
development and exploration of the Company's properties could be delayed or
reduced and, accordingly, oil and natural gas revenues and operating results
may be adversely affected.
SENIOR NOTES
On November 1, 1996, the Company closed the offering of $100,000,000 of its
10-3/4% million Senior Notes due 2006. The net proceeds of the Senior Notes of
approximately $96.8 million were used to repay approximately $62 million of
borrowings under the Credit Facility and to increase the Company's working
capital. The Senior Notes bear interest at 10-3/4% per annum, payable
semi-annually on May 1 and November 1, commencing May 1, 1997. The Senior
Notes mature November 1, 2006, but may be redeemed after November 1, 2001, at
the Company's option. The Indenture governing the Senior Notes contains certain
covenants, including, but not limited to, covenants restricting the Company and
its Restricted Subsidiaries, as defined, ability to incur additional
indebtedness. See Note 4 of Notes to Consolidated Financial Statements.
22
<PAGE> 25
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
CONSOLIDATED RESULTS OF OPERATIONS (CONTINUED)
CREDIT FACILITIES
In August 1996, the Company consummated a $100.0 million reducing revolving
line of credit, with an initial borrowing base of $60.0 million and a $5.0
million term loan. The proceeds from the initial borrowings were used to
refinance the existing indebtedness of the Company and Alexander. On November
1, 1996 this facility was paid-off with a portion of the proceeds from the
Senior Notes. Simultaneously, the Company entered into an amendment to the
Credit Facility. The Credit Facility, as amended, is a revolving line of
credit with an initial borrowing base of $25.0 million, $10.0 million of which
can only be used to make acquisitions of producing oil and gas properties. The
Credit Facility contains certain covenants, including maintenance of a minimum
interest coverage ratio, a current ratio and a minimum tangible net worth. See
Note 3 of Notes to Consolidated Financial Statements.
PREFERRED STOCK
In August 1996, the Company completed the sale of 100,000 shares of Series D
preferred stock for $10.0 million and 50,000 shares of Series E preferred stock
for $5.0 million. The Series D and Series E are convertible into shares of
Common Stock at a conversion price of $2.25 per share. In conjunction
therewith, the Company agreed to extend the date at which it may first redeem
its Series B and Series C convertible preferred stock from June 14, 1997 to
June 14, 1999. See Note 5 of Notes to Consolidated Financial Statements.
CHANGES IN PRICES AND INFLATION
The Company's revenues and value of its oil and gas properties have been and
will continue to be affected by changes in oil and gas prices. Oil and gas
prices are subject to seasonal and other fluctuations that are beyond the
Company's ability to control or predict.
The Company hedges crude oil and natural gas prices through the use of
commodity swap agreements in an effort to reduce the effects of the volatility
of the price of crude oil and natural gas on the Company's operations. These
agreements involve the receipt of fixed-price amounts in exchange for variable
payments based on NYMEX prices and specific volumes. In connection with the
commodity swap agreements, the Company may also enter into basis swap
agreements to reduce the effects of unusual fluctuations between prices
actually received at the well head and NYMEX prices. Through the use of
commodity price and basis swap agreements, the Company can fix the price to be
received for specified volumes of production to the commodity swap price less
the basis swap price. The differential to be paid or received, under the swap
agreement, is accrued in the month of the related production and recognized as
a component of crude oil and natural gas sales. The Company does not hold or
issue financial instruments for trading purposes.
While the use of hedging arrangements limits the downside risk of adverse price
movements, it may also limit future gains from favorable movements. All hedging
is accomplished pursuant to swap agreements based upon standard forms. The
Company addresses market risk by selecting instruments whose value fluctuations
correlate strongly with the underlying commodity being hedged. Credit risk
related to hedging activities is managed by requiring minimum credit standards
for counterparties, periodic settlements, and mark to market valuations. The
Company has not been required to provide collateral relating to hedging
activities.
23
<PAGE> 26
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
CONSOLIDATED RESULTS OF OPERATIONS (CONTINUED)
At September 30, 1996, the Company is entered into a basis swap agreement with
a basis differential of $.205 covering 300,000 Mcf of natural gas to be
produced during the remainder of 1996.
During the first nine months of 1996, the Company recognized a net gain of
$20,000 related to hedging transactions.
Although certain of the Company's costs and expenses are affected by the level
of inflation, inflation has not had a significant effect on the Company's
results of operations during the three and nine months ended September 30, 1995
and 1996.
24
<PAGE> 27
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 7, 1996, a lawsuit filed on July 25, 1995 by Bill V. Dean and
Elliott Associates, L.P. ("Elliott") against Alexander (now NEG-OK) and its
directors in Oklahoma County District Court was dismissed without prejudice by
Elliott. The lawsuit purported to be a derivative action on behalf of
Alexander against the Alexander Board of Directors for breach of fiduciary
duties in enacting a share rights plan, approving severance agreements and
policies and proposing a senior note offering. No damages were sought against
Alexander. The suit asked that the Alexander share rights plan and severance
contracts and policy be invalidated, sought an injunction against Alexander's
note offering and requested damages to Alexander from the directors in excess
of $10,000.
ITEM 2. CHANGES IN SECURITIES
On August 29, 1996, the Company closed the sale of the Series D and Series E
Preferred Stock. The holders of the Series D have certain rights if certain
events occur that may indicate that the Company is insolvent or is financially
distressed. The member of the Board of Directors appointed by the holders of
the Series D has the right to veto any voluntary bankruptcy filing by the
Company. The holders of the Series D also have the right to chose to elect
one-half of the members of the Board plus one member if certain events occur
indicating insolvency of the Company, such as an involuntary bankruptcy filing
or a default in indebtedness of the Company in excess of $10 million which is
not cured within certain applicable cure periods. In addition, the holders of
the Series E have the right to vote with the Common Stock on all matters
submitted to the holders of Common Stock, such holders having the number of
votes per share of Series E as is equal to the number of shares of Common Stock
into which such share is convertible. As a result of such rights, the holders
of Common Stock will vote as a class together with the Series E on all matters
submitted to the holders of Common Stock, including the election of directors.
In addition, the rights of such combined class to elect a majority of the Board
of Directors of the Company may be affected by the rights of the Series D
holders in the case of the occurrence of events triggering the rights of the
holders of the Series D to elect one-half of the Board plus one member.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 29, 1996, an annual meeting of the shareholders of the Company was
held.
At the meeting four proposals were voted upon and the following sets forth the
number of votes that were cast for and against the proposals and the number of
abstentions and broker no votes on the proposals:
(i) Proposal to issue shares of Common Stock in connection with
the Merger of Alexander with and into NEG-OK and to approve
the Merger and the related Agreement and Plan of Merger, as
amended, among the Company, Alexander and NEG-OK (the "Merger
Agreement"):
<TABLE>
<CAPTION>
Common Stock Series B Series C
------------ ------- -------
<S> <C> <C> <C>
For 8,761,694 52,500 40,000
Against 22,858 -- --
Abstain 46,333 -- --
Broker No Votes 1,951,939 -- --
---------- ------- -------
10,782,824 52,500 40,000
========== ======= =======
</TABLE>
25
<PAGE> 28
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (CONTINUED)
(ii) Proposal to elect five nominees as directors of the Company to
serve until the next annual meeting of shareholders:
<TABLE>
<CAPTION>
Name of Director
Miles D. Robert H. George B. George N. Norman C.
Bender Kite McCullough McDonald Miller
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
For 10,706,699 10,706,699 10,706,479 10,687,699 10,706,479
Against 76,125 76,125 76,345 95,125 76,345
Abstain -- 220 19,000 220
---------- ---------- ---------- ---------- ----------
--
--
10,782,824 10,782,824 10,782,824 10,782,824 10,782,824
========== ========== ========== ========== ==========
</TABLE>
(iii) Proposal to amend the Certificate of Incorporation of the
Company to eliminate the authorization of the Class B Common
Stock, to change the name of the Class A Common Stock to
"Common Stock," to increase the authorized number of shares of
Common Stock from 50 million to 100 million shares, to clarify
the powers of the Board of Directors to issue preferred stock
without shareholder approval, and to extend from June 14, 1997
to June 14, 1999 the period during which the Company may not
redeem the Series B Preferred Stock and the Series C Preferred
Stock:
<TABLE>
<CAPTION>
Common Stock Series B Series C
------------ -------- --------
<S> <C> <C> <C>
For 8,613,787 52,500 40,000
Against 200,813 -- --
Abstain 69,845 -- --
Broker No Votes 1,898,379 -- --
---------- ------ ------
10,782,824 52,500 40,000
========== ====== ======
</TABLE>
(iv) Proposal to ratify the selection of Ernst & Young LLP as the
Company's independent auditors for the current fiscal year
ended December 31, 1996:
<TABLE>
<S> <C>
For 10,611,786
Against 81,450
Abstain 49,588
Broker No Votes 40,000
------------
10,782,824
==========
</TABLE>
In addition to the five directors elected above, effective immediately after
the election of Directors by the holders of the Common Stock. Robert V.
Sinnott was elected as the appointee of the Series B and Elwood W. Schafer was
elected as the appointee of the Series C. Immediately after the effective time
of the Merger, Bob G. Alexander, Jim L. David and Robert A. West were appointed
to the Board of Directors pursuant to the Merger Agreement. Effective
immediately after the sale of the Series D, Robert J. Mitchell was appointed to
the Board of Directors by the holders of the Series D.
26
<PAGE> 29
ITEM 5. OTHER INFORMATION
On November 1, 1996, the Company completed an offering of $100,000,000
principal amount of its 10 3/4% Senior Notes due 2006. The offering was made
as a private placement to three initial purchasers. The Senior Notes were not
registered pursuant to the Securities Act of 1933, as amended, and may not be
offered or sold in the United States absent registration or an exemption from
applicable registration requirements.
The $96,750,000 net proceeds of the offering were used to repay approximately
$62 million under the Company's Credit Facility and the balance will be used to
fund the Company's oil and natural gas exploitation, development, exploration
and acquisition projects.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
2.1 Agreement and Plan of Merger, dated June 6, 1996,
among the Company, NEG-OK, Inc. ("NEG-OK"), and
Alexander Energy Corporation ("Alexander"(1)
2.2 First Amendment to Agreement and Plan of Merger,
dated as of June 20, 1996, among the Company, NEG-OK
and Alexander(2)
2.3 Mutual Waiver Agreement dated as of August 29, 1996
by and among the Company, NEG-OK and Alexande(3)
3.1 Certificate of Incorporation of the Company, which
includes the Certificate of Incorporation of the
Company filed with the Secretary of State of Delaware
on November 20, 1990(4), the Certificate of
Elimination of the Redeemable Convertible Preferred
Stock, Series A of the Company, filed with the office
of the Secretary of State of the State of Delaware on
June 2, 199(3), the Certificate of Amendment of
Certificate of Incorporation of the Company, filed
with the office of the Secretary of State of the
State of Delaware on August 29, 1996(3), the
Certificate of Designations of the Company of 10%
Cumulative Convertible Preferred Stock, Series B(5),
the Certificate of Designations of the Company of 10
1/2% Cumulative Convertible Preferred Stock, Series
C(6), the Certificate of Designations of the Company
of Convertible Preferred Stock, Series D(3), and the
Certificate of Designations of the Company of
Convertible Preferred Stock, Series E(3)
3.2 By-laws of the Company(4)
4.1 Certificate of Designations of the Company of 10%
Cumulative Convertible Preferred Stock, Series B(5)
4.2 Certificate of Designations of the Company of 10 1/2%
Cumulative Convertible Preferred Stock, Series C(6)
4.3 Certificate of Designations of the Company of
Convertible Preferred Stock, Series D(3)
27
<PAGE> 30
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
4.4 Certificate of Designations of the Company of
Convertible Preferred Stock, Series E(3)
4.5 Note Agreement dated as of April 25, 1989, by and
among AEJH 1989 Limited Partnership, Alexander and
John Hancock Mutual Life Insurance (10 1/2% Senior
Secured Notes(8)
4.6 Letter dated August 29, 1996 between Alexander and
John Hancock Mutual Life Insurance Company relating
to the payment of the 1989 Note(3)
4.7 Specimen Common Stock Certificate(9)
4.8 Indenture dated as of November 1, 1996, among the
Company, National Energy Group of Oklahoma, Inc. (the
"Guarantor"), formerly NEG-OK, and Bank One,
Columbus, N.A.(10)
4.9 Specimen Global Note Certificate dated November 1,
1996(10)
10.1 Crude Oil Purchase Contract, dated November 30, 1992,
between the Company and Plains Liquids Transport
Inc.(11)
10.2 Amendment to Crude Oil Purchase Contract, dated
November 17, 1993, between the Company and Plains
Liquids Transport, Inc.(5)
10.3 Crude Oil Purchase Contract, dated February 8, 1993,
between the Company and Plains Marketing and
Transportation Inc. and the predecessor contract, the
Crude Oil Purchase Contract, dated November 12, 1991,
between Sunnybrook Transmission, Inc. and TriSearch
Inc.(11)
10.4 Stock Purchase Agreement, dated as of June 2, 1994,
among the Company, Arbco Associates L.P., Offense
Group Associates L.P., Kayne, Anderson Nontraditional
Investments L.P., and Opportunity Associates L.P.(5)
10.5 Gaines Berland, Inc. Warrant, dated January 27,
1995(1)
10.11 Purchase and Sale Agreement, dated as of March 29,
1995, between the Company and Enron Oil and Gas
Company(6)
10.12 Agreement for Purchase and Sale (Oak Hill), dated
April 12, 1995, between the Company and Sierra 1994 I
Limited Partnership(6)
10.13 Agreement for Purchase and Sale (Mustang Island),
dated April 20, 1995, between the Company and Sierra
Mineral Development, L.C.(6)
10.14 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.(6)
28
<PAGE> 31
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
10.15 Executive Employment Agreement, dated January 1,
1996, between the Company and Miles D. Bender(12)
10.16 Executive Employment Agreement, dated January 1,
1996, between the Company and R. Thomas Fetters,
Jr(12)
10.17 Agreement, dated January 1, 1996, between the Company
and Randall A. Carter(12)
10.18 Agreement, dated January 1, 1996, between the Company
and Robert A. Imel(12)
10.19 Executive Employment Agreement, dated January 1,
1996, between the Company and Melissa Rutledge(12)
10.20 Executive Employment Agreement, dated January 1,
1996, between the Company and William T. Jones(12)
10.22 Executive Employment Agreement, dated June 6, 1996,
between the Company and David E. Grose(1)
10.23 Executive Employment Agreement, dated June 5, 1996,
between the Company and Sue Barnard(1)
10.24 Executive Employment Agreement, dated June 6, 1996,
between the Company and Jim L. David(1)
10.25 Employment Agreement, dated June 6, 1996, between the
Company and Bob G. Alexander(1)
10.26 Employment Agreement, dated June 6, 1996, between the
Company and Roger G. Alexander(1)
10.29 Prudential Securities Incorporated Warrant to
Purchase 100,000 Shares of the Company's Common
Stock(3)
10.30 Gaines Berland, Inc. Warrant to Purchase 300,000
Shares of the Company's Common Stock(3)
10.31 Gaines Berland, Inc. Warrant to Purchase 700,000
Shares of the Company's Common Stock(3)
10.32 Agreement dated January 1, 1996 between the Company
and Sandefer Oil & Gas, Inc.(1)
10.33 Consulting Agreement dated January 1, 1996 between
the Sandefer Oil & Gas, Inc. and Potosky Oil & Gas,
Inc. and Atocha Exploration, Inc.(1)
29
<PAGE> 32
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
10.34 Stock Purchase Agreement dated August 7, 1996 between
the Company and High River Limited Partnership(2)
10.35 High River Limited Partnership Warrant to purchase
700,000 Shares of Common Stock, dated August 29,
1996(3)
10.36 Stock Purchase Agreement dated as of August 26, 1996,
between the Company and Foremost Insurance Company,
Arbco Associates, L.P., Kayne, Anderson
Nontraditional Investments L.P., Offense Group
Associates, L.P., Topa Insurance Company and Kayne,
Anderson Offshore Limited (the "Series E
Investors")(3)
10.37 Form of Series E Investors' Warrants to purchase an
aggregate 350,000 Shares of Common Stock, dated
August 29, 1996(3)
10.38 Agreement dated as of August 29, 1996 by and between
the Company and Prudential Securities Incorporated(3)
10.40 Restated Loan Agreement dated August 29, 1996 among
Bank One and Credit Lyonnais New York Branch ("Credit
Lyonnais") and the Company, NEG-OK and Boomer
Marketing Corporation ("Boomer")(3)
10.41 $50,000,000 Revolving Note dated August 29, 1996
payable to Bank One(3)
10.42 $50,000,000 Revolving Note dated August 29, 1996
payable to Credit Lyonnais(3)
10.43 $2,500,000 Term Note dated August 29, 1996 payable to
Bank One(3)
10.44 $2,500,000 Term Note dated August 29, 1996 payable to
Credit Lyonnais(3)
10.45 Unlimited Guaranty of NEG-OK dated August 29, 1996
for the benefit of Bank One(3)
10.46 Unlimited Guaranty of NEG-OK, dated August 29, 1996
for the benefit of Credit Lyonnais(3)
10.47 Unlimited Guaranty of Boomer dated August 29, 1996
for the benefit of Bank One(3)
10.48 Unlimited Guaranty of Boomer dated August 29, 1996
for the benefit of Credit Lyonnais(3)
10.49 Form of Deeds of Trust, Mortgages, Security
Agreements, Assignments of Production and Financing
Statements covering oil and gas properties of the
Company and NEG-OK, dated August 29, 1996(3)
30
<PAGE> 33
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
10.50 Sale and Purchase Agreement dated September 26, 1994
by and among JMC Exploration, Inc., Ted Bowman, Chris
Webb and John Abrahamson and Alexander(13)
10.51 First Amendment to Sale and Purchase Agreement dated
October 26, 1994 by and among JMC Exploration, Inc.,
Ted Bowman, Chris Webb and John Abrahamson and
Alexander(13)
10.52 Alexander Energy Corporation 1986 Incentive Stock
Option Plan, as amended(14)
10.53 Alexander Energy Corporation 1993 Stock Option
Plan(15)
10.54 Agreement of Limited Partnership of AEJH 1985 Limited
Partnership by and between Alexander and John Hancock
Mutual Life Insurance Company, together with all
amendments thereto(16)
10.55 Agreement of Limited Partnership of AEJH 1987 Limited
Partnership by and between Alexander and John Hancock
Mutual Life Insurance Company, together with all
amendments thereto(16)
10.56 Agreement of Limited Partnership of AEJH 1989 Limited
Partnership by and between Alexander and John Hancock
Mutual Life Insurance Company dated April 25, 1989(8)
10.57 Limited Partnership Agreement of Energy and
Environmental Services Limited Partnership dated May
15, 1991 by and between Energy and Environmental
Services, Inc., as general partner, and Alexander
Energy Corporation and REP, Inc., as limited
partner(16)
10.58 Warrant Purchase Agreement among Alexander, Hanifen,
Imhoff Inc. and The Principal/Eppler, Guerin &
Turner, Inc.(17)
10.59 Purchase Option Agreement (warrants) between American
National Energy Corporation and Gaines, Berland, Inc.
dated September 14, 1993(8)
10.60 Form of Special Severance Agreements between
Alexander and the technical support staff of
Alexander, between NEG-OK and Cyndy Burris and John
Christofferson, respectively(8)
10.61 Separation Policy of Alexander dated December 8,
1994(8)
10.62 Asset Purchase and Sale Agreement dated September 30,
1996 by and between the Company and Araxas Energy
Corporation, Araxas SPV-1, Inc., Araxas Exploration,
Inc. and O'Sullivan Oil and Gas Company, Inc.(10)
10.63 Purchase Agreement dated October 29, 1996, by and
among the Company, Guarantor and Bear, Stearns & Co.
Inc., Smith Barney Inc. and Jefferies & Company, Inc.
(the "Initial Purchasers")(10)
31
<PAGE> 34
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
10.64 Registration Rights Agreement dated October 29, 1996,
by and among the Company, Guarantor and the Initial
Purchasers(10)
10.65 First Amendment to Restated Loan Agreement dated
October 31, 1996 among Bank One and Credit Lyonnais
and the Company, Guarantor and Boomer(10)
27.1 Financial Data Schedule(18)
99.39 Certificate of Merger with respect to the merger of
Alexander with and into NEG-OK, filed with the
offices of the Secretary of State of the State of
Delaware and the Secretary of State of the State of
Oklahoma on August 29, 1996(3)
_______________
(1) Incorporated by reference to the Company's Registration
Statement on Form S-4 (No. 333-9045), dated July 29, 1996.
(2) Incorporated by reference to Amendment No. 1 to the Company's
Registration Statement on Form S-4 (No. 333-9045), dated
August 7, 1996.
(3) Incorporated by reference to the Company's Current Report on
Form 8-K, dated August 29, 1996.
(4) Incorporated by reference to the Company's Registration
Statement on Form S-4 (No. 33-38331), dated April 23, 1991.
(5) Incorporated by reference to the Company's Current Report on
Form 8-K, dated June 17, 1994.
(6) Incorporated by reference to the Company's Current Report on
Form 8-K, dated July 17, 1995.
(7) Incorporated by reference to the Company's Registration
Statement on Form S-3 (No. 33-81172), dated July 27, 1994.
(8) Incorporated by reference to Alexander's Form 10-K for the
fiscal year ended December 31, 1994.
(9) Incorporated by reference to the Company's Current Report on
Form 8-K/A No. 1, dated August 29, 1996.
(10) Filed herewith.
(11) Incorporated by reference to the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1992.
(12) Incorporated by reference to the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1995.
32
<PAGE> 35
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
(13) Incorporated by reference to Alexander's Current Report on
Form 8-K, dated November 14, 1994.
(14) Incorporated by reference to Alexander's Registration
Statement (No. 33-20425), dated March 22, 1988.
(15) Incorporated by reference to Alexander's Proxy Statement for
the 1993 Annual Meeting of Stockholders.
(16) Incorporated by reference to Alexander's Form 10-K for the
fiscal year ended December 31, 1991.
(17) Incorporated by reference to Alexander's Amendment No. 1 to
Registration Statement (No. 33-57142), dated February 26,
1993.
(18) The Financial Data Schedule, for the nine months ended
September 30, 1996, is filed herewith for EDGAR filings only.
(b) Reports on Form 8-K:
Current Reports on Form 8-K and Form 8-K/A No. 1 dated August 29, 1996 to
announce the consummation of the transactions contemplated by the Agreement and
Plan of Merger among the Company, NEG-OK and Alexander (Item 2), to announce
the amendment to the Company's Certificate of Incorporation, the closing of the
sale of the Series D and Series E, the Credit Facility, and agreements with
Prudential Securities Incorporated and Gaines Berland, Inc. regarding
investment advisor compensation (Item 5), and to provide the required
historical financial statements of the business acquired and the required pro
forma financial information relating to the Merger (Item 7). The Merger, the
Credit Facility and the Series D and E are more fully described in Notes 2, 3
and 5, respectively, of Notes to Consolidated Financial Statements.
33
<PAGE> 36
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 on its behalf by the undersigned, thereunto duly authorized
NATIONAL ENERGY GROUP, INC.
(Registrant)
Date: November 14, 1996 By: /s/ MILES D. BENDER
--------------------------------------------
Miles D. Bender
President and Chief Executive Officer
Date: November 14, 1996 By: /s/ ROBERT A. IMEL
--------------------------------------------
Robert A. Imel
Chief Financial Officer
Date: November 14, 1996 By: /s/ DAVID E. GROSE
--------------------------------------------
David E. Grose
Vice-President Finance and Treasurer
Date: November 14, 1996 By: /s/ MELISSA RUTLEDGE
--------------------------------------------
Melissa Rutledge
Controller and Chief Accounting Officer
34
<PAGE> 37
Index to Exhibits
2.1 Agreement and Plan of Merger, dated June 6, 1996,
among the Company, NEG-OK, Inc. ("NEG-OK"), and
Alexander Energy Corporation ("Alexander"(1)
2.2 First Amendment to Agreement and Plan of Merger,
dated as of June 20, 1996, among the Company, NEG-OK
and Alexander(2)
2.3 Mutual Waiver Agreement dated as of August 29, 1996
by and among the Company, NEG-OK and Alexande(3)
3.1 Certificate of Incorporation of the Company, which
includes the Certificate of Incorporation of the
Company filed with the Secretary of State of Delaware
on November 20, 1990(4), the Certificate of
Elimination of the Redeemable Convertible Preferred
Stock, Series A of the Company, filed with the office
of the Secretary of State of the State of Delaware on
June 2, 199(3), the Certificate of Amendment of
Certificate of Incorporation of the Company, filed
with the office of the Secretary of State of the
State of Delaware on August 29, 1996(3), the
Certificate of Designations of the Company of 10%
Cumulative Convertible Preferred Stock, Series B(5),
the Certificate of Designations of the Company of 10
1/2% Cumulative Convertible Preferred Stock, Series
C(6), the Certificate of Designations of the Company
of Convertible Preferred Stock, Series D(3), and the
Certificate of Designations of the Company of
Convertible Preferred Stock, Series E(3)
3.2 By-laws of the Company(4)
4.1 Certificate of Designations of the Company of 10%
Cumulative Convertible Preferred Stock, Series B(5)
4.2 Certificate of Designations of the Company of 10 1/2%
Cumulative Convertible Preferred Stock, Series C(6)
4.3 Certificate of Designations of the Company of
Convertible Preferred Stock, Series D(3)
4.4 Certificate of Designations of the Company of
Convertible Preferred Stock, Series E(3)
4.5 Note Agreement dated as of April 25, 1989, by and
among AEJH 1989 Limited Partnership, Alexander and
John Hancock Mutual Life Insurance (10 1/2% Senior
Secured Notes(8)
4.6 Letter dated August 29, 1996 between Alexander and
John Hancock Mutual Life Insurance Company relating
to the payment of the 1989 Note(3)
4.7 Specimen Common Stock Certificate(9)
35
<PAGE> 38
Index to Exhibits (continued)
4.8 Indenture dated as of November 1, 1996, among the
Company, National Energy Group of Oklahoma, Inc. (the
"Guarantor"), formerly NEG-OK, and Bank One,
Columbus, N.A(10)
4.9 Specimen Global Note Certificate dated November 1,
1996(10)
10.1 Crude Oil Purchase Contract, dated November 30, 1992,
between the Company and Plains Liquids Transport
Inc.(11)
10.2 Amendment to Crude Oil Purchase Contract, dated
November 17, 1993, between the Company and Plains
Liquids Transport, Inc.(5)
10.3 Crude Oil Purchase Contract, dated February 8, 1993,
between the Company and Plains Marketing and
Transportation Inc. and the predecessor contract, the
Crude Oil Purchase Contract, dated November 12, 1991,
between Sunnybrook Transmission, Inc. and TriSearch
Inc(11)
10.4 Stock Purchase Agreement, dated as of June 2, 1994,
among the Company, Arbco Associates L.P., Offense
Group Associates L.P., Kayne, Anderson Nontraditional
Investments L.P., and Opportunity Associates L.P.(5)
10.5 Gaines Berland, Inc. Warrant, dated January 27,
1995(1)
10.11 Purchase and Sale Agreement, dated as of March 29,
1995, between the Company and Enron Oil and Gas
Company(6)
10.12 Agreement for Purchase and Sale (Oak Hill), dated
April 12, 1995, between the Company and Sierra 1994 I
Limited Partnershi(6)
10.13 Agreement for Purchase and Sale (Mustang Island),
dated April 20, 1995, between the Company and Sierra
Mineral Development, L.C.(6)
10.14 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.(6)
10.15 Executive Employment Agreement, dated January 1,
1996, between the Company and Miles D. Bender(12)
10.16 Executive Employment Agreement, dated January 1,
1996, between the Company and R. Thomas Fetters,
Jr(12)
10.17 Agreement, dated January 1, 1996, between the Company
and Randall A. Carter(12)
10.18 Agreement, dated January 1, 1996, between the Company
and Robert A. Imel(12)
36
<PAGE> 39
Index to Exhibits (continued)
10.19 Executive Employment Agreement, dated January 1,
1996, between the Company and Melissa Rutledge(12)
10.20 Executive Employment Agreement, dated January 1,
1996, between the Company and William T. Jones(12)
10.22 Executive Employment Agreement, dated June 6, 1996,
between the Company and David E. Grose(1)
10.23 Executive Employment Agreement, dated June 5, 1996,
between the Company and Sue Barnard(1)
10.24 Executive Employment Agreement, dated June 6, 1996,
between the Company and Jim L. David(1)
10.25 Employment Agreement, dated June 6, 1996, between the
Company and Bob G. Alexander(1)
10.26 Employment Agreement, dated June 6, 1996, between the
Company and Roger G. Alexander(1)
10.29 Prudential Securities Incorporated Warrant to
Purchase 100,000 Shares of the Company's Common
Stock(3)
10.30 Gaines Berland, Inc. Warrant to Purchase 300,000
Shares of the Company's Common Stock(3)
10.31 Gaines Berland, Inc. Warrant to Purchase 700,000
Shares of the Company's Common Stock(3)
10.32 Agreement dated January 1, 1996 between the Company
and Sandefer Oil & Gas, Inc.(1)
10.33 Consulting Agreement dated January 1, 1996 between
the Sandefer Oil & Gas, Inc. and Potosky Oil & Gas,
Inc. and Atocha Exploration, Inc.(1)
10.34 Stock Purchase Agreement dated August 7, 1996 between
the Company and High River Limited Partnershi(2)
10.35 High River Limited Partnership Warrant to purchase
700,000 Shares of Common Stock, dated August 29,
1996(3)
10.36 Stock Purchase Agreement dated as of August 26, 1996,
between the Company and Foremost Insurance Company,
Arbco Associates, L.P., Kayne, Anderson
Nontraditional Investments L.P., Offense Group
Associates, L.P., Topa Insurance Company and Kayne,
Anderson Offshore Limited (the "Series E
Investors")(3)
37
<PAGE> 40
Index to Exhibits (continued)
10.37 Form of Series E Investors' Warrants to purchase an
aggregate 350,000 Shares of Common Stock, dated
August 29, 1996(3)
10.38 Agreement dated as of August 29, 1996 by and between
the Company and Prudential Securities Incorporate(3)
10.40 Restated Loan Agreement dated August 29, 1996 among
Bank One and Credit Lyonnais New York Branch ("Credit
Lyonnais") and the Company, NEG-OK and Boomer
Marketing Corporation ("Boomer")(3)
10.41 $50,000,000 Revolving Note dated August 29, 1996
payable to Bank One(3)
10.42 $50,000,000 Revolving Note dated August 29, 1996
payable to Credit Lyonnais(3)
10.43 $2,500,000 Term Note dated August 29, 1996 payable to
Bank One(3)
10.44 $2,500,000 Term Note dated August 29, 1996 payable to
Credit Lyonnais(3)
10.45 Unlimited Guaranty of NEG-OK dated August 29, 1996
for the benefit of Bank One(3)
10.46 Unlimited Guaranty of NEG-OK, dated August 29, 1996
for the benefit of Credit Lyonnais(3)
10.47 Unlimited Guaranty of Boomer dated August 29, 1996
for the benefit of Bank One(3)
10.48 Unlimited Guaranty of Boomer dated August 29, 1996
for the benefit of Credit Lyonnais(3)
10.49 Form of Deeds of Trust, Mortgages, Security
Agreements, Assignments of Production and Financing
Statements covering oil and gas properties of the
Company and NEG-OK, dated August 29, 199(3)
10.50 Sale and Purchase Agreement dated September 26, 1994
by and among JMC Exploration, Inc., Ted Bowman, Chris
Webb and John Abrahamson and Alexande(13)
10.51 First Amendment to Sale and Purchase Agreement dated
October 26, 1994 by and among JMC Exploration, Inc.,
Ted Bowman, Chris Webb and John Abrahamson and
Alexande(13)
10.52 Alexander Energy Corporation 1986 Incentive Stock
Option Plan, as amended(14)
10.53 Alexander Energy Corporation 1993 Stock Option
Plan(15)
38
<PAGE> 41
Index to Exhibits (continued)
10.54 Agreement of Limited Partnership of AEJH 1985 Limited
Partnership by and between Alexander and John Hancock
Mutual Life Insurance Company, together with all
amendments theret(16)
10.55 Agreement of Limited Partnership of AEJH 1987 Limited
Partnership by and between Alexander and John Hancock
Mutual Life Insurance Company, together with all
amendments theret(16)
10.56 Agreement of Limited Partnership of AEJH 1989 Limited
Partnership by and between Alexander and John Hancock
Mutual Life Insurance Company dated April 25, 198(8)
10.57 Limited Partnership Agreement of Energy and
Environmental Services Limited Partnership dated May
15, 1991 by and between Energy and Environmental
Services, Inc., as general partner, and Alexander
Energy Corporation and REP, Inc., as limited
partner(16)
10.58 Warrant Purchase Agreement among Alexander, Hanifen,
Imhoff Inc. and The Principal/Eppler, Guerin &
Turner, Inc.(17)
10.59 Purchase Option Agreement (warrants) between American
National Energy Corporation and Gaines, Berland, Inc.
dated September 14, 199(8)
10.60 Form of Special Severance Agreements between
Alexander and the technical support staff of
Alexander, between NEG-OK and Cyndy Burris and John
Christofferson, respectivel(8)
10.61 Separation Policy of Alexander dated December 8,
1994(8)
10.62 Asset Purchase and Sale Agreement dated September 30,
1996 by and between the Company and Araxas Energy
Corporation, Araxas SPV-1, Inc., Araxas Exploration,
Inc. and O'Sullivan Oil and Gas Company, Inc.(10)
10.63 Purchase Agreement dated October 29, 1996, by and
among the Company, Guarantor and Bear, Stearns & Co.
Inc., Smith Barney Inc. and Jefferies & Company, Inc.
(the "Initial Purchasers"(10)
10.64 Registration Rights Agreement dated October 29, 1996,
by and among the Company, Guarantor and the Initial
Purchasers(10)
10.65 First Amendment to Restated Loan Agreement dated
October 31, 1996 among Bank One and Credit Lyonnais
and the Company, Guarantor and Boomer
27.1 Financial Data Schedule(18)
99.39 Certificate of Merger with respect to the merger of
Alexander with and into NEG-OK, filed with the
offices of the Secretary of State of the State of
Delaware and the Secretary of State of the State of
Oklahoma on August 29, 199(3)
39
<PAGE> 42
Index to Exhibits (continued)
_______________
(1) Incorporated by reference to the Company's Registration
Statement on Form S-4 (No. 333-9045), dated July 29, 1996.
(2) Incorporated by reference to Amendment No. 1 to the Company's
Registration Statement on Form S-4 (No. 333-9045), dated
August 7, 1996.
(3) Incorporated by reference to the Company's Current Report on
Form 8-K, dated August 29, 1996.
(4) Incorporated by reference to the Company's Registration
Statement on Form S-4 (No. 33-38331), dated April 23, 1991.
(5) Incorporated by reference to the Company's Current Report on
Form 8-K, dated June 17, 1994.
(6) Incorporated by reference to the Company's Current Report on
Form 8-K, dated July 17, 1995.
(7) Incorporated by reference to the Company's Registration
Statement on Form S-3 (No. 33-81172), dated July 27, 1994.
(8) Incorporated by reference to Alexander's Form 10-K for the
fiscal year ended December 31, 1994.
(9) Incorporated by reference to the Company's Current Report on
Form 8-K/A No. 1, dated August 29, 1996.
(10) Filed herewith.
(11) Incorporated by reference to the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1992.
(12) Incorporated by reference to the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1995.
(13) Incorporated by reference to Alexander's Current Report on
Form 8-K, dated November 14, 1994.
(14) Incorporated by reference to Alexander's Registration
Statement (No. 33-20425), dated March 22, 1988.
(15) Incorporated by reference to Alexander's Proxy Statement for
the 1993 Annual Meeting of Stockholders.
(16) Incorporated by reference to Alexander's Form 10-K for the
fiscal year ended December 31, 1991.
40
<PAGE> 43
Index to Exhibits (continued)
(17) Incorporated by reference to Alexander's Amendment No. 1 to
Registration Statement (No. 33-57142), dated February 26,
1993.
(18) The Financial Data Schedule, for the nine months ended
September 30, 1996, is filed herewith for EDGAR filings only.
41
<PAGE> 1
================================================================================
NATIONAL ENERGY GROUP, INC.
as Issuer,
NATIONAL ENERGY GROUP OF OKLAHOMA, INC.,
as Guarantor,
AND
BANK ONE, COLUMBUS, N.A.
as Trustee
____________________________
INDENTURE
DATED AS OF NOVEMBER 1, 1996
____________________________
$100,000,000.00
10 3/4% SENIOR NOTES DUE 2006
================================================================================
<PAGE> 2
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA SECTION INDENTURE SECTION
<S> <C>
310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.08; 7.10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.08; 7.10
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.05
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.03
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.03
313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06; 11.02
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.02; 4.03; 11.02
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.04
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.04
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.05
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01(b)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.05; 11.02
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01(a)
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01(c)
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316(a)(last sentence) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.09
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.05
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.02; 6.04; 9.02
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.07
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.04
317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.08
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.09
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.04
318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.01
318(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.01
- -------------------------
</TABLE>
N.A. means Not Applicable
NOTE: This Cross-Reference table shall not, for any purpose, be deemed part
of this Indenture.
<PAGE> 3
TABLE OF CONTENTS
ARTICLE I
Definitions And Incorporation By Reference
<TABLE>
Page
<S> <C> <C> <C>
SECTION 1.01 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02 Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 1.03 Incorporation by Reference of Trust Indenture Act . . . . . . . . . . . . . . . . . . . 22
SECTION 1.04 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
ARTICLE II
The Securities
<TABLE>
<S> <C> <C> <C>
SECTION 2.01 Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.02 Execution and Authentication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 2.03 Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.04 Paying Agent to Hold Money in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.05 Holder Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.06 Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.07 Replacement Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 2.08 Outstanding Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 2.09 Treasury Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 2.10 Temporary Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 2.11 Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 2.12 Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 2.13 Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
ARTICLE III
Redemption
<TABLE>
<S> <C> <C> <C>
SECTION 3.01 Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 3.02 Selection of Securities to Be Redeemed . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 3.03 Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 3.04 Effect of Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 3.05 Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 3.06 Securities Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 3.07 Optional Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 3.08 Equity Offering Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
i
<PAGE> 4
ARTICLE IV
Covenants
<TABLE>
<S> <C> <C> <C>
SECTION 4.01 Payment of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 4.02 SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 4.03 Compliance Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 4.04 Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 4.05 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 4.06 Waiver of Stay, Extension or Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 4.07 Payment of Taxes and Other Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 4.08 Maintenance of Properties and Insurance . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 4.09 Limitation on Incurrence of Additional Indebtedness . . . . . . . . . . . . . . . . . . 41
SECTION 4.10 Limitation on Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 4.11 Limitation on Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 4.12 Limitation on Liens Securing Indebtedness . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 4.13 Limitation on Sale/Leaseback Transactions . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 4.14 Limitation on Payment Restrictions Affecting Subsidiaries . . . . . . . . . . . . . . . 46
SECTION 4.15 Limitation on Issuances and Sales of Restricted Subsidiary Stock . . . . . . . . . . . 47
SECTION 4.16 Limitation on Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 4.17 Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 4.18 Limitation on Line of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
</TABLE>
ARTICLE V
Successor Corporation
<TABLE>
<S> <C> <C> <C>
SECTION 5.01 When Company May Merge, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 5.02 Successor Corporation Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
</TABLE>
ARTICLE VI
Defaults And Remedies
<TABLE>
<S> <C> <C> <C>
SECTION 6.01 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 6.02 Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 6.03 Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 6.04 Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 6.05 Control by Majority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 6.06 Limitation on Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 6.07 Rights of Holders to Receive Payment . . . . . . . . . . . . . . . . . . . . . . . . . 55
</TABLE>
ii
<PAGE> 5
<TABLE>
<S> <C> <C> <C>
SECTION 6.08 Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 6.09 Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 6.10 Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 6.11 Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
</TABLE>
ARTICLE VII
Trustee
<TABLE>
<S> <C> <C> <C>
SECTION 7.01 Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 7.02 Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 7.03 Individual Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 7.04 Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 7.05 Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 7.06 Reports by Trustee to Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 7.07 Compensation and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 7.08 Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 7.09 Successor Trustee by Merger, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 7.10 Eligibility; Disqualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 7.11 Preferential Collection of Claims Against Company . . . . . . . . . . . . . . . . . . . 62
</TABLE>
ARTICLE VIII
Discharge Of Indenture
<TABLE>
<S> <C> <C> <C>
SECTION 8.01 Option to Effect Legal Defeasance or Covenant Defeasance . . . . . . . . . . . . . . . 62
SECTION 8.02 Legal Defeasance and Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 8.03 Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 8.04 Conditions to Legal or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 8.05 Deposited Money and U.S. Government Securities to be Held in Trust; Other
Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 8.06 Repayment to Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 8.07 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
</TABLE>
ARTICLE IX
Amendments, Supplements And Waivers
<TABLE>
<S> <C> <C> <C>
SECTION 9.01 Without Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 9.02 With Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 9.03 Compliance with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 9.04 Revocation and Effect of Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 9.05 Notation on or Exchange of Securities . . . . . . . . . . . . . . . . . . . . . . . . . 69
</TABLE>
iii
<PAGE> 6
<TABLE>
<S> <C> <C> <C>
SECTION 9.06 Trustee Protected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 9.07 Restriction on Payments for Amendments, Waivers and
Modifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
</TABLE>
ARTICLE X
Guarantees
<TABLE>
<S> <C> <C> <C>
SECTION 10.01 Unconditional Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 10.02 Guarantors May Consolidate, etc., on Certain Terms . . . . . . . . . . . . . . . . . . 71
SECTION 10.03 Addition of Guarantors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 10.04 Release of a Guarantor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 10.05 Limitation of Guarantor's Liability . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 10.06 Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 10.07 Execution and Delivery of Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 10.08 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
</TABLE>
ARTICLE XI
Miscellaneous
<TABLE>
<S> <C> <C>
SECTION 11.01 Trust Indenture Act Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 11.02 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 11.03 Communication by Holders with Other Holders . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 11.04 Certificate and Opinion as to Conditions Precedent . . . . . . . . . . . . . . . . . . 75
SECTION 11.05 Statements Required in Certificate or Opinion . . . . . . . . . . . . . . . . . . . . . 75
SECTION 11.06 Rules by Trustee and Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 11.07 Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 11.08 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 11.09 No Adverse Interpretation of Other Agreements . . . . . . . . . . . . . . . . . . . . . 76
SECTION 11.10 No Recourse Against Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 11.11 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 11.12 Duplicate Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 11.13 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
SIGNATURES
EXHIBIT A FORM OF SECURITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
EXHIBIT A-1 FORM OF NOTATION ON SECURITY RELATING
TO GUARANTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A1-1
EXHIBIT B CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR TRANSFER OF SENIOR NOTES . . . . . . . . . . B-1
</TABLE>
iv
<PAGE> 7
<TABLE>
<S> <C> <C>
EXHIBIT C FORM OF LEGAL OPINION ON TRANSFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
EXHIBIT D FORM OF COMPLIANCE CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1
EXHIBIT E FORM OF TRANSFEREE LETTER OF REPRESENTATION . . . . . . . . . . . . . . . . . . . . . . . E-1
- -----------------
</TABLE>
NOTE: This Table of Contents shall not, for any purpose, be deemed to be
a part of this Indenture.
v
<PAGE> 8
INDENTURE, dated as of November 1, 1996, among NATIONAL ENERGY GROUP,
INC., a Delaware corporation (the "Company"), National Energy Group of
Oklahoma, Inc., a Delaware corporation ("NEG-OK"), as the initial Guarantor,
and Bank One, Columbus, N.A., a national banking association, as Trustee.
Each party agrees as follows for the benefit of the other parties and
for the equal and ratable benefit of the holders of the Company's 10 3/4%
Senior Notes due 2006:
ARTICLE I
Definitions And Incorporation By Reference
SECTION 1.01 Definitions.
"Adjusted Consolidated Net Tangible Assets" or "ACNTA" means (without
duplication), as of the date of determination, (a) the sum of (i) discounted
future net revenue from proved oil and gas reserves of the Company and its
Restricted Subsidiaries calculated in accordance with SEC guidelines before any
state or federal income taxes, as estimated by independent petroleum engineers
in a reserve report prepared as of the end of the Company's most recently
completed fiscal year (or for the initial periods prior to the availability of
such reserve report for December 31, 1996, the reserve reports of Netherland,
Sewell & Associates, Inc. included as Annexes A-1 and A-2 to that certain
Confidential Offering Memorandum of the Company, dated October 29, 1996,
relating to the offering of the Securities), as increased by, as of the date of
determination, the discounted future net revenue of (A) estimated proved oil
and gas reserves of the Company and its Restricted Subsidiaries attributable to
any acquisition consummated since the effective date of such initial or
year-end reserve reports and (B) estimated oil and gas reserves of the Company
and its Restricted Subsidiaries attributable to extensions, discoveries and
other additions and upward revisions of estimates of proved oil and gas
reserves due to exploration, development or exploitation, production or other
activities conducted or otherwise occurring since the effective date of such
initial or year-end reserve reports which, in the case of sub- clauses (A) and
(B), would, in accordance with standard industry practice, result in such
increases, in each case calculated in accordance with SEC guidelines (utilizing
the prices utilized in such initial or year-end reserve reports), and decreased
by, as of the date of determination, the discounted future net revenue of (C)
estimated proved oil and gas reserves of the Company and its Restricted
Subsidiaries produced or disposed of since the effective date of such initial
or year-end reserve reports and (D) reductions in the estimated oil and gas
reserves of the Company and its Restricted Subsidiaries since the effective
date of such initial or year-end reserve reports attributable to downward
revisions of estimates of proved oil and gas reserves due to exploration,
development or exploitation, production or other activities conducted or
otherwise occurring since the effective date of such initial or year-end
reserve reports which would, in accordance with standard industry practice,
result in such revisions, in each case calculated in accordance with SEC
guidelines (utilizing the prices utilized in such initial or year-end reserve
reports); provided that, in the case of each of the determinations made
pursuant to sub-clauses (A) through (D) above, such increases and decreases
shall be as estimated by the Company's engineers, except that if as a result of
such acquisitions, dispositions, discoveries, extensions or revisions, there is
a Material Change and in connection with the incurrence of Indebtedness under
Section 4.09, all
<PAGE> 9
or any part of an increase in discounted future net revenue resulting from the
matters described in sub-clauses (A) and (B) above are needed to permit the
incurrence of such Indebtedness, then the discounted future net revenue
utilized for purposes of this clause (a) (i) shall be confirmed in writing by
independent petroleum engineers provided that, in the event that the
determinations made pursuant to sub-clauses (C) and (D) above, when taken
alone, would not cause a Material Change, then such written confirmation need
only cover the incremental additions to discounted future net revenues
resulting from the determinations made pursuant to sub-clauses (A) and (B)
above to the extent needed to permit the incurrence of such Indebtedness, (ii)
the capitalized costs that are attributable to oil and gas properties of the
Company and its Restricted Subsidiaries to which no proved oil and gas reserves
are attributed, based on the Company's books and records as of a date no
earlier than the date of the Company's latest annual or quarterly financial
statements, (iii) the Net Working Capital on a date no earlier than the date of
the Company's latest annual or quarterly financial statements and (iv) the
greater of (I) the net book value on a date no earlier than the date of the
Company's latest annual or quarterly financial statements and (II) the
appraised value, as estimated by independent appraisers, of other tangible
assets (including Investments in unconsolidated Subsidiaries) of the Company
and its Restricted Subsidiaries, as of a date no earlier than the date of the
Company's latest audited financial statements, minus (b) the sum of (i)
minority interests, (ii) any non-current portion of gas balancing liabilities
of the Company and its Restricted Subsidiaries reflected in the Company's
latest annual or quarterly financial statements, (iii) the discounted future
net revenue, calculated in accordance with SEC guidelines (utilizing the prices
utilized in the Company's initial or year-end reserve reports), attributable to
reserves which are required to be delivered to third parties to fully satisfy
the obligations of the Company and its Restricted Subsidiaries with respect to
Volumetric Production Payments on the schedules specified with respect thereto,
(iv) the discounted future net revenue, calculated in accordance with SEC
guidelines, attributable to reserves subject to Dollar-Denominated Production
Payments which, based on the estimates of production included in determining
the discounted future net revenue specified in (a) (i) above (utilizing the
same prices utilized in the Company's initial or year-end reserve reports),
would be necessary to fully satisfy the payment obligations of the Company and
its Restricted Subsidiaries with respect to Dollar-Denominated Production
Payments on the schedules specified with respect thereto and (v) the discounted
future net revenue, calculated in accordance with SEC guidelines (utilizing the
same prices utilized in the Company's initial or year-end reserve reports),
attributable to reserves subject to participation interests, overriding royalty
interests or other interests of third parties, pursuant to participation,
partnership, vendor financing or other agreements then in effect, or which
otherwise are required to be delivered to third parties. If the Company
changes its method of accounting from the full cost method to the successful
efforts method or a similar method of accounting, Adjusted Consolidated Net
Tangible Assets will continue to be calculated as if the Company was still
using the full cost method of accounting.
"Adjusted Net Assets" of a Guarantor at any date shall mean the lesser
of (i) the amount by which the fair value of the property of such Guarantor
exceeds the total amount of liabilities, including, without limitation,
contingent liabilities (after giving effect to all other fixed and contingent
liabilities incurred or assumed on such date), but excluding liabilities under
the Guarantee of such Guarantor at such date and (ii) the amount by which the
present fair saleable value of the
2
<PAGE> 10
assets of such Guarantor at such date exceeds the amount that will be required
to pay the probable liability of such Guarantor on its debts (after giving
effect to all other fixed and contingent liabilities incurred or assumed on
such date and after giving effect to any collection from any Subsidiary of such
Guarantor in respect of the obligations of such Subsidiary under the
Guarantee), excluding debt in respect of the Guarantee, as they become absolute
and matured.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
control when used with respect to any specified Person means the power to
direct the management and policies of such Person directly or indirectly,
whether through the ownership of Voting Stock, by contract or otherwise; and
the terms controlling and controlled have meanings correlative to the
foregoing; provided that a corporation shall not be deemed an Affiliate of the
Company solely by reason of having a single common director with the Company
who constitutes less than a majority of the directors of either the Company and
the other corporation.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Asset Sale" means any sale, lease, transfer, exchange or other
disposition having a fair market value of $1,000,000 or more (or series of
sales, leases, transfers, exchanges or dispositions during any fiscal year
having an aggregate fair market value of such amount) of shares of Capital
Stock of a Restricted Subsidiary (other than directors' Qualifying Shares), or
of property or assets (including the creation of Dollar-Denominated Production
Payments and Volumetric Production Payments, other than Dollar-Denominated
Production Payments and Volumetric Production Payments created or sold in
connection with the financing of, and within 30 days after, the acquisition of
the properties subject thereto) or any interests therein (each referred to for
purposes of this definition as a disposition) by the Company or any of its
Restricted Subsidiaries, including any disposition by means of a merger,
consolidation or similar transaction (other than (a) by the Company to a Wholly
Owned Restricted Subsidiary or by a Subsidiary to the Company or a Wholly Owned
Restricted Subsidiary, (b) a sale of oil, gas or other hydrocarbons or other
mineral products in the ordinary course of business of the Company's oil and
gas production operations, (c) any abandonment, farm-in, farm-out, lease and
sub-lease of developed and/or undeveloped properties made or entered into in
the ordinary course of business (but excluding (x) any sale of a net profits or
overriding royalty interest, in each case conveyed from or burdening proved
developed or proved undeveloped reserves and (y) any sale of hydrocarbons or
other mineral products as a result of the creation of Dollar-Denominated
Production Payments or Volumetric Production Payments, other than
Dollar-Denominated Production Payments and Volumetric Production Payments
created or sold in connection with the financing of, and within 30 days after,
the acquisition of the properties subject thereto), (d) the disposition of all
or substantially all of the assets of the Company in compliance with Article V
and Sale/Leaseback Transactions in compliance with Section 4.13, (e) the
provision of services and equipment for the operation and development of the
Company's oil and gas wells, in the ordinary course of the Company's oil and
gas service businesses, notwithstanding that such transactions may be recorded
as asset sales in accordance with full cost accounting guidelines, (f) the
issuance by the Company of shares of its Capital Stock, (g) any trade or
exchange by the
3
<PAGE> 11
Company or any Restricted Subsidiary of oil and gas properties for other oil
and gas properties owned or held by another Person provided that (i) the fair
market value of the properties traded or exchanged by the Company or such
Restricted Subsidiary (including any cash or Cash Equivalents, not to exceed
15% of such fair market value, to be delivered by the Company or such
Restricted Subsidiary) is reasonably equivalent to the fair market value of the
properties (together with any cash or Cash Equivalents, not to exceed 15% of
such fair market value) to be received by the Company or such Restricted
Subsidiary as determined in good faith by the Board of Directors of the
Company, which determination shall be certified by a resolution of the Board of
Directors delivered to the Trustee if such fair market value is in excess of
$5,000,000, provided that if such resolution indicates that such fair market
value is in excess of $10,000,000 such resolution shall be accompanied by a
written appraisal by a nationally recognized investment banking firm or
appraisal firm, in each case specializing or having a speciality in oil and gas
properties, and (ii) such exchange is approved by a majority of Disinterested
Directors of the Company, and (h) the sale, transfer or other disposition in
the ordinary course of business of oil and natural gas properties, or interests
therein, provided that such properties either (i) do not have proved reserves
attributed to them or (ii) were purchased for the purpose of offering such
properties for resale or participations by other Persons).
"Attributable Indebtedness" means, with respect to any particular
lease under which any Person is at the time liable and at any date as of which
the amount thereof is to be determined, the present value of the total net
amount of rent required to be paid by such Person under the lease during the
primary term thereof, without giving effect to any renewals at the option of
the lessee, discounted from the respective due dates thereof to such date at
the rate of interest per annum implicit in the terms of the lease. As used in
the preceding sentence, the net amount of rent under any lease for any such
period shall mean the sum of rental and other payments required to be paid with
respect to such period by the lessee thereunder excluding any amounts required
to be paid by such lessee on account of maintenance and repairs, insurance,
taxes, assessments, water rates or similar charges. In the case of any lease
which is terminable by the lessee upon payment of a penalty, such net amount of
rent shall also include the amount of such penalty, but no rent shall be
considered as required to be paid under such lease subsequent to the first date
upon which it may be so terminated.
"Average Life" means, as of the date of determination, with respect to
any Indebtedness, the quotient obtained by dividing (i) the product of (x) the
number of years from such date to the date of each successive scheduled
principal payment of such Indebtedness multiplied by (y) the amount of such
principal payment by (ii) the sum of all such principal payments.
"Bank Credit Facility" means a revolving credit, term credit and/or
letter of credit facility, the proceeds of which are used for working capital
and other general corporate purposes to be entered into by one or more of the
Company and/or its Restricted Subsidiaries and certain financial institutions,
as amended, extended or refinanced from time to time. The Revised Credit
Facility will constitute a Bank Credit Facility.
4
<PAGE> 12
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person or any committee of the Board of Directors of such
Person duly authorized to act on behalf of the Board of Directors of such
Person.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors or the managing partner(s)
of such Person and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means any day on which the New York Stock Exchange,
Inc. is open for trading and which is not a Legal Holiday.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of
corporate stock or partnership interests and any and all warrants, options and
rights with respect thereto (whether or not currently exercisable), including
each class of common stock and preferred stock of such Person.
"Capitalized Lease Obligations" of any Person means the obligations of
such Person to pay rent or other amounts under a lease of property, real or
personal, that is required to be capitalized for financial reporting purposes
in accordance with GAAP, and the amount of such obligations shall be the
capitalized amount thereof determined in accordance with GAAP.
"Cash Equivalents" means (i) any evidence of Indebtedness with a
maturity of 90 days or less issued or directly and fully guaranteed or insured
by the United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof); (ii) demand and time deposits and certificates of
deposit or acceptances with a maturity of 90 days or less of any financial
institution that is a member of the Federal Reserve System having combined
capital and surplus and undivided profits of not less than $500,000,000; (iii)
commercial paper with a maturity of 90 days or less issued by a corporation
that is not an Affiliate of the Company and is organized under the laws of any
state of the United States or the District of Columbia and rated at least A-1
by Standard & Poor's Ratings Services at least P-1 by Moody's Investors
Service, Inc.; (iv) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clause (i) above
entered into with any commercial bank meeting the specifications of clause (ii)
above; and (v) overnight bank deposits and bankers' acceptances at any
commercial bank meeting the qualifications specified in clause (ii) above.
"Change of Control" means the occurrence of any of the following: (i)
the sale, lease or transfer, in one or a series of related transactions, of all
or substantially all of the Company's assets to any Person or group (as such
term is used in Section 13(d)(3) of the Exchange Act); (ii) the adoption of a
plan relating to the liquidation or dissolution of the Company; (iii) the
acquisition, directly or indirectly, by any Person or group (as such term is
used in Section 13(d)(3) of the Exchange Act) of beneficial ownership (as
defined in Rule 13d-3 under the Exchange Act) of more than 50% of the aggregate
voting power of the Voting Stock of the Company (for the purposes of
5
<PAGE> 13
this definition, such other Person shall be deemed to beneficially own any
Voting Stock of a specified corporation held by a parent corporation, if such
other Person is the beneficial owner (as defined above), directly or
indirectly, of more than 35% of the voting power of the Voting Stock of such
parent corporation); or (iv) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election by
such Board of Directors or whose nomination for election by the shareholders of
the Company was approved by a vote of 66-2/3% of the directors of the Company
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board of Directors of the
Company then in office.
"Company" means the party named as such above, until a successor
replaces such Person in accordance with the terms of this Indenture, and
thereafter means such successor.
"Consolidated Interest Coverage Ratio" means, for any Reference
Period, the ratio on a pro forma basis of (a) the sum of (i) Consolidated Net
Income, (ii) Consolidated Interest Expense, (iii) Consolidated Tax Expense,
(iv) depreciation and depletion of the Company and its Restricted Subsidiaries,
as determined in accordance with GAAP on a consolidated basis plus (v)
amortization of the Company and its Restricted Subsidiaries including, without
limitation, amortization of capitalized debt issuance costs, as determined in
accordance with GAAP on a consolidated basis, in each case as determined for
the Reference Period to (b) Consolidated Interest Expense for such Reference
Period; provided, that, in calculating each of the items set forth in the
foregoing (i) acquisitions which occurred during the Reference Period or
subsequent to the Reference Period and on or prior to the date of the
transaction giving rise to the need to calculate the Consolidated Interest
Coverage Ratio (the "Transaction Date") shall be assumed to have occurred on
the first day of the Reference Period, (provided further that nonrecurring
expenses incurred by NEG-OK prior to the date NEG-OK became a Subsidiary shall
be excluded from any calculation of Consolidated Interest Coverage Ratio), (ii)
the incurrence of any Indebtedness (including the issuance of the Notes) or
issuance of any Disqualified Stock during the Reference Period or subsequent to
the Reference Period and on or prior to the Transaction Date shall be assumed
to have occurred on the first day of such Reference Period, (iii) any
Indebtedness that had been outstanding during the Reference Period that has
been repaid on or prior to the Transaction Date shall be assumed to have been
repaid as of the first day of such Reference Period, (iv) the Consolidated
Interest Expense attributable to interest on any Indebtedness or dividends on
any Disqualified Stock bearing a floating interest (or dividend) rate shall be
computed on a pro forma basis as if the rate in effect on the Transaction Date
was the average rate in effect during the entire Reference Period and (v) in
determining the amount of Indebtedness pursuant to Section 4.09, the incurrence
of Indebtedness or issuance of Disqualified Stock giving rise to the need to
calculate the Consolidated Interest Coverage Ratio and, to the extent the net
proceeds from the incurrence or issuance thereof are used to retire
Indebtedness, the application of the proceeds therefrom shall be assumed to
have occurred on the first day of the Reference Period.
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"Consolidated Interest Expense" means, with respect to the Company and
its Restricted Subsidiaries, for the Reference Period, the aggregate amount
(without duplication) of (a) interest expensed in accordance with GAAP
(including, in accordance with the following sentence, interest attributable to
Capitalized Lease Obligations, but excluding interest attributable to
Dollar-Denominated Production Payments and amortization of deferred debt
expense) during such period in respect of all Indebtedness of the Company and
its Restricted Subsidiaries (including (i) amortization of original issue
discount on any Indebtedness (other than with respect to the Securities), (ii)
the interest portion of all deferred payment obligations, calculated in
accordance with GAAP and (iii) all commissions, discounts and other fees and
charges owed with respect to bankers' acceptance financings and currency and
interest rate swap arrangements, in each case to the extent attributable to
such period), and (b) dividend requirements of the Company and its Restricted
Subsidiaries with respect to any Preferred Stock or Disqualified Stock
dividends (whether in cash or otherwise (except dividends paid solely in shares
of Capital Stock other than Disqualified Stock)) paid (other than to the
Company or any of its Restricted Subsidiaries), declared, accrued or
accumulated during such period, divided by one minus the applicable actual
combined federal, state, local and foreign income tax rate of the Company and
its Subsidiaries (expressed as a decimal), on a consolidated basis, for the
Reference Period preceding the date of the transaction giving rise to the need
to calculate Consolidated Interest Expense, in each case to the extent
attributable to such period and excluding items eliminated in consolidation.
For purposes of this definition, (a) interest on a Capitalized Lease Obligation
shall be deemed to accrue at an interest rate reasonably determined by the
Company to be the rate of interest implicit in such Capitalized Lease
Obligation in accordance with GAAP and (b) interest expense attributable to any
Indebtedness represented by the guarantee by the Company or a Restricted
Subsidiary of the Company of an obligation of another Person (other than the
Company or any other Restricted Subsidiary) shall be deemed to be the interest
expense attributable to the Indebtedness guaranteed.
"Consolidated Net Income" of the Company means, for any period, the
aggregate net income (or loss) of the Company and its Restricted Subsidiaries
for such period on a consolidated basis, determined in accordance with GAAP;
provided, however, that there shall not be included in such Consolidated Net
Income: (a) any net income of any Person if such Person is not the Company or a
consolidated Restricted Subsidiary, except that (i) subject to the limitations
contained in clause (d) below, the Company's equity in the net income of any
such Person for such period shall be included in such Consolidated Net Income
up to the aggregate amount of cash or Cash Equivalents actually distributed by
such Person during such period to the Company or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution to a Restricted Subsidiary, to the limitations contained in clause
(c) below) and (ii) the Company's equity in a net loss of any such Person
(other than an Unrestricted Subsidiary) for such period shall be included in
determining such Consolidated Net Income; (b) any net income (or loss) of any
Person acquired by the Company or a Subsidiary in a pooling of interests
transaction for any period prior to the date of such acquisition; (c) the net
income of any Restricted Subsidiary to the extent that the payment of dividends
or the making of distributions by such Restricted Subsidiary, directly or
indirectly, to the Company, is prohibited; (d) any gain (but not loss) realized
upon the sale or other disposition of any property, plant or equipment of the
Company or any Restricted Subsidiary (including pursuant to
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<PAGE> 15
any Sale/Leaseback Transaction) which is not sold or otherwise disposed of in
the ordinary course of business and any gain (but not loss) realized upon the
sale or other disposition of any Capital Stock of any Person; (e) any gain (but
not loss) from currency exchange transactions not in the ordinary course of
business consistent with past practice; (f) the cumulative effect of a change
in accounting principles; (g) to the extent deducted in the calculation of net
income, the non-cash charges associated with the repayment of Indebtedness with
the proceeds from the sale of the Securities and the prepayment of any of the
Securities; (h) any writedowns of noncurrent assets; provided, however, that
any ceiling limitation writedowns under SEC guidelines shall be treated as
capitalized costs, as if such writedowns had not occurred; and (i) any gain
(but not loss) attributable to extraordinary items.
"Consolidated Net Worth" means, with respect to the Company and its
Restricted Subsidiaries, as at any date of determination, the sum of Capital
Stock (other than Disqualified Stock) and additional paid-in capital plus
retained earnings (or minus accumulated deficit) minus all intangible assets,
including, without limitation, organization costs, patents, trademarks,
copyrights, franchises, research and development costs, and any amount
reflected in treasury stock, of the Company and its Restricted Subsidiaries
determined on a consolidated basis in accordance with GAAP.
"Consolidated Tax Expense" means, for any period, the provisions for
federal, state, local and foreign income taxes (including state franchise taxes
accounted for as income taxes in accordance with GAAP) of the Company and its
Restricted Subsidiaries for such period as determined on a consolidated basis
in accordance with GAAP.
"Default" means any event which is, or after notice or passage of time
would be, an Event of Default.
"Definitive Securities" means Securities that are in the form of the
Securities attached hereto as Exhibit A, that do not include the information
called for by footnotes 1 and 2 thereof, and do not have attached the
additional schedule referred to in footnote 3 thereof.
"Depositary" means, with respect to the Securities issuable or issued
in whole or in part in global form, the Person specified in Section 2.03 hereof
as the Depositary with respect to the Securities, until a successor shall have
been appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depositary" shall mean or include such successor.
"Disinterested Director" means, with respect to an Affiliate
Transaction or series of related Affiliate Transactions, a member of the Board
of Directors of the Company who has no financial interest, and whose employer
has no financial interest, in such Affiliate Transaction or series of related
Affiliate Transactions.
"Disqualified Stock" means any Capital Stock of the Company or any
Restricted Subsidiary of the Company which, by its terms (or by the terms of
any security into which it is convertible or
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<PAGE> 16
for which it is exchangeable), or upon the happening of any event or with the
passage of time, matures or is mandatorily redeemable, pursuant to a sinking
fund obligation or otherwise, or is redeemable at the option of the holder
thereof, in whole or in part, on or prior to the Maturity Date or which is
exchangeable or convertible into debt securities of the Company or any
Restricted Subsidiary of the Company, except to the extent that such exchange
or conversion rights cannot be exercised prior to the Maturity Date.
"Dollar-Denominated Production Payments" mean production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Effective Registration" means the Company shall have (i) commenced a
Registered Exchange Offer for the Securities pursuant to an effective
registration statement under the Securities Act or (ii) filed and caused to
become effective the Notes Shelf Registration under the Securities Act for the
sale of Securities by Holders.
"Equity Offering" means any underwritten public offering of common
stock of the Company pursuant to a registration statement filed pursuant to the
Securities Act or any private placement of Capital Stock (other than
Disqualified Stock) of the Company (other than to any Person who, prior to such
private placement, was a Subsidiary of the Company or any other Person
controlled by the Company) which offering or placement is consummated after the
Issue Date.
"Exchange Act" means the Securities and Exchange Act of 1934, as
amended, and the rules and regulations of the SEC thereunder.
"GAAP" means generally accepted accounting principles as in effect in
the United States of America as of the Issue Date.
"Global Security" means a Security that contains the language referred
to in footnotes 1 and 2 and the additional schedule referred to in footnote 3
to the form of the Securities attached hereto as Exhibit A.
"Guarantee" or "Guarantees" means (i) initially, the Guarantee given
by NEG-OK herein and (ii) thereafter, any Guarantee issued by existing or
future Restricted Subsidiaries pursuant to Article X hereof.
"Guarantor" means (i) initially, NEG-OK, (ii) each of the Subsidiaries
that becomes a guarantor of the Securities in compliance with the provisions of
Article X hereof and (iii) each of the Subsidiaries executing a supplemental
indenture in which such Subsidiary agrees to be bound by the terms of the
Indenture; in each case until such time, if any, such Subsidiary is released
from the Guarantee pursuant to Section 10.04 hereof.
"Holder" means a Person in whose name a Security is registered on the
Registrar's books.
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<PAGE> 17
"Indebtedness" means, without duplication, with respect to any Person,
(a) all obligations of such Person (i) in respect of borrowed money (whether or
not the recourse of the lender is to the whole of the assets of such Person or
only to a portion thereof), (ii) evidenced by bonds, notes, debentures or
similar instruments, (iii) representing the balance deferred and unpaid of the
purchase price of any property or services (other than accounts payable or
other obligations arising in the ordinary course of business), (iv) evidenced
by bankers' acceptances or similar instruments issued or accepted by banks, (v)
for the payment of money relating to a Capitalized Lease Obligation, or (vi)
evidenced by a letter of credit or a reimbursement obligation of such Person
with respect to any letter of credit; (b) all net obligations of such Person
under interest rate swap obligations, commodity swap obligations and foreign
currency hedges, except to the extent such net obligations are taken into
account in the determination of future net revenues from proved oil and gas
reserves for purposes of the calculation of Adjusted Consolidated Net Tangible
Assets; (c) all liabilities of others of the kind described in the preceding
clauses (a) or (b) that such Person has guaranteed or that are otherwise its
legal liability (including, with respect to any Production Payment, any
warranties or guaranties of production or payment by such Person with respect
to such Production Payment but excluding other contractual obligations of such
Person with respect to such Production Payment); (d) Indebtedness (as otherwise
defined in this definition) of another Person secured by a Lien on any asset of
such Person, whether or not such Indebtedness is assumed by such Person, the
amount of such obligations being deemed to be the lesser of (1) the full amount
of such obligations so secured and (2) the fair market value of such asset, as
determined in good faith by the Board of Directors of such Person, which
determination shall be evidenced by a resolution of such Board; (e) with
respect to such Person, the liquidation preference or any mandatory redemption
payment obligations in respect of Disqualified Stock; (f) the aggregate
preference in respect of amounts payable on the issued and outstanding shares
of Preferred Stock of any of the Company's Restricted Subsidiaries in the event
of any voluntary or involuntary liquidation, dissolution or winding up
(excluding any such preference attributable to such shares of Preferred Stock
that are owned by such Person or any of its Restricted Subsidiaries; provided,
that if such Person is the Company, such exclusion shall be for such preference
attributable to such shares of Preferred Stock that are owned by the Company or
any of its Restricted Subsidiaries); and (g) any and all deferrals, renewals,
extensions, refinancings and refundings (whether direct or indirect) of, or
amendments, modifications or supplements to, any liability of the kind
described in any of the preceding clauses (a), (b), (c), (d), (e), (f) or this
clause (g), whether or not between or among the same parties. Subject to
clause (c) of the preceding sentence, neither Dollar-Denominated Production
Payments nor Volumetric Production Payments shall be deemed to be Indebtedness.
"Indenture" means this Indenture, as amended or supplemented from time
to time in accordance with the terms hereof.
"Investment" of any Person means (i) all investments by such Person in
any other Person in the form of loans, advances or capital contributions, (ii)
all guarantees of Indebtedness or other obligations of any other Person by such
Person, (iii) all purchases (or other acquisitions for consideration) by such
Person of assets, Indebtedness, Capital Stock or other securities of any other
Person and (iv) all other items that would be classified as investments
(including, without limitation,
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<PAGE> 18
purchases of assets outside the ordinary course of business) or advances on a
balance sheet of such Person prepared in accordance with GAAP.
"Issue Date" means the date on which the Securities are originally
issued under this Indenture.
"Lien" means, with respect to any Person, any mortgage, pledge, lien,
encumbrance, easement, restriction, covenant, right-of-way, charge or adverse
claim affecting title or resulting in an encumbrance against real or personal
property of such Person, or a security interest of any kind (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, any option, right of first refusal or other similar agreement to sell,
in each case securing obligations of such Person and any filing of or agreement
to give any financing statement under the Uniform Commercial Code (or
equivalent statute or statutes) of any jurisdiction).
"Make-Whole Amount" with respect to a Security means an amount equal
to the excess, if any, of (i) the present value of the remaining interest,
premium and principal payments due on such Security as if such Security were
redeemed on November 1, 2001, computed using a discount rate equal to the
Treasury Rate plus 75 basis points, over (ii) the outstanding principal amount
of such Security. "Treasury Rate" is defined as the yield to maturity at the
time of the computation of United States Treasury securities with a constant
maturity (as compiled by and published in the most recent Federal Reserve
Statistical Release H.15(519), which has become publicly available at least two
Business Days prior to the date of the redemption notice or, if such
Statistical Release is no longer published, any publicly available source of
similar market data) most nearly equal to the then remaining maturity of the
Securities assuming redemption of the Securities on November 1, 2001; provided,
however, that if the Make-Whole Average Life of such Security is not equal to
the constant maturity of the United States Treasury securities for which a
weekly average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if the Make-Whole Average Life of such Securities is less
than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
"Make-Whole Average Life" means the number of years (calculated to
the nearest one-twelfth) between the date of redemption and November 1, 2001.
"Make-Whole Price" with respect to a Security means the greater of (i)
the sum of the outstanding principal amount and the Make-Whole Amount of such
Security, and (ii) the redemption price of such Security on November 1, 2001,
determined pursuant to this Indenture (105.375% of the principal amount).
"Material Change" means an increase or decrease (excluding changes
that result solely from changes in prices) of more than either (i) 10% from the
end of the immediately preceding fiscal quarter in the estimated discounted
future net revenue from proved oil and gas reserves of the
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<PAGE> 19
Company and its Restricted Subsidiaries, or (ii) 20% from the end of the
immediately preceding year (or from June 30, 1996, in the case of a date prior
to the availability of the reserve report for December 31, 1996) in the
estimated discounted future net revenue from proved oil and gas reserves of the
Company and its Restricted Subsidiaries, in each case calculated in accordance
with clause (a) (i) of the definition of Adjusted Consolidated Net Tangible
Assets; provided, however, that the following will be excluded from the
calculation of Material Change: (a) any acquisitions of oil and gas reserves
made after the end of the immediately preceding year for which the discounted
future net revenues have been estimated by independent petroleum engineers
since the end of the preceding year and on which a report or reports exist and
(b) any disposition of properties existing at the beginning of the current
quarter or current year, as the case may be, for purposes of clause (i) or
clause (ii) above, that have been disposed of as provided in Section 4.11.
"Maturity Date" means November 1, 2006.
"NEG-OK" means National Energy Group of Oklahoma, Inc., a Delaware
corporation and wholly-owned subsidiary of the Company.
"Net Cash Proceeds" means (a) with respect to any Asset Sale or
Sale/Leaseback Transaction of any Person, an amount equal to aggregate cash
proceeds received (including any cash proceeds received by way of deferred
payment of principal pursuant to a note or installment receivable or otherwise,
but only as and when received, and excluding any other consideration until such
time as such consideration is converted into cash) therefrom, in each case net
of all legal, title and recording tax expenses, commissions and other fees and
expenses incurred, and all federal, state or local taxes required to be accrued
as a liability as a consequence of such Asset Sale or Sale/Leaseback
Transaction, and in each case net of all Indebtedness which is secured by such
assets, in accordance with the terms of any Lien upon or with respect to such
assets, or which must, by its terms or in order to obtain a necessary consent
to such Asset Sale or Sale/Leaseback Transaction or by applicable law, be
repaid out of the proceeds from such Asset Sale or Sale/Leaseback Transaction
and which is actually so repaid and (b) in the case of any sale by the Company
of securities pursuant to clauses (B) or (C) of Section 4.10(a)(iii), the
amount of aggregate net cash proceeds received by the Company, after payment of
expenses, commissions, discounts and any other transaction costs incurred in
connection therewith.
"Net Working Capital" means (i) all current assets of the Company and
its Restricted Subsidiaries, minus (ii) all current liabilities of the Company
and its Restricted Subsidiaries (including the current portion of gas balancing
liabilities), except current liabilities included in Indebtedness.
"Non-Recourse Indebtedness" means Indebtedness or that portion of
Indebtedness of a Person as to which (a) neither the Company nor any Restricted
Subsidiary (i) provides credit support including any undertaking, agreement or
instrument which would constitute Indebtedness or (ii) is directly or
indirectly liable for such Indebtedness and (b) no default with respect to such
Indebtedness (including any rights which the holders thereof may have to take
enforcement action
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against such Person) would permit (upon notice, lapse of time or both) any
holder of any other Indebtedness (other than Non-Recourse Indebtedness) of the
Company or its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity.
"Notes Liquidated Damages" shall have the meaning given such term in
the Registration Rights Agreement.
"Notes Shelf Registration" shall have the meaning given such term in
the Registration Rights Agreement.
"Officer" means, with respect to any Person, the Chairman of the
Board, the President, any Vice President, the Chief Financial Officer or the
Treasurer of such Person.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by two Officers or by an Officer and either a Secretary,
Assistant Secretary or Assistant Treasurer of such Person. One of the Officers
signing an Officers' Certificate given pursuant to Section 4.03(a) shall be the
principal executive, financial or accounting Officer of the Person delivering
such certificate.
"Oil and Gas Business" means the business of the exploration for, and
exploitation, development, production, processing (but not refining),
marketing, storage and transportation of, hydrocarbons, and other related
energy and natural resources businesses (including oil and gas services
businesses related to the foregoing).
"Oil and Gas Securities" means the Voting Stock of a Person primarily
engaged in the Oil and Gas Business, provided that such Voting Stock shall
constitute a majority of the Voting Stock of such Person in the event that such
Voting Stock is not registered under Section 12 of the Exchange Act.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company (or any Guarantor, if applicable) or the Trustee.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"PBGC Plan" shall mean any employee pension benefit plan as defined in
Section 3(2) of ERISA sponsored by the Company or an ERISA Affiliate (excluding
any Multiemployer Plan and any Multiple Employer Plan) and which is subject to
Title IV of ERISA or Section 412 of the Code.
"Permitted Business Investments" means (i) Investments in assets used
in the Oil and Gas Business; (ii) the acquisition of Oil and Gas Securities;
(iii) the entry into operating agreements, joint ventures, processing
agreements, farmout agreements, development agreements, area of mutual interest
agreements, contracts for the sale, transportation or exchange of oil and
natural gas,
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<PAGE> 21
unitization agreements, pooling arrangements, joint bidding agreements, service
contracts, partnership agreements (whether general or limited) or other similar
or customary agreements, transactions, properties, interests or arrangements,
and Investments and expenditures in connection therewith or pursuant thereto,
in each case made or entered into in the ordinary course of the Oil and Gas
Business, excluding solely for purposes of this clause (iii), however,
Investments in corporations; (iv) the acquisition of working interests, royalty
interests or mineral leases relating to oil and gas properties; (v) Investments
by the Company or any Wholly Owned Restricted Subsidiary in any Person which,
immediately prior to the making of such Investment, is a Wholly Owned
Restricted Subsidiary; (vi) Investments in the Company by any Wholly Owned
Restricted Subsidiary; (vii) Investments permitted under Section 4.11 and
Section 4.13; (viii) Investments in any Person the consideration for which
consists of Capital Stock (other than Disqualified Stock); (ix) Investments
constituting obligations under hedging arrangements described in clause (viii)
of the definition of "Permitted Indebtedness;" and (x) Investments in
Unrestricted Subsidiaries the assets of which consist of assets used in the Oil
and Gas Business (other than cash and Cash Equivalents) received by the Company
from any Person other than a Subsidiary of the Company solely as a result of the
issuance or sale of Capital Stock of the Company (other than Disqualified Stock)
provided that such Investment is made within 30 days of the issuance or sale of
such Capital Stock.
"Permitted Company Refinancing Indebtedness" means Indebtedness of the
Company, the net proceeds of which are used to renew, extend, refinance, refund
or repurchase outstanding Indebtedness of the Company, provided that (i) if the
Indebtedness (including the Securities) being renewed, extended, refinanced,
refunded or repurchased is pari passu with or subordinated in right of payment
to the Securities, then such Indebtedness is pari passu or subordinated in
right of payment to, as the case may be, the Securities at least to the same
extent as the Indebtedness being renewed, extended, refinanced, refunded or
repurchased, (ii) such Indebtedness is scheduled to mature no earlier than the
Indebtedness being renewed, extended, refinanced, refunded or repurchased, and
(iii) such Indebtedness has an Average Life at the time such Indebtedness is
incurred that is equal to or greater than the Average Life of the Indebtedness
being renewed, extended, refinanced, refunded or repurchased; provided,
further, that such Indebtedness (to the extent that such Indebtedness
constitutes Permitted Company Refinancing Indebtedness) is in an aggregate
principal amount (or, if such Indebtedness is issued at a price less than the
principal amount thereof, the aggregate amount of gross proceeds therefrom is)
not in excess of the aggregate principal amount then outstanding of the
Indebtedness being renewed, extended, refinanced, refunded or repurchased (or
if the Indebtedness being renewed, extended, refinanced, refunded or
repurchased was issued at a price less than the principal amount thereof, then
not in excess of the amount of liability in respect thereof determined in
accordance with GAAP).
"Permitted Financial Investments" means the following kinds of
instruments if, in the case of instruments referred to in clauses (i) through
(iv) below, on the date of purchase or other acquisition of any such instrument
by the Company or any Subsidiary, the remaining term to maturity is not more
than one year: (i) readily marketable obligations issued or unconditionally
guaranteed as to principal of and interest on by the United States of America
or by any agency or authority controlled or supervised by and acting as an
instrumentality of the United States of
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<PAGE> 22
America; (ii) repurchase obligations for instruments of the type described in
clause (i) for which delivery of the instrument is made against payment; (iii)
obligations (including, but not limited to, demand or time deposits, bankers'
acceptances and certificates of deposit) issued by a depository institution or
trust company incorporated or doing business under the laws of the United
States of America, any state thereof or the District of Columbia or a branch or
subsidiary of any such depository institution or trust company operating
outside the United States, provided, that such depository institution or trust
company has, at the time of the Company's or such Subsidiary's investment
therein or contractual commitment providing for such investment, capital
surplus or undivided profits (as of the date of such institution's most
recently published financial statements) in excess of $500,000,000; (iv)
commercial paper issued by any corporation, if such commercial paper has, at
the time of the Company's or any Subsidiary's investment therein or contractual
commitment providing for such investment, credit ratings of A-1 (or higher) by
Standard & Poor's Ratings Services and P-1 (or higher) by Moody's Investors
Services, Inc.; and (v) money market mutual or similar funds having assets in
excess of $500,000,000.
"Permitted Indebtedness" means (i) Indebtedness of the Company and its
Restricted Subsidiaries outstanding as of the Issue Date; (ii) Indebtedness of
the Company and its Restricted Subsidiaries under a Bank Credit Facility as the
same may be amended, refinanced or replaced, in a principal amount outstanding
at any time not to exceed a principal amount equal to the greater of (a)
$40,000,000 and (b) $10,000,000 plus 15% of Adjusted Consolidated Net Tangible
Assets plus related accrued interests and costs, less any Net Cash Proceeds
applied in accordance with Section 4.11(b) to repay or prepay such Indebtedness
that results in a permanent reduction in any revolving credit or other
commitment relating thereto or the maximum amount that may be borrowed
thereunder provided that the aggregate amount of applied Net Cash Proceeds
shall not permanently, reduce the amount of Permitted Indebtedness under this
clause (ii) below $10,000,000 principal amount plus related accrued interest
and costs; (iii) other Indebtedness of the Company and its Restricted
Subsidiaries in a principal amount not to exceed $10,000,000 at any one time
outstanding; (iv) Non-Recourse Indebtedness; (v) Indebtedness of the Company to
any Wholly Owned Restricted Subsidiary of the Company and Indebtedness of any
Restricted Subsidiary of the Company to the Company or another Wholly Owned
Restricted Subsidiary of the Company; (vi) Permitted Company Refinancing
Indebtedness; (vii) Permitted Subsidiary Refinancing Indebtedness; (viii)
obligations under hedging arrangements that the Company and its Subsidiaries
enter into in the ordinary course of business for the purpose of protecting
their production against fluctuations in oil and natural gas prices; (ix)
Indebtedness under the Notes; and (x) Indebtedness of a Subsidiary pursuant to
a Guarantee of the Securities pursuant to Article X of this Indenture.
"Permitted Investments" means Permitted Business Investments and
Permitted Financial Investments.
"Permitted Liens" means (i) Liens outstanding as of the Issue Date;
(ii) Liens now or hereafter securing a Bank Credit Facility; provided, however,
such Liens are limited to securing Indebtedness in an amount not in excess of
that permitted to be incurred in accordance with clause (ii) of the definition
of Permitted Indebtedness; (iii) Liens now or hereafter securing any interest
rate
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<PAGE> 23
hedging obligations so long as the related Indebtedness (a) constitutes Senior
Indebtedness or (b) is, or is permitted to be under this Indenture, secured by
a Lien on the same property securing such interest rate obligations; (iv) Liens
now or hereafter securing any interest rate hedging obligations so long as the
related Indebtedness (a) constitutes the Securities (or any Refinancing
Indebtedness of the Company in respect thereof) or (b) is, or is permitted to
be under this Indenture, secured by a Lien on the same property securing such
interest rate hedging obligations; (v) Liens securing Indebtedness, the
proceeds of which are used to refinance secured Indebtedness of the Company or
its Restricted Subsidiaries; provided, that such Liens extend to or cover only
the property or assets currently securing the Indebtedness being refinanced;
(vi) Liens for taxes, assessments and governmental charges not yet delinquent
or being contested in good faith and for which adequate reserves have been
established to the extent required by GAAP; (vii) mechanics', workmen's,
materialmen's, operators' or similar Liens arising in the ordinary course of
business; (viii) Liens in connection with workers' compensation, unemployment
insurance or other social security, old age pension or public liability
obligations; (ix) Liens, deposits or pledges to secure the performance of bids,
tenders, contracts (other than contracts for the payment of money), leases,
public or statutory obligations, surety, stay, appeal indemnity, performance or
other similar bonds, or other similar obligations arising in the ordinary
course of business; (x) survey exceptions, encumbrances, easements or
reservations of, or rights of others for, rights of way, zoning or other
restrictions as to the use of real properties, and minor defects in title
which, in the case of any of the foregoing, were not incurred or created to
secure the payment of borrowed money or the deferred purchase price of property
or services, and in the aggregate do not materially adversely affect the value
of such properties or materially impair use for the purposes of which such
properties are held by the Company or any Restricted Subsidiaries; (xi) Liens
on, or related to, properties to secure all or part of the costs incurred in
the ordinary course of business of exploration, drilling, development or
operation thereof; (xii) Liens on pipeline or pipeline facilities which arise
out of operation of law; (xiii) judgment and attachment Liens not giving rise
to an Event of Default or Liens created by or existing from any litigation or
legal proceeding that are currently being contested in good faith by
appropriate proceedings and for which adequate reserves have been made; (xiv)
(a) Liens upon any property of any Person existing at the time of acquisition
thereof by the Company or a Restricted Subsidiary, (b) Liens upon any property
of a Person existing at the time such Person is merged or consolidated with the
Company or any Restricted Subsidiary or existing at the time of the sale or
transfer of any such property of such Person to the Company or any Restricted
Subsidiary, or (c) Liens upon any property of a Person existing at the time
such Person becomes a Restricted Subsidiary; provided, that in each case such
Lien has not been created in contemplation of such sale, merger, consolidation,
transfer or acquisition, and provided that in each such case no such Lien shall
extend to or cover any property of the Company or any Restricted Subsidiary
other than the property being acquired and improvements thereon; (xv) Liens on
deposits to secure public or statutory obligations or in lieu of surety or
appeal bonds entered into in the ordinary course of business; (xvi) Liens in
favor of collecting or payor banks having a right of setoff, revocation, refund
or chargeback with respect to money or instruments of the Company or any
Subsidiary on deposit with or in possession of such bank; (xvii) purchase money
security interests granted in connection with the acquisition of assets in the
ordinary course of business and consistent with past practices, provided, that
(A) such Liens attach only to the property so acquired with the purchase money
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<PAGE> 24
indebtedness secured thereby and (B) such Liens secure only Indebtedness that
is not in excess of 100% of the purchase price of such assets; (xviii) Liens
reserved in oil and gas mineral leases for bonus or rental payments and for
compliance with the terms of such leases; (xix) Liens arising under partnership
agreements, oil and gas leases, farm-out agreements, division orders, contracts
for the sale, purchase, exchange, transportation or processing (but not
refining) of oil, gas or other hydrocarbons, unitization and pooling
declarations and agreements, development agreements, operating agreements, area
of mutual interest agreements, and other similar agreements which are customary
in the Oil and Gas Business; (xx) Liens securing obligations under hedging
arrangements that the Company enters into in the ordinary course of business
for the purpose of protecting its production against fluctuations in oil and
natural gas prices; and (xxi) Liens to secure Dollar-Denominated Production
Payments and Volumetric Production Payments.
"Permitted Subsidiary Refinancing Indebtedness" means Indebtedness of
any Restricted Subsidiary, the net proceeds of which are used to renew, extend,
refinance, refund or repurchase outstanding Indebtedness of such Restricted
Subsidiary, provided that (i) if the Indebtedness (including any Guarantee)
being renewed, extended, refinanced, refunded or repurchased is pari passu with
or subordinated in right of payment to the Guarantee, then such Indebtedness is
pari passu with or subordinated in right of payment to, as the case may be, the
Guarantee at least to the same extent as the Indebtedness being renewed,
extended, refinanced, refunded or repurchased, (ii) such Indebtedness is
scheduled to mature no earlier than the Indebtedness being renewed, extended,
refinanced, refunded or repurchased, and (iii) such Indebtedness has an Average
Life at the time such Indebtedness is incurred that is equal to or greater than
the Average Life of the Indebtedness being renewed, extended, refinanced,
refunded or repurchased, provided, further, that such Indebtedness (to the
extent that such Indebtedness constitutes Permitted Subsidiary Refinancing
Indebtedness) is in an aggregate principal amount (or, if such Indebtedness is
issued at a price less than the principal amount thereof, the aggregate amount
of gross proceeds therefrom is) not in excess of the aggregate principal amount
then outstanding of the Indebtedness being renewed, extended, refinanced,
refunded or repurchased (or if the Indebtedness being renewed, extended,
refinanced, refunded or repurchased was issued at a price less than the
principal amount thereof, then not in excess of the amount of liability in
respect thereof determined in accordance with GAAP); provided, however, that a
Restricted Subsidiary shall not incur refinancing Indebtedness to renew,
extend, refinance, refund or repurchase outstanding Indebtedness of another
Subsidiary unless such Subsidiary is a Guarantor.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, trust, estate, unincorporated organization or
government or any agency or political subdivision thereof.
"Preferred Stock" as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated), which is
preferred as to the payment of dividends, or upon any voluntary or involuntary
liquidation or dissolution of such corporation, over shares of Capital Stock of
any other class of such corporation.
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<PAGE> 25
"Production Payments" means, collectively, Dollar-Denominated
Production Payments and Volumetric Production Payments.
"pro forma" means, with respect to any calculation made or required to
be made pursuant to the terms of this Indenture, a calculation in accordance
with Article XI of Regulation S-X under the Securities Act.
"Reference Period" means, with respect to any Person, the four full
consecutive fiscal quarters ended with the last full fiscal quarter for which
financial information is available immediately preceding any date upon which
any determination is to be made pursuant to the terms of the Securities or this
Indenture.
"Registered Exchange Offer" shall have the meaning given such term in
the Registration Rights Agreement.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of October 29, 1996, by and among the Company, the
Guarantor and each of the purchasers named on the signature pages thereto, as
such agreement may be amended, modified or supplemented from time to time.
"Restricted Payment" means, with respect to any Person, any of the
following: (i) any dividend or other distribution in respect of such Person's
Capital Stock (other than (a) dividends or distributions payable solely in
Capital Stock (other than Disqualified Stock) and (b) in the case of Restricted
Subsidiaries of the Company, dividends or distributions payable to the Company
or to a Restricted Subsidiary of the Company); (ii) the purchase, redemption or
other acquisition or retirement for value of any Capital Stock, or any option,
warrant, or other right to acquire shares of Capital Stock, of the Company or
any of its Restricted Subsidiaries (but excluding (a) any cashless exercise of
warrants or options or (b) payments in respect of cash elections or phantom
stock or similar awards under any director or employee benefit plan or
arrangement provided such payment is recorded as a compensation expense under
GAAP); (iii) the making of any principal payment on, or the purchase,
defeasance, repurchase, redemption or other acquisition or retirement for
value, prior to any scheduled maturity, scheduled repayment or scheduled
sinking fund payment, of any Indebtedness which is subordinated in right of
payment to the Notes; and (iv) the making by such Person of any Investment
other than a Permitted Investment.
"Restricted Securities" mean Securities that bear or are required to
bear the Restricted Securities Legend.
"Restricted Securities Legend" means the legend set forth on the face
of the form of Security attached hereto as Exhibit A, pursuant to Section 2.06.
"Restricted Subsidiary" means any Subsidiary of the Company other than
an Unrestricted Subsidiary. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted
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Subsidiary; provided, however, that, immediately after giving effect to such
designation, the Company could incur at least $1.00 in additional Indebtedness
pursuant Section 4.09(a). NEG-OK shall be the sole Restricted Subsidiary on
the Issue Date.
"Revised Credit Facility" means the Restated Loan Agreement between
the Company and Bank One, Texas, N.A. and Credit Lyonnais, New York, as amended
from time to time, including but not limited to the First Amendment dated as of
October 31, 1996.
"Sale/Leaseback Transaction" means with respect to the Company or any
of its Restricted Subsidiaries, any arrangement with any Person providing for
the leasing by the Company or any of its Restricted Subsidiaries of any
principal property, acquired or placed into service more than 180 days prior to
such arrangement, whereby such property has been or is to be sold or
transferred by the Company or any of its Restricted Subsidiaries to such
Person.
"SEC" means the Securities and Exchange Commission.
"Securities" or "Security" means the Company's 10 3/4% Senior Notes
due 2006 and the Senior Exchange Securities, as either may be amended or
supplemented from time to time in accordance with the terms hereof, that are
issued pursuant to this Indenture.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Securities Custodian" means the Trustee, as custodian with respect to
the Securities in global form, or any successor entity thereto.
"Senior Exchange Securities" means the Company's 10 3/4% Senior
Exchange Notes due 2006 issued in exchange for the Company's 10 3/4% Senior
Notes due 2006 pursuant to a Registered Exchange Offer.
"Senior Indebtedness" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter incurred), unless such Indebtedness
is contractually subordinate or junior in right of payment of principal,
premium and interest to the Securities.
"Senior Indebtedness of a Guarantor" means any Indebtedness of such
Guarantor (whether outstanding on the date hereof or hereafter incurred),
unless such Indebtedness is contractually subordinate or junior in right of
payment of principal, premium and interest to the Guarantees.
"Stated Maturity" means, when used with respect to any Security or any
installment of interest thereon, the date specified in such Security as the
fixed date on which the principal of such Security or such installment of
interest is due and payable, and, when used with respect to any other
Indebtedness or any installment of interest thereon, means the date specified
in the instrument
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<PAGE> 27
evidencing or governing such Indebtedness as the fixed date on which the
principal of such Indebtedness or such installment of interest is due and
payable.
"Subordinated Indebtedness of a Guarantor" means any Indebtedness of
such Guarantor (whether outstanding on the date hereof or hereafter incurred)
which is contractually subordinate or junior in right of payment of principal,
premium and interest to the Guarantees.
"Subordinated Indebtedness of the Company" means any Indebtedness of
the Company (whether outstanding on the date hereof or hereafter incurred)
which is contractually subordinate or junior in right of payment of principal,
premium and interest to the Securities.
"Subsidiary" means any subsidiary of the Company. A subsidiary of any
Person means (i) a corporation a majority of whose Voting Stock is at the time,
directly or indirectly, owned by such Person, by one or more subsidiaries of
such Person or by such Person and one or more subsidiaries of such Person, (ii)
a partnership in which such Person or a subsidiary of such Person is, at the
date of determination, a general or limited partner of such partnership, but
only if such Person or its subsidiary is entitled to receive more than 50
percent of the assets of such partnership upon its dissolution, or (iii) any
other Person (other than a corporation or partnership) in which such Person,
directly or indirectly, at the date of determination thereof, has (x) at least
a majority ownership interest or (y) the power to elect or direct the election
of a majority of the directors or other governing body of such Person.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code Sections
77aaa-77bbbb) as in effect on the date of this Indenture, except as provided in
Section 9.03.
"Trust Officer" means any officer or assistant officer within the
corporate trust department of the Trustee assigned by the Trustee to administer
its corporate trust matters.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor.
"Unrestricted Subsidiary" means (i) any Subsidiary of an Unrestricted
Subsidiary or (ii) any Subsidiary of the Company or of a Restricted Subsidiary
that is designated as an Unrestricted Subsidiary by a resolution adopted by the
Board of Directors in accordance with the requirements of the following
sentence. The Company may designate any Subsidiary of the Company or of a
Restricted Subsidiary (including a newly acquired or newly formed Subsidiary or
any Restricted Subsidiary of the Company), to be an Unrestricted Subsidiary by
a resolution of the Board of Directors of the Company, as evidenced by written
notice thereof delivered to the Trustee, if after giving effect to such
designation, (i) the Company could incur at least $1.00 of additional
Indebtedness pursuant to Section 4.09(a), (ii) the Company could make an
additional Restricted Payment of at least $1.00 pursuant to Section 4.10(a),
(iii) such Subsidiary does not own or hold any Capital Stock of, or any lien on
any property of, the Company or any Restricted Subsidiary and (iv) such
Subsidiary is not liable, directly or indirectly, with respect to any
Indebtedness other than
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Unrestricted Subsidiary Indebtedness. Notwithstanding the foregoing, as of the
date of this Indenture, Boomer Marketing Corporation, an Oklahoma corporation,
and Energy and Environmental Services Limited Partnership, an Oklahoma limited
partnership, are designated by the Company as Unrestricted Subsidiaries.
"Unrestricted Subsidiary Indebtedness" of any Person means
Indebtedness of such Person (i) as to which neither the Company nor any
Restricted Subsidiary is directly or indirectly liable (by virtue of the
Company's or such Restricted Subsidiary's being the primary obligor, or
guarantor of, or otherwise liable in any respect on, such Indebtedness), (ii)
which, with respect to Indebtedness incurred after the Issue Date by the
Company or any Restricted Subsidiary, upon the occurrence of a default with
respect thereto, does not result in, or permit any holder of any Indebtedness
of the Company or any Restricted Subsidiary to declare a default on such
Indebtedness of the Company or any Restricted Subsidiary and (iii) which is not
secured by any assets of the Company or of any Restricted Subsidiary.
"U.S. Government Securities" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America, which, in either case
under clauses (i) or (ii) are not callable or redeemable at the option of the
issuer thereof.
"U.S. Legal Tender" means such coin or currency of the United States
as at the time of payment shall be legal tender for the payment of public and
private debts.
"Volumetric Production Payments" mean production payment obligations
recorded as deferred revenue in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Voting Stock" means, with respect to any Person, securities of any
class or classes of Capital Stock in such Person entitling the holders thereof
(whether at all times or only so long as no senior class of stock has voting
power by reason of contingency) to vote in the election of members of the Board
of Directors or other governing body of such person, provided that, for
purposes of the definition of Change in Control, the Series D Preferred Stock
of the Company outstanding at the Issue Date shall not be deemed Voting Stock
unless and until the holders of such class take any action, by vote, consent or
otherwise, to exercise any right of such class to elect or appoint more than
one member to the Board of Directors of the Company.
"Wholly Owned Restricted Subsidiary" means a Restricted Subsidiary 95%
or more of the Capital Stock (other than directors' qualifying shares if
applicable) of which is owned by the Company or another Wholly Owned Restricted
Subsidiary.
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Section 1.02 Other Definitions.
<TABLE>
<CAPTION>
Term Defined in Section
<S> <C>
"Affiliate Transaction" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.16
"Bankruptcy Law" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01
"Change of Control Offer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.17
"Change of Control Notice" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.17
"Change of Control Payment Date" . . . . . . . . . . . . . . . . . . . . . . . . . 4.17
"Covenant Defeasance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.03
"Custodian" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01
"Defaulted Interest" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.12
"Event of Default" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01
"Excess Proceeds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.11
"Funding Guarantor" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.06
"incur" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.09
"Legal Defeasance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.02
"Legal Holiday" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.07
"Net Proceeds Offer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.11
"Net Proceeds Offer Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.11
"Net Proceeds Payment Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.11
"Paying Agent" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.03
"Payment Default" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01
"Payment Restriction" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.14
"Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.11
"QIB" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.06
"Registrar" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.03
</TABLE>
SECTION 1.03 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms, if used in this Indenture, have the following
meanings:
"Commission" means the SEC.
"indenture securities" means the Securities and the Guarantees.
"indenture security holder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
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<PAGE> 30
"obligor" on the indenture securities means the Company, the
Guarantors and any other obligor on the Securities or the Guarantees.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule have
the meanings assigned to them therein.
SECTION 1.04 Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words
in the plural include the singular;
(5) any gender used in this Indenture shall be deemed to
include the neuter, masculine or feminine genders;
(6) provisions apply to successive events and
transactions; and
(7) "herein," "hereof" and other words of similar import
refer to this Indenture as a whole and not to any particular Article,
Section or other Subdivision.
ARTICLE II
The Securities
SECTION 2.01 Form and Dating.
The Securities and the certificate of authentication, and the notation
on the Securities relating to the Guarantee and the certificate of
authentication relating to the Guarantee, shall be substantially in the forms
of Exhibits A and A-1, respectively. The Securities may also have such
insertions, omissions, substitutions and variations as are required or as may
be permitted by or consistent with this Indenture and, in this regard,
Securities issued pursuant to a Registered Exchange Offer in accordance with
Section 2.06(c) and Section 2.06(i)(iii) may be referred to as Senior Exchange
Securities on the face and reverse of the certificate and bear a CUSIP number
different from that applicable to Securities bearing a Restricted Securities
Legend. The provisions of Exhibits A and
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<PAGE> 31
A-1 are part of this Indenture. The Securities may have notations, legends and
endorsements required by law or stock exchange rule or usage. Restricted
Securities shall bear the Restricted Securities Legend, unless removed in
accordance with Section 2.06. The Company shall approve the form of the
Securities and any notation, legend or endorsement on them. Each Security
shall be dated the date of its authentication.
The terms and provisions contained in the Securities and the Guarantee
shall constitute, and are hereby expressly made, a part of this Indenture and,
to the extent applicable, the Company and the Guarantors, by their execution
and delivery of this Indenture, expressly agree to such terms and provisions
and to be bound thereby.
Securities offered and sold in reliance on Rule 144A under the
Securities Act will initially be issued only in the form of one or more Global
Securities. Securities offered and sold in reliance on any other exemption
from registration under the Securities Act will be issued only in the form of
Definitive Securities.
Securities issued in global form shall be substantially in the form of
Exhibit A attached hereto (including the text referred to in footnotes 1 and 2
thereto and the additional schedule referred to in footnote 3 thereto).
Securities issued in definitive form shall be substantially in the form of
Exhibit A attached hereto (but without including the text referred to in
footnotes 1 and 2 thereto and the additional schedule referred to in footnote 3
thereto). Each Global Security shall represent such of the outstanding
Securities as shall be specified therein and each shall provide that it shall
represent the aggregate amount of outstanding Securities from time to time
endorsed thereon and that the aggregate amount of outstanding Securities
represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges and redemptions. Any endorsement of a Global
Security to reflect the amount of any increase or decrease in the amount of
outstanding Securities represented thereby shall be made by the Trustee or the
Securities Custodian, at the direction of the Trustee, in accordance with
instructions given by the Holder thereof as required by Section 2.06 hereof.
Subject to the provisions of Section 2.06, any Person having a beneficial
interest in a Global Security may exchange such beneficial interest, upon
request to the Trustee, for fully certificated Definitive Securities in
registered form.
SECTION 2.02 Execution and Authentication.
Two Officers of the Company shall sign the Securities on behalf of the
Company, and one Officer of each Guarantor shall sign the notation on the
Securities relating to the Guarantee of such Guarantor on behalf of such
Guarantor, in each case by manual or facsimile signature. The Company's seal
shall be reproduced on the Securities.
If an Officer of the Company or any Guarantor whose signature is on a
Security no longer holds that office at the time the Security is authenticated,
the Security shall be valid nevertheless.
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<PAGE> 32
A Security shall not be valid until an authorized signatory of the
Trustee or an authenticating agent manually signs the certificate of
authentication on the Security and the Guarantee. These signatures shall be
conclusive evidence that the Security has been authenticated under this
Indenture.
The Trustee or an authenticating agent shall authenticate Securities
for original issue in the aggregate principal amount of $100,000,000 upon a
written order of the Company signed by two Officers of the Company. Subject to
Section 2.07, the aggregate principal amount of Securities outstanding at any
time may not exceed $100,000,000. Each Security authenticated for original
issuance shall bear the Restricted Securities Legend.
The Trustee may appoint an authenticating agent to authenticate
Securities. An authenticating agent may authenticate Securities whenever the
Trustee may do so except on original issuance. Each reference in this Indenture
to authentication by the Trustee includes authentication by such agent and each
reference to authentication of the Securities includes authentication of the
Guarantee. An authenticating agent has the same rights as an Agent to deal with
the Company or its Affiliates.
The Securities shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
SECTION 2.03 Registrar and Paying Agent.
The Company shall maintain an office or agency where Securities may be
presented for registration of transfer or for exchange (the "Registrar") and an
office or agency where Securities may be presented for payment (the "Paying
Agent"). The Registrar shall keep a register of the Securities and of their
transfer and exchange. Where the Trustee is acting as or has been appointed
Registrar and/or Paying Agent, the Company may appoint one or more
co-registrars and one or more additional paying agents with the prior consent
of the Trustee, whose consent shall not be unreasonably withheld. The term
"Paying Agent" includes any additional paying agent.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture. Such agency agreement shall provide for
reasonable compensation for such services. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall
notify the Trustee of the name and address of any such Agent and shall furnish
the Trustee with an executed counterpart of any such agency agreement. If the
Company fails to maintain or act as Registrar or Paying Agent, the Trustee
shall act as such and shall be duly compensated therefor.
The Registrar or a co-registrar and a Paying Agent shall be maintained
by the Company in the Borough of Manhattan, the City of New York. The Company
initially designates the Trustee as the Registrar and Paying Agent.
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<PAGE> 33
The Company initially appoints The Depository Trust Company ("DTC") to
act as Depositary with respect to the Global Securities.
The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Securities Custodian with respect to the Global
Securities.
SECTION 2.04 Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other than the Trustee to
hold in trust for the benefit of Holders or the Trustee all money held by such
Paying Agent for the payment of principal of, premium, if any, or interest on
the Securities (whether such money shall have been paid to it by the Company or
any Guarantor), and to notify the Trustee of any Default by the Company or any
Guarantor in making any such payment. While any such Default continues, the
Trustee may require the Paying Agent to pay all money held by it to the
Trustee. Except as provided in the immediately preceding sentence, the Company
at any time may require a Paying Agent to pay all money held by it to the
Trustee and to account for any funds disbursed and, if the Company requires
such payment, the Company shall give prior notice to the Trustee and provide
appropriate money transfer instructions to the Paying Agent. Upon such payment
over to the Trustee and accounting for any funds disbursed, such Paying Agent
(if other than the Company or a Subsidiary) shall have no further liability for
the money. If the Company or a Subsidiary acts as Paying Agent, it shall
segregate and hold as separate trust funds for the benefit of the Holders all
money held by it as Paying Agent.
SECTION 2.05 Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is
not the Registrar, the Company shall furnish or cause to be furnished to the
Trustee at least ten Business Days prior to each semiannual interest payment
date, and at such other times as the Trustee may request in writing, a list in
such form and as of such date as the Trustee may reasonably require of the
names and addresses of Holders, and the Company shall otherwise comply with TIA
Section 312(a).
SECTION 2.06 Transfer and Exchange.
(a) Transfer and Exchange of Definitive Securities. When a
Definitive Security is presented to the Registrar or a co-registrar with a
request to register a transfer, the Registrar shall register the transfer as
requested if the requirements of the Registrar are met; provided, however, that
the Definitive Security presented or surrendered for register of transfer (i)
shall be duly endorsed or accompanied by a written instruction of transfer in
form satisfactory to the Registrar duly executed by the Holder thereof or by
his attorney, duly authorized in writing; and (ii) in the case of a Definitive
Security that is a Restricted Security, such request shall be accompanied by
(A) a certificate substantially in the form set forth as Exhibit B hereto,
given by the Holder and the
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<PAGE> 34
transferee of such Restricted Security, to the effect set forth therein and (B)
an opinion of counsel substantially in the form of Exhibit C hereto from such
Holder or the transferee satisfactory to the Trustee and the Registrar, to the
effect set forth therein.
(b) Securities Selected for Redemption; Registrar Requirements;
Authentication; Fees. The Registrar need not transfer or exchange any
Securities selected for redemption, except the unredeemed portion of any
Security being redeemed in part. Also, it need not transfer or exchange any
Securities for a period of 15 days before a selection of Securities to be
redeemed. When Securities are presented to the Registrar or a co-registrar
with a request to exchange them for an equal principal amount of Securities of
other authorized denominations, the Registrar shall make the exchange as
requested if the requirements of the Registrar are met. The Company shall
cooperate with the Registrar in meeting its requirements. To permit transfers,
registration and exchanges, the Trustee shall authenticate Securities at the
Registrar's request. The Company may charge a reasonable fee for any transfer,
registration or exchange and may require payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in relation thereto,
but not for any exchange pursuant to Sections 2.10, 3.06 or 9.05.
(c) Restricted Securities Legend. If Securities are issued upon
the transfer, exchange or replacement of Securities bearing the Restricted
Securities Legend, or if a request is made to remove such Restricted Securities
Legend on Securities, the Securities so issued shall bear the Restricted
Securities Legend, or the Restricted Securities Legend shall not be removed, as
the case may be, unless there is delivered to the Company (with copies to the
Registrar) such satisfactory evidence, which may include an opinion of counsel,
as may be reasonably required by the Company that (i) neither the legend nor
the restrictions on transfer set forth therein are required to ensure that
transfers thereof comply with the provisions of the Securities Act or, with
respect to Restricted Securities, that such Securities upon transfer to the
transferee will not be "restricted" within the meaning of Rule 144 under the
Securities Act or (ii) there is an Effective Registration involving the Notes
Shelf Registration with respect to the Securities then in effect or the
Security as to which the Restricted Securities Legend is sought to be removed
has been disposed of in accordance with the Notes Shelf Registration. Upon (i)
provision of such satisfactory evidence, or (ii) notification by the Company to
the Trustee of an Effective Registration with respect to the Notes Shelf
Registration, the Trustee, at the written order of the Company signed by two
Officers, shall authenticate and deliver Securities that do not bear the
Restricted Securities Legend in exchange for Securities bearing the Restricted
Securities Legend. If the Effective Registration is with respect to a
Registered Exchange Offer for the Securities, the Company shall notify the
Trustee, and the Trustee, at the Company's request, thereafter shall notify the
Holders of receipt of such notice and, after receipt of a written order of the
Company signed by two Officers for the authentication and delivery of
Securities that do not bear the Restricted Securities Legend and a properly
completed letter of transmittal or other requested documents from a Holder as
specified in the exchange offer documents, shall exchange such Holder's
Securities for Securities that do not bear the Restricted Securities Legend
upon the terms set forth in the exchange offer documents.
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<PAGE> 35
(d) Transfer of a Definitive Security for a Beneficial Interest in
a Global Security. A Definitive Security may not be exchanged for a beneficial
interest in a Global Security except upon satisfaction of the requirements set
forth below. Upon receipt by the Trustee of a Definitive Security, duly
endorsed or accompanied by appropriate instruments of transfer, in form
satisfactory to the Trustee, together with:
(i) if such Definitive Security is a Restricted Security,
a certification from the Holder thereof (in substantially the form of
Exhibit B hereto) to the effect that such Holder is a "qualified
institutional buyer" (as defined in Rule 144A under the Securities
Act) (a "QIB") or, if such Holder is transferring same, that such
transferee is a Person that such Holder reasonably believes to be to a
QIB in accordance with Rule 144A under the Securities Act; and
(ii) whether or not such Definitive Security is a
Restricted Security, written instructions from the Holder thereof
directing the Trustee to make, or to direct the Security Custodian to
make, an endorsement on the Global Security to reflect an increase in
the aggregate principal amount of the Securities represented by the
Global Security,
the Trustee shall cancel such Definitive Security in accordance with Section
2.11 hereof and cause, or direct the Security Custodian to cause, in accordance
with the standing instructions and procedures existing between the Depositary
and the Security Custodian, the aggregate principal amount of Securities
represented by the Global Security to be increased accordingly. If no Global
Securities are then outstanding, the Company shall issue and, upon receipt of
an authentication order in accordance with Section 2.02 hereof, the Trustee
shall authenticate a new Global Security in the appropriate principal amount.
(e) Transfer and Exchange of Global Securities. The transfer and
exchange of Global Securities or beneficial interests therein shall be effected
through the Depositary, in accordance with this Indenture and the procedures of
the Depositary therefor, which shall include restrictions on transfer
comparable to those set forth herein to the extent required by the Securities
Act.
(f) Transfer of a Beneficial Interest in a Global Security for a
Definitive Security.
(i) Any Person having a beneficial interest in a Global
Security may upon request exchange such beneficial interest for a
Definitive Security. Upon receipt by the Trustee of written
instructions or such other form of instructions as is customary for
the Depositary, from the Depositary or its nominee on behalf of any
Person having a beneficial interest in a Global Security, and, in the
case of a Restricted Security, the following additional information
and documents (all of which may be submitted by facsimile):
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<PAGE> 36
(A) if such beneficial interest is being
transferred to the Person designated by the Depositary as
being the beneficial owner, a certification to that effect
from such Person (in substantially the form of Exhibit B
hereto); or
(B) if such beneficial interest is being
transferred to a QIB in accordance with Rule 144A under the
Securities Act, a certification to that effect from the
transferor (in substantially the form of Exhibit B hereto); or
(C) if such beneficial interest is being
transferred in reliance on Rule 144 or Rule 904 or another
exemption from the registration requirements of the Securities
Act, a certification to that effect from the transferor (in
substantially the form of Exhibit B hereto) and an opinion of
counsel substantially in the form of Exhibit C hereto from the
transferee or transferor reasonably acceptable to the Company
and to the Registrar to the effect that such transfer is in
compliance with the Securities Act,
the Trustee or the Security Custodian, at the direction of the
Trustee, shall, in accordance with the standing instructions and
procedures existing between the Depositary and the Security Custodian,
cause the aggregate principal amount of Global Securities to be
reduced accordingly and, following such reduction, the Company shall
execute and, upon receipt of an authentication order in accordance
with Section 2.02 hereof, the Trustee shall authenticate and deliver
to the transferee a Definitive Security in the appropriate principal
amount.
(ii) Definitive Securities issued in exchange for
a beneficial interest in a Global Security pursuant to this Section
2.06(f) shall be registered in such names and in such authorized
denominations as the Depositary, pursuant to instructions from its
direct or indirect participants or otherwise, shall instruct the
Trustee. The Trustee shall deliver such Definitive Securities to the
Persons in whose names such Securities are so registered.
(g) Restrictions on Transfer and Exchange of Global
Securities. Notwithstanding any other provision of this Indenture (other than
the provisions set forth in subsection (f) of this Section 2.06), a Global
Security may not be transferred as a whole except by the Depositary to a
nominee of the Depositary or by a nominee of the Depositary to the Depositary
or another nominee of the Depositary or by the Depositary or any such nominee
to a successor Depositary or a nominee of such successor Depositary.
(h) Authentication of Definitive Securities in Absence of
Depositary. If at any time:
(i) the Depositary for the Securities notifies
the Company that the Depositary is unwilling or unable to continue as
Depositary for the Global Securities and a successor Depositary for
the Global Securities is not appointed by the Company within 90 days
after delivery of such notice; or
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<PAGE> 37
(ii) the Company, at its sole discretion, notifies
the Trustee in writing that it elects to cause the issuance of
Definitive Securities under this Indenture,
then the Company shall execute, and the Trustee shall, upon receipt of an
authentication order in accordance with Section 2.02 hereof, authenticate and
deliver, Definitive Securities in an aggregate principal amount equal to the
principal amount of the Global Securities in exchange for such Global
Securities.
(i) Legends.
(i) Except as permitted by the following
paragraphs (ii) and (iii), each Security certificate evidencing Global
Securities and Definitive Securities (and all Securities issued in
exchange therefor or substitution thereof) shall bear legends in
substantially the following form:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND THE
SECURITY EVIDENCED HEREBY MAY NOT BE SOLD OR OTHERWISE TRANSFERRED TO
OR FOR THE ACCOUNT OR BENEFIT OF ANY PERSON EXCEPT AS SET FORTH IN THE
FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7)
UNDER THE SECURITIES ACT) WHICH IS AN INSTITUTION (AN "INSTITUTIONAL
ACCREDITED INVESTOR"), (2) AGREES THAT IT WILL NOT PRIOR TO THE DATE
WHICH IS THREE YEARS (OR SUCH SHORTER PERIOD AS COMPLIES WITH RULE 144
UNDER THE SECURITIES ACT) AFTER THE LATER OF THE DATE OF ORIGINAL
ISSUANCE OF THIS SECURITY AND THE LAST DATE ON WHICH THE ISSUER OR ANY
AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS SECURITY (THE "RESALE
RESTRICTION TERMINATION DATE") RESELL, PLEDGE OR OTHERWISE TRANSFER
THIS SECURITY, EXCEPT (A) TO THE ISSUER, (B) TO A PERSON THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER PURCHASING FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANOTHER QUALIFIED INSTITUTIONAL
BUYER IN COMPLIANCE WITH THE RESALE PROVISIONS OF RULE 144A UNDER THE
SECURITIES ACT, (C) TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT,
PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A WRITTEN
CERTIFICATION CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY, (D)
PURSUANT TO THE RESALE LIMITATIONS PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF
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<PAGE> 38
AVAILABLE), (E) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 OF THE SECURITIES
ACT, (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, OR (G) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT IN EACH
OF THE FOREGOING CASES TO ANY REQUIREMENT OF LAW THAT THE DISPOSITION
OF ITS PROPERTY OR THE PROPERTY OF SUCH ACCOUNT BE AT ALL TIMES WITHIN
ITS CONTROL AND TO COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS,
AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHICH THIS
SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. IF THE PROPOSED TRANSFEREE IS NOT A QUALIFIED INSTITUTIONAL
BUYER, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE
AND THE ISSUER SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER
INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT
SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. THE FOREGOING RESTRICTIONS ON RESALE WILL NOT APPLY
SUBSEQUENT TO THE RESALE RESTRICTION TERMINATION DATE.
(ii) Subject to Section 2.06(c), upon any sale or
transfer of a Restricted Security (including any Restricted Security
represented by a Global Security) pursuant to Rule 144 under the
Securities Act or pursuant to an Effective Registration:
(A) in the case of any Restricted
Security that is a Definitive Security, the Registrar shall
permit the Holder thereof to exchange such Restricted Security
for a Definitive Security that does not bear the legend set
forth in (i) above and rescind any restriction on the transfer
of such Restricted Security; and
(B) in the case of any Restricted
Security represented by a Global Security, such Restricted
Security shall not be required to bear the legend set forth in
(i) above, but shall continue to be subject to the other
provisions hereof; provided, however, that with respect to
any request for an exchange of a Restricted Security that is
represented by a Global Security for a Definitive Security
that does not bear the legend set forth in (i) above, which
request is made in reliance upon Rule 144, the Holder thereof
shall certify in writing to the Registrar that such request is
being made pursuant to Rule 144 (such certification to be
substantially in the form of Exhibit B hereto).
(iii) Notwithstanding the foregoing, upon
consummation of the Registered Exchange Offer, the Company shall issue
and, upon receipt of an authentication order in
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<PAGE> 39
accordance with Section 2.02 hereof, the Trustee shall authenticate
Senior Exchange Securities issued in exchange for Restricted
Securities in the Registered Exchange Offer, which Senior Exchange
Securities shall not bear the legend set forth in (i) above, and the
Registrar shall rescind any restriction on the transfer of such
Securities, in each case unless the Holder of such Securities is
either (A) a broker-dealer, (B) a Person participating in the
distribution of the Securities, (C) a Person who is an affiliate (as
defined in Rule 144A) of the Company or (D) a Person who is not
acquiring Senior Exchange Securities in the ordinary course of
business.
(j) Cancellation and/or Adjustment of Global Securities.
At such time as all beneficial interests in Global Securities have been
exchanged for Definitive Securities, redeemed, repurchased or canceled, all
Global Securities shall be returned to or retained and canceled by the Trustee
in accordance with Section 2.11 hereof. At any time prior to such
cancellation, if any beneficial interest in a Global Security is exchanged for
Definitive Securities, redeemed, repurchased or canceled, the principal amount
of Securities represented by such Global Security shall be reduced accordingly
and an endorsement shall be made on such Global Security, by the Trustee or the
Securities Custodian, at the direction of the Trustee, to reflect such
reduction.
(k) General Provisions Relating to Transfers and
Exchanges.
(i) To permit registrations of transfers and
exchanges, the Company shall execute and the Trustee shall
authenticate in accordance with Section 2.02 Definitive Securities and
Global Securities at the Registrar's request.
(ii) The Registrar may require a Holder to furnish
appropriate endorsements and transfer documents.
(iii) All Definitive Securities and Global
Securities issued upon any registration of transfer or exchange of
Definitive Securities or Global Securities shall be the valid
obligations of the Company, evidencing the same debt, and entitled to
the same benefits under this Indenture, as the Definitive Securities
or Global Securities surrendered upon such registration of transfer or
exchange.
SECTION 2.07 Replacement Securities.
If a mutilated Security is surrendered to the Trustee or if the Holder
of a Security claims that the Security has been lost, destroyed or wrongfully
taken, the Company shall issue and the Trustee shall authenticate a replacement
Security if the requirements of the Trustee are met. An indemnity bond may be
required by the Trustee, the Company or any Guarantor that is sufficient in the
judgment of the Company, the Guarantors and the Trustee to protect the Company,
the Guarantors, the Trustee or any Agent from any loss which any of them may
suffer if a Security is replaced. The Company may charge for its expenses
(including fees and expenses of the Trustee) in replacing a Security.
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SECTION 2.08 Outstanding Securities.
Securities outstanding at any time are all Securities authenticated by
the Trustee except for those canceled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Security effected by
the Trustee in accordance with the provisions hereof, and those described in
this Section 2.08 as not outstanding. Except as set forth in Section 2.09, a
Security does not cease to be outstanding because the Company, the Guarantors
or any of their respective Subsidiaries or Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If the principal amount of any Security is considered paid under
Section 4.01, it ceases to be outstanding and interest on it ceases to accrue.
SECTION 2.09 Treasury Securities.
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Company, any Guarantor or an Affiliate of the Company shall be
considered as though they are not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Securities which the Trustee knows are so
owned shall be so disregarded.
SECTION 2.10 Temporary Securities.
Until definitive Securities are ready for delivery, the Company may
prepare and, upon written order of the Company, the Trustee shall authenticate
temporary Securities. Temporary Securities shall be substantially in the form
of definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate and deliver definitive
Securities in exchange for a like principal amount of temporary Securities
surrendered to it. Until so exchanged, temporary Securities shall in all
respects be entitled to the same benefits under the Indenture as definitive
Securities.
SECTION 2.11 Cancellation.
The Company or any Guarantor at any time may deliver Securities to the
Trustee for cancellation. The Registrar and Paying Agent shall forward to the
Trustee any Securities surrendered to them for transfer, exchange or payment.
The Trustee shall cancel all Securities surrendered for registration, transfer,
exchange, payment or cancellation and shall destroy canceled Securities unless
the Company directs their return to the Company. Except as provided in Section
2.07, the Company may not issue new Securities to replace Securities that it
has paid or delivered to the Trustee for cancellation.
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Securities that are redeemed by the Company, that are repurchased by
the Company pursuant to Section 4.11 or Section 4.17, or that are otherwise
acquired by the Company, will be surrendered to the Trustee for cancellation.
SECTION 2.12 Defaulted Interest.
If the Company defaults in a payment of interest on the Securities, it
shall pay, or cause the Paying Agent to pay, the defaulted interest in any
lawful manner (plus interest on such defaulted interest to the extent lawful)
(taken together, the "Defaulted Interest") to the persons who are Holders on a
subsequent special record date, in each case at the rate provided in the
Securities and in Section 4.01 hereof. At least 15 days before the special
record date, the Company shall mail to each Holder to be paid thereon a notice
stating the special record date, the payment date and the amount of Defaulted
Interest to be paid. In the event that the Company has elected to cause a
Paying Agent to pay the Defaulted Interest, the Company shall so notify the
Paying Agent at least 15 days before the special record date, which notice
shall also set forth the special record date, the payment date and the
aggregate amount of Defaulted Interest to be paid. At least five days before
such payment date, the Company shall deposit with the Paying Agent money
sufficient to pay all of the Defaulted Interest on the payment date therefor
and instruct the Paying Agent in writing to pay to specified Holders on the
payment date. On the payment date, the Paying Agent shall make the payments in
accordance with the Company's written instructions from funds deposited with
the Paying Agent for the purpose of making such Defaulted Interest payments.
SECTION 2.13 Persons Deemed Owners.
The Company, the Trustee, any Paying Agent and any authenticating
agent may treat the Person in whose name any Security is registered as the
owner of such Security for the purpose of receiving payments of principal of,
premium, if any, or interest on such Security and for all other purposes. None
of the Company, the Trustee, any Paying Agent or any authenticating agent shall
be affected by any notice to the contrary.
ARTICLE III
Redemption
SECTION 3.01 Notice to Trustee.
If the Company elects to redeem Securities pursuant to the optional
redemption provisions of paragraph 6 or 7 of the Securities, it shall furnish
to the Trustee and the Registrar, at least 45 days but not more than 60 days
before the redemption date (unless the Trustee consents to a shorter period in
writing), an Officers' Certificate setting forth the redemption date, the
principal amount of Securities to be redeemed and the redemption price.
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SECTION 3.02 Selection of Securities to Be Redeemed.
If less than all of the Securities are to be redeemed, the Trustee
shall select the Securities to be redeemed in multiples of $1,000 pro rata, by
lot or, if the Securities are listed on any securities exchange, by any other
method that the Trustee considers fair and appropriate and that complies with
the requirements of such exchange. The Trustee shall make the selection from
outstanding Securities not previously called for redemption not less than 30
nor more than 60 days prior to the redemption date. The Trustee may select for
redemption portions of the principal of Securities that have denominations
larger than $1,000. Securities and portions of them it selects shall be in
amounts of $1,000 or whole multiples of $1,000. Provisions of this Indenture
that apply to Securities called for redemption also apply to portions of
Securities called for redemption. The Trustee shall notify the Company promptly
of the Securities or portions of Securities selected for redemption.
SECTION 3.03 Notice of Redemption.
(a) At least 30 days but not more than 60 days before a
redemption date, the Company shall mail a notice of redemption by first-class
mail to each Holder of Securities to be redeemed at such Holder's registered
address.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price;
(3) the aggregate principal amount of Securities being
redeemed;
(4) the name and address of the Paying Agent;
(5) that Securities called for redemption must be
surrendered to the Paying Agent at the address specified in such
notice to collect the redemption price;
(6) that, unless the Company defaults in the payment of
the redemption price or accrued interest, interest on Securities
called for redemption ceases to accrue on and after the redemption
date and the only remaining right of the Holders is to receive payment
of the redemption prices in respect of the Securities upon surrender
to the Paying Agent of the Securities;
(7) if any Security is being redeemed in part, the
portion of the principal amount of such Security to be redeemed and
that, after the redemption date, upon surrender of such Security, a
new Security or Securities in principal amount equal to the unredeemed
portion will be issued;
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<PAGE> 43
(8) the paragraph of the Securities pursuant to which the
Securities called for redemption are being redeemed; and
(9) the CUSIP number of the Securities.
(b) At the Company's request, the Trustee shall give the
notice of redemption required in Section 3.03(a) in the Company's name and at
the Company's expense; provided, however, that the Company shall deliver to the
Trustee, at least 45 days prior to the redemption date (unless the Trustee
consents to a shorter notice period in writing), an Officers' Certificate
requesting that the Trustee give such notice and setting forth the information
to be stated in such notice as provided in Section 3.03(a).
SECTION 3.04 Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03,
Securities called for redemption become due and payable on the redemption date
at the redemption price. Upon surrender to the Paying Agent, such Securities
shall be paid at the redemption price, plus accrued interest to the redemption
date.
SECTION 3.05 Deposit of Redemption Price.
Prior to the redemption date, the Company shall deposit with the
Paying Agent funds available on the redemption date sufficient to pay the
redemption price of, and accrued interest on, the Securities to be redeemed on
that date. The Paying Agent shall promptly return to the Company any money so
deposited which is not required for that purpose upon the written request of
the Company, except with respect to monies owed as obligations to the Trustee
pursuant to Article VII.
If any Security called for redemption shall not be so paid upon
redemption because of the failure of the Company to comply with the preceding
paragraph, interest will continue to be payable on the unpaid principal and
premium, if any, including from the redemption date until such principal and
premium, if any, is paid, and, to the extent lawful, on any interest not paid
on such unpaid principal, in each case at the rate provided in the Securities
and in Section 4.01 hereof.
SECTION 3.06 Securities Redeemed in Part.
Upon surrender of a Security that is to be redeemed in part, the
Company shall issue and the Trustee shall authenticate for the Holder, at the
expense of the Company, a new Security equal in aggregate amount to the
unredeemed portion of the Security surrendered.
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SECTION 3.07 Optional Redemption.
The Securities may be redeemed at the option of the Company, in whole
or from time to time in part:
(i) at any time on or after November 1, 2001, at
the redemption prices set forth below (expressed as a percentage of
the principal amount of the Securities to be redeemed), together with
accrued and unpaid interest on the Securities so redeemed to the
redemption date, if redeemed during the 12-month period commencing on
November 1, of the years indicated below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- -----------
<S> <C>
2001 . . . . . . . . . . . . . . . . . . . . 105.375%
2002 . . . . . . . . . . . . . . . . . . . . 102.688%
2003 and thereafter . . . . . . . . . . . . 100.000%
</TABLE>
or
(ii) at any time prior to November 1, 2001, at the
Make-Whole Price plus accrued and unpaid interest to the date of
redemption.
Any redemption pursuant to this Section 3.07 shall be made, to the
extent applicable, pursuant to the provisions of Sections 3.01 through 3.06
hereof.
SECTION 3.08 Equity Offering Redemption.
In the event the Company consummates one or more Equity Offerings on
or prior to November 1, 1999, the Company may redeem, in its sole discretion,
up to $35,000,000 of the aggregate principal amount of the Securities with all
or a portion of the aggregate net proceeds received by the Company from any
such Equity Offering or Equity Offerings at a redemption price of 110.75% of
the aggregate principal amount of Securities so redeemed, plus accrued and
unpaid interest on the Securities so redeemed to the redemption date; provided,
however, that following such redemption, at least $65,000,000 of the aggregate
principal amount of the Securities remains outstanding.
Any redemption pursuant to this Section 3.08 shall be made pursuant to
the provisions of Section 3.01 through 3.06 hereof.
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ARTICLE IV
Covenants
SECTION 4.01 Payment of Securities.
The Company shall pay the principal of, premium, if any, and interest
on, the Securities on the dates and in the manner provided in the Securities
and this Indenture. Principal, premium and interest shall be considered paid
on the date due if the Trustee or Paying Agent holds on that date money
deposited by the Company designated for and sufficient to pay all principal,
premium and interest then due. All references to interest in this Indenture
shall for all purposes be deemed to include any additional interest payable as
Notes Liquidated Damages pursuant to the Registration Rights Agreement.
The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal, and premium, if
any, at the rate borne by the Securities to the extent lawful; and it shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest (without regard to any
applicable grace period) at the same rate to the extent lawful.
SECTION 4.02 SEC Reports.
(a) The Company, within 15 days after it files the same
with the SEC, shall deliver to Holders, copies of the annual reports and the
information, documents and other reports (or copies of any such portions of any
of the foregoing as the SEC may by rules and regulations prescribe) that the
Company is required to file with the SEC pursuant to Section 13 or 15(d) of the
Exchange Act. Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall file with the SEC (if the SEC will so accept) and
provide the Trustee and the Holders with such annual reports and such
information, documents and other reports specified in Sections 13 and 15(d) of
the Exchange Act. The Company and each Guarantor shall also comply with the
provisions of TIA Section 314(a).
(b) The Company may request the Trustee on behalf of the
Company at the Company's expense to mail the foregoing to Holders. In such
case, the Company shall provide the Trustee with a sufficient number of copies
of all reports and other documents and information that the Trustee may be
required to deliver to Holders under this Section.
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SECTION 4.03 Compliance Certificates.
(a) The Company shall deliver to the Trustee, within 90
days after the end of each fiscal year of the Company, an Officers' Certificate
substantially in the form of Exhibit D hereto, stating that a review of the
activities of the Company and the Subsidiaries during the preceding fiscal year
has been made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such Officer
signing such certificate, that, to the best of such Officer's knowledge, the
Company and each Guarantor has kept, observed, performed and fulfilled each and
every covenant contained in this Indenture and is not in default in the
performance or observance of any of the terms, provisions and conditions hereof
(or, if a Default or Event of Default shall have occurred, describing all such
Defaults or Events of Default of which such Officer may have knowledge and what
action the Company is taking or proposes to take with respect thereto). Such
Officers' Certificate shall comply with TIA Section 314(a)(4). The Company
hereby represents that, as of the Issue Date, its fiscal year ends December 31,
and hereby covenants that it shall notify the Trustee at least 30 days in
advance of any change in its fiscal year.
(b) So long as not contrary to the then current
recommendations of the American Institute of Certified Public Accountants, the
year-end financial statements delivered pursuant to Section 4.02 shall be
accompanied by a written statement of the Company's independent public
accountants (which shall be a firm of established national reputation) that in
making the examination necessary for certification of such financial statements
nothing has come to their attention that would lead them to believe that the
Company has violated any provisions of Section 4.07 through Section 4.18 of
this Indenture (to the extent such provisions relate to accounting matters) or,
if any such violation has occurred, specifying the nature and period of
existence thereof. Where such financial statements are not accompanied by such
a written statement, the Company shall furnish the Trustee with an Officers'
Certificate stating that any such written statement would be contrary to the
then current recommendations of the American Institute of Certified Public
Accountants.
(c) The Company and the Guarantors will, so long as any
of the Securities are outstanding, deliver to the Trustee within 10 Business
Days of any Officer becoming aware of any Default or Event of Default or
default in the performance of any covenant, agreement or condition contained in
this Indenture, an Officers' Certificate specifying such Default or Event of
Default and what action the Company or any Guarantor proposes to take with
respect thereto.
SECTION 4.04 Maintenance of Office or Agency.
The Company will maintain in the Borough of Manhattan, The City of New
York, an office or agency where Securities may be surrendered for registration
of transfer or exchange or for presentation for payment and where notices and
demands to or upon the Company in respect of the Securities and this Indenture
may be served. The Company will give prompt written notice to the Trustee of
the location, and any change in the location, of such office or agency. If at
any time the Company shall fail to maintain any such required office or agency
or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
address of the Trustee set forth in Section 11.02. If at any time the Company
shall fail to
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maintain any required office or agency or shall fail to furnish the Trustee
with the address thereof, such surrenders, presentations, notices and demands
may be made or served at the corporate trust office of the Trustee.
Subject to Section 2.03, the Company may also from time to time
designate one or more other offices or agencies where the Securities may be
presented or surrendered for any or all such purposes and may from time to time
rescind such designations; provided, that no such designation or rescission
shall in any manner relieve the Company of its obligation to maintain an office
or agency in the Borough of Manhattan, The City of New York, for such purposes.
The Company will give prompt written notice to the Trustee of any such
designation or rescission and of any change in the location of any such other
office or agency.
SECTION 4.05 Corporate Existence.
Subject to Section 5.01 and Section 10.02, the Company will do or
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence and the corporate, partnership or other
existence of each Subsidiary and all rights (charter and statutory) and
franchises of the Company and the Subsidiaries; provided, that the Company
shall not be required to preserve the corporate existence of any Subsidiary, or
any such right or franchise, if the Board of Directors of the Company shall
determine that the preservation thereof is no longer desirable in the conduct
of the business of the Company and that the loss thereof is not disadvantageous
in any material respect to the Holders.
SECTION 4.06 Waiver of Stay, Extension or Usury Laws.
The Company and each Guarantor covenants (to the extent that each may
lawfully do so) that it will not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay,
extension, or usury law or other law, which would prohibit or forgive the
Company or any Guarantor from paying all or any portion of the principal of,
premium, if any, or interest on the Securities as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this Indenture; and (to the extent that it may
lawfully do so) the Company and each Guarantor hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
SECTION 4.07 Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary and (b)
all lawful claims for labor, materials and supplies which, if unpaid, might by
law become a Lien upon the property of the Company or any Subsidiary; provided,
however, that the
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Company shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
SECTION 4.08 Maintenance of Properties and Insurance.
(a) The Company shall cause all properties used or held
for use in the conduct of its business or the business of any Subsidiary to be
maintained and kept in good condition, repair and working order (ordinary wear
and tear excepted) and supplied with all necessary equipment and shall cause to
be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Company may be necessary so
that there is no material adverse effect to the Company and its Subsidiaries,
taken as a whole; provided, however, that nothing in this Section shall prevent
the Company from discontinuing the operation or maintenance of any such
property, or disposing of it, if such discontinuance or disposal is, in the
judgment of the Company, desirable in the conduct of its business and not
disadvantageous in any material respect to the Holders.
(b) The Company shall provide or cause to be provided,
for itself and each of its Subsidiaries, insurance (including appropriate
self-insurance) against loss or damage of the kinds that, in the reasonable,
good faith opinion of the Company, are adequate and appropriate for the conduct
of the business of the Company and such Subsidiaries in a prudent manner, with
reputable insurers or with the government of the United States or an agency or
instrumentality thereof, in such amounts, with such deductibles, and by such
methods as shall be customary, in the reasonable, good faith opinion of the
Company, for corporations similarly situated in the industry.
SECTION 4.09 Limitation on Incurrence of Additional Indebtedness.
(a) The Company will not, and will not permit any of its
Restricted Subsidiaries, directly or indirectly, to issue, incur, assume,
guarantee, become liable, contingently or otherwise, with respect to or
otherwise become responsible for the payment of (collectively, "incur") any
Indebtedness (other than Permitted Indebtedness); provided, however, that if no
Default or Event of Default shall have occurred and be continuing at the time
or as a consequence of the incurrence of such Indebtedness, the Company or its
Restricted Subsidiaries may incur Indebtedness if, on a pro forma basis, after
giving effect to such incurrence and the application of the proceeds therefrom,
both of the following tests shall have been satisfied: (i) the Consolidated
Interest Coverage Ratio for the Reference Period immediately preceding the
incurrence of such Indebtedness is at least (a) 2.25-to-1.0 with respect to any
date of incurrence of additional Indebtedness occurring on or before the first
anniversary date of the Issue Date or (b) 2.50- to-1.0 with respect to any date
of incurrence of additional Indebtedness occurring after the first anniversary
date of the Issue Date and (ii) Adjusted Consolidated Net Tangible Assets would
have been equal to or greater than 125% of Indebtedness of the Company and its
Restricted Subsidiaries.
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(b) Notwithstanding the foregoing, if no Default or Event
of Default shall have occurred and be continuing at the time or as a
consequence of the incurrence of such Indebtedness, the Company and its
Restricted Subsidiaries may incur Permitted Indebtedness.
(c) Any Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be incurred by such Restricted
Subsidiary at the time it becomes a Restricted Subsidiary.
SECTION 4.10 Limitation on Restricted Payments.
(a) The Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, make any Restricted
Payment, unless:
(i) no Default or Event of Default shall have
occurred and be continuing at the time of or immediately after giving
effect to such Restricted Payment;
(ii) at the time of and immediately after giving
effect to such Restricted Payment, the Company would be able to incur
at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to Section 4.09(a); and
(iii) immediately after giving effect to such
Restricted Payment, the aggregate of all Restricted Payments declared
or made after the Issue Date does not exceed the sum of (A) 50% of the
Consolidated Net Income of the Company and its Restricted Subsidiaries
(or in the event such Consolidated Net Income shall be a deficit,
minus 100% of such deficit) during the period (treated as one
accounting period) subsequent to September 30, 1996 and ending on the
last day of the fiscal quarter for which financial information is
available immediately preceding the date of such Restricted Payment
(less the aggregate amount of dividends described in clauses (i) and
(ii) of the following paragraph that are either (x) paid after the
last day of the fiscal quarter for which financial information is
available immediately preceding the date of such Restricted Payment or
(y) declared but not yet paid as of such date); (B) the aggregate Net
Cash Proceeds received by the Company during such period from any
Person other than a Subsidiary of the Company as a result of the
issuance or sale of Capital Stock of the Company (other than any
Disqualified Stock), other than in connection with the conversion of
Indebtedness or Disqualified Stock; (C) the aggregate Net Cash
Proceeds received by the Company during such period from any Person
other than a Subsidiary of the Company as a result of the issuance or
sale of any Indebtedness or Disqualified Stock to the extent that at
the time the determination is made such Indebtedness or Disqualified
Stock, as the case may be, has been converted into or exchanged for
Capital Stock of the Company (other than Disqualified Stock); (D) (i)
in case any Unrestricted Subsidiary has been redesignated a Restricted
Subsidiary, an amount equal to the lesser of (x) the book value
(determined in accordance with GAAP) at the date of such redesignation
of the aggregate Investments made by the Company and its Restricted
Subsidiaries in such Unrestricted Subsidiary and (y) the fair market
value of such
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Investments in such Unrestricted Subsidiary at the time of such
redesignation, as determined in good faith by the Company's Board of
Directors, including a majority of the Company's Disinterested
Directors, whose determination shall be conclusive and evidenced by a
resolution of such Board (less, in the case of each of clauses (x) and
(y), the amount of original Investment (based upon book value
determined in accordance with GAAP at the time of such Investment)
made by the Company or any Restricted Subsidiary pursuant to clause
(x) of the definition of "Permitted Business Investment" set forth in
Section 1.01 minus the aggregate cash dividends paid by such
Unrestricted Subsidiary to the Company or any other Restricted
Subsidiary since the date of such original Investment, provided that
the result of the foregoing shall not be less than zero); or (ii) in
case any Restricted Subsidiary has been redesignated an Unrestricted
Subsidiary, minus the greater of (x) the book value (determined in
accordance with GAAP) at the date or redesignation of the aggregate
Investments made by the Company and its Restricted Subsidiaries and
(y) the fair market value of such Investments in such Restricted
Subsidiary at the time of such redesignation, as determined in good
faith by the Company's Board of Directors, including a majority of the
Company's Disinterested Directors, whose determination shall be
conclusive and evidenced by a resolution of such Board; and (E) $5.0
million.
(b) Notwithstanding the foregoing, the above limitations
will not prevent (i) the payment of any dividend within 60 days after the date
of declaration thereof, if at such date of declaration such payment complied
with the provisions hereof; (ii) the payment of any dividend on any shares of
Preferred Stock of the Company issued and outstanding as of the Issue Date in
accordance with the terms of such Preferred Stock in effect at the Issue Date;
(iii) any dividend on shares of Capital Stock of the Company or any Restricted
Subsidiary payable solely in shares of Capital Stock (other than Disqualified
Stock); (iv) any dividend or other distribution payable from a Subsidiary to
the Company or any Restricted Subsidiary that is wholly-owned directly or
indirectly by the Company; and (v) the repurchase, redemption or other
acquisition or retirement of any shares of any class of Capital Stock of the
Company or any Restricted Subsidiary, in exchange for, or out of the aggregate
net proceeds of a substantially concurrent issue and sale (other than to a
Restricted Subsidiary) of shares of Capital Stock of the Company (other than
Disqualified Stock).
SECTION 4.11 Limitation on Sale of Assets.
(a) The Company will not, and will not permit any
Restricted Subsidiary to, make any Asset Sale unless:
(i) the Company (or its Restricted Subsidiary, as
the case may be) receives consideration at the time of such sale or
other disposition at least equal to the fair market value thereof (as
determined in good faith by the Company, which determination, with
respect to Asset Sales or series of related Asset Sales with proceeds
valued at greater than $5 million, shall be evidenced by a resolution
duly adopted by the Company's Board of Directors, including a majority
of the Company's Disinterested Directors);
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(ii) at least 75% of the proceeds from such Asset
Sale consist of cash or U.S. dollar denominated Cash Equivalents; and
(iii) the Net Cash Proceeds received by the Company
(or its Restricted Subsidiary, as the case may be) from such Asset
Sale are applied in accordance with paragraphs (b) or (c) hereof.
(b) The Company may apply such Net Cash Proceeds, within
365 days after receipt of Net Cash Proceeds from any Asset Sale, to: (i) the
repayment of Indebtedness of the Company under a Bank Credit Facility or other
Senior Indebtedness of the Company or Senior Indebtedness of a Guarantor, that
results in a permanent reduction in any revolving credit or other commitment
relating thereto or the maximum principal amount that may be borrowed
thereunder in an amount equal to the principal amount so repaid; (ii) make an
Investment in assets used in the Oil and Gas Business in replacement of the
assets that were the subject of the Asset Sale giving rise to such Net Cash
Proceeds, or (iii) develop by drilling, completing and producing reserves from
the oil and gas properties of the Company and the Restricted Subsidiaries.
(c) If, upon completion of the 365-day period, the Net
Cash Proceeds of any Asset Sale less the aggregate amount applied by the
Company during such period as described in clauses (b) (i), (ii) or (iii)
above, together with any Net Cash Proceeds in excess of amounts similarly
applied by the Company from any prior Asset Sale after the date of receipt of
such Net Cash Proceeds (such aggregate constituting "Excess Proceeds"), exceeds
$5,000,000, then the Company will be obligated to make an offer (the "Net
Proceeds Offer") to repurchase the Securities (and any other Senior
Indebtedness in respect of which such an offer to repurchase also is required
to be made concurrently with the Net Proceeds Offer) having an aggregate
principal amount equal to the Excess Proceeds (such purchase to be made on a
pro rata basis if the amount available for such repurchase is less than the
principal amount of the Securities and other Senior Indebtedness tendered in
such Net Proceeds Offer) at a repurchase price of 100% of the principal amount
thereof plus accrued interest, if any, to the date of repurchase. Upon the
completion of the Net Proceeds Offer, the amount of Excess Proceeds will be
reset to zero, subject to further increase resulting from subsequent Asset
Sales.
(d) The Company shall commence a Net Proceeds Offer by
preparing and mailing a notice to the Trustee, the Paying Agent and each Holder
as of such record date as the Company shall establish (upon written notice to
the Trustee). Notice of a Net Proceeds Offer to purchase the Securities will
be made on behalf of the Company not less than 25 Business Days nor more than
60 Business Days before the payment date of the Net Proceeds Offer (the ("Net
Proceeds Payment Date"), and shall set forth the Net Proceeds Offer Amount and
the Net Proceeds Payment Date and refer to and summarize the material points
contained in Sections 4.11(d) and (e) hereof. Securities tendered to the
Company pursuant to a Net Proceeds Offer will cease to accrue interest after
the Net Proceeds Payment Date. For purposes of this covenant, the term "Net
Proceeds Offer Amount" means the principal of outstanding Securities in an
aggregate principal amount equal to any remaining Net Cash Proceeds (rounded to
the next lowest $1,000). If the Net Proceeds Payment
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Date is on or after an interest payment record date and on or before the
related interest payment date, any accrued interest will be paid to the Person
in whose name a Security is registered at the close of business on such record
date, and no additional interest will be payable to Holders who tender
Securities pursuant to the Net Proceeds Offer.
(e) On the Net Proceeds Payment Date, the Company will
(i) accept for payment Securities and any other Senior Indebtedness in respect
of which such an offer to repurchase is required to be made concurrently with
the Net Proceeds Offer or portions thereof pursuant to the Net Proceeds Offer
in an aggregate principal amount equal to the Net Proceeds Offer Amount or such
lesser amount as has been tendered, (ii) deposit with the Paying Agent money
sufficient to pay the repurchase price of all Securities and such other Senior
Indebtedness or portions thereof so tendered in an aggregate principal amount
equal to the Net Proceeds Offer Amount or such lesser amount, and (iii) deliver
or cause to be delivered to the Trustee, Securities so accepted together with
an Officers' Certificate stating the amount of the Securities or portions
thereof tendered to the Company. If the aggregate principal amount of
Securities and such other Senior Indebtedness tendered exceeds the Net Proceeds
Offer Amount, the Trustee will select the Securities and other Senior
Indebtedness to be repurchased (in integral multiples of $1,000) on a pro rata
basis based on the principal amount of Securities and other Senior Indebtedness
so tendered and notify the Company, the Registrar and the Paying Agent. The
Paying Agent, upon instruction of the Company, will promptly mail or deliver to
Holders of Securities so accepted payment in an amount equal to the repurchase
price (representing those funds received pursuant to clause (ii) of this
Section 4.11(e)), and the Company will execute and the Trustee will promptly
authenticate and mail or make available for delivery to Holders a new Security
equal in principal amount to any unpurchased portion of the Security
surrendered. Any Securities not so accepted will be promptly mailed or
delivered to the Holder thereof by the Company, or, if the Company so directs
the Trustee, by the Trustee on behalf of the Company at the Company's expense.
The Company will publicly announce the results of the Net Proceeds Offer on or
as soon as practicable after the Net Proceeds Payment Date. For purposes of
this Section 4.11, the Trustee will act as the Paying Agent.
(f) The Company will comply with Section 14 of the
Exchange Act and the provisions of Regulation 14E and any other tender offer
rules under the Exchange Act and any other federal and state securities laws,
rules and regulations which may then be applicable to any Net Proceeds Offer.
(g) During the period between any Asset Sale and the
application of the Net Cash Proceeds therefrom in accordance with this
covenant, all Net Cash Proceeds shall be either (i) maintained in a segregated
account and shall be invested in Permitted Financial Investments or (ii)
applied to temporarily reduce borrowings under any revolving credit facility
constituting Senior Indebtedness of the Company or Senior Indebtedness of a
Guarantor.
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(h) Notwithstanding the foregoing, the Company will not
and will not permit any Restricted Subsidiary to, directly or indirectly, make
any Asset Sale of any of the Capital Stock of a Restricted Subsidiary except
pursuant to an Asset Sale of all of the Capital Stock of such Restricted
Subsidiary.
SECTION 4.12 Limitation on Liens Securing Indebtedness.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, create, incur, assume or suffer to exist any Liens (other than
Permitted Liens) upon any of their respective properties securing (i) any
Indebtedness of the Company, unless the Securities are equally and ratably
secured or (ii) any Indebtedness of any Guarantor, unless the Guarantees are
equally and ratably secured; provided, that if such Indebtedness is expressly
subordinated to the Securities or the Guarantees, the Lien securing such
Indebtedness will be subordinated and junior to any Lien securing the
Securities or the Guarantees, with the same relative priority as such
Subordinated Indebtedness of the Company or Subordinated Indebtedness of a
Restricted Subsidiary that is a Guarantor will have with respect to the
Securities or the Guarantees, as the case may be.
SECTION 4.13 Limitation on Sale/Leaseback Transactions.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, enter into any Sale/Leaseback Transaction unless (i) the
Company or such Restricted Subsidiary, as the case may be, would be able to
incur Indebtedness in an amount equal to the Attributable Indebtedness with
respect to such Sale/Leaseback Transaction or (ii) the Company or such
Restricted Subsidiary receives proceeds from such Sale/Leaseback Transaction at
least equal to the fair market value thereof (as determined in good faith by
the Company's Board of Directors, whose determination in good faith, evidenced
by a resolution of such Board shall be conclusive) and such proceeds are
applied in the same manner and to the same extent as Net Cash Proceeds and
Excess Proceeds from an Asset Sale.
SECTION 4.14 Limitation on Payment Restrictions Affecting Subsidiaries.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or consensual restriction
on the ability of any Restricted Subsidiary of the Company to (i) pay dividends
or make any other distributions on its Capital Stock or on any other interest
or participation in the Company or a Restricted Subsidiary; (ii) pay any
Indebtedness owed to the Company or a Restricted Subsidiary of the Company;
(iii) make loans or advances to the Company or a Restricted Subsidiary of the
Company; or (iv) transfer any of its properties or assets to the Company or a
Restricted Subsidiary of the Company (each, a "Payment Restriction"), except
for (a) encumbrances or restrictions under a Bank Credit Facility; provided,
that no encumbrance or restriction shall limit the ability of any Restricted
Subsidiary to transfer cash to the Company except upon the occurrence of an
event of default under the Bank Credit Facility; (b) consensual encumbrances or
consensual restrictions binding upon any Person at the time such Person becomes
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a Restricted Subsidiary of the Company (unless the agreement creating such
consensual encumbrances or consensual restrictions was entered into in
connection with, or in contemplation of, such entity becoming a Restricted
Subsidiary); (c) consensual encumbrances or consensual restrictions under any
agreement that refinances or replaces any agreement described in clauses (a)
and (b) above, provided that the terms and conditions of any such restrictions
are in the aggregate no less favorable to the holders of the Securities than
those under the agreement so refinanced or replaced; and (d) customary
non-assignment provisions in leases, purchase money financings and any
encumbrance or restriction due to applicable law.
SECTION 4.15 Limitation on Issuances and Sales of Restricted Subsidiary
Stock.
The Company (i) will not permit any Restricted Subsidiary to issue any
Preferred Stock (other than to the Company or a Restricted Subsidiary) and (ii)
will not permit any Person (other than the Company and/or one or more
Restricted Subsidiaries) to own any Capital Stock of any Restricted Subsidiary;
provided, however, that this covenant shall not prohibit (a) the issuance or
sale of all, but not less than all, of the issued and outstanding Capital Stock
of any Restricted Subsidiary owned by the Company or any of its Restricted
Subsidiaries in compliance with the other provisions of this Indenture, (b) the
issuance or sale of (A) not more than 5 percent in the aggregate of the issued
and outstanding Capital Stock of any Restricted Subsidiary (calculated on a
fully diluted basis) by the Company or any Restricted Subsidiary or (B) more
than 5 percent of the issued and outstanding Capital Stock of any Restricted
Subsidiary if immediately following such issuance and sale (calculated on a
fully diluted basis) the Company and all Subsidiaries will collectively own 95
percent or more of the Consolidated Total Assets of the Company, and in the
case of either (A) or (B), immediately following such issuance and sale, the
Company or one or more Restricted Subsidiaries will collectively hold the
voting power to elect a majority of the directors of the Restricted Subsidiary
and such power is not subject to dilution or limitation, by the terms of such
Capital Stock, by agreement, by passage of time or the occurrence of any future
event, (c) the ownership by directors of directors' qualifying shares or the
ownership by foreign nationals of Capital Stock of any Restricted Subsidiary,
to the extent mandated by applicable law or (d) customary non-assignment
provisions in leases or purchase money financings and any customary encumbrance
or restriction relating to same.
SECTION 4.16 Limitation on Transactions with Affiliates.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into any transaction or series
of transactions (including, without limitation, the sale, purchase or lease of
any assets or properties or the rendering of any services) with any Affiliate
or beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act) of 10% or more of the Company's common stock (other than with a Wholly
Owned Restricted Subsidiary of the Company) (an "Affiliate Transaction"), on
terms that are less favorable to the Company or such Restricted Subsidiary, as
the case may be, than would be available in a comparable transaction with an
unrelated Person. In addition, the Company will not, and will not permit any
Restricted Subsidiary of the Company to, enter into an Affiliate Transaction,
or any series of related Affiliate
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Transactions having a value of (a) more than $1,000,000, unless a majority of
the Board of Directors of the Company (including a majority of the Company's
Disinterested Directors) determines in good faith, as evidenced by a resolution
of such Board, that such Affiliate Transaction or series of related Affiliate
Transactions is fair to the Company and in compliance with the first sentence
of this Section 4.16; or (b) more than $10,000,000, unless the Company receives
a written opinion from a nationally recognized investment banking firm that
such transaction or series of transactions is fair to the Company from a
financial point of view.
SECTION 4.17 Change of Control.
(a) Following the occurrence of any Change of Control,
the Company shall offer (a "Change of Control Offer") to repurchase all
outstanding Securities at a repurchase price equal to 101% of the aggregate
principal amount of the Securities, plus accrued and unpaid interest to the
date of repurchase. The Change of Control Offer shall be deemed to have
commenced upon mailing of the notice described in the next succeeding paragraph
and shall terminate 20 Business Days after its commencement, unless a longer
offering period is required by law. Promptly after the termination of the
Change of Control Offer (the "Change of Control Payment Date"), the Company
shall repurchase and mail or deliver payment for all Securities tendered in
response to the Change of Control Offer. If the Change of Control Payment Date
is on or after an interest payment record date and on or before the related
interest payment date, any accrued interest payable on such interest payment
date will be paid to the Person in whose name a Security is registered at the
close of business on such record date, and no additional interest will be
payable to Holders who tender Securities pursuant to the Change of Control
Offer.
(b) Within 10 Business Days after any Change of Control,
the Company (with notice to the Trustee and the Paying Agent), or the Trustee
at the Company's request and expense, will mail or cause to be mailed to all
Holders on the date of the Change of Control a notice prepared by the Company
(the "Change of Control Notice") of the occurrence of such Change of Control
and of the Holders' rights arising as a result thereof. The Change of Control
Notice will contain all instructions and materials necessary to enable Holders
to tender their Securities to the Company. The Change of Control Notice, which
shall govern the terms of the Change of Control Offer, shall state: (1) that
the Change of Control Offer is being made pursuant to this Section 4.17; (2)
the repurchase price and the Change of Control Payment Date; (3) that any
Security not tendered will continue to accrue interest at the stated rate; (4)
that any Security accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest on the Change of Control Payment Date; (5) that
Holders electing to have a Security repurchased pursuant to any Change of
Control Offer will be required to surrender the Security, with the form
entitled "Option of Holder to Elect Repurchase" on the reverse of the Security
completed, to the Company, a depositary, if appointed by the Company, or a
Paying Agent at the address specified in the notice prior to termination of the
Change of Control Offer; (6) that Holders will be entitled to withdraw their
election if the Company, depositary or Paying Agent, as the case may be,
receives, not later than the expiration of the Change of Control Offer, or such
longer period as may be required by law, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Security the
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Holder delivered for repurchase and a statement that such Holder is withdrawing
his election to have the Security repurchased; and (7) that Holders whose
Securities are repurchased only in part will be issued Securities equal in
principal amount to the unrepurchased portion of the Securities surrendered.
(c) On the Change of Control Payment Date, the Company
shall (i) accept for payment Securities or portions thereof tendered pursuant
to the Change of Control Notice, (ii) if the Company appoints a depositary or
Paying Agent, deposit with such depositary or Paying Agent money sufficient to
pay the repurchase price of all Securities or portions thereof so tendered and
(iii) deliver to the Trustee Securities so accepted together with an Officers'
Certificate stating the amount of the Securities or portions thereof tendered
to the Company. The depositary, the Company or the Paying Agent, as the case
may be, shall promptly mail to the Holders of Securities so accepted payment in
an amount equal to the repurchase price (representing those funds received
pursuant to clause (ii) of this Section 4.17(c)), and the Trustee shall
promptly authenticate and mail to each such Holder a new Security equal in
principal amount to any unrepurchased portion of the Security surrendered, if
any. The Company will publicly announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Payment Date.
For purposes of this Section 4.17, the Trustee shall act as the Paying Agent.
(d) The Company will comply with Section 14 of the
Exchange Act and the provisions of Regulation 14E and any other tender offer
rules under the Exchange Act and any other federal and state securities laws,
rules and regulations which may then be applicable to any Change of Control
Offer.
SECTION 4.18 Limitation on Line of Business.
The Company and the Subsidiaries will be operated in a manner such
that their business activities will be the Oil and Gas Business and Investment
in any business or Person engaged in the Oil and Gas Business.
ARTICLE V
Successor Corporation
SECTION 5.01 When Company May Merge, etc.
The Company will not consolidate with or merge with any Person or
convey, transfer or lease all or substantially all of its assets to any Person,
unless:
(1) the Company survives such merger or the Person formed
by such consolidation or into which the Company is merged or that
acquires by conveyance or transfer, or which leases, all or
substantially all of the assets of the Company is a corporation
organized and existing under the laws of the United States of America,
any state thereof or
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the District of Columbia and expressly assumes, by supplemental
indenture, the due and punctual payment of the principal of, premium,
if any, and interest on, all the Securities and the performance of
every other covenant and obligation of the Company under the
Indenture;
(2) immediately before and after giving effect to such
transaction no Default or Event of Default exists;
(3) immediately after giving effect to such transaction
on a pro forma basis, the Consolidated Net Worth of the Company (or
the surviving or transferee entity) is equal to or greater than the
Consolidated Net Worth of the Company immediately before such
transaction; and
(4) immediately after giving effect to such transaction
on a pro forma basis, the Company (or the surviving or transferee
entity) would be able to incur $1.00 of additional Indebtedness under
the test described in Section 4.09(a).
In connection with any consolidation, merger, conveyance, transfer or
lease contemplated by this Section 5.01, the Company shall deliver to the
Trustee prior to the consummation of the proposed transaction an Officers'
Certificate to the foregoing effect and an Opinion of Counsel stating that all
conditions precedent to the proposed transaction and the execution and delivery
of such supplemental indenture have been complied with.
SECTION 5.02 Successor Corporation Substituted.
Upon any consolidation, merger, lease, conveyance or transfer in
accordance with Section 5.01, the Trustee shall be notified by the Company and
the successor Person, and the successor Person formed by such consolidation or
into which the Company is merged or to which such lease, conveyance or transfer
is made shall succeed to, and be substituted for, and may exercise every right
and power of, the Company under this Indenture with the same effect as if such
successor had been named as the Company herein and thereafter (except in the
case of a lease) the predecessor corporation will be relieved of all further
obligations and covenants under this Indenture and the Securities.
ARTICLE VI
Defaults And Remedies
SECTION 6.01 Events of Default.
An "Event of Default" occurs upon:
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(1) default by the Company or any Guarantor in the
payment of principal of, or premium, if any, on the Securities when
due and payable at maturity, upon repurchase pursuant to Section 4.11
or 4.17, upon acceleration or otherwise;
(2) default by the Company or any Guarantor in the
payment of any installment of interest on the Securities when due and
payable and continuance of such default for 30 days;
(3) default by the Company or any Guarantor in the
deposit of any optional redemption payment, when and as due and
payable pursuant to Article III;
(4) default on any other Indebtedness (other than
Non-Recourse Indebtedness) of the Company or any Subsidiary (other
than an Unrestricted Subsidiary) if either (A) such default results in
the acceleration of the maturity of any such Indebtedness having a
principal amount of $5,000,000 or more individually or, taken together
with the principal amount of any other such Indebtedness in default or
the maturity of which has been so accelerated, in the aggregate, or
(B) such default results from the failure to pay when due principal
of, premium, if any, or interest on, any such Indebtedness, after
giving effect to any applicable grace period (a "Payment Default"),
having a principal amount of $5,000,000 or more individually or, taken
together with the principal amount of any other Indebtedness under
which there has been a Payment Default, in the aggregate;
(5) default in the performance, or breach of, the
covenants set forth in Section 4.10 and Article V;
(6) default in the performance, or breach of, any other
covenant or agreement of the Company or any Guarantor in this
Indenture and failure to remedy such default within a period of 30
days after written notice thereof from the Trustee or Holders of 25%
in principal amount of the outstanding Securities;
(7) the commencement of proceedings, or the taking of any
enforcement action (including by way of set-off), by any holder of at
least $5,000,000 in aggregate principal amount of Indebtedness
(including any amounts owed pursuant to a judgment or order) of the
Company or any Subsidiary (other than an Unrestricted Subsidiary
provided that neither the Company nor any Restricted Subsidiary is
liable, directly or indirectly, for such Indebtedness), after a
default under such Indebtedness, to retain in satisfaction of such
Indebtedness or to collect or seize, dispose of or apply in
satisfaction of such Indebtedness, property or assets of the Company
or its Restricted Subsidiaries having a fair market value in excess of
$5,000,000 individually or in the aggregate; provided that if any such
proceedings or actions are terminated or rescinded, or such
Indebtedness is repaid or settled, such Event of Default under this
Indenture and any consequential acceleration of the Securities shall
be automatically rescinded, so long as (a) such rescission does not
conflict
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with any judgment or decree and (b) the holder of such Indebtedness
shall not have applied any such property or assets in satisfaction of
such Indebtedness;
(8) the entry by a court of one or more judgments or
orders against the Company or any Subsidiary (other than an
Unrestricted Subsidiary provided that neither the Company nor any
Restricted Subsidiary is liable, directly or indirectly, for such
judgment or order) in an aggregate amount equal to or in excess of
$5,000,000 individually or in the aggregate (net of applicable
insurance coverage by a third party insurer which is acknowledged in
writing by the insurance carrier) that has not been vacated,
discharged, satisfied or stayed pending appeal within 60 days from the
entry thereof;
(9) the failure of a Guarantee by a Guarantor to be in
full force and effect (other than a release of a Guarantee in
accordance with Section 10.04) or any Guarantor shall deny or
disaffirm its obligations with respect thereto;
(10) if (i) any material "accumulated funding deficiency"
(as defined in Section 302 of ERISA or Section 412 of the Code), shall
exist with respect to any PBGC Plan or Multiple Employer Plan (unless
a waiver or extension is obtained under Section 412(d) or (e) of the
Code and Sections 303 and 304 of ERISA), if such accumulated funding
deficiency is a material liability of the Company, (ii) a Reportable
Event shall occur with respect to any PBGC Plan or Multiple Employer
Plan, which Reportable Event results in the non-appealable termination
of such PBGC Plan or Multiple Employer Plan for purposes of Title IV
of ERISA and gives rise to a material liability of the Company, (iii)
proceedings to have a trustee appointed have resulted in a trustee
being appointed to terminate or administer a PBGC Plan or Multiple
Employer Plan which proceeding results in the non-appealable
termination of such PBGC Plan or Multiple Employer Plan and gives rise
to a material liability of the Company with respect to such
termination, (iv) a PBGC Plan or Multiple Employer Plan has been
terminated in a distress termination under Section 4041(c) of ERISA
and the Company no longer may appeal such termination, (v) any
Multiemployer Plan is in reorganization or is insolvent and the
circumstances are such that such reorganization or insolvency results
in a material liability to the Company, (vi) there is a complete or
partial withdrawal from a Multiemployer Plan under circumstances that
subjects the Company to material liability, or (vii) any event or
condition described in (i) through (vi) above (determined without
regard to whether the event or condition taken alone would or could
result in a material liability) shall occur or exist with respect to a
PBGC Plan, Multiple Employer Plan or Multiemployer Plan which in
combination with one or more of any events described in (i) through
(vi) above (determined without regard to whether the event or
condition taken alone would or could result in a material liability)
that subjects the Company, any Guarantor or any other Restricted
Subsidiary to any material tax, penalty or other liability (for
purposes of this paragraph (10) the term "material" and "material
liability" shall mean any tax, penalty or liability in excess of
$5,000,000); or
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(11) the Company or any Subsidiary (other than an
Unrestricted Subsidiary) pursuant to or within the meaning of any
Bankruptcy Law:
(A) commences a voluntary case or
proceeding,
(B) consents to the entry of an order
for relief against it in an involuntary case or proceeding,
(C) consents to the appointment of a
Custodian of it or for all or substantially all of its
property,
(D) makes a general assignment for the
benefit of its creditors, or
(E) admits in writing that it generally
is unable to pay its debts as the same become due; or
(12) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief (with respect to the
petition commencing such case) against the Company or any
Subsidiary (other than an Unrestricted Subsidiary) in an
involuntary case or proceeding,
(B) appoints a Custodian of the Company
or any Subsidiary (other than an Unrestricted Subsidiary) or
for all or substantially all of its respective property, or
(C) orders the liquidation of the
Company or any Subsidiary (other than an Unrestricted
Subsidiary),
and the order or decree remains unstayed and in effect for 60 days.
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar
federal or state law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.
SECTION 6.02 Acceleration.
If an Event of Default (other than an Event of Default specified in
clauses (11) and (12)) under Section 6.01 occurs and is continuing, then and in
every such case the Trustee or the Holders of not less than 25% in principal
amount of the outstanding Securities may declare the unpaid principal of (or
the Change of Control purchase price if the Event of Default includes failure
to pay the Change of Control purchase price), and accrued and unpaid interest
on, all the Securities then
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outstanding to be due and payable, by a notice in writing to the Company (and
to the Trustee, if given by Holders), and upon any such declaration such
principal, premium, if any, and accrued and unpaid interest shall become
immediately due and payable, notwithstanding anything contained in this
Indenture or the Securities to the contrary. If an Event of Default specified
in clauses (11) or (12) above occurs, all unpaid principal of, and accrued
interest on, the Securities then outstanding will become due and payable,
without any declaration or other act on the part of the Trustee or any Holder.
The Holders of a majority in principal amount of the then outstanding
Securities, by written notice to the Company, the Guarantors and the Trustee,
may rescind and annul a declaration of acceleration and its consequences if (1)
the Company or any Guarantor has paid or deposited with such Trustee a sum
sufficient to pay (A) all overdue installments of interest on all the
Securities, (B) the principal of, and premium, if any, on any Securities that
have become due otherwise than by such declaration of acceleration and interest
thereon at the rate or rates prescribed therefor in the Securities, (C) to the
extent that payment of such interest is lawful, interest on the defaulted
interest at the rate or rates prescribed therefor in the Securities, and (D)
all money paid or advanced by the Trustee thereunder and the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel; (2) all Events of Default, other than the non-payment of the
principal of any Securities that have become due solely by such declaration of
acceleration, have been cured or waived as provided in the Indenture; and (3)
the rescission would not conflict with any judgment or decree of a court of
competent jurisdiction. No such rescission will affect any subsequent Event of
Default or impair any right consequent thereon.
SECTION 6.03 Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may, but
is not obligated to, pursue, in its own name and as trustee of an express
trust, any available remedy by proceeding at law or in equity to collect the
payment of principal or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture. If an Event
of Default specified under clauses (11) or (12) of Section 6.01 occurs with
respect to the Company at a time when the Company is the Paying Agent, the
Trustee shall automatically assume the duties of Paying Agent.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay
or omission by the Trustee or any Holder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
SECTION 6.04 Waiver of Past Defaults.
Subject to Sections 6.07 and 9.02, the Holders of at least a majority
in principal amount of Securities then outstanding by notice to the Trustee may
waive an existing Default or Event of Default and its consequences, except a
Default or Event of Default in payment of principal or interest
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on the Securities, including any optional redemption payments or Change of
Control or Net Proceeds Offer payments.
SECTION 6.05 Control by Majority.
The Holders of a majority in principal amount of the Securities will
have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on such Trustee, provided that (1) such direction is not in
conflict with any rule of law or with this Indenture and (2) the Trustee may
take any other action deemed proper by such Trustee that is not inconsistent
with such direction.
SECTION 6.06 Limitation on Remedies.
No Holder of any of the Securities will have any right to institute
any proceeding, judicial or otherwise, or for the appointment of a receiver or
trustee or pursue any remedy under this Indenture, unless:
(1) such Holder has previously given notice to the
Trustee of a continuing Event of Default,
(2) the Holders of not less than 25% in principal amount
of the outstanding Securities have made written request to such
Trustee to institute proceedings in respect of such Event of Default
in its own name as Trustee under the Indenture,
(3) such Holder or Holders have offered to such Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request,
(4) such Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute any
proceeding, and
(5) no direction inconsistent with such written request
has been given to such Trustee during such 60-day period by the
Holders of a majority in principal amount of the outstanding
Securities.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over other Holders.
SECTION 6.07 Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the Holder of
any Securities will have the right, which is absolute and unconditional, to
receive payment of the principal of and interest on such Securities on the
stated maturity therefor and to institute suit for the enforcement of any such
payment, and such right may not be impaired without the consent of such Holder.
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SECTION 6.08 Collection Suit by Trustee.
If an Event of Default in payment of principal, premium, if any, or
interest specified in Section 6.01(1), (2) or (3) occurs and is continuing, the
Trustee may recover judgment in its own name and as trustee of an express trust
against the Company or any Guarantor for the whole amount of principal,
premium, if any, and interest remaining unpaid with respect to the Securities,
and interest on overdue principal and premium, if any, and, to the extent
lawful, interest on overdue interest, and such further amounts as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation and expenses of the Trustee, its agents and counsel.
SECTION 6.09 Trustee May File Proofs of Claim.
(a) The Trustee may file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the
claims of the Trustee and the Holders allowed in any judicial proceedings
relative to the Company, the Guarantors, their creditors or their property and
may collect and receive any money or securities or other property payable or
deliverable on any such claims and to distribute the same.
(b) Nothing herein contained shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or the rights of any Holder thereof, or to authorize
the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 6.010 Priorities.
If the Trustee collects any money pursuant to this Article VI, it
shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: to Holders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Securities for principal and interest, respectively; and
Third: to the Company.
The Trustee may fix a record date and payment date for any payment to
Holders pursuant to this Section 6.10.
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SECTION 6.11 Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07, or a suit by Holders of more than 10% in principal
amount of the then outstanding Securities.
ARTICLE VII
Trustee
SECTION 7.01 Duties of Trustee.
(a) If an Event of Default has occurred and is
continuing, the Trustee shall exercise such rights and powers vested in it by
this Indenture and use the same degree of care and skill in such exercise as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties that are
specifically set forth (or incorporated by reference) in this
Indenture and no others.
(2) In the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture. However, the Trustee shall examine such
certificates and opinions to determine whether or not they conform to
the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for
its own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph (c) does not limit the effect of
paragraph (b) of this Section.
(2) The Trustee shall not be liable for any error of
judgment made in good faith by an officer of the Trustee, unless it is
proved that the Trustee was negligent in ascertaining the pertinent
facts.
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(3) The Trustee shall not be liable with respect to
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05, and the Trustee
shall be entitled from time to time to request such a direction.
(d) Every provision of this Indenture that in any way
relates to the Trustee is subject to paragraphs (a), (b) and (c) of this
Section.
(e) The Trustee shall be under no obligation and may
refuse to perform any duty or exercise any right or power unless it receives
indemnity satisfactory to it against any loss, liability or expense. No
provision of this Indenture shall require the Trustee to expend or risk its own
funds or otherwise incur financial liability in the performance of any of its
duties hereunder or in the exercise of any of its rights or powers, if it shall
have reasonable grounds to believe that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
(f) The Trustee shall not be liable for interest on any
money received by it except as the Trustee may agree in writing with the
Company. Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by law.
(g) Subject to Sections 7.01 and 7.02, the Trustee shall
not be required to take notice, and shall not be deemed to have notice, of any
Default or Event of Default hereunder, except Events of Default described in
paragraphs (1), (2) and (3) of Section 6.01 hereof, unless the Trustee shall be
notified specifically of the Default or Event of Default in a written
instrument or document delivered to it by the Company or any Guarantor, or by
the Holders of at least ten percent (10%) of the aggregate principal amount of
the Notes then outstanding. In the absence of delivery of a notice satisfying
those requirements, the Trustee may assume that there is no Default or Event of
Default, except as noted above.
SECTION 7.02 Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may rely on and shall be protected in
acting or refraining from acting upon any document believed by it to be genuine
and to have been signed or presented by the proper person. The Trustee shall
not be bound to make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture or other paper or document,
but the Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit, and, if the Trustee
shall determine to make such further inquiry or investigation, it shall be
entitled to examine the books, records and premises of the Company, personally
or by agent or attorney, to the extent reasonably required by such inquiry or
investigation.
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(b) Before the Trustee acts or refrains from acting, it
may require an Officers' Certificate or an Opinion of Counsel. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such certificate or opinion.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it
takes or omits to take in good faith which it believes to be authorized or
within its rights or powers.
SECTION 7.03 Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company or its
Subsidiaries or Affiliates with the same rights it would have if it were not
Trustee. Any Agent may do the same with like rights. However, the Trustee
must comply with Sections 7.10 and 7.11.
SECTION 7.04 Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Company's
use of the proceeds from the Securities or any offering memorandum or
solicitation documents, and it shall not be responsible for any statement in
the Securities other than its certificate of authentication.
SECTION 7.05 Notice of Defaults.
If a Default occurs and is continuing and if it is known to the
Trustee pursuant to Section 7.01(g), the Trustee shall mail to each Holder
pursuant to Section 11.02 a notice of the Default within 90 days after it
occurs. Except in the case of a Default in any payment on any Security, the
Trustee may withhold the notice if and so long as the board of directors,
executive committee or a trust committee of officers in good faith determines
that withholding the notice is in the interests of Holders.
SECTION 7.06 Reports by Trustee to Holders.
Within 60 days after each November 1, beginning with the November 1
following the date of this Indenture, the Trustee shall mail to each Holder a
brief report dated as of such November 1, that complies with TIA Section
313(a), but only if such report is required in any year under TIA Section
313(a). The Trustee also shall comply with TIA Sections 313(b) and 313(c).
A copy of each report at the time of its mailing to Holders shall be
filed with the SEC and each stock exchange on which the Securities are listed.
The Company shall notify the Trustee in
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writing when the Securities become listed on any national securities exchange
or of any delisting thereof.
SECTION 7.07 Compensation and Indemnity.
The Company and the Guarantors jointly and severally agree to pay the
Trustee from time to time reasonable compensation for its services (which
compensation shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust). The Company and the Guarantors
jointly and severally agree to reimburse the Trustee upon request for all
reasonable out-of-pocket expenses, disbursements and advances incurred by it.
Such expenses shall include when applicable the reasonable compensation and
expenses of the Trustee's agents and counsel.
The Company and the Guarantors jointly and severally agree to
indemnify the Trustee against any loss, liability or expenses incurred by it
arising out of or in connection with the acceptance and administration of the
trust and its duties hereunder as Trustee, Registrar and/or Paying Agent,
including the costs and expenses of enforcing this Indenture against the
Company (including with respect to this Section 7.07) and of defending itself
against any claim or liability in connection with the exercise or performance
of any of its powers or duties hereunder. The Trustee shall notify the Company
and the Guarantors of any claim for which it may seek indemnity; however,
unless the position of the Company is prejudiced by such failure, the failure
of the Trustee to promptly notify the Company shall not limit its right to
indemnification. The Company shall defend each such claim and the Trustee
shall cooperate in the defense. The Trustee may retain separate counsel and
the Company shall reimburse the Trustee for the reasonable fees and expenses of
such counsel if the Company is advised by an Opinion of Counsel that the
Trustee has separate defenses and that separate representation is appropriate.
The Company need not pay for any settlement made without its consent.
Neither the Company nor the Guarantors shall be obligated to reimburse
any expense or indemnify against any loss or liability incurred by the Trustee
through the Trustee's breach of the applicable standard of care for its conduct
under Section 7.01.
To secure the payment obligations of the Company and the Guarantors in
this Section, the Trustee shall have a claim prior to that of the Holders of
the Securities on all money or property held or collected by the Trustee,
except that held in trust to pay principal of and interest on particular
Securities.
When the Trustee incurs expenses or renders services after the
occurrence of any Event of Default specified in Sections 6.01(11) or (12), the
expenses and the compensation for the services are intended to constitute
expenses of administration under any Bankruptcy Law.
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SECTION 7.08 Replacement of Trustee.
The Trustee may resign by so notifying the Company and the Guarantors.
The Holders of a majority in principal amount of the Securities may remove the
Trustee by so notifying the Trustee, in writing. The Company may remove the
Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a receiver or other public officer takes charge of
the Trustee or its property; or
(4) the Trustee becomes incapable of acting as Trustee
hereunder.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in principal amount of the Securities may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company and the Guarantors.
Immediately after that, the retiring Trustee shall transfer all property held
by it as Trustee to the successor Trustee, subject to the lien provided for in
Section 7.07, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee shall have all the rights, powers and
duties of the Trustee under this Indenture. A successor Trustee shall mail
notice of its succession to each Holder.
If a successor Trustee does not take office within 30 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or
the Holders of a majority in principal amount of the Securities may petition
any court of competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee. Any successor Trustee shall comply
with TIA Section 310(a)(5).
SECTION 7.09 Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust assets to, another corporation, the
successor corporation without any further act shall be the successor Trustee;
provided such corporation or association shall be otherwise eligible and
qualified under this Article.
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SECTION 7.10 Eligibility; Disqualification.
This Indenture shall always have a Trustee which satisfies the
requirements of TIA Section 310(a)(1) and (5). The Trustee shall always have a
combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition. The Trustee shall also comply
with TIA Section 310(b).
SECTION 7.11 Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated
therein.
ARTICLE VIII
Discharge Of Indenture
SECTION 8.01 Option to Effect Legal Defeasance or Covenant Defeasance.
The Company may, at the option of its Board of Directors evidenced by
a resolution set forth in an Officers' Certificate, at any time, with respect
to the Securities, elect to exercise its rights pursuant to either Section 8.02
or 8.03 with respect to all outstanding Securities upon compliance with the
conditions set forth below in this Article VIII.
SECTION 8.02 Legal Defeasance and Discharge.
Upon the Company's exercise under Section 8.01 of the option
applicable to this Section 8.02, the Company shall be deemed to have been
discharged from its obligations with respect to all outstanding Securities on
the date all conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, such Legal Defeasance means that the Company
shall be deemed to have paid and discharged the entire Indebtedness represented
by the outstanding Securities, which shall thereafter be deemed to be
"outstanding" only for the purposes of Section 8.05 and the other Sections of
this Indenture referred to in (a) and (b) below, and to have satisfied all its
other obligations under such Securities and this Indenture (and the Trustee, on
demand of and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder: (a) the rights of Holders of
outstanding Securities to receive solely from the trust fund described in
Section 8.04, and as more fully set forth in such Section, payments in respect
of the principal of, premium, if any, and interest on such Securities when such
payments are due, (b) the Company's obligations with respect to such Securities
under Sections 2.03, 2.04, 2.06, 2.07, 2.10 and 4.04, (c) the rights, powers,
trusts, duties and immunities of the Trustee hereunder and the Company's
obligations in connection therewith (including, but not limited to, Section
7.07) and (d) this Article VIII. Subject to
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compliance with this Article VIII, the Company may exercise its option under
this Section 8.02 notwithstanding the prior exercise of its option under
Section 8.03 with respect to the Securities.
SECTION 8.03 Covenant Defeasance.
Upon the Company's exercise under Section 8.01 of the option
applicable to this Section 8.03, the Company shall be released from its
obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10,
4.11, 4.12, 4.13, 4.14, 4.15, 4.16, 4.17 and 4.18 and Article V with respect to
the outstanding Securities on and after the date the conditions set forth below
are satisfied (hereinafter, "Covenant Defeasance"), and the Securities shall
thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder (it being understood that such
Securities shall not be deemed outstanding for accounting purposes). For this
purpose, such Covenant Defeasance means that, with respect to the outstanding
Securities, the Company may omit to comply with and shall have no liability in
respect of any term, condition or limitation set forth in any such covenant,
whether directly or indirectly, by reason of any reference elsewhere herein to
any such covenant or by reason of any reference in any such covenant to any
other provision herein or in any other document and such omission to comply
shall not constitute a Default or an Event of Default under Section 6.01(5) or
Section 6.01(6), but, except as specified above, the remainder of this
Indenture and such Securities shall be unaffected thereby. In addition, upon
the Company's exercise under Section 8.01 of the option applicable to this
Section 8.03, Sections 6.01(4) through 6.01(12) shall not constitute Events of
Default.
SECTION 8.04 Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to application of either Section
8.02 or Section 8.03 to the outstanding Securities:
(a) The Company shall irrevocably have deposited or cause
to be deposited with the Trustee (or another trustee satisfying the
requirements of Section 7.10 who shall agree to comply with the provisions of
this Article VIII applicable to it) as trust funds in trust for the purpose of
making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Securities, (a) cash in
U.S. Legal Tender in an amount, or (b) U.S. Government Securities which through
the scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one day before the due
date of any payment, cash in U.S. Legal Tender in an amount, or (c) a
combination thereof, in such amounts, as will be sufficient, in the opinion of
a nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay and discharge
and which shall be applied by the Trustee (or other qualifying trustee) to pay
and discharge the principal of, premium, if any, and interest on the
outstanding Securities on the Maturity Date or on the applicable redemption
date, as the case may be, in accordance with the terms of this Indenture and of
such
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Securities; provided that the Trustee shall have been irrevocably instructed to
apply such money or the proceeds of such U.S. Government Securities to said
payments with respect to the Securities;
(b) In the case of an election under Section 8.02, the
Company shall have delivered to the Trustee an Opinion of Counsel confirming
that (i) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (ii) since the date hereof, there has been
a change in the applicable federal income tax law, in either case to the effect
that, and based thereon such opinion shall confirm that, the Holders of the
outstanding Securities will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Legal Defeasance had not occurred;
(c) In the case of an election under Section 8.03, the
Company shall have delivered to the Trustee an Opinion of Counsel to the effect
that the Holders of the outstanding Securities will not recognize income, gain
or loss for federal income tax purposes as a result of such Covenant Defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred;
(d) No Default or Event of Default with respect to the
Securities shall have occurred and be continuing on the date of such deposit
or, insofar as Subsection 6.01(11) or 6.01(12) is concerned, at any time in the
period ending on the 91st day after the date of such deposit (it being
understood that this condition shall not be deemed satisfied until the
expiration of such period);
(e) Such Legal Defeasance or Covenant Defeasance shall
not result in a breach or violation of, or constitute a default under, any
other material agreement or instrument to which the Company is a party or by
which the Company is bound;
(f) In the case of any election under Section 8.02 or
8.03, the Company shall have delivered to the Trustee an Officers' Certificate
stating that the deposit made by the Company pursuant to its election under
Section 8.02 or 8.03 was not made by the Company with the intent of preferring
the Holders over other creditors of the Company or with the intent of
defeating, hindering, delaying or defrauding creditors of the Company or
others; and
(g) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to either the Legal Defeasance under
Section 8.02 or the Covenant Defeasance under Section 8.03 (as the case may be)
have been complied with as contemplated by this Section 8.04.
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SECTION 8.05 Deposited Money and U.S. Government Securities to be Held in
Trust; Other Miscellaneous Provisions.
Subject to Section 8.06, all money and U.S. Government Securities
(including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 in respect of the outstanding Securities
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Securities and this Indenture, to the payment, either
directly or through any Paying Agent (including the Company or a Guarantor, if
any, acting as Paying Agent) as the Trustee may determine, to the Holders of
such Securities of all sums due and to become due thereon in respect of
principal, premium, if any, and interest, but such money need not be segregated
from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the cash or U.S. Government
Securities deposited pursuant to Section 8.04 or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the Holders of the outstanding Securities.
Anything in this Article VIII to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the
Company's request any money or U.S. Government Securities held by it as
provided in Section 8.04 which, in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the Trustee (which may be the opinion delivered under Section
8.04(a)), are in excess of the amount thereof which would then be required to
be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.
SECTION 8.06 Repayment to Company.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest on any Security which is not subject to the last paragraph of
Section 8.05 and has remained unclaimed for one year after such principal, and
premium, if any, or interest has become due and payable shall be paid to the
Company on its request or (if then held by the Company) shall be discharged
from such trust; and the Holder of such Security shall thereafter, as an
unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease.
SECTION 8.07 Reinstatement.
If the Trustee or Paying Agent is unable to apply any U.S. Legal
Tender or U.S. Government Securities in accordance with Section 8.02 or 8.03,
as the case may be, by reason of any order or judgment of any court or
governmental authority enjoining, restraining, or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the
Securities shall be
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revived and reinstated as though no deposit had occurred pursuant to Section
8.02 or 8.03 until such time as the Trustee or Paying Agent is permitted to
apply all such money in accordance with Section 8.02 or 8.03, as the case may
be; provided, however, that, if the Company makes any payment of principal of,
premium, if any, or interest on any Security following the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Securities to receive such payment from the money held by the Trustee or
Paying Agent.
ARTICLE IX
Amendments, Supplements And Waivers
SECTION 9.01 Without Consent of Holders.
The Company, the Guarantors and the Trustee may amend or supplement
this Indenture or the Securities without notice to or consent of any Holder:
(1) to cure any ambiguity, omission, defect or
inconsistency;
(2) to comply with Section 5.01;
(3) to reflect the addition or release of any Guarantor,
as provided for by this Indenture;
(4) to comply with any requirements of the SEC in order
to effect or maintain the qualification of this Indenture under the
TIA; or
(5) to make any change that would provide any additional
benefit or rights to the Holders or that does not adversely affect the
rights of any Holder in any material respect.
Upon the request of the Company and the Guarantors, accompanied by a
Board Resolution of the Company and of each Guarantor authorizing the execution
of any such supplemental indenture, and upon receipt by the Trustee of the
documents described in Section 9.06, the Trustee shall join with the Company
and the Guarantors in the execution of any supplemental indenture authorized or
permitted by the terms of this Indenture and make any further appropriate
agreements and stipulations that may be therein contained. After an amendment
or waiver under this Section becomes effective, the Company shall mail to the
Holders of each Security affected thereby a notice briefly describing the
amendment or waiver. Any failure of the Company to mail such notice, or any
defect therein, shall not, however, in any way impair or affect the validity of
any such supplemental indenture.
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SECTION 9.02 With Consent of Holders.
Except as provided below in this Section 9.02, the Company, the
Guarantors and the Trustee may amend this Indenture or the Securities with the
written consent (including consents obtained in connection with a tender offer
or exchange offer for Securities or a solicitation of consents in respect of
Securities, provided that in each case such offer or solicitation is made to
all Holders of then outstanding Securities on equal terms) of the Holders of at
least a majority in principal amount of the then outstanding Securities.
Upon the request of the Company and the Guarantors, accompanied by a
Board Resolution of the Company and each Guarantor authorizing the execution of
any such supplemental indenture, and upon the filing with the Trustee of
evidence of the consent of the Holders as aforesaid, and upon receipt by the
Trustee of the Opinion of Counsel described in Section 9.06, the Trustee shall
join with the Company and the Guarantors in the execution of such supplemental
indenture.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment or waiver, but
it shall be sufficient if such consent approves the substance thereof.
The Holders of a majority in principal amount of the then outstanding
Securities may waive compliance in a particular instance by the Company or the
Guarantors with any provision of this Indenture or the Securities (including
waivers obtained in connection with a tender offer or exchange offer for
Securities or a solicitation of consents in respect of Securities, provided
that in each case such offer or solicitation is made to all Holders of the then
outstanding Securities on equal terms). However, without the consent of each
Holder affected, an amendment or waiver under this Section may not:
(1) reduce the percentage of principal amount of
Securities whose Holders must consent to an amendment, supplement or
waiver of any provision of this Indenture or the Securities;
(2) reduce the rate or change the time for payment of
interest, including defaulted interest, on the Securities;
(3) reduce the principal amount of any Security or change
the Maturity Date of the Securities;
(4) reduce the redemption price, including premium, if
any, payable upon the redemption of any Security or change the time at
which any Security may be redeemed;
(5) reduce the repurchase price, including premium, if
any, payable upon the repurchase of any Security pursuant to Sections
4.11 or 4.17, or change the time at which any Security may or shall be
repurchased thereunder;
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(6) waive a Default or Event of Default in the payment of
the principal of, premium, if any, or interest on the Securities;
(7) make any Security payable in money other than that
stated in the Security;
(8) impair the right to institute suit for the
enforcement of principal of, premium, if any, or interest on any
Security pursuant to Sections 6.07 or 6.08, except as limited by
Section 6.06; or
(9) make any change in Section 6.04 or Section 6.07 or in
this sentence of this Section 9.02.
The right of any Holder to participate in any consent required or
sought pursuant to any provision of this Indenture (and the obligation of the
Company to obtain any such consent otherwise required from such Holder) may be
subject to the requirement that such Holder shall have been the Holder of
record of any Securities with respect to which such consent is required or
sought as of a date identified by the Trustee in a notice furnished to Holders
in accordance with the terms of this Indenture.
SECTION 9.03 Compliance with Trust Indenture Act.
Every amendment to or supplement of this Indenture or the Securities
shall comply with the TIA as then in effect.
SECTION 9.04 Revocation and Effect of Consents.
A consent to an amendment, supplement or waiver by a Holder of a
Security shall bind the Holder and every subsequent Holder of a Security or
portion of a Security that evidences the same debt as the consenting Holder's
Security, even if notation of the consent is not made on any Security.
However, until an amendment, supplement or waiver becomes effective, any such
Holder or subsequent Holder may revoke the consent as to its Security or
portion of a Security. For such revocation to be effective, the Trustee must
receive the notice of revocation before the date the amendment, supplement or
waiver becomes effective.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment or
waiver. If the Company elects to fix a record date for such purpose, the
record date shall be fixed at (i) the later of 30 days prior to the first
solicitation of such consent or the date of the most recent list of Holders
furnished to the Trustee prior to such solicitation pursuant to Section 2.05,
or (ii) such other date as the Company shall designate. If a record date is
fixed, then notwithstanding the provisions of the immediately preceding
paragraph, those Persons who were Holders at such record date (or their duly
designated proxies), and only those Persons, shall be entitled to consent to
such amendment or waiver or to revoke any consent previously given, whether or
not such Persons continue to be Holders after such
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record date. No consent shall be valid or effective for more than 90 days
after such record date unless consent from the Holders of the principal amount
of Securities required hereunder for such amendment or waiver to be effective
also shall have been given and not revoked within such 90-day period.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder unless it makes a change described in any of clauses (1)
through (9) of Section 9.02. In that case the amendment, supplement or waiver
shall bind each Holder of a Security who has consented to it and every
subsequent Holder of a Security or portion of a Security that evidences the
same debt as the consenting Holder's Security.
SECTION 9.05 Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a Security,
the Trustee may require the Holder of the Security to deliver it to the
Trustee. The Trustee may place an appropriate notation on the Security about
the changed terms and return it to the Holder. Alternatively, if the Company
or the Trustee so determines, the Company in exchange for the Security shall
issue and the Trustee shall authenticate a new Security that reflects the
changed terms.
SECTION 9.06 Trustee Protected.
The Trustee shall sign any amendment or supplement or waiver
authorized pursuant to this Article if the amendment or supplement or waiver
does not adversely affect the rights of the Trustee. If it does adversely
affect the rights of the Trustee, the Trustee may but need not sign it. In
signing such amendment or supplement or waiver the Trustee shall be entitled to
receive, and (subject to Article VII) shall be fully protected in relying upon,
an Opinion of Counsel stating that such amendment or supplement or waiver is
authorized or permitted by and complies with this Indenture. The Company may
not sign an amendment or supplement until the Boards of Directors of the
Company and the Guarantors approve it.
SECTION 9.07 Restrictions on Payments for Amendments, Waivers and
Modifications.
Notwithstanding any provision to the contrary in this Indenture
neither the Company nor any of its Subsidiaries shall, directly or indirectly,
pay or cause to be paid any consideration, whether by way of interest, fees or
otherwise, to any Holder of any Security for or as an inducement to any
consent, waiver or amendment of any terms or provisions of the Security or the
Indenture unless such consideration is offered to be paid or agreed to be paid
to all Holders of the Securities which so consent, waive or agree to amend in
the time period set forth in any solicitation documents relating to such
consent.
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ARTICLE X
Guarantees
SECTION 10.01 Unconditional Guarantee.
Each Guarantor hereby, jointly and severally, unconditionally
guarantees (such guarantee to be referred to herein as the "Guarantee") to each
Holder and to the Trustee the due and punctual payment of the principal of,
premium, if any, and interest on the Securities and all other amounts due and
payable under this Indenture and the Securities by the Company whether at
maturity, by acceleration, redemption, repurchase or otherwise, including,
without limitation, interest on the overdue principal of, premium, if any, and
interest on the Securities, to the extent lawful, all in accordance with the
terms hereof and thereof; subject, however, to the limitations set forth in
Section 10.05.
Failing payment when due of any amount so guaranteed for whatever
reason, the Guarantors will be jointly and severally obligated to pay the same
immediately. Each Guarantor hereby agrees that its obligations hereunder shall
be unconditional, irrespective of the validity, regularity or enforceability of
the Securities or this Indenture, the absence of any action to enforce the
same, any waiver or consent by any Holder of the Securities with respect to any
provisions hereof or thereof, the recovery of any judgment against the Company,
any action to enforce the same or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a guarantor. To the
fullest extent permitted by law, each Guarantor hereby waives diligence,
presentment, demand of payment, filing of claims with a court in the event of
insolvency or bankruptcy of the Company, any right to require a proceeding
first against the Company, protest, notice and all demands whatsoever and
covenants that this Guarantee will not be discharged except by complete
performance of the obligations contained in the Securities, this Indenture and
in this Guarantee. If any Holder or the Trustee is required by any court or
otherwise to return to the Company, any Guarantor, or any custodian, trustee,
liquidator or other similar official acting in relation to the Company or any
Guarantor, any amount paid by the Company or any Guarantor to the Trustee or
such Holder with respect to the Securities, this Guarantee, to the extent
theretofore discharged, shall be reinstated in full force and effect. Each
Guarantor agrees it shall not be entitled to any right of subrogation in
relation to the Holders in respect of any obligations guaranteed hereby until
payment in full of all obligations guaranteed hereby. Each Guarantor further
agrees that, as between each Guarantor, on the one hand, and the Holders and
the Trustee, on the other hand, (x) the maturity of the obligations guaranteed
hereby may be accelerated as provided in Article VI for the purposes of this
Guarantee, notwithstanding any stay, injunction or other prohibition preventing
such acceleration in respect of the obligations guaranteed hereby, and (y) in
the event of any acceleration of such obligations as provided in Article VI,
such obligations (whether or not due and payable) shall forthwith become due
and payable by each Guarantor for the purpose of this Guarantee.
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SECTION 10.02 Guarantors May Consolidate, etc., on Certain Terms.
(a) Subject to paragraph (b) of this Section 10.02, no
Guarantor may consolidate or merge with or into (whether or not such Guarantor
is the surviving Person) another corporation or Person unless (i) the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) is a corporation organized and existing under the laws of the United
States of America, any state thereof, or the District of Columbia and expressly
assumes all the obligations of such Guarantor pursuant to a supplemental
indenture, in a form reasonably satisfactory to the Trustee, under the
Securities and the Indenture, (ii) immediately before and after giving effect
to such transaction, no Default or Event of Default exists, (iii) such
Guarantor or the entity or Person formed by or surviving any such consolidation
or merger on a pro forma basis will have Consolidated Net Worth (immediately
after the transaction) equal to or greater than the Consolidated Net Worth of
such Guarantor immediately preceding the transaction and (iv) the Company will,
at the time of such transaction after giving pro forma effect thereto as if
such transaction had occurred at the beginning of the applicable Reference
Period, be permitted to incur at least $1.00 of additional Indebtedness
pursuant to Section 4.09(a). In connection with any consolidation or merger
contemplated by this Section 10.02, the Company shall deliver to the Trustee
prior to the consummation of the proposed transaction an Officers' Certificate
to the foregoing effect and an Opinion of Counsel stating that all conditions
precedent to the proposed transaction and to execution and delivery of such
supplemental indenture have been complied with. This Section 10.02(a) will not
prohibit a merger between Guarantors or a merger between the Company and a
Guarantor.
(b) In the event of a sale or other disposition of all or
substantially all of the assets of any Guarantor, by way of merger,
consolidation or otherwise, or a sale or other disposition of all of the
Capital Stock of such Guarantor, then such Guarantor (in the event of a sale or
other disposition, by way of such a merger, consolidation or otherwise, of all
of the Capital Stock of such Guarantor) or the corporation acquiring the
property (in the event of a sale or other disposition of all or substantially
all of the assets of such Guarantor) will be released and relieved of any
obligations under its Guarantees; provided that the Net Cash Proceeds of such
sale or other disposition are applied in accordance with the provisions of the
Indenture described under Section 4.11.
SECTION 10.03 Addition of Guarantors.
(a) The Company agrees to cause each Subsidiary that
shall become a Restricted Subsidiary after the Issue Date to execute and
deliver a supplemental indenture pursuant to which such Restricted Subsidiary
shall guarantee the payment of the Securities pursuant to the terms hereof.
(b) Any Person that was not a Guarantor on the Issue Date
may become a Guarantor by executing and delivering to the Trustee (i) a
supplemental indenture in form and substance satisfactory to the Trustee, which
subjects such Person to the provisions (including the representations and
warranties) of this Indenture as a Guarantor and (ii) an Opinion of Counsel and
Officers' Certificate to the effect that such supplemental indenture has been
duly authorized and
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executed by such Person and constitutes the legal, valid, binding and
enforceable obligation of such Person (subject to such customary exceptions
concerning creditors' rights and equitable principles as may be acceptable to
the Trustee in its discretion and provided that no opinion need be rendered
concerning the enforceability of the Guarantee).
SECTION 10.04 Release of a Guarantor.
Upon the sale or disposition of a Guarantor (or substantially all of
its assets) or the designation of a Subsidiary Guarantor as an Unrestricted
Subsidiary, which in each case otherwise is effected in compliance with the
terms of this Indenture, including but not limited to the provisions of Section
10.02, such Guarantor shall be deemed released from all of its Guarantee and
related obligations in this Indenture. The Trustee shall deliver an
appropriate instrument evidencing such release upon receipt of a request by the
Company accompanied by an Officers' Certificate and an Opinion of Counsel
certifying that such sale or other disposition was made by the Company in
accordance with the provisions of this Indenture. Any Guarantor not so
released remains liable for the full amount of principal of and interest on the
Securities as provided in this Article X.
SECTION 10.05 Limitation of Guarantor's Liability.
Each Guarantor and by its acceptance of Securities under this
Indenture each Holder hereby confirms that it is the intention of all such
parties that the guarantee by such Guarantor pursuant to its Guarantee not
constitute a fraudulent transfer or conveyance for purposes of any federal or
state law. To effectuate the foregoing intention, the Holders and each
Guarantor hereby irrevocably agree that the obligations of each Guarantor under
the Guarantee shall be limited to the maximum amount as will, after giving
effect to all other contingent and fixed liabilities of such Guarantor and
after giving effect to any collections from or payments made by or on behalf of
any other Guarantor in respect of the obligations of such other Guarantor under
its Guarantee or pursuant to Section 10.06, result in the obligations of such
Guarantor under the Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under federal or state law. This Section 10.05 is for the
benefit of the creditors of each Guarantor, and, for purposes of applicable
fraudulent transfer and fraudulent conveyance law, any Indebtedness of a
Guarantor pursuant to a Bank Credit Facility shall be deemed to have been
incurred prior to the incurrence by such Guarantor of its liability under the
Guarantee.
SECTION 10.06 Contribution.
In order to provide for just and equitable contribution among the
Guarantors, the Guarantors agree, inter se, that in the event any payment or
distribution is made by any Guarantor (a "Funding Guarantor") under the
Guarantee, such Funding Guarantor shall be entitled to a contribution from each
other Guarantor in a pro rata amount based on the Adjusted Net Assets of each
Guarantor (including the Funding Guarantor) for all payments, damages and
expenses incurred by the Funding Guarantor in discharging the Company's
obligations with respect to the Securities or any other Guarantor's obligations
with respect to the Guarantee.
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SECTION 10.07 Execution and Delivery of Guarantee.
To further evidence the Guarantees set forth in Section 10.01, each
Guarantor hereby agrees that a notation relating to such Guarantee, in
substantially the form of Exhibit A-1, shall be endorsed on each Security
authenticated and delivered by the Trustee and executed by either manual or
facsimile signature of one Officer of each Guarantor.
Each of the Guarantors hereby agrees that its Guarantee set forth in
Section 10.01 shall remain in full force and effect notwithstanding any failure
to endorse on each Security a notation relating to such Guarantee.
If an Officer of a Guarantor whose signature is on this Indenture or a
Security no longer holds that office at the time the Trustee authenticates such
Security or at any time thereafter, such Guarantor's Guarantee of such Security
shall be valid nevertheless.
The delivery of any Security by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of any Guarantee set forth in
this Indenture on behalf of the Guarantor.
SECTION 10.08 Severability.
In case any provision of this Guarantee shall be invalid, illegal or
unenforceable, that portion of such provision that is not invalid, illegal or
unenforceable shall remain in effect, and the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
ARTICLE XI
Miscellaneous
SECTION 11.01 Trust Indenture Act Controls.
Whether prior to or following the qualification of this Indenture
under the TIA, if any provision of this Indenture limits, qualifies, or
conflicts with the duties imposed by operation of TIA Section 318(c) upon an
Indenture qualified under the TIA, the imposed duties shall control under this
Indenture.
SECTION 11.02 Notices.
Any notice or communication shall be sufficiently given if in writing
and delivered in person or mailed by certified or registered mail (return
receipt requested), facsimile, telecopier or overnight air courier guaranteeing
next day delivery, addressed as follows:
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If to the Company or any Guarantor:
National Energy Group, Inc.
4925 Greenville Avenue
Suite 1400
Dallas, Texas 75206
Attention: Chief Financial Officer
If to the Trustee:
Bank One, Columbus, N.A.
100 East Broad Street
Columbus, Ohio 43271-0181
Attention: Corporate Trust Department
The Company, any Guarantor or the Trustee by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
All notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when
receipt acknowledged, if faxed or telecopied; and the next Business Day after
timely delivery to the courier, if sent by overnight air courier guaranteeing
next Business Day delivery.
Any notice or communication mailed to a Holder shall be mailed by
first-class mail to the address for such Holder appearing on the registration
books of the Registrar and shall be sufficiently given to such Holder if so
mailed within the time prescribed. Failure to mail a notice or communication
to a Holder or any defect in it shall not affect its sufficiency with respect
to other Holders.
If a notice or communication is mailed in the manner provided above,
it is duly given, whether or not the addressee receives it. If the Company or
any Guarantor mails notice or communications to Holders, it shall mail a copy
to the Trustee and each Agent at the same time.
SECTION 11.03 Communication by Holders with Other Holders.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Securities.
The Company, the Guarantors, the Trustee, the Registrar and anyone else shall
have the protection of TIA Section 312(c).
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<PAGE> 82
SECTION 11.04 Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company or any Guarantor to the
Trustee to take any action under this Indenture, the Company or such Guarantor,
as the case may be, shall furnish to the Trustee:
(1) an Officers' Certificate (which shall include the
statements set forth in Section 11.05) stating that, in the opinion of
the signers, the conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with;
(2) an Opinion of Counsel stating that, in the opinion of
such counsel, such conditions precedent have been complied with; and
(3) any Opinion of Counsel may assume the existence or
non-existence of facts necessary to support such Opinion unless such
counsel has actual knowledge that such assumption would be contrary to
the actual facts.
SECTION 11.05 Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each person making such certificate
or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such person,
he has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of
each such person, such covenant or condition has been complied with.
SECTION 11.06 Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules for its
functions.
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SECTION 11.07 Legal Holidays.
A "Legal Holiday" is a Saturday, a Sunday, or a day on which banks and
trust companies in The City of New York and the City of Columbus, Ohio are not
required by law or executive order to be open. If a payment date is a Legal
Holiday at a place of payment, payment may be made at the place on the next
succeeding day that is not a Legal Holiday, without additional interest.
SECTION 11.08 Governing Law.
THIS INDENTURE AND THE SECURITIES AND THE GUARANTEES SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS TO THE EXTENT THAT
THE APPLICATION OF THE LAW OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
SECTION 11.09 No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company, any Guarantor or any other Subsidiary. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.
SECTION 11.10 No Recourse Against Others.
All liability described in paragraph 18 of the Securities of any
director, officer, employee or stockholder, as such, of the Company, the
Guarantors or the Trustee is waived and released.
SECTION 11.11 Successors.
All agreements of the Company and the Guarantors in this Indenture,
the Securities and the Guarantees shall bind their respective successors. All
agreements of the Trustee in this Indenture shall bind its successor.
SECTION 11.12 Duplicate Originals.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
instrument.
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<PAGE> 84
SECTION 11.13 Severability.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby,
and a Holder shall have no claim therefor against any party hereto.
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, as of the date first written above.
NATIONAL ENERGY GROUP, INC.
By: /s/ Miles D. Bender
---------------------------------------------
Name: Miles D. Bender
----------------------------------------
Title: President and Chief Executive Officer
---------------------------------------
GUARANTOR
NATIONAL ENERGY GROUP OF OKLAHOMA, INC.
By: /s/ Miles D. Bender
---------------------------------------------
Name: Miles D. Bender
----------------------------------------
Title: President and Chief Executive Officer
---------------------------------------
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<PAGE> 85
BANK ONE, COLUMBUS, N.A., as Trustee
By: /s/ Jeffery L. Eubank
------------------------------
Name: Jeffery L. Eubank
-------------------------
Title: Authorized Signer
------------------------
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<PAGE> 86
EXHIBIT A
[FACE OF SECURITY]
[Unless and until it is exchanged in whole or in part for Securities
in definitive form, this Security may not be transferred except as a whole by
the Depositary to a nominee of the Depositary or by a nominee of the Depositary
to the Depositary or another nominee of the Depositary or by the Depositary or
any such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New York, New
York ("DTC")), to the issuer or its agent for registration of transfer,
exchange or payment, and any certificate issued is registered in the name of
Cede & Co. or such other name as may be requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or such other
entity as may be requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an
interest herein.]1
THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED TO OR FOR THE ACCOUNT OR BENEFIT OF ANY PERSON EXCEPT AS SET FORTH
IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT) OR (B) IT IS AN "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) WHICH IS
AN INSTITUTION (AN "INSTITUTIONAL ACCREDITED INVESTOR"), (2) AGREES THAT IT
WILL NOT PRIOR TO THE DATE WHICH IS THREE YEARS (OR SUCH SHORTER PERIOD AS
COMPLIES WITH RULE 144 UNDER THE SECURITIES ACT) AFTER THE LATER OF THE DATE OF
ORIGINAL ISSUANCE OF THIS SECURITY AND THE LAST DATE ON WHICH THE ISSUER OR ANY
AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS SECURITY (THE "RESALE RESTRICTION
TERMINATION DATE") RESELL, PLEDGE OR OTHERWISE TRANSFER THIS SECURITY, EXCEPT
(A) TO THE ISSUER, (B) TO A PERSON THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF ANOTHER QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH THE RESALE
PROVISIONS OF RULE 144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A
WRITTEN CERTIFICATION CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY, (D) PURSUANT TO THE
RESALE LIMITATIONS PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE), (E) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 904 OF THE SECURITIES ACT, (F) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, OR (G) PURSUANT TO
ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, SUBJECT IN EACH OF THE FOREGOING CASES TO ANY
__________________________________
(1) This paragraph should be included only if the Security is issued in global
form.
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REQUIREMENT OF LAW THAT THE DISPOSITION OF ITS PROPERTY OR THE PROPERTY OF SUCH
ACCOUNT BE AT ALL TIMES WITHIN ITS CONTROL AND TO COMPLIANCE WITH APPLICABLE
STATE SECURITIES LAWS, AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO
WHICH THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. IF THE PROPOSED TRANSFEREE IS NOT A QUALIFIED INSTITUTIONAL BUYER, THE
HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE ISSUER SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THE FOREGOING RESTRICTIONS ON RESALE WILL
NOT APPLY SUBSEQUENT TO THE RESALE RESTRICTION TERMINATION DATE.
NATIONAL ENERGY GROUP, INC.
10 3/4% SENIOR NOTE DUE 2006
NO.
$_________
CUSIP NO.________
National Energy Group, Inc., a Delaware corporation, promises to pay
to __________________________ or registered assigns the principal sum of
____________________ Dollars on November 1, 2006.
Interest Payment Dates: May 1, and November 1, commencing May 1, 1997
Record Dates: April 15 and October 15
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers and a facsimile of its
corporate seal to be affixed hereto or imprinted hereon.
Dated:
[Seal] NATIONAL ENERGY GROUP, INC.
By: _____________________
By: _____________________
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Certificate of Authentication:
Bank One, Columbus, N.A.
as Trustee, certifies that this is one of the [Definitive] [Global]2
Securities referred to in the within-mentioned Indenture.
By _____________________________________
Authorized Signatory
__________________________________
(2) If the Security is issued in global form, the term "Global" replaces the
term "Definitive."
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<PAGE> 89
[REVERSE OF SECURITY]
NATIONAL ENERGY GROUP, INC.
10 3/4% SENIOR NOTE DUE 2006
1. Interest. National Energy Group, Inc. a Delaware corporation
(the "Company"), promises to pay interest on the principal amount of this
Security at 10 3/4% per annum from the Issue Date until maturity and shall pay
additional interest, if any, payable pursuant to the Registration Rights
Agreement referred to in the Indenture. The Company will pay interest
semiannually on May 1 and November 1 of each year (each an "Interest Payment
Date"), or if any such day is not a Business Day, on the next succeeding
Business Day. Interest on the Securities will accrue from the most recent
Interest Payment Date on which interest has been paid or, if no interest has
been paid, from the Issue Date; provided, that if there is no existing Default
in the payment of interest, and if this Security is authenticated between a
record date referred to on the face hereof and the next succeeding Interest
Payment Date, interest shall accrue from such next succeeding Interest Payment
Date; provided, further, that the first Interest Payment Date shall be May 1,
1997. The Company shall pay interest on overdue principal and premium, if any,
from time to time on demand at a rate equal to the interest rate on the
Securities then in effect; it shall pay interest on overdue installments of
interest (without regard to any applicable grace periods) from time to time on
demand at the same rate to the extent lawful. Interest will be computed on the
basis of a 360-day year of twelve 30-day months. All references herein to
interest shall include additional interest, if any, payable as Notes Liquidated
Damages pursuant to the Registration Rights Agreement.
2. Method of Payment. The Company will pay interest on the
Securities to the persons who are registered holders of Securities at the close
of business on the record date immediately preceding the Interest Payment Date,
even if such Securities are canceled after the record date and on or before the
Interest Payment Date. Holders must surrender Securities to the Paying Agent to
collect principal payments. The Company will pay principal of, premium, if
any, and interest on the Securities in money of the United States of America
that at the time of payment is legal tender for payment of public and private
debts. However, the Company may pay such amounts by check payable in such
money. It may mail an interest check to a Holder's registered address.
3. Paying Agent and Registrar. Initially, the Trustee will act
as Paying Agent and Registrar. The Company may change any Paying Agent,
Registrar or co-registrar without notice. The Company or any of its
Subsidiaries may act as Paying Agent or Registrar.
4. Indenture. The Company issued the Securities under an
Indenture, dated as of November 1, 1996 (the "Indenture"), among the Company,
the Guarantor and the Trustee. Capitalized terms herein are used as defined in
the Indenture unless otherwise defined herein. The terms of the Securities
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (15 U.S. Code Sections
77aaa-77bbb) as in effect on the date of the Indenture. Notwithstanding
anything to the contrary herein, the Securities are subject to all
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such terms, and Holders are referred to the Indenture and such Act for a
complete statement of such terms. The Securities are limited to $100,000,000
aggregate principal amount.
5. Ranking and Guarantees. The Securities are general senior
unsecured obligations of the Company. The Company's obligation to pay
principal, premium, if any, and interest with respect to the Securities is
unconditionally guaranteed on a senior basis, jointly and severally, by the
Guarantors pursuant to Article X of the Indenture. Certain limitations to the
obligations of the Guarantors are set forth in further detail in the Indenture.
6. Optional Redemption. Securities are subject to redemption, at
the option of the Company, in whole in part, upon not less than 30 or more than
60 days' notice:
(i) or at any time on or after November 1, 2001 at the
following Redemption Prices (expressed as percentages of principal amount) if
redeemed during the 12-month period beginning November 1 of the years indicated
below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2001 . . . . . . . . . . . . . . . . . . . . . 105.375%
2002 . . . . . . . . . . . . . . . . . . . . . 102.688%
2003 and thereafter . . . . . . . . . . . . . 100.000%
</TABLE>
or (ii) at any time prior to November 1, 2001, at the Make-Whole Price
(as defined in the Indenture),
together in the case of any such redemption with accrued and unpaid interest,
if any, to the Redemption Date (subject to the right of Holders of record on
the relevant Record Date to receive interest due on an Interest Payment Date
that is on or prior to the Redemption Date), all as provided in the Indenture.
In addition, in the event the Company consummates one or more Equity
Offerings on or prior to November 1, the Company may, in its sole discretion,
redeem up to $35,000,000 of the aggregate principal amount of the Securities
with all or a portion of the aggregate net proceeds received by the Company
from any such Equity Offering or Equity Offerings at a redemption price of
110.75% of the aggregate principal amount of the Securities so redeemed, plus
accrued and unpaid interest on the Securities so redeemed to the Redemption
Date; provided, however, that following such redemption, at least $65,000,000
of the aggregate principal amount of the Securities remains outstanding. Any
redemption pursuant to this paragraph shall be made pursuant to the provisions
of Sections 3.01 through 3.06 of the Indenture.
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<PAGE> 91
In the case of any redemption of Securities, interest installments
whose Stated Maturity is on or prior to the Redemption Date will be payable to
the Holders of such Securities, or one or more Predecessor Securities, of
record at the close of business on the relevant Record Date referred to on the
face hereof. Securities (or portions thereof) for whose redemption and payment
provision is made in accordance with the Indenture shall cease to bear interest
from and after the Redemption Date. In the event of redemption or purchase of
this Security in part only, a new Security or Securities for the unredeemed or
unpurchased portion hereof shall be issued in the name of the Holder hereof
upon the cancellation hereof.
The Securities do not have the benefit of any sinking fund
obligations.
7. Notice of Redemption. Notice of redemption will be mailed to
the Holder's registered address at least 30 days but not more than 60 days
before the redemption date to each Holder of Securities to be redeemed. If
less than all Securities are to be redeemed, the Trustee shall select pro rata,
by lot or in accordance with the rules of any securities exchange the
Securities to be redeemed in multiples of $1,000. Securities in denominations
larger than $1,000 may be redeemed in part. On and after the redemption date,
interest ceases to accrue on Securities or portions of them called for
redemption (unless the Company shall default in the payment of the redemption
price or accrued interest).
8. Change of Control Offer. In the event of a Change of Control
of the Company, and subject to certain conditions and limitations provided in
the Indenture, the Company will be obligated to make an offer to purchase, not
more than 10 Business Days or less than 30 Business Days following the
occurrence of a Change of Control of the Company, all of the then outstanding
Securities at a purchase price equal to 101% of the principal amount thereof,
together with accrued and unpaid interest to the Change of Control Purchase
Date, all as provided in the Indenture.
9. Net Proceeds Offer. In the event of Asset Sales, under certain
circumstances, the Company will be obligated to make a Net Proceeds Offer to
purchase all or a specified portion of each Holder's Securities at a purchase
price equal to 100% of the principal amount of the Securities, together with
accrued and unpaid interest to the Net Proceeds Payment Date.
10. Restrictive Covenants. The Indenture imposes certain
limitations on, among other things, the ability of the Company to merge or
consolidate with any other Person or sell, lease or otherwise transfer all or
substantially all of its properties or assets, the ability of the Company or
the Restricted Subsidiaries to dispose of certain assets, to pay dividends and
make certain other distributions and payments, to make certain investments or
redeem, retire, repurchase or acquire for value shares of Capital Stock, to
incur additional Indebtedness or incur encumbrances against certain property
and to enter into certain transactions with Affiliates, all subject to certain
limitations described in the Indenture.
11. Defaults and Remedies. As set forth in the Indenture, an
Event of Default is generally (i) failure to pay principal upon maturity,
redemption or otherwise (including pursuant to a Change
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<PAGE> 92
of Control Offer or a Net Proceeds Offer), (ii) default for 30 days in payment
of interest on any of the Securities, (iii) default in the performance of
agreements relating to mergers, consolidations and sales of all or
substantially all assets or the failure to make or consummate a Change of
Control Offer or a Net Proceeds Offer, (iv) failure for 30 days after notice to
comply with any other covenants in the Indenture or the Securities; (v) certain
payment defaults under, the acceleration prior to the maturity of, and the
exercise of certain enforcement rights with respect to, certain Indebtedness of
the Company or any Guarantor in an aggregate principal amount in excess of
$5,000,000; (vi) the failure of any Guarantee to be in full force and effect or
otherwise to be enforceable (except as permitted by the Indenture); (vii)
certain events giving rise to material ERISA liability; (viii) certain final
judgments against the Company, any Guarantor or other Restricted Subsidiary in
an aggregate amount of $5,000,000 or more which remain unsatisfied and either
become subject to commencement or enforcement proceedings or remain unstayed
for a period of 60 days; and (ix) certain events of bankruptcy, insolvency or
reorganization of the Company or any Subsidiary (other than an Unrestricted
Subsidiary). If any Event of Default occurs and is continuing, the Trustee or
the holders of at least 25% in aggregate principal amount of the Outstanding
Securities may declare the principal amount of all the Securities to be due and
payable immediately, except that (i) in the case of an Event of Default arising
from certain events of bankruptcy, insolvency or reorganization of the Company
or any Restricted Subsidiary, the principal amount of the Securities will
become due and payable immediately without further action or notice, and (ii)
in the case of an Event of Default which relates to certain payment defaults,
acceleration or the exercise of certain enforcement rights with respect to
certain Indebtedness, any acceleration of the Securities will be automatically
rescinded if any such Indebtedness is repaid or if the default relating to such
Indebtedness is cured or waived and if the holders thereof have accelerated
such Indebtedness then such holders have rescinded their declaration of
acceleration or if in certain circumstances the proceedings or enforcement
action with respect to the Indebtedness that is the subject of such Event of
Default is terminated or rescinded. No Holder may pursue any remedy under the
Indenture unless the Trustee shall have failed to act after notice of an Event
of Default and written request by Holders of at least 25% in principal amount
of the Outstanding Securities, and the offer to the Trustee of indemnity
reasonably satisfactory to it; however, such provision does not affect the
right to sue for enforcement of any overdue payment on a Security by the Holder
thereof. Subject to certain limitations, Holders of a majority in principal
amount of the Outstanding Securities may direct the Trustee in its exercise of
any trust or power. The Trustee may withhold from Holders notice of any
continuing default (except default in payment of principal, premium or
interest) if it determines in good faith that, withholding the notice is in the
interest of the Holders. The Company is required to file annual reports with
the Trustee as to the absence or existence of defaults.
12. Defeasance. The Indenture contains provisions for defeasance
at any time of (i) the entire indebtedness of the Company on this Security and
(ii) certain restrictive covenants and the related Defaults and Events of
Default, upon compliance by the Company with certain conditions set forth
therein, which provisions apply to this Security.
13. Amendment, Modification and Waiver. The Indenture permits,
with certain exceptions as therein provided, the amendment thereof and the
modification of the rights and
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obligations of the Company and the Guarantor and the rights of the Holders
under the Indenture at any time by the Company, the Guarantor and the Trustee
with the consent of the Holders of a majority in aggregate principal amount of
the Securities at the time Outstanding. The Indenture also contains provisions
permitting the Holders of specified percentages in aggregate principal amount
of the Securities at the time Outstanding, on behalf of the Holders of all the
Securities, to waive compliance by the Company with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences.
Any such consent or waiver by or on behalf of the Holder of this Security shall
be conclusive and binding upon such Holder and upon all future Holders of this
Security and of any Security issued upon the registration of transfer hereof or
in exchange herefor or in lieu hereof whether or not notation of such consent
or waiver is made upon this Security. Without the consent of any Holder, the
Company, the Guarantor and the Trustee may amend or supplement the Indenture or
the Securities to cure any ambiguity, defect or inconsistency and to make
certain other specified changes and other changes that do not materially
adversely affect the rights of any Holder.
14. Obligation Absolute and Unconditional. No reference herein to
the Indenture and no provision of this Security or of the Indenture shall alter
or impair the obligation of the Company, which is absolute and unconditional,
to pay the principal of (and premium, if any, on) and interest on this Security
at the times, place, and rate, and in the coin or currency, herein prescribed.
15. Registration and Transfer. As provided in the Indenture and
subject to certain limitations therein set forth, the transfer of this Security
is registerable on the Security register of the Company, upon surrender of this
Security for registration of transfer at the office or agency of the Company
maintained for such purpose in the City of New York, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Registrar duly executed by, the Holder hereof or his attorney
duly authorized in writing, and thereupon one or more new Securities, of
authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.
16. Form. The Securities shall be issued either in global form or
in definitive registered form, without coupons in denominations of $1,000 and
any integral multiple thereof. As provided in the Indenture and subject to
certain limitations therein set forth, the Securities are exchangeable for a
like aggregate principal amount of Securities of a different authorized
denomination, as requested by the Holder surrendering the same.
17. Taxes. No service charge shall be made for any registration
of transfer or exchange of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
18. No Recourse Against Others. A director, officer,
incorporator, or stockholder of the Company or any Guarantor, as such, shall
not have any personal liability under this Security or the Indenture by reason
of his or its status as such director, officer, incorporator or stockholder.
Each Holder, by accepting this Security with the notation of Guarantee endorsed
hereon, waives and
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<PAGE> 94
releases all such liability. Such waiver and release are part of the
consideration for the issuance of this Security with the notation of Guarantee
endorsed hereon.
19. Registered Owners. Prior to the time of due presentment of
this Security for registration of transfer, the Company, the Guarantor, the
Trustee and any agent of the Company or the Trustee may treat the Person in
whose name this Security is registered as the owner hereof for all purposes,
whether or not this Security is overdue, and neither the Company, the
Guarantors, the Trustee nor any agent shall be affected by notice to the
contrary.
20. Definitions. All terms used in this Security which are
defined in the Indenture shall have the meanings assigned to them in the
Indenture. The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to the Company at
4925 Greenville Avenue, Suite 1400, Dallas, Texas 75206.
21. CUSIP Numbers. Pursuant to a recommendation promulgated by
the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Securities as a convenience to the
Holders thereof. No representation is made as to the accuracy of such numbers
as printed on the Securities and reliance may be placed only on the other
identifying information printed hereon.
22. Governing Law. This Security shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to applicable principles of conflicts of laws to the extent that the
application of the law of another jurisdiction would be required thereby.
23. Successor Corporation. When a successor corporation assumes
all the obligations of its predecessor under the Securities and the Indenture,
the predecessor corporation will be released from those obligations.
24. Trustee Dealings with Company and Guarantors. The Trustee
under the Indenture, in its individual or any other capacity, may become the
owner or pledgee of Securities and may otherwise deal with the Company, the
Guarantors or their respective Subsidiaries or Affiliates with the same rights
it would have if it were not Trustee.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to: National
Energy Group, Inc., 4925 Greenville Avenue, Suite 1400, Dallas, Texas 75206
Attention: Secretary.
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ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to:
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ______________________________________ as agent to
transfer this Security on the books of the Company. The agent may substitute
another to act for him.
- --------------------------------------------------------------------------------
Your Signature:
-----------------------------------------------------------------
(Sign exactly as your name appears on the other
side of this Security)
Date: __________________________________
Signature Guarantee: ____________________________________________
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<PAGE> 96
FORM OF OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.11 or Section 4.17 of the Indenture, check the
appropriate box:
Section 4.11 [ ] Section 4.17 [ ]
If you want to have only part of this Security purchased by the
Company pursuant to Section 4.11 or Section 4.17 of the Indenture, state the
amount in integral multiples of $1,000:
$________________
Date:_____________________
Signature:___________________________
(Sign exactly as your
name appears on the other
side of this Security)
Signature
Guarantee:______________________________________________________________________
A-11
<PAGE> 97
SCHEDULE OF EXCHANGES OF GLOBAL SECURITY FOR
DEFINITIVE SECURITY(3)
The following exchanges of a part of this Global Security for
Definitive Securities have been made:
<TABLE>
<CAPTION>
AMOUNT OF DECREASE PRINCIPAL AMOUNT OF SIGNATURE OF
IN PRINCIPAL AMOUNT OF INCREASE THIS GLOBAL SECURITY AUTHORIZED OFFICER
AMOUNT IN PRINCIPAL FOLLOWING SUCH OF TRUSTEE OR
OF THIS GLOBAL AMOUNT OF THIS DECREASE (OR SECURITIES
DATE OF EXCHANGE SECURITY GLOBAL SECURITY INCREASE) CUSTODIAN
---------------- ------------------- ------------------- --------------------- -------------------
<S> <C> <C> <C> <C>
</TABLE>
__________________________________
(3) This should be included only if the Security is issued in global form.
A-12
<PAGE> 98
EXHIBIT A-1
FORM OF NOTATION ON SECURITY
RELATING TO SUBSIDIARY GUARANTEE
Subject to the limitations and provisions set forth in the Indenture,
the Guarantors (as defined in the Indenture referred to in the Security upon
which this notation is endorsed and each hereinafter referred to as a
"Guarantor," which term includes any successor or additional Guarantor under
the Indenture) have, jointly and severally, unconditionally guaranteed (a) the
due and punctual payment of the principal of, premium, if any, and interest on
the Securities, and all other amounts payable under the Indenture and the
Securities by the Company whether at maturity, acceleration, redemption,
repurchase or otherwise, (b) the due and punctual payment of interest on the
overdue principal of, premium, if any, and interest on the Securities, to the
extent lawful, (c) the due and punctual performance of all other obligations of
the Company to the Holders or the Trustee, all in accordance with the terms set
forth in the Indenture, and (d) in case of any extension of time of payment or
renewal of any Securities or any of such other obligations, the same will be
promptly paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at Stated Maturity, by acceleration or otherwise.
Capitalized terms used herein shall have the meanings assigned to them in the
Indenture unless otherwise indicated.
The obligations of each Guarantor are limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities and
after giving effect to any collections from or payments made by or on behalf of
any other Guarantor in respect of the obligations of such other Guarantor under
its Guarantee or pursuant to its contribution obligations under the Indenture,
result in the obligations of such Guarantor under the Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. Each Guarantor that makes a payment or distribution under a
Guarantee shall be entitled to a contribution from each other Guarantor in a
pro rata amount based on the Adjusted Net Assets of each Guarantor.
No stockholder, officer, director or incorporator, as such, past,
present or future, of the Guarantors shall have any personal liability under
the Guarantee by reason of his or its status as such stockholder, officer,
director or incorporator.
Any Guarantor may be released from its Guarantee upon the terms and
subject to the conditions provided in the Indenture.
All terms used in this notation of Guarantee which are defined in the
Indenture referred to in this Security upon which this notation of Guarantee is
endorsed shall have the meanings assigned to them in such Indenture.
The Guarantee shall be binding upon each Guarantor and its successors
and assigns and shall inure to the benefit of the Trustee and the Holders and,
in the event of any transfer or assignment of rights by any Holder or the
Trustee, the rights and privileges herein conferred upon that party shall
A-13
<PAGE> 99
automatically extend to and be vested in such transferee or assignee, all
subject to the terms and conditions hereof and in the Indenture.
The Guarantee shall not be valid or obligatory for any purpose until
the certificate of authentication on the Security upon which this Guarantee is
noted shall have been executed by the Trustee under the Indenture by the manual
signature of one of its authorized signatories.
[NAME OF EACH GUARANTOR]
Attest: By:
------------------------- --------------------------
Secretary President
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is the notation of the Guarantee of the 10 3/4% Senior Notes due 2006
referred to in the within-mentioned Indenture.
Authenticated:
Dated: Bank One, Columbus, N.A.
---------------- Trustee
By:
-----------------------------
Authorized Signatory
A-14
<PAGE> 100
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR TRANSFER OF SENIOR NOTES
______________, 199__
Bank One, Columbus, N.A.
c/o Bank One Trust Company, N.A.
235 West Shrock Road
Westerville, Ohio 43081
Attention: Corporate Trust Operations
Re: National Energy Group, Inc.
10 3/4% Senior Notes due 2006 (the "Securities")
Reference is hereby made to the Indenture dated as of November 1, 1996
(the "Indenture") among National Energy Group, Inc., the Guarantor named
therein and ______________. Capitalized terms used but not defined herein
shall have the meanings given them in the Indenture.
This certificate relates to $_______________ aggregate principal
amount of Securities which are held in*
[ ] book-entry
or
[ ] definitive form
in the name of ______________________________________________ [name of
transferor] (the "Transferor"). The Transferor hereby requests that the
Securities be transferred to _____________________________________ [insert name
of transferee] (the "Transferee").
The Transferor hereby certifies that the Transferor is familiar with
the Indenture relating to the above- captioned Securities and further certifies
that*:
[ ] such Securities (constituting either a Definitive Security in the
amount indicated above that is being exchanged for a beneficial
interest in the Global Security pursuant to Section 2.06(d) of the
Indenture or a beneficial interest in the amount indicated above in
the Global Security that is being transferred pursuant to Section
2.06(e) of the Indenture) are being
______________________________
* Check applicable box.
B-1
<PAGE> 1
Unless and until it is exchanged in whole or in part for Securities in
definitive form, this Security may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New York, New
York ("DTC")), to the issuer or its agent for registration of transfer,
exchange or payment, and any certificate issued is registered in the name of
Cede & Co. or such other name as may be requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or such other
entity as may be requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an
interest herein.
THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED TO OR FOR THE ACCOUNT OR BENEFIT OF ANY PERSON EXCEPT AS SET FORTH
IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS
THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) OR (B) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) WHICH IS AN INSTITUTION
(AN "INSTITUTIONAL ACCREDITED INVESTOR"), (2) AGREES THAT IT WILL NOT PRIOR TO
THE DATE WHICH IS THREE YEARS (OR SUCH SHORTER PERIOD AS COMPLIES WITH RULE 144
UNDER THE SECURITIES ACT) AFTER THE LATER OF THE DATE OF ORIGINAL ISSUANCE OF
THIS SECURITY AND THE LAST DATE ON WHICH THE ISSUER OR ANY AFFILIATE OF THE
ISSUER WAS THE OWNER OF THIS SECURITY (THE "RESALE RESTRICTION TERMINATION
DATE") RESELL, PLEDGE OR OTHERWISE TRANSFER THIS SECURITY, EXCEPT (A) TO THE
ISSUER, (B) TO A PERSON THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF
ANOTHER QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH THE RESALE PROVISIONS
OF RULE 144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL ACCREDITED
INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A WRITTEN
CERTIFICATION CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THIS SECURITY, (D) PURSUANT TO THE RESALE
LIMITATIONS PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E)
OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 OF THE SECURITIES ACT, (F) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, OR (G) PURSUANT TO ANY OTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
SUBJECT IN EACH OF THE FOREGOING CASES TO ANY REQUIREMENT OF LAW THAT THE
DISPOSITION OF ITS PROPERTY OR THE PROPERTY OF SUCH ACCOUNT BE AT ALL TIMES
WITHIN ITS CONTROL AND TO COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS, AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHICH THIS SECURITY IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE
PROPOSED TRANSFEREE IS NOT A QUALIFIED INSTITUTIONAL BUYER, THE HOLDER MUST,
PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE ISSUER SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THE FOREGOING RESTRICTIONS ON RESALE WILL
NOT APPLY SUBSEQUENT TO THE RESALE RESTRICTION TERMINATION DATE.
1
<PAGE> 2
NATIONAL ENERGY GROUP, INC.
CUSIP NO. 635812AA8
10 3/4% SENIOR NOTE DUE 2006
NO. R-1
$100,000,000
National Energy Group, Inc., a Delaware corporation, promises to pay
to Cede & Co. or registered assigns the principal sum of One Hundred Million
Dollars on November 1, 2006.
Interest Payment Dates: May 1, and November 1, commencing May 1, 1997
Record Dates: April 15 and October 15
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF,
the Company has caused this Security to be signed manually or by facsimile by
its duly authorized officers and a facsimile of its corporate seal to be
affixed hereto or imprinted hereon.
Dated: November 1, 1996
[Seal] NATIONAL ENERGY GROUP, INC.
By: /S/ MILES D. BENDER
-----------------------------------------
Miles D. Bender, President and Chief
Executive Officer
By: /S/ SUE BARNARD
-----------------------------------------
Sue Barnard, Secretary
Certificate of Authentication:
Bank One, Columbus, N.A.
as Trustee, certifies that this is one of the Global Securities referred to in
the within-mentioned Indenture.
By /S/ JEFFREY EUBANKS
--------------------------
Authorized Signatory
[SPECIMEN]
2
<PAGE> 3
NATIONAL ENERGY GROUP, INC.
10 3/4% SENIOR NOTE DUE 2006
1. Interest. National Energy Group, Inc. a Delaware corporation
(the "Company"), promises to pay interest on the principal amount of this
Security at 10 3/4% per annum from the Issue Date until maturity and shall pay
additional interest, if any, payable pursuant to the Registration Rights
Agreement referred to in the Indenture. The Company will pay interest
semiannually on May 1 and November 1 of each year (each an "Interest Payment
Date"), or if any such day is not a Business Day, on the next succeeding
Business Day. Interest on the Securities will accrue from the most recent
Interest Payment Date on which interest has been paid or, if no interest has
been paid, from the Issue Date; provided, that if there is no existing Default
in the payment of interest, and if this Security is authenticated between a
record date referred to on the face hereof and the next succeeding Interest
Payment Date, interest shall accrue from such next succeeding Interest Payment
Date; provided, further, that the first Interest Payment Date shall be May 1,
1997. The Company shall pay interest on overdue principal and premium, if any,
from time to time on demand at a rate equal to the interest rate on the
Securities then in effect; it shall pay interest on overdue installments of
interest (without regard to any applicable grace periods) from time to time on
demand at the same rate to the extent lawful. Interest will be computed on the
basis of a 360-day year of twelve 30-day months. All references herein to
interest shall include additional interest, if any, payable as Notes Liquidated
Damages pursuant to the Registration Rights Agreement.
2. Method of Payment. The Company will pay interest on the
Securities to the persons who are registered holders of Securities at the close
of business on the record date immediately preceding the Interest Payment Date,
even if such Securities are canceled after the record date and on or before the
Interest Payment Date. Holders must surrender Securities to the Paying Agent to
collect principal payments. The Company will pay principal of, premium, if any,
and interest on the Securities in money of the United States of America that at
the time of payment is legal tender for payment of public and private debts.
However, the Company may pay such amounts by check payable in such money. It may
mail an interest check to a Holder's registered address.
3. Paying Agent and Registrar. Initially, the Trustee will act as
Paying Agent and Registrar. The Company may change any Paying Agent, Registrar
or co-registrar without notice. The Company or any of its Subsidiaries may act
as Paying Agent or Registrar. Indenture. The Company issued the Securities under
an Indenture, dated as of November 1, 1996 (the "Indenture"), among the Company,
the Guarantor and the Trustee. Capitalized terms herein are used as defined in
the Indenture unless otherwise defined herein. The terms of the Securities
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbb)
as in effect on the date of the Indenture. Notwithstanding anything to the
contrary herein, the Securities are subject to all such terms, and Holders are
referred to the Indenture and such Act for a complete statement of such terms.
The Securities are limited to $100,000,000 aggregate principal amount.
3
<PAGE> 4
4. Ranking and Guarantees. The Securities are general senior
unsecured obligations of the Company. The Company's obligation to pay
principal, premium, if any, and interest with respect to the Securities is
unconditionally guaranteed on a senior basis, jointly and severally, by the
Guarantors pursuant to Article X of the Indenture. Certain limitations to the
obligations of the Guarantors are set forth in further detail in the Indenture.
5. Optional Redemption. Securities are subject to redemption, at
the option of the Company, in whole in part, upon not less than 30 or more than
60 days' notice:
(i) or at any time on or after November 1, 2001 at the following
Redemption Prices (expressed as percentages of principal amount) if redeemed
during the 12-month period beginning November 1 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2001 . . . . . . . . . . . . . . . . . . . . . 105.375%
2002 . . . . . . . . . . . . . . . . . . . . . 102.688%
2003 and thereafter . . . . . . . . . . . . . 100.000%
</TABLE>
or (ii) at any time prior to November 1, 2001, at the Make-Whole Price
(as defined in the Indenture), together in the case of any such redemption with
accrued and unpaid interest, if any, to the Redemption Date (subject to the
right of Holders of record on the relevant Record Date to receive interest due
on an Interest Payment Date that is on or prior to the Redemption Date), all as
provided in the Indenture. In addition, in the event the Company consummates one
or more Equity Offerings on or prior to November 1, the Company may, in its sole
discretion, redeem up to $35,000,000 of the aggregate principal amount of the
Securities with all or a portion of the aggregate net proceeds received by the
Company from any such Equity Offering or Equity Offerings at a redemption price
of 110.75% of the aggregate principal amount of the Securities so redeemed, plus
accrued and unpaid interest on the Securities so redeemed to the Redemption
Date; provided, however, that following such redemption, at least $65,000,000 of
the aggregate principal amount of the Securities remains outstanding. Any
redemption pursuant to this paragraph shall be made pursuant to the provisions
of Sections 3.01 through 3.06 of the Indenture.
In the case of any redemption of Securities, interest installments
whose Stated Maturity is on or prior to the Redemption Date will be payable to
the Holders of such Securities, or one or more Predecessor Securities, of
record at the close of business on the relevant Record Date referred to on the
face hereof. Securities (or portions thereof) for whose redemption and payment
provision is made in accordance with the Indenture shall cease to bear interest
from and after the Redemption Date. In the event of redemption or purchase of
this Security in part only, a new Security or Securities for the unredeemed or
unpurchased portion hereof shall be issued in the name of the Holder hereof
upon the cancellation hereof. The Securities do not have the benefit of any
sinking fund obligations.
6. Notice of Redemption. Notice of redemption will be mailed to
the Holder's registered address at least 30 days but not more than 60 days
before the redemption date to each Holder of Securities to be redeemed. If less
than all Securities are to be redeemed, the Trustee
4
<PAGE> 5
shall select pro rata, by lot or in accordance with the rules of any securities
exchange the Securities to be redeemed in multiples of $1,000. Securities in
denominations larger than $1,000 may be redeemed in part. On and after the
redemption date, interest ceases to accrue on Securities or portions of them
called for redemption (unless the Company shall default in the payment of the
redemption price or accrued interest).
7. Change of Control Offer. In the event of a Change of Control
of the Company, and subject to certain conditions and limitations provided in
the Indenture, the Company will be obligated to make an offer to purchase, not
more than 10 Business Days or less than 30 Business Days following the
occurrence of a Change of Control of the Company, all of the then outstanding
Securities at a purchase price equal to 101% of the principal amount thereof,
together with accrued and unpaid interest to the Change of Control Purchase
Date, all as provided in the Indenture.
8. Net Proceeds Offer. In the event of Asset Sales, under certain
circumstances, the Company will be obligated to make a Net Proceeds Offer to
purchase all or a specified portion of each Holder's Securities at a purchase
price equal to 100% of the principal amount of the Securities, together with
accrued and unpaid interest to the Net Proceeds Payment Date.
9. Restrictive Covenants. The Indenture imposes certain
limitations on, among other things, the ability of the Company to merge or
consolidate with any other Person or sell, lease or otherwise transfer all or
substantially all of its properties or assets, the ability of the Company or
the Restricted Subsidiaries to dispose of certain assets, to pay dividends and
make certain other distributions and payments, to make certain investments or
redeem, retire, repurchase or acquire for value shares of Capital Stock, to
incur additional Indebtedness or incur encumbrances against certain property
and to enter into certain transactions with Affiliates, all subject to certain
limitations described in the Indenture.
10. Defaults and Remedies. As set forth in the Indenture, an Event
of Default is generally (i) failure to pay principal upon maturity, redemption
or otherwise (including pursuant to a Change of Control Offer or a Net Proceeds
Offer), (ii) default for 30 days in payment of interest on any of the
Securities, (iii) default in the performance of agreements relating to mergers,
consolidations and sales of all or substantially all assets or the failure to
make or consummate a Change of Control Offer or a Net Proceeds Offer, (iv)
failure for 30 days after notice to comply with any other covenants in the
Indenture or the Securities; (v) certain payment defaults under, the
acceleration prior to the maturity of, and the exercise of certain enforcement
rights with respect to, certain Indebtedness of the Company or any Guarantor in
an aggregate principal amount in excess of $5,000,000; (vi) the failure of any
Guarantee to be in full force and effect or otherwise to be enforceable (except
as permitted by the Indenture); (vii) certain events giving rise to material
ERISA liability; (viii) certain final judgments against the Company, any
Guarantor or other Restricted Subsidiary in an aggregate amount of $5,000,000
or more which remain unsatisfied and either become subject to commencement or
enforcement proceedings or remain unstayed for a period of 60 days; and (ix)
certain events of bankruptcy, insolvency or reorganization of the Company or
any Subsidiary (other than an Unrestricted Subsidiary). If any Event of Default
occurs and is continuing, the Trustee or the holders of at least 25% in
aggregate principal amount of the Outstanding Securities may declare the
principal amount of all the Securities to be due and payable immediately,
except that (i) in the case of an
5
<PAGE> 6
Event of Default arising from certain events of bankruptcy, insolvency or
reorganization of the Company or any Restricted Subsidiary, the principal
amount of the Securities will become due and payable immediately without
further action or notice, and (ii) in the case of an Event of Default which
relates to certain payment defaults, acceleration or the exercise of certain
enforcement rights with respect to certain Indebtedness, any acceleration of
the Securities will be automatically rescinded if any such Indebtedness is
repaid or if the default relating to such Indebtedness is cured or waived and
if the holders thereof have accelerated such Indebtedness then such holders
have rescinded their declaration of acceleration or if in certain circumstances
the proceedings or enforcement action with respect to the Indebtedness that is
the subject of such Event of Default is terminated or rescinded. No Holder may
pursue any remedy under the Indenture unless the Trustee shall have failed to
act after notice of an Event of Default and written request by Holders of at
least 25% in principal amount of the Outstanding Securities, and the offer to
the Trustee of indemnity reasonably satisfactory to it; however, such provision
does not affect the right to sue for enforcement of any overdue payment on a
Security by the Holder thereof. Subject to certain limitations, Holders of a
majority in principal amount of the Outstanding Securities may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders notice of any continuing default (except default in payment of
principal, premium or interest) if it determines in good faith that,
withholding the notice is in the interest of the Holders. The Company is
required to file annual reports with the Trustee as to the absence or existence
of defaults.
11. Defeasance. The Indenture contains provisions for defeasance
at any time of (i) the entire indebtedness of the Company on this Security and
(ii) certain restrictive covenants and the related Defaults and Events of
Default, upon compliance by the Company with certain conditions set forth
therein, which provisions apply to this Security.
12. Amendment, Modification and Waiver. The Indenture permits,
with certain exceptions as therein provided, the amendment thereof and the
modification of the rights and obligations of the Company and the Guarantor and
the rights of the Holders under the Indenture at any time by the Company, the
Guarantor and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of the Securities at the time Outstanding. The
Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Securities at the time
Outstanding, on behalf of the Holders of all the Securities, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by or on behalf of the Holder of this Security shall be conclusive and
binding upon such Holder and upon all future Holders of this Security and of
any Security issued upon the registration of transfer hereof or in exchange
herefor or in lieu hereof whether or not notation of such consent or waiver is
made upon this Security. Without the consent of any Holder, the Company, the
Guarantor and the Trustee may amend or supplement the Indenture or the
Securities to cure any ambiguity, defect or inconsistency and to make certain
other specified changes and other changes that do not materially adversely
affect the rights of any Holder.
13. Obligation Absolute and Unconditional. No reference herein to
the Indenture and no provision of this Security or of the Indenture shall alter
or impair the obligation of the Company, which is absolute and unconditional,
to pay the principal of (and premium, if any,
6
<PAGE> 7
on) and interest on this Security at the times, place, and rate, and in the
coin or currency, herein prescribed.
14. Registration and Transfer. As provided in the Indenture and
subject to certain limitations therein set forth, the transfer of this Security
is registerable on the Security register of the Company, upon surrender of this
Security for registration of transfer at the office or agency of the Company
maintained for such purpose in the City of New York, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Registrar duly executed by, the Holder hereof or his attorney
duly authorized in writing, and thereupon one or more new Securities, of
authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.
15. Form. The Securities shall be issued either in global form or
in definitive registered form, without coupons in denominations of $1,000 and
any integral multiple thereof. As provided in the Indenture and subject to
certain limitations therein set forth, the Securities are exchangeable for a
like aggregate principal amount of Securities of a different authorized
denomination, as requested by the Holder surrendering the same.
16. Taxes. No service charge shall be made for any registration of
transfer or exchange of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
17. No Recourse Against Others. A director, officer, incorporator,
or stockholder of the Company or any Guarantor, as such, shall not have any
personal liability under this Security or the Indenture by reason of his or its
status as such director, officer, incorporator or stockholder. Each Holder, by
accepting this Security with the notation of Guarantee endorsed hereon, waives
and releases all such liability. Such waiver and release are part of the
consideration for the issuance of this Security with the notation of Guarantee
endorsed hereon.
18. Registered Owners. Prior to the time of due presentment of
this Security for registration of transfer, the Company, the Guarantor, the
Trustee and any agent of the Company or the Trustee may treat the Person in
whose name this Security is registered as the owner hereof for all purposes,
whether or not this Security is overdue, and neither the Company, the
Guarantors, the Trustee nor any agent shall be affected by notice to the
contrary.
19. Definitions. All terms used in this Security which are defined
in the Indenture shall have the meanings assigned to them in the Indenture. The
Company will furnish to any Holder upon written request and without charge a
copy of the Indenture. Requests may be made to the Company at 4925 Greenville
Avenue, Suite 1400, Dallas, Texas 75206.
20. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Securities as a convenience to the Holders
thereof. No representation is made as to the accuracy of such numbers as
printed on the Securities and reliance may be placed only on the other
identifying information printed hereon.
7
<PAGE> 8
21. Governing Law. This Security shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to applicable principles of conflicts of laws to the extent that the
application of the law of another jurisdiction would be required thereby.
22. Successor Corporation. When a successor corporation assumes
all the obligations of its predecessor under the Securities and the Indenture,
the predecessor corporation will be released from those obligations.
23. Trustee Dealings with Company and Guarantors. The Trustee
under the Indenture, in its individual or any other capacity, may become the
owner or pledgee of Securities and may otherwise deal with the Company, the
Guarantors or their respective Subsidiaries or Affiliates with the same rights
it would have if it were not Trustee.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to: National
Energy Group, Inc., 4925 Greenville Avenue, Suite 1400, Dallas, Texas 75206
Attention: Secretary.
8
<PAGE> 9
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to:
________________________________________________________________________________
(Insert assignee's social security or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint _____________________________________ as agent to
transfer this Security on the books of the Company. The agent may substitute
another to act for him.
________________________________________________________________________________
Your Signature:
______________________________________________________
(Sign exactly as your name appears on the other side
of this Security)
Date: __________________________________
Signature Guarantee: ____________________________________________
9
<PAGE> 10
FORM OF OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.11 or Section 4.17 of the Indenture, check the
appropriate box:
Section 4.11 [ ] Section 4.17 [ ]
If you want to have only part of this Security purchased by the
Company pursuant to Section 4.11 or Section 4.17 of the Indenture, state the
amount in integral multiples of $1,000:
$________________
Date: Signature:
--------------------- -------------------------------------
(Sign exactly as your name appears
on the other side of this Security)
Signature
Guarantee:______________________________________________________________________
10
<PAGE> 11
SCHEDULE OF EXCHANGES OF GLOBAL SECURITY FOR
DEFINITIVE SECURITY
The following exchanges of a part of this Global Security for
Definitive Securities have been made:
<TABLE>
<CAPTION>
AMOUNT OF DECREASE PRINCIPAL AMOUNT OF SIGNATURE OF
IN PRINCIPAL AMOUNT OF INCREASE THIS GLOBAL SECURITY AUTHORIZED OFFICER
AMOUNT IN PRINCIPAL FOLLOWING SUCH OF TRUSTEE OR
OF THIS GLOBAL AMOUNT OF THIS DECREASE (OR SECURITIES
DATE OF EXCHANGE SECURITY GLOBAL SECURITY INCREASE) CUSTODIAN
---------------- ------------------- ------------------- --------------------- -------------------
<S> <C> <C> <C> <C>
</TABLE>
11
<PAGE> 12
NOTATION RELATING TO SUBSIDIARY GUARANTEE
Subject to the limitations and provisions set forth in the Indenture, the
Guarantors (as defined in the Indenture referred to in the Security upon which
this notation is endorsed and each hereinafter referred to as a "Guarantor,"
which term includes any successor or additional Guarantor under the Indenture)
have, jointly and severally, unconditionally guaranteed (a) the due and
punctual payment of the principal of, premium, if any, and interest on the
Securities, and all other amounts payable under the Indenture and the
Securities by the Company whether at maturity, acceleration, redemption,
repurchase or otherwise, (b) the due and punctual payment of interest on the
overdue principal of, premium, if any, and interest on the Securities, to the
extent lawful, (c) the due and punctual performance of all other obligations of
the Company to the Holders or the Trustee, all in accordance with the terms set
forth in the Indenture, and (d) in case of any extension of time of payment or
renewal of any Securities or any of such other obligations, the same will be
promptly paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at Stated Maturity, by acceleration or otherwise.
Capitalized terms used herein shall have the meanings assigned to them in the
Indenture unless otherwise indicated.
The obligations of each Guarantor are limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities and
after giving effect to any collections from or payments made by or on behalf of
any other Guarantor in respect of the obligations of such other Guarantor under
its Guarantee or pursuant to its contribution obligations under the Indenture,
result in the obligations of such Guarantor under the Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. Each Guarantor that makes a payment or distribution under a
Guarantee shall be entitled to a contribution from each other Guarantor in a
pro rata amount based on the Adjusted Net Assets of each Guarantor.
No stockholder, officer, director or incorporator, as such, past,
present or future, of the Guarantors shall have any personal liability under
the Guarantee by reason of his or its status as such stockholder, officer,
director or incorporator.
Any Guarantor may be released from its Guarantee upon the terms and
subject to the conditions provided in the Indenture.
All terms used in this notation of Guarantee which are defined in the
Indenture referred to in this Security upon which this notation of Guarantee is
endorsed shall have the meanings assigned to them in such Indenture.The
Guarantee shall be binding upon each Guarantor and its successors and assigns
and shall inure to the benefit of the Trustee and the Holders and, in the event
of any transfer or assignment of rights by any Holder or the Trustee, the
rights and privileges herein conferred upon that party shall automatically
extend to and be vested in such transferee or assignee, all subject to the
terms and conditions hereof and in the Indenture.
A-1
<PAGE> 13
The Guarantee shall not be valid or obligatory for any purpose until
the certificate of authentication on the Security upon which this Guarantee is
noted shall have been executed by the Trustee under the Indenture by the manual
signature of one of its authorized signatories.
NATIONAL ENERGY GROUP OF OKLAHOMA, INC.
Attest:/s/ SUE BARNARD By: /s/ MILES D. BENDER
--------------------------- ------------------------------
Sue Barnard, Secretary Miles D. Bender, President
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is the notation of the Guarantee of the 10 3/4% Senior Notes due
2006 referred to in the within-mentioned Indenture.
Bank One, Columbus, N.A.
Trustee
Dated: November, 1, 1996
--------------------
By: /s/ [ILLEGIBLE]
-------------------------
Authorized Signatory
[SPECIMEN]
A-2
<PAGE> 1
ASSET PURCHASE AND SALE AGREEMENT
BY AND BETWEEN
NATIONAL ENERGY GROUP, INC.
PURCHASER
and
ARAXAS ENERGY CORPORATION, ARAXAS SPV-1, INC.
AND ARAXAS EXPLORATION, INC.
and
O'SULLIVAN OIL AND GAS COMPANY, INC.
SELLERS
DATED SEPTEMBER 30, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Acquired Assets... . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3 Permitted Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. PURCHASE PRICE: PURCHASE PRICE ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . 4
2.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Purchase Price Adjustments.. . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 The NEG Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Restricted Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.5 Stock Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.6 Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.7 Allocation of the Purchase Price For Tax Purposes . . . . . . . . . . . . 6
2.8 Post-Closing Accounting; Payment of Net Adjustment . . . . . . . . . . . . 6
2.9 Due Diligence; Title Defects; Cure . . . . . . . . . . . . . . . . . . . . 7
2.10 Escrow.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3. ASSUMPTION OF CERTAIN OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 8
4. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.1 Time and Place . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.2 Transactions at Closing . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
ii
<PAGE> 3
<TABLE>
<S> <C> <C>
5. REPRESENTATIONS AND WARRANTIES OF SELLERS . . . . . . . . . . . . . . . . . . . . 10
5.1 Organization; Authority . . . . . . . . . . . . . . . . . . . . . . . . 10
5.2 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.3 Non-Contravention.. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.4 Governmental Consents; Transferability of Licenses, Etc . . . . . . . . 11
5.5 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.6 Litigation, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.7 Conformity to Law.. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.8 Title to Acquired Assets . . . . . . . . . . . . . . . . . . . . . . . . 12
5.9 Transferred Leaseholds: Safety, Zoning and Environmental Matters . . . . 13
5.10 Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.11 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.12 Oil and/or Gas Contracts . . . . . . . . . . . . . . . . . . . . . . . . 14
5.13 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.14 Transferred Leaseholds . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.15 Trademarks, Patents, Etc . . . . . . . . . . . . . . . . . . . . . . . . 14
5.16 Brokerage Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.17 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.18 Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . 15
5.19 Completeness Of Information . . . . . . . . . . . . . . . . . . . . . . 15
6. REPRESENTATIONS AND WARRANTIES OF PURCHASER . . . . . . . . . . . . . . . . . . . 16
6.1 Organization and Standing of Purchaser . . . . . . . . . . . . . . . . . 16
6.2 Corporate Approval; Binding Effect . . . . . . . . . . . . . . . . . . . 16
6.3 Non-Contravention; Approvals . . . . . . . . . . . . . . . . . . . . . . 16
6.4 Litigation, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.5 Brokerage Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.6 Due Diligence Investigation . . . . . . . . . . . . . . . . . . . . . . 17
6.7 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.8 Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.9 Completeness of Information . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
iii
<PAGE> 4
<TABLE>
<S> <C> <C>
7. ADDITIONAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.1 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.2 Conduct of the Business . . . . . . . . . . . . . . . . . . . . . . . . 18
7,3 Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.4 Relationship of Sellers and Purchaser following Closing . . . . . . . . 20
7.5 Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . 21
7.6 Sales Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.7 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.8 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.9 Araxas Seismic Agreement . . . . . . . . . . . . . . . . . . . . . . . . 22
7.10 Araxas Reacquisition Agreement . . . . . . . . . . . . . . . . . . . . . 22
7.11 Future Assignees of the Araxas Assets . . . . . . . . . . . . . . . . . 22
8. INDEMNIFICATION FOR PRE-CLOSING AND POST-CLOSING OPERATIONS
AND RELATED MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.2 Indemnity by Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.3 Third Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
8.4 Purchaser Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.5 Method and Manner of Paying Losses . . . . . . . . . . . . . . . . . . . 25
8.6 Indemnity by Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . 26
9. CONDITIONS TO PURCHASER'S OBLIGATIONS TO CLOSE . . . . . . . . . . . . . . . . . 26
9.1 No Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.2 Fulfillment of Obligations . . . . . . . . . . . . . . . . . . . . . . . 26
9.3 Accuracy of Representations and Warranties . . . . . . . . . . . . . . . 26
9.4 Approvals, Notices and Opinions . . . . . . . . . . . . . . . . . . . . 26
9.5 No Material Changes . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.6 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.7 Assignment of Gas Contracts . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
iv
<PAGE> 5
<TABLE>
<S> <C> <C>
10. CONDITIONS TO SELLERS' OBLIGATIONS TO CLOSE . . . . . . . . . . . . . . . . . . . 27
10.1 No Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.2 Fulfillment of Obligations . . . . . . . . . . . . . . . . . . . . . . . 27
10.3 Accuracy of Representations and Warranties . . . . . . . . . . . . . . . 27
10.4 Approvals, Notices and Opinions . . . . . . . . . . . . . . . . . . . . 27
10.5 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11.1 Termination by Mutual Consent . . . . . . . . . . . . . . . . . . . . . 27
11.2 Termination by Purchaser . . . . . . . . . . . . . . . . . . . . . . . . 27
11.3 Termination by Sellers . . . . . . . . . . . . . . . . . . . . . . . . . 28
12. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
12.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
12.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . 29
12.3 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
12.4 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
12.5 Sections and Section Headings . . . . . . . . . . . . . . . . . . . . . 29
12.6 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
12.7 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
12.8 No Implied Rights or Remedies . . . . . . . . . . . . . . . . . . . . . 30
12.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
12.10 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
12.11 Jurisdiction, Arbitration . . . . . . . . . . . . . . . . . . . . . . . 30
12.12 Attorney Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
12.13 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
12.14 Hart-Scott-Rodino Provisions . . . . . . . . . . . . . . . . . . . . . . 31
12.15 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
v
<PAGE> 6
INDEX OF EXHIBITS AND SCHEDULES
EXHIBITS
Exhibits 2.10 Escrow Agreement
Exhibit 4.2(a) Form of Bill of Sale
Exhibit 4.2(b)(i)(a) Form of Opinion of Counsel of Araxas
Exhibit 4.2(b)(i)(b) Form of Opinion of Counsel of OSOG
Exhibit 4.2(c)(i) Form of Opinion of Counsel of Purchaser
Exhibit 4.2(c)(ii)(a) NEG Stock Certificate for Araxas
Exhibit 4.2(c)(ii)(b) NEG Stock Certificate for OSOG
Exhibit 4.2(c)(iii)(a) Form of Stock Registration Agreement for Araxas
Exhibit 4.2(c)(iii)(b) Form of Stock Registration Agreement for OSOG
SCHEDULES
Schedule 1.1(a) Personal Property
Schedule 1.1(b) Transferred Leaseholds
Schedule 1.1(c) Oil and/or Gas Contracts
Schedule 1.1(d)(i) Permits
Schedule 1.1(d)(ii) Intellectual Property
Schedule 1.1(e) Prepaid Assets
Schedule 1.2 Excluded Assets
Schedule 2.3(a) Araxas Partners
Schedule 2.3(b) OSOG Partners
Schedule 4.2(b)(iv) Secured Creditors Releases
Schedule 5.4 Governmental Consents
Schedule 5.5 Financial Statements
Schedule 5.6 Litigation, Etc.
Schedule 5.7 Conformity to Law
Schedule 5.9(a) Conformity to Environmental Laws
Schedule 5.9(b) Site Assessments
Schedule 5.10 Condition of Personal Property
Schedule 5.11 Insurance
Schedule 5.12 Breaches Under or Disputes Regarding Oil and/or
Gas Contracts
Schedule 5.13 Problems with Validity or Transferability of
Permits
Schedule 5.15 Intellectual Property Infringement; Claims
Schedule 5.17(a) Failure to File Correct Tax Returns or Pay Taxes
Schedule 5.17(b) Tax Liens; Failure to Withhold Taxes
vi
<PAGE> 7
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ------------ ----
<S> <C>
"Acquired Assets" . . . . . . . . . . . . . . . . . . . . . . . . . .
"Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
"Affiliate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
"Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
"Araxas" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
"Araxas Assets" . . . . . . . . . . . . . . . . . . . . . . . . . . .
"Araxas Asset Loss" . . . . . . . . . . . . . . . . . . . . . . . . .
"Araxas Partners" . . . . . . . . . . . . . . . . . . . . . . . . . .
"Assumed Liabilities" . . . . . . . . . . . . . . . . . . . . . . . .
"Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
"Closing" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
"Closing Date" . . . . . . . . . . . . . . . . . . . . . . . . . . .
"Confidential Information" . . . . . . . . . . . . . . . . . . . . .
"Control" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
"Effective Date" . . . . . . . . . . . . . . . . . . . . . . . . . .
"Encumbrances" . . . . . . . . . . . . . . . . . . . . . . . . . . .
"Environmental Laws" . . . . . . . . . . . . . . . . . . . . . . . .
"Escrow Agreement" . . . . . . . . . . . . . . . . . . . . . . . . .
"Excluded Assets" . . . . . . . . . . . . . . . . . . . . . . . . . .
"Excluded Liabilities" . . . . . . . . . . . . . . . . . . . . . . .
"Financial Statements" . . . . . . . . . . . . . . . . . . . . . . .
"Gas Contracts" . . . . . . . . . . . . . . . . . . . . . . . . . . .
"Intellectual Property" . . . . . . . . . . . . . . . . . . . . . . .
"Losses" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
"NEG" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
"NEG Shares" . . . . . . . . . . . . . . . . . . . . . . . . . . . .
"Oil Contracts" . . . . . . . . . . . . . . . . . . . . . . . . . . .
"OSOG" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
"OSOG Assets" . . . . . . . . . . . . . . . . . . . . . . . . . . . .
"OSOG Asset Loss" . . . . . . . . . . . . . . . . . . . . . . . . . .
"OSOG Partners" . . . . . . . . . . . . . . . . . . . . . . . . . . .
"OSOG Shares" . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
vii
<PAGE> 8
<TABLE>
<S> <C>
"Permits" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
"Permitted Encumbrances" . . . . . . . . . . . . . . . . . . . . . .
"Personal Property" . . . . . . . . . . . . . . . . . . . . . . . . .
"Post Closing Adjustment Date" . . . . . . . . . . . . . . . . . . .
"Prepaid Assets" . . . . . . . . . . . . . . . . . . . . . . . . . .
"Purchase Price" . . . . . . . . . . . . . . . . . . . . . . . . . .
"Purchaser" . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
"Purchaser Claims" . . . . . . . . . . . . . . . . . . . . . . . . .
"SEC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
"Sellers" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
"Survival Period" . . . . . . . . . . . . . . . . . . . . . . . . . .
"Third Party Claim" . . . . . . . . . . . . . . . . . . . . . . . . .
"Title Defects" . . . . . . . . . . . . . . . . . . . . . . . . . . .
"Transferred Leaseholds" . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
viii
<PAGE> 9
ASSET PURCHASE AND SALE AGREEMENT
THIS ASSET PURCHASE AND SALE AGREEMENT (the "Agreement") is dated as
of September 30, 1996, by and between NATIONAL ENERGY GROUP, INC., a Delaware
corporation (hereinafter referred to as "Purchaser" or "NEG"), and ARAXAS
ENERGY CORPORATION, an Oklahoma corporation, ARAXAS SPV-1, INC., an Oklahoma
corporation and ARAXAS EXPLORATION, INC., an Oklahoma corporation, (hereinafter
collectively referred to as "Araxas") and O'SULLIVAN OIL AND GAS COMPANY, INC.,
a Texas corporation (hereinafter referred to as "OSOG"). Araxas and OSOG are
sometimes hereinafter collectively referred to as "Sellers".
RECITALS
WHEREAS, Purchaser and Sellers are in the business of the exploration
and production of oil and gas; and
WHEREAS, certain of Araxas wholly-owned subsidiaries and certain of
its joint venture partners (hereinafter the "Araxas Partners") own the
undeveloped leasehold interests and option to acquire oil and gas lease
described in this Agreement (hereinafter the "Araxas Assets"); and
WHEREAS, OSOG and certain of its joint venture partners (hereinafter
the "OSOG Partners") own the leaseholds, personal property and other property
rights and contracts described in this Agreement (hereinafter the "OSOG
Assets").
NOW, THEREFORE, in consideration of the above recitals, which
constitute a part of this Agreement, the Mutual promises and agreements set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Purchaser and Sellers intending
to be legally bound, agree as follows:
1. PURCHASE AND SALE.
1.1 Acquired Assets. Subject to the terms and conditions set forth
in this Agreement, Sellers hereby agree to sell, assign, transfer,
convey and deliver to Purchaser free and clear of all "Encumbrances"
(as hereinafter defined), except the "Permitted Encumbrances" (as
hereinafter defined) and Purchaser hereby agrees to purchase, acquire
and receive an assignment, a conveyance and the delivery of the
following assets of Sellers arising from, used in, relating to, or
necessary for, the exploration, production and operation of those
producing properties and or production units located in the South Lake
Boeuf Field in La Fourche Parish, Louisiana as more fully described
herein, but not including any Excluded Assets (all of such assets
included in this Section 1.1 are hereinafter collectively referred to
as the "Acquired Assets"):
<PAGE> 10
(a) all of the machinery, tools, goods, equipment,
furniture, fixtures, seismic reports logs, geological maps,
geophysical data completion records and all other personal
property owned by Araxas and OSOG, related to, on or at the
Araxas Assets or the OSOG Assets, respectively, including
without limitation the personal property set forth in Schedule
1.1(a) (collectively, the "Personal Property");
(b) all rights of Sellers as to all depths and formations
owned by Sellers and conveyed hereunder, in, under or to the
real property leases including oil, gas and mineral leases,
options and permits, together with any identical or concurrent
rights and interests in and to all property and rights
incident thereto, including without limitation wells, lands,
formations, wellbore rights, royalties, production payments,
options, operating or other agreements, easements in
connection therewith, set forth in Schedule 1.1(b), together
with all rights of Sellers in improvements, appurtenances,
easements, licenses, unitization and pooling agreements (if
any) and other rights and interests thereon and therein (the
"Transferred Leaseholds").
(c) all rights of Sellers in, under or to (i) any oil
and/or gas purchase and sales contracts, gas transportation
contracts and other similar agreements listed on Schedule
1.1(c), and (ii) any other contract of Sellers designated by
Purchaser in writing prior to the closing (singularly, an "Oil
and/or Gas Contract," and collectively, tile "Oil and/or Gas
Contracts");
(d) all rights of Sellers in, under or to any written
permits, licenses, or other similar authorizations or
understandings listed on Schedule 1.1(d)(i) (collectively, the
"Permits") and any and all patents, copyrights, trademarks,
inventions, service marks (whether registered or unregistered)
owned or licensed by Sellers listed on Schedule 1.1(d)(ii)
together with all rights associated therewith (collectively,
the "Intellectual Property").
(e) all rights of Sellers with respect to storage gas,
oil and other products derived therefrom, listed on Schedule
1.1(e) (the "Prepaid Assets");
(f) copies of all originals of Sellers' accounting books,
records and ledgers relating to the Acquired Assets; all
documents and records relating to the activities conducted by
Sellers with respect to the Acquired Assets; and all originals
of the Permits, Transferred Leaseholds, Oil and/or Gas
Contracts, and any agreements or licenses relating to the
Intellectual Property, it being understood and agreed that
Sellers shall, at its sole cost and expense, have reasonable
access to the above described records during normal working
hours for a period of three (3) years after the Closing or
such longer period as is reasonably necessary for pursuance of
any litigation in existence at the Closing or is necessary due
to extensions of tax audits by taxing authorities, but in no
event for a period longer than four (4) years after the
Closing;
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<PAGE> 11
1.2 Excluded Assets. Notwithstanding the provisions of Section
1.1, Purchaser is not purchasing and Sellers are not selling pursuant
to this Agreement, and the term "Acquired Assets" shall not include,
any of the assets listed on Schedule 1.2 hereof (collectively, the
"Excluded Assets").
1.3 Permitted Encumbrances. The Permitted Encumbrances include:
(a) the terms, conditions, restrictions, exceptions,
reservations, limitations and other matters contained in the
agreements, instruments and documents which create or reserve
to Sellers its interests in any of the Acquired Assets, to the
extent they do not prevent Purchaser from receiving the
proceeds of production from the wells or units attributable to
the net revenue interest as reflected in Schedules or do not
increase the working interest in the wells or units as
reflected in Schedules (unless the net revenue interest
therein is proportionately increased); provided that any such
agreements, instruments and documents have been given to
Purchaser pursuant to Section 1 hereof;
(b) any liens for taxes and assessments not yet
delinquent as of the Closing Date;
(c) any liens or security interests created by law or
reserved in oil and gas leases for royalty, bonus or rental,
or created to secure compliance with the terms of the Acquired
Assets;
(d) any obligations or duties affecting the Acquired
Assets to any municipality or public authority with respect to
any franchise, grant, license or permit, and all applicable
laws, rules and orders of governmental authority; provided
that such items do not materially interfere with the ownership
or operation of the Acquired Assets;
(e) (i) easements, rights-of-way, servitudes, permits,
surface leases and other fights in respect of surface
operations, pipelines, grazing, hunting, fishing, lodging,
canals, ditches, reservoirs or the like, and (ii) easements
for streets, alleys, highways, pipelines, telephone lines,
power lines, railways and other similar rights-of-way;
provided that such items do not materially interfere with the
ownership or operation of the Acquired Assets;
(f) all lessors' royalties, overriding royalties, net
profits interests, carried interests, production payments,
reversionary interests and other burdens on or deductions from
the proceeds of production if the net cumulative effect of
such burdens or deductions does not reduce the net revenue
interest of Sellers in the Acquired Assets below the net
revenue interest for the wells or units as implicit in the
Schedules attached hereto;
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<PAGE> 12
(g) all rights to consent by, required notices to,
filings with, or other actions by governmental entities in
connection with the sale or conveyance of oil and gas leases
or interests therein to the extent same are customarily
obtained after such sale or conveyance and relate to the
transactions contemplated by this Agreement.
(h) 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; area of mutual interest
agreements; gas balancing or deferred production agreements;
processing agreements; plant agreements; pipeline, gathering
and transportation agreements; salt water or other disposal
agreements; seismic or geophysical permits or agreements; and
any and all other agreements which are ordinary and customary
in the oil, gas and other mineral exploration, development or
extraction business, to the extent such declarations, order
and agreements described in the Schedules of OSOG attached
hereto (i) do not reduce the net revenue interest in any well
or unit as reflected in such Schedules of OSOG and do not
increase the working interest in any well as reflected in such
Schedules (unless the net revenue interest is proportionately
increased), (ii) do not materially interfere with or have a
material adverse effect on, the exploration, development or
operation of the Acquired Assets or (iii) do not impair
Purchaser's right to receive the proceeds of production
attributable to the Acquired Assets;
(i) any other encumbrance, title defect or other matter
(whether or not constituting a Title Defect) waived in writing
by Purchaser; and
(j) the overriding royalties in favor of (i) John
Nicknish, and (ii) STRATUM GROUP, L.L.P. and Araxas Employee
Royalty Pool which burdens the Acquired Assets conveyed or to
be conveyed by OSOG and Araxas respectively, which overriding
royalties has been reflected in and does not further reduce
the net revenue interest attributable to such assets as shown
in the Schedules attached hereto.
2. PURCHASE PRICE; PURCHASE PRICE ADJUSTMENT.
2.1 Purchase Price. The purchase price (hereinafter referred to as
the "Purchase Price") for the Acquired Assets shall be an amount equal
to Seven Million Two Hundred Fifteen Thousand Dollars ($7,215,000),
adjusted as further provided herein, payable in cash at the Closing in
the amount of One Million Five Hundred Thousand Dollars ($1,500,000)
in the respective amount as set forth on Schedule 2.3 hereof and the
balance payable at the Closing or otherwise escrowed as described
herein in the form of Common Stock of NEG, the number of shares to be
derived by averaging the closing price per share of the NEG stock for
the ten (10) trading days prior to the Closing; provided that such
average price shall not exceed the amount of Three Dollars and
Twenty-Five Cents ($3.25) per share (hereinafter the "NEG Shares").
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<PAGE> 13
(a) Araxas and the Araxas Partners shall be entitled to
receive an aggregate amount equal to Four Million One Hundred
Twenty-Five Thousand Dollars ($4,125,000) of the Purchase
Price, less adjustments to the Purchase Price as provided
herein, attributable to Title Defects in the Araxas Assets
conveyed and delivered by Araxas, payable in the form of cash
in the amount of One Million Five Hundred Thousand Dollars
($1,500,000) and the balance in the form of NEG Shares as
provided herein;
(b) OSOG and the OSOG Partners shall be entitled to
receive an aggregate amount equal to Three Million Ninety
Thousand ($3,090,000) of the Purchase Price, less adjustments
to the Purchase Price attributable to the Title Defects in the
OSOG Assets conveyed and delivered by OSOG, solely in the form
of NEG Shares as provided herein.
2.2 Purchase Price Adjustments. If notice of a "Title Defect" (as
hereinafter defined) is given to Sellers as provided herein which
shall not have been cured as of the "Post-Closing Adjustment Date" (as
hereinafter defined) and Purchaser is unwilling to accept an indemnity
as provided in Section 8.2 hereof, Purchaser and the Seller whose
Acquired Assets are affected by the claimed Title Defect shall use
their best efforts to agree on an adjustment to the Purchase Price to
reflect the Title Defect. Purchase Price adjustments as described
herein shall be made solely with respect to the NEG Shares issued to
Sellers. In the event the parties cannot agree on an adjustment to the
Purchase Price, the provisions of Section 12.11 hereof shall apply;
provided that in the event the Purchase Price adjustments as provided
herein in the aggregate exceed twenty percent (20%) of the total
Purchase Price, then in such event, either Purchaser or Seller (or
either of them) may terminate this Agreement as provided in Section 11
hereof.
2.3 The NEG Shares. At the Closing, Purchaser shall tender to each
of Araxas and OSOG one or more certificates of unregistered NEG Common
Stock as set forth on Exhibit 4.2(c)(ii)(a) and Exhibit 4.2(c)(ii)(b).
No certificate to be issued in connection herewith shall be in a name
other than Araxas and the Araxas Partners set forth on Schedule 2.3(a)
or OSOG and the OSOG Partners set forth on Schedule 2.3(b); provided,
that each such Araxas Partner and OSOG Partner who shall receive such
certificates shall have executed and delivered at the Closing an
"Investment Letter" pursuant to Regulation D of the Securities Act of
1933, as amended (the "Act") and neither certificate nor scrip for
fractional shares relating thereto shall be issued at the Closing or
thereafter.
2.4 The Restricted Securities. Each of Araxas and OSOG acknowledge
with respect to the NEG Shares each such party will acquire hereunder
that (i) the NEG Shares which it will acquire hereunder are not
registered under the Act and are being so acquired for investment and
not with a view to the distribution thereof, (ii) it is an "accredited
investor" within the meaning of Regulation D of the General Rules and
Regulations under the Act and has knowledge and experience in
financial and business matters to enable it to evaluate the merits and
risks of consummating the Agreement and acquiring shares of
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<PAGE> 14
NEG Common Stock, and that it is able to bear the economic risks of
this investment, including the risk of complete loss; and (iii) it
agrees to not dispose of any such shares of NEG Common Stock acquired
in connection herewith in violation of the Act and all applicable
Governmental Rules thereunder.
2.5 Stock Legend. The certificates representing the NEG Shares of
NEG Common Stock issued pursuant to this Agreement shall bear the
following legend:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR UNDER STATE SECURITIES LAWS. SUCH SHARES OF COMMON STOCK
MAY NOT BE SOLD, ASSIGNED, PLEDGED OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF AN EFFECTIVE, REGISTRATION STATEMENT UNDER
SAID SECURITIES ACT COVERING THE TRANSFER OR AN OPINION OF
COUNSEL SATISFACTORY TO THE ISSUER THAT REGISTRATION UNDER
SAID SECURITIES ACT IS NOT REQUIRED.
2.6 Registration Rights. NEG agrees that if at any time or from
time to time it shall determine to register any of its securities, for
its own account or the account of any of its shareholders, other than
registration relating solely to employee stock options or purchase
plans, a registration relating solely to an SEC Rule 145 transaction,
or a registration on any registration form that does not permit
secondary sales, each of Araxas the Araxas Partners, OSOG and the OSOG
Partners shall have the right to "piggyback" or "demand" a
registration of the NEG Shares in accordance with the terms and
conditions of the Stock Registration Agreements attached hereto and
incorporated herein as Exhibit 4.2(c)(iii)(a) and Exhibit
4.2(c)(iii)(b); provided, however, that each of Araxas and OSOG agree
as a condition precedent to the registration rights described herein,
the Araxas Partners and the OSOG Partners shall have no rights with
respect to the registration rights described herein, other than as
participant nominees in a registration for the benefit of Araxas
and/or OSOG respectively, in which case the Araxas Partners and/or the
OSOG Partners shall have the same rights under the Stock Registration
Agreement as Araxas and/or OSOG, respectively.
2.7 Allocation of the Purchase Price For Tax Purposes. Purchaser
and Sellers agree to confer as to the allocation of the Purchase
Price for tax purposes. However, in the event that Purchaser and
Sellers do not reach an agreement as to any such allocation as set
forth on Schedule 2.7 hereto, then Purchaser and Sellers agree that
the provisions of Section 12.11 hereof shall apply.
2.8 Post-Closing Accounting; Payment of Net Adjustment.
(a) As promptly as practicable after the Closing Date,
Purchaser and Sellers will jointly cause an accounting to be
made for all oil and/or gas imbalances, prepaid oil and/or
gas, prepaid transportation costs, other Prepaid Assets and
any other costs paid by Sellers prior to the Effective Date
(as hereinafter defined) but benefiting Purchaser after the
Effective Date or owing by Sellers to Purchaser as relating to
expenses or obligations incurred by Purchaser for Sellers'
benefit prior to the Effective Date. The net adjustment shall
be paid in cash by Purchaser to
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<PAGE> 15
such Seller who incurred such cost or obligation as a
Post-Closing adjustment to the Purchase Price on the
Post-Closing Adjustment Date.
(b) To the extent oil and/or gas imbalances are settled
after the Effective Date by an in-kind exchange of oil and/or
gas, the value of the oil and/or gas exchanged will be the
average cost of the oil or gas during the month incurred, plus
penalties, interest and other charges up to and including the
month of settlement applicable to transactions between
Purchaser and the party with whom settlement is made.
2.9 Due Diligence; Title Defects
2.9.1 Due Diligence. Purchaser may conduct, to the extent it deems
appropriate, and at its sole cost and expense, such due diligence
investigation and title examination of the Acquired Assets. In the
event matters should come to Purchaser's attention which would
constitute a "Title Defect" (as hereinafter defined), Purchaser shall
notify Sellers in writing of such Title Defect or Title Defects within
five (5) working days following the Closing. In the event Purchaser
notifies Sellers of a Title Defect as provided herein, the Seller
whose Acquired Assets are affected by the claimed Title Defect shall
have the right to cure the Title Defect as provided herein.
2.9.2 Title Defects. For purposes of this Agreement, a "Title
Defect" or "Title Defects" shall mean a material deficiency in one or
more of the following respects:
(a) Sellers' ownership of the Acquired Assets is less
than described on Schedules 1.1(a)(b)(c)(d) and or (e); or
(b) Sellers' ownership or title to any of the Acquired
Assets are subject to reduction by virtue of the exercise by a
third party of reversionary, back-in, preferential or other
similar right not described in Schedules 1.1(a)(b)(c)(d)(e) or
Schedule 1.2; or
(c) Sellers are in default of any material provision
under any agreement, governmental order, federal, state and/or
local law, rules, orders or regulations which material default
would give rise to Third Party Claim (as hereinafter defined)
against the Acquired Assets.
2.9.3 Cure. In the event Sellers are given timely notice of a Title
Defect, the Seller (or Sellers) whose Acquired Assets are affected by
the claimed Title Defect shall have a period of twenty-eight (28) days
following such notice in which to cure the claimed Title Defect, and
unless cured or otherwise waived by Purchaser, such claimed Title
Defect shall result in a Purchase Price adjustment as provided in
Section 2.2 hereof.
2.10 Escrow. Sellers agree that an amount equal to twenty percent
(20%) of the NEG Shares to be delivered hereunder shall be placed in
escrow in the form of Exhibit 2.10, attached hereto, (hereinafter the
"Escrow Agreement") in the event there are any Purchase Price
adjustments as described in Section 2.2, which have not otherwise
been cured as provided in Section 2.9.3.
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<PAGE> 16
3. ASSUMPTION OF CERTAIN OBLIGATIONS.
At and after the Closing, the only obligations of Sellers that
Purchaser shall assume are those obligations that have accrued with
respect to the Acquired Assets and for which each and every condition
or event giving rise to such obligation has occurred after the
Effective Date except as otherwise provided in this Agreement, (the
"Assumed Liabilities")* Notwithstanding anything in this Agreement to
the contrary, Purchaser shall not assume, and shall not be deemed to
have assumed for any purpose, any liability, debt or obligation of any
nature, fixed or contingent, known or unknown, of Sellers, except for
the Assumed Liabilities (with all such unassumed liabilities and
obligations referred to herein as the "Excluded Liabilities"). Without
limiting the generality of the foregoing, the Excluded Liabilities
shall include all litigation and claims disclosed on Schedule 5.7 and
all other litigation against either Araxas or OSOG or any of their
Affiliates (whether for personal injury, property damage or otherwise)
arising out of the operation of the Acquired Assets prior to the
Effective Date or the use of the Acquired Assets in the operation
thereof or any business carried on by either Araxas or OSOG or any of
their Affiliates prior to the Effective Date. As used in this
Agreement, "Affiliate" shall mean, with respect to any company, (i)
each entity or person that, directly or indirectly, owns or controls,
whether beneficially, or as a trustee, guardian or other fiduciary,
20% or more of the stock having ordinary voting power in the election
of directors of such company, (ii) each entity that controls, is
controlled by or is under common control with such company or any
Affiliate of such company, and (iii) each of such company's officers,
directors, joint venturers and partners. For the purpose of this
definition, "control" of an entity shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of its
management or policies, whether through the ownership of voting
securities, by contract or otherwise.
4. CLOSING.
4.1 Time and Place. The closing of the transfer of the Acquired
Assets and delivery of all documents and instruments necessary to
consummate the transactions contemplated by this Agreement (the
"Closing") shall be held on September 30, 1996 or the earliest
possible date thereafter as the parties shall agree, at the offices of
OSOG, located at 910 Travis, Suite 2150, Houston, Texas, 77002. The
date on which the Closing is held is hereinafter referred to as the
"Closing Date." The Closing will be deemed to be effective for
purposes of this Agreement as of 7:00 A.M. in Houston, Texas on June
1, 1996 or as otherwise agreed in writing by the Purchaser and Sellers
(the "Effective Date").
4.2 Transactions at Closing. At the Closing:
(a) Sellers shall have executed and delivered to
Purchaser or its nominee(s) such deeds, bills of sale,
certificates of title, lease assignments, intellectual
property assignments, and other instruments of assignment or
transfer with respect to the Acquired Assets as is reasonably
necessary to vest in Purchaser or its nominee(s) title to all
of the Acquired Assets, subject to the provisions of Section
2.9 hereof in each case subject to no Encumbrances, except the
Permitted Encumbrances, and including a Bill of Sale in the
form of Exhibit 4.2(a).
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<PAGE> 17
2.9 hereof in each case subject to no Encumbrances, except the
Permitted Encumbrances, and including a Bill of Sale in the
form of Exhibit 4.2(a).
(b) Each of Araxas and OSOG shall have delivered to
Purchaser the following:
(i) An Opinion of Counsel in form and substance
substantially as set forth in Exhibit 4.2(b)(i)(a)
and Exhibit 4.2(b)(i)(b);
(ii) An incumbency certificate dated the Closing
Date, together with copies, certified by its
Corporate Secretary or its Assistant Corporate
Secretary, of resolutions of its Board of Directors
authorizing the execution, delivery and performance
by it of this Agreement and the documents,
instruments, certificates and other agreements being
executed and delivered by it pursuant to the terms
hereof;
(iii) Good standing certificates, dated not more
than ninety (90) days with respect to Araxas and
thirty (30) days with respect to OSOG prior to the
Closing Date, issued by the Secretary of State of its
state of incorporation and each other jurisdiction in
which it is authorized or licensed to conduct
business, stating that it is validly existing and in
good standing under the laws of such jurisdiction;
(iv) Releases and Uniform Commercial Code
termination statements, executed by each secured
creditor identified on Schedule 4.2(b)(iv) hereto and
Sellers, and any other appropriate secured parties in
a form appropriate for recording and filing, that are
sufficient to release any and all Encumbrances except
the Permitted Encumbrances against or relating to the
Acquired Assets;
(v) A certificate of an officer that the
representations and warranties described in Section 5
and conditions to Closing described in Section 9
hereof have been fulfilled;
(vi) All other documents, instruments and
writings, satisfactory in form and substance to
Purchaser and its counsel, as may be required, in
Purchaser's reasonable opinion, to effect or evidence
the assignment, conveyance, transfer and delivery to
Purchaser of the Acquired Assets or to enable
Purchaser to operate the Acquired Assets from and
after the Closing Date (including any such form
required by the State of Louisiana.
(vii) The Investment Letters of the Araxas Partners
and the OSOG Partners described in Section 2.3.
(viii) The Escrow Agreement set forth in Exhibit
2.10, executed as provided therein.
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<PAGE> 18
(ix) Any and all geological and geophysical data
pertaining to the Acquired Assets, including by not
limited to maps, logs, records and other data
described on Schedule 1.1(a) hereof.
(x) An executed copy of Form MD-10-R-A as
required by the State of Louisiana Office of
Conservation to operate the Acquired Assets.
(c) Purchaser shall have delivered to Sellers the
following:
(i) The opinion of counsel for Purchaser in form
and substance substantially as set forth in Exhibit
4.2(c)(i);
(ii) The NEG Common Stock Certificates in the
amount of the Purchase Price (as adjusted) in form
and substance substantially as set forth in Exhibit
4.2(c)(ii);
(iii) An executed copy of the Stock Registration
Agreements in form and substance as set forth in
Exhibit 4.2(c)(iii)(a) and Exhibit 4.2(c)(iii)(b);
(iv) A certificate of an officer of Purchaser that
the representations and warranties described in
Section 6 and the conditions to Closing described in
Section 10 hereof have been fulfilled.
(v) The Escrow Agreement set forth in Exhibit
2.10, executed as provided therein.
4.3 The Post-Closing Adjustment. As provided in Section 2.9.3,
Sellers shall have a period of twenty-eight (28) days following
Purchaser's timely notice of a Title Defect in which to affect a cure
of any such deficiency. Accordingly, Purchaser and Sellers agree that
all such Title Defects for which timely notice is given shall have
been cured on or before 12:01 A.M. in Dallas, Texas on November 5,
1996 (the "Post-Closing Adjustment Date").
5. REPRESENTATIONS AND WARRANTIES OF SELLERS.
Each of Araxas and OSOG, for itself and not for the other, represents
and warrants to Purchaser as follows:
5.1 Organization; Authority. It is a corporation duly organized,
validly existing and in good standing under the laws of the State of
its incorporation with corporate power and authority to enter into
this Agreement and to perform its obligations hereunder. It has
sufficient corporate power and authority to own or lease its interest
in the Acquired Assets and to carry on its operations of the Acquired
Assets as now conducted.
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<PAGE> 19
5.2 Binding Effect. This Agreement has at the Closing been duly
authorized by all necessary corporate action of its Board of
Directors, this Agreement has been duly executed and delivered by it
and constitutes the legal, valid and binding obligation of it,
enforceable against it.
5.3 Non-Contravention.
(a) Neither the execution and delivery of this Agreement
by it, nor the consummation by it of the transactions
contemplated hereby will constitute a violation of, or be in
conflict with or constitute or create a default under, or
result in the creation or imposition of any Encumbrance upon
any of the Acquired Assets that it is conveying pursuant to
(i) any agreement or commitment to which it is a party, or by
which, any Acquired Asset that it is conveying is bound or
subject to, or (ii) its Articles or Certificate of
Incorporation, By-laws, or other organizational document.
(b) Neither the execution and delivery of this Agreement
by it, nor the consummation by it of the transactions
contemplated hereby will constitute a violation of, or be in
conflict with, or constitute or create a default under, or
result in the creation or imposition of any Encumbrance upon
any of the Acquired Assets pursuant to any statute,
regulation, rule, judgment, order, decree or injunction of any
government, governmental agency or court or other tribunal to
which it or any of the Acquired Assets are subject that it is
conveying.
5.4 Governmental Consents; Transferability of Licenses, Etc.
Except as set forth on Schedule 5.4, to the best of its knowledge, no
consent, approval or authorization of, or registration, qualification
or filing with, any governmental agency or authority is required for
the execution and delivery of this Agreement by it, or for the
consummation by it of the transactions contemplated hereby. It has and
maintains all material licenses, permits and other authorizations from
all governmental authorities required to be maintained by it in
connection with the conduct of its operation or in connection with its
ownership of the Acquired Assets.
5.5 Financial Statements. Set forth on Schedule 5.5 are OSOG's
documents, records and ledgers relating to the operation of the
Acquired Assets (collectively, the "Financial Statements"). To the
best of its knowledge, the Financial Statements, present fairly the
results of operations and cash flows relating to the Acquired Assets.
5.6 Litigation, Etc. Except as set forth on Schedule 5.6, to the
best of its knowledge, no action, suit, proceeding or investigation is
pending or, to the knowledge of it, threatened, against it or any of
its directors or officers relating to or affecting the Acquired Assets
that it is conveying, or which questions the validity of this
Agreement or challenges any of the transactions contemplated hereby.
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<PAGE> 20
5.7 Conformity to Law. Except as set forth on Schedule 5.7 and
except to the extent any such noncompliance would not have a material
adverse effect on the Acquired Assets that it is conveying, it has no
knowledge of a failure to comply with (a) all laws, statutes and
governmental regulations and all judicial or administrative or
tribunal orders, judgments, writs, injunctions, decrees or similar
commands applicable to any of the Acquired Assets (including, without
limitation, any labor, environmental, occupational health, zoning or
other law, regulation or ordinance) and (b) all unwaived terms and
provisions of all contracts, agreements and indentures to which it is
a party, or to which it or any of the Acquired Assets that it is
conveying is subject. Except as set forth in Schedule 5.7, to the best
of its knowledge, it has not committed, been charged with, or been
under investigation with respect to, nor is it aware of any violation
of any national, state or local law or administrative regulation that
would have a material adverse effect on the Acquired Assets.
5.8 Title to Acquired Assets.
(a) At the Closing, each of Araxas and OSOG shall have
the full right to sell, convey, transfer, assign and deliver
substantially all of each such Seller's right, title and
interest in and to all of the Acquired Assets as to all depths
and formations owned by Sellers and conveyed hereunder.
(b) At or prior to the Post-Closing Adjustment Date, each
of Araxas and OSOG shall have the full right to sell, convey,
transfer, assign and deliver each such Seller's right title
and interest in and to all of the Acquired Assets as to all
depths and formations which shall have been subject to cure
for any Title Defects and which was not delivered at the
Closing.
(c) Substantially all of the Acquired Assets will be at
the Closing Date free and clear of any security interests,
liens, claims, charges, options, mortgages, debts, leases (or
subleases), conditional sales agreements, title retention
agreements, encumbrances of any kind, except the Permitted
Encumbrances (singularly "Encumbrance" or collectively
"Encumbrances").
(d) At the conclusion of the Post-Closing Adjustment
Date, it shall have conveyed to Purchaser all of its rights to
all of the Acquired Assets free and clear of any Encumbrances,
except for the Assumed Liabilities and the Permitted
Encumbrances.
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5.9 Transferred Leaseholds; Safety, Zoning and Environmental
Matters.
a) Except as set forth on Schedule 5.9(a), OSOG has no
knowledge of a violation, nor has it received notice of any
alleged violation, of any judgment, decree, order, law,
license, rule or regulation pertaining to environmental
matters, including without limitation, those arising under the
Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation and Liability Act of
1980, as amended, the Superfund Amendments and Reauthorization
Act of 1986, the Federal Water Pollution Control Act, the
Solid Waste Disposal Act, as amended, the Federal Clean Water
Act, the Federal Clean Air Act, the Toxic Substances Control
Act, or any analogous state or local statute, regulation,
ordinance, order or decree relating to the environment, in
each case as in effect as of the date of this Agreement (such
laws, as in effect from time to time, are referred to herein
as "Environmental Laws") with respect to the Transferred
Leaseholds;
(b) Except as set forth on Schedule 5.9(b), it has now
knowledge of any site assessments by third parties or formal
reports to regulatory authorities in its possession or of
which it has knowledge regarding potential environmental
liabilities associated with the Transferred Leaseholds and
relating to compliance with applicable Environmental Laws or
contamination by any toxic substance, oil or hazardous
materials or other chemicals or substances regulated by any
Environmental Laws of the Transferred Leaseholds.
5.10 Personal Property. Except as set forth in Schedule 5.10, the
Personal Property is utilized by OSOG in the ordinary course of
business.
5.11 Insurance. Schedule 5.11 sets forth a complete and correct
list of all material insurance policies and fidelity bonds covering
the Acquired Assets. To the best of OSOG's knowledge, there is no
claim by it pending under any of such policies or bonds as to which
the carrier has questioned, denied or disputed coverage by the
underwriters under such policies or bonds. All premiums payable under
all such policies and bonds have been paid currently and it is
otherwise in compliance with the terms and conditions of all such
policies and bonds in all material respects. Such insurance is
adequate in all material respects in terms of breadth and amount of
coverage relative to the risks insured and the risks insured are
adequate and reasonable in light of the activities of it with respect
to the Acquired Assets.
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5.12 Oil and/or Gas Contracts. OSOG has delivered or made available
to Purchaser correct and complete copies of the Oil and/or Gas
Contracts. To the best of OSOG's knowledge, Schedule 1.1(c) sets forth
a correct and complete list of the Oil and/or Gas Contracts required
to be set forth therein. Except as specifically identified in Schedule
5.12, as of the date of this Agreement OSOG has not received notice of
any default or debarment from any governmental entity with respect to
any Oil and/or Gas Contract. Except as specifically identified in
Schedule 5.12, no claim or dispute known to it as a claim between OSOG
and any of its suppliers, or between OSOG and any of its customers,
relating to any Oil and/or Gas Contract is pending as of the date of
this Agreement. Except as otherwise set forth in Schedule 5.12, OSOG
knows of no present facts or events out of the ordinary course of
business that could have an effect on the revenues and profits from
the Acquired Assets.
5.13 Permits. To the best of its knowledge, Schedule 1.1(d)(i) sets
forth the correct and complete list of each Permit, together with the
name of the government agency or entity issuing the same except: (i)
normal routine items (such as, without limitation, local business
permits, building permits, etc., which normally relate to the Acquired
Assets; or (ii) for Permits as to which the failure to have them would
not have a material adverse effect on the Acquired Assets. To the best
of its knowledge, except as set forth on Schedule 5.13, such Permits
are valid, in good standing, and in full force and effect and,
assuming the required consents can be obtained prior to Closing, are
transferrable by it to Purchaser, and to the best of its knowledge,
none of the Permits will, assuming the required consents have been
obtained prior to the Closing or are not required hereunder, be
terminated or impaired or become terminable as a result of the
transactions contemplated hereby.
5.14 Transferred Leaseholds. It has delivered or made available to
Purchaser correct and complete copies of the Transferred Leaseholds.
To the best of its knowledge, it has not entered into any material
agreement which might result in any of the Transferred Leaseholds
being subject to or assessed for any taxes, rates, levies,
assessments, local improvement rates or charges of a similar nature
other than is currently assessed. To the best of its knowledge, it has
delivered to Purchaser accurate, correct and complete copies of all
environmental audits, title insurance policies, surveys, or other
reports/studies regarding the Transferred Leaseholds, to which it has
access.
5.15 Trademarks, Patents, Etc. To the best of its knowledge,
Schedule 1.1(d)(ii) hereto sets forth a complete and accurate list of
(a) all Intellectual Property, and (b) all material written agreements
relating to technology, trade secrets, know-how and processes to which
OSOG is licensed or authorized to use by others or which it has
licensed or authorized for use by others with respect to the Acquired
Assets that it is conveying. Except to the extent set forth in
Schedule 5.15, to the best of its knowledge, OSOG owns or possesses
adequate and enforceable licenses or other rights to use the
Intellectual Property in the jurisdictions in which they are shown as
registered and the consummation of the transactions contemplated
hereby will not alter or impair any such right. To the best of
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<PAGE> 23
OSOG's knowledge, no claims have been threatened or asserted by any
person regarding the use of any trade secrets, patents, trade marks,
trade names, copyrights, technology, know-how, customer lists or
processes, or challenging or questioning the validity or effectiveness
of any license or agreement. To the best of OSOG's knowledge, the use
of the trademarks, trade names, trade secrets, copyrights, patents,
technology, know-how, customer lists or processes used by it in the
ordinary course of operating the Acquired Assets that it is conveying
does not infringe on the rights of any person or entity.
5.16 Brokerage Agreements. It shall hold Purchaser harmless against
any broker, finder, consultant or other intermediary in connection
with the transactions contemplated by this Agreement who would be
entitled to any commission or broker's or finder's fee in connection
with the transactions contemplated herein as a result of any agreement
or understanding caused by it.
5.17 Tax Matters.
(a) Except as set forth in Schedule 5.17(a), to the best
of its knowledge, it has filed all tax returns which are
required to be filed with respect to the Acquired Assets with
any foreign, federal, state or local governmental authority or
agency (other than returns covered by a timely request for
extension of the due date), all such tax returns are true,
correct and complete in all material respects, and such Seller
has paid, or made adequate provision for the payment of, all
taxes shown thereof as being due and all other assessments
received to date.
(b) Except as set forth in Schedule 5.17(b), to the best
of its knowledge, there are no liens, charges or encumbrances
for taxes (other than current taxes not yet due and payable)
on any of the Acquired Assets and it represents that it is
unable to secure, prior to Closing, all clearances or other
confirmations by the state taxing authorities required to
establish that all taxes have been paid.
5.18 Public Utility Holding Company Act. It is not subject to
regulation under the Public Utility Holding Company Act of 1935 and
the rules and regulations thereunder.
5.19 Completeness of Information. To the best of its knowledge, all
information relating to the transactions contemplated hereby furnished
by it in this Agreement and the schedules, attachments and exhibits
hereto are accurate and complete in all material respects and no
material information required to be stated or necessary to make such
information not misleading has been omitted herefrom.
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6. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
Purchaser represents and warrants to Sellers as follows:
6.1 Organization and Standing of Purchaser. Purchaser is a
corporation duly organized, validly existing and in good standing
under the laws of the state of its incorporation with full corporate
power and authority under its Articles of Incorporation and By-laws
and applicable laws to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions
contemplated hereby.
6.2 Corporate Approval; Binding Effect. Purchaser has obtained all
necessary corporate authorizations and approvals required for the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby. This Agreement has been duly
executed and delivered by Purchaser and constitutes the legal, valid
and binding obligation of Purchaser, enforceable against Purchaser.
6.3 Non-Contravention; Approvals. Neither the execution and
delivery of this Agreement by Purchaser nor the consummation by
Purchaser of the transactions contemplated hereby will constitute a
violation of, or be in conflict with, constitute or create a default
under, or result in the creation or imposition of any liens upon any
property of Purchaser which shall act to render this Agreement
unenforceable pursuant to (i) the Articles of Incorporation or By-laws
of Purchaser, (ii) any agreement or commitment to which Purchaser is a
party, or by which any of Purchaser's properties are bound or subject
to, or (iii) any statute, regulation, rule, judgment, order, decree,
stipulation, injunction, charge or other restriction of any
government, governmental agency or court or other tribunal to which
Purchaser or any of its properties is subject. No consent, approval or
authorization of, or registration, qualification or filing by
Purchaser with any governmental agency or authority is required for
the execution and delivery of this Agreement by Purchaser or for the
consummation by Purchaser of the transactions contemplated hereby.
6.4 Litigation, Etc. No action, suit, proceeding or investigation
is pending or, to the knowledge of Purchaser, threatened, against
Purchaser relating to or affecting any of the Acquired Assets, which
questions the validity of this Agreement or challenges any of the
transactions contemplated hereby.
6.5 Brokerage Agreements. Purchaser shall hold Sellers harmless
against any broker, finder, consultant or other intermediary in
connection with the transactions contemplated by this Agreement who
would be entitled to any commission or broker's or finder's fee in
connection with the transactions contemplated herein as a result of
any agreement or understanding caused by Purchaser.
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6.6 Due Diligence Investigation. Purchaser represents that it is a
knowledgeable purchaser, owner and operator of oil and gas properties;
has made its own investigation of the Acquired Assets; and except for
Sellers representations and warranties contained herein, has not
relied on any information regarding the Acquired Assets provided by or
on behalf of Sellers in deciding to execute this Agreement. Purchaser
is acquiring the Acquired Assets for its own account and not for
distribution or resale in any manner which would violate any state or
federal law.
6.7 Capitalization. Purchaser has duly authorized the issuance of
the NEG Shares and, when issued in accordance with this Agreement, the
NEG Shares will be fully paid, validly issued, outstanding and non-
assessable. Purchaser's authorized capitalization at the date of this
Agreement consists of 100,000,000 shares of common stock (par value
$.01 per share), and 1,000,000 shares of preferred stock (par value
$1.00 per share), of which 33,636,358 shares of common stock, and
52,500 shares of Series B, 10% cumulative convertible preferred stock;
40,000 shares of Series C, 10 1/2% cumulative, convertible preferred
stock; 100,000 shares of Series D preferred stock; and 50,000 shares
of Series E preferred stock), are issued and outstanding. All of such
issued and outstanding shares of capital stock of Purchaser have been
duly authorized, and are validly issued, fully paid, nonassessable and
free of preemptive rights. Purchaser has filed in a timely manner
periodic reports and proxy statements with the SEC (as hereinafter
defined) required to be filed under the Act and applicable rules and
regulations promulgated thereunder.
6.8 Disclosures. Purchaser's Annual Report on Form 10-KSB for the
year ended December 31, 1995 (the "SEC Document"), including the
financial statements included therein, 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, 1995, there have been no material
developments, transactions or events affecting Purchaser (other than
developments or events affecting the oil and gas exploration and
production industry generally) which are required to be disclosed to
the Securities and Exchange Commission of the United States
(hereinafter the "SEC") other than as have been disclosed by Purchaser
to the SEC or to Seller in writing. There are no material liabilities
of Purchaser (contingent or otherwise) which are required to be
disclosed, other than as disclosed to the SEC or Sellers.
6.9 Completeness of Information. To the best of its knowledge, all
information relating to the transactions contemplated hereby furnished
by it in this Agreement and the Schedules, attachments and exhibits
hereto or in connection herewith are accurate and complete in all
material respects and no material information required to be stated or
necessary to make such information not misleading has been omitted
herefrom.
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7. ADDITIONAL COVENANTS.
Sellers and Purchaser covenant and agree as follows:
7.1 Access. From the date hereof to the Post-Closing Adjustment
Date:
(a) Sellers agree to provide Purchaser, its attorneys,
accountants and agents with such reasonable access at its sole
expense to the books and records of Sellers relating to the
Acquired Assets, wherever located, and to representatives of
Sellers, as Purchaser shall deem necessary to complete the
transactions contemplated herein. Purchaser's access to such
information and representatives shall be in accordance with
the confidentiality provisions of Section 7.5. In addition,
from and after the Closing, Sellers further agree to provide
Purchaser, its attorneys, accountants and agents with
continued access to the books and records of Sellers relating
to the Acquired Assets that were not delivered to Purchaser
pursuant to this Agreement that relate to events occurring
both prior to and subsequent to the Closing.
(b) OSOG further agrees that it shall effect the transfer
of operations of the Acquired Assets to Purchaser as soon as
possible following the Closing and shall take all actions,
execute all documents and do all things as reasonably
requested by Purchaser to effect such transfer.
7.2 Conduct of the Business
(a) Preservation of Business and Relationships. From the
date hereof through the Closing Date, OSOG shall continue to
operate the Acquired Assets in the ordinary course of
business. Subject to the limitations in, and without limiting
the generality of the foregoing, Sellers shall not:
(i) enter into any agreements or take any action
that would result in a breach of any of their
covenants, representations or warranties set forth
herein;
(ii) without Purchaser's prior written consent,
cause to create or assume on the Acquired Assets any
mortgage, deed of trust, lien, pledge, lease
encumbrance, or charge of any kind whatsoever;
(iii) fail in any material respect to comply with
any laws, ordinances, regulations or other
governmental restrictions applicable to it or fail in
any material respect to attain or maintain all
licenses and permits required to operate the Acquired
Assets as is presently being operated or to utilize
any of the Acquired Assets;
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(iv) incur any material liability or obligation
(absolute, accrued, contingent or otherwise) or issue
any debt securities or assume, guarantee, endorse or
otherwise as an accommodation become responsible for,
the obligations of any other individual or entity, or
change any assumption underlying, or methods of
calculating, any bad debt, contingency or other
reserve, any of which result in a lien or encumbrance
on the Acquired Assets;
(v) grant any powers of attorney which may have
the effect of giving rise to a right or claim of
power of attorney over the Acquired Assets;
(vi) waive any claims or rights of substantial
value or sell, transfer, or otherwise dispose of any
of the Acquired Assets;
(vii) engage in or enter into any material
transaction of any nature not expressly provided for
herein involving the Acquired Assets;
(viii) agree or commit, whether in writing or
otherwise, to do any of the foregoing;
(b) Notification of Material Events. Sellers, on the one
hand, and Purchaser, on the other hand, will each give prompt
notice to the other of material events or matters, as follows:
(i) the occurrence, or failure to occur, of any
event the occurrence or failure of which would, or
would be likely to, cause any of their respective
representations or warranties contained in this
Agreement to be untrue or incorrect at any time from
the date hereof to the Closing Date;
(ii) any failure on their respective parts or on
the part of any of their officers, directors,
employees, representatives or agents, if any, to
comply with or satisfy any covenant, condition or
agreement to be complied with or satisfy any
covenant, condition or agreement to be complied with
or satisfied by each of them under this Agreement;
(iii) any notice or communication from any
governmental or regulatory agency or authority in
connection with the transactions contemplated by this
Agreement; and
(iv) any actions, suits, claims, investigations or
proceedings commenced or, threatened, against,
relating to or involving or otherwise affecting
Sellers or the Acquired Assets that, if pending on
the date of this Agreement, would have been required
to have been disclosed hereunder or that relate to
the consummation of the transactions contemplated by
this Agreement.
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Prior to the Closing, Sellers shall have the right to deliver to
Purchaser and Purchaser shall have the right to deliver to Sellers, a
written disclosure schedule as to any material matter of which it
becomes aware following execution of this Agreement that would
constitute a breach of any representation, warranty or covenant of
this Agreement by such party, identifying on such disclosure schedule
the representation, warranty or covenant that would be so breached.
Each such disclosure schedule shall be delivered as soon as
practicable after such party becomes aware of the matter disclosed
therein. The nondisclosing party shall have until Closing to notify
the disclosing party that: (i) it will close notwithstanding the new
disclosure; or (ii) it will not close based upon such new disclosure.
(c) Insurance. Sellers shall maintain all insurance
coverage insuring the Acquired Assets through the Closing
Date.
(d) Best Efforts and Cooperation. Each of Sellers and
Purchaser shall use its best efforts to consummate the
transactions contemplated hereby and to cooperate with each
other in any reasonable arrangement to achieve that end.
7.3 Risk of loss. Each of Sellers shall assume all risk of
destruction, loss or damage due to fire or other cause to its Acquired
Assets through the Closing Date. If a destruction, theft, loss or
damage occurs prior to the Closing Date which materially affects the
Acquired Assets, Purchaser shall have the right to terminate this
Agreement and the transactions contemplated hereby. Purchaser assumes
all such risk following the Closing Date.
7.4 Relationship of Sellers and Purchaser following Closing.
(a) Cooperation in Litigation. Although not contemplated
or known as of the date of this Agreement, Purchaser and
Sellers recognize that in the future, litigation may arise
relating to the Acquired Assets, that may relate directly or
indirectly to the period prior to the Closing or the period
subsequent to the Closing, or both. Purchaser and Sellers
agree therefore, for themselves and on behalf of their
successors and assigns, that to the extent reasonable under
the circumstances, they will assist and provide information,
records, and documents to each other with respect to any such
litigation or potential litigation in which they are or may be
involved.
(b) Further Assurances. Sellers and Purchaser agree, for
themselves and on behalf of their successors and assigns:
(i) to cooperate in any reasonable arrangement designed to
provide for Purchaser the benefits of the Acquired Assets; and
(ii) that from time to time after the Effective Date, each of
them will, upon the request of the other, do, execute,
acknowledge and deliver or cause to be done, executed,
acknowledged and delivered all such further acts, deeds,
assignments, transfers, conveyances, powers of attorney and
assurances as may be required for the better carrying out and
performance of all the terms of this Agreement.
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7.5 Confidential Information. Each of Araxas and OSOG, their
affiliates, any corporation, partnership or trust controlled directly
or indirectly by them, their officers, employees, agents and
representatives shall maintain the confidentiality of, and shall not
disclose or use for the benefit of themselves or others, any
confidential information concerning the operation of the Acquired
Assets or the terms and conditions of this Agreement (the
"Confidential Information"); provided that this Section 7.5 shall not
restrict (i) disclosure by either of any Confidential Information
required by applicable statute, rule or regulation or any court of
competent jurisdiction, provided that Purchaser is given notice and an
adequate opportunity to contest such disclosure and (ii) any
disclosure of information which is available publicly as of the date
of this Agreement or which, after the date of this Agreement, becomes
available publicly through no fault or action on the part of Araxas
and/or OSOG other than as provided herein.
7.6 Sales Taxes. OSOG shall be solely responsible for the cost of
sales tax and transfer duties, if any, properly payable upon and in
connection with the sale, assignment and transfer of the Acquired
Assets from Sellers to Purchaser hereunder. Purchaser and Sellers each
agree to deliver to the other party (or to such governmental or taxing
authority as the other party reasonably directs) any form of document
that may be required or reasonably requested in order to obtain an
exemption with respect to any federal, state, municipal or other
transfer taxes that may otherwise be required to be paid on the
transfer of the Acquired Assets or that may otherwise be due with
respect to such transfer, promptly upon the earlier of: (i)
reasonable demand by the other party, or (ii) discovery that such form
or document is required.
7.7 Expenses. Except as otherwise expressly provided herein, each
of the Sellers and Purchaser shall pay its own expenses incidental to
the preparation of this Agreement and incurred by it or them in
connection with the transactions contemplated hereby. Each of the
Sellers and Purchaser covenants and agrees to indemnify and hold each
other harmless from and against any loss, cost, damage, expense
(including reasonable attorneys' fees and expenses) and liability
resulting from any claims that may be made against the other, by any
broker or other party claiming a fee or other compensation in
connection with the transactions contemplated by this Agreement,
arising from the acts of the indemnifying party.
7.8 Notices. Each of the Sellers and Purchaser shall: (i) give all
of the other notices to governmental authorities and other third
parties, including lessors and licensees, which are required to be
given by them in connection with this Agreement and the transactions
contemplated hereby; and (ii) obtain all consents or waivers required
to be obtained under any law, rule, regulation, order, permit,
license, license agreement, authorization, lease, note, mortgage,
indenture, agreement, or other instrument or otherwise in connection
with this Agreement and the transactions contemplated hereby.
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7.9 Araxas Seismic Agreement. Araxas is conducting a 3-D seismic
survey over and across the Acquired Assets subject to certain permits
acquired by Araxas et. al. (pursuant to a Basic Agreement For
Geophysical Services dated March 19, 1996 by and between Universal
Seismic Acquisition, Inc. and UNEXCO, Inc., together with supplements
thereto, hereinafter the "Basic Agreement"). Upon completion of all
operations related to acquisition of such seismic data as it relates
to the Acquired Assets, Purchaser agrees to pay Araxas its pro rata
share of Araxas' cost of such data as it relates to the Acquired
Assets; provided, Purchaser's obligations hereunder shall be limited as
follows:
(a) Purchaser shall be subject to the same terms and
conditions as Araxas with respect to the Basic Agreement as it
relates to the Acquired Assets; and
(b) Purchaser shall be obligated to costs of not more
than $75,000 per square mile; and
(c) The area of the Acquired Assets up which any such
seismic survey shall be completed shall not be less than two
(2) square miles, nor greater than three (3) square miles with
respect to Purchaser's obligations for payment hereunder; and
(d) Purchaser's obligations for payment hereunder shall
not arise until such time that Araxas has delivered to
Purchaser all such seismic data to be delivered as
contemplated in the Basic Agreement and payment for such data
shall be made by Purchaser within ten (10) days of invoice
thereafter.
7.10 Araxas Reacquisition Agreement. Purchaser agrees to notify
Araxas in writing on or before sixty (60) days prior to the date on
which payment by Purchaser is (delay rental or other payment), or
other affirmative action of Purchaser, is due under any lease or
option included in the Acquired Assets, if Purchaser intends not to
make the payment or take such action and, as a result, to forfeit any
right under such lease or option. Araxas shall have the right to make
any payment or take such action that Purchaser could have taken
pursuant to the lease or option, and in such event, Purchaser shall
assign to Araxas all of Purchaser's interest in the lease, option or
right therein preserved by Araxas' action or payment, free and clear
of subsequently created burdens.
7.11 Future Assignees of the Araxas Assets. NEG agrees to cause any
assignee(s) of NEG of the Araxas Assets conveyed hereunder to
indemnify Araxas for any loss incurred by Araxas attributable to the
ownership or operation by such assignee(s) Araxas Assets.
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8. INDEMNIFICATION FOR PRE-CLOSING AND POST-CLOSING OPERATIONS AND
RELATED MATTERS.
8.1 Survival. The obligation of indemnification set out in Section
8.2, which shall be the sole recourse for any breach of the
representations and warranties contained in Section 5 hereof and all
other items set forth in Section 8.2, shall survive for a period of
ninety (90) days following the Closing Date; provided that the
indemnification with respect to the representations and warranties
contained in Section 5.6 and Section 5.9 shall survive for a period of
one (1) year following the Closing (the "Survival Period"). Any claim
for Losses must be asserted in writing prior to the end of the
Survival Period, and if asserted in writing during the Survival
Period, such claims shall survive until resolved, and if not so
asserted, then Purchaser shall be forever estopped and prohibited from
asserting any such claim hereunder.
8.2 Indemnity by Seller. Each of Araxas and OSOG, for themselves
and on behalf of their successors and assigns but not for each other,
agree to indemnify and hold Purchaser harmless from and with respect
to any and all losses, damages, costs, expenses, obligations,
liabilities, deficiencies, taxes, interest on taxes or penalties,
including without limitation the reasonable fees and disbursements of
counsel and the costs of responding to any governmental audit, inquiry
or investigation and including without limitation all claims,
liabilities or obligations arising from the Excluded Liabilities,
including (without limiting the generality of the foregoing), third
party claims arising out of the performance or non-performance of the
Oil and/or Gas Contracts prior to the Closing and third party claims
for patent infringement or infringement of other Intellectual Property
rights prior to the Closing, related to or arising directly or
indirectly out of any of the following (any of which shall be referred
to herein singularly as a "Loss" and collectively as the "Losses"):
(a) Any and all claims, counterclaims, liabilities, and
obligations arising out of OSOG's operation of the Acquired
Assets prior to the Effective Date or the use of the Acquired
Assets in the operation thereof prior to the Effective Date or
any business carried on by Sellers, prior to the Closing
(whether asserted before or after the Closing), including,
without limitation, the following:
(i) any violation prior to the Closing by
Sellers, of any law, statute, governmental regulation
or judicial administrative tribunal order, judgment,
writ, injunction, decree or similar command;
(ii) any actual or alleged liability for taxes
relating to any period prior to the Closing;
(iii) any of the litigation or claims referred to
or listed on Schedule 5.6;
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(b) any claim, liability or obligation to any employee of
either Araxas or OSOG in connection with his, her or its
employment or termination of employment or engagement by it
before, on or after the Closing Date;
(c) any claim, liability or obligation relating to any
broker or finder retained or utilized by it or representing it
in connection with the transactions contemplated by this
Agreement;
(d) any claim, liability or obligation related to or
arising directly or indirectly out of any breach of any
representation or warranty made by it in this Agreement;
8.3 Third Party Claims.
(a) Purchaser shall notify Sellers of any Loss, or other
action, suit, proceeding, demand, breach or governmental audit
or investigation (a "Claim") with respect to which Purchaser
claims indemnification hereunder. With respect to any Third
Party Claim (as hereinafter defined), Purchaser shall set
forth in writing (i) the specific Loss giving rise to such
Third Party Claim (ii) the specific facts or events upon which
the Claim is based, and (iii) the amount and method of
calculation of damages asserted by Purchaser with respect to
such Claim. Such written notice shall be delivered within the
Survival Period to the Sellers. If such Claim relates to any
action, suit, proceeding or demand instituted against
Purchaser by a third party (a "Third Party Claim"), upon
receipt of such notice from Purchaser, Purchaser at its own
expense shall be entitled to participate jointly with Sellers
in the defense of such Third Party Claim. If Sellers assume
the defense of such Third Party Claim Sellers shall have the
sole authority to negotiate, compromise and settle such Third
Party Claim provided:
(x) Sellers confirm in writing that it is
willing to assume the defense of Purchaser with
respect to such Third Party Claim;
(y) Purchaser elects not to participate in its
own defense by hiring separate counsel; and
(z) Sellers establish to the reasonable
satisfaction of Purchaser that it has (and will
continue to have) adequate financial resources to
satisfy and discharge such action or claim.
Purchaser shall retain the right to employ its own counsel and to
participate in the defense of any Third Party Claim, the defense of
which has been assumed by Sellers pursuant hereto, but Purchaser shall
bear and shall be solely responsible for its own costs and expenses in
connection with such participation. In addition, Purchaser shall meet
with Sellers from time to time to discuss the Third Party Claim and
otherwise provide reasonable cooperation to Sellers in connection with
the defense of such Third Party Claim.
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<PAGE> 33
(b) Notwithstanding the foregoing provisions of this
Section 8.3, (i) Sellers shall not be entitled to settle any
Third Party Claim without Purchaser's prior written consent
unless as part of such settlement Purchaser is released in
writing from all liability with respect to such Third Party
Claim and (ii) the Purchaser shall not be entitled to settle
any Third Party Claim without the Sellers prior written
consent, unless as part of such settlement Sellers are
released in writing from all liability with respect to Such
Third Party Claim.
8.4 Purchaser Claims. Any claim by Purchaser related to or arising
directly or indirectly from any Losses other than Third Party Claims
("Purchaser Claims") shall be made in the manner provided herein. Any
Purchaser Claims must be asserted within the Survival Period. With
respect to any Purchaser Claim, Purchaser shall set forth in writing
(i) the specific Loss giving rise to such Purchaser Claim, (ii) the
specific facts or events upon which the Claim is based, and (iii) the
amount and method of calculation of damages asserted by Purchaser with
respect to such Claim. Such written notice shall be delivered within
the Survival Period to Sellers. Sellers shall have thirty (30) days
in which to respond in writing to such Purchaser Claims. If the
Purchaser Claim is disputed and the parties are unable to resolve such
dispute, such dispute shall be resolved in accordance with Section
12.11 hereof.
8.5 Method and Manner of Paying Losses. Subject to Sellers rights
pursuant to Section 8.3 to defend, negotiate, compromise and settle
Third Party Claims, the amount of any Loss under Section 8.2, monetary
judgments, awards, or settlements in lieu thereof shall be payable to
Purchaser upon resolution of a disputed Claim for the payment of
Losses in the manner set forth in this Agreement. Sellers and
Purchaser shall cooperate with each other to ensure the Losses or any
other claims for which Sellers have agreed to indemnify Purchaser
hereunder are promptly paid. The unpaid balance of any Loss shall bear
interest at the rate of interest established by Bank One N.A., Dallas,
Texas, from time to time as its "prime rate" plus one and one-half
percent (1.5%) from the date notice thereof is given by Purchaser to
Sellers or such later date as Purchaser becomes liable for such Loss;
provided that Sellers shall only be obligated to pay interest on that
portion of such Loss ultimately determined to be owed to Purchaser.
Notwithstanding any provision in this Article 8 to the contrary, the
indemnity obligation of Araxas shall apply only with respect to a Loss
attributable to the Araxas Assets ("Araxas Asset Loss") and the
indemnity obligation of OSOG shall apply only with respect to a Loss
attributable to the OSOG Assets ("OSOG Asset Loss"). In addition,
neither of the Sellers shall be liable to Purchaser if the aggregate
amount of Araxas Asset Loss or OSOG Asset Loss, as the case may be, is
less than 2% of the amount of the Purchase Price payable to such Seller
or if the aggregate amount of the Loss exceeds the amount of the
Purchase Price paid to Seller, Such Seller shall not be liable for such
excess Loss. If a Seller is determined to be liable for any Loss, and
such Seller owns any NEG Shares, such liability shall be settled, at
the election of such Seller: first by assignment of such number of NEG
Shares (based on a price equal to Three Dollars and Twenty-Five Cents
($3.25) per share as established in Section 2.1 hereof) as may be
necessary to settle such Loss; and second the
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<PAGE> 34
remainder of any such Loss (if any), not otherwise settled by the
assignment of such NEG Shares shall be paid in cash. Any dispute
between Sellers and Purchaser concerning the amount of any Loss or
other claim to be paid shall be resolved in accordance with Section
12.11 hereof.
8.6 Indemnity by Purchaser. Purchaser shall indemnify Araxas and
OSOG against any and all damages, costs, expenses, obligations or
liabilities, including without limitation the reasonable fees and
expenses of counsel arising out of any breach by Purchaser of the
representations and warranties in Section 6 hereof. Purchaser further
agrees to indemnify and hold harmless Sellers from, against and in
respect to all claims, Third Party Claims and Losses arising out of or
relating to any breach of any covenant or agreement by Purchaser
contained herein or in any Schedule or Exhibit hereto; and for all
claims, Third Party Claims and Losses arising out of and relating to
the ownership or operation of the Acquired Assets from and after the
Effective Date.
9. CONDITIONS TO PURCHASER'S OBLIGATIONS TO CLOSE.
Unless otherwise waived in writing, the obligation of Purchaser to
complete the Closing is subject to fulfillment prior to or at the
Closing, unless Purchaser so elects to waive in writing any or all, of
each of the following conditions:
9.1 No Legal Proceedings. At the Closing, no judicial or
administrative proceeding shall be pending or threatened seeking to
enjoin or prevent, nor shall any order or injunction have been issued
prohibiting, consummation of the transactions contemplated hereby
(each of Purchaser and Sellers agree that it shall advise the other
immediately of any information regarding any such action).
9.2 Fulfillment of Obligations. Sellers shall have duly performed
or complied with all of the obligations and covenants to be performed
or complied with by them under the terms of this Agreement at or prior
to the Closing Date.
9.3 Accuracy of Representations and Warranties. The
representations and warranties of Sellers set forth in Section 5
hereof shall be true and correct in all material respects as of the
date of this Agreement and as of the Closing Date as though made on
and as of the Closing Date.
9.4 Approvals, Notices and Opinions. All approvals, notices and
opinions required with respect to the transactions contemplated by
this Agreement shall have been obtained or met.
9.5 No Material Changes. No events shall have occurred which
result in a material adverse change in the Acquired Assets, which
event was previously unknown and not included or reflected in any of
the disclosures in this Agreement or the Schedules attached hereto.
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<PAGE> 35
9.6 Closing Deliveries. Sellers shall have delivered all of the
items listed in Section 4.2(a).
9.7 Assignment of Gas Contracts. Purchaser shall be reasonably
satisfied that the Oil and/or Gas Contracts listed in Schedule 1.1(c)
will be properly assigned or transferred to it at Closing.
10. CONDITIONS TO SELLERS' OBLIGATIONS TO CLOSE.
Unless otherwise waived in writing, the obligations of Sellers to
complete the Closing are subject to fulfillment prior to or at the
Closing of each of the following conditions:
10.1 No Legal Proceedings. At the Closing, no judicial or
administrative proceeding shall be pending or threatened seeking to
enjoin or prevent, nor shall any order or injunction have been issued
prohibiting, consummation of the transactions contemplated hereby
(each of Purchaser and Sellers agree that it shall advise the other
immediately of any information regarding any such action).
10.2 Fulfillment of Obligations. Purchaser shall have duly performed
or complied with all of the material obligations to be performed or
complied with by and under the terms of this Agreement at or prior to
the Closing Date.
10.3 Accuracy of Representations and Warranties. The
representations and warranties of Purchaser set forth in Section 6
hereof shall be true and correct in all material respects as of the
date of this Agreement and as of the Closing Date as though made on
and as of the Closing Date.
10.4 Approvals, Notices and Opinions. All approvals, notices and
opinions required with respect to the transactions contemplated by
this Agreement shall have been obtained or met.
10.5 Closing Deliveries. Purchaser shall have delivered all items
listed in Section 4.2(c).
11. TERMINATION.
11.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Closing Date by the mutual written
consent of Purchaser and Sellers.
11.2 Termination by Purchaser. Purchaser may terminate this
Agreement by written notice to Sellers at any time prior to the
Closing, if:
(a) a condition to the performance of Purchaser set forth
herein shall not be fulfilled on or before the date specified
for the fulfillment thereof; or
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<PAGE> 36
(b) a default under, a breach of this Agreement or a
misrepresentation or a breach of any representation, warranty
or covenant of Sellers set forth in this Agreement or in any
instrument delivered by Sellers pursuant hereto shall have
occurred and be continuing; or
(c) a Purchase Price adjustment in excess of twenty
percent (20%) of the Purchase Price occurs as described in
Section 2.2 hereof.
11.3 Termination by Sellers. Sellers may terminate this Agreement,
by written notice to Purchaser at any time prior to Closing if:
(a) a condition to the performance of Sellers set forth
herein shall not be fulfilled on or before the date specified
for the fulfillment thereof; or
(b) a default under, a breach of this Agreement or a
misrepresentation or a breach of any representation, warranty
or covenant of Purchaser set forth in this Agreement or in any
instrument delivered by Purchaser pursuant hereto shall have
occurred and be continuing; or
(c) A Purchase Price adjustment in excess of twenty
percent (20%) of the Purchase Price occurs as described in
Section 2.2 hereof.
12. GENERAL.
12.1 Notices. All notices, demands and other communications
hereunder shall be in writing or by written telecommunication, and
shall be deemed to have been duly given if delivered personally or if
mailed by certified mail, return receipt requested, postage prepaid,
or if sent by overnight courier, or sent by written telecommunication,
as follows:
<TABLE>
<CAPTION>
IF TO PURCHASER: IF TO SELLERS:
<S> <C>
National Energy Group, Inc. Araxas Energy Corporation, et. al.
4925 Greenville Avenue, Suite 1400 10200 Grogans Mill Road
Dallas, TX 75206-4095 Suite 500
Facsimile: (214) 692-9310 The Woodlands, TX 77380
Attn: Mr. Miles D. Bender, President Facsimile: (713) 364-3707
Attn: Mr. Michael W. Englert, VP Land
O'Sullivan Oil and Gas Company, Inc.
910 Travis Street, Suite 2150
Houston, TX 77002
Facsimile: (713) 759-2040
Attn: Mr. Chris N. O'Sullivan
</TABLE>
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<PAGE> 37
(or such other address as may be specified by notice hereunder) and
shall be deemed effective when received, provided, that any notice
given other than in writing by registered or certified mail shall be
confirmed in writing by registered or certified mail.
12.2 Successors and Assigns. All provisions of this Agreement,
whether or not such provisions shall specifically so provide, shall be
binding upon and inure to the benefit of Sellers and Purchaser and
their respective successors and assigns, but, except as otherwise
provided herein, shall not be assigned, transferred, pledged or
hypothecated by any party without the prior written consent of the
other parties, except that Purchaser may assign its rights and
obligations to one or more wholly owned direct or indirect
subsidiaries of Purchaser or to any Affiliate that is a wholly owned
direct or indirect subsidiary of the entity that is the ultimate
parent of Purchaser.
12.3 Entire Agreement. This Agreement, including the Exhibits and
Schedules hereto, constitutes the entire agreement of Sellers and
Purchaser with respect to the matters governed herein and supersedes
all prior agreements, arrangements, statements, promises, information,
understandings, representations and warranties, whether oral or
written, express or implied, with respect to the subject matter
hereof. Neither Sellers nor Purchaser shall be bound by or charged
with any oral or written agreements, statements, promises,
information, arrangements, understandings, representations or
warranties not specifically set forth in this Agreement, the Schedules
hereto or in the documents and instruments to be delivered on or
before the Closing Date pursuant to this Agreement. Each of Sellers
and Purchaser further acknowledges and agrees that, in entering into
this Agreement and delivering the Schedules hereto and the documents
and instruments to be delivered on or before the Closing Date, it has
not in any way relied, and will not rely, upon any oral or written
agreements, statements, promises, information, arrangements,
representations or warranties, express or implied, not specifically
set forth in this Agreement, the Schedules hereto or in such documents
or instruments.
12.4 GOVERNING LAW. THE VALIDITY AND CONSTRUCTION OF THIS AGREEMENT
SHALL BE GOVERNED BY THE INTERNAL LAWS (AND NOT THE CHOICE-OF-LAW
RULES) OF THE STATE OF LOUISIANA, EXCEPT AS OTHERWISE PROVIDED IN THE
EXHIBITS ATTACHED HERETO.
12.5 Sections and Section Headings. The headings of sections and
subsections are for reference only and shall not limit or control the
meaning thereof.
12.6 Defined Terms. Capitalized terms defined in this Agreement
shall have the meanings given to them in such definition when used
elsewhere in this Agreement.
12.7 Further Assurances. From time to time, at the request of
Purchaser and without further consideration, Sellers shall execute and
deliver such further instruments of conveyance and transfer as
Purchaser may reasonably require to more effectively convey and
transfer any of the Acquired Assets to Purchaser. Sellers and
Purchaser shall also
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<PAGE> 38
execute and deliver to the appropriate other party such other
instruments as may be reasonably required in connection with the
performance of this Agreement, and each shall take all further actions
as may be reasonably required to carry out the transactions
contemplated by this Agreement.
12.8 No Implied Rights or Remedies. Except as otherwise expressly
provided herein or in the Schedules and Exhibits attached hereto,
nothing herein expressed or implied is intended or shall be construed
to confer upon or to give any person, firm or corporation, except
Sellers and Purchaser, any rights or remedies under or by reason of
this Agreement.
12.9 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
12.10 Construction. The language used in this Agreement will be
deemed to be the language chose by Sellers and Purchaser to express
their mutual intent, and no rule of strict construction will be
applied against any party.
12.11 Jurisdiction; Arbitration. All disputes with respect to this
Agreement, the Exhibits and Schedules hereto, including without
limitation, those arising out of or related to Section 8 of this
Agreement, shall be resolved by arbitration in the following manner:
The aggrieved party shall notify the other party in writing,
describing its claim, the amount of claim damages, and other relief
sought in reasonable detail. The responding party shall within fifteen
(15) calendar days after receipt of the aggrieved party's notice to
provide the aggrieved party a written response. The parties shall for
the next succeeding twenty (20) calendar days use good faith efforts
to discuss and negotiate a mutually agreed upon resolution of the
dispute. If no resolution is reached within the foregoing time
periods, then either party may initiate fast track private arbitration
in accordance with the following provisions of this paragraph. The
initiating party shall provide written notice of commencement of
arbitration to the defending party which shall also specify the
appointment of an individual to serve as a private arbitrator in the
arbitration proceedings. Within twenty (20) days after receipt of the
initial arbitration notice, the defending party shall give the
initiating party written notice specifying the appointment of a second
individual to serve as a private arbitrator. If two individuals are
timely appointed, they shall, within twenty (20) days after the second
appointment, appoint a third individual to serve as a private
arbitrator (or if they do not timely do so, either of them or any
party may seek appointment of the third individual pursuant to the
commercial rules of the American Arbitration Association from the
senior officer thereof in Dallas, Texas). The third individual shall
have at least five (5) years of experience in and complete knowledge
of the Louisiana system of forced and fieldwide unitization as
governed by the Louisiana Office of Conservation. Within ten (10) days
after the arbitrators have been appointed as described above, they
shall notify the parties of a hearing to be held in Dallas, Texas not
later than five (5) nor more than fifteen (15) days after notice of
the hearing is given. The arbitrators shall have the power to grant or
limit discovery and to implement or disregard the Rules of Evidence as
they may determine (but shall not have the power to vary the
provisions of this Agreement), and shall hold such number of hearings
as they may determine, but shall render a decision based on the
written submissions of the parties, hearings that may have been held,
and other information they deem appropriate, within forty-five (45)
days after the notice of the first hearing is given. A decision
concurred in by a majority of the arbitrators shall be final and
binding; provided that if the decision concerns the payment of a sum
of money on which a majority cannot timely agree, then the sum which
is neither the highest nor lowest specified among the arbitrators
shall be the final and binding decision on that issue. The arbitration
decision shall be nonappealable, and judgment on the award of the
arbitrators may be entered in any court having competent jurisdiction.
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<PAGE> 39
12.12 Attorneys' Fees. Reasonable attorneys' fees and costs may be
awarded to the prevailing party in connection with any action taken to
enforce its rights under this Agreement, including, but not limited to
any arbitration proceedings pursuant to Section 12.11 hereof.
12.13 Survival. Except with respect to an indemnification obligation
of a party which shall survive the Closing as provided in Section 8.1
and Section 8.6 hereof, all representations and warranties made herein
by Purchaser and Sellers shall not survive the Closing. All covenants
and agreements of the parties to be executed, performed or effective
in whole or in part after the Closing shall survive the Closing.
12.14 Hart-Scott-Rodino Provisions. The parties have determined that
the Hart-Scott Rodino Antitrust Improvements Act of 1976 does not
apply to this Agreement or the transactions contemplated hereby.
IN WITNESS WHEREOF, and intending to be legally bound hereby,
Purchaser and Sellers have caused this Agreement to be duly executed
and delivered as a sealed instrument as of the date and year first
above written.
"PURCHASER" "SELLERS"
NATIONAL ENERGY GROUP, INC. ARAXAS ENERGY CORPORATION
By: /s/ MILES D. BENDER By: /s/ MICHAEL W. ENGLERT
-------------------------------- ------------------------------
Name: Mr. Miles D. Bender Name: Mr. Michael W. Englert,
Title: President and Chief Title: VP Land
Executive Officer
"SELLERS"
O'SULLIVAN OIL AND GAS COMPANY, INC. ARAXAS SPV-1, INC.
By: /s/ CHRIS N. O'SULLIVAN By: /s/ MICHAEL W. ENGLERT
-------------------------------- ------------------------------
Name: Mr. Chris N. O'Sullivan Name: Michael W. Englert
Title: President Title: Vice President
ARAXAS EXPLORATION, INC.
By: /s/ MICHAEL W. ENGLERT
------------------------------
Name: Michael W. Englert
Title: Vice President
-31-
<PAGE> 40
STATE OF TEXAS )
COUNTY OF HARRIS )
This instrument was acknowledged before me on the 30th day of
September, 1996 by Miles D. Bender, the President and Chief Executive Officer of
National Energy Group, Inc., a Delaware corporation, on behalf of said
corporation.
/s/ L. JILL GARDINER
----------------------------------------
Notary Public in and for
the State of Texas
My commission expires: 04-26-98
STATE OF TEXAS )
COUNTY OF HARRIS )
This instrument was acknowledged before me on the 30th day of
September, 1996 by Michael W. Englert, VP Land of Araxas Energy Corporation, an
Oklahoma corporation, on behalf of said corporation.
/s/ L. JILL GARDINER
----------------------------------------
Notary Public in and for
the State of Texas
My commission expires: 04-26-98
STATE OF TEXAS )
COUNTY OF HARRIS )
This instrument was acknowledged before me on the 30th day of
September, 1996 by Chris N. O'Sullivan, the President of O'Sullivan Oil and Gas
Company, Inc., a Texas corporation, on behalf of said corporation.
/s/ L. JILL GARDINER
----------------------------------------
Notary Public in and for
the State of Texas
(L. Jill Gardiner)
My commission expires: 04-26-98
<PAGE> 41
STATE OF TEXAS )
COUNTY OF MONTGOMERY )
This instrument was acknowledged before me on the 30th day of
September, 1996 by Michael W. Englert, the Vice-President of Araxas SPV-1,
Inc., an Oklahoma corporation, on behalf of said corporation.
[NOTARY SEAL] /s/ CHERYL STRICKLAND
CHERYL STRICKLAND ---------------------------------------
Notary Public State of Texas Notary Public in and for
My Commission Expires the State of Texas
AUGUST 19, 2000
My commission expires: 8/19/2000
STATE OF TEXAS )
COUNTY OF MONTGOMERY )
This instrument was acknowledged before me on the 30th day of
September, 1996 by Michael W. Englert, the Vice-President of Araxas
Exploration, Inc., an Oklahoma corporation, on behalf of said corporation.
[NOTARY SEAL] /s/ CHERYL STRICKLAND
CHERYL STRICKLAND ---------------------------------------
Notary Public State of Texas Notary Public in and for
My Commission Expires the State of Texas
AUGUST 19, 2000
My commission expires: 8/19/2000
<PAGE> 1
$100,000,000
National Energy Group, Inc.
10 3/4% Senior Notes due 2006
PURCHASE AGREEMENT
October 29, 1996
BEAR, STEARNS & CO. INC.
SMITH BARNEY INC.
JEFFERIES & COMPANY, INC.
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, N.Y. 10167
Ladies and Gentlemen:
National Energy Group, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to you (the "Initial Purchasers"), upon the terms
set forth herein ("this Agreement"), $100,000,000 principal amount of the
Company's 10 3/4% Senior Notes due 2006 (the "Notes"). The Notes will be
issued pursuant to an indenture, to be dated as of November 1, 1996 (the
"Indenture") by and among the Company, National Energy Group of Oklahoma, Inc.,
a Delaware corporation (the "Guarantor"), and Bank One, Columbus, N.A., as
trustee (the "Trustee"), substantially in the form previously furnished to you.
Concurrently herewith, the Company, the Guarantor and each of the Initial
Purchasers will enter into a Registration Rights Agreement, of even date
herewith (the "Registration Rights Agreement"), substantially in the form
attached hereto as Exhibit 1. Pursuant to the Registration Rights Agreement,
the Company and the Guarantor have agreed, among other things, to file with,
and cause to be declared effective by, the Securities and Exchange Commission
(the "Commission") a registered exchange offer under the Securities Act of
1933, as amended (the "Securities Act"), relating to an offer to exchange the
Notes for a like principal amount of debt securities of the Company which have
been registered under the Securities Act identical in all material respects to
the Notes.
Capitalized terms not specifically defined herein are defined in the
Offering Memorandum referred to below, and used herein as so defined.
References to Notes shall include the Guarantee (as defined in the Indenture)
of the Guarantor.
<PAGE> 2
1. Representations and Warranties of the Company and the
Guarantor.
The Company and the Guarantor, jointly and severally, represent and
warrant to each of the Initial Purchasers as follows:
(a) The Company has prepared and furnished to the Initial
Purchasers a preliminary offering memorandum, dated October 10, 1996, with
respect to the Notes that is subject to completion (hereafter, the "Preliminary
Memorandum") and is also preparing and furnishing to the Initial Purchasers a
final offering memorandum, dated the date hereof, with respect to the Notes
that includes information with respect to the rate of interest on the Notes and
other data (hereafter, the "Definitive Memorandum" and, collectively with the
Preliminary Memorandum, the "Offering Memorandum"). The Definitive Memorandum,
at the date thereof and at all times thereafter to and including the Closing
Date (as hereinafter defined) does not and will not contain an untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the Company makes no representation or warranty as to information
contained in or omitted from the Offering Memorandum, as amended or
supplemented, in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any of the Initial Purchasers
specifically for inclusion in the Offering Memorandum. The Preliminary
Memorandum, at the date thereof and at all times subsequent thereto to the date
hereof, did 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, in light of the circumstances under which they were made,
not misleading. No stop order preventing the use of the Offering Memorandum,
or any amendment or supplement thereto, or any order asserting that any of the
transactions contemplated by this Agreement are subject to the registration
requirements of the Securities Act, has been issued.
(b) Subsequent to the respective dates as of which
information is given in the Definitive Memorandum, except as set forth in the
Definitive Memorandum, there has not been any material adverse change in the
business, prospects, properties, operations, condition (financial or other) or
results of operations of the Company and its subsidiaries taken as a whole,
whether or not arising from transactions in the ordinary course of business,
and since the date of the latest balance sheet included in the Definitive
Memorandum, neither the Company nor any of its subsidiaries has incurred or
undertaken any liabilities or obligations, direct or contingent, that are
material to the Company and its subsidiaries taken as a whole, except for
liabilities or obligations that were incurred or undertaken in the ordinary
course of business or that are fully reflected in the Definitive Memorandum.
(c) This Agreement and the Registration Rights Agreement
have been duly and validly authorized, executed and delivered by the Company
and the Guarantor and each is a valid and binding agreement of the Company and
the Guarantor enforceable against them in accordance with their terms, except
insofar as (i) such enforcement may be subject to (A) applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other similar
laws now or
-2-
<PAGE> 3
hereafter in effect relating to creditors' rights generally, and (B) general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity) and (ii) rights to indemnification and
contribution may be limited by federal or state securities laws or public
policy relating thereto. This Agreement and the Registration Rights Agreement
conform in all material respects to the description thereof contained in the
Offering Memorandum.
(d) The execution, delivery, and performance of this
Agreement, the Registration Rights Agreement, the Indenture, the Notes and the
Guarantee, and the consummation of the transactions contemplated hereby and
thereby, including the issuance, sale and delivery of the Notes and the
Guarantee, and application of the proceeds of the sale thereof as set forth in
the Offering Memorandum, will not (i) conflict with or result in a breach of
any of the terms and provisions of, or constitute a default (or an event that
with notice or lapse of time, or both, would constitute a default) or require
consent under, or, result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or the Guarantor,
pursuant to the terms of any agreement, instrument, franchise, license or
permit to or by which the Company or the Guarantor is a party or may be bound
(other than those as to which requisite waivers or consents have been obtained
by the Company or the Guarantor), subject, in the case of the performance of
the Indenture, to the conflict with or breach of or consent required under the
Revised Credit Facility in the event the Company makes a Net Proceeds Offer or
a Change of Control Offer under the terms of the Indenture, or (ii) violate or
conflict with any provision of the certificate of incorporation, by-laws, or
equivalent instruments of the Company or the Guarantor or any judgment, decree,
order, statute, rule or regulation of any court or any public, governmental or
regulatory agency or body having jurisdiction over the Company or the Guarantor
or any of their respective properties or assets. No consent, approval,
authorization, order, registration, filing, qualification, license or permit of
or with any court or any public, governmental or regulatory agency or body
having jurisdiction over the Company or the Guarantor or any of their
respective properties or assets is required for the execution, delivery and
performance of this Agreement, the Registration Rights Agreement, the
Indenture, the Notes and the Guarantee, except as may be required for
compliance with federal and state securities laws in connection with the
purchase of the Notes by the Initial Purchasers and performance of the
Company's and the Guarantor's obligations under the Registration Rights
Agreement.
(e) Each of the Company and the Guarantor has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation, and has the corporate power and
authority required to carry on its business as described in the Offering
Memorandum and to own, lease and operate its properties, and each is duly
qualified and is in good standing as a foreign corporation authorized to do
business in each jurisdiction in which the nature of its business or its
ownership or leasing of property requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on the
business, prospects, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole (a "Material Adverse Effect").
-3-
<PAGE> 4
(f) All of the outstanding shares of capital stock of the
Guarantor have been duly and validly authorized and issued and are fully paid
and non-assessable, and are owned by the Company, free and clear of any
security interest, claim, lien, or encumbrance. On the Closing Date, there
will not be any rights granted to or in favor of any person to acquire, at
present or in the future, any such capital stock or other equity interests of
the Guarantor. The Guarantor and Boomer Marketing, Inc. are all the
subsidiaries of the Company.
(g) The authorized, issued and outstanding capital stock
of the Company, as of September 30, 1996, was (i) 100,000,000 shares of Common
Stock authorized, of which 35,327,668 shares are issued and outstanding and
(ii) 1,000,000 shares of preferred stock, par value $1.00 per share authorized
(the "Preferred Stock"), of which 52,500 shares of 10% Cumulative Preferred
Stock, Series B, 40,000 shares of 10 1/2% Cumulative Convertible Preferred
Stock, Series C, 100,000 shares of Convertible Preferred Stock, Series D and
50,000 shares of Convertible Preferred Stock, Series E, are issued and
outstanding. No additional shares of capital stock of the Company have been
authorized or issued since September 30, 1996 except as described in a schedule
to Exhibit A attached hereto. As of the Closing Date, all of the outstanding
shares of Common Stock will have been duly authorized and validly issued, fully
paid and non-assessable and will not have been issued in violation of any
preemptive or similar rights. As of the Closing Date, except as disclosed in
the Offering Memorandum or as set forth in a schedule to Exhibit A attached
hereto, there will be no outstanding securities of the Company convertible into
or evidencing the right to purchase or subscribe for any shares of capital
stock of the Company (other than the outstanding options and warrants hereafter
mentioned); there will be no outstanding or authorized options, warrants,
calls, subscriptions, rights, commitments or any other agreements of any
character obligating the Company to issue any shares of its capital stock or
any securities convertible into or evidencing the right to purchase or
subscribe for any shares of such stock; and there will be no agreements with
respect to the voting, sale or transfer of any shares of capital stock of the
Company to which the Company is a party.
(h) The Notes have been duly and validly authorized by
all necessary corporate action and, when authenticated by the Trustee and
issued, sold and delivered by the Company pursuant to this Agreement against
payment therefor, will have been duly and validly executed, authenticated,
issued and delivered and will constitute valid and binding obligations of the
Company entitled to the benefits of the Indenture and enforceable against the
Company in accordance with their terms, except insofar as such enforcement may
be subject to (i) applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally, and (ii) general principles of equity
(regardless of whether enforcement is sought in a proceeding at law or in
equity). The Guarantee has been duly authorized by the Guarantor and, upon the
due authentication, execution, issuance and delivery of the Notes, will have
been duly executed, issued and delivered by the Guarantor and will constitute a
valid and binding obligation of the Guarantor, enforceable against the
Guarantor in accordance with its terms and entitled to the benefits provided by
the Guarantee, except insofar as such enforcement may be subject to (i)
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors'
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<PAGE> 5
rights generally and (ii) general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity). The Notes and the
Guarantee, when issued, will conform in all material respects to the
description thereof set forth in the Offering Memorandum.
(i) The Indenture conforms in all material respects to
the description thereof set forth in the Offering Memorandum, conforms in all
material respects with the requirements of the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"), applicable to indentures to be qualified
thereunder, has been duly and validly authorized by all necessary corporate
action and, when executed and delivered by the Company, the Guarantor and the
Trustee, will constitute a valid and binding agreement of the Company and the
Guarantor, enforceable against the Company and the Guarantor in accordance with
its terms, except insofar as such enforcement may be subject to (i) applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other similar laws now or hereafter in effect relating to creditors' rights
generally and (ii) general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).
(j) Neither the Company nor the Guarantor is in violation
of its charter or by-laws or other governing instrument or in default in the
performance of any obligation, agreement or condition contained in any bond,
debenture, note or any other evidence of indebtedness or in any other
agreement, indenture or instrument to which it is a party or by which it or any
of its property is bound, except for those defaults that, individually or in
the aggregate, would not have a Material Adverse Effect.
(k) Except as disclosed in the Offering Memorandum, there
are no legal or governmental proceedings pending to which the Company or the
Guarantor is a party or of which any of their respective properties or assets
is the subject, and, to the best of the Company's knowledge, no such
proceedings are threatened or contemplated, which, in each case, if adversely
decided, would have, individually or in the aggregate, a Material Adverse
Effect. The descriptions contained in the Offering Memorandum of the
proceedings disclosed therein are true, complete and accurate in all material
respects. There is no contract, document, statute or regulation material to
the Company and its subsidiaries, taken as a whole, that would be required to
be described in the Offering Memorandum if it were a prospectus included in a
registration statement on Form S-3 under the Securities Act that is not so
described.
(l) Each of the Company and the Guarantor has all
necessary licenses, consents, authorizations, approvals, orders, certificates
and permits (collectively, "Licenses") of and from, and has made all
declarations and filings with and satisfied all eligibility and other similar
requirements imposed by all federal, state, local and other governmental
authorities, all self-regulatory organizations and all courts and other
tribunals, in each case as required for the conduct of the business in which it
is engaged, and each such License is in full force and effect, except to the
extent that the failure to obtain any such License or to make any such
declaration or filing or satisfy any such requirement would not have a Material
Adverse Effect. Neither the Company nor the Guarantor has received any notice
of proceedings relating to, or has any reason to believe that any
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<PAGE> 6
governmental body or agency is considering limiting, suspending, modifying or
revoking, any such License that would have a Material Adverse Effect.
(m) Neither the Company nor the Guarantor has received
any notice of infringement of or conflict with asserted rights of any third
party under any trademark, copyright, patent or license as a consequence of the
activities of the Company or any of its subsidiaries, except for infringements
or conflicts the remediation of or compensation for which would not have a
Material Adverse Effect.
(n) Ernst & Young LLP, whose reports are included in the
Offering Memorandum, is an independent public accountant (as defined in the
Securities Act) with respect to the Company, the Guarantor and Alexander.
(o) The consolidated financial statements of each of the
Company and Alexander and respective notes thereto included in the Offering
Memorandum present fairly in all material respects the consolidated financial
position, results of operations, cash flows and stockholders' equity of the
Company and Alexander, respectively (as reflected in such financial statements)
in conformity with generally accepted accounting principles on the basis stated
therein at the respective dates or for the respective periods to which they
apply; such statements and notes have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved, except as disclosed therein; and the other financial and
statistical information and data set forth in the Offering Memorandum, in all
material respects, present fairly the information purported to be shown thereby
at the respective dates or for the respective periods to which they apply and
have been prepared on a basis consistent with such financial statements and the
books and records of the Company and the other entities as to which such
information is shown. The pro forma financial statements of the Company and
its subsidiaries included in the Definitive Memorandum have been prepared in
accordance with the published rules and regulations of the Commission
applicable to pro forma financial statements and the assumptions used in the
preparation thereof are reasonable and appropriate to give pro forma effect in
all material respects to the transactions or circumstances described therein.
(p) On June 30, 1996, after giving pro forma effect to
the issuance and sale of the Notes pursuant hereto, the Company and the
Guarantor would have had an authorized and outstanding capitalization as set
forth in the Offering Memorandum under "Capitalization."
(q) The Company is not an "investment company" or a
company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(r) Neither the Company nor any person acting on its
behalf (provided that no representation is made as to the Initial Purchasers or
any other person acting on their behalf) has offered the Notes or the Guarantee
for sale by means of any general solicitation or general advertising within the
meaning of Rule 502(c) under the Securities Act. Neither the Company nor any
of its Affiliates has offered the Notes to any person except through the
Initial Purchasers.
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<PAGE> 7
Neither the Company nor any person acting on its behalf (provided that no
representation is made as to the Initial Purchasers or any other person acting
on their behalf) has offered the Notes or the Guarantee or any similar
securities for sale to, or solicited any offer to buy any of the same from, or
otherwise approached or negotiated in respect thereof with, any person other
than the Initial Purchasers and not more than 35 other institutional investors.
Neither the Company nor any affiliate (as defined in Rule 501(b) under the
Securities Act) thereof has, directly or indirectly, or through any agent,
within the six months preceding the date hereof, sold, offered for sale,
solicited offers to buy or otherwise negotiated in respect of the sale of any
security of the same or a similar class as the Notes or the Guarantee, other
than to the Initial Purchasers pursuant to this Agreement.
(s) Since the date of the Preliminary Memorandum, none of
the Company, the Guarantor or any affiliate has (i) sold, bid or, purchased or
paid any person any compensation for soliciting purchases of the Notes or (ii)
paid or agreed to pay to any person any compensation for soliciting another to
purchase any other securities of the Company, the Guarantor or any of their
respective subsidiaries, other than to the Initial Purchasers pursuant to this
Agreement.
(t) Assuming the accuracy of the Initial Purchasers'
representations contained in Section 3 hereof and the Initial Purchasers'
compliance with their covenants therein set forth, it is not necessary, in
connection with the sale and delivery of the Notes to the Initial Purchasers
and the offer and resale of the Notes by the Initial Purchasers, in each case
in the manner contemplated by this Agreement and the Offering Memorandum, to
register the Notes under the Securities Act or to qualify the Indenture under
the Trust Indenture Act.
(u) Neither the Company nor the Guarantor (i) has
violated any environmental, safety, health or similar law or regulation
applicable to its business relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes, pollutants
or contaminants, including, without limitation, the Clean Air Act, as amended,
the Clean Water Act, as amended, the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, the Federal Water Pollution Control
Act, as amended, the Resource Conservation and Recovery Act, as amended, the
Toxic Substances Control Act, as amended, the Oil Pollution Act, as amended,
the Occupational Safety and Health Act, as amended, and comparable state and
local laws and other safety, health and environmental conservation or
protection laws ("Environmental Laws"), the effect of which would be to cause,
individually or in the aggregate, a Material Adverse Effect, or (ii) lacks any
notices, permits, licenses or other approvals required of them under applicable
Environmental Laws or is violating any terms and conditions of any such notice,
permit, license or approval, the effect of which would be to cause,
individually or in the aggregate, a Material Adverse Effect. Without
limitation of the foregoing, there is as of the date hereof no litigation or
action pending or, to the best knowledge of the Company, threatened against the
Company or the Guarantor relating to any violation of any Environmental Laws
with respect to the assets or business of the Company or the Guarantor which is
required to be disclosed in the Offering Memorandum, or which might result,
individually or in the aggregate, in a Material Adverse Effect.
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<PAGE> 8
(v) Neither the Company nor any of its subsidiaries has
violated any Federal, state or local law relating to discrimination in the
hiring, promotion or pay of employees nor any applicable wage or hour laws, nor
any provisions of ERISA or the rules and regulations promulgated thereunder,
nor has the Company or the Guarantor engaged in any unfair labor practice,
which in each case might result, singly or in the aggregate, in a Material
Adverse Effect. There is (i) no significant unfair labor practice complaint
pending against the Company or the Guarantor or, to the best knowledge of the
Company, threatened against any of them, before the National Labor Relations
Board or any state or local labor relations board, and no significant grievance
or significant arbitration proceeding arising out of or under any collective
bargaining agreement is so pending against the Company or the Guarantor or, to
the best knowledge of the Company, threatened against any of them, (ii) no
significant strike, labor dispute, slowdown or stoppage pending against the
Company or the Guarantor or, to the best knowledge of the Company, threatened
against the Company or the Guarantor and (iii) to the best knowledge of the
Company, no union representation question currently exists with respect to the
employees of the Company or the Guarantor and, to the best knowledge of the
Company, no union organizing activities are taking place, except (with respect
to any matter specified in clause (i), (ii) or (iii) above, individually or in
the aggregate) such as could not have a Material Adverse Effect.
(w) All material tax returns required to be filed by the
Company and the Guarantor in any jurisdiction (including foreign jurisdictions)
have been so filed (except to the extent that the failure to make any such
filing would not have a Material Adverse Effect), 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 or those currently payable
without penalty or interest. The Company does not know of any actual or
proposed material additional tax assessments for any fiscal period against it
or the Guarantor. None of the Company's nor the Guarantor'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 or the
Guarantor, except such as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
(x) The Company and the Guarantor maintain insurance
covering their properties, operations, personnel and businesses. In the
Company's reasonable judgment, such insurance insures against such losses and
risks as are adequate in accordance with customary industry practice to protect
the Company and the Guarantor and their businesses. Neither the Company nor
the Guarantor has received notice from any insurer or agent of such insurer
that substantial capital improvements or other expenditures will have to be
made in order to continue such insurance. All such insurance is outstanding
and duly in force on the date hereof and will be outstanding and duly in force
on the Closing Date.
(y) The Company and the Guarantor have good and
defensible title to their interests in oil and gas properties and good and
marketable title to all other real and personal property owned by them, in each
case free and clear of all liens and defects except such as are described in
the Offering Memorandum or would not result in a Material Adverse Effect and do
not materially interfere with the use made or proposed to be made of such
properties by the Company
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<PAGE> 9
and the Guarantor; and any real property and buildings held under lease by the
Company and the Guarantor are held by them under valid, subsisting and
enforceable leases with such exceptions as would not have a Material Adverse
Effect and do not materially interfere with the use made or proposed to be made
of such property and buildings by the Company and the Guarantor. Except to the
extent described in the Offering Memorandum, the leases, options to lease,
drilling concessions or other arrangements held by the Company and the
Guarantor reflect in all material respects the rights of the Company and the
Guarantor to develop the unexplored and undeveloped acreage to produce
undeveloped oil and natural gas reserves, as described in the Offering
Memorandum. The Company and the Guarantor have exercised reasonable diligence,
with respect to acquiring or otherwise procuring such leases, options to lease,
drilling concessions and other arrangements, although the investigation of
record title made by the Company and the Guarantor generally involved no more
than a preliminary review of local records, as is customary in the industry.
(z) The information which was supplied by the Company to
Netherland, Sewell & Associates, Inc. ("NSA"), independent petroleum
engineers, for purposes of evaluating the oil and gas reserves of the Company
and Alexander as of December 31, 1995 and June 30, 1996, including, without
limitation, production, costs of operation and development, current prices for
production, agreements relating to current and future operations and sales of
production, was true and correct in all material respects on the dates such
estimates were made and such information was supplied and was prepared in
accordance with customary industry practices, as indicated in the letters of
NSA included in the Definitive Memorandum at Annexes A-1 through C (the "NSA
Letters"); NSA was, as of the date of the NSA Letters, and is, as of the date
hereof, independent with respect to the Company and the Guarantor; other than
normal production of the reserves and intervening product price fluctuations,
the Company is not aware of any facts or circumstances that would result in a
materially adverse change in the reserves, or the present value of future net
cash flows therefrom, as described in the Definitive Memorandum and as
reflected in the NSA Letters and the reserve report referenced therein;
estimates of such reserves and present values as described in the Definitive
Memorandum and reflected in the NSA Letters and the reserve report referenced
therein comply in all material respects to the applicable requirements of
Regulation S-X and Industry Guide 2 under the Securities Act. Except as set
forth in the Definitive Memorandum, there has been no event, trend or condition
that would have the effect of materially revising downward the estimates of pro
forma proved reserves of the Company as of June 30, 1996.
(aa) Except as (i) disclosed to the Initial Purchasers in
writing, (ii) disclosed in or contemplated by the Definitive Memorandum or
(iii) not required to be disclosed in the Definitive Memorandum, the Company is
not engaged in any negotiations, nor is it a party to any existing agreements,
arrangements or understandings, with respect to any acquisitions, combinations
or dispositions of assets or securities that would be material to the Company
and its subsidiaries, taken as a whole.
(bb) In reliance upon and subject to the accuracy of the
representations of the Initial Purchasers contained in Section 3 hereof,
neither the execution and delivery of this Agreement and the Registration
Rights Agreement nor the sale of the Notes to be purchased by the Initial
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<PAGE> 10
Purchasers is a prohibited transaction (within the meaning of Section 406 of
ERISA or Section 4975 of the Code), with respect to any employee benefit plans
sponsored by the Company or the Guarantor, 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 except,
in each case, for any such event as would not have a Material Adverse Effect.
(cc) Other than discounts and commissions of the Initial
Purchasers as described in the Definitive Memorandum, no fees or commissions
will be payable by the Company to any broker, finder or investment banker with
respect to the issuance and sale of any of the Notes pursuant to the terms of
this Agreement.
(dd) No statement, representation or warranty made by the
Company or the Guarantor in this Agreement or the Registration Rights Agreement
or made in any certificate or document required by any of the foregoing
agreements to be delivered by the Company or the Guarantor (or their agents,
attorneys or representatives) to the Initial Purchasers, is, was or will be,
when made, inaccurate, untrue or incorrect in any material respect.
(ee) Neither the Company nor any agent thereof acting on
its behalf has taken, and none of them will take, any action that might cause
this Agreement or the issuance or sale of the Notes or the Exchange Notes or
the application of proceeds thereof to violate Section 7 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") or any regulation issued
pursuant thereto, including, without limitation, Regulation G, T, U or X of the
Board of Governors of the Federal Reserve System, in each case as in effect now
or as the same may hereafter be in effect on the Issue Date.
(ff) The Notes, when issued, will not be of the same class
(within the meaning of Rule 144A under the Securities Act) as other securities
of the Company that are listed on a national securities exchange registered
under Section 6 of the Exchange Act, or quoted in a U.S. automated interdealer
quotation system of a registered national securities association.
(gg) No action has been taken and no statute, rule,
regulation or order has been enacted, adopted or issued by any governmental
agency that prevents the issuance of the Notes or prevents or suspends the use
of the Offering Memorandum; no injunction, restraining order or order of any
nature by a federal or state court of competent jurisdiction has been issued
that prevents the issuance of the Notes or prevents or suspends the sale of the
Notes in any jurisdiction referred to in
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<PAGE> 11
Section 4(e) hereof; and every request of any securities authority or agency of
any jurisdiction for additional information has been complied with in all
material respects.
(hh) There are no holders of securities of the Company,
the Guarantor or any of their respective subsidiaries who, by reason of the
execution by the Company and the Guarantor of this Agreement, the Registration
Rights Agreement, the Indenture or the Notes, or the consummation by the
Company and the Guarantor of the transactions contemplated hereby and thereby,
have the right to request or demand that the Company, the Guarantor or any of
their respective subsidiaries register, under the Securities Act or analogous
foreign laws and regulations, securities held by them in connection with the
Exchange Offer.
(ii) None of the Company, the Guarantor or any of their
respective subsidiaries intends to, nor does it believe that it will, incur
debts beyond its ability to pay such debts as they mature. The present fair
saleable value of the assets of the Company, the Guarantor and their respective
subsidiaries, taken as a whole, exceeds the amount that will be required to be
paid on or in respect of the existing debts and other liabilities (including
contingent liabilities) of the Company, the Guarantor and their respective
subsidiaries as they become absolute and matured. The assets of the Company,
the Guarantor and their respective subsidiaries, taken as a whole, do not
constitute unreasonably small capital to carry out the business of the Company,
the Guarantor and their respective subsidiaries, taken as a whole, as conducted
or as proposed to be conducted. Upon the issuance of the Notes, the present
fair saleable value of the assets of the Company, the Guarantor and their
respective subsidiaries, taken as a whole, will exceed the amount that will be
required to be paid on or in respect of the existing debts and other
liabilities (including contingent liabilities) of the Company, the Guarantor
and their respective subsidiaries, taken as a whole, as they become absolute
and matured. Upon the issuance of the Notes, the assets of the Company, the
Guarantor and their respective subsidiaries, taken as a whole, will not
constitute unreasonably small capital to carry out their businesses as now
conducted, including the capital needs of the Company, the Guarantor and their
respective subsidiaries, taking into account the projected capital requirements
and capital availability of the Company and its subsidiaries, taken as a whole.
(jj) Each certificate signed by any officer of the Company
and the Guarantor and delivered to the Initial Purchasers or counsel for the
Initial Purchasers shall be deemed to be a representation and warranty by the
Company and the Guarantor, as the case may be, to the Initial Purchasers as to
the matters covered thereby.
2. Purchase, Sale and Delivery of the Notes.
(a) Subject to the terms and conditions and in reliance
upon the representations, warranties and covenants of the Company, the
Guarantor and the Initial Purchasers herein set forth, (i) the Company agrees
to sell to the Initial Purchasers and the Initial Purchasers agree to purchase
from the Company $100,000,000 principal amount of Notes, in the respective
principal amounts set forth opposite their names on Schedule I hereto, at a
price of 96.75% of their principal amount and
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<PAGE> 12
(ii) the Guarantor agrees to execute and deliver the Guarantee with respect to
all Notes sold hereby to the Initial Purchasers. The obligations of the
Initial Purchasers under this Section 2(a) are several and not joint.
(b) Delivery of the Notes against payment of the purchase
price therefor shall be made at the offices of Strasburger & Price, L.L.P.
located at 901 Main Street, Suite 4300, Dallas, Texas 75202, or such other
location as may be mutually acceptable to the Initial Purchasers and the
Company and the Guarantor. Such delivery and payment shall be made at 10:00
a.m., New York time, on the third full business day next following the date of
this Agreement, or at such other time as shall be agreed upon by the Initial
Purchasers and the Company and the Guarantor. The time and date of such
delivery and payment are herein called the "Closing Date." One or more
certificates evidencing beneficial interests in the Notes registered in the
name of Cede & Co., as nominee of The Depository Trust Company ("DTC"), or in
the name of such other eligible nominee of DTC identified by the Initial
Purchasers to the Company and the Guarantor in writing at least two full
business days prior to the Closing Date, in the principal amounts corresponding
to the aggregate principal amount of the Notes (the "Global Notes") sold to
Qualified Institutional Buyers (as defined in Section 3 below) and certificates
evidencing one or more individually denominated Notes registered in such names
and in such denominations as the Initial Purchasers may request in writing at
least two full business days prior to the Closing Date, in the principal
amounts corresponding to the aggregate principal amount of the Notes (the
"Individual Notes") sold to Accredited Institutions (as defined in Section 3
below) that are not Qualified Institutional Buyers shall be delivered to the
Initial Purchasers by the Company, against payment of the purchase price
therefor by certified or official bank check payable in New York Clearing House
funds to the order of the Company and the Guarantor.
(c) The Company and the Guarantor will permit the Initial
Purchasers to examine and package the Global Notes and the Individual Notes for
delivery at least one full business day prior to the Closing Date.
(d) It is understood that each certificate evidencing a
Note shall bear a legend substantially to the following effect:
THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED TO OR FOR THE ACCOUNT OR BENEFIT OF ANY PERSON
EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT) OR (B) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) WHICH IS AN
INSTITUTION (AN "INSTITUTIONAL ACCREDITED INVESTOR"), (2) AGREES THAT
IT WILL
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<PAGE> 13
NOT PRIOR TO THE DATE WHICH IS THREE YEARS (OR SUCH SHORTER PERIOD AS
COMPLIES WITH RULE 144 UNDER THE SECURITIES ACT) AFTER THE LATER OF
THE DATE OF ORIGINAL ISSUANCE OF THIS SECURITY AND THE LAST DATE ON
WHICH THE ISSUER OR ANY AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS
SECURITY (THE "RESALE RESTRICTION TERMINATION DATE") RESELL, PLEDGE OR
OTHERWISE TRANSFER THIS SECURITY, EXCEPT (A) TO THE ISSUER, (B) TO A
PERSON THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL
BUYER PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANOTHER
QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH THE RESALE PROVISIONS
OF RULE 144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE
TRUSTEE A WRITTEN CERTIFICATION CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY
(COPIES OF SUCH FORM CAN BE OBTAINED FROM THE TRUSTEE), (D) OUTSIDE
THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 OF THE SECURITIES ACT, (E) PURSUANT TO THE
RESALE LIMITATIONS PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE), (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, OR (G) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT IN
EACH OF THE FOREGOING CASES TO ANY REQUIREMENT OF LAW THAT THE
DISPOSITION OF ITS PROPERTY OR THE PROPERTY OF SUCH ACCOUNT BE AT ALL
TIMES WITHIN ITS CONTROL AND TO COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS, AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO
WHICH THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND. IF THE PROPOSED TRANSFEREE IS NOT A QUALIFIED
INSTITUTIONAL BUYER, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH
TO THE TRUSTEE AND THE ISSUER SUCH CERTIFICATIONS, LEGAL OPINIONS OR
OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM
THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. THE FOREGOING RESTRICTIONS ON RESALE WILL NOT APPLY
SUBSEQUENT TO THE RESALE RESTRICTION TERMINATION DATE.
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<PAGE> 14
3. Offering and Resale of the Notes.
The Initial Purchasers have advised the Company and the Guarantor that
it is their intention, as promptly as they deem appropriate after the Company
and the Guarantor shall have furnished them with copies of the Definitive
Memorandum (as specified in Section 4(b) hereof), to resell the Notes but only
pursuant to the procedures and upon the terms and subject to the conditions set
forth in this Agreement and the Definitive Memorandum. Each Initial Purchaser
represents and warrants to the Company and the Guarantor that it is a Qualified
Institutional Buyer and an Accredited Investor (within the meaning of Rule
501(a) of Regulation D under the Securities Act). In connection therewith,
each Initial Purchaser represents and warrants to and agrees with the Company
and the Guarantor (A) that the Notes have been and will be offered for sale and
will be sold by it solely to (i) persons reasonably believed by it to be
"Qualified Institutional Buyers" purchasing for their own account or for the
account of other Qualified Institutional Buyers within the meaning of Rule 144A
under the Securities Act and that, in connection with each such sale, it has
taken or will take reasonable steps to ensure that the purchaser of such Notes
is aware that such sale is being made in reliance on Rule 144A and/or (ii) a
limited number of persons that are "Accredited Investors" within the meaning of
Rule 501(a)(1), (2), (3) or (7) under the Securities Act that are institutions
(each, an "Accredited Institution"), and each of which provides to such Initial
Purchaser a letter in the form of Annex D to the Offering Memorandum, and (B)
that such Initial Purchaser has not offered and will not offer the Notes for
sale by means of any general solicitation or general advertising within the
meaning of Rule 502(c) of Regulation D under the Securities Act or in any
manner involving a public distribution or offering of the Notes within the
meaning of the Securities Act. The Initial Purchasers agree to use their
reasonable efforts to deliver a Definitive Memorandum to each person to whom
the Notes are resold by the Initial Purchasers substantially contemporaneously
with the Closing Date.
4. Agreements of the Company and the Guarantor.
The Company and the Guarantor agree with the Initial Purchasers as
follows:
(a) The Company and the Guarantor will advise the Initial
Purchasers promptly (and, if so requested by the Initial Purchasers, will
confirm such advice in writing) of (i) the occurrence, during the period
referred to in paragraph (d) below, of any event of which the Company and the
Guarantor have knowledge that makes any statement of a material fact made in
the Definitive Memorandum untrue or that requires the addition of any statement
of a material fact to, or other material change in, the Definitive Memorandum
in order to make the statements therein, in light of the circumstances existing
when it is delivered to a purchaser, not misleading and (ii) the issuance by
any state securities commission of any stop order suspending the qualification
or exemption from qualification of the Notes for offering or sale in any
jurisdiction, or the initiation of any proceeding for such purpose by any state
securities commission or other regulatory authority.
(b) The Company and the Guarantor will furnish to the
Initial Purchasers and to those persons whom the Initial Purchasers identify to
the Company and the Guarantor such number
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<PAGE> 15
of copies of the Definitive Memorandum, and any amendments thereof or
supplements thereto, as the Initial Purchasers may reasonably request.
(c) The Company and the Guarantor (i) will not make any
amendment of or supplement to the Offering Memorandum regarding which the
Initial Purchasers shall not previously have been consulted or use any such
proposed amendment or supplement to which the Initial Purchasers shall
reasonably and in good faith object and (ii) shall promptly prepare, upon the
Initial Purchaser's request, any amendment or supplement to the Offering
Memorandum that in the opinion of counsel to the Initial Purchasers may be
necessary or advisable in connection with resales by the Initial Purchasers
pursuant to the procedures and upon the terms and subject to the conditions set
forth in the Offering Memorandum.
(d) If, during the period from the date of the Definitive
Memorandum through the Closing Date, and for so long thereafter as in the
opinion of the Initial Purchasers' counsel the Definitive Memorandum is
required to be delivered in connection with resales of the Notes by the Initial
Purchasers, any event shall occur as a result of which it becomes necessary to
amend or supplement the Definitive Memorandum in order that the Definitive
Memorandum will not include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein not
misleading in light of the circumstances existing when the Definitive
Memorandum is or is to be delivered to a purchaser, or if it becomes necessary
to amend or supplement the Definitive Memorandum to comply with any law, the
Company and the Guarantor promptly will prepare an appropriate amendment of or
supplement to the Definitive Memorandum so that the Definitive Memorandum, as
so amended or supplemented, does not include such untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein not misleading, in light of the circumstances existing when
it is so delivered, or so that the Definitive Memorandum will comply with law,
and the Company and the Guarantor will furnish to the Initial Purchasers such
number of copies thereof as they reasonably may request.
(e) The Company and the Guarantor will cooperate with the
Initial Purchasers and their counsel in connection with the registration or
qualification of the Notes under the securities or "Blue Sky" laws of such
jurisdictions as they may request, will continue such qualification in effect
for so long as required to permit the continuance of sales of and dealings in
the Notes within such jurisdictions to complete the resale by them of all of
the Notes as specified in Section 3 hereof, and will file such consents to
service of process or other documents as may be necessary in order to effect
such registration or qualification; provided, however, that in connection
therewith neither the Company nor the Guarantor shall be required to qualify as
a foreign corporation or broker-dealer or to file any general consent to
service of process in any jurisdiction in which it is not already so qualified
or subject.
(f) So long as any of the Notes are outstanding, the
Company and the Guarantor will furnish to the Initial Purchasers as soon as
available a copy of each report mailed by the Company and the Guarantor to
holders of Common Stock of the Company and the Guarantor or filed by the
Company and the Guarantor with the Commission, whether such report or filing is
required
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<PAGE> 16
by the Indenture or otherwise, and such other publicly available information
concerning the Company and the Guarantor as the Initial Purchasers reasonably
may request.
(g) So long as and at any time that the Notes are
outstanding and are "restricted securities" within the meaning of Rule
144(a)(3) under the Securities Act and the Company (or the Guarantor, if
applicable) is not subject to Section 13 or 15(d) of the Exchange Act, the
Company and the Guarantor, upon request of any holder of the Notes, will
furnish to such holder, and to any prospective purchaser or purchasers of the
Notes, designated by such holder, information satisfying the requirements of
subsection (d)(4)(i) of Rule 144A under the Securities Act.
(h) The Company and the Guarantor will use their best
efforts, and will cooperate with the Initial Purchasers, to cause the Notes to
be eligible for inclusion in the Private Offerings, Resales and Trading through
Automated Linkages ("PORTAL") market of the National Association of Securities
Dealers, Inc. ("NASD").
(i) The Company and the Guarantor will not, and will not
authorize or knowingly permit any person acting on their behalf to, offer to
sell or solicit offers to buy any of the Notes by means of any form of general
solicitation or general advertising within the meaning of Section 502(c) under
Regulation D under the Securities Act or in any manner involving a public
offering or distribution of the Notes within the meaning of the Securities Act.
(j) The Company and the Guarantor shall not take any
action or omit to take any action, which taking or omission, as the case may
be, would result in the Company and the Guarantor, or any of them, becoming an
"investment company" or a company controlled by an "investment company" within
the meaning of, or require any or all of the Company and the Guarantor to
register as an "investment company" under, the Investment Company Act.
(k) Whether or not the transaction contemplated by this
Agreement is consummated or this Agreement becomes effective or is terminated,
to pay all costs, expenses, fees and taxes incident to the performance of the
obligations of the Company and the Guarantor hereunder, including in connection
with: (i) the preparation, printing, filing and distribution of the Offering
Memorandum (including, without limitation, financial statements) and all
amendments and supplements thereto required pursuant hereto, (ii) the
preparation (including, without limitation, duplication costs) and delivery of
all preliminary and final Blue Sky Memoranda and all other agreements,
memoranda, correspondence and all other documents prepared and delivered in
connection herewith and with resales by the Initial Purchasers (other than the
cost of preparation of this Agreement and the Registration Rights Agreement),
(iii) the issuance, transfer and delivery of the Notes to the Initial
Purchasers, (iv) the qualification or registration of the Notes for offer and
sale under the securities or Blue Sky laws of the several states (including,
without limitation, the cost of printing and mailing a preliminary and final
Blue Sky Memorandum and the reasonable fees and disbursements of counsel for
the Initial Purchasers relating thereto), (v) furnishing such copies of the
Offering Memorandum, and all amendments and supplements thereto, as may be
requested for use in connection with resales by the Initial Purchasers, (vi)
the preparation of certificates for the
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<PAGE> 17
Notes (including, without limitation, printing and engraving thereof), (vii)
the fees, disbursements and expenses of the Company's and the Guarantor's
counsel and accountants, (viii) all fees and expenses (including fees and
expenses of counsel) of the Company and the Guarantor in connection with the
approval of the Notes by DTC for "book entry" transfer, (ix) rating the Notes
by the rating agencies, (x) the reasonable fees and expenses of the Trustee and
its counsel, (xi) the performance by the Company and the Guarantor of their
other obligations under this Agreement, the Registration Rights Agreement, the
Indenture and the Notes, and the consummation of the transactions contemplated
hereby and thereby and (xii) "roadshow" travel and other expenses incurred in
connection with the marketing and sale of the Notes; provided that, except as
provided in this Section 4(k) and in Section 8(c), the Initial Purchasers shall
pay their own costs and expenses, including the costs and expenses of their
counsel.
(l) The Company and the Guarantor will apply the net
proceeds from the sale of the Notes as set forth under the caption "Use of
Proceeds" in the Definitive Memorandum.
(m) The Company and the Guarantor will not (and will
direct their affiliates not to) take, directly or indirectly, any action that
is designed, or might reasonably be expected, to cause or result in the
stabilization or manipulation of the price of any security of the Company and
the Guarantor to facilitate the sale or resale of the Notes.
(n) During the period beginning from the date hereof and
continuing to and including the date which is six months after the Closing
Date, neither the Company nor any affiliate thereof shall sell, offer for sale,
solicit offers to buy or otherwise negotiate in respect of the sale of any
"security" (as defined in Section 2(1) of the Securities Act) of the same or a
similar class as the Notes, other than as contemplated by the Registration
Rights Agreement.
(o) The Company and the Guarantor will use their
reasonable best efforts to do and perform all things required or necessary to
be done and performed under this Agreement by them prior to the Closing Date
and to satisfy all conditions precedent to the delivery of the Notes.
(p) Not to sell, offer for sale or solicit offers to buy
or otherwise negotiate in respect of any security (as defined in the Securities
Act) that would be integrated with the sale of the Notes, in a manner that
would require the registration under the Securities Act of the sale to the
Initial Purchasers or the resale by the Initial Purchasers to the Qualified
Institutional Buyers or the Accredited Investors of the Notes or to take any
action that would result in the resales by the Initial Purchasers not being
exempt from registration under the Securities Act.
(q) To comply with all of their agreements set forth in
the Registration Rights Agreement and all agreements set forth in the
representations letter of the Company to DTC relating to the approval of the
Notes by DTC for "book-entry" transfer.
(r) Prior to the Closing Date, to furnish to the Initial
Purchasers, as soon as they have been prepared in the ordinary course by the
Company and the Guarantor, copies of any
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<PAGE> 18
unaudited interim financial statements for any period subsequent to the periods
covered by the financial statements appearing in the Offering Memorandum.
5. Indemnification.
(a) The Company and the Guarantor, jointly and severally,
agree to indemnify and hold harmless each Initial Purchaser, its directors,
officers and employees and each person, if any, who controls such Initial
Purchaser, now or hereafter, and their directors, officers and employees within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act (the Initial Purchasers and each such person being sometimes hereafter
referred to as an "Indemnified Person"), from and against any and all losses,
claims, damages, awards, liabilities and judgments (collectively, "Losses")
arising out of or based upon any untrue statement or alleged untrue statement
of a material fact contained in the Offering Memorandum or in any amendments
thereof or supplements thereto (including, without limitation, the financial
statements, accounting and statistical data included therein and the related
notes thereto), or by any omission or alleged omission to state therein 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, except insofar as such Losses arise out of or are based upon any
such untrue statement or omission or alleged untrue statement or omission based
upon the information relating to such Initial Purchaser furnished by it to the
Company and the Guarantor expressly for use therein and used in conformity
therewith; provided, however, that the indemnity obligations arising under this
Section 5(a) with respect to the Preliminary Memorandum, shall not inure to the
benefit of an Initial Purchaser and its controlling persons and their
respective directors, officers and employees if the person asserting any such
Losses purchased the Notes from such Initial Purchaser and if a copy of the
Definitive Memorandum (as then amended or supplemented if the Company and the
Guarantor shall have timely furnished any amendments thereof or supplements
thereto), was not sent or given by such Initial Purchaser or on its behalf to
such person at or prior to the written confirmation of the sale of the Notes to
such person, and if the Definitive Memorandum (as then amended or supplemented
if the Company and the Guarantor shall have timely furnished any amendments
thereof or supplements thereto) would have cured the defect giving rise to such
Losses. This indemnity is and will be in addition to any liability which the
Company and the Guarantor otherwise may have.
(b) In case any action or proceeding (including any
governmental investigation or inquiry) shall be brought or asserted against an
Indemnified Person, or notice of any such claim is received, with respect to
which indemnity may be sought against the Company or the Guarantor, such
Indemnified Person shall promptly notify the Company and the Guarantor in
writing and the Company and the Guarantor shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Indemnified
Person and the payment of all reasonable fees and expenses of such defense;
provided that the failure by any such Indemnified Person to so notify the
Company and the Guarantor shall not relieve the Company and the Guarantor of
their indemnification obligations under Sections 5(a) and (b) hereof, except to
the extent that the Company and the Guarantor are materially prejudiced or
forfeit substantive rights and defenses by reason of such failure. Such
Indemnified Person shall have the right to employ separate counsel in
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<PAGE> 19
any such action and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Person,
unless (i) the employment of such counsel has been authorized in writing by the
Company and the Guarantor, (ii) the Company and the Guarantor have failed
promptly to assume the defense and employ counsel (reasonably satisfactory to
such Indemnified Person), or (iii) the named parties to any such action
(including any impleaded parties) include both such Indemnified Person and the
Company or the Guarantor, and such Indemnified Person shall have been advised
by such counsel that there may be one or more legal defenses available to such
Indemnified Person that are different from or additional to those available to
the Company or the Guarantor, as the case may be, and in the reasonable
judgment of such counsel it is advisable for such Indemnified Party to employ
separate counsel (in all of which cases, if such Indemnified Person notifies
the Company and the Guarantor in writing that it elects to employ separate
counsel at the expense of the Company and the Guarantor, the Company and the
Guarantor shall not have the right to assume the defense of such action on
behalf such Indemnified Person; it being understood, however, that the Company
and the Guarantor shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for such Indemnified Person and any other
Indemnified Persons, which firm shall be designated in writing by such
Indemnified Persons (which shall be reasonably satisfactory to the Company and
the Guarantor) and that all such fees and expenses shall be reimbursed promptly
as they are billed. The Company and the Guarantor shall not be liable for any
settlement of any such action or proceeding effected without their written
consent (not to be unreasonably withheld) and if settled with their written
consent or if there is a final, unappealable judgment for the plaintiff, the
Company and the Guarantor agree to jointly and severally indemnify and hold
harmless such Indemnified Persons from and against any loss or liability by
reason of such settlement or judgment. Without limiting the generality of the
foregoing, the Company and the Guarantor shall not effect any settlement of any
pending or threatened proceeding in respect of which any Indemnified Person is
or has been threatened to be made a party where indemnity could have been
sought hereunder by such Indemnified Person unless the Company and the
Guarantor shall have obtained the prior written consent of such Indemnified
Person (not to be unreasonably withheld); provided, however, that the Company
and the Guarantor may effect such a settlement without the consent of such
Indemnified Person if such settlement includes an unconditional release of such
Indemnified Person from all liability for claims that are the subject matter of
such proceeding or the Company and the Guarantor indemnify such Indemnified
Person in writing and post a bond for an amount equal to the maximum liability
for all such claims as contemplated above or provide other security for such
indemnity as shall be reasonably satisfactory to such Indemnified Person.
(c) Each Initial Purchaser agrees, severally and not
jointly, to indemnify and hold harmless the Company and the Guarantor, their
directors, officers and employees and each person, if any, controlling the
Company and the Guarantor within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act from and against any and all Losses to
the same extent as the foregoing indemnity from the Company and the Guarantor
to the Initial Purchasers but only with respect to information relating to such
Initial Purchaser furnished in writing by such Initial
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<PAGE> 20
Purchaser expressly for use in the Offering Memorandum or any amendment thereof
or supplement thereto and used in conformity therewith; provided, however, that
in no case shall any Initial Purchaser be liable or responsible for any amount
in excess of the discounts and commissions received by the Initial Purchaser in
connection with the sale of the Notes, as set forth on the cover page of the
Offering Memorandum. In case any action or proceeding shall be brought against
the Company and the Guarantor, any of their directors, any of their officers or
any such controlling person based on the Offering Memorandum or any amendment
thereof or supplement thereto and in respect of which indemnity may be sought
against an Initial Purchaser, such Initial Purchaser shall have the same rights
and duties as are given to the Company and the Guarantor by Section 5(b) hereof
(except that if the Company and the Guarantor shall have assumed the defense
thereof, such Initial Purchaser shall not be required to do so, and in such
case such Initial Purchaser may employ separate counsel therein and participate
in the defense thereof but the fees and expenses of such counsel shall be at
such Initial Purchaser's expense), and the Company and the Guarantor, their
directors, officers and employees and each such controlling person shall have
the same rights and duties as are given to such Initial Purchaser by Section
5(b) hereof. The Company and the Guarantor acknowledge that the only
information furnished in writing by or on behalf of any Initial Purchaser
expressly for use in the Offering Memorandum consists of the following: (i) the
last full paragraph of text appearing on the outside front cover page of the
Definitive Memorandum, (ii) the names of the Initial Purchasers in the form
they appear on the outside front cover page of the Definitive Memorandum and in
the table under the caption "Plan of Distribution" in the Definitive
Memorandum, (iii) the first sentence of the second paragraph following the
table under the caption "Plan of Distribution" in the Definitive Memorandum,
(iv) the fifth and sixth sentences of the third paragraph following the table
under the caption "Plan of Distribution" in the Definitive Memorandum and (v)
the seventh and eighth sentences under the caption "Risk Factors - Absence of a
Public Market for the Notes" in the Definitive Memorandum.
(d) If the indemnification provided for in this Section 5
is unavailable to or otherwise insufficient to hold harmless an indemnified
party in respect of any Losses (other than by reason of exceptions provided in
such Section), then the party who would otherwise be responsible for such
indemnification, in lieu of, or in addition to, indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such Losses (i) in such proportion as is appropriate to reflect
the relative benefits received by the indemnifying party on the one hand and
the indemnified party on the other hand from the offering of the Notes or (ii)
if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
indemnifying party and the indemnified party in connection with the statements
or omissions which resulted in such Losses, as well as any other relevant
equitable considerations. The relative benefits received by the Company and
the Guarantor and an Initial Purchaser shall be deemed to be in the same
proportion as the total net proceeds from the Offering (before deducting
expenses) received by the Company and the Guarantor, and the total discounts
and commissions received by such Initial Purchasers, bear to the total price of
the Notes to investors, in each case as set forth in the table on the cover
page of the Definitive Memorandum. The relative fault of the Company and the
Guarantor and such Initial Purchaser shall be determined by reference to, among
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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 Guarantor or such Initial Purchaser
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Guarantor and the Initial Purchasers agree that it
would not be just and equitable if contribution pursuant to this Section 5(d)
were determined by pro rata allocation or by any other method of allocation
that 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 Losses shall be deemed to include, subject to the
limitations set forth above, any legal or other fees or expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of this
Section 5, each Initial Purchaser shall not be required to contribute any
amount in excess of the amount of the total discount applicable to the Notes
purchased by such Initial Purchaser. 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. For purposes of this Section 5(d), each
director, officer and employee of an Initial Purchaser or the Company and the
Guarantor, and each person, if any, who controls an Initial Purchaser or the
Company and the Guarantor within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, shall have the same rights to
contribution as such Initial Purchaser or the Company and the Guarantor, as the
case may be.
6. Conditions of the Initial Purchasers' Obligations.
The Initial Purchasers' obligations to purchase and pay for the Notes
shall be subject to (i) the accuracy of the representations and warranties of
the Company and the Guarantor herein contained as of the date hereof and as of
the Closing Date, (ii) the absence in any certificates, opinions, written
statements or letters furnished pursuant to this Section 6 to the Initial
Purchasers or to their counsel, of any qualification or limitation not
previously approved by the Initial Purchasers, (iii) the performance by the
Company and the Guarantor of their obligations hereunder required to be
performed on or prior to the Closing Date, and (iv) the following additional
conditions:
(a) Since the date of the latest balance sheet included
in the Definitive Memorandum: (i) there shall not have been any material
adverse change, or any development involving a prospective material adverse
change, in the capital stock or in the long-term debt of the Company or the
Guarantor from that set forth in or contemplated by the Definitive Memorandum,
(ii) the Company shall have no liability or obligation, direct or contingent,
that is material to the Company and the Guarantor, taken as a whole, other than
those reflected in the Definitive Memorandum; and (iii) there shall not have
been any material adverse change, or any development involving a prospective
material adverse change, in the financial condition, business, properties,
prospects, oil and gas reserves, net worth or results of operations of the
Company and the Guarantor taken as a whole, except, in each case, as expressly
described in the Definitive Memorandum.
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<PAGE> 22
(b) The representations and warranties made by the
Company and the Guarantor herein shall be true and correct on and as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of the Closing Date; and the Company and the Guarantor
shall have complied in all material respects with all agreements hereunder
required to be performed by the Company and the Guarantor.
(c) As to each Initial Purchaser, the purchase of and
payment for the Notes to be purchased by such Initial Purchaser hereunder shall
not be prohibited or enjoined (temporarily or permanently) by any applicable
law or governmental regulation, order or other restriction.
(d) The Definitive Memorandum shall have been printed and
copies distributed to the Initial Purchasers not later than 10:00 a.m., New
York time, on the day following the date of this Agreement or at such later
date and time as to which the Initial Purchasers may agree, and no stop order
suspending the qualification or exemption from qualification of the Notes in
any jurisdiction referred to in Section 4(e) shall have been issued and no
proceeding for that purpose shall have been commenced or shall be pending or
threatened.
(e) No action shall have been taken and no statute, rule,
regulation or order shall have been enacted, adopted or issued by any
governmental agency which would, as of the Closing Date, prevent the issuance
of the Notes; no action, suit or proceeding shall have been commenced and be
pending against or affecting or, to the best knowledge of the Company and the
Guarantor, threatened against, the Company, the Guarantor or any of their
respective subsidiaries before any court or arbitrator or any governmental
body, agency or official that, if adversely determined, could reasonably be
expected to result in a Material Adverse Effect; and no stop order shall have
been issued preventing the use of the Offering Memorandum, or any amendment or
supplement thereto, or which could reasonably by expected to have a Material
Adverse Effect, on the condition, financial or otherwise, or the earnings,
business affairs or business prospects of the Company and its subsidiaries
taken as a whole.
(f) On the Closing Date, the Initial Purchasers shall
have received the opinion of Strasburger & Price, L.L.P., counsel to the
Company, dated the Closing Date, addressed to the Initial Purchasers, and in
form and scope reasonably satisfactory to the Initial Purchasers' counsel,
substantially as set forth in Exhibit A hereto.
(g) On the Closing Date, the Initial Purchasers shall
have received a certificate, dated the Closing Date, signed by each of the
Chairman of the Board and Chief Financial Officer or the President and the
Chief Financial Officer of the Company and the Guarantor, and such other
certificates of executive officers as the Initial Purchasers may specify
confirming the matters set forth in paragraphs (a) and (b) of this Section 6.
(h) On the Closing Date, the Initial Purchasers shall
have received from Andrews & Kurth L.L.P., an opinion, dated the Closing Date,
addressed to the Initial Purchasers, with respect to the Company, the
Guarantor, the Offering Memorandum, the offer, sale and resale of the
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<PAGE> 23
Notes and other related matters as the Initial Purchasers reasonably may
require, and the Company shall have furnished to such firm such documents as
they may reasonably request for the purpose of enabling them to pass upon such
matters.
(i) Concurrently with the execution and delivery of this
Agreement, the Initial Purchasers shall have received from Ernst & Young LLP,
and on the Closing Date, the Initial Purchasers shall have received from Ernst
& Young LLP, a letter addressed to the Initial Purchasers, dated the date of
its delivery, substantially in the form and to the effect and with respect to
such matters as shall have been previously agreed upon by the Initial
Purchasers.
(j) Concurrently with the execution and delivery of this
Agreement, the Initial Purchasers shall have received from NSA, and on the
Closing Date, the Initial Purchasers shall have received from NSA, a letter
addressed to the Initial Purchasers, dated the date of its delivery,
substantially in the form and to the effect and with respect to such matters as
shall have been previously agreed upon by the Initial Purchasers.
(k) On the Closing Date, the Company and the Guarantor
shall have executed and delivered the Registration Rights Agreement and the
Indenture.
(l) On or prior to the Closing Date, the Revised Credit
Facility shall have been executed and delivered by the Company and the banks
executing same.
(m) Prior to the Closing Date, the Company shall have
furnished to the Initial Purchasers such further information, certificates and
documents as the Initial Purchasers reasonably may request.
If any of the conditions specified in this Section 6 shall not have
been fulfilled when and as required by this Agreement, or if any of the
certificates, opinions, written statements or letters furnished to the Initial
Purchasers or to their counsel pursuant to this Section 6 shall not be
reasonably satisfactory in form and scope in all material respects to the
Initial Purchasers and to their counsel, all of the Initial Purchasers'
obligations hereunder may be cancelled by them at, or at any time prior to, the
Closing Date. Notice of such cancellation shall be given to the Company and
the Guarantor in writing or by telephone, telecopy, telex or telegraph,
confirmed in writing.
7. Effective Date of Agreement and Termination.
(a) This Agreement shall become effective upon its
execution.
(b) This Agreement may be terminated at any time prior to
the Closing Date by the Initial Purchasers upon notice to the Company and the
Guarantor if any of the following has occurred: (i) since the respective dates
as of which information is provided in the Definitive Memorandum, any material
adverse change which would, in the Initial Purchasers' reasonable judgment,
make it impracticable to market the Notes on the terms and in the manner
contemplated
-23-
<PAGE> 24
in the Offering Memorandum, (ii) any outbreak or escalation of hostilities or
other national or international calamity or crisis or material adverse change
in economic conditions, if the effect of such outbreak, escalation, calamity,
crisis or change on the financial markets of the United States would, in the
Initial Purchasers' reasonable judgment, make it impracticable to market the
Notes on the terms and in the manner specified in the Offering Memorandum,
(iii) any suspension of trading in securities on the New York Stock Exchange,
Inc., the American Stock Exchange or The Nasdaq Stock Market or the imposition
of any limitation on prices (other than limitations on hours or number of days
of trading) for securities on any such exchange or The Nasdaq Stock Market,
(iv) the reenactment, publication, decree or other promulgation of any federal
or state statute, regulation, rule or order of any court or other governmental
authority which in the Initial Purchasers' reasonable judgment materially and
adversely affects, or will materially and adversely affect, the business or
operations of the Company and its subsidiaries, taken as a whole, (v) the
declaration of a banking moratorium by either federal or New York State
authorities, (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs that in the
Initial Purchasers' reasonable judgment could have a material adverse effect on
the financial markets in the United States, or (vii) there shall have been such
a material adverse change in general economic, political or financial
conditions or if the effect of international conditions on the financial
markets in the United States shall be such as, in the Initial Purchasers'
judgment, makes it inadvisable or impracticable to market the Notes on the
terms and in the manner contemplated in the Offering Memorandum.
8. Miscellaneous.
(a) Notices given pursuant to any provision of this
Agreement shall be given by facsimile transmission or by notice in writing hand
delivered or by certified mail, postage prepaid, return receipt requested. All
such notices shall be sent to the facsimile transmission number or address (as
the case may be) as follows:
(i) if to the Company, to:
National Energy Group, Inc.
4925 Greenville Avenue, Suite 1400
Dallas, Texas 75206
Attention: President
Fax Number: (214) 692-9310
-24-
<PAGE> 25
with a copy to:
Strasburger & Price, L.L.P.
NationsBank Plaza
901 Main Street, Suite 4300
Dallas, Texas 75202
Attention: Carol Glendenning
Fax Number: (214) 651-4330
(ii) if to the Initial Purchasers, to:
Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
Attention: Corporate Finance Department
Fax Number: (212) 272-3092
and
Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Attention: Corporate Finance Department
Fax Number: (212) 816-7457
and
Jefferies & Company, Inc.
11100 Santa Monica Blvd., 10th Floor
Los Angeles, California 90025
Attention: Corporate Finance Department
Fax Number: (310) 575-5299
with a copy to:
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
Attention: James M. Prince, Esq.
Fax Number: (713) 220-4285
-25-
<PAGE> 26
(b) The respective indemnities, contribution
agreements, representations, warranties and other statements of the
Company and the Guarantor and the Initial Purchasers set forth in or
made pursuant to this Agreement shall remain operative and in full
force and effect, and will survive delivery of and payment for the
Notes, regardless of (i) any investigation, or statement as to the
results thereof, made by or on behalf of the officers or directors of
any of the Company and the Guarantor or any controlling person of the
Company and the Guarantor and (ii) acceptance of the Notes and payment
for them hereunder. The respective agreements, indemnities and other
statements set forth in Sections 4(k) and 5 hereof shall remain in
full force and effect, regardless of any termination or cancellation
of this Agreement.
(c) If this Agreement shall be terminated by the Initial
Purchasers because of any failure or refusal on the part of the Company and the
Guarantor to comply with the terms or to fulfill any of the conditions of this
Agreement, the Company and the Guarantor shall reimburse the Initial Purchasers
for all out-of-pocket expenses (including the fees and disbursements of their
counsel) reasonably incurred by them in connection with the offering of the
Notes.
(d) Except as otherwise provided, this Agreement has been
and is made solely for the benefit of and shall be binding upon the Company and
the Guarantor, their respective directors and officers, the Initial Purchasers,
any controlling persons referred to herein and their respective successors and
assigns, all as and to the extent provided in this Agreement, and no other
person shall acquire or have any right under or by virtue of this Agreement.
The term "successors and assigns" shall not include a purchaser of any of the
Notes from the Initial Purchasers merely because of such purchase.
Notwithstanding the foregoing it is expressly understood and agreed that each
purchaser of the Notes from the Initial Purchasers is intended to be a
beneficiary of the Company's and the Guarantor's covenants contained in the
Registration Rights Agreement to the same extent as if the Notes were sold and
those covenants were made directly to such purchaser by the Company and the
Guarantor, and each such purchaser shall have the right to take action against
either of the Company and the Guarantor to enforce, and obtain monetary
recovery for damages resulting from any breach of, those covenants.
(e) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to instruments
made and performed wholly in such state and without regard to the choice of law
provisions of such state.
(f) This Agreement may be signed in counterparts, all of
which taken together shall constitute but one and the same original instrument.
Please confirm that the foregoing correctly sets forth the mutual
agreement and understanding between the Company, the Guarantor and the Initial
Purchasers as to the subject matter herein set forth.
-26-
<PAGE> 27
PURCHASE AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above:
Very truly yours,
NATIONAL ENERGY GROUP, INC.
By: /s/ MILES D. BENDER
-----------------------------------------
Name: Miles D. Bender
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
Guarantor:
NATIONAL ENERGY GROUP OF OKLAHOMA, INC.
By: /s/ MILES D. BENDER
-----------------------------------------
Name: Miles D. Bender
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
-27-
<PAGE> 28
PURCHASE AGREEMENT SIGNATURE PAGE
Accepted and agreed to as of
the first date written above
BEAR, STEARNS & CO. INC.
By: /s/ DONALD R. MULLEN
-----------------------------------
Name: Donald R. Mullen
---------------------------------
Title: Senior Managing Director
---------------------------------
SMITH BARNEY INC.
By: /s/ ANDREW SAFRAN
-----------------------------------
Name: Andrew Safran
---------------------------------
Title: Managing Director
---------------------------------
JEFFERIES & COMPANY, INC.
By: /s/ ROBERT CARINGTON
-----------------------------------
Name: Robert Carington
---------------------------------
Title: Senior Vice President
---------------------------------
-28-
<PAGE> 29
SCHEDULE I
<TABLE>
<CAPTION>
Principal Amount
<S> <C>
Bear, Stearns & Co. Inc. . . . . . . . . . . . . . . . . $ 60,000,000
Smith Barney Inc. . . . . . . . . . . . . . . . . . . . . 27,000,000
Jefferies & Company, Inc. . . . . . . . . . . . . . . . . 13,000,000
-------------
Total . . . . . . . . . . . . . . . . . $ 100,000,000
=============
</TABLE>
-29-
<PAGE> 1
$100,000,000
National Energy Group, Inc.
10 3/4% Senior Notes due 2006
REGISTRATION RIGHTS AGREEMENT
October 29, 1996
BEAR, STEARNS & CO. INC.
SMITH BARNEY INC.
JEFFERIES & COMPANY, INC.
c/o Bear, Stearns & Co. Inc.
245 Park Ave.
New York, New York 10167
Ladies and Gentlemen:
National Energy Group, Inc., a Delaware corporation (the
"Company") proposes to issue and sell to you (the "Initial Purchasers"), upon
the terms set forth in a purchase agreement of even date herewith (the
"Purchase Agreement"), $100,000,000 principal amount of the Company's 10 3/4%
Senior Notes due 2006 (the "Notes"). The Notes will be issued pursuant to an
indenture, to be dated as of November 1, 1996 (the "Indenture") by and among
the Company, National Energy Group of Oklahoma, Inc., a Delaware corporation
(the "Guarantor") and Bank One, Columbus, N.A., as trustee (the "Trustee"),
substantially in the form previously furnished to you.
Capitalized terms used but not specifically defined herein are
defined in the Purchase Agreement and used herein as so defined. References to
Notes shall include the Guarantee (as defined in the Indenture) of the
Guarantor. As used herein, "Registrable Notes" shall mean each Note, until the
earliest to occur of (a) the date on which a Registered Exchange Offer is
completed for the Notes pursuant to which such Note may be exchanged in the
Registered Exchange Offer for an Exchange Note (each as defined below) and
entitled to be resold to the public by the holder thereof without complying
with the prospectus delivery requirements of the Securities Act of 1933, as
amended (the "Securities Act"), (b) the date on which such Note has been
effectively registered under the Securities Act and disposed of pursuant to a
Notes Shelf Registration (as defined below), (c) the date on which such Note is
distributed to the public pursuant to Rule 144 under the Securities Act or by a
Broker-Dealer (as defined below) pursuant to the "Plan of Distribution"
contemplated by the registration statement relating to the Registered Exchange
Offer (including delivery of the prospectus contained therein) or (d) the date
such Note ceases to be outstanding.
In consideration of the premises, and the mutual covenants,
representations, warranties and agreements herein contained, the parties hereby
agree as follows:
<PAGE> 2
1. Registered Exchange Offer.
(a) Promptly (and in any event not more than 45 days)
following the closing date of the sale of the Notes (the "Closing Date"), the
Company and the Guarantor shall file with the Commission a registration
statement on an appropriate form under the Securities Act with respect to a
proposed offer (the "Registered Exchange Offer") to the holders of the
Registrable Notes to issue and deliver to such holders, in exchange for the
Registrable Notes, a like principal amount of debt securities of the Company
identical in all material respects to the Registrable Notes (the "Exchange
Notes"), shall use their best efforts to cause such registration statement to
become effective under the Securities Act no later than 120 days after the
Closing Date and, upon the effectiveness of that registration statement, shall
commence the Registered Exchange Offer and shall cause the same to remain open
for such period of time to be determined by the Company (but not less than 30
nor more than 60 days after the commencement of the Registered Exchange Offer),
and to be conducted in accordance with such procedures, as may be required by
the applicable provisions of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), it being the objective of such Registered Exchange Offer
to enable each holder of Registrable Notes electing to exchange Registrable
Notes for Exchange Notes (assuming that such holder is not an affiliate of the
Company within the meaning of the Securities Act, acquires the Exchange Notes
in the ordinary course of such holder's business and has no arrangements with
any person to participate in the distribution of the Exchange Notes) to trade
such Registrable Notes for Exchange Notes from and after their receipt without
any limitations or restrictions under the Securities Act, subject as to a
Broker-Dealer to the provisions of Section 1(b) hereof, or the Exchange Act and
without material restrictions under the securities laws of a substantial
proportion of the several states of the United States. Each holder of
Registrable Notes who participates in the Exchange Offer and who desires to
receive Exchange Notes that will not be subject to any limitations or
restrictions on resale under the Securities Act will be required to represent
in writing to the Company that any Exchange Notes received by it will be
acquired in the ordinary course of its business, that at the time of
consummation of the Exchange Offer such holder of Registrable Notes will have
no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, and that such holder of the Registrable
Notes is not an affiliate of the Company within the meaning of the Securities
Act. Upon consummation of the Exchange Offer in accordance with this Section
1, the Company shall have no further obligation to register Registrable Notes
pursuant to Section 2 of this Agreement.
(b) The Company shall indicate in a "Plan of
Distribution" section contained in the final prospectus constituting a part of
the registration statement relating to the Registered Exchange Offer that any
broker or dealer registered under the Exchange Act (each a "Broker-Dealer") who
holds Registrable Notes that were acquired for its own account as a result of
market-making activities or other trading activities (other than Registrable
Notes acquired directly from the Company), may exchange such Registrable Notes
for Exchange Notes pursuant to the Registered Exchange Offer; however, such
Broker-Dealer may be deemed an "underwriter" within the meaning of the
Securities Act and, therefore, must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of the
Exchange Notes received by it in the Registered Exchange Offer, which
prospectus delivery requirement may be satisfied by the delivery by such
-2-
<PAGE> 3
Broker-Dealer of the final prospectus contained in the registration statement
relating to the Registered Exchange Offer. Such "Plan of Distribution" section
also shall state that the delivery by a Broker-Dealer of the final prospectus
relating to the Registered Exchange Offer in connection with resales of
Exchange Notes shall not be deemed to be an admission by such Broker-Dealer
that it is an "underwriter" within the meaning of the Securities Act, and shall
contain all other information with respect to resales of the Exchange Notes by
Broker-Dealers that the Commission may require in connection therewith, but
such "Plan of Distribution" shall not name any such Broker-Dealer or disclose
the amount of Exchange Notes held by any such Broker-Dealer except to the
extent required by the Commission as a result of a change in policy after the
date of this Agreement.
(c) In connection with such Registered Exchange Offer and
the offer and sale of Exchange Notes by Broker-Dealers as contemplated above,
the Company and the Guarantor shall take such other and further action,
including making appropriate filings under state securities laws and delivering
such number of final prospectuses relating to the Registered Exchange Offer as
any Broker-Dealer proposing to deliver the same in connection with its resales
of Exchange Notes may reasonably request, as may be necessary to realize the
foregoing objectives. The Company and the Guarantor shall cause the
registration statement relating to the Registered Exchange Offer to remain
continuously effective for a period of one year from the date on which such
registration statement is first declared effective, and shall supplement or
amend the prospectus contained therein, in each case, to the extent necessary
to permit such prospectus (as supplemented or amended) to be delivered by
Broker-Dealers in connection with their resales of Exchange Notes as aforesaid.
2. Notes Shelf Registration. The following provisions
shall apply, only if, because of any change in currently prevailing
interpretations of the Commission's staff, the Company is not permitted to
effect a Registered Exchange Offer, as contemplated by Section 1 hereof:
(a) Promptly (and in any event not more than 45 days)
following the date of closing (the "Closing Date") of the sale of the Notes,
the Company and the Guarantor shall file with the Commission, and thereafter
use their best efforts to have declared effective not later than 120 days after
the Closing Date, a registration statement on an appropriate form under the
Securities Act relating to the offer and sale of the Registrable Notes by the
holders thereof, from time to time in accordance with the methods of
distribution set forth in such registration statement and Rule 415 under the
Securities Act (the "Notes Shelf Registration").
(b) The Company and the Guarantor agree to use their best
efforts to keep the registration statement relating to the Notes Shelf
Registration continuously effective in order to permit the prospectus included
therein to be usable by the holders of the Registrable Notes for a period of
three years from the Closing Date or such shorter period that will terminate
when all the Registrable Notes covered by the registration statement have been
sold pursuant to such registration statement; provided, that the Company and
the Guarantor shall be deemed not to have used their best efforts to keep the
registration statement effective during the requisite period if they
voluntarily take any action that would result in holders of the Registrable
Notes covered thereby not being able to
-3-
<PAGE> 4
offer and sell such Registrable Notes during that period, unless such action is
required by applicable law, and provided, further, that the foregoing shall not
apply if the Company determines, in its reasonable judgment, upon advice of
counsel, as authorized by a resolution of its Board of Directors, that the
continued effectiveness and usability of such registration statement would (i)
require the disclosure of material information, which the Company has a bona
fide business reason for preserving as confidential, or (ii) interfere with any
financing, acquisition, corporate reorganization or other material transaction
involving the Company or any of its Affiliates (as defined in the rules and
regulations adopted under the Exchange Act); provided, however, that the
failure to keep the registration statement effective and usable for offers and
sales of Registrable Notes for such reasons shall last no longer than 60 days
in any 12-month period (whereafter Notes Liquidated Damages (as defined in
Section 6) shall accrue and be payable), so long as the Company promptly
thereafter complies with the requirements of Section 3(h) hereof, if
applicable. Any such period during which the Company and the Guarantor fail to
keep the registration statement effective and usable for offers and sales of
Registrable Notes is referred to as a "Suspension Period." A Suspension Period
shall commence on and include the date that the Company gives notice that the
registration statement is no longer effective or the prospectus included
therein is no longer usable for offers and sales of Registrable Notes and shall
end on the date when each seller of Registrable Notes covered by such
registration statement either receives the copies of the supplemented or
amended prospectus contemplated by Section 3(h) hereof or is advised in writing
by the Company that use of the prospectus may be resumed.
(c) Notwithstanding any other provisions of this
Agreement to the contrary, the Company and the Guarantor will cause the Notes
Shelf Registration and the related prospectus and any amendment or supplement
thereto, as of the effective date of such registration statement, amendment or
supplement, (i) to comply in all material respects with the applicable
requirements of the Securities Act and the rules and regulations of the
Commission 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.
3. Registration Procedures. In connection with, to the
extent applicable, any Registered Exchange Offer pursuant to Section 1 hereof,
or any Notes Shelf Registration pursuant to Section 2 hereof, the following
provisions shall apply:
(a) If requested by any holder of Registrable Notes or
the managing underwriter, if any, with respect to the Notes Shelf Registration,
the Company shall furnish to each such holder of Registrable Notes or such
managing underwriter, prior to the filing thereof with the Commission, a copy
of the applicable registration statement and each amendment thereof and each
supplement, if any, to the prospectus included therein. The Company shall use
its best efforts to reflect in each such document, when so filed with the
Commission, such comments as such holder or managing underwriter reasonably may
propose.
-4-
<PAGE> 5
(b) The Company shall advise the holders of Registrable
Notes or the Exchange Notes, and the managing underwriter, if any, and, if
requested by any such person, confirm such advice in writing:
(i) when the applicable registration statement and any
amendment thereto has been filed with the Commission and when the
registration statement or any post-effective amendment thereto has
become effective;
(ii) of the issuance by the Commission of any stop order
suspending the effectiveness of the applicable registration statement
or the initiation of any proceedings for that purpose;
(iii) of the receipt by the Company of any notification
with respect to the suspension of the qualification of the Registrable
Notes or the Exchange Notes for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose; and
(iv) of the happening of any event that requires the
making of any changes in the registration statement or the prospectus
in order to make the statements therein not misleading (which advice
shall be accompanied by an instruction to suspend the use of the
prospectus until the requisite changes have been made).
(c) The Company will make every reasonable effort to
obtain the withdrawal of any order suspending the effectiveness of the
registration statement at the earliest possible time.
(d) The Company will furnish to each holder of the
Registrable Notes or the Exchange Notes included within the coverage of the
Registered Exchange Offer or the Notes Shelf Registration, as appropriate,
without charge, at least one copy of the registration statement in the form in
which it was declared effective by the Commission and any post-effective
amendment thereto, including financial statements and schedules, and, if the
holder so requests in writing, all exhibits (including those incorporated by
reference).
(e) The Company will deliver to each holder of the
Registrable Notes or the Exchange Notes included within the coverage of the
Registered Exchange Offer or the Notes Shelf Registration, as appropriate,
without charge, as many copies of the prospectus (including each preliminary
prospectus) included in the registration statement and any amendment or
supplement thereto as such persons may reasonably request; the Company consents
to the use of the prospectus or any amendment or supplement thereto by each of
the selling holders of the Registrable Notes or the Exchange Notes in
connection with the offering and sale of the Registrable Notes or the Exchange
Notes covered by the prospectus or any amendment or supplement thereto.
(f) Prior to any public offering of the Registrable Notes
or the Exchange Notes pursuant to the Registered Exchange Offer or the Notes
Shelf Registration, as the case may be, the Company will use its best efforts
to register or qualify, or cooperate with the holders of the
-5-
<PAGE> 6
Registrable Notes or the Exchange Notes covered thereby and their respective
counsel in connection with the registration or qualification of, such
Registrable Notes or Exchange Notes for offer and sale under the securities or
blue sky laws of such jurisdictions as any seller reasonably requests in
writing and do any and all other acts or things necessary or advisable to
enable the offer and sale in such jurisdictions, of the Registrable Notes or
the Exchange Notes covered by the Registered Exchange Offer or the Notes Shelf
Registration, as the case may be; provided, that the Company will not be
required to qualify generally to do business in any jurisdiction where it is
not then so qualified or to take any action which would subject it to general
service of process or to taxation in any such jurisdiction where it is not then
so subject.
(g) The Company will cooperate with the holders of the
Registrable Notes and the Exchange Notes to facilitate the timely preparation
and delivery of certificates representing the Registrable Notes and the
Exchange Notes to be sold in the Registered Exchange Offer or the Notes Shelf
Registration, as the case may be, free of any restrictive legends and in such
denominations and registered in such names as the holders may request provided
such request complies with the Indenture, prior to sales of the Registrable
Notes or the Exchange Notes, pursuant to the Registered Exchange Offer or the
Notes Shelf Registration, as the case may be.
(h) Upon the occurrence of any event contemplated by
paragraph (b)(iv) above, the Company will prepare a post-effective amendment to
the registration statement or a supplement to the related prospectus or file
any other required document so that, as thereafter delivered to purchasers of
the Registrable Notes or the Exchange Notes, the prospectus will not contain an
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading.
(i) Not later than the effective date of the applicable
registration statement, the Company will provide a CUSIP number for the
Registrable Notes or the Exchange Notes, as the case may be, and provide the
Trustee with printed certificates for the Registrable Notes or the Exchange
Notes, as the case may be, in a form eligible for deposit with The Depository
Trust Company.
(j) The Company will use its best efforts to comply with
all applicable rules and regulations of the Commission and will make generally
available to its security holders an earnings statement satisfying the
provisions of Section 11(a) of the Securities Act, no later than 45 days after
the end of the 12-month period (or 90 days, if such period is a fiscal year)
beginning with the first month of the Company's first fiscal quarter commencing
after the effective date of each of the Registered Exchange Offer and the
Notes Shelf Registration, which statements shall cover such 12-month period.
(k) The Company will cause the Indenture to be qualified
under the Trust Indenture Act of 1939 upon effectiveness of the registration
statement contemplated by Section 1(a) or Section 2(a).
-6-
<PAGE> 7
(l) The Company may require each holder of Registrable Notes to be
sold pursuant to the Notes Shelf Registration, to furnish to the Company such
information regarding the holder and the distribution of such Registrable Notes
as the Company may from time to time reasonably require for inclusion in the
registration statement. The Company may exclude from such registration the
Registrable Notes of any holder who unreasonably fails to furnish such
information in writing to the Company within ten business days (or longer time
period if agreed by the Company in writing) after receiving such request. Each
holder of Registrable Notes included within the coverage of any Registration
Statement shall furnish promptly to the Company all information required by
applicable law to be disclosed by such party in order to make the information
previously furnished to the Company not materially misleading.
(m) Each holder of Registrable Notes agrees by acquisition of
such Registrable Notes or Exchange Notes to be sold that, upon receipt of any
notice from the Company of the happening of any Suspension Period of the kind
described in Section 2(b), such holder will forthwith discontinue disposition of
such Registrable Notes or Exchange Notes covered by such Registration Statement
or Prospectus until such holder's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(h) hereof or is advised in writing
by the Company that use of the prospectus may be resumed.
4. Registration Expenses. The Company and the Guarantor will
bear all expenses incurred in connection with the performance of their
obligations under Sections 1 through 3 hereof and will bear or reimburse the
holders of the Registrable Notes for the reasonable fees and disbursements of
one firm of counsel designated by the holders of a majority in principal amount
of the Registrable Notes to act as counsel for the holders of the Registrable
Notes in connection therewith; provided that in any underwritten offering the
Company shall not be obligated to pay any underwriters' discounts and
commissions nor any transfer tax related to such offering.
5. Indemnification.
(a) Indemnification by Company and the Guarantor. The Company and
the Guarantor, jointly and severally, shall indemnify and hold harmless (i)
each Initial Purchaser, (ii) in the case of the Notes Shelf Registration, each
holder of Registrable Notes, and (iii) in the case of the Registered Exchange
Offer, each Broker-Dealer who holds Exchange Notes acquired for its own account
pursuant to the Registered Exchange Offer, and, in any such case, each Initial
Purchaser's and such holder's officers, directors, employees and agents and
each person who controls each such Initial Purchaser, now or hereafter, and
each such holder within the meaning of either Section 15 of the Securities Act
or Section 20 of the Exchange Act (each such person being sometimes hereinafter
referred to as an "Indemnified Person") from and against any and all losses,
claims, damages, liabilities and judgments arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in
any registration statement or prospectus or in any amendment or supplement
thereto relating to the Notes Shelf Registration or the Registered Exchange
Offer, as the case may be, or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of
-7-
<PAGE> 8
the circumstances under which they were made, not misleading, except insofar as
such losses, claims, damages, liabilities or judgments are caused by any such
untrue statement or omission or allegation thereof based upon information
relating to such Indemnified Person furnished in writing to the Company by such
Indemnified Person expressly for use therein and used in conformity therewith;
provided, however, that in the event an Initial Purchaser or a Broker- Dealer
is required by law to deliver a final prospectus in connection with a
Registered Exchange Offer or a Note Shelf Registration and the indemnity
obligations arising under this Section 5(a) arise with respect to untrue
statements or omissions or untrue alleged statements or omissions made in a
preliminary prospectus, such indemnity obligations arising under this Section
5(a) shall not inure to the benefit of any Initial Purchaser or Broker-Dealer
and its controlling persons and their respective directors, officers and
employees if the person asserting any such Losses purchased the Notes from such
Initial Purchaser or Broker-Dealer and if a copy of the final prospectus (as
then amended or supplemented if the Company and the Guarantor shall have timely
furnished any amendments thereof or supplements thereto), was not sent or given
by such Initial Purchaser or Broker-Dealer or on its behalf to such person at
or prior to the time such delivery was required by law, and if the final
prospectus (as then amended or supplemented if the Company and the Guarantor
shall have timely furnished any amendments thereof or supplements thereto)
would have cured the defect giving rise to such Losses. The indemnity will be
in addition to any liability which the Company and the Guarantor may otherwise
have.
If any action or proceeding (including any governmental
investigation or inquiry) shall be brought or asserted against an Indemnified
Person, or notice of any such claim is received, in respect of which indemnity
may be sought from the Company or the Guarantor, such Indemnified Person shall
promptly notify the Company and the Guarantor in writing, and the Company and
the Guarantor shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to such Indemnified Person and the payment of
all reasonable fees and expenses of such defense; provided that the failure by
any such Indemnified Person to so notify the Company and the Guarantor shall
not relieve the Company and the Guarantor of their indemnification obligations
under Sections 5(a) and (b) hereof, except to the extent that the Company and
the Guarantor are materially prejudiced or forfeit substantive rights and
defenses by reason of such failure. Such Indemnified Person 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 the expense
of such Indemnified Person unless (a) the Company and the Guarantor have agreed
in writing to pay such fees and expenses or (b) the Company and the Guarantor
shall have failed to assume the defense of such action or proceeding and to
employ counsel reasonably satisfactory to such Indemnified Person in any such
action or proceeding within a reasonable time after notice of commencement of
such action or proceeding or (c) the named parties to any such action or
proceeding (including any impleaded parties) include such Indemnified Person
and the Company and/or the Guarantor, and such Indemnified Person shall have
been advised in writing by counsel that there may be one or more legal
defenses available to such Indemnified Person that are different from or
additional to those available to the Company or the Guarantor and in the
reasonable judgment of such counsel it is advisable for such Indemnified Party
to employ separate counsel (in which case, if such Indemnified Person notifies
the Company and the Guarantor in writing that it
-8-
<PAGE> 9
elects to employ separate counsel at the expense of the Company and the
Guarantor, the Company and the Guarantor shall not have the right to assume the
defense of such action or proceeding on behalf of such Indemnified Person, it
being understood, however, that the Company and the Guarantor shall not, in
connection with any one such action 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 reasonable fees and
expenses of more than one separate firm of attorneys (in addition to local
counsel) at any time for such Indemnified Person and any other Indemnified
Persons, which firm shall be designated in writing by such Indemnified Persons
(which shall be reasonably satisfactory to the Company and the Guarantor), and
that all such fees and expenses shall be reimbursed as they are billed). The
Company and the Guarantor shall not be liable for any settlement of any such
action or proceeding effected without their written consent (not to be
unreasonably withheld), but if settled with their written consent, or if there
be a final, unappealable judgment for the plaintiff in any such action or
proceeding, the Company and the Guarantor agree to indemnify and hold harmless
such Indemnified Persons from and against any loss or liability by reason of
such settlement or judgment. The Company and the Guarantor shall not, without
the prior written consent of the Indemnified Person (which consent shall not be
unreasonably withheld), effect any settlement of any pending or threatened
proceeding in respect of which any Indemnified Person is a party and indemnity
has been sought hereunder by such Indemnified Person; provided however, that
the Company and the Guarantor may effect such a settlement without the consent
of such Indemnified Person if such settlement includes an unconditional release
of such Indemnified Person from all lability for claims that are the subject
matter of such proceeding or the Company and the Guarantor indemnify such
Indemnified Person in writing and post a bond for an amount equal to the
maximum liability for all such claims as contemplated above or provide other
security for such indemnity as shall be reasonably satisfactory to such
Indemnified Person.
(b) Indemnification by Holders. Each holder of Registrable Notes
agrees to indemnify and hold harmless the Company and the Guarantor, their
directors and officers, employees and agents and each person, if any,
controlling the Company and the Guarantor within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act to the same extent
as the foregoing indemnity from the Company and the Guarantor to such holder,
but only with respect to information relating to such holder or the
distribution furnished in writing by such holder expressly for use in any
registration statement or prospectus or any amendment or supplement thereto or
any preliminary prospectus relating thereto, provided, however, that no such
holder shall be liable for any indemnity claims hereunder in excess of the
amount of net proceeds received by such holder from the sale of Registrable
Notes pursuant to the Notes Shelf Registration. If any action or proceeding
shall be brought against the Company, the Guarantor or their directors,
officers, employees or agents or any such controlling person, in respect of
which indemnity may be sought against a holder of Registrable Notes, such
holder shall have the rights and duties given the Company and the Guarantor and
the Company and the Guarantor or their directors, officers, employees or agents
or such controlling person shall have the rights and duties given to each
holder by Section 5(a) hereof. The Company and the Guarantor shall be entitled
to receive indemnities from underwriters, selling brokers, dealer managers and
similar securities industry professionals participating in the distribution, to
the same extent as provided above with respect to information
-9-
<PAGE> 10
so furnished in writing by such persons specifically for inclusion in any
prospectus or registration statement or any amendment or supplement thereto.
(c) Contribution. If the indemnification provided for in this
Section 5 is unavailable to an indemnified party under Section 5(a) or Section
5(b) hereof (other than by reason of exceptions provided in those Sections) in
respect of any losses, claims, damages, liabilities or judgments referred to
therein, then each applicable 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 or
judgments in such proportion as is appropriate to reflect not only the relative
benefits but also the relative fault of the Company and the Guarantor on the
one hand and of the Indemnified Person 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. The relative fault of the Company and the Guarantor on the one
hand and of the Indemnified Person 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 Guarantor
or by the Indemnified Person and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in the second paragraph of
Section 5(a), any legal or other fees or expenses reasonably incurred by such
party in connection with investigating or defending any action or claim.
The Company, the Guarantor and the holders of the Registrable
Notes and Exchange Notes agree that it would not be just and equitable if
contribution pursuant to this Section 5(c) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. 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.
6. Additional Interest Under Certain Circumstances; Remedies.
If the Company and the Guarantor fail to file within 45 days,
or cause to become effective within 120 days, the registration statement
relating to the Registered Exchange Offer or the Notes Shelf Registration, as
applicable, or (subject to Section 2(b)) the Notes Shelf Registration is
declared effective but thereafter ceases to be effective in connection with
resales of the Registrable Notes (each such event, a "Registration Default"),
then the Company agrees to pay to each holder of Registrable Notes, accruing
from the date of the first such Registration Default (except in the event of
the commencement of a Suspension Period, in which case occurring from the 60th
day therefrom), liquidated damages in an amount equal to one-half of one
percent (.5%) per annum of the principal amount of Registrable Notes held by
such holder during the first 180-day period immediately following the
occurrence of the first such Registration Default, increasing by an additional
one-half of one percent (0.5%) per annum of the principal amount of such
Registrable
-10-
<PAGE> 11
Notes during each subsequent 180-day period, up to a maximum amount of
liquidated damages equal to two percent (2.0%) per annum of the principal
amount of such Registrable Notes ("Notes Liquidated Damages"), and ceasing to
accrue on the date such Registration Default has been cured by, as applicable,
the filing, declaration of effectiveness or withdrawal of suspension of
effectiveness of the applicable registration statement. The Company shall
notify the Trustee within one business day after (i) each and every
Registration Default and (ii) the date the Registration Default has been so
cured. Until the Trustee and the Paying Agent have received an Officers'
Certificate from the Company to the effect that all Notes Liquidated Damages
then due have been paid in full, the Company (in respect of any payment date)
shall pay Notes Liquidated Damages then due by depositing with the Trustee, in
trust, for the benefit of the affected holders of Registrable Notes, on or
before the applicable semi-annual interest payment date, immediately available
funds in sums sufficient to pay the liquidated damages then due and provide to
the Trustee and the Paying Agent a list of holders entitled to Notes Liquidated
Damages together with the amount of cash such holder is due. The Notes
Liquidated Damages amount due shall be payable as additional interest (from
funds received pursuant to such deposit) on each interest payment date to the
record holder of Registrable Notes entitled to receive the interest payment to
be made on such date as set forth in the Indenture.
7. Miscellaneous.
(a) Amendments and Waivers. The provisions of this
Agreement may not be amended, modified or supplemented, and waivers or consents
to departures from the provisions hereof may not be given, unless the Company
has obtained the written consent of holders of a majority in aggregate
principal amount of the Registrable Notes (insofar as such matters relate to
the Registrable Notes) or the Exchange Notes (insofar as such matters relate to
the Exchange Notes).
(b) Notices. All notices and other communications
provided for or permitted hereunder shall be made in writing by hand-delivery,
first-class mail, telex, telecopier, or air courier guaranteeing overnight
delivery:
(1) if to a holder of Registrable Notes or Exchange
Notes, at the most current address given by such holder to the Company
in accordance with the provisions of this Section 7(b), which address
initially is, with respect to each holder, the address of such holder
to which confirmation of the sale of the Notes was first sent by an
Initial Purchaser, with a copy in like manner to Bear, Stearns & Co.
Inc., 245 Park Avenue, New York, New York 10167, Attention: Corporate
Finance Department, Smith Barney Inc., 388 Greenwich Street, New York,
New York 10013, Attention: Corporate Finance Department and Jefferies
& Company, Inc., 11100 Santa Monica Blvd., 10th Floor, Los Angeles,
California 90025, Attention: Corporate Finance Department;
(2) if to an Initial Purchaser, to the addresses set
forth in clause (b)(1) above; and
-11-
<PAGE> 12
(3) if to the Company or the Guarantor, initially at its
respective address set forth in the Purchase Agreement.
All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt acknowledged by recipient's
telecopy operator, if telecopied; and on the day delivered, if sent by
overnight air courier guaranteeing next day delivery.
(a) Successors and Assigns. This Agreement shall inure
to the benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent holders of the Registrable Notes.
(b) Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
(c) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(d) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, without
giving effect to principles of conflicts of laws to the extent the application
of the law of another jurisdiction would be required thereby.
(e) Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
-12-
<PAGE> 13
REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above:
Very truly yours,
NATIONAL ENERGY GROUP, INC.
By: /s/ MILES D. BENDER
--------------------------
Name: Miles D. Bender
-------------------------
Title: President and Chief
Executive Officer
------------------------
GUARANTOR:
NATIONAL ENERGY GROUP OF
OKLAHOMA, INC.
By: /s/ MILES D. BENDER
--------------------------
Name: Miles D. Bender
-------------------------
Title: President and Chief
Executive officer
------------------------
-13-
<PAGE> 14
REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE
Accepted and agreed to as of
the first date written above
BEAR, STEARNS & CO. INC.
By: /s/ DONALD R. MULLEN
----------------------------
Name: Donald R. Mullen
--------------------------
Title: Senior Managing Director
-------------------------
SMITH BARNEY INC.
By: /s/ ANDREW SAFRAN
----------------------------
Name: Andrew Safran
--------------------------
Title: Managing Director
-------------------------
JEFFERIES & COMPANY, INC.
By: /s/ ROBERT CARINGTON
----------------------------
Name: Robert Carington
--------------------------
Title: Senior Vice President
-------------------------
-14-
<PAGE> 1
FIRST AMENDMENT TO RESTATED LOAN AGREEMENT
THIS FIRST AMENDMENT TO RESTATED LOAN AGREEMENT (hereinafter referred to
as the "Agreement") executed the 31st day of October, 1996, by and among
NATIONAL ENERGY GROUP, INC., a Delaware corporation ("Borrower"), NATIONAL
ENERGY GROUP OF OKLAHOMA, INC. (formerly known as NEG-OK, Inc.), a Delaware
corporation ("OK"), BOOMER MARKETING CORPORATION, an Oklahoma corporation
("Boomer") (OK and Boomer are hereinafter collectively referred to as
"Guarantors") and BANK ONE, TEXAS, N.A., a national banking association ("Bank
One") and CREDIT LYONNAIS NEW YORK BRANCH ("Credit Lyonnais") and each of the
financial institutions which may from time to time become a party hereto or
any successor or assignee thereof (hereinafter collectively referred to as
"Banks", and individually as "Bank") and Bank One, as "Administrative Agent"
and Credit Lyonnais as "Syndication Agent."
W I T N E S S E T H:
WHEREAS, Borrower, Guarantors, Banks and Agent entered into a Restated
Loan Agreement, dated as of August 29, 1996 (the "Loan Agreement") under the
terms of which the Banks agreed to provide the Borrower with a reducing
revolving line of credit facility in an amount of up to $100,000,000 and a term
loan in an amount of up to $5,000,000; and
WHEREAS, the Borrower, the Guarantors and the Banks have agreed to amend
the Loan Agreement to make certain changes thereto.
NOW, THEREFORE, the parties hereto agree to amend the Loan Agreement as
follows:
1. Section 1 of the Loan Agreement is hereby amended in the
following respects:
(a) The definitions of Cash Flow and Debt Service Coverage
Ratio shall be deleted in their entirety.
(b) The following new definitions shall be added thereto:
"EBITDA" shall mean earnings for any period before
provision for interest expense, income taxes, depreciation,
depletion and amortization for such period, as determined in
accordance with GAAP."
"Minimum Interest Coverage Ratio" shall mean the ratio of
EBITDA to the sum of Total Interest Expense plus any preferred
stock dividends paid in cash during the period being measured."
"Total Interest Expense" shall mean Borrower's total
interest expense for any period, as determined in accordance with
GAAP."
<PAGE> 2
2. Section 7(b) of the Loan Agreement is hereby amended by the
addition of the following new sentence to the end thereof:
"If the Borrower is ever required to purchase or redeem any of
the notes issued by Borrower pursuant to that certain Indenture (the
"Indenture") dated as of November 1, 1996 by and among Borrower, OK
and Bank One, Columbus, N.A, as Trustee (the "Senior Unsecured Notes"),
or if any portion of the Senior Unsecured Notes become due for any
reason, the Borrowing Base shall automatically be reduced to $0;
provided, however, that with respect to any redemption required pursuant
to Sections 4.11 or 4.17 of the Indenture, the Borrowing Base shall only
be reduced by an amount equal to the amount of Senior Unsecured Notes
redeemed."
3. Section 12(k) of the Loan Agreement is hereby amended by deleting
Subsection (k) in its entirety and substituting the following in lieu thereof:
"(k) Notice of Certain Events. The Borrower shall promptly
notify the Administrative Agent if Borrower or either Guarantor learns
of the occurrence of (i) any event which constitutes an Event of Default
together with a detailed statement by Borrower or such Guarantor of the
steps being taken to cure the Event of Default; (ii) any legal,
judicial or regulatory proceedings affecting Borrower or either
Guarantor, or any of the assets or properties of Borrower or either
Guarantor which, if adversely determined, could reasonably be expected
to have a Material Adverse Effect; (iii) any dispute between Borrower or
either Guarantor and any governmental or regulatory body or any other
Person or entity which, if adversely determined, might reasonably be
expected to cause a Material Adverse Effect; (iv) any event or
circumstance which requires the prepayment, purchase or redemption of
any of the Senior Unsecured Notes or (v) any other matter which in
Borrower's reasonable opinion could have a Material Adverse Effect."
4. Section 13 of the Loan Agreement is hereby amended in the
following respects:
(a) Subsection 13(a) is hereby amended by deleting (ii) in its
entirety and inserting the following in lieu thereof:
"(ii) sell, lease, transfer or otherwise dispose of, in
any fiscal year, any of its assets, except for (A) sales,
leases, transfers or other disposition made in the ordinary
course of the Borrower's and Guarantors' oil and gas businesses
which do not exceed $250,000 in the aggregate in any fiscal
year, (B) dividends or distributions from Guarantors to Borrower,
and (C) sales, leases, transfers or other disposition of assets,
other than non-cash assets constituting part of the collateral,
of the Borrower to any Guarantor or of any Guarantor to the
Borrower, and (D) payments and prepayments of indebtedness
permitted in Subsections 13(f)
- 2 -
<PAGE> 3
and 13(h), it being intended that no provision hereof is
intended to limit the ability of any Guarantor to transfer cash
to the Borrower."
(b) Subsections 13(c) and (d) are hereby deleted in their
entirety and the following inserted in lieu thereof:
"(c) Minimum Tangible Net Worth. The Borrower's
consolidated Tangible Net Worth shall not, as of the end of any
fiscal quarter, ever be less than $55,000,000 plus an amount
equal to 50% of Borrower's net income (but not loss) on a
cumulative basis.
(d) Minimum Interest Coverage Ratio. The Borrower will
not allow its consolidated Minimum Interest Coverage Ratio to be
less than (i) 2.0 to 1.0 during the period beginning March 31,
1997 and rolling forward each quarter through and including March
31, 1998 and, (ii) thereafter 2.25 to 1.0 as of the end of each
calendar quarter for the preceding four quarters."
(c) Subsection 13(h) is hereby amended by adding the
following to the end of clause (ii) prior to the period:
"and loans and advances by the Borrower to any Guarantor
or by any Guarantor to the Borrower."
(d) Subsection 13(f) is amended by adding the following
at the end of clause (iii) prior to the semicolon:
"and indebtedness evidenced by the Senior Unsecured
Notes."
5. Section 14 of the Loan Agreement is hereby amended by adding a
new paragraph to the end thereof, as follows:
"Notwithstanding any other provision hereof, if any event
specified in Sections 14(a) through (j) shall have
occurred but at such time and at all times thereafter,
until none of such events are continuing, there are no
sums outstanding under the Loan Agreement, then the
occurrence of any such event under Sections 14(a) through
(j) shall not constitute a Default or Event of Default,
but for so long as any
- 3 -
<PAGE> 4
such event exists, the Revolving Commitment shall be
reduced to $-0-."
6. The Banks hereby consent to the issuance of the Senior Unsecured
Notes described in the Indenture and waive any Event of Default that may occur
as a result of the execution of the Indenture and related documents and
incurrence of the $100,000,000 in Senior Unsecured Notes.
7. As of the date of this Agreement, the Borrowing Base shall be
$25,000,000 and the Monthly Commitment Reduction shall be $0. Both the
Borrowing Base and the Monthly Commitment Reduction to remain in effect until
redetermined effective April 1, 1997 pursuant to Section 7(b) of the Loan
Agreement. Provided, however, that the Borrowing Base shall be subject to the
following sublimits:
(a) Sublimit A: $15,000,000 for general corporate purposes;
and
(b) Sublimit B: $10,000,000 for acquisition of producing oil
and gas properties, subject to the Banks' approval.
8. Except to the extent its provisions are specifically amended,
modified or superseded by this Agreement, the representations, warranties and
affirmative and negative covenants of the Borrower contained in the Loan
Agreement are incorporated herein by reference for all purposes as if copied
herein in full. The Borrower hereby restates and reaffirms each and every term
and provision of the Loan Agreement, as amended, including, without limitation,
all representations, warranties and affirmative and negative covenants. Except
to the extent its provisions are specifically amended, modified or superseded
by this Agreement, the Loan Agreement, as amended, and all terms and provisions
thereof shall remain in full force and effect, and the same in all respects are
confirmed and approved by the Borrower and the Banks.
9. The obligations of Banks under this Agreement shall be subject to
the following conditions precedent:
(a) Execution and Delivery. The Borrower and Guarantors shall
have executed and delivered this Agreement, and other required
documents, all in form and substance satisfactory to Banks;
(b) Corporate Resolutions. Agent shall have received
appropriate certified corporate resolutions of Borrower and Guarantors;
(c) Senior Unsecured Notes. The transactions described in the
Indenture shall have closed and been funded prior to December 1, 1996;
- 4 -
<PAGE> 5
(d) Interest Rate on Senior Unsecured Notes. The interest
rate on the Senior Unsecured Note shall be less than eleven percent
(11%);
(e) Payoff of Existing Indebtedness. The Banks shall have
received payment in full of all principal, interest and fees then due or
outstanding under the Loan Agreement from the proceeds of the Senior
Unsecured Notes;
(f) Other Documents. Banks shall have received such other
instruments and documents incidental and appropriate to the transaction
provided for herein as Bank One or its counsel may reasonably request,
and all such documents shall be in form and substance satisfactory to
Banks; and
(g) Legal Matters Satisfactory. All legal matters incident to
the consummation of the transactions contemplated hereby shall be
satisfactory to special counsel for Banks retained at the expense of
Borrower.
10. Unless otherwise defined herein, all defined terms used herein
shall have the same meaning ascribed to such terms in the Loan Agreement.
11. Each of the Guarantors hereby consents to the provisions of this
Agreement and the transactions contemplated herein, and hereby ratifies and
confirms their respective Guaranty Agreements, each dated as of August 29,
1996, and agrees that their respective obligations and covenants thereunder are
unimpaired hereby and shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this First Amendment to
Restated Loan Agreement to be duly executed as of the date first above written.
BORROWER:
--------
NATIONAL ENERGY GROUP, INC.
a Delaware corporation
By: /s/ MILES D. BENDER
---------------------------------------
Miles D. Bender
President
- 5 -
<PAGE> 6
GUARANTORS:
-----------
NATIONAL ENERGY GROUP OF
OKLAHOMA, INC.
a Delaware corporation
By: /S/ MILES D. BENDER
---------------------------------------
Miles D. Bender
President
BOOMER MARKETING CORPORATION
an Oklahoma corporation
By: /s/ MILES D. BENDER
---------------------------------------
Miles D. Bender
BANKS:
-----
BANK ONE, TEXAS, N.A.
By: /s/ WM. MARK CRANMER
---------------------------------------
Wm. Mark Cranmer
Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ PASCAL POUPELLE
---------------------------------------
Pascal Poupelle
Senior Vice President
- 6 -
<PAGE> 7
ADMINISTRATIVE AGENT:
--------------------
BANK ONE, TEXAS, N.A.
By: /s/ WM. MARK CRANMER
---------------------------------------
Wm. Mark Cranmer
Vice President
SYNDICATION AGENT:
-----------------
By: /s/ PASCAL POUPELLE
---------------------------------------
Pascal Poupelle
Senior Vice President
- 7 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-QSB FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 8,650
<SECURITIES> 0
<RECEIVABLES> 6,953
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,292
<PP&E> 158,583
<DEPRECIATION> 11,036
<TOTAL-ASSETS> 166,834
<CURRENT-LIABILITIES> 16,544
<BONDS> 0
0
243
<COMMON> 352
<OTHER-SE> 76,547
<TOTAL-LIABILITY-AND-EQUITY> 77,142
<SALES> 13,181
<TOTAL-REVENUES> 13,495
<CGS> 0
<TOTAL-COSTS> 2,759
<OTHER-EXPENSES> 50,898
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,826
<INCOME-PRETAX> (41,952)
<INCOME-TAX> (15,146)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (292)
<CHANGES> 0
<NET-INCOME> (27,098)
<EPS-PRIMARY> (1.89)
<EPS-DILUTED> 0
</TABLE>
