SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934
Date of Report: (Date of earliest event reported): December 17, 1999
(December 2, 1999)
AMERICAN RESOURCES OFFSHORE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-21472 86-0713506
(State of Incorporation) (Commission File Number) (IRS Employer
Identification No.)
801 TRAVIS, SUITE 2100
HOUSTON, TEXAS 77002
(Address of Registrant's principal executive offices)
(713) 227-7660
(Registrant's telephone number, including area code)
(Former name or former address, if changed since last report)
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ITEM 1. CHANGES IN CONTROL OF REGISTRANT
On December 2, 1999, American Resources Offshore, Inc. (the "Company"),
pursuant to the terms of the Investment Agreement dated as of July 30, 1999 (the
"Investment Agreement"), by and between the Company and Blue Dolphin Exploration
Company ("BDEX"), sold to BDEX 39,509,457 shares of its common stock, par value
$0.00001 per share (the "Common Stock"). The number of shares of Common Stock
sold to BDEX represents approximately 75% of ARO's outstanding voting
securities.
The consideration paid for the shares of Common Stock purchased by BDEX
was approximately $4.5 million, after adjustments. BDEX funded the purchase
price from its own working capital and cash contributed or lent to it by its
parent corporation, Blue Dolphin Energy Company ("BDCO").
The Investment Agreement and the transactions contemplated thereby,
including the sale of Common Stock to BDEX, were approved by stockholders at the
Company's annual meeting on December 1, 1999. Immediately after the consummation
of the transactions contemplated by the Investment Agreement, the Company became
a majority-owned subsidiary of BDEX. Since BDEX owns a majority of ARO's
outstanding voting securities, BDEX will be able to control the outcome of all
matters requiring stockholder approval, including the election of the Board of
Directors, amendments to the ARO's Certificate of Incorporation, mergers, sales
of assets and similar transactions. Additionally, at the Company's annual
meeting stockholders elected Ivar Siem, Michael J. Jacobson, John P. Atwood,
Andrew R. Agosto and Douglas L. Hawthorne as directors of the Company. Messrs.
Siem, Jacobson and Atwood are also affiliates of BDCO.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On December 2, 1999, the Company, pursuant to the terms of the Purchase
and Sale Agreement, dated as of July 30, 1999 (the "Purchase Agreement"),
between the Company and Fidelity Oil Holdings, Inc. ("Fidelity"), sold an
undivided 80% interest in its Gulf of Mexico oil and gas properties to Fidelity
in consideration for approximately $24.2 million.
Additionally, on November 9, 1999 with an effective date as of July 1,
1999 the Company, through its wholly-owned subsidiary Southern Gas Co. of
Delaware, Inc. ("Southern"), pursuant to the terms of an Asset Purchase
Agreement (the "Asset Purchase Agreement") between Southern and Nami Resources
Company, L.L.C. ("Nami"), completed the sale of its oil and gas properties and
operations in the Appalachian region to Nami in consideration for the assumption
by Nami of $12.5 million of debt owed by Southern to Den norskeBank, ASA
("DnB"). The Company had guaranteed this indebtedness, which was canceled at the
closing of the Asset Purchase Agreement.
Furthermore, on October 29, 1999, the Company entered into, and closed, a
Stock Purchase Agreement (the "Stock Purchase Agreement") with Southern Gas
Holding, LLC ("Holding") for the divestiture of all the outstanding stock of
Southern owned by the Company in
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consideration for One Hundred Dollars ($100) and a full indemnity from Holding
to the Company. Holding is owned by Leonard K. Nave (a former director of the
Company) and a family trust in which Mr. Nave is the trustee.
The terms of the Purchase Agreement, the Asset Purchase Agreement, and the
Stock Purchase Agreement, including the nature and amount of consideration, were
determined through negotiations between the management representatives of the
Company and Fidelity, Nami and Holding, respectively. Additionally, these
agreements and the transactions contemplated thereby were either approved or
ratified by stockholders at the Company's annual meeting on December 1, 1999.
ITEM 5. OTHER EVENTS
MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT. In connection with the
consummation of the transactions contemplated by the Investment Agreement, Blue
Dolphin Services, Inc., an affiliate of BDEX ("BD Services"), and the Company
entered into a Management and Administrative Services Agreement, dated as of
December 2, 1999 (the "Services Agreement"), under which BD Services will
provide certain services to the Company.
Under the terms of the Services Agreement, BD Services will provide (i)
accounting, cash management, general land functions, contract negotiation and
administration, regulatory compliance, records retention, marketing and all
other management and administrative services required to operate the Company and
the Company will pay BD Services $83,333 per month for such services.
Additionally, the Company will be required to pay costs and expenses for tax,
legal, engineering and other professional advisors engaged by BD Services to
render services to the Company. The Services Agreement terminates on December
31, 2000, and will be automatically extended on a year-to-year basis unless
terminated in writing by the Company or BD Services.
INDEBTEDNESS TO BDEX AND RELATED TRANSACTIONS. Contemporaneously with the
closing of the Investment Agreement BDEX, pursuant to the terms of a Note
Purchase Agreement between BDEX and DnB (the "Note Purchase Agreement"),
purchased the Company's indebtedness from DnB (the "DnB Note") and acquired the
liens on substantially all of the Company's assets which secured the DnB Note,
other than the assets sold to Fidelity which were released from those liens. The
Company acknowledged and consented to the Note Purchase Agreement and the
various transactions contemplated by thereby.
In connection with BDEX's purchase of the DnB Note from DnB, the Company
entered into an agreement to pay 20% of any additional payment DnB may be
entitled to receive pursuant to the Note Purchase Agreement. DnB will only be
entitled to receive additional compensation if the combined, cumulative net
revenues received by the Company and Fidelity attributable to proved oil and gas
reserves that the Company owned in the Gulf of Mexico as of January 1, 1999,
exceed $30.0 million during the period from January 1, 1999 through December 31,
2001. The additional payment to which DnB will be entitled will be equal to 50%
of the net revenues in excess of $30.0
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million during that period. Any contingent compensation which may be due to DnB
is payable on or before March 15, 2002.
Contemporaneously with its acquisition of the DnB Note, BDEX modified the
DnB Note and related loan and security documentation as follows:
o the indebtedness under the DnB Note was reduced to $5.0 million
in principal amount;
o the events of default to which the Company was subject under the
existing loan documentation with DnB were modified so that an event
of default will occur only if:
oo the Company breaches a representation, warranty,
certification or statement in the amended loan documentation
or in the Investment Agreement and, in either case, the breach
is not cured within 10 days after the Company is given written
notice of the breach,
oo the Company fails to repay the indebtedness when due, if
not forgiven at December 31, 2000, or
oo the Company fails to pay to DnB any contingent compensation
that it is obligated to pay under the agreement with BDEX, as
discussed above.
The events of default to which the Company was subject under the loan
documentation with DnB will be restored and become binding if the Company
defaults under the modified loan documentation or breaches the Investment
Agreement. Furthermore, if the Company remains in compliance with the modified
loan documents through December 31, 2000:
o the Company will not have to make payments of principal or
interest under the DnB Note during that period; and
o the Company will be released from any further liability under the
DnB Note on January 1, 2001.
The liens on the Company's assets securing the DnB Note assigned to BDEX
were also modified to secure the Company's obligation to pay the contingent
compensation, if any, that may become due to DnB under the Note Purchase
Agreement. These liens will remain in place until the Company's liability for
the contingent amount, if any, is known and is paid. Accordingly, the liens will
remain in place until December 31, 2001, even if the Company's liability under
the DnB Note is forgiven at December 31, 2000, in accordance with the modified
loan documentation.
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BDEX has agreed to refrain from exercising or enforcing through December
31, 2001, any of its remaining rights that arose because of the Company's
initial defaults under the DnB Note and related loan documentation before they
were modified, if the Company does not default under the modified loan
documents.
CONSULTING AGREEMENT. Pursuant to the terms of the Investment Agreement
the Company and MAP II, L.L.C. ("MAP II") entered into a Consulting Agreement,
dated as of July 30, 1999 (the "Consulting Agreement"). Pursuant to the terms of
the Consulting Agreement MAP II will render consulting services to the Company
in connection with its ongoing business. The consulting services include
advising and consulting with the Company in connection with the conduct and
development of its ongoing business operations and the preparation of financial
reports and filings with the Securities and Exchange Commission.
The Consulting Agreement requires that one or more of the following former
officers of the Company must be available to render the consulting services:
Rick G. Avare; David J. Stetson; Ralph A. Currie; and Karen M. Underwood.
Pursuant to the terms of the Consulting Agreement none of these persons are
required to devote full time to the rendition of the services and are free to do
any work or perform services for third parties unless such activity would cause
or be a conflict of interest.
As consideration for the consulting services, the Company will pay MAP II
$7,000 per month and Fidelity will pay MAP II $28,000 per month, for an
aggregate of $35,000 per month. The Company's portion of the payments to MAP II
are guaranteed by BDEX. Neither MAP II nor any of the above named persons are
required to incur any out-of-pocket expenses in connection with rendering
services to the Company. MAP II will be reimbursed for out-of-pocket expenses on
a case by case basis only to the extent that the Company and Fidelity agree.
The Consulting Agreement terminates on February 28, 2001, unless it is
sooner terminated by mutual agreement or is terminated by the Company or MAP II
because of a material breach by the non-terminating party.
Rick G. Avare, the Company's former President, is a member and the
administrative member of MAP II.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(b) Pro Forma Financial Information
INDEX TO FINANCIAL STATEMENTS
PRO FORMA FINANCIAL INFORMATION
Page No.
1. Pro Forma Balance Sheet at September 30, 1999 - Unaudited F-3
2. Pro Forma Statement of Operations for the Nine Months
Ended September 30, 1999 - Unaudited F-4
3. Pro Forma Statement of Operations for the Year Ended
December 31, 1998 - Unaudited F-6
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AMERICAN RESOURCES OFFSHORE, INC.
PRO FORMA CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
INTRODUCTION
The following unaudited pro forma condensed financial statements for
American Resources Offshore, Inc. (the "Company") give effect to (i) the sale of
80% of the Company's Gulf of Mexico assets, (ii) the issuance of additional
common stock for consideration of approximately $4.7 million, and (iii) various
other transactions which were entered into contemporaneously with the
aforementioned transactions.
The pro forma financial information is presented for illustrative purposes
only and does not purport to represent what the Company's results actually would
have been if such events had occurred at the dates indicated, nor does such
information purport to project the results of operations for any future period
or as of any future date. The pro forma condensed financial information should
be read in conjunction with the notes thereto together with the Company's
financial statements and the notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," all appearing in the
Company's Report on Form 10-K for the Year Ended December 31, 1998, and in the
Company's Report on Form 10-Q for the Quarter Ended September 30, 1999.
The Unaudited Pro Forma Condensed Balance Sheet as of September 30, 1999
assumes that the transactions were effected on that date. The Unaudited Pro
Forma Condensed Statement of Operations for the nine months ended September 30,
1999 and the Unaudited Pro Forma Condensed Statement of Operations for the year
ended December 31, 1998 assume that the transactions were effected on January 1,
1998.
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AMERICAN RESOURCES OFFSHORE, INC.
PRO FORMA CONDENSED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
FIDELITY BLUE DEN NORSKE OTHER
OIL DOLPHIN BANK TECO NOTE LIABILITIES PRO
HISTORICAL TRANSACTION(1) TRANSACTION(2) SETTLEMENT(3) SETTLEMENT(4) SETTLEMENT(6) ADJUSTMENTS(9) FORMA
--------- -------------- -------------- ------------- ------------- ------------- -------------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash 601 25,240 4,706 (27,000) (990) (1,430) (784) 343
Accounts and notes
receivable 2,429 (1,943) 486
Prepaid expenses 1,362 (1,089) 273
------ ---------- -------- --------- -------- --------- ------ ---
Total current assets 4,392 22,208 4,706 (27,000) (990) (1,430) (784) 1,102
Net property and
equipment 45,720 (36,576) 9,144
Other assets 167 (134) 33
------ ------ -------- --------- -------- -------- ------ ------
Total assets 50,279 (14,502) 4,706 (27,000) (990) (1,430) (784) 10,279
====== ====== ====== ====== === ======= ===== ======
Current liabilities:
Current portion of
long term debt - 0
Debt in default 70,462 (51,223) (18,500) (739) 0
Accounts payable 1,678 (312) (1,288) 78
Unearned revenue 215 (172) 43
Accrued expenses 9,863 (1,546) (4,693) (3,238) 386
and other ------ ------- -------- ------- ------- --------- ------ -----
Total current
liabilities 82,218 (2,030) (55,916) (21,738) (2,027) 507
Long term debt, less
current portion - 5,000 5,000
Accrued expenses - 0
Unearned revenue - 0
-------- ------ -------- --------- --------- --------- ------ -----
Total liabilities 82,218 (2,030) (50,916) (21,738) (2,027) 5,507
Total stockholders'
equity (31,939) (12,472) 4,706 23,916 20,748 597 (784) 4,772
(capital deficiency) ------ -------- ------ ------ ------- ------- ---- ------
Total liabilities and
stockholders' equity 50,279 (14,502) 4,706 (27,000) (990) (1,430) (784) 10,279
====== ====== ====== ====== === ======= ==== ======
</TABLE>
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AMERICAN RESOURCES OFFSHORE, INC.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SOUTHERN
FIDELITY OIL GAS CO. OTHER PRO
HISTORICAL TRANSACTION(1) TRANSACTION(5) ADJUSTMENTS(9) FORMA
---------- -------------- -------------- -------------- ------
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and gas production 12,282 (8,953) (1,091) 2,238
Transportation 368 (368) 0
Marketing 3,795 (3,795) 0
Other 2,125 (233) 1,892
------ -------- ------ ------
18,570 (8,953) (5,487) 4,130
------ ------ ------ -----
Expenses:
Oil and gas production 2,306 (1,512) (416) 378
Transportation 115 (115) 0
Marketing 4,192 (368) (3,732) 92
Exploration costs 2,416 (1,933) - 483
Depreciation, depletion & amortization 9,420 (7,046) (612) 1,762
Impairment of assets 365 (292) 73
Administrative expenses 3,266 (388) (2,065) (a) 813
Other 56 (56) 0
------- -------- ------ -------- -------
22,136 (11,151) (5,319) (2,065) 3,601
------ ------- ------ ------ ------
Operating income (loss) (3,566) 2,198 (168) 2,065 529
Other income (expense) 141 (88) (30) 23
Interest income (6,560) 135 6,087 (b) (338)
Interest expense (252) (252)
------ ------ ------ ------- ----
Other (6,671) (88) 105 6,087 567
------ ----- ----- ----- ---
Income (loss) before income tax expense (benefit) (10,237) 2,110 (63) 8,152 (38)
Income tax expense (benefit) - 0
------- ------- ------ ------- -----
Net income (loss) (10,237) 2,110 (63) 8,152 (38)
====== ======
Preferred dividends (7) 7 (0)
------- ------- ------
Net income (loss)
attributable to common shares (10,244) 8,159 (38)
======= ===== ====
Per common share: $(0.92) $0.00 (7)
Basic ===== ====
Weighted average number of 11,195 42,628 (7)
common shares outstanding ====== ======
$(0.92) $0.00 (7)
Per common share: ===== ====
Diluted
Weighted average number of 11,195 42,628 (7)
common shares and dilutive ====== ======
potential common shares
</TABLE>
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AMERICAN RESOURCES OFFSHORE, INC.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SOUTHERN ACQUISITION
FIDELITY OIL GAS CO. OF TECO OTHER PRO
HISTORICAL TRANSACTION(1) TRANSACTION(5) PROPERTY(8) ADJUSTMENTS(9) FORMA
---------- -------------- -------------- ----------- -------------- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Oil and gas production 26,724 (20,011) (2,479) 768 5,002
Transportation 790 (790) 0
Marketing 7,751 (7,751) 0
Other 872 (437) 435
----- ---------- -------- ----- -----
36,137 (20,011) (11,457) 768 5,437
------ ------- ------- --- -----
Expenses:
Oil and gas production 4,967 (3,375) (912) 163 843
Transportation 235 (235) 0
Marketing 7,910 (7,910) 0
Exploration costs 5,056 (3,987) (72) 997
Depreciation, depletion &
amortization 18,031 (13,608) (1,539) 518 3,402
Impairment of assets 36,735 (22,815) (8,215) 5,705
Administrative expenses 4,569 (1,457) (2,028) (a) 1,084
Other 107 (107) 0
-------- ---------- -------- ----- --------- --------
77,610 (43,785) (20,447) 681 (2,028) 12,030
------- ------- ------- --- ------ ------
Operating income (loss) (41,473) 23,774 8,990 87 2,028 (6,594)
Other income (expense):
Interest income 101 (60) 41
Interest expense (7,437) 6,987 (b) (450)
Other 239 239
------- -------- ------ -----
(7,097) (60) 6,987 (170)
-------- -------- ----- ----- ------- -----
(6,764)
Income (loss) before income tax
expense (benefit) (48,570) 23,774 8,930 87 9,015 2,346
Income tax expense (benefit) 2,346
------- -------- ------- -----
Net income (loss) (46,224) 23,774 8,930 87 9,015 (4,418)
====== ====== ====
Preferred dividends (49) 46 (3)
------- ------ -----
Net income (loss) attributable to
common shares (46,273) 9,061 (4,421)
======= ===== ======
Per common share: Basic $(4.61) $(0.11) (7)
===== =====
Weighted average number of common
shares outstanding 10,029 41,704 (7)
====== ======
Per common share:
Diluted $(4.61) $(0.11) (7)
===== =====
Weighted average number of common
shares and dilutive potential 10,129 41,704 (7)
common shares ====== ======
</TABLE>
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NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(1) Fidelity Oil Transaction - Sale of 80% of Gulf of Mexico oil and gas
properties and related assets and liabilities, including receivables,
payables and other accrued expenses, to Fidelity Oil Holdings, Inc. for
$25,240,224, net of adjustments. Adjustments to the purchase price include
the Gulf of Mexico (GOM) adjustment, title, environmental and other
adjustments. The sum of these adjustments is assumed to be ($73,461) for
purposes of the pro forma financial statements because as of the date of
the pro forma financial statements no title, environmental or other
adjustments have been asserted. The GOM adjustment is designed to reflect
operating activity only; therefore, any adjustments will be equal to the
net operating revenue in the Company at closing, leaving a net cash impact
of $0. Excluding the activities of Southern Gas Co. of Delaware, Inc. (See
Note [5]) these oil and gas properties represent all of the operating
activities of the Company; therefore, eighty percent (80%) of operating
revenues and expenses, and related assets and liabilities, have been
adjusted.
(2) Blue Dolphin Transaction - Sale of common stock to Blue Dolphin
Exploration Company for $4,705,591, net of adjustments. Adjustments to the
purchase price include the GOM adjustment, title, environmental and other
adjustments. The sum of these adjustments is assumed to be ($30,724) for
purposes of the pro forma financial statements because as of the date of
the pro forma financial statements no title, environmental or other
adjustments have been asserted. The GOM adjustment is designed to reflect
operating activity only; therefore, any adjustments will be equal to the
net operating revenue in the Company at closing, leaving a net cash impact
of $0. The Company will issue a number of shares of common stock that will
result in Blue Dolphin Exploration Company owning, immediately after the
closing, 75% of the combined voting power of all classes of the Company's
voting securities. As of the date of these financial statements, the
number of shares to be issued is estimated to be 39,509,457.
(3) Den norske Bank Transaction - Partial settlement of the Den norske Bank
note, including accrued interest, for a payment of $27,000,000. The total
amount due to Den norske Bank was approximately $56,000,000 as of
September 30, 1999. See also Note (5). (The balance due on the note is
$5,000,000. If the Company remains in compliance with the terms of the
modified note, the note plus accrued interest will be released in full on
December 31, 2000. As such, the principal and interest is classified as
long term.) The pro forma net income and pro forma net income per share of
common stock exclude the impact of the after-tax effect of the income from
the settlement of the Den norske Bank Note. The company expects the income
amount to be approximately $24,000,000, which will be reflected as an
extraordinary item to be recognized in the fourth quarter of 1999.
(4) TECO Note Settlement - Settlement of the TECO Note, including accrued
interest, for a payment of $990,400. The total amounts due on the TECO
Note was approximately $21,738,000 as of September 30, 1999. The pro forma
net income and pro forma net income per share of common stock exclude the
impact of the after-tax effect of the income from the settlement of the
TECO Note. The Company expects the income amount to be approximately
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$20,748,000, which will be reflected as an extraordinary item to be
recognized in the fourth quarter of 1999.
(5) Southern Gas Transaction - Effective July 1, 1999, the Company sold of all
of the operating assets in Kentucky, Tennessee and Michigan to Nami
Resources Company for the assumption of $12,500,000 of indebtedness to Den
norske Bank and the release of a guaranty with Austin Energy. Subsequent
to the closing of the sale, the stock of Southern Gas Co. of Delaware,
Inc. was sold for a nominal amount to a related party. There will be no
gain or loss recognized on the sale. All assets, liabilities, income and
deductions of Southern Gas have been eliminated from the pro forma
financial statements. As of September 30, 1999, the gain from the sale of
the Southern Gas assets was approximately $669,000.
(6) Other Liabilities Settlement - As a condition to the transactions
described in Notes (1) and (2), the Company must settle all liabilities
which existed on January 1, 1999. The Company believes the remaining
liabilities can be settled for cash and assets of approximately
$1,430,000. Gains from the settlement of liabilities of approximately $1.9
million have been reflected in the statement of operations for the nine
months ended September 30, 1999.
(7) Pro Forma earnings per share information is based on the estimated number
of shares outstanding after giving effect to the issuance of new shares to
Blue Dolphin Exploration Company (Note 2) and the exchange of 190,834
shares of preferred stock for common stock on a one-for-one basis.
(8) Acquisition of TECO Property - Operating revenues and expenses for January
1998 relative to properties which were acquired from TECO Oil & Gas, Inc.
effective February 1, 1998.
(9) Other Adjustments:
PRO FORMA CONDENSED BALANCE SHEET AT SEPTEMBER 30, 1999 - UNAUDITED
Closing costs to be incurred, comprised primarily of legal, accounting,
compensation and other administrative costs attributable to completing the
transactions.
PRO FORMA STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 - UNAUDITED
(a) All administrative expenses have been reduced to reflect costs
pursuant to a Management and Administrative Services Agreement with
Blue Dolphin Services Co. and a Consulting Agreement with MAP II,
LLC. The contracts provide for the payment of management fees of $1
million per year to Blue Dolphin Services Co. and consulting fees of
$84,000 per year to MAP II, LLC, which will replace all previously
incurred direct administrative expenses.
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(b) Interest expense has been reduced to the amount accrued on the
modified note at 9% per annum. If the interest rate varied by 1/8%,
interest expense would be increased/decreased by $3,125 for the
period.
PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998
- UNAUDITED
(a) All administrative expenses have been reduced to reflect costs
pursuant to a Management and Administrative Services Agreement with
Blue Dolphin Services Co.
and a Consulting Agreement with MAP II, LLC. The contracts provide
for the payment of management fees of $1 million per year to Blue
Dolphin Services Co. and consulting fees of $84,000 per year to MAP
II, LLC, which will replace all previously incurred direct
administrative expenses.
(b) Interest expense has been reduced to the amount accrued on the
modified note at 9% per annum. If the interest rate varied by 1/8%,
interest expense would be increased/decreased by $6,250 for the
year.
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(c) Exhibits
99.1 Investment Agreement by and between American Resources
Offshore, Inc. and Blue Dolphin Exploration Company, as
amended.
99.2 Purchase and Sale Agreement between American Resources
Offshore, Inc. and Fidelity Oil Holdings, Inc., as amended.
99.3 Asset Purchase Agreement between Southern Gas Co. of
Delaware, Inc. and Nami Resources Company, L.L.C.
99.4 Stock Purchase Agreement between American Resources
Offshore, Inc. and Southern Gas Holding, LLC.
99.5 Management and Administrative Services Agreement by and
between Blue Dolphin Services, Inc. and American Resources
Offshore, Inc.
99.6 Fourth Amendment to First Amended and Restated Credit
Agreement.
99.7 Consent, Acknowledgment and Ratification.
99.8 Consulting Agreement and Side Letter Agreement to Consulting
Agreement.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN RESOURCES OFFSHORE, INC.
Date: December 17, 1999 By: /s/ G. BRIAN LLOYD
----------------------------------
G. Brian Lloyd
Vice President and Treasurer
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INDEX TO EXHIBITS
EXHIBIT DESCRIPTION OF EXHIBIT
99.1 Investment Agreement by and between American
Resources Offshore, Inc. and Blue Dolphin
Exploration Company, as amended.
99.2 Purchase and Sale Agreement between American
Resources Offshore, Inc. and Fidelity Oil
Holdings, Inc., as amended.
99.3 Asset Purchase Agreement between Southern Gas
Co. of Delaware, Inc. and Nami Resources Company,
L.L.C. (incorporated by reference from the
Company's Current Report on Form 8-K dated
November 9, 1999).
99.4 Stock Purchase Agreement between American
Resources Offshore, Inc. and Southern Gas Holding,
LLC (incorporated by reference from the Company's
Current Report on Form 8-K dated November 9,
1999).
99.5 Management and Administrative Services Agreement
by and between Blue Dolphin Services, Inc. and
American Resources Offshore, Inc.
99.6 Fourth Amendment to First Amended and Restated
Credit Agreement.
99.7 Consent, Acknowledgment and Ratification.
99.8 Consulting Agreement and Side Letter Agreement to
Consulting Agreement.
16
EXHIBIT 99.1
INVESTMENT AGREEMENT
BY AND BETWEEN
AMERICAN RESOURCES OFFSHORE, INC.
AND
BLUE DOLPHIN EXPLORATION COMPANY
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1
PURCHASE AND SALE............................................................1
1.1 CERTAIN DEFINITIONS....................................................1
1.2 CLOSING ..............................................................1
1.3 ISSUANCE OF THE SHARES.................................................2
1.4 PURCHASE PRICE FOR THE SHARES..........................................3
1.5 CLOSING DELIVERIES.....................................................4
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY...............................................................4
2.1 ORGANIZATION AND STATUS................................................4
2.2 SUBSIDIARIES AND JOINT VENTURES........................................4
2.3 CAPITALIZATION.........................................................4
2.4 AUTHORITY..............................................................5
2.5 NO VIOLATION OF AGREEMENTS OR GOVERNING DOCUMENTS......................5
2.6 COMPANY SEC REPORTS AND FINANCIAL STATEMENTS...........................6
2.7 GOVERNMENTAL FILINGS...................................................6
2.8 YEAR 2000..............................................................6
2.9 LIABILITIES OF THE COMPANY.............................................7
2.10 ABSENCE OF CERTAIN CHANGES OR EVENTS...................................7
2.11 PROCEEDINGS............................................................8
2.12 EMPLOYEES..............................................................8
2.13 EMPLOYEE BENEFIT PLANS.................................................9
2.14 TITLE TO AND CONDITION OF REAL PROPERTY...............................11
2.15 INTELLECTUAL PROPERTY.................................................12
2.16 CERTAIN CONTRACTS AND ARRANGEMENTS....................................12
2.17 STATUS OF CONTRACTS...................................................13
2.18 INSURANCE.............................................................13
2.19 PERMITS AND LICENSES..................................................13
2.20 BANK ACCOUNT BALANCES; POWERS OF ATTORNEY.............................14
2.21 TAXES .............................................................14
2.22 RELATED PARTY INTERESTS...............................................15
2.23 TRANSACTIONS WITH MANAGEMENT..........................................15
2.24 NO OPERATING RESTRICTIONS.............................................15
2.25 BROKERS AND FINDERS...................................................15
2.26 INVESTMENT COMPANY; PUBLIC UTILITY HOLDING ACT........................15
2.27 REGISTRATION RIGHTS...................................................15
2.28 SCHEDULES; UNTRUE STATEMENTS..........................................16
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES
RELATING TO THE PROPERTIES..................................................16
3.1 PROCEEDS OF PRODUCTION................................................16
3.2 INVOICES .............................................................16
3.3 GAS IMBALANCES........................................................16
3.4 GAS PREPAYMENTS.......................................................16
3.5 WELLS .............................................................17
3.6 AFES .............................................................17
3.7 CASUALTY .............................................................17
3.8 TITLE .............................................................17
3.9 PRICING .............................................................17
3.10 EQUIPMENT.............................................................17
3.11 LEASES .............................................................18
3.12 GOVERNMENTAL QUALIFICATION............................................18
3.13 ADVERSE CHANGES IN PRODUCTION RATES OR OIL AND GAS RESERVES...........18
3.14 ENVIRONMENTAL LAWS....................................................18
3.15 RESERVE INFORMATION...................................................18
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF INVESTOR..................................19
4.1 ORGANIZATION..........................................................19
4.2 AUTHORITY.............................................................19
4.3 NO VIOLATIONS.........................................................19
4.4 BROKERS .............................................................19
4.5 BANKRUPTCY............................................................20
4.6 INVESTMENT EXPERIENCE.................................................20
4.7 INVESTMENT INTENT.....................................................20
4.8 REGISTRATION OR EXEMPTION REQUIREMENTS................................20
4.9 SEC REPORTS OF INVESTOR'S PARENT......................................20
ARTICLE 5
OBLIGATIONS PENDING CLOSING.................................................21
5.1 INSPECTION OF THE COMPANY.............................................21
5.2 RETURN OF DATA........................................................21
5.3 ACQUISITION PROPOSALS.................................................21
5.4 OPERATION IN THE ORDINARY COURSE OF BUSINESS..........................22
5.5 BREACHES OF REPRESENTATIONS AND WARRANTIES............................22
5.6 MATERIAL ADVERSE EFFECT...............................................22
5.7 PROXY MATERIALS.......................................................22
5.8 NEGATIVE COVENANTS....................................................23
5.9 OVERHEAD REDUCTION MEASURES DURING INTERIM PERIOD.....................24
5.10 WAIVERS OF AFFILIATE CLAIMS...........................................25
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5.11 CANCELLATION OR EXERCISE OF OPTIONS...................................25
5.12 AFE'S PRIOR CLOSING...................................................25
5.13 VOTING AND SUPPORT AGREEMENT..........................................25
5.14 CONSULTING AGREEMENT..................................................26
5.15 MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT......................26
5.16 BOARD OF DIRECTORS APPOINTMENTS.......................................26
ARTICLE 6
CONDITIONS TO CLOSING.......................................................26
6.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF INVESTOR.......................26
6.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY....................31
6.3 COMMERCIALLY REASONABLE EFFORTS.......................................32
ARTICLE 7
TERMINATION AND WAIVER......................................................32
7.1 TERMINATION...........................................................32
7.2 EFFECT OF TERMINATION.................................................33
7.3 WAIVER .............................................................33
7.4 EXPENSE ON TERMINATION................................................33
ARTICLE 8
OTHER COVENANTS.............................................................33
8.1 ANTIDILUTION PROTECTION...............................................33
8.2 REGISTRATION RIGHTS...................................................34
8.3 FILING EXPENSES.......................................................37
ARTICLE 9
INDEMNIFICATION.............................................................37
9.1 INDEMNIFICATION OF INVESTOR...........................................37
9.2 INDEMNIFICATION OF THE COMPANY........................................37
9.3 INDEMNIFICATION PROCEDURE.............................................37
9.4 INDEMNITY SHARES......................................................38
9.5 INDEMNIFICATION THRESHOLD.............................................39
ARTICLE 10
MISCELLANEOUS...............................................................39
10.1 CERTAIN DEFINITIONS...................................................39
10.2 FURTHER ASSURANCES....................................................49
10.3 PUBLIC ANNOUNCEMENTS..................................................49
10.4 EXPENSES .............................................................49
10.5 NOTICES AND WAIVERS...................................................49
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10.6 SURVIVAL .............................................................50
10.7 GENDER AND CERTAIN REFERENCES.........................................50
10.8 SUCCESSORS AND ASSIGNS................................................50
10.9 APPLICABLE LAW........................................................50
10.10 DISPUTES .............................................................51
10.11 ARBITRATION...........................................................51
10.12 SEVERABILITY; JUDICIAL MODIFICATION...................................52
10.13 AMENDMENT AND ENTIRETY................................................52
10.14 RIGHTS OF PARTIES.....................................................53
10.15 TIME OF ESSENCE.......................................................53
10.16 COUNTERPARTS..........................................................53
EXHIBIT 1.4(B)(1) GOM OPERATIONS ADJUSTMENT......................
EXHIBIT 5.13 VOTING AND SUPPORT AGREEMENT.........................
EXHIBIT 5.14 CONSULTING AGREEMENT.................................
EXHIBIT 5.15 MANAGEMENT AND ADMINISTRATIVE SERVICES
AGREEMENT............................................
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INVESTMENT AGREEMENT
This INVESTMENT AGREEMENT (this "AGREEMENT") is entered into on this 30th
day of July 1999, by and between American Resources Offshore, Inc., a Delaware
corporation (the "COMPANY") with its principal office at 160 Morgan Street,
Versailles, Kentucky 40383, and Blue Dolphin Exploration Company, a Delaware
corporation (the "INVESTOR") (collectively, the "PARTIES" or individually, a
"PARTY").
R E C I T A L S:
WHEREAS, Investor desires to purchase from the Company and the Company
desires to sell to Investor, on the terms and conditions herein set forth,
shares of the Company's common stock, par value $.00001 per share (the "COMMON
STOCK"); and
WHEREAS, the transactions contemplated by this Agreement represents one of
several substantially contemporaneous and mutually contingent transactions
whereby the Company intends to Transfer substantially all of its assets and
properties, subject to, among other things, the approval of such Transfers by
the shareholders of the Company.
NOW, THEREFORE, for and in consideration of the premises, and the mutual
and dependent promises contained herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE
1.1 CERTAIN DEFINITIONS. As used in this Agreement, each parenthetically
capitalized term in the introduction, recitals and other Sections of this
Agreement has the meaning so ascribed to it, and other capitalized terms have
the meaning given them in SECTION 10.1.
1.2 CLOSING. Consummation of the transactions contemplated by this
Agreement (the "CLOSING") shall take place at the offices of Porter & Hedges,
L.L.P., at 700 Louisiana, Suite 3500, Houston, Texas 77002 immediately following
the Shareholders Meeting or at such other time and place as all parties hereto
may mutually agree in writing. The date upon which the Closing occurs is
referred to herein as the "CLOSING DATE."
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1.3 ISSUANCE OF THE SHARES.
(a) Subject to the terms and conditions of this Agreement, the
Company agrees to issue to Investor at the Closing, free and clear of all
Encumbrances, and Investor agrees to purchase and accept from the Company the
number of shares of Common Stock described below:
(1) The Company shall issue to Investor a number of shares of
Common Stock that will result in Investor owning, immediately after the
Closing, 75% of the combined voting power of all classes of the Company's
voting securities after giving effect to:
(A) the issuance of such shares to Investor at
Closing;
(B) the conversion of all shares of Preferred Stock
owned beneficially or of record by Rick G. Avare and Douglas
L. Hawthorne into Common Stock pursuant to their respective
Voting and Support Agreements; and
(C) the issuance or deemed issuance at Closing of voting
securities that the Company becomes obligated to issue as a
result of the issuance to Investor of shares of Common Stock
at Closing, including pursuant to antidilution rights or other
rights to of any Person to acquire Common Stock.
The shares of Common Stock issuable to Investor pursuant to this SECTION
1.3(A)(1) are referred to as the "PRIMARY SHARES."
(2) In addition to the Primary Shares, the Company shall also
issue to Investor at Closing and from time-to-time thereafter shares of
Common Stock if Investor elects to receive additional shares of Common
Stock:
(A) in lieu of all or any portion of the downward cash
adjustments to which Investor would otherwise be entitled
pursuant to SECTION 1.4(B); or
(B) in full or partial satisfaction of any right of the
Investor to indemnification from the Company pursuant to
ARTICLE 9.
Such additional shares of Common Stock that Investor chooses to receive,
if any, are referred to as the "ADJUSTMENT SHARES." Investor shall not be
required to accept any Adjustment Shares in lieu of cash. If Investor
chooses to receive Adjustment Shares, the number of shares of Adjustment
Shares shall be determined by dividing the dollar amount of the aggregate
downward cash adjustment in the Purchase Price or indemnification amount,
as the case may be, by the price per share of Common Stock described in
SECTION 9.4(B). The Primary Shares and the Adjustment Shares, if any, are
collectively referred to herein as the "SHARES."
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1.4 PURCHASE PRICE FOR THE SHARES.
(a) In consideration for the issuance of the Shares and the other
representations, warranties, covenants and agreements contained herein, Investor
shall pay to the Company a purchase price of $4,736,315 which amount shall be
subject to adjustments set forth in SECTION 1.4(B) (the purchase price, as
adjusted pursuant to this Agreement, being referred to as the "PURCHASE PRICE").
The Purchase Price shall be payable at closing by wire transfer on the Closing
Date of immediately available funds to such of the Company's creditors and in
such amounts as the Company shall direct in writing and the balance of the
Purchase Price not so directed to the Company's creditors shall be paid into the
Company's bank account as designated by the Company. The Company shall provide
written directions to Investor for payment of the Purchase Price (including all
pertinent wire transfer instructions) at least five Business Days before the
Closing Date.
(b) The $4,736,315 price payable by Investor to the Company pursuant
to SECTION 1.4(A)(1) shall be subject to each of the following adjustments at
Closing:
(1) The Purchase Price shall be adjusted in accordance with
the GOM Operations Adjustment, which shall be calculated as set
forth on EXHIBIT 1.4(B)(1) hereto.
(2) The Purchase Price shall be reduced by all Transaction
Costs.
(3) The Purchase Price shall be reduced by the amount, if any,
by which the total liabilities of the Company at the Closing Date,
other than Permitted Liabilities (defined below) exceed $3,802,000.
(c) "PERMITTED LIABILITIES" shall mean and include:
(1) amounts due under the Residual Note;
(2) costs included in the calculation of the GOM Operations
Adjustment; and
(3) AFEs which the Company has committed to pay and which are
approved by Investor pursuant to SECTION 5.12.
(d) The determination of the Purchase Price shall be made in
accordance with generally accepted accounting principles as consistently applied
by the Company.
1.5 CLOSING DELIVERIES. On the Closing Date: (a) the Company shall deliver
to Investor duly and validly issued certificates representing the Shares, in
such denominations as Investor shall request no later than five Business Days
prior to Closing or if no such request is made, in a single certificate; (b) the
Company and Investor shall deliver to one another all other documents,
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instruments and agreements as required under this Agreement; and (c) Investor
shall pay to the Company the Purchase Price for the Shares.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
As material inducements for the execution, delivery and performance of
this Agreement and the transactions contemplated hereby, the Company hereby
makes to Investor the representations and warranties set forth in this ARTICLE 2
and ARTICLE 3 as of the date hereof and the Closing Date, except as specifically
set forth in the "EXCEPTION SCHEDULE" in a numbered paragraph that corresponds
to the section for which disclosure is made.
2.1 ORGANIZATION AND STATUS. The Company is a corporation duly organized,
validly existing and in good standing under the Laws of the State of Delaware,
and is duly qualified and in good standing as a foreign corporation in each
jurisdiction where its properties (whether owned, leased or operated) or its
business conducted require such qualification, except where the failure to be so
qualified would not have a Material Adverse Effect. The Company has all
requisite corporate power and authority to own, operate and lease its property
and to carry on its businesses as is now being conducted. The Company has
delivered to Investor complete and accurate copies of its Certificate of
Incorporation ("CERTIFICATE OF INCORPORATION") and Bylaws ("BYLAWS"), and the
charter documents and bylaws of each of its subsidiaries, each as amended to the
date hereof.
2.2 SUBSIDIARIES AND JOINT VENTURES. Except as disclosed on SECTION 2.2 of
the EXCEPTION SCHEDULE the Company has no subsidiaries and owns no stock or
other interest in any other corporation or in any partnership or limited
liability Company, or other venture or entity. Except as disclosed on SECTION
2.2 of the EXCEPTION SCHEDULE, the Company owns all of the issued and
outstanding capital stock and other ownership interests of each of its
subsidiaries, free and clear of all Encumbrances, and there are no existing
options, warrants, calls, subscriptions, convertible securities or other
securities, commitments or obligations of any character relating to the
securities of any such subsidiary. As of the Closing, the Company will have no
subsidiaries.
2.3 CAPITALIZATION. (a) The Company has authorized capital stock
consisting of 50,000,000 shares of Common Stock, of which 12,811,036 shares are
issued and 210,890 shares are held in treasury on the date hereof and 3,000,000
shares of Preferred Stock, of which 230,516 shares are issued and outstanding on
the date hereof. The shares of Preferred Stock are convertible into an aggregate
of 230,516 shares of Common Stock and have voting rights of four votes per share
of Preferred Stock. Except as described in SECTION 2.3(A),of the EXCEPTION
SCHEDULE there are no arrearages in the payment of dividends on the Preferred
Stock. All of the outstanding shares of capital stock of the Company have been
duly authorized and are validly issued, fully paid and nonassessable, and no
shares were issued, and no options were granted, in violation of preemptive or
similar rights of any shareholder or in violation of any applicable Securities
Act.
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(b) Except as set forth on SECTION 2.3(B) of the EXCEPTION SCHEDULE,
there are no preemptive rights or any outstanding subscriptions, options,
warrants, rights, convertible securities or other agreements or commitments of
the Company of any character relating to the issued or unissued capital stock or
other securities of the Company. All shares of capital stock issuable by the
Company under the terms of antidilution agreements have been issued. The
occurrence of the transactions contemplated by this Agreement will not give rise
to any obligation of the Company to issue additional capital stock or other
securities pursuant to antidilution rights or any other arrangement, except as
contemplated by this Agreement. There are no outstanding obligations of the
Company to repurchase, redeem or otherwise acquire any of its outstanding
securities.
2.4 AUTHORITY. The Company has the corporate power and authority and,
except for the approval of its stockholders, has taken all corporate action
necessary to execute and deliver this Agreement and the Purchase and Sale
Agreement and to consummate the transactions contemplated by such agreements.
This Agreement and the Purchase and Sale Agreement and the transactions
contemplated by such agreements have been duly and validly authorized by the
Board of Directors of the Company, validly executed and delivered by the Company
and, as of the Closing Date, will have been duly and validly approved by the
shareholders of the Company. This Agreement and the Purchase and Sale Agreement,
and the documents and instruments required pursuant to such agreements,
constitute the valid and binding obligations of the Company, enforceable in
accordance with their respective terms, except as enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar Laws in
effect relating to the rights and remedies of creditors, as well as to general
principles of equity (regardless of whether such enforceability is considered in
a Proceeding in equity or at law).
2.5 NO VIOLATION OF AGREEMENTS OR GOVERNING DOCUMENTS. Except as described
in SECTION 2.5 of the EXCEPTION SCHEDULE, neither the execution and delivery of
this Agreement or the Purchase and Sale Agreement by the Company nor
consummation of transactions contemplated hereby and thereby by the Company will
(a) conflict with the Certificate of Incorporation or the Bylaws of the Company
or the charter documents or bylaws of any of its subsidiaries, (b) result in any
breach or termination of, or constitute an event which with notice or lapse of
time, or both, would become a default under, or result in the creation of any
Encumbrance upon any asset of the Company under, or create any rights of
termination, cancellation, modification, amendment, or acceleration in any
person under, any Contract, (c) violate any Order, (d) require the consent,
approval, authorization, or order of any person or Governmental Authority (other
than the shareholders of the Company at the Shareholders Meeting) not heretofore
obtained other than those consents or approvals specifically contemplated
hereby, or (e) result in the loss or modification or any license, franchise,
permit or other authorization granted to or otherwise held by the Company.
2.6 COMPANY SEC REPORTS AND FINANCIAL STATEMENTS. To the Knowledge of the
Company, the Company has filed with the SEC, and has made available to Investor
true and complete copies of, all forms, reports, schedules, statements, and
other documents required to be filed by it since December 31, 1995 under the
Securities Exchange Act of 1934 (the "EXCHANGE ACT") or the Securities Act (each
of such forms, reports, schedules, statements, and other documents, to the
extent
5
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filed and publicly available before the date of this Agreement, other than
preliminary filings, is referred to as a "SEC DOCUMENT"). Each SEC Document has
been timely filed from May 31, 1998 through the Closing Date. Each SEC Document,
at the time filed, (a) did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading and (b) complied in all material respects with
the applicable requirements of the Exchange Act and the Securities Act, as the
case may be, and the applicable rules and regulations of the SEC thereunder. The
financial statements included in the SEC Documents (the "FINANCIAL STATEMENTS")
comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto or, in the case of the
unaudited statements, as permitted by Form 10-Q of the SEC) and fairly present
(subject, in the case of the unaudited statements, to normal, recurring audit
adjustments) the consolidated financial position of the Company and its
consolidated subsidiaries as at the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended. The certified
public accountants who have certified certain financial statements of the
Company included in the SEC Documents are independent public accountants as
required by the Securities Act and the rules and regulations thereunder.
Investor acknowledges that the Independent Auditors' Report with respect to the
Financial Statements as of and for the period ended December 31, 1998 reflects
that substantial doubts exist about the Company's ability to continue as a going
concern.
2.7 GOVERNMENTAL FILINGS. To the Knowledge of the Company, no notices,
reports or other filings are required to be made by the Company or its
subsidiaries with, nor are any consents, registrations, approvals, permits or
authorizations required to be obtained by the Company or its subsidiaries from,
any Governmental Authority in connection with the execution and delivery of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby.
2.8 YEAR 2000. To the Knowledge of the Company, all computer systems and
computers software used by the Company recognize and manipulate date information
relating to dates on or after January 1, 2000 and the operation and
functionality of such computer systems and such computer software will not be
adversely affected by the advent of the year 2000 or any manipulation of data
featuring information relating to dates before, on or after January 1, 2000
("MILLENNIUM FUNCTIONALITY"), except in each case of such computer systems and
computer software, the failure of which to achieve Millennium Functionality,
individually or in the aggregate, would not be reasonably likely to have a
Material Adverse Effect. The costs of the adaptions necessary to achieve
Millennium Functionality are not reasonably likely to have a Material Adverse
Effect.
2.9 LIABILITIES OF THE COMPANY. The Company does not have any liabilities
or obligations, either accrued, absolute, contingent, or otherwise, other than
those (a) reflected or reserved against in the December 31, 1998 audited
consolidated balance sheet of the Company, or (b) incurred in the
6
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ordinary course of business since December 31, 1998 and which individually and
in the aggregate would not have a Material Adverse Effect.
2.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the January 1, 1999,
the Company has not:
(a) suffered any event, condition or circumstance that has had, or
is reasonably likely to have, a Material Adverse Effect;
(b) changed any accounting methods, principles or practices;
(c) conducted any business which is outside the ordinary course of
business or not substantially in the manner that the Company previously
conducted its business; or
(d) mortgaged, pledged or subjected to lien, charge, security
interest or to any other Encumbrance other than Permitted Encumbrances any of
its assets, or amended, modified, or extended any existing lien on or security
interest in any such assets;
(e) Transferred or agreed to Transfer of any of its assets other
than oil and gas leases abandoned as non-commercial, and oil and gas equipment
sold for fair market value in the ordinary course of business for consideration
not in excess of $5,000 in the aggregate;
(f) waived or released any rights, including cancellation of any
debt or accounts receivable;
(g) settled any claims or Proceedings involving (i) any payment by
the Company of an amount over $5,000 in the aggregate, (ii) any stipulations of
fact or admissions of liability in any Proceeding, or (iii) any obligation on
the part of the Company of a continuing nature;
(h) except as set forth in SECTION 2.23 of the EXCEPTION SCHEDULE,
entered into any agreement with any of its shareholders, directors, officers,
employees, or other Affiliates;
(i) permitted or suffered any amendment, cancellation, modification
or termination of any contract, agreement, license, permit or arrangement to
which it is a party or to which any of its properties or assets is subject,
other than with respect to pricing changes in spot market gas purchase Contracts
having a term of 30 days or less;
(j) lost, canceled, terminated, amended or modified any material
lease to which it is a party;
(k) failed to pay when due any lease obligation, obligation for
borrowed money, or failed to pay any trade account payable within 60 days of its
due date, or defaulted in respect of any
7
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other contractual obligation to which the Company is subject, except for
billings and invoices being contested in good faith which are described in
SECTION 2.11 of the EXCEPTION SCHEDULE; or
(l) loaned or advanced any funds to its directors, officers,
employees, agents, shareholders, or other Affiliates or to any of its
shareholders except for loans or advances made in accordance with customary
practices of the Company (consistent with good business practice) for the
purpose of defraying ordinary and necessary business expenses incurred by
employees in the usual course and scope of their employment and for which proper
supporting documentation has been obtained by the Company.
2.11 PROCEEDINGS. Except as listed on SECTION 2.11 of the EXCEPTION
SCHEDULE, no Proceeding is pending or, to the Company's Knowledge, threatened
against or relating to the Company, its officers or directors in their
capacities as such, or any of the Company's properties, businesses or
subsidiaries.
2.12 EMPLOYEES.
(a) Each of the Company and each of its subsidiaries has complied
with all Laws relating to the employment of labor, including, without
limitation, provisions thereof relating to wages, hours, equal
opportunity, collective bargaining, the payment of social security and
other employment-related taxes, and occupational safety and health.
(b) Each individual who is currently performing or has performed
services to or for either the Company or any ERISA Affiliate as an
independent contractor could not reasonably be found by the Internal
Revenue Service or any Governmental Authority to be an employee of either
the Company or such ERISA Affiliate, as applicable, while such individual
was providing services as an independent contractor. The term "ERISA
Affiliate" means any other employer that is, or at any relevant time was,
together with the Company, treated as a "single employer" under Section
414 of the Internal Revenue Code of 1986, as amended (the "CODE").
(c) Neither the Company nor any subsidiary is a party to or bound by
any collective bargaining or other labor agreement. Neither the Company
nor any subsidiary has any labor relations problem pending. To the
Knowledge of the Company and any subsidiary, there are no union organizing
efforts involving any employees of the Company or any subsidiary.
(d) There are no workers' compensation claims pending against the
Company or any subsidiary at the Closing Date and, to the Knowledge of the
Company or any subsidiary at the Closing Date, there exists no set of
circumstances that is reasonably likely to give rise to such a claim.
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(e) To Knowledge of the Company, no employee of the Company or any
subsidiary of the Company at the Closing Date is subject to any
confidentiality or noncompetition agreement or any other Contract or
restriction of any kind that would impede in any way the ability of such
employee to carry out fully all activities of such employee in furtherance
of the business of the Company or any subsidiary or that would conflict
with the business of the Company.
2.13 EMPLOYEE BENEFIT PLANS.
(a) The only "employee pension benefit plans," (as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") including, without limitation, any "multiemployer plan" as defined in
Section 3(37) of ERISA), employee welfare benefit plans (as defined in Section
3(1) of ERISA), maintained, contributed to, or required to be contributed to by
the Company or any ERISA Affiliate with respect to any employees of the Company
or any ERISA Affiliate, or pursuant to which the Company or any ERISA Affiliate
may have any liability with respect to any employees of the Company or any ERISA
Affiliate, any former employees of the Company or any ERISA Affiliate or any
current or former director or officer of the Company (each, a "PLAN") are listed
on SCHEDULE 2.13. Without liming the generality of the preceding sentence, the
term "Plan" shall include all arrangements, contracts, policies, or practices
(whether written or unwritten, qualified or unqualified, funded or unfunded and
including any that have been frozen or terminated) relating to any of the
following benefits: pension, profit sharing, retirement, supplemental
retirement, stock, stock option, basic and supplemental accidental death and
dismemberment, basic and supplemental life and health insurance, post-retirement
medical or life, welfare, dental, vision, savings, bonus, deferred compensation,
incentive compensation, business travel and accident, holiday, vacation,
severance pay, salary continuation, sick pay, sick leave, short and long term
disability, tuition refund, service award, company car, scholarship, relocation,
patent award, fringe benefit, or other employee benefits.
(b) Set forth on SCHEDULE 2.13 is a true and complete list of: (i)
each employment or consulting agreement, arrangement or other understanding that
is currently in effect to which the Company or any ERISA Affiliate is a party,
by which such entity is bound or pursuant to which such entity is an obligator
or a beneficiary, (ii) each agreement, arrangement or other understanding that
could result in any severance payment or benefit payable by the Company or any
ERISA Affiliate, whether as a result of the Company's execution and performance
of the transactions contemplated by this Agreement or otherwise, to any
employee, former employee, director, or officer of the Company or any ERISA
Affiliate and (iii) each agreement, arrangement or other understanding that
could result in a "parachute payment" as defined in Section 280G of the Code
(each, an "EXECUTIVE COMPENSATION PLAN"), whether as a result of the Company's
execution and performance of the transactions contemplated by this Agreement or
otherwise.
(c) As applicable, with respect to each of the Plans, the Company
has delivered to Investor true and complete copies of (i) all Plan documents
(including all amendments and modifications thereof) and, in the case of an
unwritten Plan, a written description thereof, and in
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either case all related agreements including, without limitation, trust
agreements and amendments thereto, insurance contracts, and investment
management agreements, (ii) the two most recent annual reports (Form 5500 and
all schedules thereto) filed with the Internal Revenue Service, actuarial
reports, financial reports or trustee reports, (iii) the current summary plan
descriptions and all modifications thereto and (iv) copies of any private letter
rulings, requests and applications for determination and determination letters
issued with respect to the Plans within the past five years. As applicable, with
respect to each of the Executive Compensation Plans, the Company has delivered
to Investor true and complete copies of all Executive Compensation Plan
documents (including all amendments and modifications thereof), and, in the case
of an unwritten Executive Compensation Plan, a written description thereof, and
in either case related agreements including, without limitation, trust
agreements and amendments thereto, insurance contracts, and investment
management agreements.
(d) The Company and each ERISA Affiliate are in compliance in all
respects with all Laws, including ERISA and the Code, applicable to the Plans.
Each Plan has been maintained, operated and administered in compliance in all
respects with its terms and any related documents or agreements and the
applicable provisions of ERISA and the Code.
(e) Any Plan which is an "employee pension benefit plan" within the
meaning of Section 3(2) of ERISA and which are intended to meet the
qualification requirements of Section 401(a) of the Code (each a "PENSION PLAN")
now meet, and at all times since their inception have met, the requirements for
such qualification and the related trusts are now, and at all times since their
inception have been, exempt from taxation under Section 501(a) of the Code.
(f) All Pension Plans have received determination letters from the
IRS to the effect that such Pension Plans are qualified and the related trust
are exempt from federal income Taxes and no determination letter with respect to
any Pension Plan has been revoked nor, to the Knowledge of the Company and any
subsidiary, is there any reason for such revocation, nor has any Pension Plan
been amended since the date of its most recent determination letter in any
respect which would adversely affect its qualification. Neither the Company nor
any ERISA Affiliate has ever contributed to, or been required to contribute to
any "multiemployer plan" (within the meaning of Section 3(37) of ERISA) and
neither the Company nor any ERISA Affiliate has any liability (contingent or
otherwise) relating to the withdrawal or partial withdrawal from a multiemployer
plan.
(g) No Plan is (or at any time has been) subject to Part 3, Subtitle
B of Title I of ERISA or Title IV of ERISA.
(h) There are no currently pending audits or investigations by any
Governmental Authority involving the Plans, no threatened or currently pending
claims (except for individual claims for benefits payable in the normal
operation of the Plans), Proceedings involving any Plan, any fiduciary thereof
or service provider thereto and, to the Knowledge of the Company and any
subsidiary, there is no set of circumstances which exists that will give rise to
any such claim or Proceeding.
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(i) None of the Company, any ERISA Affiliate, or any employee of the
Company or any ERISA Affiliate has engaged in or, in connection with the
transactions contemplated by this Agreement, will engage in a "prohibited
transaction" within the meaning of Section 406 of ERISA or Section 4975 of the
Code and no such person or entity has breached any duty imposed by Title I of
ERISA with respect to any Plan. To the Knowledge of the Company and any
subsidiary, no other person or entity has engaged or will engage in such a
prohibited transaction or breach with respect to any Plan. None of the assets of
any Plan is invested in any property constituting "employer real property" or an
"employer security" within the meaning of Section 407 of ERISA.
(j) Any insurance premium under any insurance policy related to a
Plan for any period up to and including the Closing shall have been paid or
accrued and booked on or before the Closing, and, with respect to any such
insurance policy or premium payment obligation, none of the Company, any ERISA
Affiliate or Investor shall be subject to a retroactive rate adjustment, loss
sharing arrangement or other actual or contingent liability.
(k) No Plan provides benefits, including, without limitation, death
or medical benefits, beyond termination of service or retirement, other than (i)
coverage mandated by law or (ii) death or retirement benefits under a Plan
qualified under Section 401(a) of the Code.
(l) With respect to each Plan that is a "group health plan" within
the meaning of Section 607 of ERISA and that is subject to Section 4980B of the
Code, the Company and each ERISA Affiliate comply, and have complied, in all
respects with the continuation coverage requirements (including, without
limitation, any requirement to provide any notice to any individual) of those
provisions and Part 6 of Title I of ERISA.
2.14 TITLE TO AND CONDITION OF REAL PROPERTY. The Company does not own any
real property other than the Properties. SCHEDULE 2.14 contains a list of all
real property (other than the Properties) currently leased or occupied by the
Company or its subsidiaries (the "LEASED REAL PROPERTY"), including the dates of
and parties to all leases and any amendments thereof and a list of all real
property previously leased or occupied by the Company or its subsidiaries. All
Leased Real Property (including improvements thereon) is in satisfactory
condition and repair consistent with its present use, and is available for
immediate use in the conduct of the Company business. Neither the operations of
the Company or its subsidiaries on any Leased Real Property, nor any
improvements on the Leased Real Property, violates any applicable Law, except
where such violation would not have a Material Adverse Effect on the Company.
The Leased Real Property includes all real property necessary to conduct the
business of the Company and its subsidiaries. None of the Leased Real Property
has been condemned or otherwise taken by public authority and no such
condemnation is, to the Knowledge of the Company, threatened or contemplated.
2.15 INTELLECTUAL PROPERTY. The Company owns, or has a valid license to
use, all software, seismic data and interpretations, maps, well logs, patents,
trademarks, service marks, trade names, copyrights, trade secrets, technology,
know-how and other intellectual property (collectively, the "INTELLECTUAL
PROPERTY") that is or has been used on the premises of the Company in the
conduct of
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the business of the Company. SCHEDULE 2.15 contains a complete and accurate list
of all patents, patent applications, trademarks and service marks and related
applications, trade names and copyrights owned by or licensed to the Company.
SCHEDULE 2.15 also contains a description of all agreements or licenses relating
to the acquisition by, or license to the Company of, such Intellectual Property
or under which the Company has sold or granted a right to use any Intellectual
Property. All Intellectual Property owned by the Company is owned by it free and
clear of any Encumbrance. The conduct of the Company's business does not
conflict with or infringe upon any Intellectual Property rights of any other
person and no claims of conflict or infringement are pending or threatened
against the Company or its subsidiaries. The Company has made all necessary
filings and recordations and has paid all required fees and Taxes to maintain
ownership of the Intellectual Property.
2.16 CERTAIN CONTRACTS AND ARRANGEMENTS. SCHEDULE 2.16, contains a
complete and accurate list of each of the following types of Contracts:
(a) Contracts, including any mortgage, note or other instrument,
relating to the borrowing of money or the incurrence of indebtedness or
the guaranty of any obligation for the borrowing of money;
(b) any Contract, purchase order or acknowledgment form for the
purchase, sale, lease or other disposition of equipment, products,
materials or capital assets, or for the performance of services, with
respect to which the annual aggregate dollar amount either due to, or
payable by, the Company or exceeds $5,000;
(c) Contracts for the joint performance of work or services, joint
venture agreements and all other Contracts pertaining to investments by
the Company in other Entities;
(d) Contracts with respect to the sale or disposition of the
Company's capital stock or other securities;
(e) any Contracts or understandings with outside advisors,
consultants, or investment bankers, including any agreements or
understandings with Jefferies & Co., Inc. and M2 Capital, Inc.;
(f) Contracts with parties other than employees of the Company
pursuant to which the Company or any of its employees are subject to
confidentiality or noncompetition obligations; and
(g) any other Contract not described in any other Schedule which
contains unfulfilled obligations, is not terminable without payment of
premium or penalty upon 30 days' notice or less and the annual amount
either due to or payable by the Company or any of its subsidiaries exceeds
$25,000 for any single contract or $50,000 in the aggregate.
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Complete and accurate copies of all such Contracts that are in written form have
been delivered to Investor.
2.17 STATUS OF CONTRACTS. Except as set forth in SECTION 2.17 of the
EXCEPTION SCHEDULE, the Company is not in violation of, in default under, or to
its Knowledge, in alleged violation of or in alleged default under any Contract,
and there has not occurred any event which with lapse of time or giving of
notice or both would constitute such a violation or default. The Company is not
aware of any default by any other party to any Contract or of any event which
(whether with or without notice, lapse of time or both) would constitute a
material default by any other party with respect to obligations of that party
under any Contract, and, to the Knowledge of the Company, there are no facts
that exist indicating that any of the Contracts may be totally or partially
terminated or suspended by the other parties. Neither the Company nor any of its
subsidiaries at the Closing Date has granted any waiver or forbearance with
respect to any of the Contracts. Neither the Company nor any of its subsidiaries
is a party to, or bound by, any Contract that the Company can reasonably foresee
will result in any material loss to the Company upon the performance thereof
(including any liability for penalties or damages, whether liquidated, direct,
indirect, incidental or consequential). The Company has not guaranteed, and is
not otherwise liable for, the payment or performance by any of its subsidiaries
under contract, instrument or other obligation.
2.18 INSURANCE. SCHEDULE 2.18 contains a complete and accurate list of all
policies of fire, liability, worker's compensation and other forms of insurance
insuring the Company, its officers or directors, its assets or its operations
(the "POLICIES"), setting forth the applicable deductible amounts. All of the
Policies are valid, enforceable and in full force and effect, all premiums with
respect to the Policies covering all periods up to and including the date as of
which this representation is being made have been paid and no notice of
cancellation or termination has been received with respect to any Policy. The
Policies are sufficient for compliance with all requirements of Law and
Contracts to which the Company or any of its subsidiaries is a party and provide
insurance for the risks and in the amounts and types of coverage usually
obtained by persons using or holding similar properties in similar businesses.
Complete and accurate copies of the Policies and all endorsements thereto have
been delivered to Investor. The Company has not been refused any insurance
coverage and no insurance coverage has been canceled during the three years
preceding the date of this Agreement. None of the Policies permit the insurer to
retroactively increase or assess premiums based on subsequent claims history.
There are no pending Claims made by the Company under the Policies or any other
insurance Contracts.
2.19 PERMITS AND LICENSES. SCHEDULE 2.19 contains a complete and accurate
list of all Permits held by the Company, listed by Governmental Authority
issuing such Permits. Each of the Company and its subsidiaries holds, and at all
times has held, all Permits necessary for the lawful conduct of its business
pursuant to all applicable Laws. Each of the Company and its subsidiaries is in
compliance with each of the terms of the applicable Permits, and there are no
claims of violation by the Company or any of its subsidiaries of any of such
Permits. Complete and accurate copies of all Permits held by the Company and its
subsidiaries have been delivered to Investor. All Governmental Authorities that
have issued any Permits to or with respect to the Company, its
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business, or subsidiaries have consented or prior to the Closing will have
consented (where such consent is necessary) to the consummation of the
transactions contemplated by this Agreement without requiring modification of
the rights or obligations of the Company or its subsidiaries under any of such
Permits.
2.20 BANK ACCOUNT BALANCES; POWERS OF ATTORNEY. SCHEDULE 2.20 lists (a)
the name, address and contact person of each bank or other financial institution
in which the Company has an account, safe deposit box or line of credit; (b) the
account number, account name and type of account; (c) the dollar amount of each
account including any restrictions on the account; and (d) the names of all
persons authorized to draw thereon or have access thereto; and the names of all
persons, if any, holding powers of attorney to act for the Company.
2.21 TAXES. The Company and its subsidiaries have filed on a timely basis
all federal, state, local, foreign and other returns, reports, forms,
declarations and information returns required to be filed by them with respect
to Taxes (as defined below) which relate to the business, results of operations,
financial condition, properties or assets of the Company or its subsidiaries for
all periods (collectively, the "RETURNS") and have paid on a timely basis all
Taxes shown to be due on the Returns. All Returns filed are complete and
accurate in all material respects and no additional Taxes are owed by the
Company or its subsidiaries with respect to the periods covered by the Returns
or for any other period. The Company has provided Investor with complete and
accurate copies of all Returns for each of the Company's fiscal years ended on
or after December 31, 1992. Neither the Company nor any of its subsidiaries has
any liability for Taxes of any person (other than themselves), whether arising
under federal, state, local or foreign law, as a transferee or successor, by
contract, or otherwise. Except as set forth on SECTION 2.21 of the EXCEPTION
SCHEDULE, neither the Company nor any of its subsidiaries is currently the
beneficiary of any extension of time within which to file any Return. Except as
set forth on SECTION 2.21 of the EXCEPTION SCHEDULE, no Returns have been
examined by the applicable taxing authorities for any period and, except as set
forth on SECTION 2.21 of the EXCEPTION SCHEDULE, the Company has not received
any notice of audit with respect to any Return or any fiscal year and there are
no outstanding agreements or waivers extending the applicable statutory periods
of limitation for Taxes for any period. No claim has ever been made by an
authority in a jurisdiction where the Company or its subsidiaries do not file
Returns that they are or may be subject to taxation by that jurisdiction. All
Taxes that are or have been required to be withheld or collected by the Company
or any of its subsidiaries or predecessors have been duly withheld and collected
and, to the extent required, have been properly paid or deposited as required by
applicable laws.
2.22 RELATED PARTY INTERESTS. Except as described in reasonable detail in
SECTION 2.13 or SECTION 2.22 of the EXCEPTION SCHEDULE, no shareholder, officer
or director, or former officers or directors of the Company (or any entity owned
or controlled by one or more of such parties) (a) has any interest in any
property, real or personal, tangible or intangible, used in or pertaining to the
Company's business, (b) is indebted to the Company or its subsidiaries, or (c)
has any financial interest, direct or indirect, in any outside business which
has significant transactions with the Company. True and complete copies of all
agreements listed on SECTION 2.13 and SECTION 2.22 of the
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EXCEPTION SCHEDULE have been provided to Investor. The Company is not indebted
to any of its shareholders, directors or officers (or any entity owned or
controlled by one or more of such parties), except for amounts due under normal
salary arrangements and for reimbursement of ordinary business expenses. The
consummation of the transactions contemplated by this Agreement or the Purchase
and Sale Agreement will not (either alone or upon the occurrence of any act or
event, or with the lapse of time, or both) result in any payment (severance or
other) becoming due from the Company to any of its shareholders, officers,
directors or employees (or any entity owned or controlled by one or more of such
parties).
2.23 TRANSACTIONS WITH MANAGEMENT. Except as set forth in Section 2.13 or
SECTION 2.22 of the EXCEPTION SCHEDULE, the Company is not a party to any
Contract with any of its shareholders, directors, officers, employees, or
agents, or with any former shareholder, director, officer, employee, or agent of
the Company.
2.24 NO OPERATING RESTRICTIONS. No power of attorney or similar
authorization given by the Company or any of its subsidiaries is presently in
effect or outstanding. No Contract (i) limits or burdens the freedom of the
Company to compete in any line of business or with any person or (ii) limits or
burdens the operations of the Company in, or creates rights in favor of other
persons with respect to, the ownership of property or conduct of operations
within, any area of mutual interest or other geographic area or geological zone.
2.25 BROKERS AND FINDERS. The Company has incurred no obligation or
liability, contingent or otherwise, for brokers', finders' or investment
bankers' fees in respect of the matters contemplated by this Agreement,
including the Southern Disposition.
2.26 INVESTMENT COMPANY; PUBLIC UTILITY HOLDING ACT. The Company is not an
"investment company" as defined in the Investment the Company Act of 1940, as
amended, and the rules and regulations promulgated thereunder, and the Company
is not a "holding company" or and "affiliate" of a holding company or public
utility as defined in the Public Utility Holding Company Act of 1940, as
amended, and the rules and regulations promulgated thereunder.
2.27 REGISTRATION RIGHTS. Except for the registration rights granted
herein, or set forth in SECTION 2.27 of the EXCEPTION SCHEDULE, the Company has
not agreed to register under the Securities Act the sale of any of securities
issued or guaranteed by it.
2.28 SCHEDULES; UNTRUE STATEMENTS. All schedules furnished by the Company
pursuant to this Agreement are true, complete and accurate in all respects and
neither omit or contain items required by this Agreement to be contained therein
or omitted therefrom, respectively. This Agreement and all other documents and
information furnished by the Company or any of their Affiliates or their
respective representatives to Investor and its Affiliates or their respective
representatives pursuant hereto or in connection with the transactions
contemplated by this Agreement do not include any untrue statement of a material
fact or omit to state any material fact necessary to make the statements made
herein and therein not misleading.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES
RELATING TO THE PROPERTIES
As additional material inducements for the execution, delivery and
performance of this Agreement and the transactions contemplated hereby, the
Company hereby makes to Investor the representations and warranties set forth in
this ARTICLE 3, except as specifically set forth in Exception Schedule in a
numbered paragraph that corresponds to the section for which disclosure is made,
that as of the date hereof and the Closing Date. Such representations and
warranties are in addition to, and not in lieu of, other representations and
warranties of the Company contained herein.
3.1 PROCEEDS OF PRODUCTION. To the Company's Knowledge, (a) all proceeds
of production of Hydrocarbons from the Properties are currently being paid to
the operator of such Properties, for the Company's account, without the
furnishing of indemnity (other than customary warranties contained in division
orders, transfer orders or production sales contracts); and (b) no material
portion of such proceeds are being held in suspense. SCHEDULE 3.1 describes all
Hydrocarbon properties owned by the Company after giving effect to the closing
of the Purchase and Sale Agreement and the Southern Disposition.
3.2 INVOICES. Except as set forth in SECTION 3.2 of the EXCEPTION
SCHEDULE, the Company has paid all joint-interest billings and other invoices
Attributable to the ownership or operation of the Properties, to the extent that
such billings and invoices have been received by the Company and have become due
and payable.
3.3 GAS IMBALANCES. To the Company's Knowledge, there exist no
production imbalances affecting the Properties.
3.4 GAS PREPAYMENTS. Except as set forth in SECTION 3.4 of the EXCEPTION
SCHEDULE, the Company is not obligated, by virtue of a prepayment, take-or-pay,
production payment or other arrangement, to deliver Hydrocarbons produced from
the Properties on or after the January 1, 1999, without receiving full price for
such production.
3.5 WELLS. SCHEDULE 3.5 lists all wells located on the Properties.
To the Company's Knowledge, (a) all of the wells located on the Properties have
been drilled and completed within the boundaries of the applicable Leases or
within the limits otherwise permitted by contract, pooling or unitization
agreement or applicable Law, (b) all drilling, completion, development,
operation, plugging and abandonment of the wells located on the Properties have
been conducted in material compliance with all applicable Laws and (c) except as
set forth in Section 3.5 of the EXCEPTION SCHEDULE, there are no wells located
on the Properties that (i) the Company is currently obligated by law or contract
to plug and abandon; (ii) the Company will be obligated by law or contract to
plug and abandon with the lapse of time or notice or both because the well is
not currently capable of
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producing Hydrocarbons in commercial quantities; or (iii) are subject to
exceptions to a requirement to plug and abandon issued by a Governmental
Authority having jurisdiction over the Properties.
3.6 AFES. Except as set forth on SECTION 3.6 of the EXCEPTION SCHEDULE,
there are no outstanding authorizations for expenditure (approved or proposed)
that (a) require the drilling of wells or other material development operations
to earn or to continue to hold all or any portion of the Properties or (b)
obligate the Company to make payments of any material amounts in connection with
the drilling of wells or other material capital expenditures affecting the
Properties.
3.7 CASUALTY. To the Company's Knowledge, no Casualty Event has occurred
on or since January 1, 1999.
3.8 TITLE.
(a) Except as provided in SECTION 3.8(A) of the EXCEPTION SCHEDULE,
after giving effect to the transactions contemplated by the Purchase and Sale
Agreement, the Company has Marketable Title to the Properties and shall defend
title to the Properties against all claims and demands of all Persons whomsoever
claiming title to the Properties, or any part thereof, by, through or under the
Company, but not otherwise.
(b) Except as provided in SECTION 3.8(B) of the EXCEPTION SCHEDULE,
after giving effect to the transactions contemplated by the Purchase and Sale
Agreement, the Company has good and indefeasible title to the Platforms
entitling the Company to an undivided ownership interest in each Platform equal
to the Company's Working Interest for the Property upon which each Platform is
located and the Company shall defend title to the Platforms against all claims
and demands of all Persons whomsoever claiming title to the Company's undivided
ownership in the Platforms, or any part thereof, by, through or under the
Company, but not otherwise.
3.9 PRICING. To the Company's Knowledge, the prices being received for the
production of Hydrocarbons from the Properties do not violate any Contract or
Law.
3.10 EQUIPMENT. To the Company's Knowledge, the Equipment is in good
repair, working order and operating condition and is adequate for the operation
of the Properties.
3.11 LEASES. To the Company's Knowledge, (a) the Leases are in full force
and effect, by operations approved by the MMS in accordance with applicable Law;
(b) the Company has made available to the Investor true and correct copies of
the Leases, including any amendments thereto; (c) the Company has duly performed
all of the material obligations under the Leases that are now or will prior to
the Closing be required to be performed by the Company; (d) the Company has not
received any notice of default under the Leases, nor is any such notice pending;
and (e) all rentals and royalties (including minimum royalties, shut-in or
otherwise) required to be paid to perpetuate the Leases to the Execution Date
have been timely and properly paid to the proper Persons and in the proper
amounts.
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3.12 GOVERNMENTAL QUALIFICATION. The Company is qualified with the MMS to
own interests in federal Hydrocarbon leases on the Outer Continental Shelf,
including the Properties.
3.13 ADVERSE CHANGES IN PRODUCTION RATES OR OIL AND GAS RESERVES. (a) From
the date of this Agreement until the day immediately preceding the Closing Date,
the average daily production from the Properties (in all cases net to the
Company's interest in the Properties) shall not be less than (i) 14,000 Mcf. per
day of natural gas, and (ii) 950 barrels per day of oil and other liquid
Hydrocarbons. True and complete copies of the report of each of Netherland,
Sewell & Associates, Inc. and Ryder Scott Company Petroleum Engineers estimating
the Hydrocarbon reserves attributable to the Company's interest in the
Properties as of January 1, 1999, have been given to the Investor prior to the
date of this Agreement.
(b) Since January 1, 1999, there has been no material loss of, or
decline in, any proved category of Hydrocarbon reserves attributable to the
Company's interest in the Properties below that estimated for the Company's
interest in the Properties in either of the reserve reports of Netherland,
Sewell & Associates, Inc. or Ryder Scott Company Petroleum Engineers as of
January 1, 1999, other than declines in reserve volumes as a result of actual
production of Hydrocarbons since January 1, 1999 or a reduction in the prices
used to calculate reserve volumes.
3.14 ENVIRONMENTAL LAWS. To the Company's Knowledge, (a) the Company's and
each of its subsidiary's assets have been, and are being, operated in material
compliance with all applicable Environmental Laws except for minor matters of
non-compliance for which potential fines or costs of compliance do not exceed
$50,000; and (b) there exists no condition or circumstance whereby the Company
or the Company's successor would be obligated to expend any sum of money in
excess of $50,000 in connection with any remedial action relating to any
environmental condition which, if not performed, would result in a violation of
applicable Environmental Laws.
3.15 RESERVE INFORMATION. The information supplied by the Company to the
independent petroleum engineering consultants for the Company for purposes of
preparing the reserve reports and estimates of such consultants included in the
SEC Reports ("RESERVE REPORTS"), including, without limitation, production,
costs of operation and development, current prices for production, agreements
relating to current and future operations and sales of production (including all
financial hedging arrangements), was true and correct in all material respects
on the date supplied and was prepared in accordance with customary industry
practices. Netherland, Sewell & Associates, Inc. and Ryder Scott Company
Petroleum Engineers, who prepared estimates of the amount and value of proved
reserves of the Company as set forth in the SEC Reports, are independent with
respect to the Company. The information with respect to the estimated quantities
of the Company's proved reserves and the present value of such reserves included
in the SEC Reports was prepared in accordance with the rules and guidelines set
forth in the rules and regulations of the SEC for inclusion of reserve
information in financial statements filed with the SEC.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF INVESTOR
As material inducements for the execution, delivery and performance of
this Agreement by the Company, Investor hereby represents and warrants to the
Company that as of the date hereof and the Closing Date:
4.1 ORGANIZATION. Investor is a corporation duly organized, validly
existing and in good standing under the Laws of Delaware, and has all the
necessary powers to own its business as now owned and operated by it.
4.2 AUTHORITY. Investor has the absolute and unrestricted right, and all
requisite corporate power and authority to enter into and perform its
obligations under this Agreement. This Agreement and the transactions
contemplated hereby have been duly authorized by the Board of Director's of
Investor, validly executed and delivered by Investor This Agreement, and the
documents and instruments required hereunder constitutes the valid and binding
obligations of Investor enforceable in accordance with their respective terms,
except as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar Laws in effect relating to the rights and
remedies of creditors, as well as to general principles of equity (regardless of
whether such enforceability is considered in a Proceeding in equity or at law.
4.3 NO VIOLATIONS. Neither the execution and delivery of this agreement by
Investor nor the consummation of the transactions contemplated hereby will (i)
violate any order, writ, injunction or decree, to which the Investor is subject
or by which Investor or any of its assets, business or operations may be bound
or affected, or (ii) require the consent, approval, authorization or order of
any person or Governmental Authority or court under any agreement, arrangement,
commitment, order, writ, injunction or decree not heretofore obtained.
4.4 BROKERS. Investor has incurred no obligation or liability, contingent
or otherwise, for brokers', finders' or investment bankers' fees in respect of
the matters provided for in this Agreement that will be the responsibility of
the Company; and any such obligation or liability that might exist shall be the
sole obligation of Investor.
4.5 BANKRUPTCY. There are no bankruptcy, reorganization or
arrangement Proceedings pending, being contemplated by or, to Investor's
knowledge, threatened against Investor.
4.6 INVESTMENT EXPERIENCE. Investor is an "accredited investor" as defined
in Rule 501(a) of Regulation D under the Securities Act. Investor is aware of
the Company's business affairs and financial condition and has had access to and
has acquired sufficient information about the Company to reach an informed and
knowledgeable decision to acquire the Shares. Investor has such business and
financial experience as is required to give it the capacity to protect its own
interests in connection with the purchase of the Shares.
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4.7 INVESTMENT INTENT. Investor has not been formed for the purpose of
acquiring the Shares. Investor is purchasing the Shares for its own account as
principal, for investment purposes only, and not with a present view to, or for,
resale, distribution or fractionalization thereof, in whole or in part, within
the meaning of the Securities Act. Investor understands that its acquisition of
the Shares has not been registered under the Securities Act or registered or
qualified under any state securities law in reliance on specific exemptions
therefrom, which exemptions may depend upon, among other things, the bona fide
nature of Investor's investment intent as expressed herein. Investor will not,
directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of
(or solicit any offers to buy, purchase or otherwise acquire or take a pledge
of) any of the Shares except in compliance with the Securities Act, applicable
state Securities Act, and the rules and regulations promulgated thereunder.
4.8 REGISTRATION OR EXEMPTION REQUIREMENTS. Investor further acknowledges
and understands that the Shares may not be resold or otherwise transferred
except in a transaction registered under the Securities Act or unless an
exemption from such registration is available. Investor understands that the
certificate(s) evidencing the Shares will be imprinted with a legend that
prohibits the transfer of the Shares unless (i) they are registered or such
registration is not required, and (ii) if the transfer is pursuant to an
exemption from registration other than Rule 144 under the Securities Act and, if
the Company shall so request in writing, an opinion of counsel reasonably
satisfactory to the Company is obtained to the effect that the transaction is so
exempt.
4.9 SEC REPORTS OF INVESTOR'S PARENT. Investor has made available to the
Company true and complete copies of its parent corporation's Annual Report on
Form 10-K for the year ended December 31, 1998 and its Quarterly Report on Form
10-Q for the quarter ended March 31, 1999. The financial statements included in
such SEC reports comply as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto or, in the case of the
unaudited statements, as permitted by Form 10-Q of the SEC) and fairly present
(subject, in the case of the unaudited statements, to normal, recurring audit
adjustments) the consolidated financial position of the Investor's parent and
its parent's consolidated subsidiaries as at the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended. The certified public accountants who have certified certain financial
statements included in such SEC filings of Investor's parent are independent
public accountants as required by the Securities Act and the rules and
regulations thereunder.
ARTICLE 5
OBLIGATIONS PENDING CLOSING
The Company covenants and agrees that during the Interim Period it will in
good faith observe and perform the obligations set forth in this ARTICLE 5.
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5.1 INSPECTION OF THE COMPANY. Investor and its officers, attorneys,
accountants and authorized representatives shall continue to have the right,
during normal business hours, to inspect the Company's assets, properties, books
and records, and to consult with the Company's officers, directors, employees,
suppliers, customers, creditors, agents, attorneys and accountants concerning
the Company's assets, properties, ownership and operation, as long as such
access is not unreasonably disruptive to the Company's operations. Such
inspections may reasonably include, for example, environmental and other
physical inspections of the Company's properties, review of the Company's books,
records of account, tax records, and stock books and records, and a review of
records of corporate proceedings, contracts, trademarks, interment records and
other business activities and matters in which Investor may have an interest in
light of the transactions contemplated by this Agreement. Investor agrees to
maintain all information it learns from such inspections in confidence and will
not disclose such information except to its officers, directors, employees,
attorneys, accountants, creditors, prospective lenders and their attorneys, and
other authorized representatives unless such information is or becomes public
knowledge through no fault of Investor.
5.2 RETURN OF DATA. Investor agrees that if this Agreement is terminated
for any reason whatsoever, Investor shall, at the Company's request, promptly
return to the Company all information and data furnished by or on behalf of the
Company to Investor or Investor's Affiliates in connection with this Agreement
or Investor's investigation of the Company, and Investor shall deliver to the
Company or destroy all copies, extracts or excerpts of such information and data
and all documents generated by Investor that contain any portion of such
information or data.
5.3 ACQUISITION PROPOSALS. Except for the Purchase and Sale Agreement, the
Company shall not directly or indirectly (i) solicit, initiate or encourage any
inquiries or Acquisition Proposals from any Person or (ii) participate in any
discussions or negotiations regarding, furnish to any Person other than Investor
or its representatives any information with respect to, or otherwise assist,
facilitate or encourage any Acquisition Proposal by any other Person.
"ACQUISITION PROPOSAL" means any proposal for a merger, consolidation or other
business combination involving the Company or for the Transfer of any interest
in, or a material portion of, the assets or securities of the Company. The
Company shall promptly communicate to Investor the terms of any such written
Acquisition Proposals which any the Company or the Company may receive or any
written inquiries made to any of them or any of their respective directors,
officers, representatives or agents.
5.4 OPERATION IN THE ORDINARY COURSE OF BUSINESS. The Company shall
continue to operate in the usual and ordinary course, and shall not take or fail
to take any action which would cause or permit any representation, warranty or
covenant of the Company contained in this Agreement to be untrue, inaccurate or
incomplete as of the Closing Date. Without limiting the generality of the
immediately preceding sentence, the Company shall maintain the goodwill the
Company and its business now enjoy, preserve intact the Company's present
organization and the manner in which it heretofore has conducted business, and
preserve the Company's relationships with others having business dealings with
the Company. The Company shall also maintain insurance on
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all its properties and with respect to the conduct of its business of such kinds
and in such amounts as is customary in the type of business in which it is
engaged, but not less than that carried by it on December 31, 1998. The Company
shall, however, be excused from its obligations under this SECTION 5.4 if, and
to the extent that, other provisions of this Agreement specifically require the
Company to conduct its affairs in a manner contrary to this SECTION 5.4.
5.5 BREACHES OF REPRESENTATIONS AND WARRANTIES. The Company shall notify
Investor of the discovery by the Company that any representation or warranty of
the Company contained in this Agreement is or becomes untrue or will be untrue
on the Closing Date. Such disclosure shall be made in writing and within the
earlier of 48 hours after discovery or the Closing.
5.6 MATERIAL ADVERSE EFFECT. The Company shall promptly notify Investor in
writing of, and describe in reasonable detail, the occurrence of any event, or
the existence of any condition or circumstance, that may have a Material Adverse
Effect.
5.7 PROXY MATERIALS.
(a) The Company covenants and agrees that promptly after execution
of this Agreement, the Company will prepare and file with the SEC a notice of
shareholders meeting and proxy statement in form and substance satisfactory to
Investor (the "NOTICE AND PROXY STATEMENT") for a meeting of the shareholders of
the Company at which the following shall be submitted to the shareholders of the
Company for approval (the "SHAREHOLDERS MEETING"):
(1) the Agreement;
(2) the Purchase and Sale Agreement;
(3) an increase in the authorized shares of capital stock
and Common Stock;
(4) an elimination of the staggered board of directors;
(5) election of new directors designated by Investor;
(6) sale of capital stock of SGC;
(7) sale of substantially all the assets of SGC; and
(8) each of the transactions contemplated hereby
(collectively, the "PROXY ITEMS").
(b) The Company further covenants and agrees that it will use
Commercially Reasonable Efforts to promptly answer any questions and comply with
any comments to the Notice and Proxy Statement which are rendered by the staff
of the SEC (and are not subsequently withdrawn or abandoned), and shall
otherwise use its Commercially Reasonable Efforts to cause the Notice and Proxy
Statement to be cleared by the staff of the SEC for mailing to the Company
shareholders at the earliest possible date.
(c) The Company further represents and warrants to the Investor that
the Notice and Proxy Statement: (i) will be prepared and circulated by the
Company at least 21 days prior to
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the Shareholders Meeting; (ii) will be prepared and circulated pursuant to and
in compliance with Section 14(a) of the Exchange Act, Regulation 14A of the SEC,
all Nasdaq Requirements and all other applicable Laws; (iii) will contain all
notices and disclosures to shareholders required by the Delaware General
Corporation Law with respect to the Proxy Items and the transactions
contemplated thereby; and (iv) will not contain any statement which, at the time
and in the light of the circumstances under which it is made, is false or
misleading with respect to any material fact, or which omits to state any
material fact necessary in order to make the statements therein not false or
misleading or necessary to correct any statement in any earlier communication
with respect to the solicitation of a proxy for the same meeting or subject
matter which has become false or misleading.
(d) The Company covenants and agrees that: (i) all Common Stock and
Preferred Stock owned of record or beneficially by Management will be voted in
favor of the approval of all Proxy Items and all transactions contemplated by
the Proxy Items at the Shareholders Meeting or any adjournment thereof; (ii) the
Board of Directors of the Company shall recommend in the Notice and Proxy
Statement that all shareholders of the Company vote for approval of the Proxy
Items and all transactions contemplated thereby, and such recommendation will
not be revoked or modified.
(e) The Company covenants and agrees that the approval by a majority
of the voting power represented by the outstanding shares of the Common Stock
and the Preferred Stock are the only votes of the holders of any class or series
of the Company capital stock necessary to approve the Proxy Items. The Preferred
Stock have no rights to vote as a class on any of the Proxy Items.
5.8 NEGATIVE COVENANTS. Except as expressly permitted by this Agreement,
from the date hereof until the Closing Date, without first obtaining the express
written consent of Investor, the Company will not:
(a) PROHIBITION OF CERTAIN EMPLOYMENT CONTRACTS. Enter into
any contracts of employment;
(b) PROHIBITION OF CERTAIN LOANS. Borrow for any purpose or issue
debt securities, except as is otherwise agreed to in writing by Investor;
(c) PROHIBITION OF CERTAIN COMMITMENTS. Make any expenditure or
incur any liability (whether or not in the ordinary course of business) of more
than $500 except (i) pursuant to SECTION 5.12 (AFEs Prior to Closing) with
respect to certain AFE's, or (ii) as is otherwise agreed to in writing Investor;
(d) DISPOSAL OF ASSETS. Sell, dispose of, or encumber, any property
or assets, except (i) sales of oil and gas production in the usual and ordinary
course of business; (ii) as disclosed in Schedules to this Agreement; or (iii)
as may be approved in writing by Investor;
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(e) NO AMENDMENT TO CERTIFICATE OF INCORPORATION. Amend its
Certificate of Incorporation or Bylaws or merge or consolidate with or into any
other corporation or change in any manner the rights of its Common Stock or
Preferred Stock or the character of its business;
(f) NO ISSUANCE, SALE, OR PURCHASE OF SECURITIES. Issue or sell, or
issue options or rights to subscribe to, or enter into any contract or
commitment to issue or sell (upon conversion or otherwise), any shares of its
equity securities, except upon exercise of employee stock options or warrants
that were outstanding as of the date hereof and except for the issuance of
Common Stock to pay accrued regular dividends on Preferred Stock;
(g) RECLASSIFICATIONS. Subdivide or in any way reclassify any shares
of its equity securities, or acquire, or agree or acquire, any shares of its
equity securities;
(h) PROHIBITION ON DIVIDENDS. Declare or pay any dividend on shares
of its equity securities (other than as required by Preferred Stock) or make any
other distribution of assets to the holders thereof;
(i) SEVERANCE ARRANGEMENTS. Increase the compensation payable
to, or grant any severance arrangements to any officer, director, employee,
consultant except as disclosed in SECTION 2.23 of the EXCEPTION SCHEDULE;
(j) BONUS PAYMENTS. Pay any bonuses to any officer, director,
employee, consultant or agent; and
(k) OTHER CHANGES. Take or fail to take any action that would cause
its representations and warranties in ARTICLE 2 or ARTICLE 3 hereof (including
SECTION 2.10) to become untrue at or prior to Closing.
5.9 OVERHEAD REDUCTION MEASURES DURING INTERIM PERIOD. Within five
Business Days after the date of this Agreement, the Company shall implement and
not rescind the following measures to reduce its expenses:
(a) The Company shall enter into agreements with certain of its
employees including William Gray, Jon Garrett, Jack Bryant, Daniel Hall, and
Susan Frisard pursuant to which such the Company and each such employee agree to
(1) terminate the employment of such person, (2) terminate any employment or
indemnity agreements with such employee, and (3) release each one another from
any further liabilities or obligation. The terms and conditions of each such
termination arrangement shall be in form and substance reasonably satisfactory
to Investor.
(b) The Company shall close its office in Metairie, Louisiana and
shall terminate its office lease there except with approximately 1,500 square
feet currently leased by the Company on the 11th Floor of the building in which
its Metairie office located, all on terms reasonably satisfactory to the
Investor.
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5.10 WAIVERS OF AFFILIATE CLAIMS. The Company shall obtain and deliver to
Investor at Closing copies of written waivers in form and substance satisfactory
to Investor from each of the Company's Affiliates (including officers,
directors, employees and consultants whose employment or consulting arrangement
is terminated during the Interim Period) pursuant to which such persons waive
and relinquish any and all rights and causes of action, including without
limitation indemnification or contribution rights and claims, whether then known
or unknown, that such person may have or that may arise after the Closing Date,
against any of the Company's Affiliates which in any way arise out of or in
connection with events or circumstances existing on or prior to the Closing
Date, including, but not limited to those agreements set forth in SECTION 2.23
of the EXCEPTION SCHEDULE.
5.11 CANCELLATION OR EXERCISE OF OPTIONS. The Company covenants and agrees
that it will, not later than forty-five (45) days prior to Closing, send written
notice to each holder of options granted pursuant to its 1994 Compensatory Stock
Option Plan that (i) the Company has entered into an agreement to sell
substantially all of its assets as part of a reorganization, (ii) the holder has
forty-five (45) days to exercise such holder's options granted pursuant to that
plan, and (iii) any unexercised options will be canceled prior to the Closing,
all in accordance with the applicable terms of the grant agreements pursuant to
which such options were granted.
5.12 AFE'S PRIOR CLOSING. The Company shall notify Investor of any
authority for expenditures ("AFE") received by the Company, and the Company
shall attempt to farmout the operations to which the AFE relates on the best
terms obtainable, failing which the Company shall not consent to the AFE unless:
(i) it receives written consent from Investor to approve the AFE, or the
Company's commercial bank advances the necessary cost of the AFE to the Company
on terms approved by Investor.
5.13 VOTING AND SUPPORT AGREEMENT. Within seven (7) days after the date of
this Agreement, the Company shall cause each of the stockholders named below to
execute and deliver to the Investor a Voting and Support Agreement in
substantially the form attached hereto as EXHIBIT 5.13: Rick G. Avare; Douglas
Hawthorne; Leonard Nave; Ralph Currie; D. Poole; H. Settle; L. Aldridge; DnB;
and TECO. The Company represents and warrants that such stockholders own and
have the right to vote Common Stock or Preferred Stock, or both, which in the
aggregate represents at least 52% of the voting power of all classes of the
Company's voting securities.
5.14 CONSULTING AGREEMENT. Contemporaneously with the execution and
delivery of this Agreement, the Company and the other parties thereto shall
enter into the Consulting Agreement in substantially the form attached hereto as
EXHIBIT 5.14 and the Company shall perform its obligations under the Consulting
Agreement in accordance with its terms.
5.15 MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT. On or before the
Closing Date, the Company and the other parties thereto shall enter into the
Management and Administrative Services Agreement in substantially the form
attached hereto as EXHIBIT 5.15 and the Company shall
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perform its obligations under the Management and Administrative Services
Agreement in accordance with its terms.
5.16 BOARD OF DIRECTORS APPOINTMENTS. Upon execution and delivery of this
Agreement, by the Company and Investor, the Company shall cause the following to
occur in a manner satisfactory to Investor in form and substance: (a) the number
of directors constituting the Board of Directors of the Company shall be
increased to nine members; and (b) two nominees selected by Investor shall be
appointed to the Company's Board of Directors to serve until the next meeting of
the Company's stockholders at which directors are elected.
ARTICLE 6
CONDITIONS TO CLOSING
6.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF INVESTOR.
(a) The obligations of Investor to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction of the
following conditions, or to the waiver thereof by Investor in the manner
contemplated by SECTION 7.3 at or before the Closing:
(1) REPRESENTATIONS AND WARRANTIES OF THE COMPANY TRUE AT
CLOSING. The representations and warranties of the Company herein
contained shall be true as of and at the Closing with the same effect as
though made at such date, except as affected by transactions permitted or
contemplated by this Agreement;
(2) COVENANTS AND AGREEMENTS TO HAVE BEEN PERFORMED. The
Company shall have performed and complied with all covenants and other
agreements required by this Agreement to be performed or complied with by
the Company before the Closing Date;
(3) CLOSING CERTIFICATE. The Company shall have delivered to
Investor a truthful certificate at the Closing dated as of the Closing
Date and executed by the Company's chief executive officer, chief
financial officer and chief legal officer confirming the matters in
SECTION 6.1(A)(1) AND (2);
(4) ISSUANCE OF STOCK. The Company shall have tendered for
delivery to Investor certificates representing the Shares, free and clear
of any Encumbrance;
(5) PURCHASE PRICE ADJUSTMENTS. The total reduction in the
Purchase Price pursuant to SECTION 1.4(B)(3) shall not exceed $50,000;
(6) CLOSING DATE LIABILITIES. All liabilities of the Company
other than Permitted Liabilities shall have been paid or otherwise
discharged, or the Company shall have sufficient cash resources on the
Closing Date (after giving effect to the consummation of the
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transactions contemplated by this Agreement and the Purchase Agreement) to
pay any remaining liabilities in full in accordance with their respective
terms;
(7) PROCEEDINGS. No Proceeding by any private person or entity
or a Governmental Authority shall be pending or threatened that seeks to
restrain, enjoin or otherwise prohibit, the consummation of the
transactions contemplated hereby or to seek damages therefrom;
(8) CASUALTY EVENT. No Casualty Event shall have occurred
during the Interim Period that materially and adversely affects the value
of (a) a Property that is producing Hydrocarbons at the time such Casualty
Event occurs, (b) any other material Property or (c) a Platform;
(9) PURCHASE AND SALE AGREEMENT. All conditions precedent have
been satisfied without waiver and the transactions contemplated in the
Purchase and Sale Agreement shall close simultaneously with the Closing;
(10) SOUTHERN ASSUMPTION AND RELEASE. The transactions
contemplated by the Southern Assumption and Release shall have been
completed in such a manner that is in form and substance satisfactory to
Investor;
(11) SOUTHERN DISPOSITION. The transactions contemplated by
the Southern Disposition shall have been completed in a manner that is in
form and substance satisfactory to Investor;
(12) TECO SETTLEMENT. The transactions contemplated by the
TECO Settlement shall have been completed in such manner that is in form
and substance satisfactory to Investor;
(13) DNB NOTE PAYDOWN. The DnB Note Paydown shall occur
simultaneously with the Closing;
(14) RESIDUAL NOTE. The DnB Note shall have been purchased by
Investor at or before the Closing on terms and conditions satisfactory to
Investor;
(15) NOTE MODIFICATION AGREEMENT. The Note Modification
Agreement shall have been executed and delivered by the Company and all
other parties thereto;
(16) VOTING AND SUPPORT AGREEMENT. Each party that has
delivered a Voting and Support Agreement to Investor shall have performed
his obligations thereunder in accordance with its terms;
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(17) NEW DIRECTOR INDEMNITY AGREEMENTS. The Company shall have
entered into an Indemnity Agreement with each new director elected at the
Shareholders Meeting, such agreements to be in substantially the form of
the Indemnity Agreements to which previously elected directors of the
Company are parties and otherwise in form and substance satisfactory to
Investor;
(18) OPTION AND WARRANT TERMINATION. All of the stock options
outstanding under the Company's 1994 Compensatory Stock Option Plan and
each other option or warrant to purchase any of the Company's securities
held by any member of Management shall have been canceled or terminated in
form and substance satisfactory to Investor prior to the Closing;
(19) VENTURE ARRANGEMENTS. The Company shall have either
terminated or reduced its interest in each of its Joint Ventures, as
instructed by Investor, all in form and substance satisfactory to
Investor;
(20) SPLIT-DOLLAR PLAN TERMINATION. The Split-Dollar Agreement
dated June 30, 1998 by and among the Company, Rick G. Avare, and Diane L.
Avare, Trustee of the Rick G. Avare Irrevocable Life Insurance Trust dated
April 6, 1995 shall have been terminated or assigned to Rick G. Avare, all
in form and substance satisfactory to Investor;
(21) INCENTIVE BONUS PLAN. The Company's Incentive Bonus
Plan dated November 12, 1996 shall have been terminated;
(22) SUBSIDIARIES. Any subsidiaries of the Company after
giving effect to the Southern Disposition, shall have been dissolved or
sold in form and substance satisfactory to Investor;
(23) SHAREHOLDER APPROVAL. The Company shall have received
Shareholder Approval for the transactions contemplated by each of the
Proxy Items, including the election of Investor's nominees to the
Company's Board of Directors, effective as of the Closing;
(24) DIRECTOR RESIGNATIONS. The Company shall have received
and accepted the resignation of each the following individuals as
directors of the Company, in each case effective as of the Closing:
(A) Douglas Hawthorne
(B) Leonard Nave
(C) David Fox
(D) Joe Shields
(E) Len Aldridge
(F) Robert McIntyre;
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(25) EMPLOYMENT AGREEMENTS. The Company's employment of, and
employment agreements with, each of the following individuals shall have
been terminated, such termination to be in form and substance satisfactory
to Investor:
(A) Rick G. Avare
(B) William Gray
(C) Ralph Currie
(D) David Stetson
(E) Jon Garrett
(F) Jack Bryant
(G) Daniel Hall
(H) Karen Underwood;
(26) AT-WILL EMPLOYEES. Each of the following at-will
employees of the Company shall have been terminated from their respective
positions with the Company:
(A) Susan Frisard
(B) Tammy Farris
(C) Diana Highley
(D) Debbie Mullins;
(27) PREFERRED STOCK. All shares of the Preferred Stock
reflected in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 as being owned by Rick G. Avare or Douglas L. Hawthorne
shall have been converted on a one-for-one basis to shares of Common
Stock, such conversion to be in form and substance satisfactory to
Investor;
(28) OPINIONS OF COUNSEL. Investor shall have received a
favorable opinion, dated as of the Closing Date, from (i) David J.
Stetson, general counsel of the Company, (ii) Phillip E. Allen, counsel to
the Company, as to certain securities laws matters, and (iii) from
Schully, Roberts, Slattery & Jaubert with respect to any preferential
rights to purchase and title matters, each in form and substance
satisfactory to Investor;
(29) CERTIFICATES OF PUBLIC OFFICIALS. The Company shall have
delivered to Investor certificates of existence and good standing with
respect to the Company issued by the Secretary of State of their
respective states of incorporation or other appropriate Governmental
Authority;
(30) RESOLUTIONS. The Company shall have delivered to Investor
copies of resolutions, certified as of the Closing Date by the President
and Chief Executive Officer and Secretary of the Company, duly adopted by
the Company's Board of Directors approving this Agreement and the
transactions contemplated hereby, and approving and authorizing the
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Company's execution and delivery of, and performance of its obligations
under this Agreement and Purchase and Sale Agreement;
(31) SATISFACTION OF ENCUMBRANCES. With respect to any
Encumbrances against any of the Company's assets or Properties (whether or
not reflected on the Exception Schedule), (i) the indebtedness or
liabilities underlying such Encumbrances (other than the Residual Note)
shall have been paid or otherwise satisfied in full and, (ii) the
Encumbrances (other than those securing the Residual Note) shall have been
released of record or Investor shall have received originally executed
releases thereof in recordable form satisfactory to Investor, all in form
and substance satisfactory to Investor;
(32) MCCLINDON EMPLOYMENT AGREEMENT. Effective as of the
Closing Date, that certain employment contract between the Company and
Christopher McClindon shall be amended to reduce the term of the agreement
to one year from the Closing Date, all in form and substance satisfactory
to Investor;
(33) DISMISSAL FROM WRIGHT LITIGATION. The litigation filed in
the United States Bankruptcy Court in Lexington, Kentucky, case No.
98-05023, styled CASTIL WILLIAMS V. ALPHA GAS DEVELOPMENT INC., ALPHA GAS
DEVELOPMENT OF TEXAS, INC., AMERICAN RESOURCES OF DELAWARE, INC., ET al.
alleging, among other things, that the transfer of assets of Southern Gas
Company Inc. to Southern Gas Co. of Delaware, Inc., was fraudulent, shall
have been either settled or dismissed, all in form and substance
satisfactory to Investor; and
(34) SETTLEMENT OF CHEVRON CONTRACT LIABILITIES. All
liabilities of the Company shall have been paid in full or otherwise
discharged, all in form and substance satisfactory to Investor, that arise
out of or in connection with that certain Contract entitled "Well Drilling
and Completion Services Contract South Timbalier 21 Field Offshore,
Louisiana" by and between the Company and Chevron U.S.A. Inc. and the
Company's performance of such contract, including liabilities or alleged
liabilities to Sundowner Offshore Services, Inc.
(b) OTHER. The items set forth in SECTION 6.1(A) and all other items
required to be delivered hereunder, or as may be reasonably requested by
Investor to facilitate the Closing, shall be in form and substance satisfactory
to Investor.
6.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY.
(a) The obligations of the Company to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction of the
following conditions, or to the waiver thereof by the Company in the manner
contemplated by SECTION 7.3 at or before the Closing:
(1) REPRESENTATIONS AND WARRANTIES OF INVESTOR TRUE AT
CLOSING. The representations and warranties of the Investor herein
contained shall be true as of and at
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the Closing with the same effect as though made at such date, except as
affected by transactions permitted or contemplated by this Agreement;
(2) COVENANTS AND AGREEMENTS TO HAVE BEEN PERFORMED. The
Investor shall have performed and complied with all covenants and other
agreements required by this Agreement to be performed or complied with by
the Investor before the
Closing Date;
(3) CLOSING CERTIFICATE. The Investor shall have delivered to
Investor a truthful certificate at the Closing dated as of the Closing
Date and executed by the Company's duly authorized officer of Investor
confirming the matters in SECTION 6.1(B)(1) AND (2);
(4) PERFORMANCE. Investor shall have performed in all material
respects the obligations, covenants and agreements required hereunder to
be performed by it at or prior to the Closing;
(5) SIMULTANEOUS CLOSING OF PURCHASE AND SALE AGREEMENT. All
conditions precedent have been satisfied and the transactions contemplated
in the Purchase and Sale Agreement shall close simultaneously with the
transactions contemplated by this Agreement;
(6) NOTE MODIFICATION AGREEMENT. The Note Modification
Agreement shall have been executed and delivered by the Investor;
(7) SHAREHOLDER APPROVAL. The Company shall have received
Shareholder Approval for the transactions contemplated by this Agreement
and;
(8) RESOLUTIONS. Investor shall have delivered to the Company
copies of resolutions, certified as of the Closing Date by the President
and Secretary of Investor, duly adopted by Investor's Board of Directors
approving this Agreement and consummation of the transactions contemplated
hereby, and approving and authorizing Investor's execution and delivery
of, and performance of its obligations under this Agreement;
(9) OPINION OF INVESTOR'S COUNSEL. The Company shall have
received a favorable opinion, dated the Closing Date, from Porter &
Hedges, L.L.P., counsel to Investor, with respect to the matters set forth
in SECTION 4.1, SECTION 4.2, and SECTION 4.3;
(10) PROCEEDINGS. No Proceeding by any private person or
entity or a Governmental Authority shall be pending or threatened that
seeks to restrain, enjoin or otherwise prohibit, the consummation of the
transactions contemplated hereby or to seek damages therefrom;
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(11) VENTURE ARRANGEMENTS. If Investor shall require the
Company to either terminate or reduce its interest in each of its Joint
Ventures, such action shall be taken in form and substance satisfactory
to the Company;
(12) PURCHASE PRICE ADJUSTMENTS. The total reduction in the
Purchase Price pursuant to SECTION 1.4(B)(3) shall not exceed $50,000,
excluding (i) any reductions waived by Investor and (ii) any reductions
for liabilities of the Company the incurrence or existence of which a
constitute breach of this Agreement by the Company; and
(13) TENDER OF PURCHASE PRICE. On the Closing Date, Investor
shall have tendered to the Company the Purchase Price for the Shares
payable at Closing as provided in SECTION 1.4.
(b) OTHER. The items in SECTION 6.2(A) and all other items required
to be delivered hereunder by the Investor or as may be reasonably requested by
the Company to facilitate the Closing, shall be in form and substance
satisfactory to the Company.
6.3 COMMERCIALLY REASONABLE EFFORTS. Each of Company and the Investor
shall use Commercially Reasonable Efforts to cause the occurrence of the events
contained in SECTION 6.1 and SECTION 6.2, respectively, to be satisfied at or
before the Closing, to the extent that the occurrence of such events is within
the control of any such Party.
ARTICLE 7
TERMINATION AND WAIVER
7.1 TERMINATION. Anything contained in this Agreement to the contrary
notwithstanding, this Agreement may be terminated and the transactions
contemplated hereby abandoned at any time (whether before or after the
Shareholder Approval) prior to the Closing Date:
(a) BY MUTUAL CONSENT. By mutual consent of Investor and the
Company.
(b) BY INVESTOR BECAUSE OF FAILURE TO PERFORM AGREEMENTS OR
CONDITIONS PRECEDENT. By Investor, if the Company has failed to perform any
material agreement set forth herein, or if any condition set forth in SECTION
6.1 hereof has not been met and has not been waived;
(c) BY THE COMPANY BECAUSE OF FAILURE TO PERFORM AGREEMENTS OR
CONDITIONS PRECEDENT. By the Company, if Investor has failed to perform any
material agreement set forth herein, or if any condition set forth in SECTION
6.2 hereof has not been met and has not been waived;
(d) BY THE COMPANY OR INVESTOR BECAUSE OF LEGAL PROCEEDINGS. By
either Investor, or the Company if any Proceeding shall be pending or threatened
by a Governmental
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Authority or before any court or Governmental Authority, in which it is sought
to restrain, prohibit, or otherwise affect the consummation of the transactions
contemplated hereby; and
(e) BY INVESTOR OR THE COMPANY. By either Investor or the Company if
the terminating party is not in material breach of any of its obligations
hereunder and if the transactions contemplated by this Agreement have not been
consummated on or before December 31, 1999.
7.2 EFFECT OF TERMINATION. In the event of the termination and abandonment
of this Agreement pursuant to and in accordance with the provisions of SECTIONS
7.1(A), (D), OR (E) hereof, this Agreement shall become void and have no effect,
without any liability on the part of any party hereto (or its shareholders or
controlling persons or directors or officers), except as provided in SECTION
7.4. Upon termination of this Agreement pursuant to SECTION 7.1(B) OR (C), the
parties hereto shall be entitled to exercise any rights and remedies at law or
in equity to which they may be entitled.
7.3 WAIVER. Subject to the requirements of any applicable Law, any of the
terms or conditions of this Agreement may be waived at any time by the party
which is entitled to the benefit thereof. The failure of any party at any time
or times to require performance of any provision hereof shall in no manner
affect the right to enforce the same. No waiver by any party of any condition,
or of the breach of any provision of this Agreement in one or more instances
shall be deemed to be or construed as a further or continuing waiver of any such
condition or breach or a waiver of any other condition or the breach of any
other provision.
7.4 EXPENSE ON TERMINATION. If the transactions contemplated hereby are
abandoned pursuant to and in accordance with the provisions of SECTION 7.1(A),
(D) OR (E) hereof, all expenses will be paid by the party incurring them.
ARTICLE 8
OTHER COVENANTS
8.1 ANTIDILUTION PROTECTION. The Shares purchased hereunder and
shall be subject to the following adjustments:
(a) The number of shares of Common Stock held by Investor shall be
adjusted upon issuance of any shares of Common Stock issued on or after the
Closing Date pursuant to any options, warrants, convertible securities,
subscription rights, or antidilution rights outstanding as of
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the Closing Date. The additional number of shares to be issued to Investor
under this provision (the "ANTIDILUTION SHARES") shall be determined as follows:
X = .75
---
X+Y
X = number of Antidilution Shares.
Y = number of shares issued by the Company on or after the
Closing Date pursuant to any options, warrants,
convertible securities, subscription rights, or
antidilution rights outstanding as of the
Closing Date.
8.2 REGISTRATION RIGHTS. The Company covenants and agrees that with
respect to the Shares (including any shares issued pursuant to SECTION 8.1 or
SECTION 8.4) that:
(a) DEMAND REGISTRATION RIGHTS. The Company covenants and agrees
with Investor that within thirty (30) days after receipt of a written request
from Investor, the Company shall file a registration statement (and thereafter
use its best efforts to cause such registration statement to become effective
under Securities Act) with respect to the offering and sale or other disposition
of the Shares (all such securities, together with the Piggy Back Securities,
when the context requires, the "REGISTRABLE SECURITIES"). The Company shall
continuously maintain the effectiveness of such registration statement for the
lesser of (i) 180 days after the effective date of the registration statement or
(ii) the consummation of the distribution by the holders of the Registrable
Securities covered by such registration statement (the "TERMINATION DATE");
PROVIDED, HOWEVER, that if at the Termination Date, the securities offered are
covered by a registration statement which also covers other securities and which
is required to remain in effect beyond the Termination Date, the Company shall
maintain in effect such registration statement as it relates to the Registrable
Securities for so long as such registration statement (or any subsequent
registration statement) remains or is required to remain in effect for any of
such other securities. Except with respect to requests to register on Form S-3
(or any successor or similar short-form registration statement ("SHORT-FORM
REGISTRATION")), the Company shall not be required to comply with more than
three requests for registration pursuant to this SECTION 8.2. The Company shall
be required to comply with an unlimited number of Short-form Registrations. All
expenses of such registration shall be borne by the Company, including
Investor's attorney's fees, if any. Investor hereby acknowledges that it has
been advised by the Company that the Company is not currently eligible to use
Form S-3 for resales of Registrable Securities.
(b) PIGGY-BACK REGISTRATION RIGHTS. The Company covenants and agrees
with Investor that, in the event the Company proposes to file a registration
statement under the Act with respect to the firm commitment offering of Common
Stock (other than in connection with an exchange offer or a registration
statement on Form S-4 or S-8 or other similar registration statements not
available to register securities so requested to be included), the Company shall
in
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each case give written notice of such proposed filing to the Investor at least
30 days before the earlier of the anticipated or the actual effective date of
the registration statement and at least ten days before the initial filing of
such registration statement and such notice shall offer to Investor the
opportunity to include in such registration statement the Shares (the
"PIGGY-BACK SECURITIES"). If Investor desires inclusion of Piggy-back Securities
in such registration statement, it shall so inform the Company by written
notice, given within 10 days of the giving of such notice by the Company in
accordance with the provisions herein. The Company shall permit, or shall cause
the managing underwriter of a proposed offering to permit, the holders of
Piggy-back Securities requested to be included in the registration to include
such securities in the proposed offering on the same terms and conditions as
applicable to securities of the Company, if any, included therein for the
account of any Person other than the Company and Investor. Notwithstanding the
foregoing, if any such managing underwriter shall advise the Company in writing
that, in its opinion, the distribution of securities by holders thereof,
including all or a portion of the Piggy-back Securities, requested to be
included in the registration concurrently with the securities being registered
by the Company would materially adversely affect the distribution of such
securities by the Company for its own account, then Investor shall delay their
offering and sale of Piggy-back Securities (or the portions thereof so
designated by such managing underwriter) for such period, not to exceed 90 days,
as the managing underwriter shall request, provided that if any other securities
are included in such registration statement for the account of any Person other
than the Company and Investor, then such securities so included shall be
apportioned among holders who wish to be included therein pro rata according to
amounts so requested to be included by each such Person. No such delay shall in
any event impair any right granted hereunder to make subsequent requests for
inclusion pursuant to the terms of this SECTION 8.2(B). The Company shall
continuously maintain in effect any registration statement with respect to which
the Piggy-back Securities have been requested to be included (and so included)
for a period of not less than (i) 180 days after the effectiveness of such
registration statement or (ii) the consummation of the distribution by the
Investor ("PIGGY-BACK TERMINATION DATE"); PROVIDED, HOWEVER, that if at the
Piggy-back Termination Date, the Piggy-back Securities are covered by a
registration statement which is, or is required to remain, in effect beyond the
Piggy-back Termination Date, then the Company shall maintain in effect the
registration statement as it relates to the Piggy-back Securities for so long as
such registration statement remains or is required to remain in effect for any
of such other securities. All expenses of such registration shall be borne by
the Company, other than underwriters and brokers fees and commissions.
(c) OTHER MATTERS. In connection with the registration of
Registrable Securities in accordance with Paragraph (a) or (b) above, the
Company agrees to:
(i) use its best efforts to register or qualify the
Registrable Securities for offer or sale under state securities or
Blue Sky laws of such jurisdictions in which Investor shall
designate; provided, that in no event shall the Company be obligated
to qualify to do business in any jurisdiction where it is not now so
qualified or to take any action which would subject it to general
service of process in any jurisdiction where it is not now so
subject, and use its best efforts to do any and all other acts and
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things which may be necessary or advisable to enable Investor to
consummate the Transfer of such securities in any jurisdiction;
(ii) enter into indemnity and contribution agreements, each in
customary form, with each underwriter, if any, and Investor included
in such registration statement; and, if requested, enter into an
underwriting agreement containing customary representations,
warranties, covenants, allocation of expenses, and customary closing
conditions including opinions of counsel, accountants' cold comfort
letters and petroleum engineers' reports, with any underwriter who
participates in the offering of Registrable Securities;
(iii) not issue or create any Registrable Securities with
registration rights superior to or in parity with the Registrable
Securities granted hereunder;
(iv) pay all expenses in connection with the registration of
the Shares under the Securities Act and compliance with the
provisions of clause (i) above; and
In connection with the registration of Registrable Securities in
accordance with Paragraph (b) above, the Investor agrees to enter into an
underwriting agreement containing customary representations, warranties,
covenants, allocation of expenses, and customary closing conditions, with any
underwriter who participates in the offering of Registrable Securities.
(d) RESTRICTIONS ON PUBLIC SALE BY THE COMPANY. The Company agrees
(i) not to effect any public sale or distribution of any securities similar to
the Registrable Securities or any securities convertible into or exchangeable or
exercisable for such securities (or any option or other right for such
securities)during the 15-day period prior to, and during the 90-day period
beginning on the effective date of any registration statement under which the
Registrable Securities are registered in accordance with SECTION 8(A) (other
than as part of such registration).
(e) RULE 144. With a view to making available to the Investor the
benefits of certain rules of the SEC that may permit the sale of Registrable
Securities to the public without registration, the Company hereby covenants and
agrees to use its best efforts to: (i) file in a timely manner all reports and
other documents required to be filed by it under the Securities Act and the
Exchange Act and the rules and regulations adopted by the SEC thereunder
necessary to permit sales under Rule 144 under the Securities Act, and the
Company will take such further action to the extent required from time to time
to enable Investor to sell Registrable Securities (whether or not any such
securities have been the subject of a demand or piggy-back request under SECTION
8 hereof) without registration under the Securities Act within the limitation of
the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule
may be amended from time to time, or (b) any similar rule or regulation
hereafter adopted by the SEC and (ii) promptly furnish Investor a copy of all
such reports and documents. Upon the request of Investor, the Company will
deliver to the Investor a written statement as to whether it has complied with
such requirements.
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8.3 FILING EXPENSES. The Company agrees to pay all expenses of, or
relating to, any reports required to be filed by Investor with the SEC pursuant
to Section 13(d) or Section 16(a) of the Exchange Act and regulations thereunder
with respect this Agreement and its ownership of the Company's Common Stock.
ARTICLE 9
INDEMNIFICATION
9.1 INDEMNIFICATION OF INVESTOR. In addition to any other remedies
available to Investor under this Agreement, at law or in equity, the Company
shall indemnify, defend and hold harmless Investor and its Affiliates against
and in respect of any and all Claims that such indemnified persons shall incur
or suffer, which arise, result from or relate to (a) any breach of, or failure
by the Company to perform, any of its representations, warranties, covenants or
agreements in or under this Agreement, and (b) any act or omission occurring, or
event or circumstance existing, in whole or in part, before the Closing Date
which relates to the Company (including, without limitation, its business and
properties).
9.2 INDEMNIFICATION OF THE COMPANY. In addition to any other remedies
available to the Company under this Agreement, at law or in equity, Investor
shall indemnify, defend and hold harmless the Company against and in respect of
any and all Claims that the Company shall incur or suffer, which arise, result
from or relate to any breach of, or failure by Investor to perform, any of its
representations, warranties, covenants or agreements in or under this Agreement.
9.3 INDEMNIFICATION PROCEDURE. Promptly upon the discovery of facts giving
rise to a claim for indemnity under this ARTICLE 9 or the receipt of notice of
any Claim, judicial or otherwise, with respect to any matter as to which
indemnification may be claimed under this ARTICLE 9 the indemnified party shall
give written notice thereof to the indemnifying party together with such
information respecting such matter as the indemnified party shall then have;
PROVIDED, HOWEVER, that the failure of the indemnified party to give notice as
provided herein shall not relieve the indemnifying party of any obligations, to
the extent the indemnifying party is not materially prejudiced thereby. If
indemnification is sought with respect to a third-party (I.E., one who is not a
party to this Agreement) Claim asserted or brought against an indemnified party,
the indemnifying party shall be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party similarly notified,
to the extent that it may wish, with counsel reasonably acceptable to such
indemnified party. After an indemnifying party notifies an indemnified party of
the former's election to so assume the defense of such a third-party Claim, the
indemnifying party, shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof, other than reasonable and necessary costs of investigation,
unless the indemnifying party has failed to assume and diligently prosecute the
defense of such third-party Claim and to employ counsel reasonably acceptable to
such indemnified person. An indemnifying party who elects not to assume the
defense of a third-party Claim shall not be liable for the fees and expenses of
more than one counsel in any single jurisdiction for all parties indemnified by
such indemnifying party with
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respect to such Claim or with respect to Claims separate but similar or related
in the same jurisdiction arising out of the same general allegations.
Notwithstanding any of the foregoing to the contrary, the indemnified party will
be entitled to select its own counsel and assume the defense of any action
brought against it if the indemnifying party fails to select counsel reasonably
acceptable to the indemnified party of if counsel fails to diligently prosecute,
the expenses of such defense to be paid by the indemnifying party. No
indemnifying party shall consent to entry of any judgment or enter into any
settlement with respect to a claim without the consent of the indemnified party,
which consent shall not be unreasonably withheld. No indemnified party shall
consent to entry of any judgment or enter into any settlement of any such action
the defense of which has been assumed by an indemnifying party without the
consent of such indemnifying party, which consent shall not be unreasonably
withheld.
9.4 INDEMNITY SHARES.
(a) If Investor incurs any Claims resulting from the breach by the
Company of any representation, warranty, covenant or agreement contained in this
Agreement, Investor shall be entitled to additional shares of Common Stock in
satisfaction of such Claims (the "INDEMNITY SHARES").
(b) The Indemnity Shares shall be calculated as follows:
N = D x 1 x A
- ---
P 1-B
where:
N = number of Indemnity Shares;
D = the dollar amount of Claims for which Investor is
entitled to indemnity;
P = the price per share of the Common Stock shall be the
lesser of (i) $0.16 or (ii) the Closing price of the
Common Stock on the principal exchange or trading system
on which the Common Stock is then traded on the first
full Business Day following the Closing of the
Agreement, or if transaction reporting in the Common
Stock is not then available for the Common Stock, the
average of the high bid and low ask price for the same
date;
B = the decimal equivalent of the fully diluted percentage
of the Common Stock owned by the Investor at the time
the Indemnity Shares are issued for "D"; and
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A = a factor necessary to prevent dilution of Investor as
a result of antidilution rights triggered by the
Indemnity Shares.
9.5 INDEMNIFICATION THRESHOLD. Except as provided below, no party shall be
entitled to indemnification pursuant to this Article until such time as the
aggregate dollar amount of its indemnifiable Claims exceeds $25,000 (the
"INDEMNIFICATION THRESHOLD") after which the indemnified party shall be fully
indemnified in accordance with this Article for all indemnifiable Claims,
including Claims included in calculating the Indemnification Threshold.
Indemnification for Claims that should have properly been included in the
calculation of the Purchase Price shall not, however, be subject to the
Indemnification Threshold.
9.6 SURVIVAL OF INDEMNIFIABLE CLAIMS. No party shall be entitled to
indemnification pursuant to this Article unless demand for indemnification is
made on or before March 31, 2001, except that Investor's right to
indemnification for the breach of the following Sections which shall survive for
the applicable statute of limitations for Claims against the Company in respect
of the subject matter of such Sections: Section 2.13, Employee Benefit Plans;
Section 2.21, Taxes; and Section 3.14, Environmental Laws.
ARTICLE 10
MISCELLANEOUS
10.1 CERTAIN DEFINITIONS.
(a) As used in this Agreement, each of the following terms has the
meaning ascribed to it in this SECTION 10.1:
(1) "AAA" shall have the meaning set forth in SECTION
10.11(A).
(2) "ACQUISITION PROPOSAL" shall have the meaning set forth in
SECTION 5.3.
(3) "AFE" shall have the meaning set forth in SECTION 5.12.
(4) "AFFILIATE" when used to indicate a relationship with any
Person, means: (i) any corporation or organization of which such Person is
an officer, director or partner or is directly or indirectly the
beneficial owner of at least 10% of the outstanding shares of any class of
equity securities or financial interest therein; (ii) any trust or other
estate in which such Person has a beneficial interest or as to which such
Person serves as trustee or in any similar fiduciary capacity; (iii) the
mother, father, brother, sister, child or spouse of such Person, or of
such Person's spouse; or (iv) any Person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is
under common control with, or is acting as agent on behalf of, or as an
officer or director of, such Person. As used in the
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definition of Affiliate, the term "control" (including the terms
"controlling," "controlled by" or "under common control with") means the
possession, direct or indirect, of the power to direct, cause the
direction of or influence the management and policies of a Person, whether
through the ownership of voting securities, by contract, through the
holding of a position as a director or officer of such Person, or
otherwise.
(5) "AGREEMENT" means and includes this Agreement and the
schedules and exhibits hereto.
(6) "ANTIDILUTION SHARES" shall have the meaning set forth in
SECTION 8.1.
(7) "ARBITRATOR" shall have the meaning set forth in SECTION
10.11(A).
(8) "ATTRIBUTABLE" shall mean reasonably and properly
allocable or attributable, using applicable rules of allocability,
attribution or causation.
(9) "BUSINESS DAY" means any day other than Saturday or Sunday
on which national banking associations in Houston, Texas are open for
business.
(10) "BYLAWS" shall have the meaning set forth in SECTION 2.1.
(11) "CASUALTY EVENT", with respect to any asset of the
Company, shall mean (a) a fire, explosion, hurricane or other catastrophic
casualty event affecting such asset, or (b) the taking of such asset by a
Governmental Authority through condemnation or eminent domain.
(12) "CERTIFICATE OF INCORPORATION" shall have the meaning set
forth in SECTION 2.1.
(13) "CLAIMS" mean any claims, demands, actions, costs,
damages, losses, diminution in value (including to the Shares), expenses,
obligations, liabilities, recoveries, judgments, settlements, Proceedings,
causes of action or deficiencies, including interest, penalties (including
civil and criminal penalties) and attorneys' fees.
(14) "CLOSING" shall have the meaning set forth in SECTION
1.2.
(15) "CLOSING DATE" shall have the meaning set forth in
SECTION 1.2.
(16) "CODE" shall have the meaning set forth in SECTION 2.12.
(17) "COMMERCIALLY REASONABLE EFFORTS" shall mean the efforts
(including the incurrence of reasonable out-of-pocket costs and expenses)
that would be undertaken by
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a reasonable, similarly-situated participant in the oil and gas industry,
taking into account all relevant commercial, legal and other
considerations.
(18) "COMMON STOCK" shall have the meaning set forth in the
recitals of this Agreement.
(19) "CONSULTING AGREEMENT" means that certain Consulting
Agreement referred to in SECTION 5.14.
(20) "CONTRACT" shall mean any agreement, commitments,
arrangements, leases, oil and gas leases, insurance policies or other
instruments (including notes, loans or borrowing agreements) listed or
described in any schedule hereto or any other contract, instrument,
commitment or arrangement to which the Company is a party or by which the
Company or its assets, businesses or operations may be bound or affected
or under which the Company or its assets, businesses or operations receive
benefits, in each case whether oral or written, and in each case that has
not been fully performed by all parties.
(21) "DISPUTE" shall have the meaning set forth in SECTION
10.10.
(22) "DNB" means DnB Energy Assets, Inc.
(23) "DNB NOTE" means those promissory notes issued in
connection with that certain First Amended and Restated Credit Agreement
dated November 1, 1997 among the Company, SGC and Den Norske Bank, as
amended by that certain First Amendment to First Amended and Restated
Credit Agreement dated March 5, 1998 among the Company, SGC and DnB.
(24) "DNB NOTE PAYDOWN" means a $27.0 million paydown by
the Company on the DnB Note.
(25) "ENCUMBRANCE" means any mortgage, deed of trust, lien,
privilege, security interest, pledge, collateral assignment, conditional
sales arrangement, or any other burden, adverse claim, or encumbrance.
(26) "ENTITY" means a corporation, general partnership
(including a limited liability partnership), limited partnership, joint
venture, limited liability the Company, trust, estate, Governmental
Authority or other entity.
(27) "ENVIRONMENTAL LAWS" mean all Laws or Orders of any
Governmental Authority pertaining to health, the environment, wildlife or
natural resources, including the Clean Air Act; the Comprehensive
Environmental, Response, Compensation, and Liability Act of 1980; the
Federal Water Pollution Control Act or Clean Water Act; the Rivers and
Harbors Act of 1899; the Occupational Safety and Health Act of 1970; the
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Resource Conservation and Recovery Act of 1976; the Safe Drinking Water
Act; the Toxic Substances Control Act; the Hazardous & Solid Waste
Amendments Act of 1984; the Superfund Amendments and Reauthorization Act
of 1986; the Hazardous Materials Transportation Act; and state and local
Laws, including common law, pertaining to health, the environment,
wildlife or natural resources.
(28) "ERISA" shall have the meaning set forth in SECTION 2.13.
(29) "EQUIPMENT" means all wells, wellbores, pipe, pipelines,
gathering lines, compressors, materials, inventory, facilities (other than
Platforms), supplies and equipment and any and all other personal, real,
movable and immovable property, fixtures or equipment that are located on,
or presently used in connection with, the drilling for, or operation,
production, treatment or transportation of, Hydrocarbons from the
Properties, and any replacements, attachments or accessories now or
hereafter attached, added or affixed.
(30) "EXCHANGE ACT" shall have the meaning set forth in
SECTION 2.6.
(31) "EXCEPTION SCHEDULE" shall have the meaning set forth in
the first paragraph of ARTICLE 2.
(32) "FIDELITY" means Fidelity Oil Holdings, Inc., a Delaware
corporation.
(33) "FINANCIAL STATEMENTS" shall have the meaning set forth
in SECTION 2.6.
(34) "GOM OPERATIONS ADJUSTMENT" shall mean the price
adjustment referred to in SECTION 1.4(B)(1) and calculated in accordance
with EXHIBIT 1.4(B)(1) hereto.
(35) "GOVERNMENTAL AUTHORITY" (OR "GOVERNMENTAL") means a
federal, state, tribal or local governmental body, agency, division,
board, department, commission, court or other authority, including the
MMS.
(36) "HAZARDOUS SUBSTANCE" means, without limitation, (i) any
flammable explosives, radon, radioactive materials, asbestos, urea
formaldehyde foam insulations, polychlorinated biphenyls, benzene,
petroleum and petroleum products, methane, or (ii) hazardous materials,
hazardous wastes, biomedical wastes, hazardous or toxic substances or
related materials defined as such in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended (42 U.S.C.
Sections 9601 ET SEQ.), the Resource Conservation and Recovery Act, as
amended (42 U.S.C. Sections 6901 ET SEQ.), or any other Environmental
Laws.
(37) "HYDROCARBON" shall mean gas, oil, casinghead gas, drip
gasoline, natural gasoline and all other liquid and gaseous hydrocarbons.
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(38) "INDEMNITY SHARES" shall have the meaning set forth in
SECTION 9.4.
(39) "INTELLECTUAL PROPERTY" shall have the meaning set forth
in SECTION 2.15.
(40) "INTERIM PERIOD" shall mean from the date hereof until
the Closing Date.
(41) "INVESTOR" shall have the meaning set forth in the
introductory paragraph of this Agreement.
(42) "KNOWLEDGE", when referring to the Company or any of its
subsidiaries, shall mean those facts that are actually known, or those
facts which should be known, to Rick Avare, David Stetson, Ralph Currie or
Karen Underwood after due and appropriate inquiry in the exercise of
reasonable diligence, taking into account the scope and nature of the
responsibilities of the individual in question, and includes any facts
that are known by such individuals regardless of whether such individuals
are adverse to the Company in respect of the matters as to which such
individual's knowledge is attributed to the Company.
(43) "JOINT VENTURES" means (i) that certain Program Agreement
dated January 1, 1994 among Aquila Energy resources, IP Petroleum,
Victoria Gas, Browning Offshore, MG Oil and Gas and Louisiana Offshore
Ventures, (ii) that certain Program Agreement dated April 1, 1995 among IP
Petroleum, The William G. Helis Co., MG Oil and Gas, TECO Gas & Oil,
Houston Energy & Development and Texas 3D Ventures, and (iii) that certain
Agreement of Limited Partnership of Texas 3D Ventures dated April 1, 1995.
(44) "LAW" means any constitutional provision, statute, act,
code, regulation, rule, ordinance, Order, court decision, common law, or
other law, ruling or Order of a Governmental Authority.
(45) "LEASED REAL PROPERTY" shall have the meaning set forth
in SECTION 2.14.
(46) "LEASES" means the leases described in SCHEDULE 3.1
(including record title, operating rights, overriding royalties, net
profits interests and all other types of interests).
(47) "MANAGEMENT" means as of the date hereof, all executive
officers and directors of the Company.
(48) "MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT" means
that certain agreement in substantially the form attached hereto as
EXHIBIT 5.15 to be executed on
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the Closing Date by and between Blue Dolphin Services, Inc. and the
Company providing for, among other things, the provision of certain
management and administrative services to the Company.
(49) "MARKETABLE TITLE" shall mean, in the case of each
Property, such right, title and interest (owned beneficially and of
record) that:
(i) entitles Company, with respect to a particular
Property, to receive not less than the percentage set forth on
SCHEDULE 3.1 as the Net Revenue Interest or NRI of such Property of
all Hydrocarbons produced from, or otherwise attributable to, such
Property, without reduction, suspension or termination throughout
the productive life of such Property (including reductions resulting
from gas imbalances);
(ii) obligates Company to bear not more than the
percentage set forth on SCHEDULE 3.1 as the Working Interest or WI
of such Property of all costs and expenses attributable to the
ownership or operation of such Property, without increase throughout
the productive life of such Property (unless Company's Net Revenue
Interest in such Property is proportionately increased); and
(iii) is free and clear of any Encumbrances, except
for Permitted Encumbrances.
(50) "MATERIAL ADVERSE EFFECT" means, when used with respect
to any person or Entity, any event, condition, circumstance or change that
is or is reasonably likely to be materially adverse to the business,
operations, business prospects, assets, liabilities, condition (financial
or otherwise) of such person or Entity. When used with respect to the
Company, the existence of a Material Adverse Effect shall be determined
(unless otherwise expressly provided) by reference to the Company only, on
an unconsolidated basis without regard to the ownership interest of the
Company in any subsidiary, and after giving effect to the transactions
contemplated by the Purchase and Sale Agreement.
(51) "MILLENNIUM FUNCTIONALITY" shall have the meaning set
forth in SECTION 2.8.
(52) "MMS" means the United States Minerals Management
Service.
(53) "NASDAQ REQUIREMENTS" means the published rules and
regulations of the National Association of Securities Dealers, Inc., as
amended, that are applicable to the Company from time-to-time in
connection with the quotation and trading of its capital stock on the
NASDAQ National Market, the NASDAQ Small Cap Market or the NASDAQ OTCBB
systems.
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(54) "NOTE MODIFICATION AGREEMENT" means an agreement to be
negotiated and entered between the Company and Investor on or before
August 6, 1999, addressing the terms and conditions on which the Investor
agrees that it will, on the terms and subject to the conditions to be
therein set forth: (i) defer its right to payments under the Residual Note
for a period to be determined; (ii) waive certain defaults and events of
default under the terms of the Residual Note and related loan
documentation existing as of the Closing; and (iii) forgive all or a
portion of the Company's indebtedness evidenced by the Residual Note.
(55) "NOTICE AND PROXY STATEMENT" shall have the meaning set
forth in SECTION 5.7.
(56) "NRI" or "NET REVENUE INTEREST" shall mean, with regard
to any Property, the decimal or percentage share of Hydrocarbon production
from or allowable to such Property, after deductions for all overriding
royalties and burdens on production (including lessor royalties)
applicable thereto, that an owner of a Working Interest is entitled to
receive.
(57) "ORDER" means a Governmental or arbitral order, judgment,
ruling, decree, decision, notice, writ, injunction or award.
(58) "PARTY" and "PARTIES" shall have the meanings set forth
in the introductory paragraph.
(59) "PERMIT" means a Governmental permit, certificate,
license, franchise or authorization.
(60) "PERMITTED ENCUMBRANCES" means, with respect to a
particular Property:
(A) lessors' royalties, overriding royalties,
reversionary interests and similar burdens affecting such
Property if the net cumulative effect of such burdens does not
reduce the Company's interest in all Hydrocarbons produced
from a particular Property below the "NET REVENUE INTEREST" or
"NRI" set forth on SCHEDULE 3.1 for such Property;
(B) division orders and sales contracts terminable
without penalty upon no more than 90 days' notice to the
purchaser of the Hydrocarbons from Investor;
(C) operator's, vendor's tax and similar liens or
Encumbrances securing obligations that were not due and
payable prior to the Closing Date, or if due, are being
contested in good faith by the Company;
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(D) any Encumbrances created by Law for royalty, bonus,
deferred bonus payments or rental or for compliance with the
terms of the Leases;
(E) the terms and provisions of (i) the Leases and
Contracts, and (ii) all Easements, Permits and Orders to the
extent such Leases, Contracts, Easements, Permits and Orders
do not operate to increase the Working Interest of the Company
in the Properties or decrease the Net Revenue Interest of the
Company in the Properties;
(F) Easements in favor of third parties so long as such
easements do not adversely affect the current and continuous
use and operation of the Properties;
(G) all rights reserved to or vested in any Governmental
Authority to control or regulate any of the Properties in any
manner, and all applicable Laws; and
(H) those items set forth on SCHEDULE 10.1(A)(60).
(61) "PERMITTED LIABILITIES" shall have the meaning set forth
in SECTION 1.4(C).
(62) "PERSON" means a natural person or Entity.
(63) "PLATFORMS" means all platforms that are located on, or
presently used in connection with, the drilling for, or operation,
production, treatment or transportation of, Hydrocarbons from the
Properties.
(64) "POLICIES" shall have the meaning set forth in SECTION
2.18.
(65) "PREFERRED STOCK" means the Company's preferred stock,
par value $12.00 per share, designated "1993 8% Convertible Preferred
Stock."
(66) "PROCEEDING" means a judicial, administrative or arbitral
proceeding, including a lawsuit or Governmental investigation.
(67) "PROPERTIES" mean the Leases;
(68) "PROXY ITEMS" shall have the meaning set forth in SECTION
5.7.
(69) "PURCHASE AND SALE AGREEMENT" means that certain
agreement by and between the Company and Fidelity in the form executed and
delivered on the date hereof.
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(70) "PURCHASE PRICE" shall have the meaning set forth in
SECTION 1.3.
(71) "RECORDS" means records (including software) in the
possession of the Company with respect to lease and land records,
geological and geophysical records, operations, production and engineering
records, accounting records, and facility and well records.
(72) "RESIDUAL NOTE" means that outstanding portion of the
Note purchased by Investor from DnB after the DnB Note Paydown and
Southern Assumption and Release.
(73) "RETURNS" shall have the meaning set forth in SECTION
2.21.
(74) "SEC" means the Securities and Exchange Commission.
(75) "SEC DOCUMENTS" shall have the meaning set forth in
SECTION 2.6.
(76) "SECURITIES ACT" means the Securities Act of 1933, the
Securities Exchange Act of 1934 and all other Laws concerning or
regulating the sale or registration of securities.
(77) "SGC" means Southern Gas Co. of Delaware, Inc., a
Delaware corporation and wholly-owned subsidiary of the Company.
(78) "SHAREHOLDER APPROVAL" means the approval at the
Shareholder meeting of each of the Proxy Items by the required vote of the
holders of the (i) Preferred Stock and (ii) Common Stock.
(79) "SHAREHOLDERS MEETING" shall have the meaning set forth
in SECTION 5.7.
(80) "SHARES" shall have the meaning set forth in the recitals
of this Agreement.
(81) "SOUTHERN ASSUMPTION AND RELEASE" means (i) the
assumption by SGC of $12.5 million in principal amount of indebtedness
payable on the DnB Note and (ii) the release of the Company by DnB of
$12.5 million due on the DnB Note.
(82) "SOUTHERN DISPOSITION" means (i) the sale of SGC's
capital stock or assets, or both, and (ii) the release of the Company from
all obligations and liabilities arising from that certain Performance
Guaranty dated May 22, 1996 between the Company and Austin Energy Funding
Partners, that provides for SGC's performance under a volumetric
production payment, such release in form and substance satisfactory to
Investor.
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(83) "STOCK" means the capital stock authorized by the
Certificate of Incorporation, as amended, of the Company.
(84) "TAXES" means all federal, state, local or foreign taxes,
charges, fees, levies or other assessments, including, without limitation,
all net income, gross income, gross receipts, premium, sales, use, ad
valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, estimated severance, stamp, occupation, property or
other taxes, fees, assessments or charges of any kind whatsoever, together
with any interest and any penalties (including penalties for failure to
file in accordance with applicable information reporting requirements),
and additions to tax.
(85) "TECO" TECO Oil & Gas, Inc., a Florida corporation.
(86) "TECO NOTE" means that certain promissory note dated
March 5, 1998, in the original principal amount of $18,500,000 by the
Company as maker and TECO as the original payee.
(87) "TECO SETTLEMENT" means the (i) release of all
liabilities of the Company pursuant to the TECO Note, (ii) cancellation of
the TECO Warrants, and (iii) cancellation of all other liabilities and
obligations of the Company to TECO or to any holder or transferee of the
TECO Note, the TECO Warrants or shares of Common Stock issued pursuant to
the TECO Warrants.
(88) "TECO WARRANTS" means (i) those 600,000 warrants
exercisable at $2.67 per share for Common Stock originally issued to TECO
and (ii) those warrants originally issued to TECO and exercisable at
$.00001 per share for Common Stock.
(89) "THIRD PARTY" means a Person other than the Company, the
Company's Affiliates, Investor, Investor's Affiliates, Fidelity,
Fidelity's Affiliates or a Governmental Authority.
(90) "TRANSACTION COSTS" means all costs, expenses, and fees
of the Company relating to the transactions contemplated by this
Agreement, and each transaction to be completed as a condition to closing
hereunder including closing costs, attorney's fees, accounting expenses or
termination fees. Transaction Costs shall not, however, include any
expenses associated with the exercise of registration rights pursuant to
ARTICLE 8.
(91) "TRANSFER" means a sale, assignment, transfer,
conveyance, gift, exchange, abandonment or other disposition (including an
assignment of contractual rights or a delegation of contractual
obligations), whether voluntary, involuntary or by operation of Law.
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(92) "VOTING AND SUPPORT AGREEMENT" means a Voting and
Conversion Agreement and Irrevocable Proxy dated the date hereof by and
among the Investor and certain owners of the Company's Common Stock and
Preferred Stock in substantially the form of EXHIBIT 5.13.
(93) "WI" or "WORKING INTEREST" shall mean the property
interest which entitles the owner thereof to explore and develop land for
Hydrocarbons, whether under any Lease, a compulsory pooling order or
otherwise.
(b) Grammatical variants of such definitions set forth herein shall
have correlative meanings.
10.2 FURTHER ASSURANCES. From time to time, as and when requested by any
party hereto, any other party hereto shall execute and deliver, or cause to be
executed and delivered, such documents and instruments and shall take, or cause
to be taken, such further or other actions as may be reasonably necessary to
effectuate the transactions contemplated hereby, including, without limitation,
the transfer to Investor of the entire legal and beneficial ownership of all
issued and outstanding capital stock of each the Company, free and clear of all
Encumbrances.
10.3 PUBLIC ANNOUNCEMENTS. The Company and Investor shall consult with
each other with regard to all publicity and other releases issued concerning
this Agreement and the transactions contemplated hereby and, except as required
by applicable Law or the stock exchange requirements, neither Party shall issue
any such publicity or other release without the prior written consent of the
other Party.
10.4 EXPENSES. Except as otherwise provided herein, each Party shall be
solely responsible for all costs and expenses incurred by it in connection with
the transactions contemplated hereby (including fees and expenses of its own
counsel and consultants).
10.5 NOTICES AND WAIVERS. Any notice, instruction, authorization, request,
demand or waiver hereunder shall be in writing, and shall be delivered either by
personal delivery, by telegram, telex, telecopy or similar facsimile means, by
certified or registered mail, return receipt requested, or by courier or
delivery service, addressed to the parties hereto at the address indicated
beneath their respective signatures on the execution pages of this Agreement, or
at such other address and number as a party shall have previously designated by
written notice given to the other parties in the manner hereinabove set forth.
Notices shall be deemed given when received, if sent by facsimile means
(confirmation of such receipt by confirmed facsimile transmission being deemed
receipt of communications sent by facsimile means); and when delivered and
receipted for (or upon the date of attempted delivery where delivery is
refused), if hand-delivered, sent by express courier or delivery service, or
sent by certified or registered mail, return receipt requested.
10.6 SURVIVAL. All representations and warranties contained in this
Agreement shall survive the Closing, and all covenants and agreements contained
in this Agreement shall survive the Closing
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in accordance with their terms. Any Claims asserted against the Company by
Investor or by the Company against Investor relative to this Agreement during
such periods shall survive the expiration thereof.
10.7 GENDER AND CERTAIN REFERENCES. Whenever the context requires, the
gender of all words used herein shall include the masculine, feminine and
neuter, and the number of all words shall include the singular and plural.
References to Articles or Sections shall be to Articles or Sections of this
Agreement unless otherwise specified. The headings and captions used in this
Agreement are solely for convenient reference and shall not affect the meaning
or interpretation of any article, section or paragraph herein, or this
Agreement. The terms "hereof," "herein" or "hereunder" shall refer to this
Agreement as a whole and not to any particular article, section or paragraph.
The terms "including" or "include" are used herein in an illustrative sense and
not to limit a more general statement. When computing time periods described by
a number of days before or after a stated date or event, the stated date or date
on which the specified event occurs shall not be counted and the last day of the
period shall be counted. Unless otherwise specified, all references herein to
days, weeks, months or years shall be to calendar days, weeks, months or years.
Unless otherwise specified herein, any obligation otherwise due on a
non-Business Day shall not be due until the next Business Day.
10.8 SUCCESSORS AND ASSIGNS. This Agreement shall bind, inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and permitted assigns, and if an individual, by his or her executors,
administrators, and beneficiaries of his or her estate by will or the laws of
descent and distribution. This Agreement and the rights and obligations
hereunder shall not be assignable or delegable by any party; PROVIDED, HOWEVER,
that before Closing Investor shall be entitled to assign its rights and delegate
its duties hereunder to any corporate Affiliate, and after Closing Investor
shall be entitled to assign its rights and delegate its duties hereunder to any
Person, but no such assignment or delegation shall have the effect of
terminating Investor's duties or obligations as provided herein.
10.9 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND OF THE UNITED STATES
APPLICABLE IN TEXAS, EXCLUDING, HOWEVER, (i) ANY PROVISION OF SUCH LAWS THAT
WOULD RENDER INVALID ANY PROVISION OF THIS AGREEMENT, AND (ii) ANY RULE OF
CONFLICT-OF-LAWS THAT WOULD DIRECT OR REFER THE RESOLUTION OF ANY ISSUE TO THE
LAWS OF ANY OTHER JURISDICTION. Each party hereto hereby acknowledges and agrees
that it has consulted legal counsel in connection with the negotiation of this
Agreement and that it has bargaining power equal to that of the other parties
hereto in connection with the negotiation and execution of this Agreement.
Accordingly, the parties hereto agree that the rule that an agreement shall be
construed against the draftsman shall have no application in the construction or
interpretation of this Agreement.
10.10 DISPUTES. This SECTION 10.10 shall apply to any dispute arising
under or otherwise Attributable to this Agreement or the transactions
contemplated hereby (whether arising in contract, tort or otherwise, and whether
arising at law or in equity), including (a) any dispute regarding
50
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the construction, interpretation, performance, validity or enforceability of any
provision of this Agreement or whether any Person is in compliance with, or
breach of, any provisions of this Agreement, and (b) the applicability of this
SECTION 10.10 to a particular dispute (collectively, a "DISPUTE"). The
provisions of this SECTION 10.10 shall be the exclusive method of resolving
Disputes.
10.11 ARBITRATION.
(a) If a Dispute arises, the Parties shall attempt to resolve it
through negotiations. If the Parties are unable to resolve the Dispute within 20
days of the commencement of such negotiations, either Party may submit the
Dispute to binding arbitration before a sole arbitrator (the "ARBITRATOR")
pursuant to this SECTION 10.11(A) by notifying the other Party and designating a
proposed Arbitrator. If the other Party objects to such proposed Arbitrator, it
may, on or before the 10th day following delivery of such notice, notify the
other Party of its objection. The Parties shall then attempt to agree upon a
mutually acceptable Arbitrator. If they are unable to do so within 10 days
following delivery of the notice described in the immediately-preceding
sentence, either Party may request the American Arbitration Association (or
successor body) (the "AAA") to designate the Arbitrator. Each Party and each
proposed Arbitrator shall disclose to the other Party any business, personal or
other relationship or Affiliation that may exist between such Party and such
proposed Arbitrator, and any Party may disapprove of such proposed Arbitrator on
the basis of such relationship or Affiliation. If the Arbitrator so chosen shall
die, resign or otherwise fail or become unable to serve as Arbitrator, a
replacement Arbitrator shall be chosen in accordance with this SECTION 10.11(A).
(b) The Arbitrator shall expeditiously (and, if possible, within 45
days after the Arbitrator's selection) hear and decide all matters concerning
the Dispute. Any arbitration hearing shall be held in Houston, Texas. The
arbitration shall be conducted in accordance with the then-current Commercial
Arbitration Rules of the AAA (excluding rules governing the payment of
arbitration, administrative or other fees or expenses to the Arbitrator or the
AAA), to the extent that such Rules do not conflict with the terms of this
Agreement. Except as expressly provided to the contrary in this Agreement, the
Arbitrator shall have the power (i) to gather such materials, information,
testimony and evidence as it deems relevant to the dispute before it (and each
Party will provide such materials, information, testimony and evidence requested
by the Arbitrator, except to the extent any information so requested is
proprietary, subject to a third-party confidentiality restriction or to an
attorney-client or other privilege) and (ii) to grant injunctive relief and
enforce specific performance.
(c) If it deems necessary, the Arbitrator may propose to the Parties
that one or more other experts be retained to assist it in resolving the
Dispute. The retention of such other experts shall require the consent of both
Parties, which shall not be unreasonably withheld. Each Party, the Arbitrator
and any proposed expert shall disclose to the other Party any business, personal
or other relationship or affiliation that may exist between such Party (or the
Arbitrator) and such
51
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proposed expert; and either Party may disapprove of such proposed expert on the
basis of such relationship or affiliation.
(d) The decision of the Arbitrator (which shall be rendered in
writing) shall be final, nonappealable and binding upon the Parties and may be
enforced in any court of competent jurisdiction. The responsibility for paying
the costs and expenses of the arbitration, including compensation to the
Arbitrator and any experts retained by the Arbitrator, shall be allocated
between the Parties in a manner determined by the Arbitrator to be fair and
reasonable under the circumstances. Each Party shall be responsible for the fees
and expenses of its respective counsel, consultants and witnesses, unless the
Arbitrator determines that compelling reasons exist for allocating all or a
portion of such costs and expenses to one or more other Parties.
10.12 SEVERABILITY; JUDICIAL MODIFICATION. If any term, provision,
covenant, or restriction of this Agreement (including any arbitration provision
of this Agreement) is held by a court of competent jurisdiction to be invalid,
void, or unenforceable, the remainder of this Agreement and the other terms,
provisions, covenants and restrictions hereof shall remain in full force and
effect and shall in no way be affected, impaired or invalidated. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed this Agreement had the terms, provisions, covenants and restrictions
which may be hereafter declared invalid, void, or unenforceable not initially
been included herein.
10.13 AMENDMENT AND ENTIRETY. This Agreement may be amended, modified, or
superseded only by written instrument executed by all parties hereto. This
Agreement sets forth the entire agreement and understanding of the parties with
respect to the transactions contemplated hereby and supersedes all prior
agreements, arrangements, and understandings relating to the subject matter
hereof. In the event of any conflict or inconsistency between the provisions of
this Agreement and the contents or provisions of any schedule or exhibit hereto,
the provisions of this Agreement shall control. Except as expressly permitted by
this Agreement, the contents of schedules and exhibits hereto shall not be
deemed to negate or modify any representation, warranty, covenant or agreement
contained in this Agreement. Without limiting the generality of the preceding
sentence, any representation, warranty, covenant or other agreement contained in
any document, instrument or agreement delivered pursuant hereto or entered into
in connection herewith is made in addition to, and not in lieu of, any
representation, warranty, covenant or other agreement contained herein.
10.14 RIGHTS OF PARTIES. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any Persons other than the parties hereto and their respective
successors and assigns, nor shall any provision give any third Persons any right
of subrogation or action over against any party to this Agreement. Without
limiting the generality of the foregoing, it is expressly understood that this
Agreement does not create any third party beneficiary rights.
10.15 TIME OF ESSENCE. Time is of the essence in the performance of this
Agreement.
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10.16 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all which together
shall constitute one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
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SIGNATURE PAGE FOR
INVESTMENT AGREEMENT
IN WITNESS WHEREOF, this Investment Agreement is executed and delivered on
and as of the day first above written.
THE COMPANY:
AMERICAN RESOURCES OFFSHORE, INC.
By: /S/ DAVID STETSON
--------------------------------------
Name: David Stetson
Title:Vice President and General Counsel
Address: 160 Morgan Street
P.O. Box 87
Versailles, Kentucky 40383
Telecopy No.(606) 873-4689
INVESTOR:
BLUE DOLPHIN EXPLORATION COMPANY
By: /S/ JOHN P. ATWOOD
--------------------------------------
John P. Atwood
Vice President Finance and
Corporate Development
Address: 801 Travis, Suite 2100
Houston, Texas 77002
Telecopy No.(713) 227-7626
EXHIBIT 99.2
EXECUTION VERSION
================================================================================
PURCHASE AND SALE AGREEMENT
BETWEEN
AMERICAN RESOURCES OFFSHORE, INC.
AND
FIDELITY OIL HOLDINGS, INC.
JULY 30, 1999
================================================================================
<PAGE>
PURCHASE AND SALE AGREEMENT
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS......................................................1
1.2 RULES OF CONSTRUCTION............................................7
ARTICLE 2
PURCHASE AND SALE
2.1 PURCHASE AND SALE OF ASSETS......................................7
2.2 QUITCLAIMED ASSETS...............................................8
ARTICLE 3
PURCHASE PRICE
3.1 PURCHASE PRICE; METHOD OF PAYMENT................................9
3.2 ALLOCATION OF PURCHASE PRICE.....................................9
ARTICLE 4
TITLE AND ENVIRONMENTAL MATTERS
4.1 MARKETABLE TITLE.................................................9
4.2 PERMITTED ENCUMBRANCES..........................................10
4.3 NOTICE OF TITLE DEFECT..........................................11
4.4 REMEDIES FOR TITLE DEFECTS; TITLE INCREASES.....................11
4.5 VALUE OF PROPERTY; TITLE DEFECT.................................12
4.6 CONSENTS........................................................12
4.7 CASUALTY EVENTS.................................................13
4.8 ENVIRONMENTAL ADJUSTMENTS.......................................13
4.9 OTHER ADJUSTMENTS...............................................14
4.10 FORWARD SALES...................................................14
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SELLER
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5.1 ORGANIZATION AND QUALIFICATION..................................14
5.2 POWER...........................................................14
5.3 AUTHORIZATION...................................................14
5.4 BROKERS.........................................................14
5.5 FOREIGN PERSON..................................................15
5.6 BANKRUPTCY......................................................15
5.7 LITIGATION......................................................15
5.8 GOVERNMENTAL QUALIFICATION......................................15
5.9 CONSENTS........................................................15
5.10 LEASES..........................................................15
5.11 CONTRACTS.......................................................15
5.12 PROCEEDS OF PRODUCTION..........................................16
5.13 INVOICES........................................................16
5.14 GAS IMBALANCES..................................................16
5.15 GAS PREPAYMENTS.................................................16
5.16 ACCESS..........................................................16
5.17 WELLS...........................................................16
5.18 PERMITS.........................................................16
5.19 ENVIRONMENTAL LAWS..............................................17
5.20 INSURANCE.......................................................17
5.21 AFES............................................................17
5.22 CASUALTY........................................................17
5.23 TITLE...........................................................17
5.24 PRICING.........................................................17
5.25 EQUIPMENT.......................................................17
5.26 ADVERSE CHANGES IN PRODUCTION RATES OR OIL AND GAS RESERVES.....18
5.27 ACCURACY OF REPRESENTATIONS.....................................18
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PURCHASER
6.1 EXISTENCE.......................................................18
6.2 POWER...........................................................18
6.3 AUTHORIZATION...................................................18
6.4 BROKERS.........................................................19
6.5 SECURITIES LAWS.................................................19
6.6 BANKRUPTCY......................................................19
6.7 GOVERNMENTAL QUALIFICATION......................................19
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ARTICLE 7
PRE-CLOSING COVENANTS OF SELLER
7.1 OPERATIONS......................................................19
7.2 ACCESS..........................................................19
7.3 NO SHOP.........................................................20
7.4 BREACHES OF REPRESENTATIONS AND WARRANTIES......................20
7.5 ESTIMATES OF ADJUSTED PURCHASE PRICE............................20
ARTICLE 8
PRE-CLOSING COVENANTS OF PURCHASER
8.1 CONFIDENTIALITY.................................................20
8.2 RETURN OF DATA..................................................20
8.3 INDEMNITY REGARDING ACCESS......................................20
ARTICLE 9
SELLER'S CONDITIONS OF CLOSING
9.1 REPRESENTATIONS AND WARRANTIES..................................21
9.2 PERFORMANCE.....................................................21
9.3 PROCEEDINGS.....................................................21
9.4 INVESTMENT AGREEMENT TRANSACTION................................21
9.5 SHAREHOLDER APPROVAL............................................21
9.6 GOVERNMENT APPROVALS............................................21
9.7 PREFERENTIAL PURCHASE RIGHTS....................................21
ARTICLE 10
PURCHASER'S CONDITIONS OF CLOSING
10.1 REPRESENTATIONS AND WARRANTIES..................................21
10.2 PERFORMANCE.....................................................22
10.3 PROCEEDINGS.....................................................22
10.4 INVESTMENT AGREEMENT TRANSACTION................................22
10.5 RELEASE OF LIENS................................................22
10.6 GOVERNMENTAL APPROVALS..........................................22
10.7 PREFERENTIAL PURCHASE RIGHTS....................................22
10.8 MATERIAL ADVERSE CHANGE.........................................22
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ARTICLE 11
CLOSING
11.1 TIME AND PLACE OF CLOSING.......................................23
11.2 CLOSING OBLIGATIONS.............................................23
11.3 ALLOCATION OF REVENUES AND EXPENSES.............................23
ARTICLE 12
POST-CLOSING COVENANTS
12.1 POST-CLOSING ADJUSTMENTS........................................24
12.2 PAYMENTS RECEIVED IN ERROR......................................24
12.3 SALES TAXES.....................................................24
12.4 RECORDATION OF ASSIGNMENT.......................................24
12.5 ACCESS TO EMPLOYEES.............................................24
12.6 FURTHER ASSURANCES..............................................25
12.7 CONFIDENTIALITY.................................................25
12.8 REVENUE REIMBURSEMENT OBLIGATIONS...............................25
ARTICLE 13
ASSUMED OBLIGATIONS; INDEMNIFICATION
13.1 ASSUMED OBLIGATIONS.............................................25
13.2 INDEMNIFICATION.................................................26
13.3 LIMITATIONS ON INDEMNIFICATION..................................27
ARTICLE 14
INDEPENDENT INVESTIGATION AND DISCLAIMER
14.1 INDEPENDENT INVESTIGATION AND DISCLAIMER........................28
ARTICLE 15
TERMINATION
15.1 RIGHT OF TERMINATION............................................29
15.2 EFFECT OF TERMINATION...........................................29
ARTICLE 16
ARBITRATION
16.1 DISPUTES........................................................30
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16.2 ARBITRATION.....................................................30
ARTICLE 17
GENERAL PROVISIONS
17.1 GOVERNING LAW...................................................31
17.2 ENTIRE AGREEMENT; AMENDMENTS....................................31
17.3 WAIVER..........................................................32
17.4 TRANSFERS.......................................................32
17.5 NOTICES.........................................................32
17.6 EXPENSES........................................................33
17.7 SEVERABILITY....................................................33
17.8 PUBLICITY.......................................................33
17.9 SPECIFIC PERFORMANCE............................................33
17.10 CONSEQUENTIAL AND PUNITIVE DAMAGES..............................33
17.11 NO THIRD-PARTY BENEFICIARY......................................33
17.12 COUNTERPARTS....................................................34
EXHIBITS
- --------
2.1(a) Leases
2.1(e) Contracts
2.1(i) Quitclaimed Assets
3.2 Allocated Value
4.1(a) Interest
4.1(b) Platforms
4.2(i) Terminable Sales Contracts
4.6(b) Pending MMS Consents
4.6(c) Pending MMS Approval
5.6 Bankruptcy
5.7 Litigation
5.10(e) Lease Rentals and Royalties
5.11 Contracts (in Default)
5.13 Unpaid Invoices
5.15 Prepayments
5.17 Wells
5.17(c) Plugging Obligations
5.20 Insurance
5.21 Outstanding AFEs
5.23 Liens and Encumbrances
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7.5 Form of Closing Settlement Statement
11.3 General and Administrative Expenses
12.8 Revenue Reimbursement Obligations
SCHEDULES
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11.3 1999 Revenue and Expenses
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PURCHASE AND SALE AGREEMENT
This PURCHASE AND SALE AGREEMENT (this "AGREEMENT") is entered into on
July 30, 1999 (the "EXECUTION DATE") by and between AMERICAN RESOURCES OFFSHORE,
INC., a Delaware corporation ("SELLER"), and FIDELITY OIL HOLDINGS, INC., a
Delaware corporation ("PURCHASER") (collectively, the "PARTIES" or individually,
a "PARTY").
RECITALS
A. Seller desires to sell to Purchaser, and Purchaser desires to purchase
from Seller, certain Hydrocarbon (defined below) properties and related assets
on the terms and conditions set forth in this Agreement.
B. The transaction contemplated by this Agreement represents one of
several substantially contemporaneous and mutually contingent transactions
whereby Seller intends to Transfer (defined below) substantially all of its
assets and properties, subject to, among other things, the approval of such
Transfers by the shareholders of Seller.
NOW, THEREFORE, for and in consideration of the mutual agreements
contained herein, Seller and Purchaser hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. As used herein, the following terms have the following
respective mean ings set forth below or in the provision referenced below (and
grammatical variants of such terms have correlative meanings):
"AAA" shall have the meaning set forth in SECTION 16.2(A).
"ADJUSTED PURCHASE PRICE shall have the meaning set forth in
SECTION 3.1.
"AGREEMENT" shall have the meaning set forth in the introductory
paragraph.
"ALLOCATED VALUE" shall have the meaning set forth in SECTION 3.2.
"ARBITRATOR" shall have the meaning set forth in SECTION 16.2(A).
"ASSETS" shall have the meaning set forth in SECTION 2.1.
"ASSIGNMENTS" shall have the meaning set forth in SECTION 11.2(A).
"ASSUMED OBLIGATIONS" shall have the meaning set forth in SECTION
13.1.
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"BDSI" shall mean Blue Dolphin Services, Inc., a Delaware
corporation.
"BUSINESS DAY" shall mean any day other than Saturday or Sunday on
which national banking associations in Houston, Texas are open for
business.
"CASUALTY EVENT", with respect to any Asset, shall mean (a) a fire,
hurricane or other catastrophic casualty event causing material damage to
such Asset, or (b) the taking of such Asset by a Governmental Authority
through condemnation or eminent domain which materially and adversely
impairs the value of such Asset.
"CLAIM NOTICE" shall have the meaning set forth in SECTION
13.2(C)(II).
"CLOSING" shall have the meaning set forth in SECTION 11.1.
"CLOSING DATE" shall have the meaning set forth in SECTION 11.1.
"CLOSING SETTLEMENT STATEMENT" shall have the meaning set forth
in SECTION 7.5.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMERCIALLY REASONABLE EFFORTS" shall mean the efforts (including
the incurrence of reasonable out-of-pocket costs and expenses) that would
be undertaken by a reasonable, similarly-situated participant in the oil
and gas industry, taking into account all relevant commercial, legal and
other considerations.
"CONFIDENTIALITY AGREEMENT" shall mean the Confidentiality
Agreement, dated January 4, 1999, between Seller and Blue Dolphin
Exploration Company, as confirmed by Purchaser on January 11, 1999.
"CONTRACTS" shall have the meaning set forth in SECTION 2.1(E).
"CONTROL" shall mean the possession, directly or indirectly, through
one or more intermediaries, of (a) more than 50% of the equity interests
in an Entity, or (b) the power or authority, through ownership of voting
securities, by contract or otherwise, to exercise a controlling influence
over the management of the Entity.
"CURE DEADLINE" shall have the meaning set forth in SECTION 4.4.
"DISPUTE" shall have the meaning set forth in SECTION 16.1.
"EASEMENT" shall mean easement, right-of-way or servitude.
"EFFECTIVE DATE" shall mean 12:01 a.m. Central Standard Time on
January 1, 1999.
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"ENCUMBRANCE" shall mean mortgage, deed of trust, lien, privilege,
security interest, pledge, collateral assignment, conditional sales
arrangement or other burden or encumbrance.
"ENTITY" shall mean a corporation, general partnership (including a
limited liability partnership), limited partnership, joint venture,
limited liability company, trust, estate, Governmental Authority or other
entity.
"ENVIRONMENTAL DEFECT" shall have the meaning set forth in
SECTION 4.8.
"ENVIRONMENTAL DEFECT ADJUSTMENT AMOUNT" shall have the meaning
set forth in SECTION 4.8.
"ENVIRONMENTAL LAWS" shall mean all Laws or Orders of any
Governmental Authority pertaining to health, the environment, wildlife or
natural resources, including the Clean Air Act; the Comprehensive
Environmental, Response, Compensation, and Liability Act of 1980; the
Federal Water Pollution Control Act or Clean Water Act; the Rivers and
Harbors Act of 1899; the Occupational Safety and Health Act of 1970; the
Resource Conservation and Recovery Act of 1976; the Safe Drinking Water
Act; the Toxic Substances Control Act; the Hazardous & Solid Waste
Amendments Act of 1984; the Superfund Amendments and Reauthorization Act
of 1986; the Hazardous Materials Transportation Act; and state and local
Laws, including common law, pertaining to health, the environment,
wildlife or natural resources.
"EQUIPMENT" shall have the meaning set forth in SECTION 2.1(C).
"EXECUTION DATE" shall have the meaning set forth in the
introductory paragraph.
"GOVERNMENTAL AUTHORITY" (or "GOVERNMENTAL") shall mean a federal,
state, tribal or local governmental body, agency, division, board,
department, commission, court or other authority, including the MMS.
"HEDGE AGREEMENTS" shall have the meaning set forth in
SECTION 12.8.
"HYDROCARBON" shall mean gas, oil, casinghead gas, drip gasoline,
natural gasoline and all other liquid and gaseous hydrocarbons.
"INDEMNIFIED PERSON" shall have the meaning set forth in SECTION
13.2(C)(I).
"INDEMNIFY" shall mean to protect, defend, release and hold
harmless.
"INDEMNIFYING PARTY" shall have the meaning set forth in SECTION
13.2(C)(I).
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"INTERIM PERIOD" shall mean the period from the Execution Date
through the Closing
Date.
"INVESTMENT AGREEMENT" shall mean that certain Investment Agreement
of even date herewith between Seller and Blue Dolphin Exploration, Inc.
"LAW" shall mean a constitutional provision, statute, act, code,
regulation, rule, ordinance, Order, court decision, common law, or other
law or ruling.
"LEASES" shall have the meaning set forth in SECTION 2.1(A).
"LOSSES" shall mean losses; liabilities; demands; claims; causes of
action; Proceedings; assessments; cleanup, remediation and restoration
obligations; judgments; awards; damages; natural resource damages; fines;
fees; penalties; and costs and expenses (including litigation costs and
attorneys' and experts' fees and expenses).
"MARKETABLE TITLE" shall have the meaning set forth in SECTION
4.1.
"MMS" shall mean the United States Minerals Management Service.
"NRI" or "NET REVENUE INTEREST" shall mean, with regard to any
Property, the decimal or percentage share of Hydrocarbon production from
or allowable to such Property, after deductions for all overriding
royalties and burdens on production (including lessor royalties)
applicable thereto, that an owner of a Working Interest is entitled to
receive.
"NOTICE PERIOD" shall have the meaning set forth in SECTION
13.2(C)(II).
"OPERATING AGREEMENT CONSENTS" shall have the meaning set forth
in SECTION 4.6(A).
"ORDER" shall mean a Governmental or arbitral order, judgment,
ruling, decree, decision, notice, writ, injunction or award.
"PARTY" and "PARTIES" shall have the meanings set forth in the
introductory paragraph.
"PENDING MMS CONSENTS" shall have the meaning set forth in
SECTION 4.6(C).
"PERMIT" shall mean a Governmental permit, certificate, license,
franchise or authorization.
"PERMITTED ENCUMBRANCES" shall have the meaning set forth in
SECTION 4.2.
"PERSON" shall mean a natural person or an Entity.
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"PLATFORMS" shall have the meaning set forth in SECTION 2.1(B).
"POST-CLOSING MMS CONSENTS" shall have the meaning set forth in
SECTION 4.6(D).
"POST-CLOSING SETTLEMENT STATEMENT" shall have the meaning set
forth in SECTION 12.1.
"PROCEEDING" shall mean a judicial, administrative or arbitral
proceeding, including a lawsuit or Governmental investigation.
"PROPERTIES" shall have the meaning set forth in SECTION 2.1(A).
"PURCHASE PRICE" shall have the meaning set forth in SECTION
3.1(A).
"PURCHASE PRICE ADJUSTMENT AMOUNT" shall mean the sum of the Title
Defect Adjustment Amount, the Environmental Defect Adjustment Amount, the
Revenue Adjustment, any reduction resulting from a Casualty Event not
reimbursed by insurance and any other adjustments to the Purchase Price
required or contemplated by this Agreement or otherwise agreed to in
writing by the Parties, in each case subject to any limits or thresholds
set forth in this Agreement pertaining to the specified adjustment.
"PURCHASER" shall have the meaning set forth in the introductory
paragraph.
"PURCHASER'S AFFILIATES" shall mean (a) any other Entity that
Controls, is Controlled by, or is under common Control with, Purchaser;
(b) any director, officer or employee of Purchaser or of an Entity
described in clause (a) of this definition; and (c) any agent, consultant
or representative that Purchaser has engaged in connection with the
ownership or operation of the Assets or the transactions contemplated
hereby.
"QUITCLAIMED ASSETS" shall have the meaning set forth in SECTION
2.1(I).
"RECORDS" shall have the meaning set forth in SECTION 2.1(H).
"REQUIRED CONSENTS" shall mean the Operating Agreement Consents,
the Pending MMS Consents and the Post-Closing MMS consents.
"RESERVE MATTERS" shall mean the existence or extent of Hydrocarbon
reserves; the recoverability of (or the cost of recovering) any such
reserves; the value of such reserves; any product pricing assumptions; the
ability to sell Hydrocarbon production after the Closing or any conditions
thereon; and geological, geophysical and seismic matters.
"REVENUE ADJUSTMENT" shall have the meaning set forth in
SECTION 11.3.
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"SECURITIES LAWS" shall mean the Securities Act of 1933, the
Securities Exchange Act of 1934, and all other Laws concerning or
regulating the sale or registration of securities.
"SELLER" shall have the meaning set forth in the introductory
paragraph.
"SELLER'S AFFILIATES" shall mean (a) any other Entity that Controls,
is Controlled by, or is under common Control with, Seller; (b) any
director, officer or employee of Seller or of an Entity described in
clause (a) of this definition; and (c) any agent, consultant or
representative that Seller has engaged in connection with the ownership or
operation of the Assets or the transactions contemplated hereby.
"SELLER'S KNOWLEDGE" shall mean those facts that are actually known,
or those facts which should be known, to Rick Avare, David Stetson, Ralph
Currie or Karen Underwood after due and appropriate inquiry in the
exercise of reasonable diligence, taking into account the scope and nature
of the responsibilities of the individual in question, and includes any
facts that are known by such individuals regardless of whether such
individuals are adverse to the Seller in respect of the matters as to
which such individual's knowledge is attributed to Seller.
"THIRD PARTY" shall mean a Person other than Seller, Seller's
Affiliates, Purchaser, Purchaser's Affiliates or a Governmental Authority.
"THIRD PARTY LOSS" shall mean a Loss that is asserted by a Third
Party or a Governmental Authority.
"TITLE DEADLINE" shall have the meaning set forth in SECTION 4.3.
"TITLE DEFECT" shall have the meaning set forth in SECTION 4.3.
"TITLE DEFECT ADJUSTMENT AMOUNT" shall have the meaning set forth
in SECTION 4.4(B).
"TITLE DEFECT VALUE" shall have the meaning set forth in SECTION
4.3.
"TITLE INCREASE" shall have the meaning set forth in SECTION
4.4(C).
"TITLE INCREASE ADJUSTMENT AMOUNT" shall have the meaning set
forth in SECTION 4.4(C).
"TRANSFER" shall mean a sale, assignment, transfer, conveyance,
gift, exchange or other disposition (including an assignment of
contractual rights or a delegation of contractual obligations), whether
voluntary, involuntary or by operation of Law.
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"WI" or "WORKING INTEREST shall mean the property interest which
entitles the owner thereof to explore and develop land for Hydrocarbons,
whether under a Lease, a compelling pooling order or otherwise.
1.2 RULES OF CONSTRUCTION. In construing this Agreement, the following
rules shall be used (unless the context clearly requires otherwise): (a) any
references to a Law, Lease, Contract, Order or Permit refer to such Lease,
Contract, Order or Permit as it has been amended, restated, modified or
supplemented; (b) any references to "Articles" or "Sections" refer to Articles
or Sections of this Agreement; (c) the titles of the Articles and Sections are
for convenience only and shall not be used in construing this Agreement; (d) any
references to "Exhibits" refer to the Exhibits attached hereto, each of which is
made a part hereof for all purposes; (e) if there is any conflict or
inconsistency between the text of this Agreement and any Exhibit, the text of
this Agreement shall control; and (f) because both Parties have participated in
the preparation and negotiation of this Agreement, the rule that ambiguities in
agreements are to be construed against the party that prepared them is
inapplicable.
ARTICLE 2
PURCHASE AND SALE
2.1 PURCHASE AND SALE OF ASSETS. On the Closing Date, but effective as of
the Effective Date, subject to the other provisions of this Agreement, Seller
agrees to sell, Transfer and deliver to Purchaser, and Purchaser agrees to
purchase and pay for, an undivided eighty percent (80%) of Seller's right, title
and interest in and to the following assets (said eighty percent (80%) undivided
interest being referred to as the "ASSETS"):
(a) the leases described on EXHIBIT 2.1(A) (including record title,
operating rights, overriding royalties, net profits interests and all
other types of interests) (the "LEASES", each of the Leases described in
this SECTION 2.1(A) is referred to individually as a "PROPERTY" and
collectively as the "PROPERTIES");
(b) all platforms that are located on, or presently used in
connection with, the drilling for, or operation, production, treatment or
transportation of, Hydrocarbons from the Properties and the caisson and
deck owned by Seller related to the OCS-G 12501 B-1 Well located on
Block 297 Galveston Area (the "PLATFORMS");
(c) all wells, wellbores, pipe, pipelines, gathering lines,
compressors, materials, inventory, facilities (other than Platforms),
supplies and equipment and any and all other personal, real, movable and
immovable property, fixtures or equipment that are located on, or
presently used in connection with, the drilling for, or operation,
production, treatment or transportation of, Hydrocarbons from the
Properties, and any replacements, attachments or accessories now or
hereafter attached, added or affixed (the "Equipment");
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(d) all Hydrocarbons attributable to the Assets produced on and
after the Effective
Date;
(e) all contracts and agreements (other than Leases) to the extent
transferable that are attributable to the ownership or operation of the
Assets, including, without limitation, the following (collectively, the
"CONTRACTS"):
(i) the contracts and agreements that are listed on
EXHIBIT 2.1(E); and
(ii) any other operating agreements, participation agreements,
unit, pooling and communitization agreements and declarations,
Hydrocarbon purchase and sale agreements, farmin or farmout
agreements, bottom-hole contribution agreements, balancing
agreements, processing agreements, gathering agreements, compression
agreements, transportation agreements, and any other contracts and
agreements that are attributable to the ownership or operation of
the Assets whether or not set forth on EXHIBIT 2.1(E);
(f) all Orders, Permits and Easements that are attributable to the
Assets;
(g) all other rights, privileges, benefits, powers and obligations
conferred or imposed upon Seller as the owner of the Assets;
(h) to the extent attributable to the Assets and not prohibited by
Law or an agreement to which Seller is a party, the rights to copy the
following records in the possession of Seller: (i) lease and land records,
(ii) geological and geophysical records, (iii) operations, production and
engineering records, (iv) accounting records, and (v) facility and well
records (collectively, the "RECORDS"); and
(i) the other assets described on EXHIBIT 2.1(I) (the "QUITCLAIMED
ASSETS").
2.2 QUITCLAIMED ASSETS. NOTWITHSTANDING ANYTHING IN THIS
AGREEMENT, THE ASSIGNMENT OR THE OTHER CLOSING DOCUMENTS TO THE CONTRARY, SELLER
MAKES NO REPRESENTATIONS, WARRANTIES, COVENANTS OR INDEMNITIES OF ANY TYPE
WHATSOEVER WITH RESPECT TO THE QUITCLAIMED ASSETS (OR ANY OTHER ASSETS THAT ARE
INCLUDED IN THE DEFINITION OF "ASSETS" SOLELY BECAUSE THEY ARE ATTRIBUTABLE TO
THE QUITCLAIMED ASSETS), AND PURCHASER MAY NOT ASSERT ANY TITLE DEFECT OR OTHER
CLAIM WITH RESPECT TO ANY QUITCLAIMED ASSET; IT BEING AGREED BY PURCHASER THAT
IT IS ACQUIRING THE QUITCLAIMED ASSETS "AS-IS," "WHERE-IS," WITH ALL FAULTS.
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ARTICLE 3
PURCHASE PRICE
3.1 PURCHASE PRICE; METHOD OF PAYMENT. (a) The purchase price for
the Assets shall be Twenty-Five Million Three Hundred Thirteen Thousand Six
Hundred Eighty-Five and No/100 Dollars ($25,313,685) (the "PURCHASE PRICE"),
which amount shall be (i) increased by the Title Increase Adjustment Amount,
(ii) decreased or increased by an amount equal to the Purchase Price Adjustment
Amount and (iii) decreased by $271,200 (representing marketing adjustments) (the
purchase price, as so adjusted, is referred to herein as the "ADJUSTED PURCHASE
PRICE"). The Adjusted Purchase Price shall be either (a) paid by Purchaser to
Seller at Closing or (b) paid by Purchaser to the holder of the DnB Note to
reduce the principal balance thereof. All payments made by Purchaser to reduce
the outstanding principal balance of the DnB Note (whether prior to or
contemporaneous with Closing) shall be credited towards the amounts due by
Purchaser to Seller hereunder upon confirmation by Seller of any such payments
by Purchaser to the holder of the DnB Note.
(b) All amounts required under this Agreement to be paid by either Party
to the other Party shall be made by wire transfer of immediately-available funds
to Seller or Purchaser, as the case may be, at such bank account in the United
States as Seller or Purchaser may designate in writing to the other Party at
least five Business Days prior to the date on which such payment is to be made.
3.2 ALLOCATION OF PURCHASE PRICE. EXHIBIT 3.2 contains the allocation of
the value of each Property as mutually agreed by the Parties (the "ALLOCATED
VALUE"). Seller and Purchaser agree not to assert, in connection with any tax
return, tax audit or similar proceedings, any allocation of the consideration
that differs from any such agreed-upon in writing allocation. Seller and
Purchaser shall each prepare an IRS Form 8594 in accordance with such Allocated
Value.
ARTICLE 4
TITLE AND ENVIRONMENTAL MATTERS
4.1 MARKETABLE TITLE. (a) As used herein, the term "MARKETABLE Title"
shall mean, in the case of each Property, such right, title and interest (owned
beneficially and of record) that, except for Permitted Encumbrances and as
otherwise set forth on EXHIBIT 4.1(A):
(i) entitles Seller, with respect to a particular Property, now and
in the future to receive not less than eighty percent (80%) of the
percentage set forth on EXHIBIT 4.1(A) as the Net Revenue Interest or NRI
of such Property of all Hydrocarbons produced from, or otherwise
attributable to, such Property, without reduction, suspension or
termination (including reductions resulting from gas imbalances, if any);
(ii) obligates Seller, with respect to a particular Property, now
and in the future to bear not more than eighty percent (80%) of the
percentage set forth on EXHIBIT 4.1(A) as the Working Interest or WI of
such Property of all costs and expenses attributable to the
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ownership or operation of such Property, without increase (unless Seller's
Net Revenue Interest in such Property is proportionately increased); and
(iii) is free and clear of any Encumbrances;
(b) Except as set forth on EXHIBIT 4.1(B), in the case of a Property on
which there is currently located a Platform (other than the Platform on South
Timbalier Block 211, which Platform is not owned by Seller), the term
"MARKETABLE TITLE" shall also mean such right, title and interest that except
for Permitted Encumbrances and as otherwise set forth on EXHIBIT 4.1(a):
(i) entitles Seller, with respect to a particular Platform, now and
in the future, to an ownership interest in such Platform of not less than
eighty percent (80%) of the percentage set forth on EXHIBIT 4.1(A) as
Seller's Net Revenue Interest or NRI of the Property on which the Platform
is located, without reduction, suspension or termination throughout the
productive life of such Property;
(ii) obligates Seller, with respect to a particular Platform, now
and in the future to bear not more than the percentage set forth on
EXHIBIT 4.1(A) as the Working Interest or WI of the Property on which the
Platform is located of all costs and expenses attributable to the
ownership or operation of such Platform, without increase (unless Seller's
ownership interest in the Platform is proportionately increased); and
(iii) is free and clear of any Encumbrances.
4.2 PERMITTED ENCUMBRANCES. As used herein, the term "PERMITTED
ENCUMBRANCES" shall mean, with respect to a particular Property:
(a) lessors' royalties, overriding royalties, reversionary interests
and similar burdens affecting such Property if the net cumulative effect
of such burdens does not reduce Seller's interest in all Hydrocarbons
produced from a particular Property below the "NET REVENUE INTEREST" or
"NRI" set forth on EXHIBIT 4.1(A) for such Property;
(b) division orders and sales contracts terminable without penalty
upon no more than 30 days' notice to the purchaser of the Hydrocarbons
from the Properties;
(c) operator's, vendor's, tax and similar liens or Encumbrances
securing obligations that were not due and payable prior to the Closing
Date or, if due, are being contested by Seller in good faith;
(d) any Encumbrances created by Law for royalty, bonus, deferred
bonus payments or rental or for compliance with the terms of the Leases;
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(e) the terms and provisions of (i) the Leases and Contracts, and
(ii) all Easements, Permits and Orders that are included within the Assets
to the extent such Leases, Contracts, Easements, Permits and Orders do not
operate to increase the Working Interest of Seller in any of the
Properties or decrease the Net Revenue Interest of Seller in any of the
Properties;
(f) Easements in favor of third parties so long as such Easements do
not adversely affect the continued use and operation of the Properties;
(g) all rights reserved to or vested in any Governmental Authority
to control or regulate any of the Properties in any manner, and all
applicable Laws but in each case only to the extent such rights to control
or regulate or the enforcement of such Laws are not provoked by the breach
by Seller or its predecessor in interest of any Law;
(h) the Required Consents; PROVIDED, HOWEVER, that this SECTION
4.2(H) does not affect Purchaser's rights under SECTION 4.6 or SECTION
15.1(G); and
(i) those items set forth on EXHIBIT 4.2(I).
4.3 NOTICE OF TITLE DEFECT. Purchaser shall notify Seller in writing, by
5:00 p.m. Central Standard Time on August 20, 1999 (the "TITLE DEADLINE"), of
any matter ("TITLE DEFECT") that would cause Seller's title to any of the
Properties or Platforms not to be Marketable Title, in each case together with a
reasonably detailed explanation of (a) the nature of such Title Defect, (b) the
Property or Platform affected thereby, (c) the Allocated Value for such Property
or Platform, and (d) Purchaser's proposed Title Defect Value (as hereinafter
defined) for such Title Defect. Any matters that would otherwise constitute
Title Defects but that are not specifically raised in writing (with the
explanation as contemplated in the immediately-preceding sentence) by Purchaser
on or before the Title Deadline shall conclusively be deemed waived by
Purchaser. As used herein, the term "TITLE DEFECT VALUE" shall mean with respect
to each Title Defect, the reduction in the "Allocated Value" of the affected
Property or Platform that results from the existence of such Title Defect, as
determined pursuant to SECTION 4.5, taking into account all relevant
considerations, other than the potential deductibility of such Title Defect
Value for federal, state or local income tax purposes.
4.4 REMEDIES FOR TITLE DEFECTS; TITLE INCREASES. (a) Until September 15,
1999 (the "CURE DEADLINE"), Seller shall have the right, but not the obligation,
to attempt to cure any Title Defect for which it receives notice from Purchaser
on or before the Title Deadline.
(b) With respect to any Title Defect for which Seller receives notice from
Purchaser on or before the Title Deadline but which is not cured on or before
the Cure Deadline, the Purchase Price shall be reduced by the Title Defect Value
for such Title Defect. The aggregate amount of all reductions to the Purchase
Price under this Section 4.4(b) is referred to as the "TITLE DEFECT ADJUSTMENT
AMOUNT."
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Such remedy shall constitute Purchaser's sole remedy for Title Defects under
this Agreement. Notwithstanding the foregoing, there shall be no reductions to
the Purchase Price under this Section 4.4(b) unless and until the aggregate
amount of all Title Defect Values shall exceed a threshold of $50,000, in which
case the deduction shall include the threshold amount.
(c) To the extent that same are discovered by either Party prior to the
Title Deadline, the Purchase Price shall be increased (a "TITLE INCREASE") by an
amount equal to the value allocated to the following:
(i) any increase in Seller's interest in all Hydrocarbons produced
from, or otherwise attributable to, a Property or Platform above the Net
Revenue Interest or NRI set forth on EXHIBIT 4.1(A) for such Property; and
(ii) any reduction in Seller's obligation to bear costs and expenses
attributable to the ownership or operation of a Property or Platform below
the Working Interest or WI set forth on EXHIBIT 4.1(A) for such Property
(unless Seller's Net Revenue Interest in such Property or Platform is
proportionately reduced);
in each case with such values to be agreed upon by Seller and Purchaser (taking
into account the Allocated Value for such Property) or otherwise determined
pursuant to the procedures set forth in SECTION 4.5. The aggregate amount of all
increases to the Purchase Price under this SECTION 4.4(C) is referred to as the
"TITLE INCREASE ADJUSTMENT AMOUNT." Notwithstanding the other provisions of this
SECTION 4.4(C), there shall be no increases to the Purchase Price under this
SECTION 4.4(C) unless and until the aggregate amount of all Title Increases
shall exceed a threshold of $50,000, in which case the increase shall include
the threshold amount. Purchaser shall promptly notify Seller of any records or
other title documentation which would result in a Title Increase.
4.5 VALUE OF PROPERTY; TITLE DEFECT. If the Parties are unable to agree
upon (a) whether a Title Defect exists, (b) a Title Defect Value, (c) the value
allocated to a Title Increase or (d) the Environmental Defect Adjustment Amount,
then such Dispute shall be resolved pursuant to ARTICLE 16, and the Closing
shall be postponed until the fifth Business Day following the resolution of such
Dispute PROVIDED, however, no postponement of the Closing shall affect the
rights of Seller or Purchaser to terminate this Agreement pursuant to SECTION
15.1(D).
4.6 CONSENTS. The Parties acknowledge that the Transfer of certain Assets
to Purchaser requires the consent of Third Parties and Governmental Authorities,
and that the following provisions shall govern the Parties' efforts to obtain
such consents:
(a) OPERATING AGREEMENT CONSENTS. Although Seller believes that
there are no preferential purchase rights that are applicable to the
transactions contemplated by this Agreement because Seller is selling
substantially all of its assets, the Parties acknowledge that the Transfer
of Seller's interest in the Assets may require the consent and waiver of
preferential purchase rights of certain working interest owners
("OPERATING AGREEMENT
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CONSENTS"). Seller shall use Commercially Reasonable Efforts to obtain
the Operating Agreement Consents prior to Closing.
(b) PENDING MMS CONSENTS. The Parties acknowledge that with respect
to the Properties set forth on EXHIBIT 4.6(B), MMS approval for the
Transfer of the Properties in question has not been obtained because (i)
the MMS has not yet approved Transfers to Seller for certain Properties,
(ii) certain assignments have not yet been submitted to the MMS for
approval by the operator or (iii) the MMS has rejected certain Transfers
(collectively referred to as the "PENDING MMS CONSENTS"). The Parties
shall use Commercially Reasonable Efforts before and after the Closing to
obtain all of the Pending MMS Consents; PROVIDED, HOWEVER, the failure to
obtain a Pending MMS Consent prior to the Closing shall not cause the
Property affected thereby to be excluded from the sale hereunder or the
Purchase Price to be reduced.
(c) POST-CLOSING MMS CONSENTS. The Parties acknowledge that the
Transfer of the Properties that are located in federal offshore waters
requires the approval, after the Closing, of the MMS (the "POST-CLOSING
MMS CONSENTS"). The Parties shall use Commercially Reasonable Efforts to
obtain all of the Post-Closing MMS Consents after the Closing; PROVIDED,
however, the costs of all filing fees and supplemental bonds shall be
borne by Purchaser.
4.7 CASUALTY EVENTS. If a Casualty Event occurs during the Interim Period,
or it is determined that a Casualty Event has occurred since the Effective Date,
the Purchase Price shall not be reduced if there is insurance for the full
amount of any loss incurred by the Casualty Event, and Seller shall assign to
Purchaser the right to receive all insurance proceeds or condemnation awards
attributable to such Casualty Event. If the full amount of the loss resulting
from the Casualty Event is not covered by insurance, a downward adjustment shall
be made to the Purchase Price equal to the difference between the loss resulting
from the Casualty Event and the amount of the insurance proceeds Seller will be
entitled to receive.
4.8 ENVIRONMENTAL ADJUSTMENTS. To the extent that Purchaser due diligence
reveals the representation contained in SECTION 5.19 is not true and correct (an
"ENVIRONMENTAL DEFECT"). Purchaser shall notify Seller of any Environmental
Defect by the Title Deadline or any Environmental Defect shall conclusively be
deemed waived by Purchaser. Seller shall have until the Cure Deadline to cure
any Environmental Defect, but if any Environmental Defect is not cured, the
Parties shall, with respect to each Property affected by an Environmental Defect
which is not cured by Seller by the Cure Deadline, attempt in good faith to
agree upon an appropriate downward adjustment to the Purchase Price to account
for such matters (the "ENVIRONMENTAL DEFECT ADJUSTMENT AMOUNT"). PURCHASER SHALL
HAVE INSPECTED OR WAIVED (AND UPON CLOSING SHALL BE DEEMED TO HAVE BEEN WAIVED)
ITS RIGHT TO INSPECT THE PROPERTIES AND SATISFIED ITSELF TO THE ENVIRONMENTAL
CONDITION OF THE PROPERTIES, INCLUDING, BUT NOT LIMITED TO, CONDITIONS RELATED
TO NATURALLY OCCURRING RADIOACTIVE MATERIALS.
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4.9 OTHER ADJUSTMENTS. Purchaser and Seller shall make other adjustments
that the Parties mutually agree upon based on other matters discovered by
Purchaser during the course of Purchaser's due diligence investigation of the
Assets.
4.10 FORWARD SALES. It is expressly agreed that forward sales of
Hydrocarbons related to the Properties shall not be considered a Title Defect,
however, an adjustment to the Purchase Price shall be made in accordance with
the provisions of SECTION 11.3.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser that:
5.1 ORGANIZATION AND QUALIFICATION. Seller is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Delaware, and it is duly qualified to carry on its business in all jurisdictions
where the Assets are located except to the extent to be so qualified will not
have a material adverse effect on the Assets or the ownership of the Assets by
Purchaser.
5.2 POWER. Seller has the corporate power and authority to enter into and
perform this Agreement and the transactions contemplated hereby. Subject to
receipt of approval of Seller's shareholders and the Required Consents, the
execution, delivery and performance of this Agreement by Seller, and the
transactions contemplated hereby, will not violate or result in a default or
breach of, or give rise to any rights or remedies in favor of any Person under,
(a) any provision of the certificate of incorporation or bylaws of Seller, (b)
any material agreement or instrument to which Seller is a party or by which
Seller or any of the Assets are bound (including any Lease or Contract), or (c)
any Permit, Order or Law applicable to Seller.
5.3 AUTHORIZATION. The execution, delivery and performance of this
Agreement and the transactions contemplated hereby have been duly and validly
authorized by all requisite corporate action on the part of Seller except for
approval of Seller's shareholders. This Agreement has been duly executed and
delivered on behalf of Seller, and at the Closing all documents and instruments
required hereunder to be executed and delivered by Seller will have been duly
executed and delivered. This Agreement does, and such documents and instruments
shall, constitute legal, valid and binding obligations of Seller enforceable in
accordance with their terms, subject, however, to the effect of bankruptcy,
insolvency, reorganization, moratorium and similar Laws from time to time in
effect relating to the rights and remedies of creditors, as well as to general
principles of equity (regardless of whether such enforceability is considered in
a Proceeding in equity or at law).
5.4 BROKERS. Seller has incurred no obligation or liability, contingent or
otherwise, for brokers', finders' or investment bankers' fees in respect of the
matters provided for in this Agreement that will be the responsibility of
Purchaser; and any such obligation or liability that might exist shall be the
sole obligation of Seller.
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5.5 FOREIGN PERSON. Seller is not a "foreign person" within the meaning of
Section 1445 and 7701 of the Code, because Seller is not a nonresident alien,
foreign corporation, foreign partnership, foreign trust or foreign estate, as
those terms are defined in the Code and any regulations promulgated thereunder.
5.6 BANKRUPTCY. Except as set forth in EXHIBIT 5.6, there are no
bankruptcy, reorganization or arrangement proceedings pending, being
contemplated by or, to Seller's Knowledge, threatened against Seller which
relate to current obligations of Seller.
5.7 LITIGATION. Except as set forth on EXHIBIT 5.7, there is no Proceeding
pending or, to Seller's Knowledge, threatened, against Seller or involving the
Assets, directly or indirectly.
5.8 GOVERNMENTAL QUALIFICATION. Seller is qualified with the MMS to own
interests in federal Hydrocarbon leases on the Outer Continental Shelf,
including the Properties.
5.9 CONSENTS. To Seller's Knowledge, except for the Required Consents and
approval of Seller's shareholders, the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby does not require
(a) a consent, approval or authorization of a Person or a Governmental
Authority, (b) a registration, declaration or other filing with a Governmental
Authority (except for filings with the Texas General Land Office for Leases
issued by the State of Texas), or (c) the offer of the Assets to any Person
pursuant to any preferential purchase right or right of first refusal and will
not result in any default under any agreement or instrument to which Seller is a
party or by which the Assets are owned. Seller has no reason to believe that the
MMS will not grant the Pending MMS Consents or the Post-Closing MMS Consents.
5.10 LEASES. To Seller's Knowledge, (a) the Leases are in full force and
effect, by operations approved by the MMS in accordance with applicable Law; (b)
Seller has made available to Purchaser true and correct copies of the Leases,
including any amendments thereto; (c) Seller or each operator of the Properties
has duly performed all of the material obligations under the Leases that are now
or will prior to the Closing be required to be performed by Seller or such
operator; (d) Seller nor any operator of the Properties has received any notice
of a default under the Leases, nor is any such notice pending; and (e) except as
set forth on EXHIBIT 5.10, all rentals and royalties (including minimum
royalties, shut-in or otherwise) required to be paid to perpetuate the Leases to
the Execution Date have been timely and properly paid to the proper Persons and
in the proper amounts.
5.11 CONTRACTS. The Contracts described in SECTION 2.1(E) represent all
contracts and agreements which are material to the ownership and operation of
the Assets and which individually obligate Seller to expend funds in excess of
$5,000 or perform acts in the future with respect to the Assets which require an
expenditure by Seller in excess of $5,000 and which are not contracts or
agreements which (a) are documents recorded of record in any parish or county
where the Properties are located or in counties or parishes adjacent to the
offshore blocks where the Properties are located; (b) are on file with the MMS,
General Land Office of Texas or the State of Louisiana; or (c) have not
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been terminated or expired by their own terms. Seller is not in default of any
such Contracts and, to Seller's Knowledge, no other party is in material breach
thereof. Seller has made available to Purchaser true and correct copies of the
Contracts, including any amendments thereto. Except as provided in EXHIBIT 5.11,
such Contracts are in full force and effect and Seller has received no notice or
threat regarding a default or any action to alter, terminate or rescind any such
Contract.
5.12 PROCEEDS OF PRODUCTION. To Seller's Knowledge, (a) all proceeds of
production of Hydrocarbons from the Properties are currently being paid to the
operator of such Properties, for Seller's account or to Seller, without the
furnishing of indemnity (other than customary warranties contained in division
orders, transfer orders, letters-in-lieu of transfer and division orders or
production sales contracts); and (b) no material portion of such proceeds are
being held in suspense.
5.13 INVOICES. Except as provided in SECTION 5.13, Seller has paid all
joint-interest billings and other invoices attributable to the ownership or
operation of the Properties, to the extent that such billings and invoices have
been received by Seller and have become due and payable.
5.14 GAS IMBALANCES. To Seller's Knowledge there exist no production
imbalances affecting the Properties.
5.15 GAS PREPAYMENTS. Except as provided in EXHIBIT 5.15, Seller is not
obligated, by virtue of a prepayment, take-or-pay, production payment or other
arrangement, to deliver Hydrocarbons produced from the Properties on or after
the Effective Date without receiving full price for such production.
5.16 ACCESS. Seller has afforded Purchaser access to all of the Records in
Seller's possession unless prohibited by agreements with a third party.
5.17 WELLS. EXHIBIT 5.17 lists all wells (producing and non-producing)
located on the Properties that have not previously been plugged and abandoned.
To Seller's Knowledge, (a) all of the wells located on the Properties have been
drilled and completed within the boundaries of the applicable Leases or within
the limits otherwise permitted by contract, pooling or unitization agreement or
applicable Law, (b) all drilling, completion, development, operation, plugging
and abandonment of the wells located on the Properties have been conducted in
material compliance with all applicable Laws and (c) except as set forth in
EXHIBIT 5.17(C), there are no wells located on the Properties that (i) Seller or
the operator of any Property is obligated by law or contract to commence
plugging and abandonment operations pursuant to any notice provided to Seller by
any operator of the Properties; or (ii) are subject to exceptions to a
requirement to plug and abandon issued by a Governmental Authority having
jurisdiction over the Properties.
5.18 PERMITS. To Seller's Knowledge, (a) either Seller or the current
operator of the Properties has all Permits that it requires, or is required to
have, to own and operate the Assets; (b) such Permits are in full force and
effect; (c) there exist no material violations of such Permits; and (d)
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there are no Proceedings that are pending or threatened that may result in a
civil or criminal penalty or the revocation, cancellation, suspension or adverse
modification of such Permits.
5.19 ENVIRONMENTAL LAWS. To Seller's Knowledge, (a) the Assets have been,
and are being, operated in compliance with all applicable Environmental Laws
except for minor matters of non-compliance for which potential fines or costs of
compliance do not exceed $50,000; and (b) there exists no condition or
circumstance whereby Seller or Seller's successor would be obligated to expend
any sum of money in excess of $50,000 in connection with any remedial action
relating to any environmental condition which, if not performed, would result in
a violation of applicable Environmental Laws.
5.20 INSURANCE. EXHIBIT 5.20 sets forth the insurance presently maintained
by Seller with respect to the Properties. Such insurance is in full force and
effect, and Seller has paid all premiums that have become due thereunder.
5.21 AFES. Except as set forth on EXHIBIT 5.21, there are no outstanding
authorizations for expenditure (approved or proposed) that (a) require the
drilling of wells or other material development operations to earn or to
continue to hold all or any portion of the Properties or (b) obligate Seller to
make payments of any material amounts in connection with the drilling of wells
or other material capital expenditures affecting the Properties.
5.22 CASUALTY. To Seller's Knowledge, no Casualty Event has occurred since
the Effective Date.
5.23 TITLE. Except as set forth on EXHIBIT 5.23, (a) Seller has not
Transferred or Encumbered the Properties or the Platforms which Transfer or
Encumbrance shall cause a reduction in Seller's interest in the Properties or
Platforms specified in EXHIBIT 4.1(A) AND (B), the Assets shall be conveyed to
Purchaser with no warranty whatsoever, implied, expressed or statutory;
PROVIDED, HOWEVER, subject to the Permitted Encumbrances, Seller shall warrant
and defend title to eighty percent (80%) of the interests specified on EXHIBIT
4.1(A) in the Properties, Equipment and Platforms against all claims and demands
of all Persons whomsoever claiming title to the Properties, Equipment and
Platforms, or any part thereof, by, through or under Seller, but not otherwise.
For purposes of clause (b) only, "Seller" shall include any subsidiary or
affiliate of Seller and any other Person in which Seller is a partner, investor
or otherwise invested or committed to invest.
5.24 PRICING. To Seller's Knowledge, the prices being received for the
production of Hydrocarbons from the Properties do not violate any agreement to
which Seller is a party or Law.
5.25 EQUIPMENT. To Seller's Knowledge, the Equipment comprising the Assets
is in good repair, working order and operating condition and is adequate for the
operation of the Properties.
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5.26 ADVERSE CHANGES IN PRODUCTION RATES OR OIL AND GAS RESERVES.
(a) From the date of this Agreement until the day immediately
preceding the Closing Date, the average daily production from the
Properties shall not be less than (i) 14,000 Mcf. per day of natural gas,
and (ii) 950 barrels per day of oil and other liquid Hydrocarbons. True
and complete copies of the report of each of Netherland, Sewell &
Associates, Inc. and Ryder Scott Company Petroleum Engineers estimating
the Hydrocarbon reserves attributable to the Properties as of January 1,
1999, have been given to the Purchaser prior to the date of this
Agreement.
(b) Since the Effective Date, there has been no material loss of, or
decline in, any proved category of Hydrocarbon reserves attributable to
the Properties below that estimated for the Properties in either of the
reserve reports of Netherland, Sewell & Associates, Inc. or Ryder Scott
Company Petroleum Engineers as of January 1, 1999, other than declines in
reserve volumes as a result of actual production of Hydrocarbons since the
Effective Date or a reduction in the prices used to calculate reserve
volumes.
5.27 ACCURACY OF REPRESENTATIONS. No representation or warranty by Seller
in this Agreement contains an untrue statement of a material fact or omits or
will omit to state a material fact necessary to make the statements contained in
any such representation or warranty not misleading. There is no fact known to
Seller that materially and adversely affects (or may materially and adversely
affect) the operation, prospects or condition of any portion of the Assets that
has not been set forth in this Agreement.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller that:
6.1 EXISTENCE. Purchaser is a corporation duly organized, validly existing
and in good standing under the Laws of the State of Delaware, and it is duly
qualified to carry on its business in the jurisdictions where the Assets are
located.
6.2 POWER. Purchaser has the corporate power and authority to enter into
and perform this Agreement and the transactions contemplated hereby. The
execution, delivery and performance of this Agreement by Purchaser, and the
transactions contemplated hereby, will not violate (a) any provision of the
certificate of incorporation or bylaws of Purchaser, (b) any material agreement
or instrument to which Purchaser is a party or by which Purchaser is bound, or
(c) any Permit, Order or Law applicable to Purchaser.
6.3 AUTHORIZATION. The execution, delivery and performance of this
Agreement and the transactions contemplated hereby have been duly and validly
authorized by all requisite corporate action on the part of Purchaser. This
Agreement has been duly executed and delivered on behalf of
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Purchaser, and at the Closing all documents and instruments required hereunder
to be executed and delivered by Purchaser will have been duly executed and
delivered. This Agreement does, and such documents and instruments shall,
constitute legal, valid and binding obligations of Purchaser enforceable in
accordance with their terms, subject, however, to the effect of bankruptcy,
insolvency, reorganization, moratorium and similar Laws from time to time in
effect relating to the rights and remedies of creditors, as well as to general
principles of equity (regardless of whether such enforce ability is considered
in a Proceeding in equity or at law).
6.4 BROKERS. Purchaser has incurred no obligation or liability, contingent
or otherwise, for brokers', finders' or investment bankers' fees in respect of
the matters provided for in this Agreement that will be the responsibility of
Seller; and any such obligation or liability that might exist shall be the sole
obligation of Purchaser.
6.5 SECURITIES LAWS. Purchaser is an experienced and knowledgeable
investor in the oil and gas business. Purchaser is not acquiring the Properties
with a view to, or for offer of resale in connection with, a non-exempt
distribution thereof within the meaning of the Securities Act of 1933, or a
distribution thereof in violation of any applicable Securities Laws.
6.6 BANKRUPTCY. There are no bankruptcy, reorganization or arrangement
proceedings pending, being contemplated by or, to Purchaser's Knowledge,
threatened against Purchaser.
6.7 GOVERNMENTAL QUALIFICATION. Purchaser is qualified with the MMS
to own the Properties.
ARTICLE 7
PRE-CLOSING COVENANTS OF SELLER
7.1 OPERATIONS. During the Interim Period, except as otherwise approved by
Purchaser in writing, Seller (a) shall, and shall use Commercially Reasonable
Efforts to cause the operators of the Properties to, maintain the Assets in the
ordinary course of business in accordance with past practices, (b) shall not
Transfer or Encumber any Assets other than (i) the sale of Hydrocarbons in the
ordinary course of business after production and (ii) the sale of Equipment and
other personal property or fixtures in the ordinary course of business where the
same has become obsolete, is no longer necessary for the operation of the
Properties or is replaced by an item or items of at least equal suitability, and
(c) shall maintain in full force and effect the insurance described in EXHIBIT
5.20.
7.2 ACCESS. During the Interim Period, Seller shall (a) provide Purchaser
access during Seller's normal business hours to the Assets (including the
Records) that are in Seller's possession and the employees of Seller, and (b)
use Commercially Reasonable Efforts to provide Purchaser access to the
Properties (it being acknowledged by Purchaser that Seller is not the operator
of any Property except Galveston Block 418) and any other Assets that are not in
Seller's possession.
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7.3 NO SHOP. During the Interim Period, Seller shall not, directly or
indirectly, initiate or participate in discussions with, or otherwise solicit
from, any Person any proposals or offers relating to, or deliver information to
any Person for purposes of evaluating, one or more transactions of the type
contemplated hereby involving the Assets.
7.4 BREACHES OF REPRESENTATIONS AND WARRANTIES. Seller shall promptly
notify Purchaser of the discovery by Seller that any representation or warranty
of Seller contained in this Agreement is or becomes untrue or will be untrue on
the Closing Date.
7.5 ESTIMATES OF ADJUSTED PURCHASE PRICE. Seller shall prepare and deliver
to Purchaser, at least five Business Days prior to the Closing Date, Seller's
estimate of the Adjusted Purchase Price (the "CLOSING SETTLEMENT STATEMENT")
which shall be prepared utilizing the form attached hereto as EXHIBIT 7.5. The
Closing Settlement Statement shall include, without limitation, the Title Defect
Adjustment Amount, the Environmental Defect Adjustment Amount and the Revenue
Adjustment amount as well as the sum of the Allocated Values of any Properties
excluded from the sale hereunder. The Parties shall negotiate in good faith and
attempt to agree on the Closing Settlement Statement prior to the Closing. If
the Parties are unable to agree on the Closing Settlement Statement, the
Adjusted Purchase Price shall be based upon the arithmetic average of the
Parties' respective proposed amounts with final adjustments to the Purchase
Price occurring within one hundred twenty (120) days of the Closing in
accordance with SECTION 12.1. Notwithstanding the foregoing or any disputes to
the value of any adjustments, if any proposed adjustment to the Purchase Price
proposed by Purchaser would entitle Purchaser or Seller to terminate this
Agreement in accordance with ARTICLE 15, Purchaser or Seller shall have the
right to terminate this Agreement prior to Closing.
ARTICLE 8
PRE-CLOSING COVENANTS OF PURCHASER
8.1 CONFIDENTIALITY. The Parties hereby ratify their obligations under the
Confidentiality Agreement.
8.2 RETURN OF DATA. Purchaser agrees that if this Agreement is terminated
for any reason whatsoever, Purchaser shall, at Seller's request, promptly return
to Seller all information and data furnished by or on behalf of Seller to
Purchaser or Purchaser's Affiliates in connection with this Agreement or
Purchaser's investigation of the Assets, and Purchaser shall deliver to Seller
or destroy all copies, extracts or excerpts of such information and data and all
documents generated by Purchaser that contain any portion of such information or
data except to the extent necessary to enforce Purchaser's rights hereunder.
8.3 INDEMNITY REGARDING ACCESS. Purchaser shall Indemnify Seller and
Seller's Affiliates from and against all Losses that are attributable to the
exercise by Purchaser or Purchaser's Affiliates of the access rights granted by
SECTION 7.2(B).
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ARTICLE 9
SELLER'S CONDITIONS OF CLOSING
Seller's obligation to consummate the transactions contemplated hereby is
subject to the satisfaction or waiver of the following conditions on or before
the scheduled date of the Closing:
9.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Purchaser contained in ARTICLE 6 shall be true and correct in all material
respects on the Closing Date as though made on and as of the Closing Date.
9.2 PERFORMANCE. Purchaser shall have performed in all material respects
the obligations, covenants and agreements required hereunder to be performed by
it at or prior to the Closing (including under SECTION 11.2).
9.3 PROCEEDINGS. No Proceeding by a Third Party or a Governmental
Authority shall be pending or threatened that seeks to restrain, enjoin or
otherwise prohibit, the consummation of the transactions contemplated hereby.
9.4 INVESTMENT AGREEMENT TRANSACTION. All conditions precedent have been
satisfied and the transaction contemplated in the Investment Agreement shall
close simultaneously with the transactions contemplated by this Agreement.
9.5 SHAREHOLDER APPROVAL. The transactions contemplated by this
Agreement have been approved by the Shareholders of Seller.
9.6 GOVERNMENT APPROVALS. All approvals of Governmental Authorities (other
than those required by the MMS) have been obtained.
9.7 PREFERENTIAL PURCHASE RIGHTS. All preferential purchase rights
relating to the Properties which Purchaser, in its sole discretion, has
determined are applicable to the transactions contemplated by this Agreement,
have been validly waived or the period for exercising such preferential purchase
rights have expired and there is no pending or threatened challenge or
proceeding disrupting or threatening to disrupt any such waiver or expiration.
ARTICLE 10
PURCHASER'S CONDITIONS OF CLOSING
Purchaser's obligation to consummate the transactions contemplated hereby
is subject to the satisfaction or waiver of the following conditions on or
before the scheduled date of the Closing:
10.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Seller contained in ARTICLE 5 shall be true and correct in all material respects
on the Closing Date as though made on and as of the Closing Date.
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10.2 PERFORMANCE. Seller shall have performed in all material respects the
obligations, covenants and agreements required hereunder to be performed by it
at or prior to the Closing (including under SECTION 11.2).
10.3 PROCEEDINGS. No Proceeding by a Third Party or a Governmental
Authority shall be pending or threatened that seeks to restrain, enjoin or
otherwise prohibit, the consummation of the transactions contemplated hereby.
10.4 INVESTMENT AGREEMENT TRANSACTION. No amendment of the Investment
Agreement shall have occurred except as consented to in writing by Purchaser and
the transactions contemplated in the Investment Agreement shall close
simultaneously with the transactions contemplated by this Agreement without
waiver of any conditions precedent to the obligation of any Party thereto,
except as shall have been consented to in writing by Purchaser.
10.5 RELEASE OF LIENS. The liens and encumbrances set forth on EXHIBIT
5.23 have been released.
10.6 GOVERNMENTAL APPROVALS. All approvals of Governmental Authorities
(other than those required from the MMS) have been obtained.
10.7 PREFERENTIAL PURCHASE RIGHTS. All preferential purchase rights
relating to the Properties which Purchaser, in its sole discretion, has
determined are applicable to the transactions contemplated by this Agreement,
have been validly waived or the period for exercising such preferential purchase
rights have expired and there is no pending or threatened challenge or
proceeding disrupting or threatening to disrupt any such waiver or expiration.
10.8 MATERIAL ADVERSE CHANGE. No material adverse change has occurred in
the condition of the Assets taken as a whole (excluding market conditions
affecting the industry generally).
10.9 LEGAL OPINION. Seller shall deliver to Purchaser (i) an opinion of
its General Counsel, as to customary corporate matters of Seller (including due
incorporation, existence, authorization, execution and delivery), in form and
substance acceptable to the Parties; and (ii) such other evidence of such
corporate matters (including good-standing certificates, certified
organizational documents and Board resolutions, and incumbency certificates) as
Purchaser may reasonably request.
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ARTICLE 11
CLOSING
11.1 TIME AND PLACE OF CLOSING. Subject to the conditions stated in this
Agreement, the consummation of the transactions contemplated hereby (the
"CLOSING") shall occur contemporaneously with the closing under the Investment
Agreement; PROVIDED, HOWEVER, that if all of the conditions to the Closing set
forth in ARTICLES 9 and 10 have not been satisfied or waived by such scheduled
date or any extended scheduled date for the Closing, the Party whose obligations
are subject to the conditions that have not been satisfied or waived shall have
the right to extend the scheduled date of the Closing for successive periods of
up to seven days each until such conditions shall have been satisfied or waived;
and provided further, that the Closing is subject to postponement pursuant to
SECTION 4.5. Notwithstanding any right to extend the Closing pursuant to this
SECTION 11.1 or SECTION 4.5, the right to terminate this Agreement pursuant to
SECTION 15.1(D) shall not be altered by any such extension. The date the Closing
actually occurs is referred to herein as the "CLOSING DATE." The Closing shall
be held in Houston, Texas at the offices of Porter & Hedges, L.L.P., or at such
other location as may be mutually agreed upon by Seller and Purchaser.
11.2 CLOSING OBLIGATIONS. At the Closing, the following events shall
occur:
(a) Seller shall execute, acknowledge and deliver to Purchaser,
assignments, conveyances and bills of sale, which shall (i) be in form and
substance acceptable to the Parties, (ii) contain a special warranty of
title, (iii) be in a form acceptable to the MMS (or the General Land
Office of the State of Texas), and (iii) Transfer the Assets to Purchaser
(collectively, the "ASSIGNMENTS");
(b) Seller and Purchaser shall execute and acknowledge, and Seller
shall deliver to Purchaser, transfer orders or letters in lieu thereof
directing all Third Parties paying for production of Hydrocarbons from the
Properties to make payment to Purchaser of proceeds attributable to such
production on and after the Effective Date;
(c) Purchaser shall pay the Adjusted Purchase Price;
(d) Seller shall deliver to Purchaser the releases of liens and
encumbrances set forth on EXHIBIT 5.23.
(e) Seller shall deliver to Purchaser the legal opinion required by
SECTION 10.10.
11.3 ALLOCATION OF REVENUES AND EXPENSES. Subject to the terms contained
in EXHIBIT 11.3, at Closing an adjustment shall be made to the Purchase Price
(the "REVENUE ADJUSTMENT") equal to the difference between (x) all revenue
attributable to the Assets received by Seller from the Effective Date through
and including the Closing Date LESS (y) (i) eighty percent (80%) of the capital
expenditures paid by Seller relating to the Properties (including, without
limitation, drilling costs) from the Effective Date through and including the
Closing Date, (ii) eighty
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percent (80%) of the general and administrative expenses of Seller as specified
in EXHIBIT 11.3 and (iii) eighty percent (80%) of the lease operating expenses
paid by Seller relating to the Properties from the Effective Date through and
including the Closing Date. The Revenue Adjustment shall be based on actual
receipts and payments where such information is available and, if not available,
estimates subject to the post-Closing adjustment as provided in SECTION 12.1.
ARTICLE 12
POST-CLOSING COVENANTS
12.1 POST-CLOSING ADJUSTMENTS. On or before ninety (90) days after
Closing, Seller and Purchaser shall review any additional information available
to prepare a settlement statement (the "POST-CLOSING SETTLEMENT STATEMENT")
pertaining to the Revenue Adjustment provided for in SECTION 11.3 to determine
if additional adjustments to the Purchase Price beyond the adjustments made at
Closing (whether to account for expenses and revenues not considered in making
the adjustments at Closing, correct errors made in the adjustments made at
Closing or to utilize actual data in cases where estimates were made) are
necessary. Within one hundred twenty (120) days after Closing, Seller and
Purchaser shall attend to finalizing the Post-Closing Settlement Statement and
Seller or Purchaser, as the case may be, shall immediately pay any sums due and
owing to the other Party.
12.2 PAYMENTS RECEIVED IN ERROR. Any revenue received by Purchaser
attributable to the Assets received by Purchaser for periods prior to the
Effective Date shall immediately be forwarded to the Seller. Any revenue
received by Seller attributable to the Assets for periods after the Effective
Date which have not been accounted for in the Closing Settlement Statement or
the Post-Closing Settlement Statement or which are attributable to any period
after the Closing Date shall immediately be forwarded to Purchaser.
12.3 SALES TAXES. The Parties intend that the sale hereunder be exempt
from any sales or use taxes, and the Purchase Price does not include any such
taxes. If the sale hereunder is found to be subject to any sales or use taxes,
however, Purchaser shall be liable for such taxes.
12.4 RECORDATION OF ASSIGNMENT. Purchaser shall (a) record each Assignment
in the appropriate county and parish records, (b) file each Assignment with the
MMS and any other appropriate Governmental Authorities, and (c) pay all
recordation fees and filing fees in connection therewith. Within a reasonable
period after the Closing, Purchaser shall furnish Seller with a schedule setting
forth recording or filing information for each county, parish or other
Governmental Authority in whose records each Assignment was recorded or filed.
12.5 ACCESS TO EMPLOYEES. Seller and Purchaser each shall use Commercially
Reasonable Efforts to afford the other access to (a), in the case of Seller,
employees of Seller who remain employees of Seller after the Closing and are
familiar with the ownership and operation of the Assets and (b) in the case of
Purchaser, employees of Purchaser that Seller shall reasonably request for its
proper corporate purposes, including the defense of Proceedings. Such access may
include interviews
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<PAGE>
or attendance at depositions or legal proceedings; provided, however, that in
any event all out-of-pocket expenses (including wages and salaries) reasonably
incurred by either Party in connection with this SECTION 12.5 shall be paid or
promptly reimbursed by the Party requesting such services.
12.6 FURTHER ASSURANCES. After the Closing, Seller and Purchaser shall
take such further actions and execute, acknowledge and deliver such additional
documents and instruments as may be necessary or useful in carrying out the
transactions contemplated hereby.
12.7 CONFIDENTIALITY. After the Closing and until the third anniversary
thereof, Seller shall maintain as confidential, and shall not disclose or show
to any Third Party, any Records or other confidential information regarding the
Assets. This SECTION 12.7 shall not apply to the extent that any particular
information (a) becomes generally available to the oil and gas industry other
than through the breach of the foregoing obligation, or (b) must be disclosed by
Seller to comply with applicable Law, Orders or stock exchange requirements.
12.8 REVENUE REIMBURSEMENT OBLIGATIONS. Purchaser and Seller agree and
acknowledge that Seller will remain liable on those forward sales contracts and
other financial instruments described on SCHEDULE 12.8 (the "HEDGE AGREEMENTS"),
and from and after Closing Purchaser shall remit to Seller each month an amount
equal to the positive sum of (a) the total consideration received by Purchaser
from the sale of Hydrocarbons produced from the Properties for a particular
month LESS the product of (x) the volume of Hydrocarbons sold from the
Properties (calculated on an MMBtu equivalent basis) and (y) the price per MMBtu
equivalent received by Seller for the equivalent notional quantity of
Hydrocarbons for such month pursuant to the Hedge Agreements and (b) in the
event that the volume of Hydrocarbons produced from the Properties in any month
does not equal eighty percent (80%) of the notional quantities used to calculate
payments due under the Hedge Agreements, an amount equal to eighty percent (80%)
of the amounts due by Seller to the counterparties under the Hedge Agreements
resulting from the physical Hydrocarbon production shortfall (the "HEDGE
AGREEMENT ADJUSTMENT"). If the Hedge Agreement Adjustment amount is a negative
number, Seller shall remit to Purchaser the sum indicated by such number if it
was not negative with the invoice or statement forwarded to Purchaser pursuant
to this Section 12.8. Seller shall send Purchaser an invoice each month
indicating the amounts due to Seller by Purchaser and Purchaser shall pay such
amounts to Seller within fifteen (15) days of receipt of such invoice.
Purchaser's obligations pursuant to this SECTION 12.8 shall survive until the
termination of Seller's obligations under the Hedge Agreements as such Hedge
Agreements are in force and effect on the date hereof.
ARTICLE 13
ASSUMED OBLIGATIONS; INDEMNIFICATION
13.1 ASSUMED OBLIGATIONS. If the Closing occurs, Purchaser shall be deemed
to have assumed, and shall pay, perform or otherwise discharge all liabilities
and obligations that are attributable to the ownership or operation of the
Assets on and after the Effective Date, including such liabilities and
obligations arising under (i) the Leases and Contracts, (ii) the Easements,
Permits
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and Orders that are included in the Assets, and (iii) Laws (including
Environmental Laws) applicable to the Assets (collectively, the "ASSUMED
OBLIGATIONS").
13.2 INDEMNIFICATION.
(a) SELLER'S INDEMNITIES. Seller shall Indemnify Purchaser from and
against all Losses (i) for third party claims attributable to the Assets
and which relate to any period prior to the Effective Date and, except for
claims made under the special warranty contained in the Assignment, are
claims which do not relate to matters for which adjustments to the
Purchase Price were possible pursuant to the terms of this Agreement or
(ii) that are attributable to any breach or non-performance by Seller of
its covenants contained in ARTICLE 12.
(b) PURCHASER'S INDEMNITIES. Purchaser shall Indemnify Seller and
Seller's Affiliates from and against all Losses that (i) are attributable
to the Assets and that relate to any period after the Effective Date
(including, without limitation, the Assumed Obligations) or (ii) are
attributable to any breach or nonperformance by Purchaser of its covenants
contained in ARTICLE 12.
(c) EXCLUSIVITY; ASSERTION OF CLAIMS. The Indemnities in SECTION
13.2(A) shall constitute the sole and exclusive remedy of Purchaser and
Purchaser's Affiliates for the matters described therein; and the
Indemnities in SECTION 13.2(B) constitute the sole and exclusive remedy of
Seller and Seller's Affiliates for the matters described therein. All
claims for Indemnification by any Person that is Indemnified under SECTION
13.2(A) or (B) must be asserted and resolved in accordance with the
following provisions:
(i) Any Person claiming Indemnification hereunder is referred
to as the "INDEMNIFIED PERSON," and any Party from whom
Indemnification is sought is referred to as the "INDEMNIFYING
PARTY."
(ii) If any Third Party Losses are asserted against or sought
to be collected from an Indemnified Person, the Indemnified Person
shall with reasonable promptness notify the Indemnifying Party of
the Third Party Losses, specifying the nature of and specific basis
for such Losses and the amount or the estimated amount thereof to
the extent then feasible (the "CLAIM NOTICE"). The Indemnifying
Party will have 30 days from the date the Claim Notice is delivered
(the "NOTICE PERIOD") to notify the Indemnified Person (A) whether
or not it disputes the liability of the Indemnifying Party to the
Indemnified Person with respect to such Third Party Losses and (B)
whether or not it desires, at the sole cost and expense of the
Indemnifying Party, to defend the Indemnified Person against such
Third Party Losses; PROVIDED, HOWEVER, that any Indemnified Person
is hereby authorized prior to and during the Notice Period to file
any motion, answer or other pleading that it shall deem necessary or
appropriate to protect its interests or those of the Indemnifying
Party (and of which it has given notice and opportunity to comment
to the Indemnifying Party) and that
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are not prejudicial to the Indemnifying Party. If the Indemnifying
Party does not notify the Indemnified Person within the Notice
Period that it disputes its liability to the Indemnified Person with
respect to such Third Party Losses, the amount of such Third Party
Losses will be conclusively deemed a liability of the Indemnifying
Party. If the Indemnifying Party notifies the Indemnified Person
within the Notice Period that it desires to defend the Indemnified
Person against such Third Party Losses and except as hereinafter
provided, the Indemnifying Party will have the right to defend by
all appropriate Proceedings, and with counsel of its own choosing.
If the Indemnified Person desires to participate in, but not
control, any such defense or settlement, it may do so at its sole
cost and expense. If requested by the Indemnifying Party, the
Indemnified Person agrees to cooperate with the Indemnifying Party
and its counsel in contesting any Third Party Losses that the
Indemnifying Party elects to contest, or, if appropriate and related
to the claim in question, in making any counterclaim against the
Third Party or Governmental Authority asserting the Third Party
Losses, or any cross-complaint against any Person. No claim may be
settled or otherwise compromised without the prior consent of the
Indemnifying Party.
(iii) If any Indemnified Person has a claim for Losses against
any Indemnifying Party hereunder that does not involve a Third Party
Loss, the Indemnified Person must send a Claim Notice with respect
to such claim to the Indemnifying Party. If the Indemnifying Party
does not notify the Indemnified Person within the Notice Period that
it disputes its liability to the Indemnified Person with respect to
such Losses, the amount of such Losses will be conclusively deemed a
liability of the Indemnifying Party.
(d) EXCEPTIONS. The Indemnification obligations set forth in
SECTIONS 13.2(A) and (B) shall not apply to (i) a matter for which the
Indemnified Person has received credit as an adjustment to the Purchase
Price; (ii) either Party's costs and expenses with respect to the
negotiation and consummation of this Agreement and the transactions
contemplated hereby; or (iii) any Title Defect claims of Purchaser, which
are governed exclusively by SECTIONS 4.1 through 4.5 (but SECTION 13.2(A)
shall apply to the special warranty of title contained in the Assignment).
13.3 LIMITATIONS ON INDEMNIFICATION. The Parties' liabilities under
this ARTICLE 13 shall be limited as follows:
(a) THRESHOLDS. Seller shall have no liability under SECTION 13.2(A)
unless and until the aggregate amount paid by Seller thereunder shall
exceed a threshold of $25,000 and upon reaching such amount, the threshold
amount shall be included in any claim. Purchaser shall have no liability
under SECTION 13.2(B) unless and until the aggregate amount paid by
Purchaser thereunder shall exceed a threshold of $25,000 and upon reaching
such amount, the threshold amount shall be included in any claim
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<PAGE>
(b) MAXIMUM LIABILITY. Seller's maximum aggregate liability under
SECTION 13.2(A) shall not exceed $1,000,000. Purchaser's maximum aggregate
liability under SECTION 13.2(B) shall not exceed $1,000,000.
(c) SURVIVAL PERIODS. The Indemnities in SECTIONS 13.2(A)(II) and
13.2(B)(II) with respect to covenants to be performed after the Closing
shall survive until March 31, 2001. Following the applicable date
described in the immediately-preceding sentence, neither Party shall have
any rights thereunder, except with respect to matters for which a Claim
Notice has been delivered on or prior to such date. There shall be no
similar limitations on the survival of the Indemnities in SECTIONS
13.2(A)(I) and 13.2(B)(I), which shall survive for the applicable
statute-of-limitations period. The representations and warranties of
Seller contained in this Agreement shall terminate at Closing.
ARTICLE 14
INDEPENDENT INVESTIGATION AND DISCLAIMER
14.1 INDEPENDENT INVESTIGATION AND DISCLAIMER.
(a) Purchaser acknowledges that (i) it has had, and pursuant to this
Agreement will have prior to the Closing, access to the Assets and the
employees of Seller and the opportunity to inspect the Assets, and (ii) in
making its decision to enter into this Agreement and consummate the
transactions contemplated hereby, Purchaser has relied solely on the basis
of its own independent investigation of the Assets and upon the
representations and warranties of Seller set forth in ARTICLE 5 and the
special warranty of title to be made by Seller in the Assignment.
Accordingly, Purchaser acknowledges that, except as expressly set forth
herein, Seller has not made, AND SELLER HEREBY EXPRESSLY DISCLAIMS AND
NEGATES, ANY REPRESENTATION OR WARRANTY, EXPRESSED (ORALLY OR IN WRITING),
IMPLIED, AT COMMON LAW, BY STATUTE, OR OTHER WISE, OR OTHER RIGHT OF
RECOURSE (EVEN AS TO RETURN OF THE PURCHASE PRICE) RELATING TO (A) THE
CONDITION OF THE ASSETS (INCLUDING ANY IMPLIED OR EXPRESSED WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, ABSENCE OF LATENT
DEFECTS OR REDHIBITORY VICES, OR OF CONFORMITY TO MODELS OR SAMPLES OF
MATERIALS, OR ENVIRONMENTAL CONDITION), (B) ANY INFRINGEMENT BY SELLER OF
ANY PATENT OR PROPRIETARY RIGHT OF ANY THIRD PARTY, AND (C) ACCURACY,
COMPLETENESS OR MATERIALITY OF ANY INFORMATION, DATA OR OTHER MATERIALS
(WRITTEN OR ORAL) FURNISHED TO PURCHASER BY OR ON BEHALF OF SELLER
(INCLUDING WITH RESPECT TO RESERVE MATTERS, SUCCESS OF WELLS (INCLUDING
WELLS THAT ARE DRILLED AFTER THE EFFECTIVE DATE), COMPLIANCE WITH LAWS,
ENVIRONMENTAL CONDITIONS AND OTHER MATTERS); IT BEING AGREED BY PURCHASER
THAT IT IS ACQUIRING THE ASSETS "AS-IS," "WHERE-IS," WITH ALL FAULTS;
PROVIDED,
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HOWEVER, that (a) the foregoing disclaimer and negation of representations
and warranties, (b) Purchaser's independent investigation of the Assets,
(c) any failure on Purchaser's part to conduct such investigation, or (d)
the occurrence of the Closing, shall not affect or impair the
representations, warranties, covenants, Indemnities or other obligations
of Seller under this Agreement or under the agreements to be executed by
Seller at the Closing, including the special warranty of title to be made
by Seller in the Assignment, and any other express rights of Purchaser
hereunder or thereunder.
(b) Each Party hereby waives any rights it may have under applicable
Law to rescind this transaction, including for failure of consideration,
redhibitory vices, lesion beyond
moiety or otherwise.
ARTICLE 15
TERMINATION
15.1 RIGHT OF TERMINATION. This Agreement and the transactions
contemplated hereby may be terminated:
(a) by mutual consent of Seller and Purchaser, at any time at
or prior to the Closing;
(b) by Seller, at its option, if the conditions in ARTICLE 9 have
not been satisfied by the scheduled date of the Closing;
(c) by Purchaser, at its option, if the conditions in ARTICLE 10
have not been satisfied by the scheduled date of the Closing;
(d) by either Seller or Purchaser, by notice to the other Party at
any time on or after December 31, 1999, if the Closing shall not have
occurred by such date;
(e) by Purchaser or Seller if the sum of the aggregate downward
adjustment to the Purchase Price for Title Defects, Environmental Defects
and Casualty Events exceeds $200,000; or
(f) by Purchaser or Seller if the preferential purchase right
waivers required by Purchaser relating to the Properties have not been
obtained on or before September 1, 1999.
PROVIDED, HOWEVER, that a Party may not exercise any right of termination
pursuant to SECTION 15.1(B), (C) or (D) if the event giving rise to such
termination right shall be due to the breach by such Party of its obligations
under this Agreement.
15.2 EFFECT OF TERMINATION. If this Agreement is terminated pursuant to
SECTION 15.1, this Agreement shall become void and of no further force or effect
(except for the provisions of this
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SECTIONS 15.2, 5.4 and 6.4; and ARTICLES 8, 16 and 17; all of which shall
survive such termination and continue in full force and effect); PROVIDED,
HOWEVER, that, if either Party is in breach of its obligations under this
Agreement at the time this Agreement is so terminated, such defaulting Party
shall continue to be liable to the other Party for damages in respect of such
breach, and such liability shall not be affected by such termination.
ARTICLE 16
ARBITRATION
16.1 DISPUTES. This ARTICLE 16 shall apply to any dispute arising under or
otherwise attributable to this Agreement or the transactions contemplated hereby
(whether arising in contract, tort or otherwise, and whether arising at law or
in equity), including (a) any dispute regarding the construction,
interpretation, performance, validity or enforceability of any provision of this
Agreement or whether any Person is in compliance with, or breach of, any
provisions of this Agreement, and (b) the applicability of this ARTICLE 16 to a
particular dispute (collectively, a "DISPUTE"). The provisions of this ARTICLE
16 shall be the exclusive method of resolving Disputes.
16.2 ARBITRATION.
(a) If a Dispute arises, the Parties shall attempt to resolve it
through negotiations. If the Parties are unable to resolve the Dispute
within 20 days of the commencement of such negotiations, either Party may
submit the Dispute to binding arbitration before a sole arbitrator (the
"ARBITRATOR") pursuant to this ARTICLE 16 by notifying the other Party and
designating a proposed Arbitrator. If the other Party objects to such
proposed Arbitrator, it may, on or before the 10th day following delivery
of such notice, notify the other Party of its objection. The Parties shall
then attempt to agree upon a mutually-acceptable Arbitrator. If they are
unable to do so within 10 days following delivery of the notice described
in the immediately-preceding sentence, either Party may request the
American Arbitration Association (or successor body) (the "AAA") to
designate the Arbitrator. Each Party and each proposed Arbitrator shall
disclose to the other Party any business, personal or other relationship
or affiliation that may exist between such Party and such proposed
Arbitrator, and any Party may disapprove of such proposed Arbitrator on
the basis of such relationship or affiliation. If the Arbitrator so chosen
shall die, resign or otherwise fail or become unable to serve as
Arbitrator, a replacement Arbitrator shall be chosen in accordance with
this SECTION 16.2.
(b) The Arbitrator shall expeditiously (and, if possible, within 45
days after the Arbitrator's selection) hear and decide all matters
concerning the Dispute. Any arbitration hearing shall be held in Houston,
Texas. The arbitration shall be conducted in accordance with the
then-current Commercial Arbitration Rules of the AAA (excluding rules
governing the payment of arbitration, administrative or other fees or
expenses to the Arbitrator or the AAA), to the extent that such Rules do
not conflict with the terms of this Agreement. Except as expressly
provided to the contrary in this Agreement, the Arbitrator shall have the
power
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(i) to gather such materials, information, testimony and evidence as it
deems relevant to the dispute before it (and each Party will provide such
materials, information, testimony and evidence requested by the
Arbitrator, except to the extent any information so requested is
proprietary, subject to a third-party confidentiality restriction or to an
attorney-client or other privilege) and (ii) to grant injunctive relief
and enforce specific performance.
(c) If it deems necessary, the Arbitrator may propose to the Parties
that one or more other experts be retained to assist it in resolving the
Dispute. The retention of such other experts shall require the consent of
both Parties, which shall not be unreasonably withheld. Each Party, the
Arbitrator and any proposed expert shall disclose to the other Party any
business, personal or other relationship or affiliation that may exist
between such Party (or the Arbitrator) and such proposed expert; and
either Party may disapprove of such proposed expert on the basis of such
relationship or affiliation.
(d) The decision of the Arbitrator (which shall be rendered in
writing) shall be final, nonappealable and binding upon the Parties and
may be enforced in any court of competent jurisdiction. The responsibility
for paying the costs and expenses of the arbitration, including
compensation to the Arbitrator and any experts retained by the Arbitrator,
shall be allocated between the Parties in a manner determined by the
Arbitrator to be fair and reasonable under the circumstances. Each Party
shall be responsible for the fees and expenses of its respective counsel,
consultants and witnesses, unless the Arbitrator determines that
compelling reasons exist for allocating all or a portion of such costs and
expenses to one or more other Parties.
ARTICLE 17
GENERAL PROVISIONS
17.1 GOVERNING LAW. THIS AGREEMENT AND ALL INSTRUMENTS EXECUTED IN
ACCORDANCE WITH IT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO CONFLICT-OF-LAW RULES THAT WOULD
DIRECT APPLICATION OF THE LAWS OF ANOTHER JURISDICTION, EXCEPT TO THE EXTENT
THAT IT IS MANDATORY THAT THE LAW OF SOME OTHER JURISDICTION, WHEREIN THE ASSETS
ARE LOCATED, SHALL APPLY.
17.2 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, including all Exhibits
attached hereto and made a part hereof, together with the Confidentiality
Agreement, constitute the entire agreement between the Parties with respect to
the transactions contemplated hereby and supersede all prior agreements,
understandings, negotiations and discussions, whether oral or written, of the
Parties with respect to such transactions. No amendment of this Agreement shall
be binding unless executed in writing by both Parties.
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17.3 WAIVER. No waiver by a Party of any of the provisions of this
Agreement (a) shall be binding upon a Party unless executed in writing by such
Party, (b) shall be deemed or shall constitute a waiver by such Party of any
other provisions hereof (whether or not similar), and (c) shall not constitute a
continuing waiver by such Party.
17.4 TRANSFERS. Except as expressly provided herein to the contrary,
neither Party hereto shall Transfer this Agreement or any of its rights or
obligations hereunder without the prior written consent of the other Party, and
any such Transfer made without such consent shall be void. Except as otherwise
provided herein, this Agreement shall be binding upon and inure to the benefit
of the Parties and their respective successors and permitted Transferees. Seller
agrees that the restrictions in this SECTION 17.4 shall not, after the Closing,
obligate Purchaser to obtain the written consent of Seller prior to any Transfer
by Purchaser of its ownership interest in the Assets, and Purchaser agrees that
any such Transfer shall not release Purchaser from any of its liabilities or
obligations hereunder.
17.5 NOTICES. Any notice, request, consent, approval, waiver or other
communication provided or permitted to be given under this Agreement shall be in
writing and shall be delivered in person or sent by U.S. mail, overnight courier
or fax to the appropriate address set forth below. Any such communication shall
be effective upon actual receipt; provided, however, that, in the case of
delivery by fax after the normal business hours of the recipient, such
communication shall be effective on the next Business Day following the
transmission of such fax. For purposes of notice, the addresses of the parties
shall be as follows:
FOR SELLER:
American Resources Offshore, Inc.
160 Morgan Street
P. O. Box 87
Versailles, Kentucky 40383
Attention: Mr. David Stetson
Telecopy: (606) 873-4689
WITH A COPY TO:
Blue Dolphin Services, Inc.
801 Travis, Suite 2100
Houston, Texas 77002
Attention: Mr. John P. Atwood, Vice President
Telecopy: (713) 227-7626
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FOR PURCHASER:
Fidelity Oil Holdings, Inc.
Schuchart Building
918 East Divide-Suite 200
Bismarck, ND 58501
Attn: Mr. John F. Renner, President and Chief
Executive Officer
Telecopy: (701) 221-3904
Each Party shall have the right, upon giving 10 days' prior notice to the other
Party in the manner provided in this SECTION 17.5, to change its address for
purposes of notice.
17.6 EXPENSES. Except as otherwise provided herein, each Party shall be
solely responsible for all costs and expenses incurred by it in connection with
the transactions contemplated hereby (including fees and expenses of its own
counsel and consultants).
17.7 SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of Law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any adverse manner with
respect to any Party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the Parties shall negotiate
in good faith to modify this Agreement so as to effect the original intent of
the Parties as closely as possible.
17.8 PUBLICITY. Seller and Purchaser shall consult with each other with
regard to all publicity and other releases issued concerning this Agreement and
the transactions contemplated hereby and, except as required by applicable Law
or the stock exchange requirements, neither Party shall issue any such publicity
or other release without the prior written consent of the other Party.
17.9 SPECIFIC PERFORMANCE. Because of the unique nature of the Assets and
the difficulty of calculating damages for breach of this Agreement, each Party
shall have the right (pursuant to SECTION 16.2(B)) to enforce specific
performance by the other Party of its obligations under this Agreement.
17.10 CONSEQUENTIAL AND PUNITIVE DAMAGES. THE PARTIES (FOR THEMSELVES AND
THEIR RESPECTIVE AFFILIATES) WAIVE ANY RIGHTS TO CONSEQUENTIAL, PUNITIVE OR
EXEMPLARY DAMAGES RESULTING FROM A BREACH OF THIS AGREEMENT, INCLUDING LOSS OF
PROFITS.
17.11 NO THIRD-PARTY BENEFICIARY. Except as expressly provided herein,
this Agreement is not intended to create, nor shall it be construed to create,
any rights in any Third Party, under doctrines concerning third-party
beneficiaries or otherwise.
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17.12 COUNTERPARTS. This Agreement may be executed in counterparts
(including faxed counterparts). Each such counterpart shall be deemed an
original, but all such counterparts together shall constitute one and the same
instrument.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the
Execution Date.
SELLER
AMERICAN RESOURCES OFFSHORE, INC.
By: /S/ DAVID J. STETSON
--------------------------------------
David J. Stetson, Vice President
PURCHASER
FIDELITY OIL HOLDINGS, INC.
By: /S/ JOHN F. RENNER
--------------------------------------
John F. Renner, President and
Chief Executive Officer
[SIGNATURE PAGE TO PURCHASE AND SALE AGREEMENT BETWEEN AMERICAN RESOURCES
OFFSHORE, INC. AND FIDELITY OIL HOLDINGS, INC.]
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EXHIBIT 99.5
============================================================
MANAGEMENT AND ADMINISTRATIVE
SERVICES AGREEMENT
BY AND BETWEEN
BLUE DOLPHIN SERVICES, INC.
AND
AMERICAN RESOURCES OFFSHORE, INC.
DECEMBER 2, 1999
============================================================
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1
DEFINITIONS
1.1 DEFINED TERMS....................................................1
1.2 OTHER TERMS......................................................2
1.3 CONSTRUCTION.....................................................2
ARTICLE 2
SERVICES PROVIDED BY BDSI
2.1 APPOINTMENT......................................................3
2.2 ACCEPTANCE.......................................................3
2.3 LEGAL OWNERSHIP..................................................3
2.4 DUTIES RETAINED BY ARO...........................................3
2.5 EVIDENCE OF AUTHORITY; ATTORNEY-IN-FACT..........................3
2.6 AUTHORIZED PERSONNEL.............................................3
ARTICLE 3
MANAGEMENT SERVICES
3.1 GENERAL..........................................................3
3.2 MANAGEMENT SERVICES..............................................4
(a) ACCOUNTING.................................................4
(b) CASH MANAGEMENT............................................4
(c) GENERAL LAND FUNCTIONS; LAND TITLE AND LEASE RECORDS.......4
(d) CONTRACTS..................................................4
(e) CONTRACT ADMINISTRATION....................................4
(f) REPORTING TO AND MEETING WITH ARO..........................5
(g) MANAGEMENT REPORTS.........................................5
(h) SEC COMPLIANCE.............................................5
(i) RECORDS....................................................5
(j) AFE'S......................................................5
(k) TECHNICAL AND OPERATIONAL EXPERTISE........................6
(l) COMPLIANCE AND REGULATORY FILINGS..........................6
(m) INSURANCE..................................................6
(n) MARKETING..................................................6
(o) ADMINISTRATIVE FUNCTIONS...................................6
(p) TAX........................................................6
(q) LEGAL PROCEEDINGS..........................................6
(r) OTHER......................................................6
3.3 SUPERVISION OF BDSI..............................................6
3.4 SPECIAL SERVICES.................................................7
3.5 FILES AND RECORDS................................................7
3.6 BILLING AND PAYMENT..............................................7
ARTICLE 4
MANAGEMENT FEE
4.1 MANAGEMENT FEE...................................................7
i
<PAGE>
TABLE OF CONTENTS
(Continued)
PAGE
4.2 SUPPLEMENTAL SERVICES FEES.......................................7
4.3 MISCELLANEOUS EXPENSES...........................................7
4.4 REMEDIES FOR FAILURE TO PAY......................................8
(a) INTEREST...................................................8
(b) COST OF COLLECTION.........................................8
ARTICLE 5
INDEMNITY
5.1 BDSI'S INDEMNIFICATION...........................................8
5.2 ARO'S INDEMNIFICATION............................................8
5.3 NO ASSUMPTION OF LIABILITIES.....................................9
ARTICLE 6
CONFIDENTIALITY
ARTICLE 7
CONFLICTS
ARTICLE 8
ACCESS AND AUDIT
8.1 BOOKS AND RECORDS...............................................10
8.2 RIGHT TO AUDIT..................................................10
8.3 MAINTENANCE OF RECORDS..........................................10
ARTICLE 9
RELATIONSHIPS OF THE PARTIES
9.1 RELATIONSHIPS...................................................10
9.2 TAXATION........................................................10
ARTICLE 10
REPRESENTATION AND WARRANTIES
10.1 REPRESENTATION AND WARRANTIES OF BDSI...........................11
(a) ORGANIZATION..............................................11
(b) AUTHORITY AND CONFLICTS...................................11
(c) AUTHORIZATION.............................................11
(d) ENFORCEABILITY............................................11
10.2 REPRESENTATIONS AND WARRANTIES OF ARO...........................12
(a) ORGANIZATION..............................................12
(b) AUTHORITY AND CONFLICTS...................................12
(c) AUTHORIZATION.............................................12
(d) ENFORCEABILITY............................................12
(e) COMPLIANCE WITH LAW AND PERMITS...........................12
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TABLE OF CONTENTS
(Continued)
PAGE
ARTICLE 11
TERM
11.1 TERM............................................................13
11.2 HOLD OVER.......................................................13
ARTICLE 12
NOTICES
ARTICLE 13
GENERAL
13.1 GOVERNING LAW...................................................14
13.2 ASSIGNMENT......................................................14
13.3 INTEGRATION.....................................................14
13.4 WAIVER OR MODIFICATION..........................................14
13.5 INVALID PROVISIONS..............................................14
13.6 FORCE MAJEURE...................................................15
13.7 MULTIPLE COUNTERPARTS...........................................15
13.8 DISPUTE RESOLUTION..............................................15
LIST OF EXHIBITS
Exhibit A Dispute Resolution Procedures
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MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT
THIS MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT (this "AGREEMENT")
is dated effective as of December 2, 1999 and is by and between AMERICAN
RESOURCES OFFSHORE, INC., a Delaware corporation ("ARO"), and BLUE DOLPHIN
SERVICES, INC., a Delaware corporation ("BDSI"). ARO and BDSI may be referred to
collectively as the "PARTIES" or individually as a "PARTY".
RECITALS:
A. ARO is engaged in the business of exploring for and producing oil
and gas in the Gulf of Mexico.
B. Blue Dolphin Exploration Company ("BDEX"), an affiliate of BDSI, has
entered into that certain Investment Agreement dated July 30, 1999
(the "INVESTMENT AGREEMENT") whereby BDEX will acquire 75% of the
issued and outstanding common stock of ARO.
C. It is the intention of the Parties that BDSI will manage the
business and operations of ARO.
NOW, THEREFORE, for and in consideration of the mutual and dependent
covenants, conditions, and agreements hereinafter set forth, the Parties agree
as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement, each of the following
capitalized terms shall have the meaning ascribed to them in this Section unless
otherwise specified or clearly required by the context in which such term is
used:
"AFE" shall mean authority for expenditures.
"AGREEMENT" shall have the meaning set forth in the introductory
paragraph hereof.
"AGREEMENT YEAR" shall have the meaning ascribed in SECTION 11.1.
"ARO" shall have the meaning set forth in the introductory
paragraph hereof.
"BDEX" shall have the meaning set forth in the Recitals hereof.
"BDSI" shall have the meaning set forth in the introductory
paragraph hereof.
"BUSINESS DAY" shall mean a day other than any day that banking
institutions are required or permitted to be closed under the laws of the
State of Texas.
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"CODE" shall have the meaning set forth in SECTION 9.2.
"COMMENCEMENT DATE" shall mean December 2, 1999.
"CONFIDENTIAL INFORMATION" shall mean all information disclosed by
either Party to the other Party relating to the disclosing Party's
business and operations.
"ENFORCEABILITY LIMITATIONS" shall mean applicable bankruptcy,
reorganization or moratorium statutes, equitable principles or other
similar laws affecting the rights of creditors generally.
"HYDROCARBON" shall mean gas, oil, casinghead gas, drip gasoline,
natural gasoline and all other liquid and gaseous hydrocarbons.
"INVESTMENT AGREEMENT" shall have the meaning set forth in the
Recitals hereof.
"IRS" shall have the meaning set forth in SECTION 9.2.
"LIABILITY" shall have the meaning set forth in SECTION 5.1.
"MANAGEMENT FEE" shall have the meaning set forth in SECTION 4.1.
"MANAGEMENT SERVICES" shall have the meaning set forth in
SECTION 3.2.
"TERM" shall mean the term of this Agreement as set forth in
ARTICLE 11.1.
"TERMINATION DATE" shall have the meaning set forth in
ARTICLE 11.1.
1.2 OTHER TERMS. Other capitalized terms used in this Agreement and not
defined in SECTION 1.1 shall have the meanings given them throughout this
Agreement.
1.3 CONSTRUCTION. The headings in this Agreement are inserted for
convenience of reference only and shall not affect the interpretation of this
Agreement. Whenever the context requires, each term stated in either the
singular or the plural shall include the singular or the plural, and the gender
of all words used in this Agreement includes the masculine, the feminine and the
neuter. Except as otherwise noted, references to Articles and Sections refer to
articles and sections of this Agreement, and all references to Exhibits are to
exhibits attached hereto, each of which is made a part hereof for all purposes.
Use of the word "including" shall mean, without limitation, by reason of
enumeration. The use of the words "hereof," "hereunder," "hereto," "herein,"
"hereinafter," "hereinabove" and "hereinbelow" shall be references to this
Agreement in its entirety and not only to a particular Article, Section or
Exhibit in which such reference appears.
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ARTICLE 2
SERVICES PROVIDED BY BDSI
2.1 APPOINTMENT. ARO hereby appoints BDSI to provide the Management
Services by and on behalf of, and for the account of, ARO, pursuant to and as
set forth in this Agreement.
2.2 ACCEPTANCE. BDSI hereby accepts the appointment provided for above and
agrees to perform the duties and obligations herein imposed in a good and
workmanlike manner as a reasonable person in the industry in material compliance
with all applicable agreements, laws, rules and regulations and using a good
faith effort which BDSI reasonably believes advances and protects the interests
of ARO.
2.3 LEGAL OWNERSHIP. BDSI shall not take title to any properties owned of
record or beneficially by ARO during the Term of this Agreement. Any addition to
the assets of ARO by purchase, lease or otherwise on behalf of ARO shall be
acquired in the name of ARO.
2.4 DUTIES RETAINED BY ARO. ARO shall be responsible for all duties and
obligations which BDSI is not specifically required or authorized to perform on
behalf of ARO pursuant to the terms of this Agreement.
2.5 EVIDENCE OF AUTHORITY; ATTORNEY-IN-FACT. If BDSI determines it is
necessary to fulfill its obligations under this Agreement, BDSI shall prepare
and ARO shall execute and deliver to BDSI (i) letters of instruction to all
appropriate third parties instructing such third parties to deal with BDSI with
respect to all matters relating to ARO and to provide directly to BDSI all
payments, invoices, notices, requests, demands, and other communications
relating to ARO and its properties and assets; and (ii) powers of attorney
authorizing and empowering certain employees of BDSI to carry out the rights and
duties set forth herein.
2.6 AUTHORIZED PERSONNEL. With respect to any approval or consent required
from ARO pursuant to the terms of this Agreement, BDSI may rely on any
authorization, consent or other instructions received from either President or
Vice President. ARO may remove the authority granted to the foregoing
individuals and/or authorize additional individuals to provide such consents,
approvals or instructions by providing BDSI with a written statement of
authorization signed by the president of ARO.
ARTICLE 3
MANAGEMENT SERVICES
3.1 GENERAL. BDSI will provide competent and suitable qualified personnel
to perform the Management Services and agrees to use all reasonable efforts to
fulfill such services diligently in accordance with the standards imposed on
BDSI in this Agreement.
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3.2 MANAGEMENT SERVICES. The management, administrative and advisory
services to be provided by BDSI to ARO pursuant to this Agreement shall include
the following (the "MANAGEMENT SERVICES"):
(a) ACCOUNTING. BDSI shall maintain in good order the books and
accounts, ledgers and records of ARO shall perform all day-to-day
accounting functions of ARO including, without limitation, accounting
matters relating to paying and receiving, billing, gas balancing,
repayments under external or internal loan arrangements and contract
coordination. In addition, BDSI shall do all things necessary and usual
and customary in the industry to assist the outside auditors in completing
ARO's annual financial audit.
(b) CASH MANAGEMENT. BDSI shall deposit all monies received by ARO
into a centralized cash management account of ARO ("CASH ACCOUNT").
Consistent with existing cash management practices of BDSI for managed
accounts, such Cash Account will be utilized for the receipt of monies to
satisfy obligations pertaining to ARO.
To the extent ARO has funds available in the Cash Account pertaining
to ARO and subject to the approval rights provided below, all costs,
expenditures, fees, and other payments due by ARO shall be paid out of the
Cash Account. BDSI shall never be obligated to make advances to ARO for
the purpose of covering shortfalls in the Cash Account. Notwithstanding
BDSI's payment of expenses on behalf of ARO, ARO shall be responsible for
all amounts due and expenses incurred in connection with the organization
and operation of ARO. To the extent that BDSI becomes aware of a cash
shortfall with respect to ARO's funds in the Cash Account, BDSI shall
notify ARO of such shortfall.
(c) GENERAL LAND FUNCTIONS; LAND TITLE AND LEASE RECORDS. BDSI shall
perform all day-to-day general land functions relating to ARO's assets
including, without limitation, the maintenance of all oil and gas lease
and land files, title conveyances, payment of delay rentals and shut-in
well reports. BDSI shall liaise with any outside legal counsel approved by
ARO for land and related matters where required and shall provide land
information for audit and tax returns.
(d) CONTRACTS. BDSI shall negotiate all contracts for ARO including,
but not limited to loan agreements, leases, AFEs, proposed operations
under joint operating agreements, division orders, gas sales contracts,
pooling agreements, assignments, gas balancing agreements, farmout and
farmin agreements and unit declarations, the purchase of land and the
acquisition of permits, easements, rights-of-way and other property rights
necessary for ARO's assets, with such persons as may be reasonable or
necessary. BDSI shall notify ARO of any significant procurement of
materials.
(e) CONTRACT ADMINISTRATION. BDSI shall administer all
agreements of ARO including, without limitation:
(i) compliance with insurance requirements established by
ARO from time to time;
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(ii) establishment and maintenance of bank accounts;
(iii) review of all invoices, preparation of recommendations
for payment of all, or specified portions, of invoiced
costs;
(iv) settlement recommendations for any disputes arising from
invoices; and
(v) delivery of lien waivers, or releases, in form and
substance reasonably acceptable to ARO, to lenders under
any credit agreement or a title company issuing an
owner's or mortgagee's title insurance policy, as may be
applicable and compliance with all applicable federal,
state and local taxes (including excise and sales taxes)
which may be applicable to ARO's assets.
(f) REPORTING TO AND MEETING WITH ARO. BDSI shall prepare and
furnish periodic progress and status reports to ARO and such other reports
as ARO may from time to time request. All reports furnished to ARO by BDSI
shall be in a form acceptable to ARO, in ARO's reasonable discretion.
Additionally, BDSI shall cause its personnel to meet with representatives
of ARO from time to time as reasonably requested by ARO to review the
reports provided to ARO.
(g) MANAGEMENT REPORTS. BDSI shall provide ARO with reports which
are consistent, in form and substance, with reports prepared by ARO prior
to the Parties entering into this Agreement.
(h) SEC COMPLIANCE. BDSI shall prepare or cause to be prepared all
filings necessary or required by the Securities Act of 1933, as amended,
and the Securities Exchange Act of 1934, as amended, and applicable laws
of any exchange upon which the shares of the ARO's stock are traded.
(i) RECORDS. BDSI shall maintain on behalf of ARO all certificates,
licenses, permits and approvals from all governmental agencies with
jurisdiction over ARO's assets, all contracts (including, without
limitation, purchase orders) negotiated with persons providing services in
connection with ARO's assets, the results of any tests or analyses
obtained in connection with ARO's assets and copies of invoices, checks
and other accounting materials related to ARO's assets as may be
reasonably requested by ARO for tax and accounting purposes. BDSI shall
prepare revisions to the plans and specifications of ARO's assets to
reflect the final configuration of ARO's assets and maintain such
additional records relating to ARO's assets as may be reasonable or
necessary to permit ARO to operate, maintain and, if applicable, further
expand the existing ARO assets. All records shall be maintained in strict
compliance with all regulatory requirements of the Federal Energy
Regulatory Commission, Department of Transportation and any other state,
federal or local governmental agency having jurisdiction over all or any
portion of ARO's assets.
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(j) AFESS. Review and make decisions with respect to AFES's proposed
by the operators or other interest owners of the properties owned by ARO.
(k) TECHNICAL AND OPERATIONAL EXPERTISE. Provide ARO with technical
and operational expertise to assist ARO in connection with decisions
regarding the operations of ARO's assets, including capital expenditures
and major repairs and maintenance requirements. BDSI's responsibility in
this regard shall include without limitation, the duty to review and
timely respond to election notices and AFEs sent by all operators of ARO's
assets.
(l) COMPLIANCE AND REGULATORY FILINGS. Use all reasonable efforts to
ensure that ARO complies fully with all federal, state and municipal laws,
ordinances, regulations and orders relative to ARO's assets and shall
prepare and file all regulatory filings required to be filed by ARO with
respect to its assets. BDSI shall use all reasonable efforts to cause the
appropriate parties to remedy any violation of any such law, ordinance,
rule, regulation or order which comes to its attention and shall promptly
notify ARO of any such violation.
(m) INSURANCE. Provide the necessary insurance for ARO as determined
by ARO's Board of Directors or as required under the insurance provisions
of the applicable operating agreement for properties owned by ARO to the
extent such insurance is not provided to ARO by the operator. Such
insurance shall be provided at ARO's cost and expense and the cost of such
insurance is not included in the Management Fee.
(n) MARKETING. Market or cause to be marketed ARO's share of
Hydrocarbon production from its properties to the extent ARO has the right
to market such production under the terms of the applicable operating
agreement. Any third-party costs and expenses incurred in connection with
such marketing efforts shall be borne by ARO.
(o) ADMINISTRATIVE FUNCTIONS. Perform all other reasonable or
necessary administrative functions relating to ARO and its assets not
specifically set forth in SECTION 3.2, including accounting, engineering,
planning, financial, reporting, public relations, governmental, technical
services and such other services necessary for ARO to continue its
business and operations.
(p) TAX. Prepare or cause to be prepared all required tax filings
and retain all legal and accounting professionals as deemed necessary by
BDSI.
(q) LEGAL PROCEEDINGS. Institute or defend claims and other legal
actions or proceedings relating to ARO or its accounts or operations. BDSI
shall have the right to select the legal counsel .
(r) OTHER. Provide such other services and support consistent with
the foregoing duties and obligations.
3.3 SUPERVISION OF BDSI. ARO has entered into this Agreement to delegate
the day-to-day management of ARO to BDSI as an agent of ARO subject to the
control and supervision of
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ARO's Board of Directors and subject to the various provisions contained within
this Agreement. The Parties agree that:
(a) All actions of BDSI undertaken pursuant to this Agreement shall
be subject to the general direction of ARO's Board of Directors, and BDSI
shall promptly respond to all notices, requests or inquiries from ARO's
Board of Directors to permit ARO to direct BDSI's performance of the
Management Services. ARO, however, shall not have the right to exercise
control over BDSI's day-to-day actions in providing Management Services
under this Agreement;
(b) BDSI shall not be obligated to perform the Management Services
or any other or additional act for, or on behalf of, ARO requiring it to
incur, directly or indirectly, any cost or expense which is not paid for,
or reimbursed by, ARO pursuant to ARTICLE 4 hereof except as provided
herein; and
(c) All activities, duties and responsibilities not specifically
retained by ARO are hereby delegated to BDSI; PROVIDED, HOWEVER, that ARO
may at any time and from time to time perform activities, duties and
responsibilities not specifically delegated to BDSI in this Agreement by
notifying BDSI of such activity, duty and responsibility to be performed
by ARO.
3.4 SPECIAL SERVICES. In addition to the Management Services set out in
SECTION 3.2, ARO may request additional services which, if agreed to in writing
by BDSI, shall be subject to additional billing in an amount mutually agreed on
by BDSI and ARO.
3.5 FILES AND RECORDS. All files and records maintained by BDSI regarding
ARO's assets shall be the property of BDSI. However, ARO shall be entitled to
review BDSI's files from time to time during regular business hours and shall be
entitled (at ARO's sole cost and expense) to copies of such files to the extent
such files affect ARO's assets.
3.6 BILLING AND PAYMENT. BDSI shall submit an invoice on or before the
fifteenth (15th) day of each month. The invoice shall specify the amounts due to
BDSI by ARO including, without limitation, the Management Fee for the month and
any other amounts which may be due to BDSI by ARO pursuant to this Agreement.
All invoices rendered to ARO shall be due and payable within twenty (20) days
following receipt thereof.
ARTICLE 4
MANAGEMENT FEE
4.1 MANAGEMENT FEE. In consideration for the performance of the Management
Services by BDSI, ARO shall pay to BDSI a fee (the "MANAGEMENT FEE") equal to
ONE MILLION AND NO/100 DOLLARS ($1,000,000) per year, payable in monthly
installments of EIGHTY-THREE THOUSAND THREE HUNDRED THIRTY-THREE DOLLARS
($83,333).
4.2 SUPPLEMENTAL SERVICES FEES. Fees, if any, for special services
pursuant to SECTION 3.4 are in addition to the Management Fee.
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4.3 MISCELLANEOUS EXPENSES. The Management Fee shall be inclusive of all
reasonable out-of-pocket expenses, administrative support costs (including,
without limitation, costs related to the operation of ARO's Metairie, Louisiana
office) and other costs other than those specified in this Agreement or charged
by outside tax, legal, engineering and other professional advisers appointed by
BDSI pursuant to this Agreement or otherwise approved by ARO. Such charges by
outside consultants shall be borne directly by ARO or, if paid by BDSI, shall be
reimbursed by ARO on receipt of a copy of the relevant invoice from BDSI.
4.4 REMEDIES FOR FAILURE TO PAY. In the event that ARO shall fail to pay
any invoice for the Management Fee or any other amount due to BDSI under this
Agreement by the date it is due:
(a) INTEREST. Except as to any portions of the applicable past due
amounts that are subject to a bona fide dispute by ARO of which ARO has
advised BDSI in writing, BDSI shall be entitled to receive interest on any
such past due amounts at a monthly rate equal to the lesser of (x) the
prime rate (or reference rate, as the case may be) per annum of Chase Bank
of Texas plus two percent (2%) per annum or (y) the maximum non-usurious
rate permitted under applicable law; and
(b) COST OF COLLECTION. BDSI shall be entitled to receive
reimbursement from ARO for any and all costs and expenses incurred in
collecting past due amounts from ARO, including without limitation
attorney's fees, legal expenses and court costs.
ARTICLE 5
INDEMNITY
5.1 BDSI'S INDEMNIFICATION. TO THE EXTENT PERMITTED BY LAW AND
NOTWITHSTANDING ANY OTHER TERM OF THIS AGREEMENT OR ANY JOINT OPERATING
AGREEMENT TO THE CONTRARY, BDSI, FROM AND AFTER THE COMMENCEMENT DATE, SHALL
DEFEND, INDEMNIFY AND HOLD ARO HARMLESS FROM AND AGAINST ANY AND ALL DAMAGE,
LOSS, COST, EXPENSE, OBLIGATION, CLAIM OR LIABILITY, INCLUDING REASONABLE
COUNSEL FEES AND REASONABLE EXPENSES OF INVESTIGATING, DEFENDING AND PROSECUTING
LITIGATION (COLLECTIVELY, "LIABILITY") SUFFERED BY ARO AS A RESULT OF (i) ANY
MATERIAL BREACH OF THIS AGREEMENT BY BDSI EXCEPT TO THE EXTENT BDSI IS
EXCULPATED FROM LIABILITY FROM SUCH BREACH UNDER THE EXPRESS TERMS OF THIS
AGREEMENT WHICH PRESCRIBE STANDARDS OF CARE BY WHICH BDSI MUST PERFORM HEREUNDER
OR (ii) ANY ACT OF FRAUD, WILLFUL MISCONDUCT OR GROSS NEGLIGENCE OF BDSI.
5.2 ARO'S INDEMNIFICATION. TO THE EXTENT PERMITTED BY LAW AND
NOTWITHSTANDING ANY OTHER TERM OF THIS AGREEMENT OR ANY JOINT OPERATING
AGREEMENT TO THE CONTRARY, ARO, FROM AND AFTER THE COMMENCEMENT DATE, SHALL
DEFEND, INDEMNIFY AND HOLD BDSI HARMLESS FROM AND AGAINST ANY AND ALL LIABILITY
SUFFERED BY BDSI AS A RESULT OF ITS PERFORMANCE UNDER THIS AGREEMENT, OTHER THAN
SUCH LIABILITY THAT ARISES AS A RESULT OF (i) ANY MATERIAL BREACH OF THIS
AGREEMENT BY BDSI
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OR (ii) ANY ACT OF FRAUD, WILLFUL MISCONDUCT OR GROSS NEGLIGENCE OF BDSI, BUT
INCLUDING WITHOUT LIMITATION LIABILITIES ARISING OUT OF THE SOLE OR CONCURRENT
NEGLIGENCE (BUT NOT GROSS NEGLIGENCE) OF BDSI OR BDSI'S STRICT LIABILITY OR THE
CONDITION OF THE ASSETS.
5.3 NO ASSUMPTION OF LIABILITIES. BDSI has not assumed or accepted any
liability for any of the obligations, debts or liabilities of ARO either related
to ARO's assets or otherwise. ARO has not assumed or accepted any liability for
any of the obligations, debts or liabilities of BDSI either related to ARO's
assets or otherwise.
ARTICLE 6
CONFIDENTIALITY
The Parties hereto agree to hold the Confidential Information in the
strictest of confidence and shall not disclose such Confidential Information to
any third party. Further, each Party agrees not to copy or reproduce the
Confidential Information without the prior written consent of the other Party
hereto. However, a Party may disclose the Confidential Information to its
respective responsible officers, directors, employees, consultants, commercial
lenders, and legal counsel, but only to the extent necessary to carry out the
purposes for which the Confidential Information was disclosed, and each Party
agrees to instruct all such persons not to disclose such Confidential
Information to third parties without the prior written consent of the other
Party hereto. The obligations set out in this ARTICLE 6 shall not apply to
Confidential Information (if any) which is already known to a Party hereto at
the time that it is disclosed, or which, before being divulged by the receiving
Party: (a) has become publicly known through no wrongful act of the receiving
Party; (b) has been rightfully received from a third party without restriction
on disclosure and without breach of this ARTICLE 6; (c) has been independently
developed by the receiving Party; (d) has been approved for release by written
authorization of the non-receiving Party; or (e) has been disclosed pursuant to
requirements of a governmental agency, a law, or an order of a court having
competent jurisdiction. The Parties hereby acknowledge that the unauthorized
disclosure or use of such Confidential Information could cause irreparable harm
and significant injury, the extent of which may be difficult or impossible to
ascertain. Accordingly, the Parties agree that each shall have the right to seek
an immediate injunction enjoining any breach of this ARTICLE 6. The Parties
recognize and agree that nothing contained in this Agreement shall be construed
as granting any rights, by way of license or otherwise, to any Confidential
Information disclosed pursuant to this Agreement. All analyses, compilations,
studies and other documents which are prepared for the internal use of a Party
and which reflect any of the Confidential Information will be kept confidential
to the same extent as the Confidential Information.
ARTICLE 7
CONFLICTS
ARO acknowledges that BDSI or its affiliates (other than ARO) may own,
manage and operate additional oil and gas properties and interest in the future
that may compete with ARO's business. Specifically, BDSI or its affiliates
(other than ARO) may own or acquire interest in the oil and gas properties
comprising ARO's assets or in oil and gas properties adjacent to or in the
vicinity of ARO's assets. ARO acknowledges and agrees that neither BDSI or its
affiliates shall have any
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liability or accountability to ARO for any such competing activities or
interests or any profits or value generated therefrom.
ARTICLE 8
ACCESS AND AUDIT
8.1 BOOKS AND RECORDS. All books, records, files, data and other
information relating to ARO's assets or the operation of this Agreement shall be
available for inspection by ARO and its employees and agents during normal
business hours on three (3) Business Days prior notice; provided, however, to
the extent possible, BDSI shall provide ARO's employees with inspection rights
for less substantial reviews upon receipt of reasonable notice.
8.2 RIGHT TO AUDIT. ARO by itself or through its appointed representatives
shall have the right to audit the above mentioned books and records not more
than once per year on sixty (60) days prior notice and for twenty four (24)
months after the termination of this Agreement.
8.3 MAINTENANCE OF RECORDS. BDSI shall maintain and make available for the
purposes of audit all books and records of account and supporting documentation
for a period of at least twenty four (24) months following the end of the year
to which they relate. Thereafter they shall be presumed to be correct save to
the extent that exceptions have been raised by ARO as a result of any audit. In
the event of any dispute, the Parties shall agree on the appointment of an
independent, nationally recognized firm of accountants who shall be appointed to
adjudicate the dispute and whose decision shall be final and binding in the
absence of manifest error. In connection with any such dispute, the unsuccessful
Party shall be responsible for all third party costs incurred with respect to
such adjudication and each Party shall be responsible for their own costs
incurred in connection with the adjudication of such dispute.
ARTICLE 9
RELATIONSHIPS OF THE PARTIES
9.1 RELATIONSHIPS. BDSI shall perform its duties hereunder as an
independent contractor and it is expressly agreed that this Agreement shall not
create a partnership, joint venture or association. This Agreement shall not
impose a fiduciary duty, or any other heightened standard, upon BDSI in the
performance of its duties hereunder. All matters pertaining to the employment,
supervision, compensation, promotion and discharge of any employees or personnel
of BDSI are the responsibility of BDSI, which is in all respects the employer of
such employees. All such employment arrangements are solely BDSI's concern and
ARO shall have no liability with respect thereto.
9.2 TAXATION. This Agreement is not intended to create, and shall not be
construed to create, a relationship, a partnership, or an association for profit
between or among the Parties. Notwithstanding any provisions herein that the
rights and liabilities hereunder are several and not joint or collective, or
that this Agreement and operations hereunder shall not constitute a partnership,
if for federal income tax purposes, this Agreement and the operation hereunder
are regarded as a partnership, each Party thereby affected ELECTS TO BE EXCLUDED
from the application of all of the provisions of Subchapter "K", Chapter 1,
Subtitle "A", of the Internal Revenue Code of 1986, as amended (the "CODE"), as
permitted and authorized by Section 761 of the Code and the regulations
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promulgated thereunder. BDSI is authorized and directed to execute on behalf of
each Party hereby affected such evidence of this election as may be required by
the Secretary of the Treasury of the United States or the Federal Internal
Revenue Service ("IRS"), including, specifically, but not by way of limitation,
all of the returns, statements, and the data required by Federal Regulation
1.761(2). Should there be any requirements that each Party hereby affected give
further evidence of this election, each such Party shall execute such documents
and furnish such other evidence as may be required by the IRS or as may be
necessary to evidence this election. No Party shall give any notices or take any
other action inconsistent with the election made hereby. If any present or
future income tax laws of the State or States in which the area covered by this
Agreement is located or any future income tax laws of the United States contain
provisions similar to those in Subchapter "K", Chapter 1, Subtitle "A", of the
Code, under which an election similar to that provided by Section 761 of the
Code is permitted, each Party hereby affected shall make such election as may be
permitted or required by such laws. In making the foregoing election, each Party
states that the income derived by such Party from operations hereunder can be
adequately determined without the computation of partnership taxable income.
ARTICLE 10
REPRESENTATION AND WARRANTIES
10.1 REPRESENTATION AND WARRANTIES OF BDSI. BDSI agrees and represents and
warrants to ARO as follows:
(a) ORGANIZATION. BDSI is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
(b) AUTHORITY AND CONFLICTS. BDSI has full corporate power and
authority to carry on its business as presently conducted, to enter into
this Agreement and to perform its obligations under this Agreement. The
execution and delivery of this Agreement by BDSI does not, and the
consummation of the transactions contemplated by this Agreement shall not,
(i) violate or be in conflict with, or require the consent of any person
or entity under, any provision of BDSI's Certificate of Incorporation or
other governing documents, (ii) conflict with, result in a breach of,
constitute a default (or an event that with the lapse of time or notice,
or both, would constitute a default) under, or require any consent,
authorization or approval under any agreement or instrument to which BDSI
is a party or is bound, or (iii) violate any provision of or require any
consent, authorization or approval under any judgment, decree, judicial or
administrative order, award, writ, injunction, statute, rule or regulation
applicable to BDSI.
(c) AUTHORIZATION. The execution and delivery of this Agreement have
been and the performance of this Agreement and the transactions
contemplated hereby shall be at the time required to be performed
hereunder, duly and validly authorized by all requisite corporate action
on the part of BDSI.
(d) ENFORCEABILITY. This Agreement has been duly executed and
delivered on behalf of BDSI, and constitutes a legal, valid and binding
obligation of BDSI enforceable in
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accordance with its terms, except as enforceability may be limited by
Enforceability Limitations.
10.2 REPRESENTATIONS AND WARRANTIES OF ARO. ARO represents and warrants to
BDSI as follows:
(a) ORGANIZATION. ARO is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and
is qualified to do business in and is in good standing under the laws of
each other state in which ARO's assets are located.
(b) AUTHORITY AND CONFLICTS. ARO has full corporate power and
authority to carry on its business as presently conducted, to enter into
this Agreement and to perform its obligations under this Agreement. The
execution and delivery of this Agreement by ARO does not, and the
consummation of the transactions contemplated by this Agreement shall not,
(i) violate or be in conflict with, or require the consent of any person
or entity under, any provision of ARO's Certificate of Incorporation or
other governing documents, (ii) conflict with, result in a breach of,
constitute a default (or an event that with the lapse of time or notice,
or both would constitute a default) under, or require any consent,
authorization or approval under any agreement or instrument to which ARO
is a party that affects ARO's assets, or (iii) violate any provision of or
require any consent, authorization or approval under any judgment, decree,
judicial or administrative order, award, writ, injunction, statute, rule
or regulation applicable to ARO.
(c) AUTHORIZATION. The execution and delivery of this Agreement have
been, and the performance of this Agreement and the transactions
contemplated hereby shall be at the time required to be performed
hereunder, duly and validly authorized by all requisite corporate action
on the part of ARO.
(d) ENFORCEABILITY. This Agreement has been duly executed and
delivered on behalf of ARO and constitutes the legal, valid and binding
obligation of ARO enforceable in accordance with its terms, except as
enforceability may be limited by Enforceability Limitations.
(e) COMPLIANCE WITH LAW AND PERMITS. To the best of ARO's knowledge
except as disclosed in the Investment Agreement, ARO and its assets are in
compliance with the provisions and requirements of all laws, rules,
regulations, ordinances, orders, decisions and decrees of all governmental
authorities having jurisdiction with respect to its assets or the
ownership or operation of any thereof. To the best of ARO's knowledge,
except as disclosed in the Investment Agreement, all necessary
governmental permits, licenses, approvals, consents, certificates and
other authorizations with regard to the ownership of its assets have been
obtained and maintained in effect and no violations exist or have been
recorded in respect of such permits, licenses, approvals, consents,
certificates or authorizations. To the best of ARO's knowledge, except as
disclosed in the Investment Agreement, none of the documents or materials
filed with or furnished to any governmental authority with respect to its
assets or the ownership thereof contains any untrue statement of a
material fact or omits any statement of a material fact necessary to make
the statements therein not misleading.
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ARTICLE 11
TERM
11.1 TERM. Unless sooner terminated pursuant to this Section 11.1, this
Agreement shall be effective as of the Commencement Date and shall continue in
force for the remainder of 1999 and all of 2000 and shall continue thereafter
for each subsequent calendar year on a year-to-year basis (each calendar year
beginning with 1999 being an "AGREEMENT YEAR") until terminated by either BDSI
or ARO by providing written notice of such termination thirty (30) days prior to
the end of an Agreement Year. This Agreement shall terminate at the close of
business on the last day (the "TERMINATION DATE") of the Agreement Year in which
proper notice of termination was given by either Party hereto. In addition, in
the event either BDSI or ARO fails to comply with any of the terms and
conditions of this Agreement or breaches any representation contained herein and
such failure or breach continues for ten (10) days after the delivery of written
notice, the defaulting party will be liable for any and all costs, expenses,
losses or liabilities sustained or incurred by the non-defaulting party.
Notwithstanding any termination of this Agreement, BDSI and ARO expressly agree
that all provisions of this Agreement that contemplate performance after the
expiration or earlier termination hereof shall survive such expiration or
earlier termination of this Agreement.
11.2 HOLD OVER. Notwithstanding the terms of SECTION 11.1 above, if ARO
desires it and ARO notifies BDSI in writing of such desire at least fifteen (15)
days prior to the scheduled Termination Date, then this Agreement shall be
extended and not terminated for a period of up to six (6) calendar months in
order to allow ARO to identify and contract with a replacement service provider.
During such hold over period, all of the provisions of this Agreement shall
apply in a manner modified to be consistent with such shortened Agreement Year;
PROVIDED, HOWEVER, BDSI shall be entitled to receive an upwards adjustment of
the Management Fee of not less than ten percent (10%) should such period of the
extension of this Agreement exceed three (3) calendar months.
ARTICLE 12
NOTICES
All notices required or permitted under this Agreement shall be in writing
and, (i) if by air courier, shall be deemed to have been given one (1) Business
Day after the date deposited with a recognized carrier of overnight mail, with
all freight or other charges prepaid, (ii) if by telegram, shall be deemed to
have been given one (1) Business Day after delivered to the wire service, (iii)
if by telex, provided an answer back is received, shall be deemed to have been
given when sent, (iv) if mailed, shall be deemed to have been given three (3)
Business Days after the date when sent by registered or certified mail, postage
prepaid, and (v) if sent by telecopier, shall be deemed to have been given when
sent, addressed as follows:
ARO: American Resources Offshore, Inc.
3141 Beaumont Centre Circle
Suite 203
Lexington, Kentucky 40513
Attention: President
Telecopier: (606) 514-7425
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BDSI: Blue Dolphin Services, Inc.
801 Travis, Suite 2100
Houston, Texas 77002
Attention: G. Brian Lloyd, Vice President
Telecopier: (713) 227-7626
Either Party to this Agreement may change the address provided for above
by notifying the other Party in writing at least thirty (30) days prior to the
date such address change shall become effective.
ARTICLE 13
GENERAL
13.1 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO ANY
PRINCIPLES OR CONFLICTS OR LAWS.
13.2 ASSIGNMENT. No assignment of this Agreement or any of the rights or
obligations set forth herein by either Party shall be valid without the specific
written consent of the other Party.
13.3 INTEGRATION. This Agreement, the Exhibits hereto and the other
agreements to be entered into by the Parties under the provisions of this
Agreement, if any, set forth the entire agreement and understanding of the
Parties in respect of the transactions contemplated hereby and supersede all
prior agreements, prior arrangements and prior understandings relating to the
subject matter hereof.
13.4 WAIVER OR MODIFICATION. This Agreement may be amended, modified,
superseded or canceled, and any of the terms, covenants, representations,
warranties or conditions hereof may be waived, only by a written instrument
executed by a duly authorized officer of BDSI and ARO, or, in the case of a
waiver or consent, by or on behalf of the Party or Parties waiving compliance or
giving such consent. The failure of any Party at any time or times to require
performance of any provision hereof shall in no manner affect its right at a
later time to enforce the same. No waiver by any Party of any condition, or of
any breach of any covenant, agreement, representation or warranty contained in
this Agreement, in any one or more instances, shall be deemed to be or construed
as a further or continuing waiver of any such condition or breach or waiver of
any other condition or of any breach of any other covenant, agreement,
representation or warranty.
13.5 INVALID PROVISIONS. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, such provision shall be fully severable; this Agreement shall
be construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof; and the remaining provisions of this
Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance from this
Agreement.
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13.6 FORCE MAJEURE. The Parties hereto shall be excused for failure to
perform the respective obligations hereunder (other than a failure relating to
payment obligations imposed hereunder) to the extent that such failure is
directly or indirectly caused by an occurrence commonly known as force majeure,
including, without limitation, delays arising from fire, earthquake, flood or
other acts of God, acts or orders of a government, agency or instrumentality
thereof, acts of a public enemy, riots, embargoes, strikes or other consorted
acts of workers, casualties or accidents, failure or delay in deliveries or
materials or transportation, shortages of labor or materials, communications
failure or any other causes, circumstances or contingencies, that are beyond the
reasonable control of the Party unable to perform. The Party claiming a force
majeure event shall, to the extent reasonably possible, remedy such force
majeure event with all reasonable dispatch.
13.7 MULTIPLE COUNTERPARTS. This Agreement may be executed in a number of
identical counterparts, each of which for all purposes is to be deemed an
original, and all of which constitute, collectively, one agreement; but in
making proof of this Agreement, it shall not be necessary to produce or account
for more than one such counterpart.
13.8 DISPUTE RESOLUTION. All disputes among BDSI and ARO arising out of
any matters which are the subject of this Agreement shall be resolved through
the mediation and binding arbitration procedure set forth in EXHIBIT A.
Compliance with this SECTION 13.8 and the procedures set forth in EXHIBIT A
shall constitute a condition precedent to either Party seeking judicial
enforcement of any provisions of this Agreement. The Parties agree that the
provisions of EXHIBIT A are a severable, independent arbitration agreement
separately enforceable from the remainder of this Agreement.
EXECUTED as of the date first set forth above.
AMERICAN RESOURCES OFFSHORE, INC.
By: /s/ DAVID STETSON
Printed Name: David Stetson
Title: V.P. & General Counsel
BLUE DOLPHIN SERVICES, INC.
By: /s/ JOHN P. ATWOOD
Printed Name: John P. Atwood
Title: Vice President
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EXHIBIT-99.6
FOURTH AMENDMENT TO FIRST
AMENDED AND RESTATED CREDIT AGREEMENT
This Fourth Amendment to First Amended and Restated Credit Agreement (the
"Amendment") is made and entered into as of December 2, 1999, between AMERICAN
RESOURCES OFFSHORE, INC. ("ARO"), and BLUE DOLPHIN EXPLORATION COMPANY ("BDEX").
W I T N E S S E T H:
WHEREAS, American Resources Offshore, Inc., Southern Gas Co. of Delaware,
Inc. ("Southern"), Den norske Bank, ASA ("Den norske Bank") and DNB Energy
Assets, Inc. ("DNB") entered into that certain Third Amendment to First Amended
and Restated Credit Agreement dated as of August 1, 1999 ("Third Amendment");
WHEREAS, pursuant to the Third Amendment, ARO executed a certain
promissory note dated August 1, 1999 in the original principal amount of
$51,223,000 made payable to the order of Den norske Bank (the "$51,223,000
Note");
WHEREAS, a Note Purchase Agreement dated November 11, 1999 was entered
into by and between DNB, Den norske Bank, Blue Dolphin Exploration Company and
Fidelity Oil Holdings, Inc. ("Fidelity") ("Note Purchase Agreement");
WHEREAS, pursuant to the Note Purchase Agreement, BDEX is the owner and
holder of the $51,223,000 Note;
WHEREAS, ARO, BDEX and Fidelity have previously executed the Consent,
Acknowledgment and Ratification;
WHEREAS, pursuant to the Note Purchase Agreement, BDEX was assigned all
rights of Den norske Bank under the Loan Documents (defined below);
WHEREAS, BDEX has agreed, in exchange for ARO undertaking certain
obligations under the terms of the Note Purchase Agreement, to reduce the amount
of the indebtedness previously evidenced by the $51,223,000 Note to the
principal amount of $5,000,000.
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties set forth in this Amendment, the parties hereto agree as follows:
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ARTICLE I
DEFINITIONS
1.01 TERMS DEFINED ABOVE. As used herein, each of the terms "DNB", "Den
norske Bank", "Southern", "ARO", "BDEX", "Note Purchase Agreement", "Third
Amendment" and "$51,223,000 Note" shall have the meaning assigned to such term
hereinabove.
1.02 ADDITIONAL DEFINITIONS. As used herein the following terms shall have
the meanings specified below unless the context otherwise requires:
a. "ARO INDEBTEDNESS" shall mean any and all claims, causes of
action and remedies arising under or related to the $51,223,000 Note
and/or the Collateral Documents.
b. "ASSIGNMENT OF NOTE, CLAIMS, LIENS, SECURITY INTERESTS AND OTHER
RIGHTS" shall mean the Assignment of Note, Claims, Security Interests and
Other Rights executed by DNB Energy Assets, Inc. in favor of Blue Dolphin
Exploration Company pursuant to the Note Purchase Agreement.
c. "CLOSING DATE" shall mean the later of (i) the first business day
after all of the conditions described in Article II shall have been
satisfied or waived, and (ii) the date on which the closing on the Note
Purchase Agreement, Investment Agreement and Property Purchase and Sale
Agreement is completed.
d. "COLLATERAL DOCUMENTS" shall mean the liens, assignments and
security interests evidenced, created and/or perfected pursuant to the
Loan Documents, including, but not limited to, the instruments described
in Exhibit A to the Note Purchase Agreement.
e. "CREDIT AGREEMENT" shall mean the First Amended and Restated
Credit Agreement dated November 1, 1997 by and between ARO, Southern Gas
Co. of Delaware, Inc. and DNB as amended by the First Amendment to First
Amended and Restated Credit Agreement dated March 5, 1998, the Second
Amendment to First Amended and Restated Credit Agreement dated October 1,
1998, the Third Amendment to First Amended and Restated Credit Agreement
dated August 1, 1999 between ARO, Den norske Bank and DNB and this Fourth
Amendment to the First Amended and Restated Credit Agreement.
f. "EVENT OF DEFAULT" shall have the same meaning as set forth in
Article IX.
g. "INVESTMENT AGREEMENT" shall mean that certain Investment
Agreement dated as of July 30, 1999 between ARO and BDEX.
h. "LOAN DOCUMENTS" shall mean the ARO Note, Credit Agreement,
Collateral Documents and Mortgage Amendment, together with all documents,
instruments and
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agreements executed in connection therewith including, without
limitation, the mortgages and security agreements.
i. "MORTGAGE AMENDMENT" shall mean an Act of Amendment of Act of
Mortgage and Security Agreement in the form of Exhibit A.
j. "PARTIAL RELEASE OF LIEN" shall mean the instrument by that title
delivered to Fidelity by Den norske Bank on the Closing Date pursuant to
Section 4.02(e) of the Note Purchase Agreement.
k. "PROPERTY PURCHASE AND SALE AGREEMENT" shall mean that certain
Purchase and Sale Agreement dated July 30, 1999 between ARO and Fidelity.
l. "RELATED INTERESTS" shall mean all liens, assignments, security
interests, rights and remedies arising under or relating to the Loan
Documents.
m. "REPLACEMENT NOTE" shall mean a promissory note by ARO payable to
BDEX of even date with this Amendment in the original principal amount of
$5,000,000 in the form of Exhibit B.
ARTICLE II
CONDITIONS
2.01 The obligations of BDEX to amend the Credit Agreement as provided
herein is subject to satisfaction of the following conditions precedent:
a. RECEIPT OF LOAN DOCUMENTS AND OTHER ITEMS. BDEX shall have
received multiple counterparts, as requested by BDEX, of the following
documents and other items, appropriately executed when necessary and in
form and substance
satisfactory to BDEX:
(i) this Amendment executed by ARO;
(ii) the Replacement Note in partial renewal and
modification, but not in full discharge or novation of
the $51,223,000 Note, executed by ARO; and
(iii) the Mortgage Amendment executed by ARO; and
(iv) such other agreements, documents, instrument, opinions,
certificates, waivers, consents, and evidence as BDEX
may reasonably request.
b. MATTERS SATISFACTORY TO BDEX. All matters incident to the
consummation of the transactions hereby contemplated shall be reasonably
satisfactory to BDEX.
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c. REPRESENTATIONS AND WARRANTIES OF ARO. The representations and
warranties of ARO contained in (i) Article VII of this Amendment, (ii) the
Mortgage Amendment, and (iii) Article IV of the Credit Agreement, shall be
true and correct in all material respects on and as of the Closing Date,
with the same effect as though such representations and warranties had
been made on and as of each such date.
d. PERFORMANCE OF COVENANTS AND AGREEMENTS. ARO shall have performed
and complied with all covenants, agreements and obligations contained in
this Agreement required to be performed or complied with by it prior to or
on the Closing Date.
e. INVESTMENT AGREEMENT TRANSACTION. No amendment of the Investment
Agreement shall have occurred except as consented to in writing by BDEX
and the transactions contemplated in the Investment Agreement shall close
simultaneously with the transactions contemplated by this Amendment
without waiver of any conditions precedent to the obligation of any party
thereto, except those which have been consented to in writing by BDEX.
f. PROPERTY PURCHASE AND SALE AGREEMENT. No amendment of the
Property Purchase and Sale Agreement shall have occurred except as
consented to in writing by Fidelity and the transactions contemplated in
the Property Purchase and Sale Agreement shall close simultaneously with
the transactions contemplated by this Amendment without waiver of any
conditions precedent to the obligation of any party thereto, except those
which have been consented to in writing by Fidelity.
g. NOTE PURCHASE AGREEMENT. No amendment of the Note Purchase
Agreement shall have occurred except as consented to in writing by BDEX
and the transactions contemplated in the Note Purchase Agreement shall
close simultaneously with the transactions contemplated by this Amendment
without waiver of any conditions precedent to the obligation of any party
thereto, except those which have been consented to in writing by BDEX.
h. CONSENTS AND LITIGATION. ARO shall have obtained all required
third party consents to the transactions contemplated by this Amendment
and all statutory requirements for valid consummation of the transactions
contemplated by this Amendment shall have been fulfilled and all necessary
governmental consents, approvals or reauthorizations shall have been
obtained. There shall not have been filed or threatened any suit, action
or other proceeding (including any investigation of any governmental
agency) to restrain or invalidate the transactions contemplated by this
Amendment and no order, writ, injunction, or decree shall have been
entered or be in effect that restrains, enjoins or limits the transactions
contemplated by this Amendment.
i. SUPPORTING DOCUMENTS. BDEX and its counsel shall have received
prior to or on the Closing Date reasonably satisfactory evidence that ARO
has full power and
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authority and has taken all corporate actions necessary to execute and
deliver this Amendment and consummate the transactions contemplated hereby
and perform all of its obligations hereunder.
ARTICLE III
ACKNOWLEDGMENT
ARO acknowledges and agrees that as of the date of this Agreement, after
giving effect to all payments (including the proceeds from (i) the Property
Purchase and Sale Agreement, and (ii) the Investment Agreement paid to Den
norske Bank) and prior to giving effect to the reduction provided for in this
Agreement, the unpaid principal balance due and owing on the $51,223,000 Note
was $24,223,000, net of all claims and offsets. BDEX acknowledges and agrees
that it has agreed to reduce the unpaid balance due and owing on the $51,223,000
Note to $5,000,000 which shall be evidenced by the Replacement Note.
ARTICLE IV
RATIFICATION OF LIENS
ARO hereby adopts, ratifies and confirms the Credit Agreement and the
other Loan Documents, in all things in accordance with the terms and provisions
thereof as amended. ARO hereby confirms and agrees that any and all mortgages,
liens, security interests and other security or collateral acquired by BDEX
pursuant to the Note Purchase Agreement (which excludes the property conveyed by
ARO to Fidelity pursuant to the Property Purchase and Sale Agreement) and/or
Assignment of Note, Claims, Liens, Security Interests and Other Rights (subject
to the Partial Release of Lien) as security for payment and performance of the
ARO Indebtedness hereby are renewed and carried forth to secure payment and
performance of the Replacement Note.
ARTICLE V
CONDITIONAL RELEASE
Subject to strict adherence to the terms and conditions contained in this
Amendment, if an Event of Default has not occurred on or before December 31,
2000, BDEX agrees to execute and deliver to ARO a release of the obligation
evidenced by the Replacement Note. All liens created pursuant to the Loan
Documents and this Agreement shall remain in effect after release of the
Replacement Note to secure the performance by ARO of its obligations under the
Note Purchase Agreement. Provided that no Event of Default has occurred, BDEX
shall, on December 31, 2001, release the liens created pursuant to the Loan
Documents and this Agreement. Time is of the essence with respect to the
satisfaction of the obligations and requirements set forth in this Amendment.
Any right to a release created by this Amendment terminates immediately upon the
occurrence of an Event of Default. No credit against or discount on the
Replacement Note shall be earned by partial performance of the requirements.
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ARTICLE VI
MORATORIUM
Prior to the occurrence of an Event of Default of the type described in
Section 9.01 of this Agreement, BDEX will forbear from exercising or enforcing
any right under the Credit Agreement.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
ARO, effective as of the Closing Date, hereby expressly makes, in favor of
BDEX, all of the representations and warranties contained in or incorporated in
the Third Amendment to First Amended and Restated Credit Agreement between
American Resources Offshore, Inc., DNB Energy Assets, Inc., and Den norske Bank,
ASA, dated August 1, 1999.
ARTICLE VIII
RELEASE BY ARO
ARO acknowledges, confesses and agrees that, to the extent that any
existing facts, events, or conditions constitute a basis for any claims,
actions, demands, causes of action of whatever kind or character, whether joint
or several, whether known or unknown, which may have arisen or occurred prior to
the date of execution of this Amendment, including but not limited to any claim,
demand, cause of action or liability for any and all injuries, harm, damages,
penalties, costs, losses, expenses, attorneys' fees, and/or liabilities
whatsoever (including any defense, counterclaim or right of setoff to the
payment or performance of any obligations or indebtedness of ARO), whenever
incurred or suffered by any of them, including, without limitation, any claim,
demand, action, damages, liability, loss, cost, expense, and/or detriment, of
any kind or character, growing out of or in any way connected with or in any way
resulting from any breach of any duty of loyalty, fair dealing, care, fiduciary
duty, or any other duty, confidence, or commitment, undue influence, duress,
economic coercion, conflict of interest, negligence, willful misconduct, bad
faith, violations of the racketeer influence and corrupt organizations act,
intention or negligence infliction of distress or harm, tortuous interference
with corporate governance or prospective business advantage, breach of contract,
failure to perform any obligation under any of the Loan Documents, deceptive
trade practices, libel, slander, conspiracy, interference with business, usury,
strict liability, lender liability, breach of warranty or representation, fraud,
or any other claim or cause of action (herein being collectively referred to as
"Claims"), American Resources Offshore, Inc., hereby, for itself, its
subsidiaries, its representatives, agents, officers, directors, employees,
shareholders, successors, heirs and assigns (collectively called the "Releasing
Parties"), knowingly and willfully, fully, finally and completely release,
discharge, waive, acquit and relinquish BDEX and its representatives, agents,
officers, directors, employees, shareholders and successors and assigns
(collectively called the "Released Parties") from the Claims. It is the intent
of all parties hereto that upon execution of the Amendment all Claims shall be
released and extinguished. IT IS EXPRESSLY AGREED
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THAT THE CLAIMS RELEASED HEREBY INCLUDE THOSE ARISING FROM OR IN ANY MANNER
ATTRIBUTABLE TO THE NEGLIGENCE (SOLE, CONCURRENT, ORDINARY OR OTHERWISE),
WILLFUL MISCONDUCT, OR OTHER CONDUCT OF ANY OF THE RELEASED PARTIES.
Notwithstanding any provision of this Amendment or any other Loan Documents,
this section shall remain in full force and effect and shall survive the
delivery and payment of the Replacement Note, this Amendment and the other Loan
Documents and the making, extension, renewal, modification, amendment or
restatement of any thereof. BDEX has no obligation or liability to advance any
funds to ARO.
ARTICLE IX
EVENTS OF DEFAULT
9.01 EVENTS OF DEFAULT DURING THE MORATORIUM PERIOD. During the moratorium
period provided for in Article VI, the occurrence of any one or more of the
following events shall constitute an Event of Default:
a. Any representation, warranty, certification or statement by ARO
in this Amendment or in any certificate or other document delivered
pursuant to this Amendment shall prove to have been incorrect in any
material respect when made or deemed to have been made and is not cured by
ARO within ten (10) business days after written notice thereof has been
given to ARO by BDEX.
b. Any representation, warranty, certification or statement by ARO
in the Investment Agreement or in any certificate or other document
delivered pursuant to the Investment Agreement shall prove to have been
incorrect in any material respect when made or deemed to have been made
and is not cured by ARO within ten (10) business days after written notice
thereof has been given to ARO by BDEX.
c. Any representation, warranty, certification or statement by ARO
in the Mortgage Amendment or in any certificate or other document
delivered pursuant to the Mortgage Amendment shall prove to have been
incorrect in any material respect when made or deemed to have been made
and is not cured by ARO within ten (10) business days after written notice
thereof has been given to ARO by BDEX.
d. If not released pursuant to Article V, the failure of ARO to pay
when due the full indebtedness evidenced by the Replacement Note.
e. The failure of ARO to timely satisfy its obligations to Den
norske Bank under the Note Purchase Agreement.
9.02 EVENTS OF DEFAULT AFTER EXPIRATION OF MORATORIUM PERIOD. Upon
termination of the moratorium period provided for in Article VI, Events of
Default shall include those set forth in the Credit Agreement.
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9.03 REMEDIES. Upon the occurrence of an Event of Default of the type
described in Section 9.01 (i) the moratorium period provided pursuant to Article
VI shall terminate immediately, without notice, demand or presentment, all of
which are hereby waived, and (ii) any right pursuant to Article V shall
terminate immediately, without notice, demand or presentment, all of which are
hereby waived. In addition to any other provision of this Amendment or any Loan
Document, BDEX shall have all rights, remedies and recoveries now or hereafter
existing in equity, at law or by virtue of statute or otherwise.
ARTICLE X
MISCELLANEOUS
10.01 CREDIT AGREEMENT AS AMENDED. All reference to the Credit Agreement
in any document heretofore or hereafter executed in connection with the
transactions contemplated in the Credit Agreement shall be deemed to refer to
the Credit Agreement as amended
by this Amendment.
10.02 PARTIES IN INTEREST. All provisions of this Amendment shall be
binding upon and shall inure to the benefit of ARO and BDEX and their respective
successors and assigns.
10.03 RIGHTS OF THIRD PARTIES. All provisions herein are imposed solely
and exclusively for the benefit of ARO and BDEX and no other person shall have
standing to require satisfaction of such provisions in accordance with their
terms and any or all of such provisions may be freely waived in whole or in part
by BDEX at any time if in its sole discretion it deems it advisable to do so.
10.04 INDEMNIFICATION. As additional consideration to the execution,
delivery, and performance of this Amendment by the parties hereto and to induce
BDEX to enter into this Amendment, ARO hereby agrees to indemnify, hold
harmless, and defend each of the Released Parties from and against any and all
Claims of any nature or character, at law or in equity, known or unknown, which
may have arisen prior to the date hereof, or accrued to, or could be claimed or
asserted by, any third party prior to the date hereof, INCLUDING WITHOUT
LIMITATION, ANY CLAIMS ARISING OUT OF OR IN ANY MANNER ATTRIBUTABLE TO THE
NEGLIGENCE (SOLE, CONCURRENT, ORDINARY OR OTHERWISE), OF ANY OF THE RELEASED
PARTIES. Notwithstanding any provision of this Amendment or any other Loan
Document, this section shall remain in full force and effect and shall survive
the delivery and payment of the Replacement Note, this Amendment and the other
Loan Documents and the making, extension, renewal, modification, amendment or
restatement of any thereof. Notwithstanding the above language, this
indemnification shall not be deemed to impair or be applicable to ARO's rights
to assert a claim against the Released Parties which may result from a breach by
BDEX of the Investment Agreement
10.05 ENTIRE AGREEMENT. THIS AMENDMENT CONSTITUTES THE ENTIRE AGREEMENT
BETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF AND SUPERSEDES ANY
PRIOR AGREEMENT, WHETHER WRITTEN OR ORAL,
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BETWEEN SUCH PARTIES REGARDING THE SUBJECT HEREOF. FURTHERMORE IN THIS REGARD,
THIS AMENDMENT, THE CREDIT AGREEMENT, THE REPLACEMENT NOTE, THE SECURITY
INSTRUMENTS, AND OTHER WRITTEN DOCUMENTS REFERRED TO IN THE CREDIT AGREEMENT OR
EXECUTED IN CONNECTION WITH OR AS SECURITY FOR THE REPLACEMENT NOTE REPRESENT,
COLLECTIVELY, THE FINAL AGREEMENT AMONG THE PARTIES THERETO AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE
PARTIES.
10.06 GOVERNING LAW. THIS AMENDMENT AND THE REPLACEMENT NOTE SHALL BE
DEEMED TO BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES
THEREOF RELATING TO CONFLICTS OF LAW.
10.07 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH RESPECT TO,
ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO, OR FROM
THIS AMENDMENT OR ANY OTHER LOAN DOCUMENT MAY BE LITIGATED, AT THE SOLE
DISCRETION AND ELECTION OF BDEX, IN COURTS HAVING SITUS IN HOUSTON, TEXAS. ARO
SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE, OR FEDERAL COURT LOCATED IN
HOUSTON, TEXAS, AND HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE
THE JURISDICTION OR VENUE OF ANY LITIGATION BROUGHT AGAINST IT BY BDEX IN
ACCORDANCE WITH THIS SECTION.
IN WITNESS WHEREOF, this Fourth Amendment to the First Amended and
Restated Credit Agreement is executed as of the date first hereinabove written.
AMERICAN RESOURCES OFFSHORE, INC.
By: /s/ DAVID STETSON
Name: David Stetson
Title: V.P. & General Counsel
BLUE DOLPHIN EXPLORATION
COMPANY
By: /s/ JOHN P. ATWOOD
Name: John P. Atwood
Title: Vice President
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FOURTH AMENDMENT TO FIRST
AMENDED AND RESTATED CREDIT AGREEMENT
EXHIBITS
EXHIBIT A Act of Amendment of Act of Mortgage and Security Agreement
EXHIBIT B Replacement Note
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EXHIBIT 99.7
CONSENT, ACKNOWLEDGMENT AND RATIFICATION
The parties to this Consent, Acknowledgment and Ratification are American
Resources Offshore, Inc. and Blue Dolphin Exploration Company ("Purchaser") and
Fidelity Oil Holdings, Inc. ("Fidelity").
R E C I T A L S
WHEREAS, DNB Energy Assets, Inc., Den norske Bank, ASA, Blue Dolphin
Exploration Company and Fidelity Oil Holdings, Inc. have entered into a Note
Purchase Agreement ("Note Purchase Agreement").
WHEREAS, this Consent, Acknowledgment and Ratification Agreement is an
exhibit to the Note Purchase Agreement.
WHEREAS, this Consent, Acknowledgment and Ratification Agreement is
executed by American Resources Offshore, Inc. to induce Purchaser to enter into
the Note Purchase Agreement and assuming the conditions therein are satisfied to
close on the transactions provided for in the Note Purchase Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
All capitalized terms herein which are defined in the Note Purchase
Agreement shall have the same meaning herein unless otherwise defined herein or
the context otherwise requires.
ARTICLE II
CONSENT
American Resources Offshore, Inc. hereby consents to (i) the terms and
provisions of the Note Purchase Agreement, and the Assignment of Note, Claims,
Liens, Security Interests and Other Rights, and (ii) DNB Energy Assets, Inc.,
Den norske Bank, ASA, and Purchaser taking the actions provided for in the Note
Purchase Agreement and the Assignment of Note, Claims, Liens, Security Interests
and Other Rights.
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ARTICLE III
OBLIGATION TO SELLER
Effective as of the Closing Date, American Resources Offshore, Inc. agrees
to the obligations set forth in Section 13.01 of the Note Purchase Agreement and
to indemnify and hold Purchaser harmless from and against any and all claims,
liabilities, lawsuits, costs and expenses of any kind, including without
limitation, reasonable attorneys' fees, arising out of or related to the
obligations of American Resources Offshore, Inc. to Seller that are contained in
Section 13.01 of the Note Purchase Agreement.
ARTICLE IV
APPLICATION OF PURCHASE PRICE PAID PURSUANT TO
THE PROPERTY PURCHASE AND SALE AGREEMENT
The Adjusted Purchase Price (as defined in the Property Purchase and Sale
Agreement) shall be paid by Fidelity to Den norske Bank in accordance with the
terms of the Note Purchase Agreement. The Adjusted Purchase Price (as defined in
the Property Purchase and Sale Agreement) shall be applied by Den norske Bank
against the balance owed by ARO on the ARO Note. ARO and Fidelity agree that the
conditions to Closing set forth in Section 9.2 of the Property Purchase and Sale
Agreement and the obligations of Fidelity under the Property Purchase and Sale
Agreement, including those set forth in Article 3 and Section 11.2 of the
Property Purchase and Sale Agreement relating to payment of the Adjusted
Purchase Price, and any such condition or obligation of Fidelity shall be deemed
satisfied by Fidelity paying to Den norske Bank a sum equal to the Adjusted
Purchase Price (as defined in the Property Purchase and Sale Agreement) in
accordance with the Note Purchase Agreement.
ARTICLE V
APPLICATION OF PURCHASE PRICE PAID
PURSUANT TO THE INVESTMENT AGREEMENT
Notwithstanding the language of the Investment Agreement (including, but
not limited to Article 1 and Section 6.2(a)(13) thereof) to the contrary, a
portion of the Purchase Price (as defined in Section 1.4(a) of the Investment
Agreement) shall be paid by BDEX to Den norske Bank in accordance with the terms
of the Note Purchase Agreement. Notwithstanding the language of the Property
Purchase and Sale Agreement to the contrary, the Purchase Price (as defined in
Section 3.1 of the Property Purchase and Sale Agreement) shall be paid by
Fidelity to Den norske Bank in accordance with the terms of the Note Purchase
Agreement. Such payment shall be applied by Den norske Bank against the balance
owed by ARO on the ARO Note. Such payment shall be applied by Den norske Bank
against the balance owed by ARO on the ARO Note. ARO and BDEX agree that the
conditions to closing set forth in 6.2(a)(13) of the Investment Agreement and
the obligations of BDEX under the Investment Agreement, including those set
forth in Article 1 of the Investment Agreement relating to payment of the
Purchase Price (as defined in Section 1.4(a) of the Investment Agreement), and
any such conditions or obligations of BDEX shall be deemed satisfied by BDEX
paying to ARO that portion of the Purchase Price in excess of that to be paid to
Den norske Bank in accordance with the Note Purchase Agreement.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES
American Resources Offshore, Inc., effective as of the Closing Date,
hereby expressly makes, in favor of Purchaser, all of the representations and
warranties contained in or incorporated in the Third Amendment to First Amended
and Restated Credit Agreement between American Resources Offshore, Inc., DNB
Energy Assets, Inc., and Den norske Bank, ASA, dated August 1, 1999.
ARTICLE VII
ACKNOWLEDGMENT
American Resources Offshore, Inc. acknowledges that as of August 1, 1999
the ARO Indebtedness was $51,223,000, net of any claims or offsets and exclusive
of any obligation as guarantor of the indebtedness of Southern Gas Co. of
Delaware, Inc.
ARTICLE VIII
RATIFICATION OF LIENS
Effective as of the Closing Date, American Resources Offshore, Inc does
hereby adopt, ratify, and confirm the Credit Agreement and the other Loan
Documents, in all things in accordance with the terms and provisions thereof, as
amended. Effective as of the Closing Date, American Resources Offshore, Inc.
hereby grants and assigns to Purchaser a mortgage, lien and security interest in
the property described therein, (excluding the property conveyed by ARO to
Fidelity pursuant to the Property Purchase and Sale Agreement), to secure
payment and performance of the ARO Note and the ARO Indebtedness. American
Resources Offshore, Inc. hereby confirms and agrees that any and all mortgages,
liens, security interests and other security or collateral acquired by Purchaser
pursuant to the Note Purchase Agreement and/or Assignment of Note, Claims,
Liens, Security Interests and Other Rights, (subject to the Partial Release of
Lien), as security for payment and performance of the ARO Indebtedness hereby
are renewed and carried forth to secure payment and performance of all of the
ARO Indebtedness.
ARTICLE IX
WAIVERS AND RELEASE OF CLAIMS
9.01 American Resources Offshore, Inc. agrees to execute and deliver
original counterparts of the following at Closing in accordance with the terms
of the Note Purchase Agreement: (i) the Seller Partial Release of ARO, (ii) the
DNB Release of ARO, and (iii) the Subordination Agreement.
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9.02 American Resources Offshore, Inc. acknowledges, confesses and agrees
that, to the extent that any existing facts, events or conditions constitute a
basis for any claims, actions, demands, or causes of action of whatever kind or
character, whether joint or several, whether known or unknown, which may have
arisen or accrued prior to the date of execution of this Consent, Acknowledgment
and Ratification, including, but not limited to, any claim, demand, cause of
action or liability for any and all injuries, harm, damages, penalties, costs,
losses, expenses, attorneys' fees, and/or liabilities whatsoever (including any
defense, counterclaim or right of setoff to the payment or performance of any
obligations or indebtedness of American Resources Offshore, Inc.), whenever
incurred or suffered by it, including, without limitation, any claim, demand,
action, damage, liability, loss, cost, expense, and/or detriment, of any kind or
character, growing out of or in any way connected with or in any way resulting
from any breach of any duty of loyalty, fair dealing, care, fiduciary duty, or
any other duty, confidence, or commitment, undue influence, duress, economic
coercion, conflict of interest, negligence, willful misconduct, bad faith,
violations of the racketeer influence and corrupt organizations act, intentional
or negligent infliction of distress or harm, tortuous interference with
contractual relations, tortuous interference with corporate governance or
prospective business advantage, breach of contract, failure to perform any
obligation under any of the Loan Documents, deceptive trade practices, libel,
slander, conspiracy, interference with business, usury, strict liability, lender
liability, breach of warranty or representation, fraud, or any other claim or
cause of action (herein being collectively referred to as "Claims"), American
Resources Offshore, Inc., hereby, for itself, its subsidiaries, its
representatives, agents, officers, directors, employees, shareholders,
successors, heirs and assigns (collectively called the "Releasing Parties"),
knowingly and willfully, fully, finally and completely release, discharge, waive
and acquit DNB Energy Assets, Inc., Den norske Bank, ASA, Fidelity Oil Holdings,
Inc. and Purchaser and their respective representatives, agents, officers,
directors, employees, shareholders, and successors and assigns (collectively
called the "Released Parties") from the Claims. It is the intent of all parties
hereto that upon the Closing Date all Claims shall be released and extinguished.
IT IS EXPRESSLY AGREED THAT THE CLAIMS RELEASED HEREBY INCLUDE THOSE ARISING
FROM OR IN ANY MANNER ATTRIBUTABLE TO THE NEGLIGENCE (SOLE, CONCURRENT, ORDINARY
OR OTHERWISE), WILLFUL MISCONDUCT, OR OTHER CONDUCT OF ANY OF THE RELEASED
PARTIES. Notwithstanding any provision of this Consent, Acknowledgment and
Ratification or any Loan Document, this Agreement shall remain in full force and
effect and shall survive the delivery and payment of the ARO Note and the Loan
Documents, and the making, extension, renewal, modification, amendment or
restatement of any thereof.
ARTICLE X
AMENDMENT
No amendment to the Note Purchase Agreement shall be binding upon ARO
unless consented to in writing by ARO.
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ARTICLE XI
THIRD PARTY BENEFICIARY
Den norske Bank, ASA and DNB Energy Assets, Inc. are intended third
party beneficiaries of this Agreement
EXEUCTED this 19th day of November, 1999.
BLUE DOLPHIN ENERGY COMPANY
By: /s/ JOHN P. ATWOOD
John P. Atwood
Vice President
AMERICAN RESOURCES OFFSHORE,
INC.
By: /s/ DAVID J. STETSON
Its: V.P. & General Counsel
FIDELITY OIL HOLDINGS, INC.
By: /s/ FRED D. WOSICK
Its: VP-Operations and Acquisitions
5
EXHIBIT 99.8
EXECUTION VERSION
CONSULTING AGREEMENT
This Consulting Agreement (this "AGREEMENT"), is entered into as of the
30 day of July, 1999, by and between American Resources Offshore, Inc., a
Delaware corporation, ("ARO") and MAP II, L.L.C., a Kentucky limited liability
company ("CONSULTANT"). ARO and Consultant may be referred to herein as
collectively, the "PARTIES" or individually as a "PARTY".
RECITALS:
A. As a condition to closing the transactions between ARO and Blue Dolphin
Exploration Company pursuant to that certain Investment Agreement dated
effective as of July, 1999, (the "INVESTMENT AGREEMENT"), ARO has agreed to
enter into a consulting agreement with Consultant.
B. The Parties desire to enter into an agreement setting forth the terms
and conditions under which Consultant will provide services to ARO in
fulfillment of the conditions of the Investment Agreement.
NOW, THEREFORE, for and in consideration of these premises and of the
mutual covenants and agreements set out herein, the Parties agree as follows:
AGREEMENTS:
1. SERVICES AS A CONSULTANT. ARO does hereby agree to employ, and
Consultant agrees to provide, the services of Consultant, such services to be
performed in the capacity of a consulting representative in connection with the
ongoing business of ARO. The services to be provided by Consultant to ARO
pursuant to this Agreement shall include the following:
(a) Advising and consulting with ARO from time to time as reasonably
requested by ARO or its duly authorized representatives in connection with
the ongoing operations and development of the business of ARO;
(b) Advising and consulting with ARO in the preparation of filings
required with the Securities and Exchange Commission;
(c) Advising and consulting with ARO in connection with all
financial reporting;
(d) Advising and consulting with ARO in connection with the conduct
of audits of ARO by ARO's auditors; and
<PAGE>
(e) Make available, from time to time and with reasonable notice,
the services of Rick Avare, David Stetson, Ralph Curry and Karen Underwood
in connection with the consulting services provided for in (a)-(d) above.
Notwithstanding the foregoing, if any of the above referenced individuals
(i) terminates his or her employment with consultant or (ii) dies or
becomes incapacitated rendering such individual unable to perform the
services, this Agreement shall not be terminated and the compensation
provided for in paragraph 4 below shall not be reduced by ARO so long as
the services can be and are performed by any one of the individuals
specified.
2. NO MANAGEMENT RESPONSIBILITY. Consultant assumes no responsibility
under this Agreement other than to render the consulting services provided for
herein in good faith. This Agreement does not delegate to Consultant any
management responsibility or decision-making powers with respect to ARO.
3. TERM. This Agreement shall commence upon the closing of the
transactions contemplated by the Investment Agreement and shall continue until
February 28, 2001 (the "TERM OF EMPLOYMENT") unless sooner terminated pursuant
to the provisions of this Agreement.
4. COMPENSATION. ARO shall pay to Consultant during the term of this
Agreement a fee of $35,000 per month for services rendered pursuant to this
Agreement by Consultant. In the event the term of this Agreement commences after
the first day of any month, the compensation to be paid to Consultant for the
partial month shall be proportionately reduced. Consultant shall not participate
in any group health, accident and life insurance plans, or any pension or other
benefit plan sponsored by ARO. In performing the consulting services, Consultant
shall not be required to incur any out-of-pocket expenses unless ARO has agreed
to reimburse Consultant for each out-of-pocket expense.
5. NON-EXCLUSIVE SERVICES. Consultant and ARO agree that the services
provided hereunder are not being provided on a "full time" basis and that,
during the term of this Agreement, Consultant shall be free to do any work,
perform any services, or serve as a consultant for a third party unless such
activity would cause or be a conflict of interest with ARO.
6. CONFIDENTIALITY. Consultant recognizes that during the term of this
Agreement, Consultant may have access to confidential and proprietary
information and trade secrets of ARO. Consultant agrees that he will not
divulge, distribute or disseminate any such information to any third party
during the term of this Agreement or for any period thereafter.
7. PERSONAL SERVICES CONTRACT. Consultant acknowledges and agrees that
this Agreement is a personal services contract and may not be assigned by
Consultant.
8. TERMINATION. This Agreement may be terminated prior to the end of the
Term of Employment as follows:
(a) By the Parties upon the mutual written consent of both Parties;
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(b) By ARO if Consultant (i) breaches any covenant, term or
condition contained in this Agreement (ii) commits an act of theft, fraud
or dishonesty against ARO or (iii) fails or refuses to perform the
services to be provided by Consultant pursuant to this Agreement;
(c) By Consultant if ARO breaches any covenant, term or condition of
this Agreement; and
(d) Pursuant to the terms of paragraph 4 above.
If this Agreement is terminated pursuant to (a), (b) or (c) above, any
obligations of ARO to pay consulting fees to Consultant as provided herein,
shall terminate effective as of the date of termination of this Agreement, said
fees to be prorated through the date of termination. If Consultant terminates
this Agreement pursuant (c) above, Consultant shall be entitled to the fees that
would be due to Consultant during the remainder of the term of this Agreement,
if, and only if, the breach of this Agreement by ARO which has occurred giving
rise to Consultant's termination pursuant to (c) above is the non-payment of
fees or expenses to which Consultant is entitled and such breach has continued
for a period of ninety (90) consecutive days.
9. MISCELLANEOUS.
9.1 INDEPENDENT CONTRACTOR. Nothing contained in this Agreement
shall be construed to as a partnership agreement and Consultant shall not be
deemed to be an employee or agent of ARO. Neither Party has any authority to
bind the other in any respect, it being intended that Consultant is an
independent contractor responsible for his own actions.
9.2 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. ARO AND CONSULTANT AGREE THAT
IN THE EVENT OF A DISPUTE ARISING BETWEEN THE PARTIES, THE PARTIES AGREE TO
SUBJECT THEMSELVES TO THE JURISDICTION OF THE DISTRICT COURTS OF HARRIS COUNTY,
TEXAS, AND THE FEDERAL DISTRICT COURTS FOR THE SOUTHERN DISTRICT OF TEXAS,
HOUSTON DIVISION.
9.3 MODIFICATIONS. No provision of this Agreement may be changed or
modified, except by written agreement signed by the Parties.
9.4 LEGAL COMPLIANCE. Consultant agrees to abide by all applicable
laws and regulations, both state and federal, in the performance of his duties
pursuant to this Agreement.
9.5 ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the Parties in connection with the subject matter hereof and
supersedes all previous verbal or written agreements.
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9.6 NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be considered to have been given if sent
by certified mail to Consultant at:
MAP II, L.L.C.
1532 Lakewood Drive
Lexington, Kentucky 40502
and to ARO at:
American Resources Offshore, Inc.
c/o Blue Dolphin Services, Inc.
801 Travis, Suite 2100
Houston, Texas 77002
Attention: John P. Atwood
Telecopier: (713) 227-7626
9.7 INVALIDITY. If any of the provisions of this Agreement shall be
held invalid, such invalidity shall not affect any other provisions which can be
given effect without the invalid provisions and to this end, the provisions of
this Agreement are intended to be and shall be deemed severable.
9.8 DESCRIPTIVE HEADINGS. The descriptive headings of the several
sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any provision hereof.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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SIGNATURE PAGE FOR
CONSULTING AGREEMENT
IN WITNESS THEREOF, this Agreement has been executed as of the date first
written above.
AMERICAN RESOURCES OFFSHORE, INC.
By: /s/ DAVID STETSON
Printed Name: David Stetson
Title: V.P. & General Counsel
MAP II, L.L.C.
By: /s/ RICK G. AVARE
Printed Name: Rick G. Avare
Title: Administrative Member
The undersigned hereby executes this Agreement for the sole purpose of
guaranteeing the payments to be made by ARO to Consultant as provided in
paragraph 4.
BLUE DOLPHIN EXPLORATION COMPANY
/s/ JOHN P. ATWOOD
John P. Atwood, Vice President
Finance & Corporate Development
<PAGE>
MAP II, LLC
3141 BEAUMONT CENTRE CIRCLE
SUITE 203
LEXINGTON, KY 40513
606-514-7425
606-514-7428 (FAX)
December 2, 1999
AMERICAN RESOURCES OFFSHORE, INC.
Attn:John P. Atwood, Vice President and Secretary
801 Travis
Suite 2100
Houston, Tx 77002
Dear Mr. Atwood:
The purpose of this letter is to establish the commencement date of the
CONSULTING AGREEMENT between American Resources Offshore, Inc. and MAP II, LLC.
As set forth in Section 3 of the CONSULTING AGREEMENT, the commencement date is
the same date as the closing of the transactions comtemplated by the INVESTMENT
AGREEMENT, which is December 2, 1999. By joint agreement, the Parties establish
the commencement date as December 15, 1999, and that the compensation set forth
in Section 4 will be $17,500 for the month of December, 1999. The compensation
will be $35,000 for the remainder of the term ending February 28, 2001.
Please acknowledge your concurrence with the above by signing below.
Sincerely,
MAP II, LLC
By: RICK G. AVARE
Rick G. Avare
Member
AMERICAN RESOURCES OFFSHORE, INC.
By: JOHN P. ATWOOD
John P. Atwood
Vice President and Secretary
<PAGE>
