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
August 2, 1999
- -----------------------------------------------------------------
Date of Report (Date of earliest event reported)
AMERICAN RESOURCES OF DELAWARE, INC.
- -----------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware
- -----------------------------------------------------------------
(State or other jurisdiction of incorporation)
0-21472 86-0713506
- -----------------------------------------------------------------
(Commission File Number) (IRS Employer Identification No.)
160 Morgan Street
P. O. Box 87
Versailles, Kentucky 40383
- -----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(606)873-5455
- -----------------------------------------------------------------
(Registrant's Telephone Number, including Area Code)
Not Applicable
- -----------------------------------------------------------------
(Former name or former address, if changed since last report)
Item 1.Changes in Control of Registrant. Not Applicable.
Item 2. Acquisition or Disposition of Assets. On August 2,
1999, the Registrant executed a Purchase and Sale Agreement
(attached hereto as Exhibit 10.98) for the divestiture of an
undivided 80% interest in its Gulf of Mexico properties to
Fidelity Oil Holdings, Inc. ("Fidelity") and an Investment
Agreement (attached hereto as Exhibit 10.99) for the sale of a
75% ownership interest in the Registrant through the issuance of
new shares to Blue Dolphin Exploration Company ("BDEX").
The total purchase price for the Registrant's stock and Gulf
of Mexico properties is approximately $30.25 million and is
subject to adjustments for operations of the Registrant from the
effective date of January 1, 1999. The Closing of these
transactions is subject to numerous conditions, including but not
limited to, shareholder approval, simultaneous closing of each
transaction, satisfaction of all debts and obligations of the
Registrant as of December 31, 1998 and the consent of the
Registrant's primary lender, Den norske Bank ("Bank"). In order
to assure that the Registrant's representations in the Investment
Agreement will be accurate post-closing, BDEX will acquire a
portion of the secured indebtedness from the Bank at a nominal
cost to BDEX. At a post-closing date to be determined, the
Registrant's indebtedness will be cancelled once BDEX has
confirmed that the Registrant has complied fully with its
representations, warranties and obligations. There are no
assurances the Registrant will be able to satisfy this
requirement; and in that event, BDEX would have the right to
enforce the secured indebtedness.
The Registrant anticipates that the closing will occur
during the fourth quarter of this year.
The Registrant also announced that it has agreed in
principle to the divestiture of its Appalachian properties to a
third party in exchange for the assumption of $12.5 million of
indebtedness from the Bank. The Registrant anticipates Closing
this transaction within the next two weeks.
Item 3. Bankruptcy Receivership. Not Applicable.
Item 4. Change in Registrant's Certified Accountant. Not
Applicable.
Item 5. Other Events.
Item 6. Resignation of Registrant's Directors. Not Applicable.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements. Not applicable.
(b) Pro Forma Financial Information. As of the date of
this Form 8-K, it is impracticable for Registrant
to provide the financial information required by
Item 7 of Form 8-K. The required financial
statements will be filed as an amendment to this
Form 8-K. Such filing will be made as soon as
practicable but not later than 60 days after the
date this Form 8-K is filed.
(c) Exhibits.
Exhibit 10.98 Purchase and Sale
Agreement between American
Resources Offshore, Inc. and
Fidelity Oil Holdings, Inc.
Exhibit 10.99 Investment Agreement
between American Resources
Offshore, Inc. and Blue
Dolphin Exploration Company
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
AMERICAN RESOURCES OFFSHORE, INC.
By: /s/Ralph A. Currie
------------------------------
Ralph A. Currie
Its: Chief Financial Officer
Dated: August 5, 1999
----------------
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 meanings 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.
------------
"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.
"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).
------------------
"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.
"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.
------------
"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.
"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");
---------
(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.
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 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;
(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."
------------------------------
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 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.
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.
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
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.
5.16 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) 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.
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 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
enforceability 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.
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).
--------------
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.
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.
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 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 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 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 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
(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 DIS
CLAIMS AND NEGATES, ANY REPRESENTATION OR WARRANTY,
EXPRESSED (ORALLY OR IN WRITING), IMPLIED, AT COMMON LAW, BY
STATUTE, OR OTHERWISE, 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, 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 November 15, 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
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 (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.
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
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.
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.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the Execution Date.
SELLER
AMERICAN RESOURCES OFFSHORE, INC.
By: /s/Rick G. Avare
------------------------------
-
Rick G. Avare, President and
Chief Executive Officer
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.]
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."
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."
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, 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.
(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.
2.7 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 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 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 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.
(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 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.
(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 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.
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 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 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.
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 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.
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.
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.
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.
---------
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 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) a 10-for-1 reverse stock split in the Common
Stock;
(4) election of new directors designated by
Investor; and
(5) 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
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;
(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.
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 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 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;
(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;
(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 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 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;
(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
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 November 15, 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 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 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 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.
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 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:
D 1
N = --- X --- X A
P 1B
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,
which shall be $0.16 per share prior to the
date on which the reverse stock split
contemplated by the Proxy Items becomes
effective and thereafter shall be the lesser
of (i) $0.16 multiplied by the ratio of the
reverse stock split contemplated by the Proxy
Items 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 effectiveness of the reverse
split, 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
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 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 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 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.
(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 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.
(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;
(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;
(69) "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.
(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.
(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.
(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 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 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 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.
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]
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 J. Stetson
-----------------------------
Name: David J. Stetson
Title: Vice President & 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
